Supreme Court clarifies Gratuity Payment for Municipal Employees: Nagar Ayukt Nagar Nigam vs. Mujib Ullah Khan (2019)

Date of the Judgment: April 2, 2019

Citation: 2019 INSC 283

Judges: Justice Mohan M. Shantanagoudar and Justice Hemant Gupta.

Can municipal employees claim gratuity under the Payment of Gratuity Act, 1972, or are they bound by state-specific regulations? The Supreme Court of India addressed this question, clarifying the applicability of the central Act to local bodies. This judgment settles the conflict between central and state laws regarding gratuity payments for municipal employees. The bench comprised Justice Mohan M. Shantanagoudar and Justice Hemant Gupta, with the judgment authored by Justice Hemant Gupta.

Case Background

The case involves two appeals: one by Nagar Ayukt Nagar Nigam, Kanpur, and another by Nagar Nigam, Gorakhpur. Both cases concern the payment of gratuity to their respective employees. The employees had approached the Controlling Authorities under the Payment of Gratuity Act, 1972, seeking gratuity payments. The Municipal Corporations argued that gratuity should be paid according to the Retirement Benefits and General Provident Fund Regulations, 1962, framed under the Uttar Pradesh Municipal Corporation Act, 1959, which stipulates a lower rate of gratuity compared to the central Act.

The High Court of Judicature at Allahabad had ruled in favor of the employees, stating that the Payment of Gratuity Act, 1972, applies to municipal employees, not the state regulations. The Municipal Corporations appealed to the Supreme Court, contending that they are governed by the state regulations, not the central Act.

Timeline

Course of Proceedings

The employees of the Municipal Corporations claimed gratuity under the Payment of Gratuity Act, 1972, before the Controlling Authorities. The Municipal Corporations argued that they were governed by the Retirement Benefits and General Provident Fund Regulations, 1962, which provide for a lower rate of gratuity. The Controlling Authorities ruled in favor of the employees, applying the central Act. The Municipal Corporations then appealed to the High Court of Judicature at Allahabad. The High Court upheld the decision of the Controlling Authorities, stating that the Payment of Gratuity Act, 1972, applies to municipal employees. The Municipal Corporations then appealed to the Supreme Court.

Legal Framework

The core legal framework revolves around the Payment of Gratuity Act, 1972, and its applicability to various establishments. Section 1(3) of the Act specifies the establishments to which the Act applies:

• (a) every factory, mine, oilfield, plantation, port and railway company;
• (b) every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, or were employed, on any day of the preceding twelve months;
• (c) such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this behalf.

Section 14 of the Act provides an overriding effect, stating:

“14. Act to override other enactments, etc. – The provisions of this Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument or contract having effect by virtue of any enactment other than this Act.”

The Uttar Pradesh Municipal Corporation Act, 1959, and the Retirement Benefits and General Provident Fund Regulations, 1962, framed under it, are also relevant. These regulations provide for gratuity at a lower rate than the central Act. Additionally, Section 3 of the U.P. Dookan Aur Vanijya Adhishthan Adhiniyam, 1962, states that the Act does not apply to government or local body offices.

The Central Government issued a notification on 08.01.1982, under Section 1(3)(c) of the Payment of Gratuity Act, 1972, specifying that the Act applies to “local bodies” employing ten or more persons.

Arguments

Appellant’s Arguments:

• The appellant argued that the Payment of Gratuity Act, 1972, does not apply to them because they are governed by the Uttar Pradesh Municipal Corporation Act, 1959, and the Retirement Benefits and General Provident Fund Regulations, 1962, framed under it.
• They contended that the 1962 Regulations, as amended on 11.01.1988, specify the gratuity payable to their employees at the rate of 15 days salary per month for 16.5 months.
• The appellant relied on Section 3 of the U.P. Dookan Aur Vanijya Adhishthan Adhiniyam, 1962, which exempts government and local body offices from its purview, arguing that this makes the Payment of Gratuity Act, 1972 inapplicable to them.
• They also argued that they do not fall under the categories specified in clauses (a) and (b) of Section 1(3) of the Payment of Gratuity Act, 1972.

Respondent’s Arguments:

• The respondent argued that the Central Government had issued a notification on 08.01.1982, under Section 1(3)(c) of the Payment of Gratuity Act, 1972, extending the Act’s applicability to local bodies, which includes Municipal Corporations.
• They contended that Section 14 of the Payment of Gratuity Act, 1972, gives the Act an overriding effect over any inconsistent provisions in other enactments, including the state regulations.
• The respondent emphasized that the Payment of Gratuity Act, 1972, is beneficial legislation intended to protect employees’ interests and should be applied liberally.

Submissions

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue the court addressed was:

1. Whether the Payment of Gratuity Act, 1972, applies to the employees of Municipal Corporations, or are they governed by the state-specific regulations?

Treatment of the Issue by the Court

Authorities

Cases:

• Municipal Corporation of Delhi vs Dharam Prakash Sharma and another [AIR 1999 SC 293]: The High Court relied on this case to hold that only employees of the Central Government or the State Government are exempt from the applicability of the Payment of Gratuity Act, 1972. However, the Supreme Court noted that this judgment was in the context of CCS (Pension) Rules, 1972, and did not consider the notification dated 08.01.1982. The Supreme Court did not overrule this case, but distinguished it on facts.

Statutes and Provisions:

• Section 1(3) of the Payment of Gratuity Act, 1972: Specifies the establishments to which the Act applies, including factories, mines, and other establishments notified by the Central Government.
• Section 1(3)(c) of the Payment of Gratuity Act, 1972: Empowers the Central Government to specify other establishments to which the Act shall apply.
• Section 14 of the Payment of Gratuity Act, 1972: Provides that the Act has an overriding effect over any inconsistent provisions in other enactments.
• Section 3 of the U.P Dookan Aur Vanijya Adhishthan Adhiniyam, 1962: States that the Act will have no application to the office of Government or Local Bodies.
• Section 548 of the Uttar Pradesh Municipal Corporation Act, 1959: Empowers the state government to frame regulations for gratuity.
• Rule 4(1) of the Retirement Benefits and General Provident Fund Regulations, 1962: Specifies the gratuity payable to municipal employees at the rate of 15 days salary per month for 16.5 months.

Authority Analysis

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court distinguished the case of Municipal Corporation of Delhi vs Dharam Prakash Sharma [AIR 1999 SC 293]*, stating that it was in the context of the CCS (Pension) Rules, 1972, and did not consider the notification dated 08.01.1982. The court did not overrule it, but distinguished it on facts.
• The Court relied on Section 1(3)(c) of the Payment of Gratuity Act, 1972, to emphasize the Central Government’s power to extend the Act to other establishments, and the notification issued under it.
• The Court relied on Section 14 of the Payment of Gratuity Act, 1972, to establish the overriding effect of the Act over any inconsistent provisions in other enactments.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the Central Government’s notification dated 08.01.1982, which extended the applicability of the Payment of Gratuity Act, 1972, to local bodies. The Court also emphasized the overriding effect of Section 14 of the Act, which ensures that the central law prevails over any inconsistent state laws or regulations. The court highlighted that the Payment of Gratuity Act, 1972, is beneficial legislation intended to protect the interests of employees, and thus, it should be applied liberally. The Court also noted that the municipal employees are entitled to gratuity as per the Payment of Gratuity Act, 1972, and not as per the State Regulations.

Fact:Law Ratio

The Court’s reasoning was heavily based on the legal provisions and the Central Government notification, with a lesser emphasis on the specific factual circumstances of the case.

Logical Reasoning

The Supreme Court, in its judgment, held that the Payment of Gratuity Act, 1972, applies to the employees of Municipal Corporations. The Court reasoned that the Central Government had issued a notification on 08.01.1982, under Section 1(3)(c) of the Act, extending the Act’s applicability to local bodies. The Court also emphasized that Section 14 of the Act provides an overriding effect, which means that the provisions of the Act prevail over any inconsistent provisions in other enactments, including state laws or regulations. The Court noted that the Payment of Gratuity Act, 1972, is a beneficial legislation intended to protect the interests of employees and should be applied liberally. The Court also noted that the municipal employees are entitled to gratuity as per the Payment of Gratuity Act, 1972, and not as per the State Regulations.

The Court quoted Section 14 of the Act, stating, “The provisions of this Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument or contract having effect by virtue of any enactment other than this Act.”

The Court also observed, “In view of Section 14 of the Act, the provision in the State Act contemplating payment of Gratuity will be inapplicable in respect of the employees of the local bodies.”

The Court further stated, “The entire argument of the appellant is that the State Act confers restrictive benefit of gratuity than what is conferred under the Central Act. Such argument is not tenable in view of Section 14 of the Act and that liberal payment of gratuity is in fact in the interest of the employees.”

There were no minority opinions in this case. The judgment was delivered by a bench of two judges, with Justice Hemant Gupta authoring the opinion.

Key Takeaways

• The Payment of Gratuity Act, 1972, applies to municipal employees due to the Central Government’s notification dated 08.01.1982.
• Section 14 of the Payment of Gratuity Act, 1972, gives the Act an overriding effect over any inconsistent state laws or regulations.
• Municipal employees are entitled to gratuity as per the Payment of Gratuity Act, 1972, which is more beneficial than state regulations.
• This judgment ensures that municipal employees receive gratuity at a rate consistent with the central law.

Directions

The Supreme Court did not issue any specific directions in this judgment. The Court dismissed the appeals, upholding the orders of the Controlling Authorities and the High Court, thereby ensuring that the employees receive gratuity as per the Payment of Gratuity Act, 1972.

Development of Law

The ratio decidendi of this case is that the Payment of Gratuity Act, 1972, applies to municipal employees, and the Act has an overriding effect over any inconsistent state laws or regulations. This judgment clarifies the legal position regarding gratuity payments for municipal employees and ensures that they receive gratuity at a rate consistent with the central law. This judgment reinforces the supremacy of the central legislation on gratuity over state regulations, particularly when the central legislation is more beneficial to the employees. This position of law has been settled by the Supreme Court in this judgment.

Conclusion

The Supreme Court’s judgment in Nagar Ayukt Nagar Nigam vs. Mujib Ullah Khan clarifies that municipal employees are covered under the Payment of Gratuity Act, 1972, and are entitled to gratuity as per the provisions of the Act, not state regulations. This decision ensures that municipal employees receive gratuity at a rate consistent with the central law, reinforcing the overriding effect of the central Act.