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

Introduction

Date of the Judgment: April 2, 2019
Citation: 2019 INSC 326
Judges: Hon’ble Justices Mohan M. Shantanagoudar and Hemant Gupta. The judgment was authored by Justice Hemant Gupta.

Are municipal employees entitled to gratuity under the Payment of Gratuity Act, 1972, or are they governed by state-specific regulations? This question was at the heart of a recent Supreme Court case. The court examined whether the central Gratuity Act overrides state laws and regulations concerning gratuity payments for municipal employees. The Supreme Court held that the Payment of Gratuity Act, 1972 applies to municipal employees, overriding any conflicting state regulations. This decision ensures that municipal employees receive gratuity benefits as per the central act.

Case Background

The case involves appeals by Nagar Ayukt Nagar Nigam, Kanpur, and Nagar Nigam, Gorakhpur, against orders from the High Court of Judicature at Allahabad. The High Court had upheld the decisions of the Controlling Authorities under the Payment of Gratuity Act, 1972 (the Act), which granted gratuity to the respondent employees. The municipal corporations argued that their employees were governed by the Retirement Benefits and General Provident Fund Regulations, 1962, framed under the Uttar Pradesh Municipal Corporation Act, 1959, which provided for a lower gratuity amount. The employees, however, claimed gratuity under the central Act.

Timeline

Course of Proceedings

The employees of the Municipal Corporations of Kanpur and Gorakhpur claimed gratuity under the Payment of Gratuity Act, 1972, before the respective Controlling Authorities. The Controlling Authorities ruled in favor of the employees, holding that the central Act applied to them. The Municipal Corporations then appealed to the High Court of Judicature at Allahabad, arguing that their employees were governed by the Retirement Benefits and General Provident Fund Regulations, 1962, which provided for a lower gratuity amount. The High Court dismissed the appeals, affirming the applicability of the Payment of Gratuity Act, 1972. Subsequently, the Municipal Corporations appealed to the Supreme Court.

Legal Framework

The core legal issue revolves around the interpretation and application of the following key legislations:

• The Payment of Gratuity Act, 1972: This central legislation governs the payment of gratuity to employees across various establishments. Section 1(3) of the Act specifies its applicability to factories, mines, oilfields, plantations, ports, railway companies, shops, establishments, and other establishments notified by the Central Government.

Section 1(3) of the Payment of Gratuity Act, 1972 states:
“(3) It shall apply to-
(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.”

• Uttar Pradesh Municipal Corporation Act, 1959: This state act governs the functioning of municipal corporations in Uttar Pradesh. Section 548 of the 1959 Act empowers the framing of regulations for retirement benefits.
• Retirement Benefits and General Provident Fund Regulations, 1962: These regulations, framed under the 1959 Act, specify the terms for gratuity payments to municipal employees in Uttar Pradesh.
• Section 3 of the U.P Dookan Aur Vanijya Adhishthan Adhiniyam, 1962: This provision states that the act will not apply to the offices of the Government or local bodies.
• Section 14 of the Payment of Gratuity Act, 1972: This section provides an overriding effect to the Act over any other inconsistent provision in any other enactment.

Section 14 of the Payment of Gratuity Act, 1972 states:
“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 interplay between the central Payment of Gratuity Act, 1972, and the state regulations forms the crux of the legal dispute. The Supreme Court had to determine whether the central act overrides the state regulations in the context of gratuity payments to municipal employees.

Arguments

Arguments by the Municipal Corporations:

• The Municipal Corporations argued that the gratuity is payable in terms of Rule 4(1) of the Retirement Benefits and General Provident Fund Regulations, 1962, published under Section 548(1) of the Uttar Pradesh Municipal Corporation Act, 1959, as amended on 11.01.1988.
• They contended that the employees of the municipalities are entitled to gratuity only as per these regulations and not under the Payment of Gratuity Act, 1972.
• They relied on Section 3 of the U.P. Dookan Aur Vanijya Adhishthan Adhiniyam, 1962, which states that the act does not apply to the offices of the Government or local bodies.
• The corporations argued that they are not a factory, mine, oilfield, plantation, port, or railway company and that there is no notification under Section 1(3)(c) of the Payment of Gratuity Act, 1972, that would make the Act applicable to them.
• The corporations contended that the Payment of Gratuity Act, 1972, does not apply to local bodies, and therefore, the state regulations should govern the gratuity payments.

Arguments by the Employees:

• The employees argued that the Payment of Gratuity Act, 1972, is applicable to them.
• They pointed out 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 applicability of the Act to local bodies.
• They argued that this notification makes the Payment of Gratuity Act, 1972, applicable to the municipalities.
• They contended that the Payment of Gratuity Act, 1972, is a central legislation that should override any state-specific regulations, especially in light of Section 14 of the Act.

Submissions Table

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the Payment of Gratuity Act, 1972, is applicable to the employees of the Municipal Corporations, or if they are governed by the state-specific regulations framed under the Uttar Pradesh Municipal Corporation Act, 1959.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Municipal Corporation of Delhi vs Dharam Prakash Sharma and another [AIR 1999 SC 293] – The Supreme Court of India. This case was cited by the High Court to hold that only employees of the Central Government or State Government are exempt from the applicability of the Act.

Legal Provisions:

• Section 1(3) of the Payment of Gratuity Act, 1972: Defines the applicability of the Act to various establishments.
• Section 1(3)(c) of the Payment of Gratuity Act, 1972: Empowers the Central Government to specify other establishments to which the Act applies.
• Section 14 of the Payment of Gratuity Act, 1972: Provides the Act with an overriding effect over any other inconsistent provision in any other enactment.
• Section 548 of the Uttar Pradesh Municipal Corporation Act, 1959: Empowers the framing of regulations for retirement benefits.
• Section 3 of the U.P Dookan Aur Vanijya Adhishthan Adhiniyam, 1962: States that the act will not apply to the offices of the Government or local bodies.
• Notification dated 08.01.1982: Issued by the Central Government, specifying local bodies as establishments to which the Payment of Gratuity Act, 1972, applies.

Authority Table

Judgment

The Supreme Court dismissed the appeals, upholding the orders of the Controlling Authorities and the High Court. The court held that the Payment of Gratuity Act, 1972, is applicable to the employees of the Municipal Corporations.

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

How each authority was viewed by the Court?

• The Court noted that the High Court had correctly relied on Municipal Corporation of Delhi vs Dharam Prakash Sharma and another [AIR 1999 SC 293], to hold that only Central/State Government employees are exempt from the applicability of the Act.
• The Court considered Section 1(3) of the Payment of Gratuity Act, 1972 to understand the applicability of the Act.
• The Court relied on Section 1(3)(c) of the Payment of Gratuity Act, 1972, as the basis for the Central Government notification.
• The Court used Section 14 of the Payment of Gratuity Act, 1972 to establish the overriding effect of the Act over any inconsistent state regulations.
• The Court acknowledged Section 548 of the Uttar Pradesh Municipal Corporation Act, 1959, but held that it was superseded by the central Act.
• The Court considered Section 3 of the U.P Dookan Aur Vanijya Adhishthan Adhiniyam, 1962, but found it inapplicable due to the central notification.
• The Court emphasized the importance of the Notification dated 08.01.1982, which extended the applicability of the Payment of Gratuity Act, 1972, to local bodies.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The Central Government’s notification dated 08.01.1982, which explicitly extended the applicability of the Payment of Gratuity Act, 1972, to local bodies.
• The overriding effect of the Payment of Gratuity Act, 1972, as provided under Section 14, which ensures that the central act takes precedence over any inconsistent state regulations.
• The intent of the Payment of Gratuity Act, 1972, to provide a uniform and beneficial gratuity scheme for employees, which would be undermined if state regulations were allowed to prevail.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

The court’s decision was primarily based on legal interpretations and the application of statutory provisions, with less emphasis on the specific factual aspects of the case.

Logical Reasoning

Key Takeaways

The key takeaways from this judgment are:

• Municipal employees across India are entitled to gratuity under the Payment of Gratuity Act, 1972, ensuring a uniform standard of gratuity payments.
• The Central Government notification dated 08.01.1982, is crucial in determining the applicability of the Act to local bodies.
• Section 14 of the Payment of Gratuity Act, 1972, provides the Act with an overriding effect, ensuring that it prevails over any inconsistent state regulations.
• The judgment reinforces the principle that central legislation aimed at providing social security benefits should be given precedence over state laws.
• This decision will likely impact future cases involving gratuity payments to employees of local bodies, ensuring that they receive benefits as per the central act.

Directions

No specific directions were given by the Supreme Court in this judgment. The Court dismissed the appeals, thereby upholding the orders of the Controlling Authorities and the High Court.

Development of Law

The ratio decidendi of this case is that the Payment of Gratuity Act, 1972, applies to municipal employees, overriding any conflicting state regulations due to the Central Government notification dated 08.01.1982, and Section 14 of the Act. This judgment clarifies the applicability of the central act to local bodies and reinforces the supremacy of the central legislation in matters of gratuity payments. There is no change in the previous position of law, but the court has clarified the law by relying on the notification dated 08.01.1982.

Conclusion

In conclusion, the Supreme Court held that the Payment of Gratuity Act, 1972, applies to municipal employees, overriding any conflicting state regulations. This decision ensures that municipal employees receive gratuity benefits as per the central act, reinforcing the principle of uniform and beneficial gratuity schemes for employees across the country.