PREFACE:

Meena Devi worked the assembly line in an auto-components factory in Faridabad for four years as a “temporary” for 11 months each before her supervisor would mention supporting her for permanency at the end of each month, and she would sign on the regular rolls for another year. HR said that the termination of her service was only a year, and her resignation was to care for an ailing parent, so she had resigned from her job so that her claim for gratuity would not be payable. In the other four years, it was all contracted out and “did not count” on the same machine and shop floor.

Meena had the urge to open the letter and move on. However, her case asks questions that are raised in many Indian workplaces: Does an employer’s own determination of whether an employee is “temporary” or “regular” dictate the eligibility to receive gratuity, where that is a part of the contract? Are years of daily gammoning removed by the delayed regularisation? If a student has 6 hours of absence, does that end the sequence of hours? But after rejecting them, is rejection a final rejection when it comes to writing a letter of resignation?

Each facet of Meena’s story mirrors an actual pattern in Indian gratuity litigation that is outlined below just as in Meena’s case, and in those of employees who they say what they are entitled to depends on the company’s discretion.

INTRODUCTION:

Gratuity is sometimes referred to informally as a “bonus” or “gift” from a generous employer. It is legally incorrect and has left thousands of Indian workers losing out on money they rightfully deserve. The main differences between gratuity and charity are that gratuity is mandatory, enforceable and is considered a retiral benefit in recognition of the employee’s long and hard-working life. It is not a discretion which an employer may exercise but rather a remediable failure to exercise – and one which is defined by statute.

This article explores the legislation for the protection of an employee’s gratuity rights after five years of uninterrupted service, primarily in light of the Payment of Gratuity Act, 1972[1], in light of the Constitution and the new code on Social Security, 2020. It outlines statutory provisions, clarifies the sometimes-cluttered definition of “continuous service” and, through this clarification, provides a survey of case law that has consistently interpreted welfare legislation in a worker to suit the petitioner in particular.

GRATUITY AS A STATUTORY RIGHT, NOT A DISCRETIONARY FAVOUR:

The Payment of Gratuity Act, 1972 (“the Act”) is employed to guarantee a minimum welfare benefit to India’s labour force, along with other legislation such as the Minimum Wages Act, 1948. It aims at uniformity of the method of paying a gratuity service uniformly across the nation, irrespective of an employer’s branches or a worker’s shifting designation.

In the Jeewanlal Ltd. Case,[2]The Supreme Court has held that gratuity is not a gift thrown away by an employer’s generosity, but it is a non-voluntary statutory form of retirement benefit. Section 14 adds to this by providing that any enactment, instrument or contract inconsistent with the Act is hereby repealed to that extent.

There is another constitutional safeguard for the right: Article 21, which guarantees “shoulder to shoulder living”, and Articles 39(a) and 41, which mandate “securing adequate livelihood” and the provision for old age. As it is to be in workers’ interest, courts interpret welfare legislation generously in its favour; but as the Bombay High Court has warned, to stretch this interpretation to give benefits to those who are not, on the facts, entitled.

WHO IS COVERED:

The Act is amended so that it covers every factory, mine, oilfield, plantation, port or railway company as well as every shop or establishment employing ten or more persons on any day in the 12 months preceding 13 August 2009. An establishment is guaranteed to stay covered even if headcount drops below 10 after it has been covered, not accomplishing ‘artificial downsizing’ to avoid coverage.

With the addition of Section 2(e) in 2009[3]“employee” is broadly defined to include any person to whom wages are paid for manual, skilled or unskilled work, or supervision, or technical or clerical tasks. This had come on the heels of Ahmedabad Pvt. Primary Teachers’ Association v. Administrative Officer[4], which held that the teachers were not the employees of any of the schools mentioned in the Act and requested that Parliament rectify the anomaly. This was extended retroactively to 1997 by Parliament and upheld in Independent Schools’ Federation of India (Regd.) v. Union of India.[5] (2022), where it was stated that private schools did not have a vested right at the cost of their teachers, arising from the drafting flaw.

SECTION 4: THE CORE ENTITLEMENT AFTER FIVE YEARS:

The operative heart of the Act, section 4, specifies that on termination after five years or more of service, by superannuation, retirement, resignation, death or disablement, a gratuity is to be paid. For death or disablement, an employee’s 5-year limit period does not apply; the norm is to fight misfortune with compassion!

Gratuity is computed on fifteen days’ wages (last drawn) for each year of service or for any portion of a year of service which has been completed (Section 4(2))[6]. In the case of wage workers working on piece rates, the wages for the last three months are averaged. The ceiling has been incrementally raised – from ₹10 lakh in 2010 to ₹20 lakh in the 2018 Amendment, which introduced the provision for the Central Government to amend by notification rather than by law. Section 4(5)[7] is a floor, not a cap, and ensures that an employee can receive a higher amount if his contract or award provides a better rate. Don’t forget to check these before negotiating a new contract. As with anything, the Act has a floor and not a roof where their contract or award has a better rate, then an employee may stand to receive a higher amount.

However, section 4(6)[8] only allows for forfeiture if services are ended as a result of riotous conduct or “moral turpitude. Union Bank of India v. C.G. Ajay Babu[9] decided that forfeiture must be the sine qua non of a criminal conviction; in more recent cases, Western Coal Fields Ltd. v. Manohar Govinda Fulzele[10] held that forfeiture for moral turpitude might, however, be based on a properly conducted disciplinary inquiry, as long as the employer adopts a proportional and just approach. It is a matter of law, not business as usual, and forfeiture should be a strict remedy, and nothing more.

SECTION 2A: THE CONTESTED MEANING OF “CONTINUOUS SERVICE”:

The definition of “five years” is far from easy to calculate- from when the appointment letter is sent to the relieving letter- so Section 2A is the most litigated of all the provisions of the Act.

Section 2A[11] (1) states that leave, sickness, accident, authorised absence, lay-off, strike, lock-out and work stoppages that “are not the employee’s fault” do not break continuity of service and nor does a continuous five-year period of service need to be literally continuous.

Another deeming fiction is provided in 2A (2): where an employee has worked for at least 240 days (6 days per week establishments or 190 days, for mines) during the 12 months before the specified day, the employee’s 12-month period is deemed to have lasted for 1 year. In the context of gratuity, an employee who had completed 4 years of service or 240 days of service plus 1 day by the end of the fifth year would not need to work a fifth full year as per the reasoning of the Supreme Court in Surendra Kumar Verma v. Central Government Industrial Tribunal[12]. This is the most litigated clause of the Act, and employees are encouraged to review attendance registers to establish whether or not there is a shortfall to be covered. In Section 2A (3), a parallel fiction is extended to seasonal establishments that operate under the terms of 75 per cent of operational days worked.

The 2018 Amendment brought the balance with a change on maternity leaves, which were counted towards the continuous service period, to the amended Maternity Benefit Act, 1961 and extended it from twelve to a period notified later.

BROKEN SERVICE: THE CASE LAW

A fair amount of the litigation in recent years has involved employees who have had non-linear service histories, such as perhaps a daily wager who was regularised at a later date, or someone transferred between the group entities. Employers have not been permitted to defeat good claims by such technicalities in courts.

In Netram Sahu v State of Chhattisgarh[13] (2018), the appellant provided more than 25 years of total service as a daily wager until he was regularised for the last 3 years. The regularity of their service was not enough, the State said, because of the denial of gratuity. The Supreme Court set aside the argument that “the State cannot benefit by its failure to regularise the appellant’s services within 25 years” and granted gratuity for the entire span of 25 years as both forms of employment—daily wage and regular—are parallel in nature.

In Mercedes-Benz India Pvt. Ltd. v. Noshir Nadir Desai[14] (2024), the Bombay HC held that mere transfer between two companies resulting from common management was not considered a termination of service without resignation and recruitment. Terna Polytechnic v. Ravi Bhadrappa Randale[15] Got the same verdict in the case of an intra-institutional transfer. The Gujarat High Court is in similar agreement in the Amreli Nagarpalika v. Manubhai Ebhalbhai Dhandhal[16] (2022): “After regularisation of service is counted for pension, gratuity is calculated based on the full period of continuous service.

The common thread is the fact that a refusal to allow form to outshine substance (where real, continuous labour has been rendered) will be ignored by the courts when a break has been caused by delayed regulation, transfer or reclassification.

CLAIMING GRATUITY AND WHAT TO DO WHEN IT IS DENIED

Section 7[17] stipulates that an eligible employee (or authorised person) is required to make an application in writing to the employer who is responsible for deciding how much will be repaid and informing the employee and the Controlling Authority. It is to be paid within thirty days after becoming due (Section 7(3)), and simple interest (at a notified rate) for a delay in paying that arises at a later date must be paid (Section 7(3A)), except where the delay is the employee’s fault and the employer keeps written permission of the Controlling Authority to withhold payment. Y.K. Singla Vs. Punjab National Bank & Ors[18]. (2012) An interest obligation exists even in the absence of such a regulation in the employer’s rules.

Section 7(4)(b) provides for a 60-day appeal, extendable on good cause, to the Controlling Authority, which conducts an inquiry and then decides on the amount payable – an aggrieved party may appeal under Section 7(7) to the Appellate Authority within 60 days (extendable on good cause).

The major weapon under the Act is to be found in Section 8: If gratuity is not paid (because, for example, it was intentionally concealed), then the Controlling Authority may issue a certificate of recovery to the Collector, and he can recover it as land revenue arrears from the person from whom the gratuity actually has arisen, albeit instead of a bill. Penalties are imposed for false statements to prevent liability under Section 9[19] of the Laws of Gratuity, which criminalises such acts, including imprisonment penalties. Gratuity is sheltered from attachment by any court ruling under section 13[20], and thus does not reach the creditors but the employee or nominee.

Anyone other than an employee covered by the Act can come to the Labour Commissioner, Labour Court or civil court. In addition, it has been recognised in two recent decisions, Steel Authority of India Ltd. v. Raghbendra Singh[21] and ONGC Ltd. v. V.U. Warrier[22]That an employer can only recover legitimate dues by withholding gratuity strictly in accordance with the safeguards provided by the Act, and that such withholding is an exception and not the default.

THE HORIZON: THE CODE ON SOCIAL SECURITY, 2020:

Labour law in India is being put together. The Code on Social Security, 2020[23], is believed to eventually replace the Payment of Gratuity Act and various other social security laws with the President’s assent. The Code has not yet been fully implemented as of mid-2026; for those concerning gratuity claims, the 1972 Act is still in effect until it is notified.

One of the toughest recommendations put forward is the decrease in the period of employment required to be defined as a fixed-term position, from five years to one-year, pro rata, meaning that those who are contract workers but do not work for any employer for five years in a row would be covered as well. Post-notification, most of the above case laws should remain applicable to the definition of continuous service in the Code, as the definition of the same has basically been retained.

A PRACTICAL CHECKLIST FOR A DENIED GRATUITY CLAIM:

1. Meet coverage of Section 1(3) (continue coverage even if future reduction in headcount).
2. If there is a Section 2A (2) 240-day rule, see if that rule would create 5 years regardless of those gaps.
3. Leave/taken absence for authorised absences is not considered to break continuity — leave, sickness, lay-off, strike, lock-out, and up to twenty-six weeks of maternity leave.
4. All attempts to reset the five-year clock are dubious: don’t take broken-service reasons for the service’s face value, and don’t wait for it to become regular (Netram Sahu, Mercedes Benz, Terna Polytechnic).
5. Write a request for determination under 7 and request a written determination.
6. Claim interest pursuant to Section 7(3A) as of right if it is not paid on time within 30 days.
7. If eligibility or amount is in doubt, approach the Controlling Authority under section 7(4)(b) and appeal further under section 7(7).
8. If the Employer still refuses, please request a recovery certificate as per Section 8.
9. The forfeiture under paragraph 4(6) is not to be taken lightly and requires a conviction or a legitimate disciplinary investigation, not just an excuse.

CONCLUSION:

The law recognises that there is something in long service that can’t be denied the employee — that when an employee has worked consistently for five years or more, there is something that can’t be put on paper, forgotten about, and so all but ignored by an employer. The value is in long service, and the law is reflecting that; that there is something worth claiming to an employer where the employee has provided five years or more of consistent service, something he or she cannot simply come back and remind him outright: “don’t pay my salary — it’s monies belonging to long service”. The right is guaranteed by the Act’s own calculation formula, a deeming fiction that safeguards an employee against undocumented attendance records, fast adjudication and last but not least, remarkable recovery powers under Section 8 of the Act itself, which is one of the more robust recovery provisions in Indian labour law.

Starting from recognising ‘gratuity’ as a mandatory benefit, the judiciary has interpreted this law consistently on the generative side – in favour of the employee whose labour it is designed to honour, as in Netram Sahu, where a delay of a bureaucrat, let down by reading the day’s wager both ways. In Jeewanlal, it was the self-serving interpretation – gratuity is a mandatory benefit – and then, refusal of letting the delay of a bureaucrat beat the claim of the day’s wager in Netram Sahu to revisiting the continuity of service; and the judiciary has consistently told the public the construction laws are meant to be read liberally for the benefit of the person who’s worked hard for the corporation. Denied does not mean it can’t help itself — the trick is just to know the right and demand it.

FREQUENTLY ASKED QUESTIONS:

Can an employer call gratuity a “discretionary bonus” to avoid paying it?

No. Section 14 overrides any inconsistent contract or policy; a clause recharacterizing gratuity as discretionary is void to that extent.

 I resigned after 4 years and 9 months — am I out of luck?

Not necessarily. Under Section 2A(2)’s “240 days” rule, an employee who worked 240-plus days into the fifth year (190 for mines/six-day establishments) may still be deemed to have completed five years. Check attendance records before accepting a claimed shortfall.

Does maternity leave count toward the qualifying period?

Yes, up to twenty-six weeks under the 2018 Amendment, aligned with the Maternity Benefit Act, 1961.

My years as a daily-wage worker weren’t counted — is that legal?

Generally, no. Netram Sahu holds that the Act draws no distinction between daily-wage and regular employment, and an employer cannot benefit from its own delay in regularising an employee.

I was transferred to a sister company under the same management — does my gratuity clock reset?

Ordinarily, no, per Mercedes Benz and Terna Polytechnic, provided there was no resignation and fresh recruitment.

Can my employer forfeit my gratuity over alleged misconduct?

Only narrowly, under Section 4(6), for riotous conduct or moral turpitude — and per Western Coal Fields, this needs either a conviction or a proportionate disciplinary inquiry consistent with natural justice.

What if my employer doesn’t pay within thirty days?

Section 7(3A) entitles the employee to simple interest from the due date, confirmed in Y.K. Singla v. Punjab National Bank, even where the employer’s own regulations are silent.

What if the employer disputes my eligibility altogether?

Apply to the Controlling Authority under Section 7(4)(b); appeal an adverse order under Section 7(7), generally within sixty days.

The employer still won’t pay after a favourable order — what then?

Section 8 lets the Controlling Authority issue a recovery certificate, recovering the amount with compound interest as land revenue arrears.

 

[1] The Payment of Gratuity Act, 1972, Act No. 39 of 1972,

[2] Jeewanlal Ltd. v. Appellate Authority Under the Payment of Gratuity Act, (1984) 4 SCC 356

[3] The Payment of Gratuity Act, 1972, Act No. 39 of 1972, §2 (e).

[4] Ahmedabad Pvt. Primary Teachers’ Ass’n v. Admin. Officer, (2004) 1 SCC 755.

[5] Independent Schs.’ Fed’n of India v. Union of India, (2022) 13 S.C.R. 776

[6] The Payment of Gratuity Act, 1972, Act No. 39 of 1972, §4 (2).

[7] The Payment of Gratuity Act, 1972, Act No. 39 of 1972, §4 (5).

 

[8] The Payment of Gratuity Act, 1972, Act No. 39 of 1972, §4 (6).

[9] Union Bank of India v. C.G. Ajay Babu, (2018) 9 S.C.C. 529

[10] Western Coal Fields Ltd. v. Manohar Govinda Fulzele 2025 SCC Online SC 345

[11] The Payment of Gratuity Act, 1972, Act No. 39 of 1972, §2A.

[12] Surendra Kumar Verma v. Central Government Industrial Tribunal 1981 AIR 422

[13] Netram Sahu v. State of Chhattisgarh, (2018) 5 SCC 430.

[14] Mercedes-Benz India Pvt. Ltd. v. Noshir Nadir Desai [2024 SCC Online Bom 199]

[15] Terna Polytechnic v. Ravi Bhadrappa Randale, 2024 SCC Online Bom 107

[16] Amreli Nagarpalika v. Manubhai Ebhalbhai Dhandhal, (2022) 1 GLR 236 (Guj).

[17] The Payment of Gratuity Act, 1972, Act No. 39 of 1972, §7.

[18] Y.K. Singla v. Punjab National Bank, (2013) 3 S.C.C. 472.

[19] The Payment of Gratuity Act, 1972, Act No. 39 of 1972, §9.

[20] The Payment of Gratuity Act, 1972, Act No. 39 of 1972, §13.

[21] Steel Auth. of India Ltd. v. Raghbendra Singh, (2021) 18 S.C.C. 272

[22] Secretary, O.N.G.C. Ltd. v. V.U. Warrier, (2005) 5 SCC 245.

[23] The Code on Social Security, No. 36 of 2020.