Bombay HC's Big Direction On Delay In Gratuity Payment Beyond One Month After Retirement; Check Details

Gratuity is part of the retirement benefits but if an employer delays in making payment, it will attract interest penalty on the withheld amount. While hearing a case, the Bombay High Court directed the employer (Nowrosjee Wadia College) to pay gratuity along with 10 per cent interest to the petitioner Dr. Chetana Rajput, a retired teacher, according to a report by Live Law.

The court referred to the Payment of Gratuity Act, 1972, according to which gratuity is payable to employees within one month of retirement, and on any delay beyond this period, employer is liable to pay interest penalty.

Payment Of Gratuity Act, 1972

According to Section 7(3): “The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable.”

Section 7(3A) says: “If the amount of gratuity payable under sub-section (3) is not paid by the employer within the period specified in sub-section (3), the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at such rate, not exceeding the rate notified by the Central Government from time to time for repayment of long-term deposits, as that Government may, by notification specify.”

Case Brief

Rajput (petitioner) joined as a part-time teacher in Nowrosjee College in 1998. In 2019, she was offered a full-time assistance teacher job on superannuation of another teacher. She retired from the same college in 2023.

She requested the college to pay gratuity by her retirement date but didn’t receive any response. In 2024, she submitted another request for gratuity payment but again received no response.  

The same year, she filed a writ petition to the court regarding this matter and on August 21, 2024, the court directed the college to pay her the gratuity.

However, on March 3, 2025, it came to the notice of the court that the college forwarded petitioner’s gratuity proposal only in the December 2024, and it found no valid reason for the delay.

Arguments

The college side argued that there was some issue in pension calculation because Rajput’s service period includes both part-time and full-time service. The college said the proposal has been submitted to the authorities and after some clarifications, it is ending with them. 

On the other hand, the petitioner side argued that the Regional Deputy Director of Education approved Rajout’s promotion as a full-time assistant teacher and she served the college for 25 years. Therefore, according to the pension rules, she is entitled for both pension and gratuity.

Here, the representative of the State argued that the delay in gratuity is on the part of the college and society and the state has nothing to do with it.

Court’s Observation And Judgement

While hearing the case, the court observed that the petitioner has worked with the college for 25 years from 1998 to 2023. Her appointment and promotion both were approved by the concerned authorities. In August 2024, after court’s intervention, the college passed her pension proposal in December 2024 but the authorities have not passed it due to dispute in pension amount calculation, and gratuity payment was delayed.

The court held that the Act is welfare legislation. Therefore, the state should pay gratuity voluntarily instead of being ordered by the court.

Gratuity is payable to employees after at least five years of continuous service. In the case of the petitioner, it is 25 years of service, and the employer is liable to pay gratuity.

It also held that even if there was a dispute over the gratuity amount between authorities and the college, it should have been paid to the employee, and authorities could recover it, if required, from the college management. 

Referring to the notification dated October 1, 1987, by the Labour Ministry, which stipulated a 10 per cent simple interest payment for delay in gratuity payment, the court directed the college to pay gratuity along with 10 per cent interest to the petitioner without any more delay.