High Court of KeralaSingle JudgeWrit petition disposed of; the petitioner’s cla...

C.K. Kuttykrishnan Nair v. Joint Registrar (General) Co-operative Societies, Kottayam; Kottayam Co-operative Urban Bank Ltd.; Life Insurance Corporation of India Ltd.

Case / Petition Number:WP(C).No.23991 of 2018

Case Details & Bench

Court
High Court of Kerala
Hon'ble Judges
  • Anil K. Narendran
Judgment Date
2018-10-09
Court Decision / Holding
The writ petition is disposed of. The petitioner is not entitled to gratuity beyond the statutory limit under Section 4(3) of the Payment of Gratuity Act. However, the petitioner is entitled to the balance amount of Rs.470/- under Ext.P1, along with 6% simple interest from 07.01.2018, to be disbursed by the 2nd respondent Bank within one month. Circular No.5/2016 and similar circulars are quashed to the extent of misconstruction. The decision affirms the right to better terms under Section 4(5) for employees covered by the Central Act, but in this case the master policy ceiling governs beyond the statutory limit; the encashment of the balance claim is limited to Rs.470 plus interest, and the rest is rejected.
Final Disposition
Writ petition disposed of; the petitioner’s claim for gratuity beyond the statutory limit is repelled; however, the petitioner is entitled to Rs.470 plus 6% interest from 07.01.2018, to be paid within one month; LIC’s policy ceiling of Rs.3,50,000 governs the balance; the circulars to the extent they misconstrue the law are quashed; the decision affirms the availability of better terms under Section 4(5) where applicable for employees covered by the Central Act, but in this case only the specified balance is payable.

Parties to the Case

Appellants / Petitioners

  • C.K. Kuttykrishnan Nair

Respondents

  • Joint Registrar (General) Co-operative Societies, Kottayam
  • Kottayam Co-operative Urban Bank Ltd.
  • Life Insurance Corporation of India Ltd.

Legal Representation & Advocates

Counsels for Petitioners

  • • S. Jayakrishnan
  • • S. Parameswara Prasad

Counsels for Respondents

  • • Dr. Abraham P. Meachinkara
  • • K.P. Harish
  • • S. Surin George
  • • S. Easwaran

Case Synopsis & Summary

The petitioner, C.K. Kuttykrishnan Nair, who retired as Assistant General Manager of the Kottayam Co‑operative Urban Bank after 36 years of service, filed a writ petition under Article 226 seeking mandamus to pay the balance gratuity of Rs 2,84,022 in addition to the Rs 3,50,000 already paid by LIC under the master policy, and for a direction to the Joint Registrar to decide Ext.P2. The crucial question is whether employees covered by the Payment of Gratuity Act, 1972 and the Kerala Co‑operative Societies Rules are entitled to higher terms under Section 4(5) of the Act when a compulsory insurance scheme is in place. The Full Bench in Chandrasekharan Nair held that liability to pay gratuity does not shift to the insurer and that the maturity value of the master policy would go to the employee, with any excess or deficit being borne by the employer; Section 4(5) enables better terms where applicable. The court also canvassed Article 254(1)-(2) and the overriding effect of the Central Act over state enactments to harmonize the scheme while preserving the employee’s right to better terms. The Division Bench and Full Bench authority indicate that for employees covered by the Central Act, higher gratuity terms may apply; in the present case LIC’s coverage was capped at Rs 3,50,000. The court ultimately repelled the claim for Rs 2,84,022 beyond the statutory limit but directed payment of Rs 470 along with 6% simple interest from 7.1.2018, and ordered disbursal within a month, quashing contrary circulars to the extent they misconstrued the law.

Provisions of Law Cited

Article 226 of the Constitution of IndiaPayment of Gratuity Act, 1972 (Central Act 39 of 1972)Section 4(2) of the Payment of Gratuity Act, 1972Section 4(3) of the Payment of Gratuity Act, 1972Section 4(5) of the Payment of Gratuity Act, 1972Section 4A of the Payment of Gratuity Act, 1972Section 7 and 8 of the Payment of Gratuity Act, 1972Section 14 of the Payment of Gratuity ActSection 1(3)(b) of the Central ActArticle 254(1) and (2) of the ConstitutionKerala Co-operative Societies Rules, 1969 Rule 59(iii) provisos (first proviso: 15 months cap; second proviso)

Legal Doctrines & Maxims

  • Dominant intention test for repugnancy (as expounded in Vijay Kumar Sharma v. State of Karnataka)
  • Overriding effect of the Central Act over other enactments (Section 14 of the Central Act)
  • Central Act prevails over state enactments in case of repugnancy (Article 254(2))
  • Liability to pay gratuity does not shift to insurer; maturity value of master policy accrues to employee; deficit to be met by employer (Chandrasekharan Nair case)
  • Employee entitlement to better terms under Section 4(5) of the Payment of Gratuity Act when applicable

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioner contends entitlement to the higher gratuity under Section 4(5) of the Payment of Gratuity Act in terms of the LIC master policy, beyond the statutory limit, and seeks mandamus to pay the balance amount of gratuity with a corresponding interest, asserting the liability cannot be shifted to the insurer and that the employee’s right to better terms should prevail where applicable.

Contentions of Respondents

The respondents contend that the central act applies only to establishments covered thereby; the master policy’s maturity value is for the employer’s credit and any excess must be paid by the employer; the second proviso to Rule 59(iii) and the lack of President assent create a horizon for applying the central act restrictions; circulars based on misconceived interpretations are to be quashed; where the central act is not applicable, the statutory cap must apply; interest under the Gratuity Act is not to be charged as wilful default, but simple interest at 6% can be payable.

Cited Precedents (8)

Case NameCitationTreatmentExplanation
Chandrasekharan Nair G. v. Kerala State Cooperative Agricultural and Rural Development Bank Ltd. and others2017 (4) KLT 276PositiveFull Bench decision establishing that liability to pay gratuity does not shift to the insurer; 4(5) provides better terms; Supreme Court affirmed the Full Bench.
Nedupuzha Service Co-operative Bank Ltd. v. Rugmini2011 (3) KLT 134 (DB)Partly Overruled / LimitedFull Bench affirmed to the extent that excess amount under the policy would inure to the employee; did not accept the proposition that entitlement is confined to the policy amount.
Vijay Kumar Sharma v. State of Karnataka1990 KHC 805PositiveTest for determining repugnancy between central and state legislation (dominant intention) used to analyze the subject matter overlap.
Retnavalli v. Ambalapadu Service Cooperative Bank Ltd.2005 (3) KLT 320Mentioned OnlyCited among authorities but not central to the judgment’s ratio.
Mathew Korah v. Kaduthuruthy Urban Cooperative Bank2013 (4) KLT 558Mentioned OnlyCited but not pivotal to the second proviso interpretation.
The Travancore Cements Employees' Co-operative Bank Ltd. v. Ramachandran Nair2014 (1) KLT 889 (DB)Mentioned OnlyCited as authority but not directly applied to the central issue.
Life Insurance Corporation v. K.P.VarugheseILR 2015 (3) Kerala 420 (DB)Mentioned OnlyCited in discussion of LIC scheme and gratuity terms but not followed as controlling rule.
Chandrasekharan Nair v. Kerala State Cooperative Agricultural and Rural Development Bank Ltd. and othersS.L.P.(C)No.9446-9451/2018PositiveApex Court affirmed the Full Bench’s reasoning on higher gratuity rights under Section 4(5) and insurer’s liability.

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Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE ANIL K.NARENDRAN** **TUESDAY,THE 09TH DAY OF OCTOBER 2018 / 17TH ASWINA, 1940** ## **WP(C).No. 23991 of 2018** ## **PETITIONER:** ## **C.K.KUTTYKRISHNAN NAIR** **AGED 68 YEARS, S/O.C.G.KRISHNAN NAIR,'RETIRED ASSISTANT GENERAL MANAGER',KOTTAYAM CO-OPERATIVE URBAN BANK LTD. NO.421,THIRUNAKKARA, KOTTAYAM DISTRICT, PIN.686001,RESIDING AT CHEMMARAPPALLIL, PAMPADY P.O.,KOTTAYAM DISTRICT, PIN.686502.** **BY ADVS. SRI.S.JAYAKRISHNAN SRI.S.PARAMESWARA PRASAD** ## **RESPONDENTS:** **1 THE JOINT REGISTRAR(GENERAL) CO-OPERATIVE SOCIETIES, KOTTAYAM,PIN.686002. 2 KOTTAYAM CO-OPERATIVE URBAN BANK LTD. NO.421 REPRESENTED BY ITS GENERAL MANAGER, HEAD OFFICE,THIRUNAKKARA, KOTTAYAM DISTRICT, PIN.686001.** **3 LIFE INSURANCE CORPORATION OF INDIA LTD. (LIC) REPRESENTED BY ITS MANAGER (P&GS) UNIT (G-603), LIFE INSURANCE CORPORATION OF INDIA LTD.,JEEVAN JYOTHI, II FLOOR, STAR JUNCTION,KOTTAYAM, PIN.686001.** ## **BY ADV. DR.ABRAHAM P.MEACHINKARA** **SRI. K.P. HARISH, SR.GP, SRI. SURIN GEORGE,SC , SRI. S.EASWARAN, SC LIC** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 09.10.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **W.P.(C)No.23991 of 2018** ## **:-2-:** **“C.R.”** ## **J U D G M E N T** The petitioner, who was an employee of the 2[nd] respondent Co-operative Bank retired from service on 31.12.2007, on attaining the age of superannuation, while working as Assistant General Manager, after rendering a total service of 36 years. The petitioner has filed this writ petition under Article 226 of the Constitution of India, seeking a writ of mandamus commanding the respondents to disburse forthwith a sum of Rs.2,84,022/- towards balance gratuity payable, in excess of the amount received by the 2[nd] respondent Bank from the 3[rd] respondent Life Insurance Corporation (for brevity, 'LIC'), together with interest. The petitioner has also sought for a writ of mandamus commanding the 1[st] respondent Joint Registrar to consider and pass appropriate orders on Ext.P2 representation dated 2.5.2018, as early as possible, after affording him an opportunity of ## **W.P.(C)No.23991 of 2018** ## **:-3-:** being heard. 2. The pleadings and materials on record would show that the liability to pay gratuity to the employees of the 2[nd] respondent Bank is covered by the Employees' Group Gratuity Assurance Scheme with the 3[rd] respondent LIC. In the case of the petitioner, at the time of his retirement, LIC paid a sum of Rs.3,50,470/- to the 2[nd] respondent Bank, towards the amount of gratuity payable to the petitioner, which is evident from Ext.P1 communication dated 7.1.2008. Out of the said amount, the 2[nd] respondent Bank paid a sum of Rs.3,50,000/- to the petitioner. The contention raised in this writ petition is that the total gratuity payable to the petitioner comes to Rs.6,34,022/- (Rs.30,527x36x15/26) by counting his total length of service. Therefore, the higher amount of gratuity, in addition to Rs.3,50,000/- ## **W.P.(C)No.23991 of 2018** **==> picture [34 x 8] intentionally omitted <==** paid by the 2[nd] respondent Bank comes to Rs.2,84,022/-. 3. The entitlement of the employees of the Cooperative Societies covered by the provisions under the Payment of Gratuity Act, 1972, to receive better terms under Section 4(5) of the said Act, is now settled by the decision of the Full Bench of this Court in **Chandrasekharan Nair G. and others v. Kerala State Cooperative Agricultural and Rural Development Bank Ltd. and others (2017 (4) KLT** **276)** . Paragraphs 5 to 8 of the said decision read thus; “5. The liability to pay gratuity does not get shifted to the insurer by the compulsory insurance and the effect is only that the maturity value of the master policy would go to the credit of the dues of the employee. Any amount in excess of the gratuity due would also go to the employee since the contract of insurance would fall within the ambit of Section 4(5) of the Central Act. Any deficit in the ## **W.P.(C)No.23991 of 2018** ## **:-5-:** amount due as gratuity to the employee after payment by the insurer has to be met by the employer only as the liability squarely rests on him under Section 4(2) of the Central Act. The insurer cannot be made liable to pay any amount in excess of the maturity value of the master policy as the same would be dependent on the premium paid to him. The compulsory insurance under S.4A of the Central Act is only to facilitate the employer to discharge his liability and the premium paid is part of the wages only. Of course the wording of the second proviso to Rule 59(iii) of the Rules gives rise to a doubt that the employee would be pinned down to the amount of gratuity specified in the Central Act. Such an interpretation would render Section 4(5) of the Central Act otiose whereunder the employee has a right to receive better terms of gratuity under any award or agreement or contract with the employer. The provisions of the Central Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other enactment or instrument or contract. The overriding effect of the Central Act over other enactments is explicit from Section 14 of the ## **W.P.(C)No.23991 of 2018** ## **:-6-:** Central Act which is to the following effect: "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." 6. The co-operative societies wherein the employees are engaged is Entry 32 of List II - State List and gratuity to which a claim is laid is Entry 24 of List III - Concurrent List of the Seventh Schedule to the Constitution of India. The Central Act which is the law made by the Parliament shall prevail over the law made by the Legislature of the State i.e. the second proviso to Rule 59(iii) of the Rules. The inconsistency between laws made by Parliament and laws made by the Legislatures of States can be ironed out by calling in aid Article 254 of the Constitution of India. The same reads as follows: "254. Inconsistency between laws made by Parliament and laws made by the Legislatures of States.-- (1) If any ## **W.P.(C)No.23991 of 2018** ## **:-7-:** |provision of a law made by the| |---| |Legislature of a State is repugnant to| |any provision of a law made by| |Parliament, which Parliament is competent| |to enact<br>, or to any provision of an| |existing law with respect to one of the| |matters enumerated in the Concurrent| |List, then, subject to the provisions of| |Clause (2), the law made by Parliament,| |whether passed before or after the law| |made by the Legislature of such State,| |or, as the case may be, theexisting law,| |shall prevail and the law made by the| |Legislature of the State shall, to the| |extent of the repugnancy, be void<br>.| |(2) Where a law made by the Legislature| |of a State with respect to one of the| |matters enumerated in the Concurrent List| |contains any provision repugnant to the| |provisions of an earlier law made by| |Parliament or an existing law with| |respect to that matter, then, the law so| |made by the Legislature of such State| |shall, if it has been reserved for the| |consideration of the President and has| |received his assent, prevail in that| ## **W.P.(C)No.23991 of 2018** ## **:-8-:** State: Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State." (emphasis supplied) There is no case that the second proviso to Rule 59(iii) of the Rules made by the Legislature of the State has received the assent of the President in order to prevail in the State under Article 254(2) of the Constitution of India. Every amendment to the State Act or the Rules has also to obtain the assent of the President which is absent in regard to the second proviso to Rule 59(iii) of the Rules. The irresistible conclusion is that Section 4(5) of the Central Act which enables an employee to opt for a better terms of gratuity will prevail over the second proviso to Rule 59(iii) of the Rules. Only the case of employees who are both covered under the Central Act and the Rules framed under the State Act is dealt with in this bunch of writ petitions since the Central Act does not apply to all establishments. Section 1(3)(b) of ## **W.P.(C)No.23991 of 2018** **:-9-:** the Central Act is categoric that the same applies only to an establishment in which ten or more persons are employed or were employed during the preceding twelve months. 7. The dominant intention of the Central Act is to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments. The dominant intention of the State Act is to provide for the orderly development of the cooperative societies in the State as selfgoverning democratic institutions. A provision in the Central Act to give effect to its dominant purpose may incidentally be on the same subject as covered by the provision in the State Act. But such partial coverage of the same area in a different context and to achieve a different purpose does not bring about the repugnancy which is intended to be covered by Article 254(2) of the Constitution. We shall quote the decision in Vijay Kumar Sharma v. State of Karnataka, 1990 KHC 805 wherein it is held as follows: "53. The aforesaid review of the authorities makes it clear that whenever ## **W.P.(C)No.23991 of 2018** ## **:-10-:** repugnancy between the State and Central legislation is alleged, what has to be first examined is whether the two legislations cover or relate to the same subject matter. The test for determining the same is the usual one, namely, to find out the dominant intention of the two legislations. If the dominant intention i.e. the pith and substance of the two legislations is different, they cover different subject matters. If the subject matters covered by the legislations are thus different, then merely because the two legislations refer to some allied or cognate subjects they do not cover the same field. The legislation, to be on the same subject matter must further cover the entire field covered by the other. A provision in one legislation to give effect to its dominant purpose may incidentally be on the same subject as covered by the provision of the other legislation. But such partial coverage of the same area in a different context and to achieve a different purpose does not bring about ## **W.P.(C)No.23991 of 2018** ## **:-11-:** the repugnancy which is intended to be covered by Article 254(2). Both the legislations must be substantially on the same subject to attract the article." (emphasis supplied) There is no repugnancy (in the sense that one Act cannot be obeyed without disobeying the other) and therefore every endeavor has to be made to reconcile the provisions and give a harmonious construction. 8. The following decisions were cited at the Bar by the counsel for either sides: (i) Retnavalli v. Ambalapadu Service Cooperative Bank Ltd. [2005 (3) KLT 320] (ii) Nedupuzha Service Co-operative Bank Ltd. v. Rugmini [2011 (3) KLT 134 (DB)] (iii) Mathew Korah v. Kaduthuruthy Urban Cooperative Bank [2013 (4) KLT 558] (iv) The Travancore Cements Employees' Co-operative Bank Ltd. v. Ramachandran Nair [2014 (1) KLT 889 (DB)] and (v) Life Insurance Corporation of India v. K.P.Varughese [ILR 2015 (3) Kerala 420 (DB)]. None of the above decisions dealt with the second proviso to Rule 59(iii) of the Rules ## **W.P.(C)No.23991 of 2018** ## **:-12-:** substituted with effect from 2.11.2010 only and hence do not help to resolve the controversy in this bunch of cases. The second proviso to Rule 59(iii) of the Rules referable to the amount received out of any scheme implemented by a society shall be construed in the context explained above. The employee in other words is entitled to the higher amount if he has opted in terms of Section 4(5) of the Central Act even if a lesser amount is due under Section 4(2) thereof. The decision in Nedupuzha's case (supra) to the extent that excess amount if any received by the employer under the policy would inure to the employee is affirmed. The said decision does not lay down the proposition that the entitlement of the employee is confined to the amount received under the policy even if it falls short of the statutory limit. Circular No.5/2016 and similar circulars issued by the Registrar of Co-operative Societies stem out of a misconception of the statutory provisions and are quashed to this extent. The reference is answered accordingly and the writ petitions shall be posted before the single Judge as per roster for disposal dependent on individual facts.” ## **W.P.(C)No.23991 of 2018** ## **:-13-:** 4. In **Chandrasekharan Nair's case (supra)** , the Full Bench of this Court held that, the liability to pay gratuity does not get shifted to the insurer by the compulsory insurance and the effect is only that the maturity value of the master policy would go to the credit of the dues of the employee. Any amount in excess of the gratuity due would also go to the employee since the contract of insurance would fall within the ambit of Section 4(5) of the Central Act. Any deficit in the amount due as gratuity to the employee after payment by the insurer has to be met by the employer only as the liability squarely rests on him under Section 4(2) of the Central Act. The insurer cannot be made liable to pay any amount in excess of the maturity value of the master policy as the same would be dependent on the premium paid to him. The compulsory insurance under Section 4A of the ## **W.P.(C)No.23991 of 2018** ## **:-14-:** Central Act is only to facilitate the employer to discharge his liability and the premium paid is part of the wages only. ## 5. In **Chandrasekharan Nair's case (supra)** , the Full Bench held further that, the wording of the second proviso to Rule 59(iii) of the Rules, of course, gives rise to a doubt that the employee would be pinned down to the amount of gratuity specified in the Central Act. Such an interpretation would render Section 4(5) of the Central Act otiose whereunder the employee has a right to receive better terms of gratuity under any award or agreement or contract with the employer. The provisions of the Central Act or any rule made thereunder shall have effect, notwithstanding anything inconsistent therewith contained in any other enactment or instrument or contract. The overriding effect of the Central Act over other ## **W.P.(C)No.23991 of 2018** **:-15-:** enactments is explicit from Section 14 of the Central Act. The Co-operative Societies wherein the employees are engaged is Entry 32 of List II-State List and gratuity to which a claim is laid is Entry 24 of List III Concurrent List of the Seventh Schedule to the Constitution of India. The Central Act, which is the law made by the Parliament shall prevail over the law made by the Legislature of the State, i.e., the second proviso to Rule 59(iii) of the Rules. The inconsistency between laws made by Parliament and laws made by the Legislatures of States can be ironed out by calling in aid Article 254 of the Constitution of India. There is no case that the second proviso to Rule 59(iii) of the Rules made by the Legislature of the State has received the assent of the President in order to prevail in the State under Article 254(2) of the Constitution of India. Every amendment to the State ## **W.P.(C)No.23991 of 2018** ## **:-16-:** Act or the Rules has also to obtain the assent of the President which is absent in regard to the second proviso to Rule 59(iii) of the Rules. Therefore, the irresistible conclusion is that Section 4(5) of the Central Act, which enables an employee to opt for a better term of gratuity will prevail over the second proviso to Rule 59(iii) of the Rules. ## 6. In **Chandrasekharan Nair's case (supra)** , the Full Bench held that, the second proviso to Rule 59(iii) of the Rules referable to the amount received out of any scheme implemented by a society shall be construed in the context explained above. The employee in other words is entitled to the higher amount if he has opted in terms of Section 4(5) of the Central Act even if a lesser amount is due under Section 4(2) thereof. The Full Bench affirmed the decision of the Division Bench in ## **W.P.(C)No.23991 of 2018** ## **:-17-:** **Nedupuzha's case (2011 (3) KLT 134)** to the extent that excess amount, if any, received by the employer under the policy would inure to the employee. The Full Bench noticed that, the said decision does not lay down the proposition that the entitlement of the employee is confined to the amount received under the policy, even if it falls short of the statutory limit, and that, Circular No.5/2016 and similar circulars issued by the Registrar of Co-operative Societies stem out of a misconception of the statutory provisions and are therefore quashed to that extent. The Full Bench has made it clear that, it has dealt with only the case of employees who are both covered under the Central Act and the Rules framed under the State Act, since the Central Act does not apply to all establishments. 7. In view of the law laid down by the Full ## **W.P.(C)No.23991 of 2018** ## **:-18-:** Bench of this Court in **Chandrasekharan Nair's case** **(supra)** , an employee of a Co-operative Society, who is covered both under the Payment of Gratuity Act, 1972 and the Kerala Co-operative Societies Rules, 1969 framed under the Kerala Co-operative Societies Act, 1969 is entitled to the higher amount, if he has opted in terms of Section 4(5) of the Payment of Gratuity Act, even if a lesser amount is due under Section 4(2) thereof. Therefore, the excess amount, if any, received by the employer Society under the policy would inure to the benefit of such an employee. **==> picture [402 x 12] intentionally omitted <==** **Chandrasekharan Nair's case (supra)** is affirmed by the Apex Court in S.L.P.(C)No.9446-9451/2018, after notice to the other side on admission. 9. In the judgment dated 12.07.2018 in W.A. No.524 of 2018 and connected cases, a Division ## **W.P.(C)No.23991 of 2018** **:-19-:** Bench of this Court, after referring to the law laid down by the Full Bench in **Chandrasekharan Nair's case** (supra), held that, in view of the second proviso, with regard to societies to which the Payment of Gratuity Act is applicable, in view of Section 4(5) thereof, if a better term of gratuity is available, the restriction under the first proviso does not apply. However, in cases of societies to which the Payment of Gratuity Act is not applicable, since there is no provision in the Co-operative Societies Act or Rules akin to Section 4(5) of the Gratuity Act, the maximum amount payable cannot in view of the first and second provisos, exceed fifteen months pay as stipulated in first proviso even if any special scheme has been opted by the society for payment of gratuity. The Division Bench held further that, when the eligibility of the respective employees, who are ## **W.P.(C)No.23991 of 2018** ## **:-20-:** the writ petitioners, to claim gratuity is not under challenge, the employees need not be relegated for a further adjudication proceedings under Section 7 of the Payment of Gratuity Act. The Division Bench has also held that, though nonpayment gratuity was in view of the circulars in vogue and on a bonafide mis-interpretation of law, the omission could not be considered wilful or deliberate. However, since the amounts due to the employees were in the hands of the employers who were enjoying the benefit of the same they are bound to pay simple interest at the rate of 6% per annum. Paragraphs 5 to 8 of the said judgment reads thus; “5. Sub Rule (iii) to Rule 59 of The Kerala Cooperative Societies Rules and the provisos thereto read as follows:- “(iii) when an employee who has put in at least 5 years satisfactory service is retired voluntarily from service or if he is permanently ## **W.P.(C)No.23991 of 2018** ## **:-21-:** disabled while in service or if he dies while in service the society shall pay to him or to his legal heirs as the case may be a gratuity not exceeding half months pay for every completed year of service. Provided that in no case shall the gratuity exceed fifteen months pay. Provided further that the amount of gratuity payable shall not exceed the amount which an employee is eligible as per the Payment of Gratuity Act, 1972 (Central Act 39 of 1972) or under the Act and these Rules, whichever is applicable irrespective of the amount received out of any scheme chosen or implemented by a society for the purpose.” The first proviso puts a cap on the maximum amount of gratuity payable. The second proviso provides that, notwithstanding any scheme chosen by the Bank, as regards societies covered by the Gratuity Act, the maximum amount payable will be the eligible amount under the Gratuity Act; as regards societies covered by the Societies Act, the maximum amount payable shall be the maximum amount eligible under that Act. Interpreting the second proviso, the Full Bench held that, in cases where the Gratuity Act applies, in view of Section 4(5) thereof, the entire amount due ## **W.P.(C)No.23991 of 2018** |**:-22-:**<br>under the Scheme shall be payable to the|**:-22-:**<br>under the Scheme shall be payable to the|**:-22-:**<br>under the Scheme shall be payable to the| |---|---|---| |<br>employee<br>. Section 4(5) of the Gratuity Act<br>acknowledges the right of the employee to<br>receive better terms of gratuity irrespective of<br>the restrictions regarding the quantum fixed in<br>Section 4 of that Act.Therefore, as held by the<br>Full Bench, in view of the second proviso, with||| |||<br>the second proviso, with| |<br>regard to societies to which the Payment of||| |<br>Gratuity Act is applicable, in view of Section||| |<br>4(5) thereof, if a better term of gratuity is||| |<br>available, the restriction under the first||| |proviso does not apply. However, in cases of||| |<br>societies to which the Payment of Gratuity Act||| |<br>is not applicable, since there is no provision||| |<br>in the Co-operative Societies Act or Rules akin||| |<br>to Section 4(5) of the Gratuity Act, the maximum||| |<br>amount payable cannot in view of the first and||| |<br>second provisos, exceed fifteen months pay as||| |<br>stipulated in first proviso even if any special||| |<br>scheme has been opted by the society for payment||| |<br>of|<br>gratuity<br>.<br> To put it pithily, if the Payment of Gratuity|| ## **W.P.(C)No.23991 of 2018** ## **:-23-:** regarding the quantum and in cases of societies not covered by the Central Act, the restriction under the first proviso applies irrespective of the availability of any scheme. 7. As regards the contention regarding adjudication, the only issue that has arisen for determination in these writ appeals is the right of the employees to receive the better terms of gratuity in terms of the LIC scheme. In none of these cases, the very eligibility of the - respective employees writ petitioners to claim gratuity is challenged. Under such circumstances, we do not think that they are to be relegated for a further adjudicatory proceeding under Section 7 of the Gratuity Act. 8. As regards the liability to pay interest, as contended by the appellants, the non-payment was in view of the circulars in vogue and on a bonafide misinterpretation of the law. Though Section 7 and 8 of the Gratuity Act provide for - payment of interest for non payment of gratuity within the time stipulated, the omission could not be considered wilful or deliberate. Hence they need not be burdened with the liability for interest at the rates as prescribed under the Gratuity Act. However, the fact remains that the ## **W.P.(C)No.23991 of 2018** ## **:-24-:** amounts due to the employees were in the hands of the appellants and they were enjoying the benefit of the same. They are bound to pay it to the employees with reasonable interest. We fix the rate of interest at 6% per annum, simple interest.” (Underline supplied) 10. In the instant case, as borne out from Ext.P1 communication dated 7.1.2008 of the 3[rd] respondent LIC, towards the gratuity payable to the petitioner, LIC paid a sum of Rs.3,50,470/- to the 2[nd] respondent Bank. Out of the said amount, a sum of Rs.470/- represents interest for delayed payment of gratuity. Ext.P1 would show that the coverage of the Master Policy taken by the 2[nd] respondent Bank with 3[rd] respondent LIC was only for Rs.3,50,000/-, which is the statutory limit prescribed under Section 4(3) of Payment of Gratuity Act. 11. In view of the law laid down by the Full Bench of this Court in **Chandrasekharan Nair** 's case ## **W.P.(C)No.23991 of 2018** ## **:-25-:** (supra) and also the judgment of the Division Bench in W.A.No.524 of 2018, the entitlement of an employee of a Co-operative Society, which is covered by the provisions under the Payment of Gratuity Act, to receive better terms of gratuity arises only when such an employee is covered by better terms of gratuity under Section 4(5) of the said Act. In the instant case, the pleadings and materials on record would show that, at the time of retirement of the petitioner, payment of gratuity of the employees of the 2[nd] respondent Bank was covered by the policy issued by the 3[rd] respondent LIC with a ceiling of Rs.3,50,000/-, which is evident from Ext.P1 communication. 12. In such circumstances, in terms of the Master Policy, the entitlement of the petitioner for gratuity was only Rs.3,50,000/- together with interest for delayed payment. The said amount of ## **W.P.(C)No.23991 of 2018** ## **:-26-:** Rs.470/- towards interest has to be paid by the 2[nd] respondent Bank within a time frame. In the result, the claim made by the petitioner for payment of gratuity in excess of the statutory limit under Section 4(3) of the Payment of Gratuity Act stands repelled. However it is held that the petitioner is entitled for disbursement of the balance amount of Rs.470/- covered by Ext.P1 communication issued by the 3[rd] respondent LIC. The 1[st] respondent shall ensure that the said amount of Rs.470/- together with 6% interest from 7.1.2018, the date of Ext.P1 communication, is disbursed to the petitioner by the 2[nd] respondent Bank, within a period of one month, from the date of receipt of a certified copy of this judgment. The writ petition is disposed of as above. Sd/- **ANIL K.NARENDRAN JUDGE** ami/11.10.18 ## **W.P.(C)No.23991 of 2018** ||**:-27-:**| |---|---| ||**APPENDIX**| |**PETITIONER'S **|**EXHIBITS:**| |**EXHIBIT P1**|**TRUE COPY OF COMMUNICATION DATED**| ||**07.01.2008 ISSUED BY THE MANAGER (P&GS)**| ||**L.I.C., KOTTAYAM TO THE 2ND RESPONDENT.**| |**EXHIBIT P2**|**TRUE COPY OF REPRESENTATION DATED**| ||**02.05.2018 FILED BY THE PETITIONER**| ||**BEFORE THE 1ST RESPONDENT.**| ||**//TRUE COPY//**| ||**P.A.TO JUDGE**| |**ami/**||