Employees of ‘local bodies’ entitled to gratuity under payment of Gratuity Act

The provision in the State Act contemplating payment of Gratuity will be inapplicable in respect of the employees of the local bodies.

The Supreme Court has held that the employees of the local bodies like Municipalities are entitled for gratuity under Payment of Gratuity Act, 1972.

The Supreme Court delivered the above-mentioned reasoning in the matter of Nagar Nigam, Gorakhpur vs. Ram Shanker Yadav & Another (Civil Appeal No. 2629/2017).

Challenges

In the present appeal the High Court of Allahabad had rejected the contention of the Municipalities of Kanpur and Gorakhpur, that their employees are entitled to the gratuity in terms of the Retirement Benefits and General Provident Fund Regulations, 1962 framed under Section 548 of the Uttar Pradesh Municipal Corporation Act, 1959.

The bench, while considering the appeal, also took note of a notification published buy Central Government on 08.01.1982 which specified Local Bodies in which ten or more persons are employed, or were employed, on any day of the preceding twelve months as a class of establishment to which the Payment of Gratuity Act, 1972 shall apply.

Held
Referring to Section 3(c) of the Payment of Gratuity Act, 1972 (hereinafter referred as ‘the Act’), the bench said that the Act shall be applicable to 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. The bench also observed that the notification by the Central Government makes it abundantly clear that the Act is applicable to the local bodies i.e., the Municipalities. Section 14 of the Act has given an overriding effect over any other inconsistent provision in any other enactment.

The court also referred to Section 14 of the Act and observed that the provision in the State Act contemplating payment of Gratuity will be inapplicable in respect of the employees of the local bodies. The Court also rejected the entire argument of the appellant that the State Act confers restrictive benefit of gratuity than what is conferred under the Central Act. The Court further observed that the 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. Thus, the gratuity would be payable under the Act.