Hi,
Here are 2 posts that explain PF & Gratuity related basic issues & processes. These notes will be useful for employers, employees as well as HR professionals.
Gratuity Simplified
Provident Fund - Common issues faced by Employees
Thanks
From India, Mumbai
4Here are 2 posts that explain PF & Gratuity related basic issues & processes. These notes will be useful for employers, employees as well as HR professionals.
Gratuity Simplified
Provident Fund - Common issues faced by Employees
Thanks
From India, Mumbai
I have a disagreement on the seventh point of Payment of Gratuity Act. As per the Act, the minimum qualifying service for gratuity is five years and the conditions of 240 days and fraction of more than six month in a year are only conditions for calculation of amount of gratuity. Though the Madras High Court verdict in Mettur Bearsell's case has interpreted 240 days in the fifth year to be one year, the Act remains the same and an employer who is not in Tamil Nadu can very well deny gratuity.
Similarly the author has failed to highlight the importance of section 4(6) of the Act to the point.
Under the Pension Scheme, a service of six months is considered as one year and therefore, an employee who completes nine years and six months will be deemed to have completed ten years and such an employee will also come under the fold of Pension.
For withdrawing the Provident Fund and or Pension Fund benefits, it is not mandatory that the employer should sign the required forms, viz, form 19 and 10C, but the forms can be sent directly to EPFO after getting the signatures in the forms attested by a gazetted officer, Bank Manager (whose bank the member has SB A/C and to which account the amount is to be transferred), MP, MLA or member of PF Trust.
Regards,
Madhu.T.K
From India, Kannur
Similarly the author has failed to highlight the importance of section 4(6) of the Act to the point.
Under the Pension Scheme, a service of six months is considered as one year and therefore, an employee who completes nine years and six months will be deemed to have completed ten years and such an employee will also come under the fold of Pension.
For withdrawing the Provident Fund and or Pension Fund benefits, it is not mandatory that the employer should sign the required forms, viz, form 19 and 10C, but the forms can be sent directly to EPFO after getting the signatures in the forms attested by a gazetted officer, Bank Manager (whose bank the member has SB A/C and to which account the amount is to be transferred), MP, MLA or member of PF Trust.
Regards,
Madhu.T.K
From India, Kannur
Dear Sir,
Thanks for sharing such useful post but need to ask two questions
1 Kindly mention all Forum no with use for gratuity
2. gratuity is right for employees to get after competing atleast 4 years 8 months so my query is How many working days must be considered in a year as per act because no one present throughout the year so kindly confirm minimum and maximum working days in a year.
Thanks & regards,
From India, Ambala
Thanks for sharing such useful post but need to ask two questions
1 Kindly mention all Forum no with use for gratuity
2. gratuity is right for employees to get after competing atleast 4 years 8 months so my query is How many working days must be considered in a year as per act because no one present throughout the year so kindly confirm minimum and maximum working days in a year.
Thanks & regards,
From India, Ambala
Hi Madhu,
Good interpretation on the Judgement.
Later even MP highcourt also supported the judgement given by the Madras High court and later Jammu high courtalso agreed with Madras High Court, but i am not sure.
Almost all companies working on 4 Years + 240 Days system.
Regards,
Ramana, Coke.
From India
Good interpretation on the Judgement.
Later even MP highcourt also supported the judgement given by the Madras High court and later Jammu high courtalso agreed with Madras High Court, but i am not sure.
Almost all companies working on 4 Years + 240 Days system.
Regards,
Ramana, Coke.
From India
Yes, but since the Act has not been amended accordingly, the decision rests on the case and situations only. Even the Appropriate authorities under the Payment of Gratuity Act have taken the stand that five years service is mandatory.
Section 4 A relates to compulsory insurance and was incorporated finding that many firms find it difficult to pay gratuity as and when an employee leaves or when the company is closed down due to any reason. Therefore, with the incorporation of this new section it has become an obligation on the part of employer to invest every year the projected gratuity failing. According to the new Accounting Standards ( I forgot the No. which is used to describe it) an actuarial valuation (a valuation of the kind which is used in Insurance which will project the risk or liability of an insurance company considering the age of insured in the near future so that provision shall be made to meet it) is also mandatory. Payment of Gratuity being a very significant Act aiming at welfare of the employees will not permit any kind of drama wherein the employer can refuse gratuity. That is why special attention has been made in section 4(6) under which gratuity can be withheld or forfeited only in such cases of dismissal for misconduct which involves moral turpitude.
Regards,
Madhu.T.K
From India, Kannur
Section 4 A relates to compulsory insurance and was incorporated finding that many firms find it difficult to pay gratuity as and when an employee leaves or when the company is closed down due to any reason. Therefore, with the incorporation of this new section it has become an obligation on the part of employer to invest every year the projected gratuity failing. According to the new Accounting Standards ( I forgot the No. which is used to describe it) an actuarial valuation (a valuation of the kind which is used in Insurance which will project the risk or liability of an insurance company considering the age of insured in the near future so that provision shall be made to meet it) is also mandatory. Payment of Gratuity being a very significant Act aiming at welfare of the employees will not permit any kind of drama wherein the employer can refuse gratuity. That is why special attention has been made in section 4(6) under which gratuity can be withheld or forfeited only in such cases of dismissal for misconduct which involves moral turpitude.
Regards,
Madhu.T.K
From India, Kannur
Author's Reply to comments of Mr. Madhu
I am thankful to Mr. Madhu for his feed back in respect of my articles on Provident Fund and Gratuity on Talentmoon Blogs. I have listed below my comments on the points raised by him.
Pt. 1 - Minimum qualifying service for gratuity is five years and the conditions of 240 days and the period in excess of six months are only meant for calculation of gratuity.
Here, I would like to clarify that Sec4 of the Gratuity Act 1972 deals with payment of gratuity. Sub section (1) of Sec 4 prescribes the minimum qualifying service as five years of continuous service to be eligible to claim gratuity. Subsection (2) of sec 4 provides a formula for calculating gratuity and explains as to how to compute completed years of service and in doing so, it explains that the period in excess of six months shall be counted as one year. Thus Sub-sec(1) of Sec 4 deals with “continuous service” for determining the eligibility for gratuity and Sub-Sec (2) of Sec 4 deals with “completed years of service” for calculation of gratuity. Thus the distinction between both the sub-sections need to be understood.
I agree with Mr. Madhu that the “fraction of six month as one year” formula is meant for calculation of gratuity under Sub-Sec (2) of Sec 4 of the Act. I have also said the same thing in my article. However, with regard to the other condition of 240 days as one year, I stick to my view that the “deeming of 240 days as one year” is relevant to determine the qualifying continuous service of five years under Sub-Sec(1) of Sec 4 of the Act but not to determine the “completed years of service” under Sub-Sec (2) of Sec 4 as was abundantly made clear by the Mettur Beardsell case.
The issue in Mettur Beardsell case was as to how to determine the qualifying service of five years under Sub-sec(1) of Sec 4 when an employee completed 4 years, 10 months and 18 days but did not work for the full fifth year. The hon’ble Madras High Court then imported the definition of the period of “one year” under Sec 2-A of the Gratuity Act 1972 into sub-sec(1) of sec 4, which states that an employee who worked for 240 days in a period of 12 months preceding the relevant date is deemed to have completed one year of continuous service and proceeded to hold that an employee who completed 4 years 10 months is deemed to have completed five years of continuous service within the meaning of Sub-sec (1) of Sec 4. Sec 2-A is a deeming provision which provides a fictional service of one year to an employee who could not work fully for twelve months but worked only for 240 days and above in a period of 12 months.
Therefore , in order to understand the scope of “qualifying service’ in it’s true perspective, Sec 4(1) cannot be read in isolation nor can it be mixed up with Sec 4(2) but shall be read with Sec 2-A of the Gratuity Act. It is in this context the point no. 7 needs to be understood.
For example, an employee who put in 4 years 7 months of service ,can have his gratuity calculated for five years under Sub-sec (2) of Sec 4 but he is not eligible for gratuity under Sub-sec(1) of Sec 4 since he is not deemed to have completed the fifth year as he did not work for 240 days after completing four years.
Pt. 2 - Mettur Beardsell case - His next point is that the Mettur Beardsell case was decided by the ho’nble Madras High Court and hence not binding outside the State of Tamil Nadu. In this context, I say that the judgments of any High Court, in the first instance command respect among all subordinate courts and Institutions in the country apart from those located in the state in which the said High court is situated. However with each State having it’s own High court pronouncing judgments on similar issues, a law has been laid down by the courts in India.
Thus in CIT v Godavari Saraf 1978(2)ELT 624,the hon’ble Bombay High Court , while setting aside the Tax Tribunal’s view that it was not bound by the decision of the Madras High Court which declared a particular section of tax laws as ultravires, held that until a contrary decision is given by a competent High court which is binding on the Tribunal in the State of Bombay, it shall proceed on the footing that the law declare by the High court , though of another State, is the final law.
This view was further reiterated as recent as in 2001 by hon’ble Karnataka High Court in Natural Textiles (Pvt.)Ltd V. Union of India 2007 III LLJ 646 which while declaring a provision in the Factories Act as unconstitutional , held that if a central provision was declared unconstitutional by one High Court, it will have bearing on the entire territory of India and it is not necessary that the High court of every State shall declare the law null and void.
I have not come across any judgment delivered by any High Court that is contrary to the Mettur Beardsell case. However there is a case of P.Raghavulu V. Add.Lab.court 1985(I)LLN 612 decided by hon’ble Andhra Pradesh High Court on the subject. But that case arose under the A.P Shops and Establishments Act but not under the Gratuity Act and hence distinguishable from that of Mettur Beardsell case in the words of the Madras High Court.
Further the decisions cited above were given with reference to the statutes that have all India application. Similarly Gratuity Act too is an all India Statute and thus the judgment given by Madras High Court is applicable in the entire territory of India till a contrary judgment is given by the High Court of a State on the same subject.
This apart, the hon’ble High Court of Madras in Mettur Beardsell case, while interpreting the expression ”continuous service” relied on the interpretation, advanced by the hon’ble Supreme Court in Surendra Kumar Verma v.CGIT, 1986(2) LLN 456. This lends binding force to the decision in Mettur Beardsell case all over India.
Besides, an anomalous situation can also arise, if the judgment of Madras High court is followed in Tamil Nadu only. For example an employee of an establishment working in Tamil Nadu, can get gratuity though he worked for 4 years and 240 days (8 months) while an employee of the same establishment working in Maharashtra has to work for full five years to claim gratuity. Then employees of same establishment will have two sets of eligibility criteria. This may lead to anomalous situation.
Pt. 3 - Importance of Sec 4 (6) not being properly highlighted - I have given the crux of Sec 4 (6) bringing to the notice of the readers, the implications of not maintaining good conduct and causing any damage or financial loss to the employer.
Pt.4 - His observations on P.F forms and Pension - Going by the spirit of relevant Paras of the Scheme, it is preferable if the employee gets the forms attested by the employer. The relevant paras do not suggest the alternative option of getting signature from the specified authorities, if the employee is unable to get them attested by the employer and it is Form 19 which suggests the options. Similarly the service cut-offs have been chosen, having regard to the provisions of the schemes and for easy understanding of the readers and thus when ‘ten years’ was chosen as cut-off for determining the options available to an employee with that much service, it includes 9 years and six months also since it is deemed to be ten years. Any how these points are well noted.
The purpose of these articles is to offer solutions to some basic and general issues in simple and lay man’s language to be understandable to readers and not to sound too legalistic and technical nor to address every situation conceivable under P.F, pension or gratuity in a blog nor to embark up on any commentary on the subject. However I thank Mr.Madhu for his feedback.
B.Saikumar
.
From India, Mumbai
I am thankful to Mr. Madhu for his feed back in respect of my articles on Provident Fund and Gratuity on Talentmoon Blogs. I have listed below my comments on the points raised by him.
Pt. 1 - Minimum qualifying service for gratuity is five years and the conditions of 240 days and the period in excess of six months are only meant for calculation of gratuity.
Here, I would like to clarify that Sec4 of the Gratuity Act 1972 deals with payment of gratuity. Sub section (1) of Sec 4 prescribes the minimum qualifying service as five years of continuous service to be eligible to claim gratuity. Subsection (2) of sec 4 provides a formula for calculating gratuity and explains as to how to compute completed years of service and in doing so, it explains that the period in excess of six months shall be counted as one year. Thus Sub-sec(1) of Sec 4 deals with “continuous service” for determining the eligibility for gratuity and Sub-Sec (2) of Sec 4 deals with “completed years of service” for calculation of gratuity. Thus the distinction between both the sub-sections need to be understood.
I agree with Mr. Madhu that the “fraction of six month as one year” formula is meant for calculation of gratuity under Sub-Sec (2) of Sec 4 of the Act. I have also said the same thing in my article. However, with regard to the other condition of 240 days as one year, I stick to my view that the “deeming of 240 days as one year” is relevant to determine the qualifying continuous service of five years under Sub-Sec(1) of Sec 4 of the Act but not to determine the “completed years of service” under Sub-Sec (2) of Sec 4 as was abundantly made clear by the Mettur Beardsell case.
The issue in Mettur Beardsell case was as to how to determine the qualifying service of five years under Sub-sec(1) of Sec 4 when an employee completed 4 years, 10 months and 18 days but did not work for the full fifth year. The hon’ble Madras High Court then imported the definition of the period of “one year” under Sec 2-A of the Gratuity Act 1972 into sub-sec(1) of sec 4, which states that an employee who worked for 240 days in a period of 12 months preceding the relevant date is deemed to have completed one year of continuous service and proceeded to hold that an employee who completed 4 years 10 months is deemed to have completed five years of continuous service within the meaning of Sub-sec (1) of Sec 4. Sec 2-A is a deeming provision which provides a fictional service of one year to an employee who could not work fully for twelve months but worked only for 240 days and above in a period of 12 months.
Therefore , in order to understand the scope of “qualifying service’ in it’s true perspective, Sec 4(1) cannot be read in isolation nor can it be mixed up with Sec 4(2) but shall be read with Sec 2-A of the Gratuity Act. It is in this context the point no. 7 needs to be understood.
For example, an employee who put in 4 years 7 months of service ,can have his gratuity calculated for five years under Sub-sec (2) of Sec 4 but he is not eligible for gratuity under Sub-sec(1) of Sec 4 since he is not deemed to have completed the fifth year as he did not work for 240 days after completing four years.
Pt. 2 - Mettur Beardsell case - His next point is that the Mettur Beardsell case was decided by the ho’nble Madras High Court and hence not binding outside the State of Tamil Nadu. In this context, I say that the judgments of any High Court, in the first instance command respect among all subordinate courts and Institutions in the country apart from those located in the state in which the said High court is situated. However with each State having it’s own High court pronouncing judgments on similar issues, a law has been laid down by the courts in India.
Thus in CIT v Godavari Saraf 1978(2)ELT 624,the hon’ble Bombay High Court , while setting aside the Tax Tribunal’s view that it was not bound by the decision of the Madras High Court which declared a particular section of tax laws as ultravires, held that until a contrary decision is given by a competent High court which is binding on the Tribunal in the State of Bombay, it shall proceed on the footing that the law declare by the High court , though of another State, is the final law.
This view was further reiterated as recent as in 2001 by hon’ble Karnataka High Court in Natural Textiles (Pvt.)Ltd V. Union of India 2007 III LLJ 646 which while declaring a provision in the Factories Act as unconstitutional , held that if a central provision was declared unconstitutional by one High Court, it will have bearing on the entire territory of India and it is not necessary that the High court of every State shall declare the law null and void.
I have not come across any judgment delivered by any High Court that is contrary to the Mettur Beardsell case. However there is a case of P.Raghavulu V. Add.Lab.court 1985(I)LLN 612 decided by hon’ble Andhra Pradesh High Court on the subject. But that case arose under the A.P Shops and Establishments Act but not under the Gratuity Act and hence distinguishable from that of Mettur Beardsell case in the words of the Madras High Court.
Further the decisions cited above were given with reference to the statutes that have all India application. Similarly Gratuity Act too is an all India Statute and thus the judgment given by Madras High Court is applicable in the entire territory of India till a contrary judgment is given by the High Court of a State on the same subject.
This apart, the hon’ble High Court of Madras in Mettur Beardsell case, while interpreting the expression ”continuous service” relied on the interpretation, advanced by the hon’ble Supreme Court in Surendra Kumar Verma v.CGIT, 1986(2) LLN 456. This lends binding force to the decision in Mettur Beardsell case all over India.
Besides, an anomalous situation can also arise, if the judgment of Madras High court is followed in Tamil Nadu only. For example an employee of an establishment working in Tamil Nadu, can get gratuity though he worked for 4 years and 240 days (8 months) while an employee of the same establishment working in Maharashtra has to work for full five years to claim gratuity. Then employees of same establishment will have two sets of eligibility criteria. This may lead to anomalous situation.
Pt. 3 - Importance of Sec 4 (6) not being properly highlighted - I have given the crux of Sec 4 (6) bringing to the notice of the readers, the implications of not maintaining good conduct and causing any damage or financial loss to the employer.
Pt.4 - His observations on P.F forms and Pension - Going by the spirit of relevant Paras of the Scheme, it is preferable if the employee gets the forms attested by the employer. The relevant paras do not suggest the alternative option of getting signature from the specified authorities, if the employee is unable to get them attested by the employer and it is Form 19 which suggests the options. Similarly the service cut-offs have been chosen, having regard to the provisions of the schemes and for easy understanding of the readers and thus when ‘ten years’ was chosen as cut-off for determining the options available to an employee with that much service, it includes 9 years and six months also since it is deemed to be ten years. Any how these points are well noted.
The purpose of these articles is to offer solutions to some basic and general issues in simple and lay man’s language to be understandable to readers and not to sound too legalistic and technical nor to address every situation conceivable under P.F, pension or gratuity in a blog nor to embark up on any commentary on the subject. However I thank Mr.Madhu for his feedback.
B.Saikumar
.
From India, Mumbai
I appreciate the comments and initiative to elaborate the decisions. I have not questioned the decisions of the court but I have only stated that the Payment of Gratuity Act remains the same with five years service as mandatory service for eligibility for gratuity and working days of 240 days in a year is taken as a measure to find whether the employee has continuous service or not.
With respect to PF, I know that many PF offices use to reject the applications submitted directly. I don't think that all offices function in the same fashion. When there are a lot of pending applications for settlement or transfers to be disbursed of in Delhi or Mumbia, I have not come across with any problem in EPFO's Kerala offices and in most of the cases, the requests are settled within 30 days. If it is to be rejected for want of employer's signature, they can very well reject it. But if they are rejecting it, they are denying a right of PF member.
Regards,
Madhu.T.K
From India, Kannur
With respect to PF, I know that many PF offices use to reject the applications submitted directly. I don't think that all offices function in the same fashion. When there are a lot of pending applications for settlement or transfers to be disbursed of in Delhi or Mumbia, I have not come across with any problem in EPFO's Kerala offices and in most of the cases, the requests are settled within 30 days. If it is to be rejected for want of employer's signature, they can very well reject it. But if they are rejecting it, they are denying a right of PF member.
Regards,
Madhu.T.K
From India, Kannur
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