Case Note & Summary
The petitioners, legal heirs of the original petitioner Nagesh Jagdishrao Deshpande, filed a writ petition under Article 226 of the Constitution of India before the Bombay High Court (Aurangabad Bench) seeking quashing of an order dated 17 February 2016 passed by respondent no.2, the Managing Director of Maharashtra State Other Backward Class Finance and Development Corporation Ltd. (MahaOBC Corp). The petitioners also sought a direction to respondent no.2 to pay gratuity and earned leave encashment with interest at 9% per annum. The original petitioner had retired from service of respondent no.2 on 31 July 2013 after serving for about 30 years. Upon retirement, he was not paid gratuity and leave encashment. He made representations, but respondent no.2 rejected his claim by the impugned order dated 17.02.2016, stating that the corporation had not adopted the Payment of Gratuity Act, 1972 and that leave encashment was not payable as per the service rules. The court noted that the writ petition was initially allowed on 7 January 2019, but on a review application by respondent no.2, the order was recalled and the petition was heard afresh. The court framed the issue of whether the petitioner is entitled to gratuity and leave encashment. The petitioners argued that gratuity is a statutory right under the Payment of Gratuity Act, 1972, which applies to establishments employing 10 or more persons, and that respondent no.2, being a corporation, is covered. They also argued that leave encashment is a contractual right. Respondent no.2 contended that it had not adopted the Act and that its service rules did not provide for leave encashment. The court analyzed the provisions of the Payment of Gratuity Act, 1972, and held that the Act applies to every establishment employing 10 or more persons, and non-adoption by the employer does not disentitle an employee if the establishment is covered. The court found that respondent no.2 is an establishment covered under the Act. Regarding leave encashment, the court held that it is a contractual right and the employee is entitled to encash earned leave standing to his credit at the time of retirement. The court quashed the impugned order and directed respondent no.2 to pay gratuity to the petitioners with interest at 9% per annum from the date of retirement (31 July 2013) till actual payment, within three months. It further directed respondent no.2 to take a decision on payment of leave encashment within three months. The writ petition was allowed in these terms.
Headnote
A) Gratuity - Statutory Right - Applicability of Payment of Gratuity Act, 1972 - The court held that gratuity is a statutory right and the Payment of Gratuity Act, 1972 applies to every establishment employing 10 or more persons. Non-adoption of the Act by the employer does not disentitle an employee if the establishment is covered under the Act. The court directed payment of gratuity with interest at 9% per annum from the date of retirement till actual payment. (Paras 6-10) B) Leave Encashment - Contractual Right - Entitlement - The court held that leave encashment is a contractual right and the employee is entitled to encash earned leave standing to his credit at the time of retirement. The court directed respondent no.2 to take a decision on payment of leave encashment within three months. (Paras 11-12) C) Writ Jurisdiction - Article 226 of Constitution of India - Quashing of Order - The court quashed the order dated 17.02.2016 passed by respondent no.2 denying gratuity and leave encashment, and directed payment of gratuity with interest and consideration of leave encashment. (Paras 3, 13)
Issue of Consideration
Whether the petitioner is entitled to gratuity and earned leave encashment from respondent no.2, a corporation not having adopted the Payment of Gratuity Act, 1972, and whether the impugned order denying such benefits is sustainable.
Final Decision
The court allowed the writ petition, quashed the order dated 17.02.2016, and directed respondent no.2 to pay gratuity to the petitioners with interest at 9% per annum from the date of retirement (31.07.2013) till actual payment, within three months. Further directed respondent no.2 to take a decision on payment of leave encashment within three months.
Law Points
- Gratuity is a statutory right
- Payment of Gratuity Act
- 1972 applies to establishments employing 10 or more persons
- non-adoption of Act does not disentitle employee if establishment covered
- leave encashment is a contractual right
- interest at 9% per annum on delayed payment
