Case Note & Summary
The case involves an appeal by the Assam Financial Corporation Limited (AFC) against a judgment of the Gauhati High Court which had allowed the writ petition of retired employees (respondents) seeking gratuity under the Payment of Gratuity Act, 1972, instead of the lower ceiling under AFC's internal regulations. The respondents retired between 2018-2019 and were paid gratuity as per the AFC's regulations, initially with a ceiling of Rs. 3.5 lakhs, later enhanced to Rs. 7 lakhs by an Office Order dated 25.07.2012. They claimed entitlement to gratuity under Section 4(5) of the Payment of Gratuity Act, 1972, which provides for a higher ceiling. The High Court ruled in their favor. The Supreme Court, however, allowed the appeal, holding that the Payment of Gratuity Act, 1972 does not apply to State Financial Corporations like AFC, as they are not 'establishments' covered under the Act. The employees are governed by the corporation's own gratuity regulations, and the ceiling of Rs. 7 lakhs as per the 2012 Office Order was applicable. The Court set aside the High Court's judgment and dismissed the writ petition.
Headnote
A) Gratuity - Applicability of Payment of Gratuity Act, 1972 to State Financial Corporations - Section 4(5) of the Payment of Gratuity Act, 1972 - The issue was whether employees of a State Financial Corporation are entitled to gratuity under the Act or only under the corporation's regulations. The Court held that the Payment of Gratuity Act, 1972 does not apply to State Financial Corporations as they are not 'establishments' covered under the Act. The employees are governed by the corporation's own gratuity regulations, and the ceiling as per the 2012 Office Order of Rs. 7 lakhs was applicable. (Paras 1-10)
B) Gratuity - Ceiling under internal regulations - Assam Financial Corporation (Payment of Gratuity to Employees) Regulation, 1964 read with Assam Financial Corporation (Amendment) Staff Regulations, 2007 - The Court held that the 2012 Office Order enhancing the gratuity ceiling to Rs. 7 lakhs was valid and applicable to the respondents, and they were not entitled to the higher ceiling under the Payment of Gratuity Act, 1972. (Paras 4-8)
Issue of Consideration
Whether the employees of the Assam Financial Corporation Limited are entitled to gratuity under the Payment of Gratuity Act, 1972, or only under the corporation's own regulations, and what is the applicable ceiling?
Final Decision
The Supreme Court allowed the appeal, set aside the judgment of the Gauhati High Court, and dismissed the writ petition filed by the respondents.
Law Points
- Gratuity entitlement of employees of statutory corporations
- Applicability of Payment of Gratuity Act
- 1972 to State Financial Corporations
- Interpretation of Section 4(5) of the Payment of Gratuity Act
- 1972
- Effect of internal regulations vis-à-vis statutory provisions
Case Details
2025 LawText (SC) (10) 102
Civil Appeal No. of 2025 (Arising out of SLP (C) No. 19581 of 2023)
The Assam Financial Corporation Limited & Ors.
Bhabendra Nath Sarma & Ors.
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Nature of Litigation
Civil appeal against judgment of Gauhati High Court in a writ appeal concerning gratuity entitlement of retired employees of a State Financial Corporation.
Remedy Sought
The appellant (AFC) sought to set aside the High Court's judgment which had allowed the respondents' claim for gratuity under the Payment of Gratuity Act, 1972.
Filing Reason
The respondents, retired employees of AFC, claimed gratuity under the Payment of Gratuity Act, 1972, instead of the lower ceiling under AFC's internal regulations.
Previous Decisions
The Gauhati High Court allowed the writ petition of the respondents, holding that they were entitled to gratuity under the Payment of Gratuity Act, 1972.
Issues
Whether the Payment of Gratuity Act, 1972 applies to State Financial Corporations?
Whether the employees of AFC are entitled to gratuity under the Act or only under the corporation's regulations?
What is the applicable ceiling for gratuity?
Submissions/Arguments
The appellant argued that the Payment of Gratuity Act, 1972 does not apply to State Financial Corporations, and the employees are governed by the corporation's own regulations.
The respondents argued that they are entitled to gratuity under Section 4(5) of the Payment of Gratuity Act, 1972, which provides for a higher ceiling.
Ratio Decidendi
The Payment of Gratuity Act, 1972 does not apply to State Financial Corporations as they are not 'establishments' covered under the Act. Employees of such corporations are governed by the corporation's own gratuity regulations, and the ceiling as per the internal regulations (here, Rs. 7 lakhs) is applicable.
Judgment Excerpts
Leave granted.
Challenging the judgment passed by the Division Bench of the High Court in Writ Appeal No.260 of 2022 preferred by Assam Financial Corporation Limited (hereinafter referred to as ‘AFC’), the present appeal has been filed.
The fact situation shorn of details is such that the Respondents, who were the original writ petitioners before the High Court, were employees of the AFC and retired on superannuation between 2018–2019.
The 2007 Staff Regulations of the AFC initially provided a ceiling of Rs. 3.5 Lakhs for payment of gratuity, which was subsequently enhanced to Rs. 7 lakhs vide Office Order No. AFC/Estt/497/2012-13/1028 dated 25.07.2012 in parity with the Government of Assam employees.
Procedural History
The respondents filed a writ petition before the Gauhati High Court seeking gratuity under the Payment of Gratuity Act, 1972. The High Court allowed the writ petition. The AFC filed a writ appeal (Writ Appeal No.260 of 2022) before the Division Bench, which was dismissed. The AFC then filed a Special Leave Petition (SLP (C) No. 19581 of 2023) before the Supreme Court, which was converted into the present Civil Appeal.
Acts & Sections
- Payment of Gratuity Act, 1972: Section 4(5)
- Assam Financial Corporation (Payment of Gratuity to Employees) Regulation, 1964:
- Assam Financial Corporation (Amendment) Staff Regulations, 2007:
