If an employer fails to pay the employee the gratuity amount due to them within the specified time period of payment, they shall be liable to pay simple interest on the gratuity amount for the period.
According to a single judge bench of the Jharkhand High Court consisting of Justice Anubha Rawat Choudhary, the notification issued by the Central Government in consonance with Section 7 (3-A) of the Payment of Gratuity Act, 1972 states that employers who delay the payment of gratuity are to pay 10 per cent interest, on the gratuity amount, to the concerned employee.
The case involved an employee of Tata Steel, who was not paid gratuity on time and went on to claim interest on the amount.
As per Section 7 (3-A) of the Payment of Gratuity Act, 1972 the employer is liable to pay simple interest from the date on which the gratuity becomes payable to the date on which it is paid. The interest rate, however, should not exceed the rate notified by the Central Government in cases of repayment of long-term deposits.
As per the Central government’s notification dated 01.10.1987 S.O. 873 (E) the rate of simple interest was set at 10 per cent per annum, payable by the employer to employees in situations when the gratuity payment is delayed for a certain time period.
The Deputy Labour Commissioner-cum- Controlling Authority, Kolhan Division, Jamshedpur had passed the order in August 2021 asking the management pay simple interest at 10 per cent per annum on the gratuity amount of Rs. 10,67,308 within 30 days. However, the management challenged the order.
In March 2023, the Labour Commissioner cum Appellate Authority upheld the order of Controlling Authority, following which the management filed a writ petition saying that the Section 7 (3-A) of Act of 1972 stated that the maximum interest rate that can be awarded is 10 per cent, which means anything lower than that was also acceptable. The submission sought the interest rate to be lowered to six or seven per cent.
The court observed that while Section 7 (3-A) of the Act of 1972 does state the parameter for fixing the interest rate, the rate itself is not fixed by it. It is to be notified by the Central Government in terms of Section 7(3-A) of the Act of 1972. The court observed that the rate of interest payable by Central Government on long-term deposit can vary from time to time and the Central Government had issued appropriate notification dated 01.10.1987 in terms of Section 7 (3-A) of the Act of 1972 modifying the applicable rate of interest.
