Whether payment of Gratuity can be denied on account of financial crisis?

Oftentimes employers try to take advantage of a financial crisis by avoiding paying Gratuity to eligible employees. Payment of Gratuity is a social benefit extended for the services put in by the employee. Gratuity, as payable by the employer to the employee or his legal heir, cannot be adjusted against a loan. Such adjustment is not permissible even on the death of the person.

The amount of Gratuity, as payable under The Payment of Gratuity Act, 1972 enjoys immunity under Section 13 of the Act; “No gratuity payable under this Act and no gratuity payable to an employee employed in any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted under section shall be liable to attachment in execution of any decree or order of any civil, revenue or criminal court.” Therefore, Gratuity payable to an employee cannot be attached and no Civil Court can grant an injunction restraining an employer from payment of Gratuity to an employee (Calcutta Dock Labour Board vs. Sandhya Mitra AIR 1985 SC 996).

In Gopendranath Deb vs. State of West Bengal & Ors., W.P. No. 21862 (W) of 2012, the Hon’ble High Court at Calcutta has held that financial crisis is not a valid ground for a company to say that it is entitled to withhold the Gratuity or any other entitlement of an employee.

On this background, the Courts have held that financial crisis is not a ground to withhold Gratuity to a worker. Courts have also held that in such circumstances, a worker is entitled to interest. In Ajay Kumar Dey vs The State Of West Bengal [W.P.N0.2126(W) of 2013], the Hon’ble Kolkata High Court held that financial crisis, if any, of the employer is no ground to say that it is entitled to withhold payment of gratuity and/or other terminal benefits of its employees and awarded interest @ 7% to the aggrieved employee.