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Unit 7: The Payment of Gratuity Act, 1972

Let Us Know Notes
Appropriate Government under this Act means
(i) In relations to an establishment:
(a) belonging to, or under the control of the Central Governments,

(b) having branches in more then one State,
(c) of a factory belonging to, or under the control of the Central Government,
(d) of a major port, mine, oilfield or railway company, the Central Government

(ii) any others case, the State Government [Section 2(a)]

Notes The gratuity payable to an employee may be wholly or partially forfeited: (i) if the
services of such employee have been terminated for his riotous or disorderly conduct or
any other act of violence on his part; or (ii) if the services of such employee have been
terminated for any act which constitutes an offence involving moral turpitude, provided
that such offence is committed by him in the course of his employment.

7.1.2 Objective of this Act

The main objective of this Act is to provide for a Scheme for the payment of Gratuity to employees
engaged in factories, mines, oil fields plantations, ports, railway companies, shops or other
establishments and for matter related thereof.
The objects of the Payment of Gratuity Act, 1972 are mentioned below:
(i) To provide for a Scheme for the payment of Gratuity to employees.
(ii) To provide for matters connected with or incidental to the Scheme for payment of Gratuity.
(iii) To provide retiring benefits to employees who have rendered continuous services to his
employer and thereby contributed to his prosperity.
(iv) To define the principles of payment of gratuity according to the prescribed formula.
(v) To provide machinery for the employment of liability for payment of gratuity.

7.1.3 Applicability and Coverage of this Act

Application and Coverage of the Act to an employed person depends on two factors.
Firstly, he should be employed in an establishment to which the Act applies.
Secondly, he should be an “employee” as defined in Section 2(e).

The Act is applicable and covers the following aspects:
1. Every factory, mine, oilfield, plantation, port and Railway Company.
2. Every shop or establishment within the meaning of any law for the time being in force in
relation to shops and establishments in a state; in which 10 or more, persons are employed or
were employed on any day of the preceding 12 months.
3. To every motor transport undertaking in which 10 or more persons are employed or were
employed on any day of the preceding 12 months.

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