Page 131 - DMGT306_MERCANTILE_LAWS_II

Mercantile Laws – II

Notes 6. Gratuity

“Gratuity” is an old age retiral social security benefit. It is a lump sum payment made by an
employer to an employee in consideration of his past service when the employment is
terminated. In the case of employment coming to an end due to retirement or superannuation,
it enables the affected employee to meet the new situation which quite often means a reduction
in earnings or even total stoppage of earnings. In the case of death of an employee, it provides
much needed financial assistance to the surviving members of the family. Gratuity schemes,
therefore, serve as instruments of social security and their significance in a developing country
like India where the general income level is low cannot be over emphasized.

Self Assessment

Fill in the blanks:

4. The term ‘completed year of service’ means continuous service for ........................... year.
5. A ........................... employee can exclude her husband from her family by a notice in
writing to the controlling authority.

6. The term ........................... has been defined under the Act as the termination of the service
of an employee otherwise than on superannuation.

7.3 Rights Obligations and Benefit of the Employer

Following are the rights and obligations of the employer:

1. Employers Duty to Determine and Pay Gratuity

Section 7(2) lays down that as soon as gratuity becomes payable the employer shall, whether the
application has been made or not, determine the amount of gratuity and give notice in writing
to the person to whom the gratuity is payable and also to the Controlling Authority, specifying
the amount of gratuity so determined.
Section 7(3) of the Act says that the employer shall arrange to pay the amount of gratuity within
thirty days from the date of its becoming payable to the person to whom it is payable.
Section 7(3A): If the amount of gratuity payable under sub-section (3) is not paid by the employer
within the period specified in sub-section (3), the employer shall pay, from the date on which the
gratuity becomes payable to the date on which it is paid, simple interest at the rate of 10 per cent
per annum:

Provided that no such interest shall be payable if the delay in the payment is due to the fault of
the employee and the employer has obtained permission in writing from the controlling
authority for the delayed payment on this ground.
2. Dispute as to the Amount of Gratuity or Admissibility of the Claim

If the claim for gratuity is not found admissible, the employer shall issue a notice in the prescribed
form to the applicant employee, nominee or legal heir, as the case may be, specifying reasons
why the claim for gratuity is not considered admissible. A copy of the notice shall be endorsed
to the Controlling Authority.
If the disputes relates as to the amount of gratuity payable, the employer shall deposit with the
Controlling Authority such amount as he admits to be payable by him. According to

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