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The Section 2(s) of Payment of Gratuity Act, 1972 defines “wages” meaning all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance. The word “any other allowances” has led to confusions. However, the courts have clarified.

The Supreme Court in Straw Board Mfg. Co Ltd vs The Workmen on 1 March, 1977 held that “All things considered, we are disinclined to alter the award on the two critical issues on which it was challenged. However, there are certain minor clarifications which will eliminate ambiguity and, on that both sides are agreed. We clarify that wages will mean and include basic wages and dearness allowance and nothing else. This corresponds to Sec. 2(s) of the Act.”

This judgment has been upheld in Voltas Limited V. Chandra Kant Brahmane, Bombay High Court, 2007 in that the Wages will include basic wages and dearness allowance and nothing else. The Bombay High Court in Mineral Exploration Corporation Ltd. Versus P. Nagendrakumar and others, 2015 held “8. Considering the facts of the present case the judgment given in the case of Voltas Limited v. Chandrakant Y. Bhramhane (cited supra) does not assist the employer inasmuch in that case the conveyance allowance paid to the employee was included in the wages of the employee for computing the amount of gratuity payable to the employee.

Similarly, in the case of State Bank of India, Panaji Goa v. Laxmikant Vithal Palekar the amount of gratuity payable to the employee was computed by including the special compensatory allowance and fixed personal allowance in the amount of wages. This Court found that the special compensatory allowance and fixed personal allowance paid to the employee in that case could not have been included in the wages for the purposes of computing the gratuity as they would fall in the category of “other allowances” which were excluded from “wages” as per section 2(s) of the Payment of Gratuity Act, 1972”

The Allahabad High Court in UP Financial Services v. Appellate authority, 2019 under payment of gratuity act, held that as Wages include Dearness Allowance, interim relief cannot be excluded from the wages in 2(s). Parallels established between Gratuity Act and the PF Act in that Bonus is excluded from the Wages in gratuity The Supreme Court in TI Cycles v. MK Gurumani, 2001, held that comparing Section 2 (s) of the Payment of Gratuity act and Section 2(b) of the EPF & Miscellaneous provisions act makes it clear that there is no basic difference between them insofar as exclusion of bonus from emolument is concerned.

It held “This Court in Bridge & Roof Co. (India) Ltd. v. Union of India examined the scope of the term “basic wages” as defined in the PF Act and as to whether bonus would be included in the same and it was explained that the word “bonus”, not having been qualified in any manner in Section 2(b)(“) of the PF Act, would not include only profit bonus but every other kind of bonus amounts paid by way of bonus under the Scheme and held to be excluded from the definition of “basic wages” covered by the exception to Section 2(b) of the PF Act.

Therefore, these two decisions make it clear that bonus stands excluded from the purview of “wages” for the purpose of calculating the contribution to be made in the provident fund or the gratuity payable under the Act. These decisions could not have been brushed aside or explained away in the manner done by the High Court, one, by stating that the decision has no bearing after the Act came into force and the other, that the enactment is different. The essence of wages was explained in Straw Board case- with reference to gratuity and the Act was relied upon to state what the law on the matter stood then, is reflected in the Act, while in Bridge & Roof Co. (India) Ltd. this Court explained the scope of definition of “basic wages” which we have held to be identical with the term “wages” used in the Act. However, the High Court has also proceeded to consider the fact that the gratuity payable under the Act would cover bonus paid in the present cases inasmuch as the same is only an incentive wage paid on piece-rate work and not as bonus as such.

Inclusion of Allowances & imposition of upper caps by regulations in Gratuity

Therefore, it is necessary for us to examine the economic concept of bonus and as to the manner in which the said expression has been understood in the context of industrial jurisprudence. Gratuity payable under bank regulations and under the Act The Bombay high court in Vidarbha Konkan Gramin Bank, Through … vs The Appellate Authority, Under The … on 6 January, 2020 held that petitioner Bank applied the provisions of the Act of 1972, while calculating the amount of gratuity payable to the contesting respondents, because by applying the provisions of the said Act higher gratuity was payable to the contesting respondents, despite the cap or upper ceiling of Rs.10,00,000/-. This amount for disbursal of gratuity amount was correctly approved by the Controlling Authority, while rejecting the applications filed by the contesting respondents for claim of 19 / 19 wp8272 & 8273.18.odt additional amount of gratuity.

But, the Appellate Authority failed to appreciate the contentions of the petitioner Bank. Although gratuity is typically capped under regulations, it is specified that gratuity will be paid according to the Act, Regulation, or Handbook, whichever provides a higher amount. With the maximum gratuity now capped at 20 lakhs, any regulations, or handbooks with this “whichever is higher” provision must comply with the recent change in the act.

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Srujan Nirkhee, 3rd Year Law Student at Maharashtra National Law University, Mumbai. He may be contacted at [email protected] or 9309053723.

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