Kiran Raj

The Orissa High Court has dismissed a petition seeking interest on delayed gratuity payment, holding that the delay resulted from outstanding dues and audit objections against the deceased employee. The court concluded that under the Payment of Gratuity Act, 1972, no interest is payable when the delay is attributable to the employee’s fault.

The petitioners, legal representatives of the deceased employee, filed the writ petition under Articles 226 and 227 of the Constitution of India, initially seeking multiple reliefs. However, during the course of the proceedings, they limited their request to claiming interest on the gratuity amount from the date of retirement until its eventual disbursement.

The deceased employee had retired, but the employer, Orissa Forest Development Corporation Ltd., withheld gratuity due to pending financial irregularities that emerged from an audit report. The audit objections cited outstanding dues amounting to Rs. 25,54,329/-, allegedly recoverable from the deceased employee. Due to these financial discrepancies, the employer deferred the gratuity payment. Subsequently, after a process of reconciliation and settlement of the audit objections, the employer issued an order on March 30, 2019, sanctioning the release of the gratuity, which was disbursed on April 15, 2019.

The employer contended that even after adjusting the recoverable amount, an outstanding sum of Rs. 77,977/- remained due from the deceased employee. Given this pending liability, the employer argued that the delay in payment was justified and that no interest could be claimed on the gratuity amount under the provisions of the Payment of Gratuity Act, 1972.

The petitioners, represented by Advocate S.P. Das, submitted that gratuity is a statutory right and must be paid within the prescribed period under the law. He cited Section 7(3-A) of the Payment of Gratuity Act, 1972, which states that if gratuity is not paid within the stipulated timeframe, interest is payable to the employee. He argued that the delay in disbursement was unjustified, and as such, the employer was liable to pay interest on the delayed gratuity.

In contrast, the counsel for the opposite party, Advocate N.K. Mohanty, submitted that gratuity was delayed due to the unresolved audit objections and the necessity of reconciling financial discrepancies before finalizing the payment. He asserted that the delay was not wilful but a necessary procedural requirement and, therefore, did not attract liability for interest under the law.

Justice Gourishankar Satapathy observed that the gratuity amount had already been disbursed to the petitioners and that the delay was caused due to pending audit objections and unresolved liabilities of the deceased employee. The court examined the relevant provisions of the Payment of Gratuity Act, 1972, specifically the proviso to Section 7(3-A), which provides that no interest shall be payable if the delay is due to the employee’s fault and the employer has obtained written permission from the controlling authority for the delay.

The court recorded: "Since the payment of gratuity was admittedly held up due to audit objection, but subsequently the same was disbursed on reconcilement of the audit objection, no interest can be leviable on the Department on the pretext of delayed sanction of gratuity."

The court referred to the records and noted that the gratuity was not arbitrarily withheld but was subject to the outcome of financial reconciliation. The court found that the delay arose from verifiable audit-related issues and that the employer was justified in withholding the gratuity pending clearance of objections.

The court further observed that the petitioners had acknowledged in their plea that the deceased employee had financial liabilities, as they had prayed for sanction of leave salary after adjusting the recovery amount. The existence of such liabilities reinforced the employer’s argument that the delay was due to legitimate concerns arising from financial discrepancies rather than an arbitrary or unjustified act on the part of the employer.

Regarding the petitioners' reliance on Section 7(3-A) of the Payment of Gratuity Act, 1972, the court stated that the statute clearly exempts the employer from liability to pay interest when gratuity is delayed due to the employee’s fault. Since the employer had withheld gratuity in response to an official audit objection and had eventually released the amount after resolution of financial discrepancies, the court found that the delay was not legally actionable for interest.

Additionally, the court noted that the disputed outstanding sum of Rs. 77,977/- could not be adjudicated in a writ petition due to its factual nature, which required further inquiry beyond the scope of constitutional writ jurisdiction. The court observed that any claims regarding the alleged outstanding dues should be addressed through appropriate forums and not in a writ petition under Articles 226 and 227.

The court dismissed the petition after concluding that the delay in gratuity payment was justified under Section 7(3-A) of the Payment of Gratuity Act, 1972. The court stated:

"In view of the aforesaid facts and taking into consideration the relevant documents together with discussions made herein above, this Court considers the prayer of the petitioners for grant of interest on the gratuity to be unsustainable and liable to be rejected."

Case Title: Basanti Kar & Ors v. Managing Director, Orissa Forest Development Corporation Ltd. & Anr
Case Number: WP(C) No. 18003 of 2009
Bench: Justice Gourishankar Satapathy

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