Gratuity Law Is Not a Charity: 10% Interest on Delayed Payment Is a Statutory Right, Not Benevolence: Orissa High Court Declares Coordinate Bench Ruling as Per Incuriam

“When Statute Speaks, Judges Cannot Whisper: Orders Ignoring Section 7(3A) of Gratuity Act Are Legally Void” - In a decisive and scathing verdict Orissa High Court (Justice Sanjay Kumar Mishra, presiding) dismissed a writ petition filed by the Bank challenging the award of 10% interest on delayed gratuity payments. The Court held that Section 7(3A) of the Payment of Gratuity Act, 1972, read with the Central Government Notification dated 01.10.1987, mandates simple interest at 10% on delayed gratuity — and that no court or employer can dilute or override this statutory obligation.

The judgment not only reaffirmed employees' statutory right to interest on delayed gratuity but also declared a contrary ruling by a coordinate bench (which had reduced the interest rate to 6%) as having been rendered per incuriam, i.e., in ignorance of binding precedent and statutory law. The Court further imposed costs of ₹20,000 on the petitioner for frivolous litigation and professional misconduct by its counsel.

“Payment of Gratuity With Interest Is a Statutory Compulsion, Not a Judicial Discretion”

At the heart of the dispute was the Bank's challenge to the Appellate Authority's confirmation of 10% interest awarded by the Controlling Authority for delayed gratuity. The Bank sought to rely on a recent order dated 09.09.2025, passed in W.P.(C) No. 20586 of 2022, where a coordinate bench had held that only 6% interest should be awarded, citing prevailing banking interest rates.

Justice Mishra decisively rejected this view, holding that:

“Payment of gratuity with or without interest, as the case may be, does not lie in the domain of discretion but it is a statutory compulsion.”

The Court underscored that Section 7(3A) of the Act provides for simple interest on unpaid gratuity and empowers the Central Government to notify the applicable rate. The Notification dated 01.10.1987 clearly prescribes 10% simple interest, which remains in force and has never been superseded.

“Admittedly, in view of the said provision enshrined under sub-section 3(A) of Section 7 of the P.G. Act, 1972, read with the Notification made by the Central Government dated 01.10.1987, the rate of interest payable to an employee, in the case of default in payment of gratuity, is to be 10% from the date the gratuity becomes payable till the date of actual payment.”

“A Judgment Without Reference to Law Is a Legal Mirage” — Coordinate Bench Ruling Held Per Incuriam

The coordinate bench in the 2022 writ had lowered the interest rate to 6%, holding that the 1987 Notification was merely a letter and not binding. Justice Mishra categorically overruled this:

“It has been incorrectly indicated in the said order that awarding interest @ 10%, basing on a letter issued by the Govt. of India on 01.10.1987, cannot be made applicable, even though the same is a notification made by the Government of India in terms of Section 7(3A) of the P.G. Act.”

The Court further held:

“Law is well settled that any judgment or order passed contrary to the statute is a nullity. That apart, law is also well settled that any judgment passed without taking note of the earlier judgment of the same Court or Supreme Court is per incuriam.”

The bench cited binding precedents including:

• H. Gangahanume Gowda v. Karnataka Agro Industries Corporation Ltd., (2003) 3 SCC 40

• Director (Trisul Project) DRDO v. P.B. Varalakshmi, (2015) 15 SCC 398

• Gagan Bihari Prusty v. Paradip Port Trust & Ors., SLP(C) No. 4468/2022

In Gagan Bihari Prusty, the Supreme Court had held:

“An employee is entitled to 10% simple interest per annum on delayed gratuity as an enforceable statutory right and any deviation amounts to gross illegality.”

Therefore, the Orissa High Court observed:

“The coordinate Bench has passed such an order contrary to the statute so also without taking note of the Judgments of this Court in Mahanadi Coalfields Ltd., Mohan Dakua, and M.D., Odisha State Co-Operative Bank Ltd. v. Prafulla Chandra Patnaik as well as judgments passed by the Supreme Court in H. Gangahanume Gowda, Director (Trisul Project) DRDO, and Gagan Bihari Prusty.”

“Professional Ethics Demand Full Disclosure of Law; Counsel's Silence Is Misconduct”

The Court did not stop at declaring the contrary ruling per incuriam. It also issued a strong rebuke to the conduct of the petitioner’s counsel, Mr. K.P. Nanda, who had appeared in multiple identical matters and failed to bring binding precedents to the attention of the coordinate bench.

“Once a lawyer loses the trust of the Court in view of his wrongdoing or unfairness, which includes suppression of fact... such conduct also amounts to professional misconduct.”

The Court found that Mr. Nanda had represented the Bank both in the present case and in W.P.(C) No. 350 of 2017, where the Court had already upheld the 10% interest award. His failure to cite that binding precedent in W.P.(C) No. 20586 of 2022 was not merely negligent but unethical.

“Courts Are Bound by the Constitution, Not by Convenience” — Article 141 Must Be Respected

Reinforcing the binding nature of Supreme Court rulings under Article 141, the Court held: “A judgment or an order of the High Court, which refuses to follow the decision and directions of the Supreme Court or seeks to revive a decision of the High Court, which had been set aside by the Supreme Court, is a nullity.”

It referred to State of U.P. v. Synthetic & Chemicals Ltd., (1991) 4 SCC 139, and Director of Settlements v. M.R. Apparao, (2002) 4 SCC 638, to reinforce this principle.

Judicial Time Wasted, Retired Employee Vindicated

Finding the writ petition to be meritless, the Court dismissed it with ₹20,000 in costs, directing the amount be paid to the retired employee who had been forced into unnecessary litigation.

“...for wasting the judicial time of this Court so also to compensate the hardship caused to a retired employee, who had to fight out a long legal battle to get his legitimate admissible dues of gratuity.”

The Court also expressed dismay that despite mediation efforts, the Bank chose to contest an issue that had already been settled by law.

The Orissa High Court's judgment in W.P.(C) No.10606 of 2019 is a landmark reiteration of judicial discipline, statutory interpretation, and legal ethics. It reinforces that employees' rights under beneficial legislation like the Payment of Gratuity Act are inviolable, and that interest on delayed payments is a matter of statutory right, not judicial indulgence. Courts cannot override clear legal mandates by appealing to contemporary banking trends or judicial discretion.

“When the statute is clear, convenience cannot rewrite the law.”

Date of Decision: 28 October 2025