High Court Declares: Delayed Gratuity Interest Rate Stands Firm at 10%, No Room for Reduction

Punjab & Haryana High Court dismisses petitions challenging the interest rate on delayed gratuity payments, affirming that 10% interest as per 1987 notification is applicable. The Punjab & Haryana High Court has dismissed multiple petitions filed by The Punjab State Cooperative Bank Ltd. Challenging the interest rate on delayed gratuity payments. The judgment, delivered by Justice Jagmohan Bansal, reaffirms that the applicable interest rate remains 10% as specified by a 1987 notification, despite the bank’s argument for a reduced rate of 7.1% based on a 2022 notification.

The Punjab State Cooperative Bank Ltd. Filed several petitions (CWP-13435-2024 and connected cases) under Articles 226/227 of the Constitution of India, seeking to set aside an order dated 15.04.2024. The order in question granted respondents simple interest on delayed payment of gratuity at a rate of 10%, as per a notification dated 01.10.1987. The bank argued that the interest rate should be 7.1%, in accordance with a more recent notification dated 03.01.2022.

The primary legal issue revolved around the interpretation and application of Section 7(3A) of the Payment of Gratuity Act, 1972. This section mandates that employers pay simple interest on delayed gratuity payments at a rate specified by the Central Government. The bank contended that the interest rate should be revised to 7.1% based on a notification related to the Special Deposit Scheme for Non-Government Provident, Superannuation, and Gratuity Funds.

Justice Bansal highlighted the clear language of the 1972 Act, which specifies that the interest rate on delayed gratuity must be notified by the Central Government. The 1987 notification explicitly set this rate at 10%. The court found that the 2022 notification cited by the petitioner did not pertain to gratuity payments but to deposits under a different scheme.

The court observed that the reliance on the 2022 notification by the petitioner’s counsel, Mr. C.L. Pawar, was misplaced. The 1987 notification was issued under the specific authority of the Payment of Gratuity Act, whereas the 2022 notification was not.

Justice Bansal emphasized, “Section 7 (3A) clearly provides that the rate of interest shall be notified by the Government by way of notification. The Government has issued notification dated 01.10.1987 in exercise of power conferred by sub-section (3A) of Section 7, whereas notification dated 03.01.2022 has not been issued in exercise of aforesaid power.”

The court concluded that the petitioner’s argument for applying a 7.1% interest rate was untenable. “The contention of petitioner deserves to be rejected and accordingly rejected,” Justice Bansal stated. All petitions were dismissed, upholding the 10% interest rate on delayed gratuity payments as specified by the 1987 notification.

This ruling reinforces the legal framework governing gratuity payments and underscores the importance of adhering to specific notifications issued under the Payment of Gratuity Act. Employers must comply with the established interest rate of 10% for delayed payments, as this decision confirms the non-applicability of unrelated financial notifications to gratuity obligations.

Date of Decision: 31.07.2024