Payment of Gratuity Act Applies to Zilla Parishad Employees: Bombay High Court

"Zilla Parishad Is Not State or Central Government, Cannot Claim Exemption Without Proper Notification" - In a significant judgment upheld the applicability of the Payment of Gratuity Act, 1972 to employees of Zilla Parishad, Washim. The Court ruled that Zilla Parishads are "local self-government bodies" and not part of the "State Government" for the purposes of exemption under the Gratuity Act. Consequently, their employees are entitled to receive gratuity under the provisions of the Act, notwithstanding the existence of separate service rules.

Several retired employees of Zilla Parishad, Washim, who had served as Health Workers and other public servants, filed applications before the Labour Court (Controlling Authority under the PG Act) claiming gratuity along with interest. While the Zilla Parishad had released a portion of the retiral benefits, the employees claimed the full amount due under the Payment of Gratuity Act, 1972.

The Labour Court ruled in favor of the retired employees and directed the Parishad to pay gratuity amounts ranging from Rs. 6.37 lakhs with 10% annual interest. Aggrieved, the Zilla Parishad challenged these orders by filing writ petitions, asserting that their employees are governed by the Maharashtra Civil Services (Pension) Rules, 1982 and the Maharashtra Zilla Parishad District Services Rules, 1968, and thus fall outside the scope of the Gratuity Act.

The key legal question before the Court was whether employees of the Zilla Parishad fall within the scope of the Payment of Gratuity Act, 1972, and whether the Labour Court (Controlling Authority) had jurisdiction to adjudicate such claims.

Justice M.S. Jawalkar decisively rejected the Zilla Parishad's contention and held: “Zilla Parishad does not fall within the definition of Central or State Government. It is a body of Local Self Governance and, therefore, the Service Rules cannot override the PG Act.”

The Court emphasized the overriding effect of Section 14 of the Payment of Gratuity Act: “The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act.”

The Court further clarified that: “Unless there is an exemption granted under Section 5 of the PG Act by a notification from the Government, the Act applies fully. Zilla Parishad has not obtained any such exemption.”
Relying on landmark precedents such as Municipal Corporation of Delhi v. Dharam Prakash Sharma [(1998) 7 SCC 221], the Court noted that:
“Mere fact that gratuity is provided under pension rules will not disentitle an employee from receiving gratuity under the Payment of Gratuity Act.”

The High Court also rejected the contention that employees were simultaneously claiming benefits under both sets of rules. It pointed out that the Controlling Authority had correctly deducted the amount already paid under the service rules, and therefore there was no double benefit.
The Court found that the Respondents had worked continuously for over three decades and were regular employees entitled to benefits under Section 2(e) of the PG Act.

Highlighting procedural compliance, the Court noted: “The Labour Court had given ample opportunity to the Petitioners to establish their claim of exemption but they failed to do so.”

The Court further ruled that delay in applying for gratuity would not bar claims under Section 7(2) of the Act, especially when the employer failed to issue notice determining gratuity.

As a result, the Court upheld the Labour Court’s direction for the payment of gratuity with 10% annual interest and allowed the employees to withdraw the amounts deposited in court.

The Bombay High Court reaffirmed the wide applicability of the Payment of Gratuity Act, 1972, particularly its overriding nature over local service rules unless specific exemption is granted by the Government under Section 5. The ruling affirms the rights of employees of local bodies like Zilla Parishads to receive gratuity benefits and strengthens the enforceability of beneficial labour legislation.

Date of Decision: April 29, 2025