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BCH Electric Limited v. Pradeep Mehra

Civil Appeal · 2020 INSC 379Decided 29 Apr 2020
Civil Appeal No. 2379 of 2020
Justice Uday Umesh Lalit · Justice Sanjiv Khanna

Background

The respondent, a former Chief Operating/Executive Officer, resigned after about 12 years of service with a last-drawn monthly salary of Rs. 24,50,000, and received about Rs. 36.7 lakh in dues, including Rs. 10 lakh (the then-statutory cap) towards gratuity. He claimed he was entitled to a much larger gratuity of over Rs. 1.83 crore, arguing the company's own Gratuity Trust Scheme, under which 4.81% of his salary had been earmarked for gratuity each year, provided no ceiling and was more beneficial than the Act, so he was entitled to its full benefit under Section 4(5) of the Payment of Gratuity Act. The Controlling Authority, Appellate Authority, and the Delhi High Court (Single Judge and Division Bench) all ruled in his favour.

Decision Breakdown

The Supreme Court disagreed, holding that the company's Trust Deed and Scheme Rules themselves provided that, for employees covered by the Payment of Gratuity Act (as the respondent was), gratuity must be calculated "in accordance with the provisions of the Act", which necessarily includes the statutory ceiling under Section 4(3), not just the benefit rate under Section 4(2). The Scheme offered an uncapped alternative calculation only to employees not covered by the Act. Since the Scheme did not actually offer the respondent any genuinely better alternative package than the Act itself, Section 4(5) (which protects an employee's right to better contractual terms) was not triggered, and the earlier authorities had wrongly read the Scheme's terms selectively. The Court allowed the company's appeal and limited the respondent's gratuity to the statutory ceiling already paid.

Lesson Learnt

An employer's internal gratuity scheme does not automatically override the statutory ceiling on gratuity unless it clearly and separately offers better terms than the law provides: an employee cannot mix and match the best parts of the company scheme and the statute when the scheme itself simply points back to the statutory formula.

Official source (sci.gov.in)View Judgment (PDF)

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