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Querist : Anonymous (Querist) 25 April 2011 This query is : Resolved 
Section 4 (1) of the Payment of Gratuity Act provides that Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years-

(2) For every completed year of service or part thereof in excess of six month, the employer shall pay gratuity to an employee at the rate of fifteen days’ wages based on the rate of wages last drawn by the employee concerned:

Section 4(1) uses the phrase continuous service, whereas continuous service has been defined under section 2(c) of the Act, which provides that “continuous service’ means continuous service as defined in Section 2-A

Section 2-A i.e. the definition of continuous service has been inserted in the statute book by way of amending act 26 of 1984 (with effect from 11.2.1981)

The background for the aforesaid amendment was that on 11.2.1981, the Hon’ble Supreme Court interpreted the provisions of section 2(c) and 4(1) and particularly the emphasis was given on the phrase or words “ actually employed” used in explanation I to Section 2 (c) Please see the judgment i.e. Lalappa Lingappa Vs. Laxmi Vishnu Textile Mills; AIR 1981 SC 852

Since the enforcement of aforesaid ruling has resulted in denial of gratuity to a number of employees, whose short terms absence had remained unregularised due to lack of appreciation of its significance for the purpose of working out their entitlement to gratuity For detail please see the statement of Objects and Reasons of Act 25 of 1984.

The amended provision considered by Hon’ble Supreme Court in the case of Jeewallal Limited Vs. Appellate Authority; (1984) 4 SCC 356 and Management of Goodyear India Limited Vs. K.G. Devessar; (1985) 4 SCC 45

Subsequently, a division bench of Hon’ble Karnatake High Court has also considered the provisions of the Section 2-A and 4 in the case of H. Ramappa Vs. General Manager, Sri Yellammma Cotton Woolen and Silk Mills; 2008(117) FLR 863

In view of the aforesaid legal proposition, I am of the view that an employee is eligible only when he serves minimum of 5 years period. While counting the number of years, the last year's service, if more than 6 months to be taken as one year for calculation and in all other years’ employee should work minimum of 240 days.

It is also pertinent to mention here that by virtue of the judgment of Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal, (1980) (4) S.C.C.433, it is enough that an employee has a service of 240 days in the preceding 12 months and it is not necessary that he should have completed one whole year's service. As the definition of continuous service in Industrial Dispute Act and Payment of Gratuity Act are synonymous, the same principal can be adopted under the act also and hence an employee rendering service of 4 year 10 months 11days is considered to have completed 5 years continuous service under sec.4(2) and thereby is eligible for gratuity.
Guest (Expert) 25 April 2011
Is it a query or reply to any query?
H.M.Patnaik (Expert) 26 April 2011
This seems to have been posted for clearing doubts and guidance of service holders. This is not a query as it appears.
Guest (Expert) 26 April 2011
Dear Patnaik,

I can agree with your opinion, but at least there should have been some indication whether this is for information of all, or clarification to some earlier posted reply, or reply to some question with reference to the link for that query.

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