Ratio decidendi series

Edition I: Gratuity and prevention of sexual harassment at workplace

As part of the JSA employment ratio decidendi series, we will explore ratios established by Indian courts under key labour statutes and provide an insight into the evolving landscape of Indian employment laws.

In this edition, we discuss key principles laid down by various courts under the Payment of Gratuity Act, 1972 (“Gratuity Act”) and the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (“POSH Act”). This newsletter also offers a brief overview of regulatory developments in the Indian employment space for the months of January and February 2025, released through amendments, notifications and orders.

Part A: Payment of Gratuity Act, 1972

Intra-management transfers do not automatically amount to service discontinuity; held, gratuity is payable for entire duration of service, including the transfer period

In Mercedes-Benz India Private Limited. and Ors. vs. Noshir Nani Desai[1], the Bombay High Court (“Bombay HC”) while examining a challenge to the quantum of gratuity payout to an employee transferred on a ‘long term basis’ from Mercedes-Benz to Daimler AG (under the same management as that of Mercedes-Benz), noted that such transfer does not lead to discontinuity of service with the initial employer, and the employee is entitled to gratuity for the entire period of service rendered. The petitioner argued that upon assignment of the employee’s services from Mercedes-Benz to Daimler AG, the relationship of the employee with Mercedes-Benz is severed. However, the Bombay HC found that the ultimate management between both companies is the same, and as such, this cannot be considered as a ‘fresh recruitment’ by Daimler AG. Further, considering that the assignment agreement executed by the employee used terms such as ‘assignment’ and ‘long term transfer’, the Bombay HC opined that employee’s services were merely transferred to Daimler AG, and the employee’s employment contract with Mercedes-Benz continued to operate. This judgement sets an important precedent for both employers and employees in setting a position that transfers within same management are likely to be treated as continuous, for determining gratuity benefits.

Re-deployment of an employee would not amount to break-in service; held, indicates continuity of service and gratuity should be accordingly paid

In Hanmant vs. State of Maharashtra[2], the Bombay HC while addressing the issue of gratuity entitlements in case of a re-deployed employee, held that re-deployment indicates continuity in service and employee is entitled to gratuity as per the Gratuity Ceiling SO. In this case, the petitioner was employed with the Maharashtra Electronic Corporation Limited (“Meltron”) and was subsequently re-deployed with the Maharashtra State Other Backward Class Finance and Development Corporation Limited (“OBC Corporation”) on account of Meltron’s closure. While respondent contended that absorption of the employee into OBC Corporation should be construed as new appointment, the Bombay HC noted that unless there is a break in service, re-deployment would mean continuity in service. Such break is of significance only if the earlier portion of employee’s service with Meltron was concluded with payment of all legal dues and retirement benefits, which was not the case. Considering that employee’s gratuity was transferred by Meltron to OBC Corporation on absorption, continuity in service was sufficiently established and the employee was entitled to gratuity as per the Gratuity Ceiling SO.

Enhanced gratuity cannot be paid without any agreement in place; held, gratuity claims tenable only in case of an agreement

In Anil Govind Ganu and Ashwini Anil Ganu vs. Innovative Technomics Private Limited[3], the Bombay HC ruled that enhanced gratuity benefits claim under the Gratuity Act is tenable if there is an ‘agreement’ in this regard between the employers and employees. The petitioners (who were also directors of the company) had claimed gratuity based on an ‘entry’ made in company’s balance sheet. Petitioners were not listed as insured employees for gratuity under Section 4A (Compulsory Insurance) of the Gratuity Act but had made an entry in the company’s balance sheet just before selling their stake in the company. In view of the above, the Bombay HC, while rejecting petitioner’s gratuity claim, noted that the previous directors were not paid any gratuity historically, and hence, creation of gratuity entry for the first time in the balance sheet right before the sale of their stake in the company was held untenable. The Bombay HC clarified that mere entry of gratuity payments in the company’s balance sheet does not amount to an ‘agreement’ under Section 4(5) of Gratuity Act (which provides for employee’s right to receive better terms of gratuity) and had the petitioners entered into any agreement for better terms of gratuity, the court could have allowed the claim. The ruling emphasises that for employees to claim better terms of gratuity, the existence of an ‘agreement’ in this regard has to be established.

Contract workers cannot be made to claim gratuity from contractors; held, liability for payment of gratuity to contract workers rests with principal employer, notwithstanding the existence of a separate contractor

In Indian Institute of Technology, Bombay vs. Tanaji Babaji Lad and Ors.[4], the Bombay HC ruled that contract workers involved in various projects at Indian Institute of Technology (“IIT”), Bombay for a considerable period, are entitled to gratuity payments from the principal employer/petitioner (i.e., IIT Bombay). The petitioner argued that these workers were employed by their respective contractors, denying any employer-employee relationship with IIT Bombay. However, Bombay HC found that IIT Bombay maintained ultimate control over the workers’ services, thus affirming the claim of the contract workers. Moreover, given the continuous nature of service provided by such contract workers without any termination at the end of term, provision of services only to IIT Bombay, and exercise of significant control over contract workers, for the limited purposes of gratuity liability payout, the petitioner was held liable.

Quantum of gratuity cannot be decided individually; held, gratuity payout should be in accordance with prescribed ceiling limit

In Prashant Kumar vs. State of Tripura[5], the Tripura High Court (“Tripura HC”) directed that calculation of gratuity in any establishment covered under the Gratuity Act is to be made in accordance with the limits prescribed by the Central Government. In this case, the petitioner retired from the post of ‘Principal’ from the Tripura Tribal Welfare Residential Educational Institution (“Society”) and was paid gratuity of INR 3,50,000 (Indian Rupees three lakh fifty thousand). The petitioner sought for additional gratuity in line with the maximum ceiling of INR 20,00,000 (Indian Rupees twenty lakh), as prescribed by the Central Government, vide SO No. 1420 (e) dated March 29, 2018 (“Gratuity Ceiling SO”). While the respondent was of the view that the Society was run by its own funding and controlled and managed by the State Government and as such, the ceiling limit as prescribed by Central Government need not be followed, the Tripura HC opined that the provisions of the Gratuity Act override any other enactment or rule. The Tripura HC also opined that Gratuity Act is a beneficial legislation and the ceiling limits prescribed under Gratuity Ceiling SO should be adhered to. Accordingly, respondent was ordered to pay the petitioner the outstanding gratuity, along with an interest of 7% per annum, computed from the date of retirement until payment date.

Gratuity serves as a retirement (terminal) benefit; held, cannot be paid in instalments

In Sadhoo Beedi Enterprises vs. Controlling Authority[6], the Kerala High Court (“Kerala HC”) stated that financial distress is not a valid excuse for delaying or denying gratuity payment and held that gratuity cannot be paid in instalments. On an application being made by a retired employee with the controlling authority requesting for his gratuity to be paid, the controlling authority ordered the petitioner to pay balance gratuity, along with an interest of 10% within 30 (thirty) days. Petitioner’s request of paying gratuity in 12 (twelve) equal instalments to the employee was rejected by the controlling authority, which was then appealed by the petitioner before the Kerala HC. Kerala HC, while upholding the controlling authority’s decision, held that gratuity payment is a statutory right ensuring socio-economic security for employees and must be paid in lump sum within 30 (thirty) days of becoming due. It further held that the law does not provide for payment of gratuity in instalments as the purpose of gratuity is to serve as a retirement or terminal benefit ensuring immediate financial support to the employee or their dependants.

Part B: Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

Enquiry proceedings should be conducted in accordance with principles of natural justice; held, violation of the same can vitiate the enquiry proceedings

In Aureliano Fernandes vs. State of Goa and Ors.[7], the Supreme Court of India (“SC”) held that the court is under duty to satisfy itself that the IC has inquired into sexual harassment allegations as per the relevant terms of services rules. The SC also stated that fair procedure alone can guarantee a fair outcome, and adherence to due process and principles of natural justice is essential. The SC held that the IC had faltered in following the prescribed inquiry procedure, leading to an unfair trial. It also underscored that procedural fairness requires adherence to ‘audi alteram partem’ (right to be heard), unbiased adjudication, reasonable time to respond, and compliance with statutory rules governing disciplinary proceedings and laid down principles for conducting a fair inquiry. Considering that the IC had defied the principles of natural justice in conducting the enquiry, the judgment upholding the IC’s decision was set aside. With this, the SC upheld due process as an important facet of principles of natural justice and ordered that fresh IC proceedings be instituted.

Complainant must also be provided a copy of the inquiry report; held, the complainant falls under the category of ‘concerned parties’ under Section 13 of POSH Act

In Ms. X vs. Union of India & Ors.[8], the petitioner, a Border Security Force (“BSF”) constable, filed a sexual harassment complaint against an officer. The BSF conducted the inquiry under the Border Security Force Act, 1968 (“BSF Act”), instead of POSH Act and imposed punishment on the officer. Petitioner challenged the inquiry as she was not provided a copy of such inquiry report. While BSF argued that the inquiry report was not provided as nothing material was found against the accused, the SC held that the inquiry report was to be provided to the petitioner as the petitioner falls under the category of ‘concerned person’ under Section 13(1) of the POSH Act (which requires the inquiry report to be made available to all concerned parties). While the SC imposed a penalty of INR 25,000 (Indian Rupees twenty-five thousand) on BSF for failing to adhere to procedural mandate as prescribed under POSH Act, it did not order a fresh inquiry on the complaint since it was of the opinion that the punishment imposed under the BSF Act was sufficient to meet the ends of justice.

No bar on gender under POSH Act; held, complaints against same gender under POSH Act maintainable

In Dr. Malabika Bhattacharjee vs. Internal Complaints Committee, Vivekananda College and Ors.[9], the Calcutta High Court (“Calcutta HC”) while examining whether a same-gender complaint is maintainable under the POSH Act, held that the definition of ‘sexual harassment’ under the POSH Act cannot be a static concept but has to be interpreted against the backdrop of the social perspective. The petitioner, a female professor, challenged the jurisdiction of the internal committee (“IC”) in entertaining a sexual harassment complaint filed against her by another woman. The petitioner, while relying on the definition of ‘sexual harassment’ and past judicial interpretations on gender-based offenses under the Indian Penal Code, 1860, argued that the POSH Act only contemplated complaints against male perpetrators. The Calcutta HC held that the POSH Act does not impose any restriction on the gender of the accused. It emphasised that Section 2(m) of the POSH Act defines a ‘respondent’ as “a person against whom the aggrieved woman has made a complaint under section 9”, without specifying any gender. It also placed reliance on University Grants Commission (Prevention, Prohibition and Redressal of Sexual Harassment of Women Employees and Students in Higher Educational Institutions) Regulations, 2015, wherein the scope of regulations are wide enough to encompass respondents of all genders. Based on the above, the Calcutta HC held that the complaint against the alleged woman perpetrator cannot be turned down by IC, and the IC was instructed to decide the matter on its own merits. This ruling clarifies that workplace sexual harassment laws in India apply irrespective of the gender of the respondent.

Circumstances amounting to sexual harassment should also be considered while calculating the limitation period for filing complaints; held, delay in filing complaints under POSH Act should not be the only reason to dismiss the complaint

In Vaneeta Patnaik vs. The State of West Bengal and Ors.[10], the Calcutta HC while examining the local committee (“LC”)’s interpretation of the limitation period for filing complaints under POSH Act, held that circumstances pertaining to threats of detrimental treatment and the creation of a hostile work environment are also to be viewed as ‘sexual harassment’ under Section 3(2) (circumstances amounting to sexual harassment) of the POSH Act. In this case, the LC had dismissed the complaint as time-barred, stating that the last alleged incident of sexual harassment occurred in April 2023, while the complaint was filed in December 2023 (and that the same is beyond the timeline for filing compliant as provided under POSH Act). The LC also held that the alleged acts of victimisation post-April 2023 had no nexus with ‘sexual harassment’ as defined under Section 2(n) of the POSH Act. The Calcutta HC ruled that limitation is a mixed question of fact and law and cannot be decided at the threshold stage without examining evidence. Consequently, the LC’s order was set aside and Calcutta HC directed the LC to adjudicate the complaint on merits as opposed to rejecting it on grounds of limitation.

Delay in completing inquiry as per timelines under POSH Act can be condoned under certain circumstances; held, delay should not be the sole reason to quash IC proceedings in its entirety

In CA Nitesh Parashar vs. Institute of Chartered Accountants of India[11], the Delhi High Court (“Delhi HC”) while addressing a challenge to IC proceedings under the POSH Act, placed reliance on Vinay Kumar Rai vs. Union of India[12] wherein it was held that the 90 (ninety) day time limit for completion of inquiry as provided under Section 11(4) of the POSH Act cannot be seen as a terminal point beyond which inquiry cannot be continued. Petitioner challenged the IC’s inquiry into a complaint filed against him, arguing that, inter alia, IC inquiry was not completed within the statutory 90 (ninety) day period, thereby vitiating the proceedings. The Delhi HC placed reliance on precedents and stated that sexual harassment complaint and inquiry proceedings cannot be quashed merely for the reasons that IC failed to complete the inquiry within prescribed time limit, and emphasised the need to balance fairness for both, the complainant as well as the accused.

Adjudication of complaints relating to sexual harassment needs to be dealt with utmost care; held, entire IC proceedings cannot be set aside due to mere procedural irregularity in the constitution of IC

In P vs. Union of India and Ors.[13], the Delhi HC examined whether an IC inquiry into a sexual harassment complaint could be reopened after its conclusion, solely due to an alleged procedural irregularity in the IC’s constitution. Petitioner had filed a complaint against a senior functionary in IFCI Factors Ltd. (“IFL”) in July 2019, which was investigated by IFL’s IC. Respondent was found guilty and was recommended to issue a written apology. Respondent later appealed against the IC’s findings before the appellate authority of IFL i.e., its Board of Directors (“BOD”) due to an alleged technical error in the constitution of IC, and the BOD directed re-examination of the complaint. The Delhi HC, while setting aside the direction by BOD, emphasised that complaints under the POSH Act must be dealt with expeditiously and fairly. It also held that merely citing an error in the IC’s constitution cannot be a ground to subject the complainant to a second inquiry after a substantial delay and further highlighted that institutions must take responsibility for ensuring ICs are properly constituted. The Delhi HC directed IFL to pay the petitioner INR 1,00,000 (Indian Rupees one lakh) as costs for the inconvenience caused.

Regulatory Updates

Government of Karnataka outlines criteria for recognition of first aid training institutes

The Government of Karnataka, vide notification[14] dated January 2, 2025, laid down the criteria for recognition of first aid training institutes in Karnataka under Factories Act, 1948 (“Factories Act”). These guidelines aim to ensure that first aid training institutes meet necessary standards to equip workers with essential first aid skills. Institutes are required to either be registered under certain identified Acts and have trainers with certain identified educational and medical qualifications and experience. They must also provide adequate facilities and equipment to ensure effective training. Institutes must have a minimum of 2 (two) first aid training assistants having medical knowledge and should have an owned/rented space sufficient enough to accommodate at least 30 (thirty) trainees. Programs for training candidates should be for a minimum of 3 (three) days and successful candidates will thereafter be issued a certificate, which will be valid for 3 (three) years. Further, institutes have to register by paying registration fees of INR 10,000 (Indian Rupees ten thousand), which will have to be renewed every 2 (two) years.

Government of Karnataka increases the contribution amount under Karnataka Labour Welfare Fund Act, 1965

The Government of Karnataka, vide notification[15] dated January 10, 2025, announced the implementation of the Karnataka Labour Welfare Fund (Amendment) Act, 2024. This amendment brings changes to Section 7A (pertaining to contribution) of the Karnataka Labour Welfare Fund Act, 1965, revising the rates of contribution comprising of employer’s contribution (revised from INR 20 (Indian Rupees twenty) to INR 50 (Indian Rupees fifty), employee’s contribution (revised from INR 40 (Indian Rupees forty) to INR 100 (Indian Rupees one hundred) and State Government’s contribution (revised from INR 20 (Indian Rupees twenty) to INR 50 (Indian Rupees fifty), payable respectively by the employer, the employee and the State Government to the Karnataka Labour Welfare Board.

Government of Kerala issues Kerala Factories (Amendment) Rules, 2025

The Government of Kerala, vide notification[16] dated January 4, 2025, issued rules to amend the Kerala Factories Rules, 1957 (“KL Factory Rules”). The amendments were made in Appendix I of KL Factory Rules relating to change in ‘maximum number of persons to be employed in a day during the year’ and Appendix III of KL Factory Rules pertaining to fees prescribed under the Kerala Factories Rules, 1957 (other than the fees as prescribed in Appendix I) for medical examination by certifying surgeon, transfer of license, etc. These revisions are intended to align with the Government’s goal to update the user charges and fees for services provided by government departments to meet the increased expenditure by Department of Factories and Boilers.

Government of NCT Delhi mandates compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Government of NCT of Delhi, vide notification[17] dated January 6, 2025, issued directions stressing on the need for implementation of provisions under POSH Act, in alignment with recommendations made by the Supreme Court in the case of Aureliano Fernandes vs. The State of Goa and Ors.[18]. The order re-iterated the requirement of constitution of IC by every employer employing 10 (ten) or more employees and stated that non-compliance would attract penalties. Employers (both, public and private sectors) were also informed on the institution of ‘She Box Portal’, launched by the Ministry of Women and Child Development, for online complaint registration. The order directed the district in-charges and the Directorate of Industrial Safety and Health to sensitise employers and seek information regarding constitution of IC and also intimate employers regarding the ‘She Box Portal’.

Notification of Chhattisgarh Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017

The Government of Chhattisgarh, vide notification[19] dated February 13, 2025, has given effect to the Chhattisgarh Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017 (“Chhattisgarh S&E Act”). Chhattisgarh S&E Act, which was originally published in the Chhattisgarh Gazette on August 23, 2018, has now come into force from the abovementioned date of issue of this notification. Chhattisgarh S&E Act aims at regulating employment and service conditions in shops and establishments across the state that employ 10 (ten) or more workers. With the release of this notification and implementation of Chhattisgarh S&E Act, establishments in Chhattisgarh would be required to ensure compliance with its provisions, which include regulations related to working hours, employee rights, leave policies, and workplace conditions.

Case law ratios

Industrial Disputes Act, 1947 cannot be made applicable on an employee in a supervisory role

In K. Hanumantha Rao vs. Industrial Tribunal cum Labour Court and Ors.[20], the Andhra Pradesh High Court (“AP HC”) held that Industrial Disputes Act, 1947 (“ID Act”) cannot be applied to an employee in the role of a ‘supervisor’. In this case, petitioner had joined the respondent company as a ‘Trainee Professional Service Representative’ and was subsequently promoted as a ‘Field Sales Officer’. Petitioner was transferred frequently to several locations such as Imphal, Tirupati, etc., and with a view that such transfer was unlawful, petitioner had refused report to his posting in Mumbai. Owing to such refusal in reporting, petitioner’s employment was subsequently terminated by the respondent company in accordance with the terms of employee’s appointment (which provided for employer’s right to terminate in case of unauthorised absence for more than 3 (three) days). Petitioner challenged the termination by claiming himself to be a ‘workman’, which was subsequently dismissed by the labour court on the grounds that the service did not fall within the scope of a ‘workman’ under the ID Act. Petitioner then filed a writ petition with the AP HC seeking his reinstatement and argued that Section 6 of Sales Promotion Employees (Conditions of Service) Act, 1976 (“SPECS Act”) provided for ID Act to be applicable on ‘Sales Promotion Employees’ and considering that the petitioner fell within the ambit of a ‘Sales Promotion Employee’ under Section 2(d) of SPECS Act, the provisions of ID Act would be applicable on petitioner as well. AP HC while upholding the dismissal, held that given that the petitioner served in a ‘supervisory role’, the same would not fall within the definition of ‘Sales Promotion Employee’ of SPECS Act, and accordingly, ID Act would not be applicable.

Appeal filed beyond period of limitation is not maintainable

In Employees Provident Fund Organization vs. Presiding Officer, Employees Provident Fund Appellate Tribunal and Anr.[21], the Madras High Court (“Madras HC”) held that that an appeal filed beyond the limitation period of 120 (one hundred twenty) days (comprising of 60 (sixty) days for filing of an appeal and an additional 60 (sixty) days of relaxation of limitation period at the tribunal’s discretion) under Rule 7(2) (time for filing appeal) of Employees’ Provident Fund Appellate Tribunal (Procedure) Rules, 1997, cannot be entertained as the same is time barred and the appellate tribunal does not have jurisdiction to entertain such an appeal. In this case, the appeal was filed by respondent challenging an order passed by Regional Provident Fund Commissioner under Section 14B of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”) imposing damages on delayed remittance of provident fund dues and initiated proceedings under EPF Act. The tribunal, while allowing the appeal, noted that the authority who conducted the proceedings failed to take note of critical aspects surrounding the delay in remittance by employer, and that such delay was not deliberate. Petitioner, vide this writ petition, contended that the appeal before the tribunal was filed beyond the permissible period of limitation as prescribed under Rule 7(2) (time for filing appeal) of Employees’ Provident Fund Appellate Tribunal (Procedure) Rules, 1997. The Madras HC, supporting the petitioner’s argument and allowing the writ petition, held that such exercise of undue jurisdiction and issuance of order by the tribunal over a matter which was barred by limitation should be quashed.

Tribunal or labour court can interfere with the quantum of punishment only if found disproportionate

In Delhi Transport Corporation vs. Mahender Singh^[22], the Delhi HC has held that in the absence of a finding that the punishment is disproportionate to the gravity of charge established, the tribunal or labour court should not interfere with such punishment. Respondent’s services were terminated following disciplinary proceedings for continued unauthorised absence, which absence was on account ailments suffered by the respondent’s wife and not the respondent. Challenging the termination, respondent appealed to the labour court, which upheld the termination as justified but modified the punishment to a deemed retirement and awarded retiral benefits. Labour court also found the termination to be disproportionate to respondent’s misconduct. Petitioner had challenged the labour court’s modification in punishment, and the Delhi HC ruled that such unauthorised absence could not be justified, as it was not due to compelling circumstances but was wilful. Therefore, the compulsory retirement order as passed by labour court was set aside. The Delhi HC also clarified that the power under Section 11-A of the ID Act (power to reduce the quantum of punishment) is required to be exercised judiciously, allowing interference only when employer’s decision is shockingly disproportionate to the workman’s guilt.

Employee is entitled to full back wages if illegally terminated except to the extent he was gainfully employed

In Arpookara Service Co-Operative Bank Limited vs. T.M. George and Anr.[23], the Kerala HC held that a workman whose service has been illegally terminated is generally entitled to full back wages, except for the period during which the workman was gainfully employed. The burden of proving this rests with the employer. In this case, the respondent was suspended due to allegations of misconduct, including financial mismanagement, which was proven under the inquiry set up in this regard. Respondent’s appeal with the petitioner’s board of directors (“ASC BOD”) was dismissed by ASC BOD. Against such dismissal, respondent filed a petition before the Joint Registrar of Co-Operative Societies, which remanded the appeal to ASC BOD. An Administrator (who had taken charge of ASC BOD) (“Administrator”) heard and allowed the appeal and directed the respondent to be reinstated. The ASC BOD, on their return to office, challenged the Administrator’s decision and initiated fresh disciplinary proceedings. Co-operative arbitration court heard the matter and held that respondent’s suspension and dismissal were illegal and ordered full back wages and benefits. This decision was subsequently challenged by petitioner/company before the Kerala HC.

While deciding on the entitlement of back wages during suspension, the Kerala HC held that an employee who was illegally terminated is entitled to full back wages, unless the employer can prove that the employee was gainfully employed during the period of absence. The duty to plead and prove such employment during the period of absence lies solely with the employer. Therefore, Kerala HC dismissed the petitioner’s appeal and confirmed that the respondent was entitled to full back wages and monetary benefits for the period of his suspension and dismissal, as the petitioner/company failed to prove that the respondent was gainfully employed during the dismissal period.

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