Interest On Deposited Gratuity Stops From Date Of Deposit; Issue Of ‘Special Allowance’ As Wages Requires Fresh Examination: Bombay High Court

On the issue of whether “special allowance” paid to employees forms part of “wages” for calculating gratuity under Section 2(s) of the Act, the Court explained that the determination cannot depend merely on the nomenclature used in the salary structure, instead, the real nature of the payment must be examined. If the allowance is essentially dearness allowance in disguise, it would form part of wages for gratuity computation, however, if it is an independent allowance, it would remain excluded under the statutory definition, it noted.

Accordingly, the Court remitted the matter to the Appellate Authority for fresh consideration of whether the special allowance forms part of wages and whether employees are entitled to enhanced gratuity on that basis.

Noting that the employee was required to wait for the balance amount of gratuity until the dispute was adjudicated by the authority, Justice Amit Borkar observed, “…The delay in receiving the unpaid portion cannot be ignored. Interest under Section 7(3A) operates as compensation for such delay. Whenever an amount which is legally payable under the statute remains unpaid and no sufficient justification is shown, the employee becomes entitled to interest on that amount. At the same time, the fact that the employer deposited the admitted amount cannot be overlooked. Once the admitted amount was deposited before the authority, the employee was not deprived of that portion thereafter. Therefore, the employer’s liability to pay interest must be considered in a balanced manner. The deposit made by the employer reduces its responsibility to the extent of the amount already deposited”.

“For this reason interest on the amount which was admitted and deposited by the employer cannot continue to run from the date of deposit. Once that amount was placed before the Controlling Authority, the employer had fulfilled its obligation in respect of that part of the claim. Therefore, directing payment of interest on the deposited amount even after the date of deposit would not be justified”, the Bench further observed.

Advocate Yogendra M. Pendse appeared for the petitioner in the lead matter.

In the matter, the dispute was between M/s Aplab Ltd., a company engaged in manufacturing UPS systems and industrial AC and DC power units, and several of its former employees who had resigned from service. One of the employees, who had been working as Chief Regional Manager, resigned in 2015 with a last drawn basic salary of ₹36,500 per month.

The company contended that the employee had resigned without serving the prescribed three-month notice period, though he expressed willingness to compensate for two months’ notice pay. It also claimed that certain amounts were pending against the employee during his full and final settlement.

Thereafter, several years after leaving service, the employee approached the Controlling Authority under the Payment of Gratuity Act seeking payment of gratuity. The company opposed the claim on the ground that the employee had not filed the prescribed Form “I” for gratuity within the statutory time and had approached the authority after considerable delay.

The Controlling Authority partly allowed the employee’s application and directed the company to pay ₹9.13 lakh towards gratuity along with interest. Both parties challenged the decision before the Appellate Authority, the company disputing the liability and interest, and the employee seeking recalculation of gratuity on a higher basis. The Appellate Authority dismissed both appeals, after which the parties approached the High Court.

The employer had argued that the “special allowance” was only a consolidated component covering various incentives and benefits and had no connection with dearness allowance. The company’s witness testified that the term was used internally to represent adjustments of different allowances and should not be equated with statutory dearness allowance.

The Court, however, noted that the employee had relied on salary slips and a document relating to restructuring of perks from 01-04-2004, which allegedly indicated that employees completing more than fifteen years of service were entitled to gratuity calculated on the basis of twenty-six days’ wages. However, these documents were produced only as photocopies and the authorities below had not examined their authenticity or evidentiary value.

The Court further clarified that if the gratuity amount is enhanced after reconsideration of the dispute, the enhanced portion would also attract statutory interest from the date gratuity originally became payable until the date of payment. While calculating such interest, the authority must give credit for the amount already deposited to avoid duplication.

Therefore, observing that the Appellate Authority had failed to decide the crucial question regarding the true nature of the “special allowance”, the Court held that the matter required proper factual examination.

Cause Title: Gundu Daji Desai v. M/s. Aplab Ltd. [Neutral Citation: 2026:BHC-AS:11226]

Appearances:

Petitioner: Yogendra M. Pendse a/w Priyanka Patkar, Advocates.

Respondent: -

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