Interpretation Of Regulation Must Be Made In Favor Of Employees: Supreme Court Upholds Grant Of Increased Gratuity To AFC Retired Employees

The Apex Court was considering an appeal challenging the judgment of the Division Bench of the High Court in a Writ Appeal preferred by Assam Financial Corporation Limited (AFC).

The Division Bench of Justice J.K. Maheshwari and Justice Vijay Bishnoi asserted, “Once the regulation itself makes the provision to grant amount of gratuity in terms of the formula contained therein with a limit of Rs. 3.5 Lakhs (later increased to 7 Lakhs) or as notified by the Government of Assam from time to time, in our view, interpretation of the regulation must be made which is in favor of the employees.”

Senior Advocate Preetesh Kapur represented the Appellant while Senior A.A.G.Chinmoy Pradip Sharma represented the Respondent.

Factual Background

The Respondents, who were the original writ petitioners before the High Court, were employees of the AFC and retired on superannuation between 2018–2019. Upon retirement, retiral dues were paid, including gratuity as per the regulations of the AFC, particularly the Assam Financial Corporation (Payment of Gratuity to Employees) Regulation, 1964 (1964 Regulations), read with the Assam Financial Corporation (Amendment) Staff Regulations, 2007 (2007 Staff Regulations). Their plea before the High Court was that they were entitled to gratuity as per Section 4(5) of the Payment of Gratuity Act, 1972, but the ceiling for gratuity as per AFC’s internal regulations was not in sync with the Act.

The 2007 Staff Regulations of the AFC initially provided a ceiling of Rs 3.5 Lakh for payment of gratuity, which was subsequently enhanced to Rs 7 lakh vide an Office Order of 2012. The Division Bench of the High Court, while passing the impugned judgment, confirmed the view taken by the Single Judge, granting the benefit of the enhanced gratuity in terms of the provisions of the Payment of Gratuity Act, 1972. The Single Judge had dealt with the Assam Financial Corporation Group Gratuity Assurance Scheme (Scheme) along with the 1964 Regulations as well as the 2007 Regulations and found that the Respondents were ‘employees’ within the meaning of the Payment of Gratuity Act, 1972 and in view of the non-obstante clause as contained in Section 14, the Respondents were entitled to the higher ceiling of gratuity which was payable under Section 4 of the Payment of Gratuity Act, 1972.

Reasoning

Referring to a memorandum i.e. Memo No. 6335 dated March 2, 2022, the Bench noted that the Managing Director of the AFC acknowledged the provisions of the Payment of Gratuity Act, 1972 and in particular said that as per Staff Regulations of AFC, the Corporation is required to follow the Government of Assam Rules to pay gratuity amount to the employees of the Corporation on superannuation which had specified the ceiling of Rs.15,00,000 at the relevant point of time for State Government employees.

It was urged by the Appellant AFC that since the Board of Directors had decided in its meeting to defer the decision for enhancing the limit for payment of gratuity, the benefit of the revised ceiling of gratuity payment similar to what was available to State Government employees, couldnot be granted to the employees of the AFC. The Bench noted that the limit of Rs. 3.5 lakh for AFC employees was enhanced to Rs 7 lakh in the 2012 Office Order.

“Once the Regulation itself prescribes for grant of gratuity as per the formula therein subject to the ceiling fixed for the employees by the AFC or as notified by the Government of Assam, in our view, looking to the said benevolent provision made in the 2007 Regulations for the benefit of the employees, we cannot agree with the Appellant’s submission that by virtue of notification dated 24.08.2012 and 17.01.2018 issued by the Hon’ble Governor of Assam the payment of enhanced pay scale / allowances must first be approved by the Board of Directors since it cannot override the 2007 Regulations. In our view, the restriction made in payment of gratuity is not justified”, it held.

The Bench further asserted, “Additionally, it goes without saying that Regulation 107 of the 2007 Regulations states ‘…maximum of Rs.3.50 lacs or as notified by the Govt. of Assam from time to time…’. In such a case, the inescapable conclusion is that the maximum limit for payment of gratuity has to be Rs. 3.5 Lakhs (later enhanced to Rs. 7 Lakhs) or the limit prescribed by the State Government and in case where the limit prescribed by the State Government is higher than the limit set by the AFC, the import of Regulation 107 has to be interpreted in such a manner that the benefit of the higher limit set by the State Government has to be given to the employees of the AFC.”

As per the Bench, the import of Regulation 107 of the 2007 Regulations was such that the higher limit for gratuity set by the State Government would apply to the AFC. Thus, upholding the view of the Single Judge and the Division Bench of the High Court, the Bench disposed of the appeal by directing that the gratuity be calculated and paid within six months.

Cause Title: The Assam Financial Corporation Limited & Ors. v. Bhabendra Nath Sarma (Neutral Citation: 2025 INSC 1264)

Appearance

Appellant: Senior Advocate Preetesh Kapur, AOR Debojit Borkakati

Respondent: Sr. A.A.G. Chinmoy Pradip Sharma, AOR Kaushik Choudhury, Advocates Bipul Sarmah, Jyotirmoy Chatterjee, Saksham Garg, AOR Diksha Rai, Advocates Piyush Vyas, Purvat Wali, Apurva Sachdev, Irfan Hasieb, Krishna Jyoti Deka, Vijay Deora, AOR Santosh Krishnan, Advocate Ashwin Joseph

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