If a company is getting closed, do we need to pay gratuity to even those who have not completed 5 years of service?

If a company is getting closed, do we need to pay gratuity to even those who have not completed 5 years of service with us. Experts please reply.
26th August 2020 From India, Delhi

Closure of a Company results in the termination of employment of all the employees. Therefore, the employer is statutorily required to pay retrenchment compensation u/s 25-F of the ID Act,1947 to all employees in the cadre of workman who have completed 240 days of continuous service in the establishment during the 12 months period preceding the date of closure. So far as statutory gratuity is concerned, all employees including those who have completed not less than 240 days of service in their fifth year should be paid gratuity.
26th August 2020 From India, Salem

Dear Umakanthan Sir,
I agree with your response except to your last sentence. I beg to differ with you on this, with due respect to you, though I had decided not to participate in any more in discussion on Gratuity on "4 years and ....".
I always get enjoyment and charging when I interact with you and I am sure, you will definitely bring some clarity in this subject.
According to me, in fifth year of service i.e. service of 12 months, if 240 days are completed then its a totally different case. The employee is entitled to Gratuity as per the Act.
If employee works for 240 days in fifth year but does not work up to completing 12 months, according to me, he is not eligible to Gratuity as per the Act except in Chennai and Kerala jurisdiction.
I am not disregarding the judgements by HC at judicature Madras and Kerala. My point is, the said judgements are not binding on other States.
You can apply the analogy of judgements by HC at judicature Madras and Kerala but you can not treat the judgement by HC at judicature Madras and Kerala is a Law.
I have discussed all those points in two or three threads during my existence over hear since last 3 months but my views are vehemently disregarded.
I am sure, which I repeat, you will certainly bring clarity in this matter. If I am wrong, you are requested to please tell me. I will not feel bad of it. One can have different views, but I feel I have some justifying points logically which I stated in my earlier posts.
26th August 2020 From India, Mumbai

Umakant Ji I am also awaiting your kind and expert comment on Akhil Ji's comment.
Also would request other learned members to pour their valuable insights.
I am also confused with gratuity eligibility matter.
27th August 2020 From India, Vadodara

Friends,

The following are self explanatory in the context:

As per the judgment of the Supreme Court an employee is eligible for gratuity if he has completed 4 years of continuous service and 240 days continuous working in 5th year. On the day when he completes his 240 days in the 5th year he will be eligible for gratuity.

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)] (extract attached) , 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 11 days is considered to have completed 5 years continuous service under sec.4(2) and thereby is eligible for gratuity."

Now almost all organizations are paying gratuity if an employee has completed 4 years of continuous service and 240 days continuous working in 5th year.

Supreme Court of India

Surendra Kumar Verma Etc vs The Central Government ... on 23 September, 1980

Equivalent citations: 1981 AIR 422, 1981 SCR (1) 789

https://www.citehr.com/608431-eligib...shut-down.html

https://www.quora.com/Am-I-eligible-...ays-of-service

https://www.lawyersclubindia.com/for...p#.VxkS5JN94dU

https://www.newzontips.com/employees...of-labor-laws/
27th August 2020 From India, Bangalore

Attached Files (Download Requires Membership)

240 days in 5th year-SC judgment-Case of Surendrakumar Verma Vs.CEntral Govt. 23.9.1980.pdf (222.9 KB, 69 views)

The Surendra Kumar Verma's judgement is on the point of Retrenchment as per the ID Act 1947 and here the law laid down is clear that an employee with more than 240 days of service, if is terminated without completing the legal process would amount to retrenchment. So it is not of direct applicability in deciding the eligibility for gratuity with 4 years and 240+ days service. When the PGA defines that 240 days plus service would mean one year service, the legal interpretation is that it applies everywhere and so there is no exclusivity in its applicability in computing the five years service. The interpretation given by Kerala & Tamil Nadu judgements has not been distinguished by other High Courts. Though for other High Courts it is not stare decisis (meaning binding precedent) yet it would guide and when it is brought on record, such Court can disagree with it only after recording reasons.
27th August 2020 From India, Mumbai

Eligibility for gratuity payment for 4 years continuous services with completion of 240 days or above
service in the 5th year, still hold good and companies are complying with the above condition for determining "continuous services" as defined u/s 2(c) of the Payment of Gratuity Act, 1972.

Please go through the case - (LALAPPA LINGAPPA & ORS V. LAXMI VISHNU TEXTILE MILLS LTD., SHOLAPUR [1981] RD-SC 29 (11 February 1981)

CITATION: 1981 AIR 852 1981 SCR (2) 796 1981 SCC (2) 238 1981 SCALE (1)268

It was observed by the Hon'ble SC that:-
QUOTE
The expression 'continuous service' has been defined in s.
2(c) of the Act in these terms :
2. (c) "continuous service" means uninterrupted service and includes service which is interrupted by sickness, accident, leave, lay-off, strike or a lock- out or cessation of work not due to any fault of the employee concerned, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.
Explanation I.-In the case of an employee who is not in uninterrupted service for one year, he shall be deemed to be in continuous service if he has been actually employed by an employer during the twelve months immediately preceding the year for not less than- (i) 190 days, if employed below the ground in a mine, or (ii) 240 days, in any other case, except when he is employed in a seasonal establishment.
Explanation II.-An employee of a seasonal establishment shall be deemed to be in continuous service if he has actually worked for not less than seventy-five per cent of the number of days on which the establishment was in operation during the year.
UNQUOTE

Thanks.
28th August 2020 From India, Aizawl

Friends,
Going by what has been revealed in this link, central govt. is poised to revise the eligibility clause to qualify for gratuity payment reducing the 5 yrs (4+240 days) criteria down to 1 year, all these different interpretations, reluctance bound to be blown off.
https://www.newzontips.com/employees...of-labor-laws/
I wish lakhs of freshers/youth switching their jobs frequently will be benefitted from this boon. Only question that might still trigger anxiety is whether it is going to be retrospective or prospective effect. All the very best folks.
28th August 2020 From India, Bangalore

Dear Akhil,

Soon after your counter-query, I thought of an immediate response. But I purposively waited for the response of our learned friends for this is an issue getting resurrected every now and then whenever a person looks at it afresh.

In fact the thrust of the argument rather shifts from the interpretation of the term to that of the binding effect of the judgment of a High Court on a particular question of law beyond its territorial jurisdiction. I do admit that the decision of a particular High Court need not be followed by another High Court and particularly when the decision runs counter to the decision of the H.C of home state, the subordinate judicial authorities have only to follow the decision of the H.C of their home state only.

However, when a decision of a H.C is based on the ratio decidendi of the Supreme Court of India in an earlier case pertaining to a similar issue, in my opinion, the decision of the other H.C to be preferred to a contrary decision of the H.C of the home state or when no decision rendered by the home state H.C is available on the same issue pertaining to a Central Law like the PGA,1972.

In as much as the definitions of the term "continuous service" u/s 25-B of the IDA, 1947 and 2-A of the PGA,1972 are similar, the ratio of the Supreme Court's judgment in Surendrakumar Verma case that the calculation of continuous service should be commenced backwards with effect from the date of termination and the spells of continuous service need not be scattered over the entire 12 months of the year equally applies to the case of claim for gratuity based on the the total period of service not less than 4 years+240 days or 4 years + 190 days respectively in the 5th consecutive year. What is important is completion of 240 days of continuous service by the employee within a period of preceding 12 months rather than continuity of service during the entire 12 months period.

My considered opinion, therefore, is that the judgments of the H.C of Madras in Mettur Beardsel ltd case and that of the H.C of Kerala in Sreeja's can be followed without any hesitation in deciding the question of law of continuous service u/s 2-A of the PGA, 1972 for these have the more favourable interpretation ensuring the employment benefit of gratuity to the employees.
30th August 2020 From India, Salem

I wish to clarify on the point of the Judgement in Lalappa Lingappa case decided by the Supreme Court on 11 Feb 1981 which has been referred above:

1. The issue was based on Section 2 C as it existed then .

2. (c) "continuous service" means uninterrupted service and includes service which is interrupted by sickness, accident, leave, lay-off, strike or a lock- out or cessation of work not due to any fault of the employee concerned, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

Explanation I.-In the case of an employee who is not in uninterrupted service for one year, he shall be deemed to be in continuous service if he has been actually employed by an employer during the twelve months immediately preceding the year for not less than-

(i) 190 days, if employed below the ground in a mine, or

(ii) 240 days, in any other case, except when he is employed in a seasonal establishment. Explanation II.-An employee of a seasonal establishment shall be deemed to be in continuous service if he has actually worked for not less than seventy-five per cent of the number of days on which the establishment was in operation during the year.

The Payment Gratuity Act was amended in the year 1984 by Act No. 26 of 1984 with effect from February 11, 1981 i.e. the date on which the Supreme Court judgment was rendered in the case of Lalappa Lingappa v. Laxmi Vishnu Textile Mills, and the definition of 'continuous service' under Section 2(c) and the meaning of continuous service' under Sections 2A are as under :

2 c) "continuous service" means continuous service as defined in section 2A:

and Section 2A reads as follows:

For the purposes of this Act, -

(1) an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as break in service has been passed in accordance with the standing order, rules or regulations governing the employees of the establishment), lay off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

(2) where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer - (a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not

less than -

(i) one hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and

(ii) two hundred and forty days, in any other case;

(b) for the said period of six months, if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than -

(i) ninety-five days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and

(ii) one hundred and twenty days, in any other case;

The Lalappa Judgement answered two core points at that time to the effect that for a permenent employee to be eligible for gratuity has to actually work for at least 240 days in that year and badli employees are eligible for gratuity in the years in which they have worked for not less than 240 days and the days in which they did not work or were not provided work would have to be excluded.

The 1984 amendment was to repair the damage caused by the Lalappa judgement and now for a permanent employee his entire uninterrupted service has to be counted for gratuity calculation. Even where there is interruption in service, the process has to be completed to disentitle an employee to the gratuity.

For more clarification pl see the Gujarat High Court judgement in Mafatlal Fine Spinning & Manufacturing Co vs Ramachhar Benimadhav Mishra (1997) ILLJ 475 Guj decided on 25 June, 1996.
30th August 2020 From India, Mumbai