Supreme Court Upholds Gratuity Rights of Municipal Employees

The case of Nagar Ayukt Nagar Nigam, Kanpur v. Sri Mujib Ullah Khan & Another and Nagar Nigam, Gorakhpur v. Ram Shanker Yadav & Another revolved around the right of municipal employees to claim gratuity under the Payment of Gratuity Act, 1972. The Supreme Court dismissed the appeals filed by the Municipal Corporations of Kanpur and Gorakhpur, affirming that municipal employees are entitled to gratuity under the Central Act rather than the more restrictive provisions of the Uttar Pradesh Municipal Corporation Act, 1959.

This judgment clarifies the applicability of the Payment of Gratuity Act to municipal employees and underscores the overriding effect of the Central Act over State legislation when it comes to gratuity payments.

Background of the Case

Two separate appeals were filed before the Supreme Court by the municipal corporations of Kanpur and Gorakhpur, challenging orders of the Allahabad High Court that upheld the entitlement of municipal employees to gratuity under the Payment of Gratuity Act, 1972. The employees had approached the Controlling Authority under the Gratuity Act, which ruled in their favor. The municipal corporations, however, argued that their employees were only entitled to gratuity under the provisions of the Uttar Pradesh Municipal Corporation Act, 1959.

The High Court rejected the municipal corporations’ argument and held that the Payment of Gratuity Act applies to municipal employees, relying on a precedent set in Municipal Corporation of Delhi v. Dharam Prakash Sharma (AIR 1999 SC 293). Aggrieved by the decision, the municipal corporations appealed to the Supreme Court.

Key Legal Issues

Whether municipal employees are entitled to gratuity under the Payment of Gratuity Act, 1972.
Whether the provisions of the Uttar Pradesh Municipal Corporation Act, 1959 override the Central Act in terms of gratuity payments.
Whether the High Court erred in applying the precedent set in Municipal Corporation of Delhi v. Dharam Prakash Sharma.

Arguments by the Appellants (Kanpur and Gorakhpur Municipal Corporations)

Municipal employees should be governed by the Uttar Pradesh Municipal Corporation Act, 1959, which prescribes a different gratuity scheme.
The Payment of Gratuity Act does not apply to municipal employees, as municipalities are not specifically covered under the Act.
There was no express notification by the Central Government bringing municipal corporations under the purview of the Payment of Gratuity Act.

Arguments by the Respondents (Municipal Employees)

The Central Government had issued a notification on 8th January 1982, bringing local bodies under the Payment of Gratuity Act.
Under Section 14 of the Payment of Gratuity Act, the Act has overriding effect over any other enactment, including the Uttar Pradesh Municipal Corporation Act.
Employees of municipalities are not part of the Central or State Government, and therefore, they are entitled to the benefits of the Central Act.

Supreme Court’s Observations and Judgment

The Supreme Court carefully examined the legal provisions governing gratuity and the interplay between the Uttar Pradesh Municipal Corporation Act and the Payment of Gratuity Act.

Key observations:

The Payment of Gratuity Act applies to municipal corporations by virtue of the Central Government’s notification dated 8th January 1982, which brought local bodies under its ambit.
Section 14 of the Payment of Gratuity Act gives it overriding effect over any inconsistent State law, making it applicable to municipal employees regardless of State-specific gratuity rules.
The Allahabad High Court correctly relied on the Municipal Corporation of Delhi v. Dharam Prakash Sharma precedent, which ruled that municipal employees are covered under the Payment of Gratuity Act.
Municipal corporations cannot avoid their obligations under the Central Act by citing provisions of the State Act.

Key Judgment Excerpt:

“In view of Section 14 of the Act, the provision in the State Act contemplating payment of Gratuity will be inapplicable in respect of the employees of the local bodies.”

The Supreme Court concluded that there was no error in the High Court’s decision and upheld the entitlement of municipal employees to gratuity under the Payment of Gratuity Act, 1972.

Implications of the Judgment

The ruling confirms that municipal employees are covered under the Payment of Gratuity Act, ensuring they receive the same benefits as employees of other notified establishments.
The judgment reinforces the principle that Central laws with overriding clauses take precedence over conflicting State laws.
Municipal corporations must comply with the gratuity provisions of the Central Act and cannot limit employee benefits through State regulations.

Conclusion

This Supreme Court decision upholds the rights of municipal employees to claim gratuity under the Payment of Gratuity Act, 1972. By affirming the overriding nature of the Central Act, the judgment ensures uniformity in gratuity benefits across local bodies, reinforcing legal protections for employees.

Petitioner Name: Nagar Ayukt Nagar Nigam, Kanpur.
Respondent Name: Sri Mujib Ullah Khan & Another.
Judgment By: Justice Mohan M. Shantanagoudar, Justice Hemant Gupta.
Place Of Incident: Kanpur and Gorakhpur, Uttar Pradesh.
Judgment Date: 02-04-2019.

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