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Section 54: Continuous service for gratuity

The Code on Social Security, 2020 (Act No. 36 of 2020) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter V: Gratuity
Competent Labour Forum
Act No. 36 of 2020
Section 53 All 163 Sections of Code on Social Security, 2020 Section 55

Legal Commentary & Landmark Judgments: Section 54

Section 54 of the Code on Social Security prescribes a mandatory thirty-day timeline for employers to determine and disburse gratuity, imposing statutory simple interest for delayed payments.

  • Procedural Mechanism: Section 54 establishes the procedural mechanism and timeline for gratuity disbursement.
  • Sub-Section (2) Provision: Under sub-section (2), as soon as gratuity becomes payable, the employer shall, whether an application has been made or not, determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable and to the competent authority.
  • Sub-Section (3) Provision: Under sub-section (3), the employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable.

Under sub-section (4), if the gratuity is not paid within thirty days, the employer shall pay simple interest at the rate notified by the Central Government on the unpaid amount from the date on which gratuity became payable until actual payment.

Key Landmark Precedents:
  • H. Gangahanume Gowda v. Karnataka Agro Industries Corpn. Ltd. (2003) 3 SCC 40: The Supreme Court held that payment of statutory interest on delayed gratuity is mandatory; an employer cannot withhold gratuity without obtaining formal authorization from the competent authority under the Act, and courts have no discretion to deny statutory interest.
Legal Commentary:

Section 54 makes gratuity disbursement automatic. An employer cannot sit on gratuity dues pending protracted internal no-objection certificate (NOC) clearances; once the 30-day clock expires, statutory interest begins running automatically by operation of law.

Section 53 All 163 Sections of Code on Social Security, 2020 Section 55