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Section 57: Compulsory insurance for gratuity liability

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 56 All 163 Sections of Code on Social Security, 2020 Section 58

Legal Commentary & Landmark Judgments: Section 57

Section 57 of the Code mandates compulsory insurance for employers to cover their statutory gratuity liabilities, requiring every covered establishment to obtain an insurance policy from the Life Insurance Corporation of India or an authorized insurer, or establish an approved gratuity fund.

  • Mandatory Statutory Gratuity Insurance: Obligates employers employing a prescribed threshold of workers to obtain a valid gratuity insurance policy to insulate workers from enterprise insolvency.
  • Alternative Approved Gratuity Trust Option: Permits eligible establishments to establish an irrevocable Board of Trustees and manage an approved gratuity fund complying with statutory investment rules.
  • Registration of Insurance with Controlling Authority: Requires the employer to register the gratuity insurance policy or approved fund with the Controlling Authority within the prescribed timeframe.
Key Landmark Precedents:
  • Bakshish Singh v. Darshan Engineering Works (1994) 1 SCC 9: Constitution Bench affirmed that gratuity is a vital retirement benefit; statutory mechanisms ensuring its financial solvency through insurance or dedicated funds are constitutional under Article 19(1)(g).
  • State of Punjab v. Labour Court, Jullundur (1980) 1 SCC 4: Supreme Court emphasized that gratuity funds must be safeguarded from general commercial dissipation by employers.
  • Jaswant Mills v. Presiding Officer (1996) 2 SCC 71: Reaffirmed that compulsory gratuity funding provisions protect workers from sudden corporate liquidation.
Courtroom Practice & Strategic Litigation Guidance:

Finance directors must maintain active group gratuity schemes with licensed life insurers, conducting annual actuarial valuations (Ind AS 19 / AS 15) to ensure insurance coverage matches emerging liabilities as employee tenures mature.

Section 56 All 163 Sections of Code on Social Security, 2020 Section 58