Gratuity of retired employee withheld for 13 years due to ‘no funds’?
High Court rejects employer's plea, directs it to pay up with 10% interest

Jan 8, 2026

Synopsis
A retired employee, Mr. Rao, has won a 13-year legal battle for unpaid salary and gratuity. The Andhra Pradesh High Court ruled that an employer's lack of funds is not a valid excuse for withholding statutory dues. The court directed the employer to pay the outstanding amount with 10% interest.

Retired employee denied gratuity and unpaid salary dues for 13 years as employer lacked funds; high court ruled lack of funds is not an excuse; HC directs employer to payET OnlineRetired employee denied gratuity and unpaid salary dues for 13 years as employer lacked funds; high court ruled lack of funds is not an excuse; HC directs employer to pay (AI generated representative image)

Even after retiring in 2011 from the post of cashier, Mr. Rao still didn’t get his due salary for the period May 2004 to June 2005 (14 months) and June 2007 to February 2009 (21 months), adding up to Rs 2.28 lakh. He was also did not get his terminal benefits, including gratuity and leave encashment. As a result, he took legal action and won his case in the Andhra Pradesh High Court on January 2, 2026 won the case.

Brief Overview
Mr. Rao retired on September 30, 2011 after an unblemished career spanning several decades. He was never involved in any financial irregularities during his time of service. For a short while, he was deputed to work for another department (a co-operative bank) and for this brief period, the bank paid him the dues and gratuity (Rs 49,558) , as well as leave encashment (Rs 61, 609). This case is not against the bank but rather against his primary employer.

However, it was the responsibility of his primary employer (Sambara Primary Agricultural Cooperative Society) to pay him for the remaining period. In court, while his primary employer acknowledged their obligation to pay him, they claimed they had no funds available to do so.

The Andhra Pradesh High Court held that gratuity and terminal benefits are statutory rights, and financial difficulty is not a valid excuse to withhold them. The Court referenced the Payment of Gratuity Act and Supreme Court judgments to underline that any delayed payments should accrue interest and thus they ordered 10% interest also.

Andhra Pradesh High Court analysis and discussion
Justice Maheswara Rao Kuncheam of Andhra Pradesh High Court in his judgement (W.P no. 20248 OF 2015) said that the central point emerging in this case is whether the non-payment of gratuity and leave encashment to the petitioner, a retired employee, without there being any legal impediment, is valid or not?

Rao (the retired employee) had initially joined the PACS (Sambara Primary Agricultural Cooperative Society) in 1977. After serving in various societies as a Paid Secretary, he got promoted to be a Special Category Employee on March 1, 2009 in the District Central Cooperative Bank (DCCB). Finally, on attaining the age of superannuation, he retired from DCCB on September 30, 2011 without any stigma (blemishes) in his long career.

The Andhra Pradesh High Court said that it is incontrovertibly proved that he extended his services and attained the age of superannuation without any stigma or legal impediment.

Andhra Pradesh High Court said: “Therefore, the petitioner (Mr. Rao) is certainly entitled for his terminal benefits for his livelihood after retirement.”

Under Payment of Gratuity Act, 1972 employer has to give gratuity
The Andhra Pradesh High Court said that indisputably, the respondents (employer) are liable to pay the statutory and mandatory entitlement i.e., terminal benefits, leave encashment, gratuity, etc., of the employee in terms of the statutory frame work and also provisions of Payment of Gratuity Act, 1972, which is a legislation enacted with a laudable object of ensuring social security to the working class.

The Andhra Pradesh High Court said that a plain reading of Section 4 (1) would ascertain that once an employee has rendered continuous services for not less than five years on his superannuation or retirement, he/she shall be entitled to get gratuity except in the circumstances enunciated in Section 4 (1) (a).

In this case, the Andhra Pradesh High Court said that according to the respondents (employer) also, he was superannuated without any legal impediments or stigma.

Andhra Pradesh High Court said: “In other words, the action of the respondents' withholding of gratuity is not permissible under any circumstances. In fact, the right to receive gratuity is a statutory right; the respondent authorities cannot take it away except through the procedure enunciated under the law.”

Under Payment of Gratuity Act, 1972 failure to pay gratuity means employers need to give interest

Section 7 of Payment of Gratuity Act, 1972: Determination of the amount of gratuity.

The Andhra Pradesh High Court said that a perusal of Section 7 clearly reveals that if the employer fails to pay the gratuity amount within 30 days from the date it becomes payable to the person, then from that date, interest on the amount would also become payable.

However, such interest shall not exceed the rate notified by the Central Government from time to time.

The Andhra Pradesh High Court said that in the light of the above statutory provisions, and taking into consideration the existing facts in the present case, they, without any hesitation, unequivocally rule that his (Mr Rao) right to interest on delayed payment is statutory in nature and not subject to the discretion of the respondent authorities.

Financial incapacity of employer is no excuse for non-payment of dues

The Andhra Pradesh High Court said that the argument of financial incapacity/ poor financial conditions, as stated by the 2nd respondent (PACS) for non-releasing of their share towards his terminal benefits after utilising his services, is not valid.

Andhra Pradesh High Court said: “A mere financial incapacity or paucity of funds cannot be a valid defence for nonfulfilment of such statutory obligations, more particularly, when the employee rendered his services, as such, he is rightly entitled to terminal benefits under law.”

Case law cited: Kapila Hingorani Vs. State of Bihar:

“…….The State may not be liable in relation to the day to day functioning of the Companies, but its liability would arise on its failure to perform the constitutional duties and functions by the public sector undertakings, as in relation thereto the State's constitutional obligations The State acts in a fiduciary capacity. The failure on the part of the State in a case of this nature must also be viewed from the angle that the statutory authorities have failed and/or neglected to enforce the social welfare legislations enacted in this behalf e.g. Payment of Wages Act. Minimum Wages Act etc Such welfare activities as adumbrated in Part IV of the Constitution of India indisputably would cast a duty upon the State being a welfare State and its statutory authorities to do all things which they are statutorily obligated to perform…….”

Supreme Court case laws cited
Supreme Court case law cited: H. Gangahanume Gowda Vs. Karnataka Agro Industries Corpn. Ltd. (2003) 3 SCC 40 , while interpreting Section 7 of the Act in its vivid terms, held that there is a clear mandate in the provisions of Section 7 to the employer for payment of gratuity within time and is entitled to the interest on the delayed payment of gratuity.

The Hon‘ble Supreme Court in the recent case between Gagan Bihari Pristy Vs. Pradip[1.1] Port Trust &Ors S.L.P. (C) No.20740 of 2022 (decided on 03.03.2025), while accessing the rate of interest on the delayed payment of gratuity, held that where an employee retires and has to receive gratuity amount belatedly, without having any excuse for delay, the interest would be payable as per the notification issued by the Central Government and accordingly, the Hon‘ble Supreme Court has awarded interest @ 10% per annum on the delayed payment of the gratuity amount.

Very recently, the Apex Court in State of Uttar Pradesh Vs. Dinesh Kumar Sharma 2025) (SCC OnLine SC 596) , in its unequivocal words, stated that pension is not a charity or a bounty and an employee is entitled to receive his pension.

Andhra Pradesh High Court judgement
The Andhra Pradesh High Court said that in view of aforesaid facts and circumstances involved in the lis, taking note of the fact that in the counter, the 4th respondent bank stated that the bank‘s share of gratuity of Rs 49,588 and leave encashment of Rs 61,609 (in total Rs.1,11,197/-) were paid to the petitioner (Mr Rao) on 19.01.2015 for the period the petitioner worked in their bank i.e. from 01.03.2009 to 30.09.2011, the writ petition is allowed with the directions given below:

(i) The respondent Nos.2 and 3 are hereby directed to release the terminal benefits such as gratuity amount and leave encashment etc., due to the petitioner, i.e. Rs.1,17,063 (Rs.2,28,260/- minus the amount paid by 4th respondent bank towards its share, i.e. Rs.1,11,197/-) with interest @ 10% p.a. from the date on which said amount became payable till the date of actual payment, within a period of ten (10) weeks, from the date of receipt of copy of this Order

As the Contempt Case is preferred against the respondents 2 and 3 alone, in view of the orders passed in the present writ petition, the Contempt Case is closed giving liberty to the petitioner to seek recourse to law, if the respondents 2 and 3 failed to comply with the orders passed in this writ petition. No order as to costs. As a sequel, all pending applications shall stand closed.

[The Economic Times]