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Issues: Whether employees could combine the more beneficial contractual rate of gratuity with the statutory ceiling under the Payment of Gratuity Act, 1972 by severing only the inconsistent contractual term.
Analysis: The gratuity scheme formed part of the contract of employment and granted better terms in some respects than the statute. Section 4(5) of the Payment of Gratuity Act, 1972 preserves an employee's right to better terms of gratuity under an award, agreement or contract, but that right is to be exercised in respect of the contractual package as a whole and not by selectively combining contractual and statutory advantages. The doctrine of blue pencil or severance could not be invoked because the contractual scheme was not capable of being split into independently adopted fragments in the manner suggested. The statute, though beneficial, did not permit a workman to take the advantageous rate from the contract and simultaneously claim the statutory ceiling.
Conclusion: The employees could not opt for both the contractual and statutory terms. The contractual gratuity scheme could not be partially severed to mix a contractual rate with the statutory ceiling. The appeal was therefore allowed and the impugned order was set aside.
Final Conclusion: The decision establishes that under Section 4(5) of the Payment of Gratuity Act, 1972 an employee must elect either the contractual gratuity package or the statutory scheme, but cannot combine the best parts of both.
Ratio Decidendi: Section 4(5) preserves better contractual gratuity terms as an entire election, and does not permit selective amalgamation of contractual benefits with statutory benefits by invoking severance.
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