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The High Court ruled that mere reflection of an entry in the balance sheet liability column cannot constitute an 'agreement' for payment of gratuity u/s 4(5) of the Payment of Gratuity Act. An underlying document or contract between the parties explicitly agreeing to pay gratuity is necessary. In the absence of such an agreement or contract, the stray entry made by the petitioners themselves in the company's balance sheet, days before selling their stake, cannot create a liability for gratuity payment. The petitioners' names were not included in the LIC gratuity insurance policy, and no evidence suggested previous directors received gratuity. Therefore, the petitioners' claim for gratuity amounting to Rs. 1.21 crores was untenable and rightly rejected by the authorities.
The High Court ruled that mere reflection of an entry in the balance sheet liability column cannot constitute an 'agreement' for payment of gratuity u/s 4(5) of the Payment of Gratuity Act. An underlying document or contract between the parties explicitly agreeing to pay gratuity is necessary. In the absence of such an agreement or contract, the stray entry made by the petitioners themselves in the company's balance sheet, days before selling their stake, cannot create a liability for gratuity payment. The petitioners' names were not included in the LIC gratuity insurance policy, and no evidence suggested previous directors received gratuity. Therefore, the petitioners' claim for gratuity amounting to Rs. 1.21 crores was untenable and rightly rejected by the authorities.
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