High Court Orders No Coercive Steps Against Bengaluru Hotels Association, Others For Not Paying Gratuity Insurance Premium To Employees

The Karnataka High Court, in an interim order, directed the state government not to take coercive measures till June 3 against Bruhat Bengaluru Hotels Association and other petitioners for not paying Gratuity Insurance Premium under State Compulsory Gratuity Insurance Rules, if they pay insurance payable to employees who have completed five years of service.

Justice B M Shyam Prasad passed the order on April 28, while hearing a batch of petitions. 

The court in its order said, “The pleadings are yet to be completed, and at this stage, this Court is of the opinion that there should be no precipitation with the canvass as aforesaid remaining at large. However, a stay of the operation of the Insurance Rules could mean that even those employers who could pay the insurance premium contemplated may not, and this must be avoided. If initiation of coercive measures is stayed on just terms, the interests of all the concerned will be balanced. Hence, the State Government is called not to take coercive measures until the next date of hearing against the petitioners for default in paying Gratuity Insurance Premium under the Insurance Rules if they pay insurance payable for the employees who have completed five years of service”.

The Karnataka Compulsory Gratuity Insurance Rules mandate employers to obtain a valid insurance policy for their liability towards payment of gratuity to eligible employees as per the Payment of Gratuity Act 1972. The petitioner approached the court seeking to quash the notification dated 10.01.2024, issued by the government, declaring the same as unconstitutional and ultra vires of Article 1 of the Constitution of India.

The counsel for petitioners argued that the Insurance Rules compel employers to pay gratuity insurance premium even regarding those employees who have not completed five years when it cannot be disputed that only on completion of five years of service, an employee will be entitled to gratuity.

Further, the Insurance Rules do not distinguish between the employers based on their financial status and other parameters and this aspect will have to be considered because the insurance premium will have to be paid even before the gratuity becomes payable and would visit the small scale industries with a financial burden beyond their profits.

By way of interim order a direction was sought against coercive measures for failure to pay insurance premium as is contemplated under the Rules of 2024 and the possible coercive measures that could be sanctioned for failure to pay such amount.

The state government was asked by the court to take a stand and produce records, but it was not done. However, notices were issued for initiation of coercive measures.

The counsel for trade unions submitted that the Insurance Rules have come about after many decades though Section 4-A is introduced into the Payment of Gratuity Act 1972. The Rules are to ensure that the employees are not driven to multiple litigation in the hierarchy provided for under the Gratuity Act.

It was argued that there would be no justification to stay the operation of the Insurance Rules enabling the employers to pay premium even in respect of those employees who have completed five years of eligible service.

The court also directed the petitioner to amend the petition and implead All India Central Council of Trade Union [AICCTU], Centre of Indian Trade Unions [CITU] as respondent parties to the petition.

The matter will be next heard on June 3.

Case Title: Bruhat Bangalore Hotels Association AND The Principal Secretary

Counsel for petitioner: Senior Advocate K Kasturi, Advocate Prashanth B K

Counsel for respondents: Advocates Muralidhar L Peshwa, Maitreyi Krishnan

Case No: WP 9358/2024.

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