Case Name: THE ASSAM FINANCIAL CORPORATION LIMITED & ORS. versus BHABENDRA NATH SARMA & ORS.
Case Number : CIVIL APPEAL NO. OF 2025 (Arising out of SLP (C) No. 19581 of 2023)
Date : Friday , the twenty fourth day of October, Two Thousand and Twenty-Five
Quorum : Hon’ble Mr. Justice J.K. Maheshwari and Hon’ble Mr. Justice Vijay Bishnoi. (Judgment authored by J.K. Maheshwari, J.)
Facts
The Respondents were former employees of the Assam Financial Corporation Limited (AFC) who retired on superannuation between 2018 and 2019. The AFC paid their gratuity based on its internal ceiling of Rs. 7 Lakhs, a limit established via an Office Order in 2012 (the 2012 Office Order) in intended parity with the Government of Assam (GoA) employees. The employees challenged this payment, contending they were entitled to the enhanced gratuity ceiling of Rs. 15 Lakhs, which the GoA had adopted under its Revision of Pay (ROP) of 2017. The employees’ initial success in the High Court relied on the non-obstante clause contained in Section 14 of the Payment of Gratuity Act, 1972 (PGC Act), which the High Court found mandated the application of the higher ceiling. The AFC appealed to the Supreme Court, arguing that since the employees retired when the ceiling was internally fixed at Rs. 7 Lakhs, and since the AFC Board formally deferred the enhancement proposal in March 2022, the higher benefit was not applicable.
Issues
- Whether the AFC employees retired during 2018–2019 are confined to a maximum gratuity ceiling of Rs. 7 Lakh fixed by AFC’s internal regulations for the relevant time.
- Whether Regulation 107 of the 2007 Staff Regulations-which links the AFC’s gratuity maximum to the amount “as notified by the Govt. of Assam from time to time”-operates as an automatic and mandatory provision for dynamic compliance, thereby incorporating the higher Rs. 15 Lakh ceiling.
- Whether subsequent general notifications issued by the Governor of Assam, requiring agreement of Board of Directors and administrative approval for general revision of pay or allowances, can override the specific benevolent provision contained in the 2007 Staff Regulations regarding gratuity.
- Whether the inaction by the administration of AFC during the period from 2017-when the ceiling of GoA increased-till 2022-when the Board delayed its decision-amounts to the institutional “lethargy” which has caused “absolutely inequitable treatment” to the retired employees.
Legal Provisions
- Assam Financial Corporation (Amendment) Staff Regulations, 2007 (2007 Regulations): Specifically Clause 107, which governs the payment of Death-cum-Retirement Gratuity.
- Payment of Gratuity Act, 1972 (PGC Act): Specifically Section 4(5) and Section 14 (the non-obstante clause relied upon by the High Court).
- Office Order No. AFC/Estt/497/2012-13/1028 dated 25.07.2012: Order enhancing AFC’s internal ceiling to Rs. 7 Lakhs “in line with Govt. of Assam employees.”
Arguments
Appellant : The AFC took the stand that, as the employees retired after the internal ceiling was fixed at Rs. 7 Lakhs, they were not entitled to the enhanced amount. The Appellant set up subsequent general notifications, issued in 2012 and 2018, by the Governor of Assam, which mandated that enhanced allowances had to be implemented with specific agreement by the Board and approval by the administrative department concerned, contending that the AFC’s Board decision itself in March 2022 to defer the proposal legally prevented the benefit from being extended. They urged that the State Government’s enhanced ceiling did not automatically apply to the Corporation.
Respondents : The employees contended they were entitled to the higher Rs. 15 Lakh ceiling adopted by the GoA in 2017. They relied on the High Court’s finding that the PGC Act, 1972, Section 14 overrode the AFC’s internal rules. Most critically, the employees argued that the AFC’s own service rules—Regulation 107—mandated parity by providing for a maximum gratuity “or as notified by the Govt. of Assam from time to time,” which automatically incorporated the higher Rs. 15 Lakh limit. They asserted that making them suffer due to the AFC’s prolonged non-action amounted to institutional “lethargy” and “absolutely inequitable treatment.”
Analysis
The Supreme Court rejected the AFC’s reliance upon general notifications requiring Board approval for revisions to hold that these could not override the express, specific, and benevolent provisions already contained in the 2007 Staff Regulations. The Court’s reasoning was focused on the final interpretation of Regulation 107, which said that gratuity was payable subject to the internal ceiling-i.e., Rs. 7 Lakhs at the relevant time-OR “as notified by the Govt. of Assam from time to time.” Applying the doctrine of benevolent construction, the Court opined that the presence of the word “or” created the “inescapable conclusion” that the maximum payable limit must be the higher of the two limits specified. Thus, the moment the State Government raised its ceiling to Rs. 15 Lakhs in 2017, the said higher limit automatically came within the AFC’s rules, without the need for the same to be formally adopted by the Board by way of a separate resolution. The failure of the AFC to implement this mandated parity for the 2018–2019 retirees was condemned as institutional “lethargy,” and the Court held it would be “absolutely inequitable treatment” for the respondents to suffer the consequences of this administrative delay. While the High Court placed strong reliance upon the PGC Act, the Supreme Court said this right flowed robustly from the interpretation of Regulation 107 itself so as to import the higher ceiling and without it being necessary to express a concluded opinion whether the PGC Act, 1972, would apply directly to the AFC in this case.
Judgment
The Supreme Court agreed with the conclusion reached by the High Court, finding that the higher gratuity ceiling of Rs. 15 Lakhs set by the Government of Assam applied to the respondents. The Civil Appeal filed by The Assam Financial Corporation Limited was disposed of accordingly. The final directive mandated that the AFC calculate and pay the enhanced gratuity amount to the respondents within a strict timeframe of six months from the date of the judgment (October 14, 2025).
Conclusion
This judgment thus had the effect of binding precedent that, in the case of SLPEs, provisions in service rules explicitly linking employees’ benefits to standards set by the State Government are obligatory machinery for dynamic compliance. The judgment has laid down that institutional deferment or inaction, even on grounds of short-term financial expediency, cannot defeat a right already crystallized under the Corporation’s own benevolent service regulations and protected retired public servants against administrative delay.
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