Higher State Gratuity Ceiling Applies to AFC Employees; Supreme Court Directs Payment Within Six Months

A bench of Justice J.K. Maheshwari and Justice Vijay Bishnoi heard an appeal by the Assam Financial Corporation Limited (AFC) challenging the Gauhati High Court’s decision that directed payment of enhanced gratuity to certain retired AFC employees. The appeal arose from a writ petition seeking parity of AFC gratuity ceilings with those notified for State Government employees and raised questions about the interplay between AFC’s internal staff regulations and the Payment of Gratuity Act, 1972.

The Court dismissed the appeal and affirmed the High Court’s conclusion that the respondents were entitled to the higher gratuity ceiling which had been notified by the State Government and incorporated by reference into AFC’s regulations. The bench held that the AFC’s restriction was “not justified” and directed that gratuity be calculated and paid within six months. The Court, in its reasoning, observed: The Court also noted that “the higher limit for gratuity set by the State Government shall apply to the AFC,” and emphasised equitable treatment for employees who retired when AFC had not yet adopted the enhanced ceiling.

Background The dispute concerned employees who retired on superannuation in 2018–2019 and who received retiral dues, including gratuity, under AFC’s internal rules: the Assam Financial Corporation (Payment of Gratuity to Employees) Regulation, 1964 and the Assam Financial Corporation (Amendment) Staff Regulations, 2007. Regulation 107 of the 2007 Staff Regulations provided for gratuity computed by formula but subject to a maximum of Rs. 3.50 lakhs “or as notified by the Govt. of Assam from time to time.” AFC increased its internal ceiling to Rs. 7.00 lakhs by an Office Order in 2012. The Government of Assam later enhanced the State ceiling (to Rs. 15.00 lakhs by 2017), and central amendments raised the ceiling further for central government employees.

In 2022 the AFC Managing Director placed a memorandum before the Board proposing enhancement of the AFC ceiling to Rs. 15.00 lakhs; the Board deferred the proposal. The retired employees contended before the High Court that they were entitled to the benefit of the higher ceiling notified by the State under Section 4(5) of the Payment of Gratuity Act, 1972 and relied on Regulation 107’s express reference to State notifications. The Gauhati High Court granted relief; the Single Judge and Division Bench found the respondents were “employees” and entitled to the enhanced amount. Before the Supreme Court, AFC argued that Board approval was required to adopt enhanced pay/allowances and that the 2012 and 2018 gubernatorial notifications did not automatically apply to AFC.

The Supreme Court accepted the High Court’s reading of Regulation 107 and observed that where the regulation expressly incorporated State notifications, the higher limit must be applied in favour of employees. The Court did not express a final view on whether the Payment of Gratuity Act itself directly applied to AFC but held that the respondents’ right flowed from the AFC regulation. The appeal was dismissed and the Court directed computation and payment of enhanced gratuity within six months.

Case Details: Case No.: 2025 INSC 1264 (Civil Appeal arising out of SLP (C) No. 19581 of 2023) Case Title: The Assam Financial Corporation Limited & Ors. v. Bhabendra Nath Sarma & Ors. Appearances: For the Petitioner(s): Advocates not indicated in judgment For the Respondent(s): Advocates not indicated in judgment