THE PAYMENT OF GRATUITY ACT, 1972

THE PAYMENT OF GRATUITY ACT, 1972.
An Act to provide for a scheme for the payment of gratuity to employees engaged in factories,
mines, oilfields, plantations, ports, railway companies, shops or other establishments and for
matters connected therewith or incidental thereto.—
1. EXTENT
(1) This Act may be called the Payment of Gratuity Act, 1972.
(2) It extends to the whole of India : Provided that in so far as it relates to plantations or ports,
it shall not extend to the State of Jammu and Kashmir.
(3) It shall apply to—
(a) every factory, mine, oilfield, plantation, port and railway company;
(b) every shop or establishment within the meaning of any law for the time being in force
in relation to shops and establishments in a State, in which ten or more persons are
employed, or were employed, on any day of the preceding twelve months;
(c) such other establishments or class of establishments, in which ten or more employees
are employed, or were employed, on any day of the preceding twelve months, as the
Central Government may, by notification, specify in this behalf.
(3A)A shop or establishment to which this Act has become applicable shall continue to be
governed by this Act notwithstanding that the number of persons employed therein at
any time after it has become so applicable falls below ten.
(4) It shall come into force on such date as the Central Government may, by notification,
appoint.
2. BASIC CONCEPTS
In this Act, unless the context otherwise requires,—
(a) “appropriate Government”
means,—
(i) in relation to an establishment –
(a) belonging to, or under the control of, the Central Government,
(b) having branches in more than one State,
(c) of a factory belonging to, or under the control of, the Central Government,
(d) of a major port, mine, oilfield or railway company, the Central Government,
(ii) in any other case, the State Government;
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(b) “completed year of service”
means continuous service for one year;
(c) “continuous service”
means continuous service as defined in section 2A;
(d) “controlling authority”
means an authority appointed by the appropriate Government under section 3;
(e) “employee”
means any person (other than an apprentice) employed on wages, in any
establishment, factory, mine, oilfield, plantation, port, railway company or shop, to
do any skilled, semi-skilled, or unskilled, manual, supervisory, technical or clerical
work, whether the terms of such employment are express or implied, and whether
or not such person is employed in a managerial or administrative capacity, but does
not include any such person who holds a post under the Central Government or a
State Government and is governed by any other Act or by any rules providing for
payment of gratuity.
(f) “employer”
means, in relation to any establishment, factory, mine, oilfield, plantation, port,
railway company or shop—
(i) belonging to, or under the control of, the Central Government or a State Government,
a person or authority appointed by the appropriate Government for the supervision
and control of employees, or where no person or authority has been so appointed,
the head of the Ministry or the Department concerned,
(ii) belonging to, or under the control of, any local authority, the person appointed by
such authority for the supervision and control of employees or where no person has
been so appointed, the chief executive officer of the local authority,
(iii) in any other case, the person, who, or the authority which, has the ultimate control
over the affairs of the establishment, factory, mine, oilfield, plantation, port, railway
company or shop, and where the said affairs are entrusted to any other person,
whether called a manager, managing director or by any other name, such person;
(g) “factory”
Means has the meaning assigned to it in clause (m) of section 2 of the Factories Act,
1948 (63 of 1948);
(h) “family”,
Means in relation to an employee, shall be deemed to consist of –
(i) in the case of a male employee, himself, his wife, his children, whether married or
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unmarried, his dependent parents and the dependent parents of his wife and the
widow and children of his predeceased son, if any,
(ii) in the case of a female employee, herself, her husband, her children, whether married
or unmarried, her dependent parents and the dependent parents of her husband and
the widow and children of her predeceased son, if any :
Explanation : Where the personal law of an employee permits the adoption by him of a
child, any child lawfully adopted by him shall be deemed to be included in his family, and
where a child of an employee has been adopted by another person and such adoption is,
under the personal law of the person making such adoption, lawful, such child shall be
deemed to be excluded from the family of the employee;
(i) “major port” has the meaning assigned to it in clause (8) of section 3 of the Indian
Ports Act, 1908 (15 of 1908);
(j) “mine” has the meaning assigned to it in clause (j) of sub-section (1) of section 2 of
the Mines Act, 1952 (35 of 1952);
(k) “notification” means a notification published in the Official Gazette;
(l) “oilfield” has the meaning assigned to it in clause (e) of section 3 of the Oilfields
(Regulation and Development) Act, 1948 (53 of 1948);
(m) “plantation” has the meaning assigned to it in clause (f) of section 2 of the Plantations
Labour Act, 1951 (69 of 1951);
(n) “port” has the meaning assigned to it in clause (4) of section 3 of the Indian Ports
Act, 1908 (15 of 1908);
(o) “prescribed” means prescribed by rules made under this Act;
(p) “railway company” has the meaning assigned to it in clause (5) of section 3 of the
Indian Railways Act, 1890 (9 of 1890);
(q) “retirement” means termination of the service of an employee otherwise than on
superannuation;
(r) “superannuation”, in relation to an employee, means the attainment by the employee
of such age as is fixed in the contract or conditions of service at the age on the
attainment of which the employee shall vacate the employment;
(s) “wages” means all emoluments which are earned by an employee while on duty or
on leave in accordance with the terms and conditions of his employment and which
are paid or are payable to him in cash and includes dearness allowance but does not
include any bonus, commission, house rent allowance, overtime wages and any
other allowance.
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2A. CONTINUOUS SERVICE
For the purposes of this Act,—
(1) an employee shall be said to be in continuous service for a period if he has, for that
period, been in uninterrupted service, including service which may be interrupted on
account of sickness, accident, leave, absence from duty without leave (not being absence
in respect of which an order treating the absence as break in service has been passed in
accordance with the standing order, rules or regulations governing the employees of the
establishment), lay off, strike or a lock-out or cessation of work not due to any fault of
the employee, whether such uninterrupted or interrupted service was rendered before
or after the commencement of this Act.
(2) where an employee (not being an employee employed in a seasonal establishment) is not
in continuous service within the meaning of clause (1), for any period of one year or six
months, he shall be deemed to be in continuous service under the employer—
(a) for the said period of one year, if the employee during the period of twelve calendar
months preceding the date with reference to which calculation is to be made, has
actually worked under the employer for not less than—
(i) one hundred and ninety days, in the case of an employee employed below the ground
in a mine or in an establishment which works for less than six days in a week; and
(ii) two hundred and forty days, in any other case;
(b) for the said period of six months, if the employee during the period of six calendar
months preceding the date with reference to which the calculation is to be made, has
actually worked under the employer for not less than—
(i) ninety-five days, in the case of an employee employed below the ground in a mine or
in an establishment which works for less than six days in a week; and
(ii) one hundred and twenty days, in any other case;
Explanation : For the purpose of clause (2), the number of days on which an employee has
actually worked under an employer shall include the days on which—
(i) he has been laid-off under an agreement or as permitted by standing orders made
under the Industrial Employment (Standing Order’s) Act, 1946 (20 of 1946), or under
the Industrial Disputes Act, 1947 (14 of 1947), or under any other law applicable to the
establishment;
(ii) he has been on leave with full wages, earned in the previous year;
(iii) he has been absent due to temporary disablement caused by accident arising out of
and in the course of his employment; and
(iv) in the case of a female, she has been on maternity leave; so, however, that the total
period of such maternity leave does not exceed twelve weeks.
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(3) where an employee employed in a seasonal establishment, is not in continuous service
within the meaning of clause (1), for any period of one year or six months, he shall be
deemed to be in continuous service under the employer for such period if he has actually
worked for not less than seventy-five per cent of the number of days on which the
establishment was in operation during such period
3. CONTROLLING AUTHORITY
The appropriate Government may, by notification, appoint any officer to be a controlling
authority, who shall be responsible for the administration of this Act and different controlling
authorities may be appointed for different areas.
4. PAYMENT OF GRATUITY
(1) Gratuity shall be payable to an employee on the termination of his employment after he
has rendered continuous service for not less than five years,—
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease : Provided that the completion
of continuous service of five years shall not be necessary where the termination of the
employment of any employee is due to death or disablement :
Provided further that in the case of death of the employee, gratuity payable to him
shall be paid to his nominee or, if no nomination has been made, to his heirs, and
where any such nominees or heirs is a minor, the share of such minor, shall be deposited
with the controlling authority who shall invest the same for the benefit of such minor
in such bank or other financial institution, as may be prescribed, until such minor
attains majority.
Explanation : For the purposes of this section, disablement means such disablement as
incapacitates an employee for the work which he was capable of performing before the accident
or disease resulting in such disablement.
(2) For every completed year of service or part thereof in excess of six months, the employer
shall pay gratuity to an employee at the rate of fifteen days’ wages based on the rate of
wages last drawn by the employee concerned : Provided that in the case of a piece-rated
employee, daily wages shall be computed on the average of the total wages received
by him for a period of three months immediately preceding the termination of his
employment, and, for this purpose, the wages paid for any overtime work shall not be
taken into account :
Provided further that in the case of an employee who is employed in a seasonal
establishment and who is not so employed throughout the year, the employer shall pay
the gratuity at the rate of seven days’ wages for each season.
Explanation : In the case of a monthly rated employee, the fifteen days’ wages shall be
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calculated by dividing the monthly rate of wages last drawn by him by twenty-six and
multiplying the quotient by fifteen.
(3) The amount of gratuity payable to an employee shall not exceed three lakhs and fifty
thousand rupees.
(4) For the purpose of computing the gratuity payable to an employee who is employed, after
his disablement, on reduced wages, his wages for the period preceding his disablement
shall be taken to be the wages received by him during that period, and his wages for the
period subsequent to his disablement shall be taken to be the wages as so reduced.
(5) Nothing in this section shall affect the right of an employee to receive better terms of
gratuity under any award or agreement or contract with the employer.
(6) Notwithstanding anything contained in sub-section (1),—
(a) the gratuity of an employee, whose services have been terminated for any act, willful
omission or negligence causing any damage or loss to, or destruction of, property
belonging to the employer, shall be forfeited to the extent of the damage or loss so
caused.
(b) the gratuity payable to an employee may be wholly or partially forfeited—
(i) if the services of such employee have been terminated for his riotous or
disorderly conduct or any other act of violence on his part, or
(ii) if the services of such employee have been terminated for any act which
constitutes an offence involving moral turpitude, provided that such offence
is committed by him in the course of his employment.
4A. COMPULSORY INSURANCE
(1) With effect from such date as may be notified by the appropriate Government in this
behalf, every employer, other than an employer or an establishment belonging to, or
under the control of, the Central Government or a State Government, shall, subject to
the provisions of sub-section (2), obtain an insurance in the manner prescribed, for his
liability for payment towards the gratuity under this Act, from the Life Insurance
Corporation of India established under the Life Insurance Corporation of India Act,
1956 (31 of 1956) or any other prescribed insurer : Provided that different dates may be
appointed for different establishments or class of establishments or for different areas.
(2) The appropriate Government may, subject to such conditions as may be prescribed,
exempt every employer who had already established an approved gratuity fund in respect
of his employees and who desires to continue such arrangement, and every employer
employing five hundred or more persons who establishes an approved gratuity fund in
the manner prescribed from the provisions of sub-section (1).
(3) For the purpose of effectively implementing the provisions of this section, every employer
shall within such time as may be prescribed get his establishment registered with the
controlling authority in the prescribed manner and no employer shall be registered under
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the provisions of this section unless he has taken an insurance referred to in sub-section
(1) or has established an approved gratuity fund referred to in sub-section (2).
(4) The appropriate Government may, by notification, make rules to give effect to the
provisions of this section and such rules may provide for the composition of the Board of
Trustees of the approved gratuity fund and for the recovery by the controlling authority
of the amount of the gratuity payable to an employee from the Life Insurance Corporation
of India or any other insurer with whom an insurance has been taken under sub-section
(1), or as the case may be, the Board of Trustees of the approved gratuity fund.
(5) Where an employer fails to make any payment by way of premium to the insurance
referred to in sub-section (1) or by way of contribution to an approved gratuity fund
referred to in sub-section (2), he shall be liable to pay the amount of gratuity due under
this Act (including interest, if any, for delayed payments) forthwith to the controlling
authority.
(6) Whoever contravenes the provisions of sub-section (5) shall be punishable with fine which
may extend to ten thousand rupees and in the case of a continuing offence with a further
fine which may extend to one thousand rupees for each day during which the offence
continues.
Explanation : In this section “approved gratuity fund” shall have the same meaning as in
clause (5) of section 2 of the Income-tax Act, 1961 (43 of 1961).
5. POWER TO EXEMPT
(1) The appropriate Government may, by notification, and subject to such conditions as
may be specified in the notification, exempt any establishment, factory, mine, oilfield,
plantation, port, railway company or shop to which this Act applies from the operation
of the provisions of this Act if, in the opinion of the appropriate Government, the
employees in such establishment, factory, mine, oilfield, plantation, port, railway
company or shop are in receipt of gratuity or pensionary benefits not less favourable
than the benefits conferred under this Act.
(2) The appropriate Government may, by notification and subject to such conditions as
may be specified in the notification, exempt any employee or class of employees employed
in any establishment, factory, mine, oilfield, plantation, port, railway company or shop
to which this Act applies from the operation of the provisions of this Act, if, in the
opinion of the appropriate Government, such employee or class of employees are in
receipt of gratuity or pensionary benefits not less favourable than the benefits conferred
under this Act.
(3) A notification issued under sub-section (1) or sub-section (2) may be issued retrospectively
a date not earlier than the date of commencement of this Act, but no such notification
shall be issued so as to prejudicially affect the interests of any person.
6. NOMINATION
(1) Each employee, who has completed one year of service, shall make, within such time, in
such form and in such manner, as may be prescribed, nomination for the purpose of the
second proviso to sub-section (1) of section 4.
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(2) An employee may in his nomination, distribute the amount of gratuity payable to him,
under this Act amongst more than one nominee.
(3) If an employee has a family at the time of making a nomination, the nomination shall be
made in favour of one or more members of his family, and any nomination made by such
employee in favour of a person who is not a member of his family, shall be void.
(4) If at the time of making a nomination the employee has no family, the nomination may be
made in favour of any person or persons but if the employee subsequently acquires a
family, such nomination shall forthwith become invalid and the employee shall make,
within such time as may be prescribed, a fresh nomination in favour of one or more
members of his family.
(5) A nomination may, subject to the provisions of sub-sections (3) and (4), be modified by an
employee at any time, after giving to his employer a written notice in such form and in
such manner as may be prescribed, of his intention to do so.
(6) If a nominee predeceases the employee, the interest of the nominee shall revert to the
employee who shall make a fresh nomination, in the prescribed form, in respect of such
interest.
(7) Every nomination, fresh nomination or alteration of nomination, as the case may be, shall
be sent by the employee to his employer, who shall keep the same in his safe custody.
7. DETERMINATION OF THE AMOUNT OF GRATUITY
(1) A person who is eligible for payment of gratuity under this Act or any person authorised,
in writing, to act on his behalf shall send a written application to the employer, within
such time and in such form, as may be prescribed, for payment of such gratuity.
(2) As soon as gratuity becomes payable, the employer shall, whether an application referred
to in sub-section (1) has been made or not, determine the amount of gratuity and give
notice in writing to the person to whom the gratuity is payable and also to the controlling
authority specifying the amount of gratuity so determined.
(3) The employer shall arrange to pay the amount of gratuity within thirty days from the date
it becomes payable to the person to whom the gratuity is payable.
(3A)If the amount of gratuity payable under sub-section (3) is not paid by the employer within
the period specified in sub-section (3), the employer shall pay, from the date on which the
gratuity becomes payable to the date on which it is paid, simple interest at such rate, not
exceeding the rate notified by the Central Government from time to time for repayment of
long-term deposits, as that Government may, by notification specify : Provided that no
such interest shall be payable if the delay in the payment is due to the fault of the employee
and the employer has obtained permission in writing from the controlling authority for
the delayed payment on this ground.
(4) (a) If there is any dispute as to the amount of gratuity payable to an employee under this
Act or as to the admissibility of any claim of, or in relation to, an employee for payment
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of gratuity, or as to the person entitled to receive the gratuity, the employer shall
deposit with the controlling authority such amount as he admits to be payable by him
as gratuity.
(b) Where there is a dispute with regard to any matter or matters specified in clause (a),
the employer or employee or any other person raising the dispute may make an
application to the controlling authority for deciding the dispute.
(c) The controlling authority shall, after due inquiry and after giving the parties to the
dispute a reasonable opportunity of being heard, determine the matter or matters in
dispute and if, as a result of such inquiry any amount is found to be payable to the
employee, the controlling authority shall direct the employer to pay such amount or,
as the case may be, such amount as reduced by the amount already deposited by the
employer.
(d) The controlling authority shall pay the amount deposited, including the excess amount,
if any, deposited by the employer, to the person entitled thereto.
(e) As soon as may be after a deposit is made under clause (a), the controlling authority
shall pay the amount of the deposit—
(i) to the applicant where he is the employee; or
(ii) where the applicant is not the employee, to the nominee or, as the case may
be, the guardian of such nominee or heir of the employee if the controlling
authority is satisfied that there is no dispute as to the right of the applicant to
receive the amount of gratuity.
(5) For the purpose of conducting an inquiry under sub-section (4), the controlling authority
shall have the same powers as are vested in a court, while trying a suit, under the Code of
Civil Procedure, 1908 (5 of 1908), in respect of the following matters, namely —
(a) enforcing the attendance of any person or examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) issuing commissions for the examination of witnesses.
(6) Any inquiry under this section shall be a judicial proceeding within the meaning of
sections 193 and 228, and for the purpose of section 196, of the Indian Penal Code, 1860
(45 of 1860).
(7) Any person aggrieved by an order under sub-section (4) may, within sixty days from the
date of the receipt of the order, prefer an appeal to the appropriate Government or such
other authority as may be specified by the appropriate Government in this behalf :
Provided that the appropriate Government or the appellate authority, as the case may
be, may, if it is satisfied that the appellant was prevented by sufficient cause from
preferring the appeal within the said period of sixty days, extend the said period by a
further period of sixty days.
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Provided further that no appeal by an employer shall be admitted unless at the time of
preferring the appeal, the appellant either produces a certificate of the controlling
authority to the effect that the appellant has deposited with him an amount equal to the
amount of gratuity required to be deposited under sub-section (4), or deposits with the
appellate authority such amount.
(8) The appropriate Government or the appellate authority, as the case may be, may, after
giving the parties to the appeal a reasonable opportunity of being heard, confirm, modify
or reverse the decision of the controlling authority.
7A. INSPECTORS
(1) The appropriate Government may, by notification, appoint as many Inspectors, as it deems
fit, for the purposes of this Act.
(2) The appropriate Government may, by general or special order, define the area to which
the authority of an Inspector so appointed shall extend and where two or more Inspectors
are appointed for the same area, also provide, by such order, for the distribution or allocation
of work to be performed by them under this Act.
(3) Every Inspector shall be deemed to be a public servant within the meaning of section 21 of
the Indian Penal Code, 1860 (45 of 1860).
7B. POWERS OF INSPECTORS
(1) Subject to any rules made by the appropriate Government in this behalf, an Inspector
may, for the purpose of ascertaining whether any of the provisions of this Act or the
conditions, if any, of any exemption granted thereunder, have been complied with, exercise
all or any of the following powers, namely—
(a) require an employer to furnish such information as he may consider necessary;
(b) enter and inspect, at all reasonable hours, with such assistants (if any), being persons
in the service of the Government or local or any public authority, as he thinks fit,
any premises of or place in any factory, mine, oilfield, plantation, port, railway
company, shop or other establishment to which this Act applies, for the purpose of
examining any register, record or notice or other document required to be kept or
exhibited under this Act or the rules made thereunder, or otherwise kept or exhibited
in relation to the employment of any person or the payment of gratuity to the
employees, and require the production thereof for inspection;
(c) examine with respect to any matter relevant to any of the purposes aforesaid, the
employer or any person whom he finds in such premises or place and who, he has
reasonable cause to believe, is an employee employed therein;
(d) make copies of, or take extracts from, any register, record, notice or other document,
as he may consider relevant, and where he has reason to believe that any offence
under this Act has been committed by an employer, search and seize with such
assistance as he may think fit, such register, record, notice or other document as he
may consider relevant in respect of that offence;
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(e) exercise such other powers as may be prescribed.
(2) Any person required to produce any register, record, notice or other document or to
give any information by an Inspector under sub-section (1) shall be deemed to be legally
bound to do so within the meaning of sections 175 and 176 of the Indian Penal Code
1860 (45 of 1860).
(3) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall so far as may
be, apply to any search or seizure under this section as they apply to any search or
seizure made under the authority of a warrant issued under section 94 of that Code.
8. RECOVERY OF GRATUITY
If the amount of gratuity payable under this Act is not paid by the employer, within the
prescribed time, to the person entitled thereto, the controlling authority shall, on an application
made to it in this behalf by the aggrieved person, issue a certificate for that amount to the
Collector, who shall recover the same, together with compound interest thereon at such rate as
the Central Government may, by notification, specify, from the date of expiry of the prescribed
time, as arrears of land revenue and pay the same to the person entitled thereto :
Provided that the controlling authority shall, before issuing a certificate under this section,
give the employer a reasonable opportunity of showing cause against the issue of such certificate:
Provided further that the amount of interest payable under this section shall, in no case exceed
the amount of gratuity payable under this Act.
9. PENALTIES
(1) Whoever, for the purpose of avoiding any payment to be made by himself under this
Act or of enabling any other person to avoid such payment, knowingly makes or causes
to be made any false statement or false representation shall be punishable with
imprisonment for a term which may extend to six months, or with fine which may
extend to ten thousand rupees or with both.
(2) An employer who contravenes, or makes default in complying with, any of the provisions
of this Act or any rule or order made thereunder shall be punishable with imprisonment
for a term which shall not be less than three months but which may extend to one year, or
with fine which shall not be less than ten thousand rupees but which may extend to twenty
thousand rupees, or with both :
Provided that where the offence relates to non-payment of any gratuity payable under
this Act, the employer shall be punishable with imprisonment for a term which shall not
be less than six months but which may extend to two years unless the court trying the
offence, for reasons to be recorded by it in writing, is of opinion that a lesser term of
imprisonment or the imposition of a fine would meet the ends of justice.
10. EXEMPTION OF EMPLOYER FROM LIABILITY IN CERTAIN CASES
Where an employer is charged with an offence punishable under this Act, he shall be entitled,
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upon complaint duly made by him and on giving to the complainant not less than three clear
days’ notice in writing of his intention to do so, to have any other person whom he charges as
the actual offender brought before the court at the time appointed for hearing the charge; and
if, after the commission of the offence has been proved, the employer proves to the satisfaction
of the court -
(a) that he has used due diligence to enforce the execution of this Act, and
(b) that the said other person committed the offence in question without his knowledge,
consent or connivance, that other person shall be convicted of the offence and shall be
liable to the like punishment as if he were the employer and the employer shall be discharged
from any liability under this Act in respect of such offence :
Provided that in seeking to prove as aforesaid, the employer may be examined on oath and
his evidence and that of any witness whom he calls in his support shall be subject to crossexamination
on behalf of the person he charges as the actual offender and by the prosecutor :
Provided further that, if the person charged as the actual offender by the employer cannot be
brought before the court at the time appointed for hearing the charge, the court shall adjourn
the hearing from time to time for a period not exceeding three months and if by the end of the
said period the person charged as the actual offender cannot still be brought before the court,
the court shall proceed to hear the charge against the employer and shall, if the offence be
proved, convict the employer.
11. COGNIZANCE OF OFFENCES
(1) No court shall take cognizance of any offence punishable under this Act save on a complaint
made by or under the authority of the appropriate Government : Provided that where the
amount of gratuity has not been paid, or recovered, within six months from the expiry of
the prescribed time, the appropriate Government shall authorise the controlling authority
to make a complaint against the employer, whereupon the controlling authority shall,
within fifteen days from the date of such authorisation, make such complaint to a Magistrate
having jurisdiction to try the offence.
(2) No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first
class shall try any offence punishable under this Act.
12. PROTECTION OF ACTION TAKEN IN GOOD FAITH
No suit or other legal proceeding shall lie against the controlling authority or any other person
in respect of anything which is in good faith done or intended to be done under this Act or any
rule or order made thereunder.
13. PROTECTION OF GRATUITY
No gratuity payable under this Act and no gratuity payable to an employee employed in any
establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted
under section 5 shall be liable to attachment in execution of any decree or order of any civil,
revenue or criminal court.