Introduction:

In Manoharan D. and Ors. v. Kerala State Beverages (Manufacturing and Marketing) Corporation and Ors., WA Nos. 951/2024 and connected cases, the Kerala High Court delivered a significant judgment holding that retired abkari workers of the Kerala State Beverages Corporation Ltd. (KSBC) who had already received terminal benefits under the Kerala Abkari Workers Welfare Fund Act are nonetheless entitled to statutory gratuity under the Payment of Gratuity Act, rejecting the Single Bench’s view that granting gratuity would amount to a double benefit and unjust enrichment, and establishing that gratuity, being a statutory right, cannot be taken away without authority of law.

Arguments:

The appellants, represented by counsel Deepu Thankan, Vineetha Bose, Cindia S., and Ummul Fida, approached the Division Bench comprising Justice Sushrut Arvind Dharmadhikari and Justice Syam Kumar V.M. challenging the dismissal of their writ petitions wherein the Single Judge had upheld the KSBC’s refusal to pay gratuity on the ground that the employees had already received terminal benefits under the Kerala Abkari Workers Welfare Fund Act (KAWWF Act). The appellants argued that gratuity under the Payment of Gratuity Act stands on a statutory footing and that the Abkari Workers Welfare Fund payments cannot be treated as a substitute for statutory gratuity unless the State Government issues a notification under Section 5 of the Gratuity Act expressly exempting the establishment, contending that such exemption had never been issued and therefore denial of gratuity violated their vested rights. They further argued that the Single Bench erred in classifying abkari workers as a distinct category, asserting that they remained employees of KSBC and therefore equally entitled to gratuity as per the Act and the Corporation’s Service Rules, emphasizing that a bilateral agreement between KSBC and trade unions cannot override statutory rights.

On the other hand, the respondents, represented by S. Krishnamoorthy (Standing Counsel, Kerala Abkari Workers Welfare Fund Board) and Naveen T. (Standing Counsel, KSBC), contended that the Abkari Welfare Fund payments were comprehensive terminal benefits that were intended to replace all other benefits including gratuity and that paying gratuity again would amount to double payment. They supported the Single Judge’s conclusion that the abkari workers were a separate class governed by a unique statutory framework created for their welfare, and that the bilateral agreement between KSBC and unions clearly indicated that gratuity was included within the welfare fund arrangements, arguing that this formed a binding contractual understanding which the workers had accepted during service. They also contended that the purpose of Section 5 of the Payment of Gratuity Act would be rendered redundant if establishments created separate welfare fund mechanisms could not adjust benefits to avoid duplication.

Judgement:

The Division Bench, however, rejected these arguments after thoroughly analysing the statutory scheme, holding that gratuity is a statutory right and can be denied only in strict compliance with Sections 2(e), 4(5), 5 and 14 of the Payment of Gratuity Act. The Court clarified that Section 2(e) excludes only two categories of persons: those holding posts under the Central or State Government, and those governed by another Act or Rules providing for gratuity; and importantly, both conditions must coexist for exclusion. Since abkari workers were not government employees and no separate Act or Rules governing gratuity existed for them, the Court held that they squarely fell within the definition of “employee”. The Court then examined Section 5, which allows the government to exempt any establishment or class of employees by notification if they receive benefits not less favourable than the Gratuity Act, noting that no such notification had been issued for KSBC or abkari workers. Therefore, the welfare fund payments could not be treated as a substitute for statutory gratuity. The Court emphasized that Section 14 of the Act confers overriding effect on the Gratuity Act over all other laws, agreements and contracts, meaning that neither bilateral agreements nor administrative arrangements can curtail the statutory right to gratuity. The Division Bench further observed that receiving benefits under another welfare scheme does not amount to unjust enrichment because statutory gratuity is a right guaranteed by Parliament, and if the State perceived the benefits as excessive, it should have exercised its power under Section 5 instead of denying statutory entitlements through judicial classification. The Court strongly disapproved of the Single Judge’s reasoning of treating abkari workers as a separate class, calling it a “unilateral classification” unsupported by law, and reiterated that classification cannot deprive employees of statutory rights without explicit legal authority. The Bench also relied on Supreme Court and Kerala High Court precedents, reiterating that statutory benefits cannot be waived, contracted out of, or substituted unless expressly permitted by the statute. Accordingly, the Division Bench set aside the Single Judge’s decision, declared that denial of gratuity was illegal, and directed KSBC to pay gratuity to the appellants as per the Payment of Gratuity Act and the Corporation’s Service Rules within three months from the date of judgment. The Court thus upheld the supremacy of the Payment of Gratuity Act, reaffirmed the statutory nature of gratuity, clarified that welfare fund payments do not extinguish statutory entitlements, and reinforced the principle that employee benefits must be denied only in strict accordance with legislative power and procedure.