Legal Review and Analysis of Assam Financial Corporation Ltd & Ors vs Bhabendra Nath Sarma & Ors 2025 INSC 1264

1. Heading of the Judgment
Assam Financial Corporation Ltd. & Ors. v. Bhabendra Nath Sarma & Ors., 2025 INSC 1264

2. Related Laws and Sections

• The Payment of Gratuity Act, 1972 – Specifically, Section 4 (Payment of Gratuity) and Section 14 (Non-obstante clause giving the Act an overriding effect).

• Assam Financial Corporation (Payment of Gratuity to Employees) Regulation, 1964 (1964 Regulations).

• Assam Financial Corporation (Amendment) Staff Regulations, 2007 (2007 Staff Regulations) – Specifically, Regulation 107.

• Office Order No. AFC/Estt/497/2012-13/1028 dated 25.07.2012 (2012 Office Order).

3. Basic Judgment Details

• Court: Supreme Court of India

• Judges: J.K. Maheshwari and Vijay Bishnoi, JJ.

• Origin: Appeal against the judgment of the Division Bench of the Gauhati High Court in Writ Appeal No.260 of 2022.

• Parties: Appellants are The Assam Financial Corporation Limited (AFC) and Ors. Respondents are its retired employees (Bhabendra Nath Sarma & Ors.).

• Final Outcome: The Supreme Court dismissed the AFC's appeal and upheld the High Court's decision, directing the AFC to calculate and pay the enhanced gratuity to the retired employees within six months.

4. Core Principle and In-Depth Analysis of the Judgment

The Central Issue
The core legal dispute was whether the retired employees of the Assam Financial Corporation (AFC) were entitled to receive gratuity based on the higher ceiling limit adopted by the Government of Assam (which was ₹15 Lakhs), or if they were bound by the lower internal ceiling of the AFC (which was ₹7 Lakhs) that was in effect at the time of their retirement between 2018-2019.

Analysis of the Court's Reasoning and Addressing the Core Issue

The Supreme Court's judgment rests on a harmonious and benevolent interpretation of the AFC's own staff regulations, rather than a direct application of the Payment of Gratuity Act, 1972.

• Interpretation of Regulation 107 of the 2007 Staff Regulations: The Court focused its analysis on the specific wording of Regulation 107, which governed gratuity payments for AFC employees. The regulation stated that gratuity was payable "subject to a maximum of Rs.3.50 lacs or as notified by the Govt. of Assam from time to time." The Court emphasized the critical phrase "or as notified by the Govt. of Assam from time to time." It held that this phrase was not merely decorative but was a built-in mechanism within the AFC's regulations to automatically incorporate any enhancements made by the State Government. Therefore, when the Government of Assam enhanced its gratuity ceiling to ₹15 Lakhs, this higher limit became applicable to AFC employees by virtue of their own governing regulation.

• Rejection of AFC's Autonomy Argument: The AFC argued that based on notifications from the Governor of Assam, any enhancement in pay or allowances required a specific approval from its Board of Directors. The AFC contended that since its Board, in a 2022 meeting, had only "deferred" a proposal to enhance the gratuity limit, the higher ceiling was not applicable. The Supreme Court rejected this argument. It held that the requirement for Board approval for revising pay scales and allowances could not override the specific and clear mandate of Regulation 107, which already provided for the adoption of the State Government's gratuity ceiling. The Court found that the AFC's internal lethargy or delay in formally adopting the enhanced ceiling could not deprive the employees of a benefit that was already embedded in their service conditions.

• Equitable Considerations: The Court reinforced its legal interpretation with equitable principles. It noted that it would be "absolutely inequitable" for the retired employees to suffer a financial detriment due to the AFC's inaction, especially when the State Government, which the AFC's regulations sought to align with, had already implemented the higher ceiling years before the employees retired.

• Deliberate Avoidance of the Payment of Gratuity Act's Applicability: A significant aspect of the judgment is what the Court did not decide. The High Court had based its decision partly on the finding that the employees were covered under the Payment of Gratuity Act, 1972, and its overriding force under Section 14. The Supreme Court consciously refrained from expressing any opinion on this point. It clarified that since the rights of the employees were fully secured by the interpretation of Regulation 107, there was no need to decide the larger question of the Act's direct applicability to the AFC. This issue was left open to be decided in an appropriate case in the future.

Final Outcome and Directions
The Supreme Court dismissed the appeal filed by the AFC. It directed the AFC to calculate the gratuity payable to the retired respondent-employees based on the higher ceiling limit of ₹15 Lakhs (as notified by the Government of Assam) and to make the payment within a period of six months from the date of the judgment (October 14, 2025).

MCQs Based on the Judgment

Question 1: What was the primary legal instrument interpreted by the Supreme Court to decide in favor of the retired employees in Assam Financial Corp. Ltd. v. Bhabendra Nath Sarma?
(a) The non-obstante clause under Section 14 of the Payment of Gratuity Act, 1972.
(b) The Office Order dated 25.07.2012 issued by the AFC.
(c) Regulation 107 of the AFC's 2007 Staff Regulations.
(d) The notifications issued by the Governor of Assam in 2012 and 2018.

Question 2: According to the Supreme Court's judgment, why did the requirement for Board of Directors' approval not prevent the application of the higher gratuity ceiling?
(a) Because the Board's decision to defer the proposal was unconstitutional.
(b) Because the Payment of Gratuity Act, 1972, overrides the AFC's internal approval processes.
(c) Because the specific wording of Regulation 107 automatically incorporated the State Government's ceiling, which could not be overridden by a general requirement for approval of pay revisions.
(d) Because the employees had a fundamental right to equal gratuity.