Gratuity Eligibility: Does “4 Years + 240 Days” Automatically Mean 5 Years?

Expert Article | AROI SERVICES – Your HR Compliance Partner

In the case of M/s. Bengaluru Metro Rail Corporation Ltd. (BMRCL) v. Sri Nandeesh H.V. & Others (W.P. No. 35414/2025, decided on 29 June 2026), Justice Jyoti M. explicitly ruled that an employee who resigns before completing five calendar years of continuous service cannot use the 240-day calculation rule to force gratuity clearance from their employer.

⚖️ The Legal Battle: Continuous Service vs. Literal Tenure

The dispute stems from a direct tension between two critical pillars of the Payment of Gratuity Act, 1972:

• Section 4(1): Explicitly mandates that gratuity is only payable upon the termination of employment after an individual has rendered "continuous service for not less than five years" (except in cases of death or total disablement).
• Section 2A: Defines "continuous service" and outlines that if an employee works for 240 days in a 12-month period (or 190 days in a 5-day work week establishment), they are deemed to have completed one full year of continuous service for that specific block.

In the BMRCL case, the employee resigned after serving exactly 4 years, 9 months, and 12 days. Because the employee had worked more than 240 days during that final 5th year, lower statutory authorities directed the employer to release the funds. The Karnataka High Court aggressively quashed those orders, declaring that the 240-day method cannot bypass the threshold requirement of a 5-year relationship when employment ends via voluntary resignation.

🌐 The High Court Split: A Compliance Headache for Pan-India Enterprises

The primary challenge for payroll teams is that India’s higher judiciary remains deeply split on this topic. Different jurisdictions interpret the intersection of Section 4(1) and Section 2A through fundamentally contrasting lenses:

Judicial Forum / Jurisdiction	Legal Stance & Core Rationale
Karnataka & Gujarat High Courts	Strict Interpellation: Completion of 5 continuous calendar years is an absolute prerequisite for eligibility in resignation scenarios. The 240-day clause is an evaluation tool for interruptions within an active tenure, not a shortcut to shorten the required 5-year timeline.
Madras, Delhi, & Kerala High Courts	Employee-Friendly/Deeming View: If an employee crosses 4 years and logs at least 240 working days within the 5th year, that final fraction rounds up to a complete year, granting eligibility at roughly 4 years and 8 months.

📋 Actionable Compliance Checklist for HR and Payroll Heads

To insulate your organization from back-dated claims, interest penalties, or employee litigation, corporate compliance teams should immediately apply the following controls:

• Review Geographic Separation Rules: Avoid applying a single automated gratuity rule across a nationwide payroll system. While establishments in Karnataka can legally deny gratuity to employees resigning at 4 years and 9 months, doing so for employees based in Chennai or Cochin creates major litigation risks under their respective local High Court precedents.
• Audit Your Internal Corporate Gratuity Policies: Check whether your company’s internal employment handbook contains policies that are more favorable than the minimum requirements of the Act. Under Section 4(5) of the Act, an employee's right to receive better terms under an internal company policy or collective bargaining agreement is fully protected. If your system is hardcoded to pay at 4 years + 240 days, you are contractually bound to pay it.
• Transition with Fixed-Term Employment (FTE) Contracts: Keep in mind that under the revised statutory environment, Fixed-Term Employees are completely exempt from the 5-year requirement. Contractual workforces qualify for pro-rata gratuity payouts after completing just 1 year (12 months) of continuous service. Ensure your ERP cleanly flags employee types to prevent expensive calculation errors.
• Isolate and Verify Separation Triggers: Before rejecting a borderline claim, verify the precise reason for separation. If the relationship is ending due to termination, downsizing, or medical conditions, the standard calculations change. The 5-year baseline is completely waived if separation is caused by death or permanent disablement.

💡 Conclusion

The 2026 Karnataka High Court ruling reinforces a fundamental compliance reality: popular HR practices do not equal settled law. Relying blindly on unverified system formulas can leave your business exposed to regulatory disputes or unnecessary financial leaks. True statutory protection requires analyzing employee claims case-by-case, matching the facts against local judicial boundaries.

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