Computation of Retrenchment Compensation – Whether 26 days basis or 30 days basis a month be considered;

At one point of time, certain controversies have arisen regarding retrenchment compensation. In one case the Bombay High Court has held that retrenchment compensation should be calculated as if a month comprises of 26 days. The Madras High Court also followed the same.

However, the Calcutta High Court while considering both the judgments has clarified by holding that the retrenchment compensation shall be calculated by taking the month comprising of 30 days and not of 26 days. It was further clarified that the decision of Bombay and Madras High Courts were based upon the interpretation of Section 4(2) of the Payment of gratuity Act, 1972 which did not apply for the calculation of retrenchment compensation under the Industrial disputes Act, 1947. Thus,  for the purpose of calculation of 15 days’ wages, the monthly wages are not required to be divided by 26, then multiplied by 15.

The similar stand was taken by Supreme Court in the case of Guru Jhambheshwar University, Hisar vs. Dharampal wherein it was affirmed that concept of 26 working days while paying retrenchment compensation is not applicable.

 

By Dayanand Mangaonkar