Ex-gratia compensation in service jurisprudence is intended as a safety net for the families of employees who die in harness or are incapacitated before retirement. Unlike statutory entitlements such as provident fund, gratuity, or pension, ex-gratia payments are discretionary and governed by policy frameworks framed by employers or umbrella bodies such as the Indian Banks’ Association.
A recent decision of the Delhi High Court in Omwati v. Bank of Maharashtra (2025) has reignited debate on how eligibility for ex-gratia is determined, particularly the controversial question: Should notional interest on terminal benefits be treated as part of a family’s income when assessing indigence?
The Court held in the affirmative, stressing that notional income from terminal benefits must be factored into financial assessments under the scheme. This article explores the background, legal framework, judicial reasoning, contrasting precedents, and implications of this ruling.
Background of the Case
Facts of the Matter
- The petitioner, Omwati, was the widow of Mahavir Singh, a Daftari employed with the Bank of Maharashtra.
- Singh passed away on 17 December 2014, leaving his family in a state of financial uncertainty.
- Omwati first applied for a compassionate appointment on 16 April 2015. When that request was denied, she sought ex gratia compensation under the Bank’s 2007 policy formulated in line with Indian Banks’ Association guidelines.
- Her claim was rejected in May 2018 because her family’s calculated monthly income exceeded 60% of the last drawn salary of the deceased employee, which disqualified them under the scheme.
Petition Before the Court
Dissatisfied, Omwati approached the Delhi High Court under Article 226 of the Constitution. The crux of her argument was that the Bank wrongly included notional interest on terminal benefits and investments when computing family income. She argued that actual earnings—not hypothetical figures—should determine indigence.
The Ex-Gratia Policy: Key Features
The Bank of Maharashtra’s 10 October 2007 policy lays down conditions for ex-gratia eligibility when a compassionate appointment is not provided.
Objectives
- Provide immediate financial relief to the families of deceased employees.
- Ensure support during the “sudden crisis” caused by premature death, incapacitation, or injury in service.
Eligibility
- Family must be in indigent circumstances.
- Application must be made within six months of death.
- Family’s monthly income from all sources must be less than 60% of the last drawn gross salary (net of taxes).
Calculation of Income
The scheme explicitly prescribes the computation of family income through:
- Terminal Benefits: Provident Fund, Gratuity, Leave Encashment, etc.
- Investments: NSCs, PPF, LIC, deposits.
- Movable & Immovable Properties.
- Other Income: including pensions.
Most importantly, the scheme mandates calculating monthly interest at the Bank’s maximum term deposit rate on the net corpus of terminal benefits, thus introducing the idea of notional income.
Arguments Raised
Petitioner’s Contentions
- Notional v. Actual Income: The Bank erred in assuming notional interest from terminal benefits and investments, regardless of whether the family actually earned such interest.
- Practical Hardship: Families often spend terminal benefits immediately on pressing obligations such as marriages, education, or debts. In such situations, assuming income on the basis of the retained corpus is unrealistic and unjust.
- Precedents: Reliance was placed on decisions of the Punjab & Haryana High Court (Santosh Devi, 2009; Gayatri, 2020) and the Himachal Pradesh High Court (Meena Devi, 2016), which held that notional income should not be mechanically factored in.
Respondent Bank’s Position
- The scheme’s terms clearly require the inclusion of notional interest.
- Based on the petitioner’s disclosure, the family’s monthly income, including pension, notional interest on corpus, and investment yields, amounted to ₹28,789, exceeding 60% of the last drawn salary (₹19,549).
- Since the income threshold was crossed, the family was ineligible.
Judicial Analysis by the Delhi High Court
1. Nature of Ex-Gratia Schemes
Justice Prateek Jalan emphasised that ex gratia relief schemes are analogous to compassionate appointment policies. Both aim to provide immediate relief to families in poverty, but neither constitutes a vested right. Instead, they are strictly governed by the terms of the scheme.
2. Role of Indigence
Drawing on Tinku v. State of Haryana (2024) and Canara Bank v. Ajithkumar G.K. (2025), the Court reiterated:
- Indigence is the precondition for eligibility.
- Financial assessment must be comprehensive, factoring in all resources, including retirement benefits and family pension.
- Courts cannot dilute the policy framework on sympathetic grounds.
3. Validity of Notional Income
The Court upheld the Bank’s reliance on notional interest, reasoning:
- The policy expressly provides for this method; hence, it must be enforced strictly.
- Since applications must be made within six months of death, actual earnings may not yet be ascertainable. Notional estimates ensure objectivity and uniformity.
- Excluding notional income would create anomalies: prudent families saving and investing would be penalised, while spendthrift families would gain eligibility.
4. Contrasting High Court Precedents
Delhi High Court disagreed with Santosh Devi and Meena Devi, who excluded notional interest. Justice Jalan observed that such an approach undermines policy clarity and introduces subjectivity. With due respect, he found those judgments unpersuasive.
Key Takeaways from the Judgment
- Strict Adherence to Scheme Terms: Courts cannot rewrite or dilute policy terms; if the scheme mandates inclusion of notional income, it must be applied.
- Notional Interest as a Valid Criterion: Income derived (or derivable) from terminal benefits and investments can be considered, even if not actually earned.
- Immediate Relief Objective: Ex-gratia schemes focus on short-term crisis management, not long-term financial planning. Delay in claims undermines this purpose.
- Equity and Uniformity: Objective formulae (such as notional interest) prevent arbitrary or inconsistent assessments across cases.
Broader Jurisprudential Context
Compassionate Appointment v. Ex-Gratia
- Compassionate Appointment: Provides employment to a family member of the deceased employee.
- Ex-Gratia: Provides monetary relief when employment is not feasible.
Both are exceptional departures from the equality principle under Articles 14 & 16 of the Constitution, and hence must be narrowly construed.
Role of Terminal Benefits
Supreme Court precedents (e.g., Somvir Singh; Kunti Tiwary) consistently hold that retirement benefits cannot be ignored in assessing penury. The Delhi HC extended this logic to notional earnings from such benefits.
Objective v. Subjective Assessment
The ruling reflects a judicial preference for objective formula-based assessments over case-by-case subjective judgments that might vary with individual circumstances.
Implications of the Judgment
For Employees’ Families
- Families must recognise that ex-gratia eligibility is tied not just to actual income but also to potential income from assets.
- Prudent financial planning and transparent disclosure are crucial.
For Banks and Employers
- The ruling validates policies that use notional interest models for uniformity.
- Provides protection against arbitrary claims driven by actual spending patterns of families.
For Legal Landscape
- Reinforces the principle of strict policy adherence in discretionary schemes.
- Sets the stage for possible appeals or Supreme Court intervention to harmonise divergent High Court rulings.
Conclusion
Delhi High Court’s ruling in Omwati v. Bank of Maharashtra underscores a fundamental principle: Ex-gratia relief is not an entitlement but a discretionary benefit rooted in policy. Families must satisfy the financial indigence criteria strictly as defined, including notional income from terminal benefits.
While this approach ensures objectivity, it also raises questions of fairness where families expend corpus on unavoidable needs. The judgment highlights the delicate balance between policy uniformity and compassionate flexibility in welfare schemes.
In the evolving jurisprudence of compassionate relief, the case reaffirms that eligibility hinges not on sympathy but on structured financial assessment—and notional interest plays a decisive role in that equation.