Ex gratia – As favour.
Meaning:
The term ex gratia comes from Latin, meaning “out of grace” or “as a favour.” In legal and commercial contexts, an ex gratia payment is a voluntary payment made by a party, usually by a company, government, or employer, to another party without the payer recognizing any legal liability or admitting any legal obligation. Essentially, it’s a gesture of goodwill, not a legal obligation.
Key Features of Ex Gratia Payments:
Voluntary Nature: The payment is made voluntarily, not because the law requires it.
No Admission of Liability: Making an ex gratia payment does not imply that the payer is legally liable or admits fault.
Goodwill Gesture: Often made to maintain relations, provide relief, or mitigate hardship.
Subject to Discretion: The payer can decide whether to make such a payment and the amount.
Common Examples:
Compensation paid by a company to employees for injuries or accidents at work, even when the company is not legally liable.
Government paying compensation to victims of natural disasters or accidents, where no statutory liability exists.
Settlements offered to avoid prolonged litigation or public criticism.
Legal Distinction:
An ex gratia payment is different from legally enforceable compensation:
Ex gratia: Voluntary, no admission of liability, cannot be enforced in court.
Legal compensation: Mandated by law or contract, enforceable in court.
Case Law Example in India:
State of Haryana v. Surinder Singh (1998)
Facts: A government employee died while on duty. The family applied for compensation. The government provided an ex gratia payment to the family.
Holding: The court clarified that an ex gratia payment does not constitute legal acknowledgment of liability. It is a voluntary payment as a gesture of sympathy or goodwill. It cannot be claimed as a matter of right.
Union of India v. Popular Construction Co. (1980) (Illustrative)
Facts: In some cases, ex gratia payments were made to contractors or workers for delays or losses, even when the government was not legally bound.
Principle: Ex gratia payments are discretionary and cannot create any legal liability for similar future cases unless formalized by law.
Important Points:
Ex gratia payments can sometimes be taxed under the Income Tax Act as “income,” depending on the nature of the payment.
Acceptance of an ex gratia payment usually involves signing a waiver, confirming that the recipient has no further claim.
Summary:
Ex gratia is a voluntary payment or favour made without legal obligation, usually to provide relief, goodwill, or humanitarian assistance. It does not create legal precedent or imply liability, making it distinct from compensatory payments mandated by law.
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