You are correct Hemu; gratuity becomes payable irrespective of the completion of the minimum qualifying service, if the employee dies in harness. The place or reason for death is immaterial.
Since the basic unit of duration of service rendered for the purpose of calculation of gratuity under the PGA,1972 is one year, shorter spell of service like 3 months on the date of death will really be a problem for the employer to tackle with humanitarian consideration only. Had the employer taken a special gratuity insurance policy with life cover on payment of some additional premium, the insurer will pay the gratuity for the entire service up to 58 years of age of the deceased employee.
If not, payment of minimum Gratuity for one year plus some sizable sum by way of ex-gratia as well as employment on compassionate ground to the legal heir of the deceased if possible is the only befitting option in this extraordinary case.
This suggestion is purely based on humanitarian consideration only. IF THERE IS A WILL, THERE IS A WAY. After all charity begins at home only and so is Corporate Social Responsibility!