Employee can be dismissed even after attaining the age of superannuation as per the Conduct, Discipline and Appeal Rules, 1978 : SC in a 2:1 verdict

Supreme Court: In a 2:1 verdict, the 3-judge bench of Arun Mishra, MR Shah and Ajay Rastogi, JJ has held that the disciplinary authority has powers to impose the penalty of dismissal/major penalty upon the employee even after his attaining the age of superannuation if the disciplinary proceedings were initiated while the employee was in service in view of the Conduct, Discipline and Appeal Rules.

Issues before the Court

The Court was deciding the below mentioned issues and while all 3-judge agreed on the answer to the first Issue, Justice Rastogi, disagreed with the majority ruling in the second issue.

• Issue 1: Whether is it permissible in law for the employer to withhold the payment of gratuity of the employee, even after his superannuation from service, because of the pendency of the disciplinary proceedings against him?
• Issue 2: Where the departmental enquiry had been instituted against an employee while he was in service and continued after he attained the age of superannuation, whether the punishment of dismissal can be imposed on being found guilty of misconduct in view of Rule 34.2 of the Conduct, Discipline and Appeal Rules, 1978 (CDA Rules) made by Mahanadi Coalfield Limited?

Issue 1:

All 3 judges unanimously held it is permissible for the employer to withhold gratuity even after retirement/superannuation during pendency of the disciplinary proceedings as per Rule 34.3 of the CDA Rules.

Rule 34.3 of the CDA Rules permits withholding of the gratuity amount during the pendency of the disciplinary proceedings, for ordering recovering from gratuity of the whole or part of any pecuniary loss caused to the company if have been guilty of offences/misconduct as mentioned in subsection 6 of Section 4 of the Payment of Gratuity Act, 1972 or to have caused pecuniary loss to the company by misconduct or negligence, during his service. It further makes clear that Rule 34.3 for withholding of such a gratuity would be subject to the provisions of Section 7(3) and 7(3A) of the Payment of Gratuity Act, 1972 in the event of delayed payment in the case of an employee who is fully exonerated. There is no inconsistency between sub-section 6 of Section 4 of the Payment of Gratuity Act and Rule 34.3 of the CDA Rules.

Also, once it is held that a major penalty which includes the dismissal from service can be imposed, even after the employee has attained the age of superannuation and/or was permitted to retire on attaining the age of superannuation, provided the disciplinary proceedings were initiated while the employee was in service, sub-­section 6 of Section 4 of the Payment of Gratuity Act shall be attracted and the amount of gratuity can be withheld till the disciplinary proceedings are concluded.

Issue 2:

Justice Shah, for himself and Justice Mishra

The punishment which is prescribed under Rule 27 of the CDA Rules, minor as well as major, both can be imposed. Apart from that, recovery can also be made of the pecuniary loss caused as provided in Rule 34.3 of the CDA Rules, which takes care of the provision under  sub­section (6) of Section 4  of the Payment of Gratuity Act, 1972. The recovery is in addition to a punishment that can be imposed after attaining the age of superannuation. The legal fiction provided in Rules 34.2 of the CDA Rules of deemed continuation in service has to be given full effect.

Considering the provisions of Rules 34.2 and 34.3 of the CDA Rules, the inquiry can be continued given the deeming fiction in the same manner as if the employee had continued in service and appropriate punishment, including that of dismissal can be imposed apart from the forfeiture of the gratuity wholly or partially including the recovery of the pecuniary loss as the case may be.

“Several service benefits would depend upon the outcome of the inquiry, such as concerning the period during which inquiry remained pending. It would be against the public policy to permit an employee to go scot­free after collecting various service benefits to which he would not be entitled, and the event of superannuation cannot come to his rescue and would amount to condonation of guilt. Because of the legal fiction provided under the rules, it can be completed in the same manner as if the employee had remained in service after superannuation, and appropriate punishment can be imposed.”

Further, various provisions of the Payment of Gratuity Act, 1972 do not come in the way of departmental inquiry and as provided in Section 4(6) of Gratuity Act and Rule 34.3 of CDA Rules in case of dismissal gratuity can be forfeited wholly or partially, and the loss can also be recovered. An inquiry can be continued as provided under the relevant service rules as it is not provided in the Payment of Gratuity Act, 1972 that inquiry shall come to an end as soon as the employee attains the age of superannuation.

The Gratuity Act does not deal with the matter of disciplinary inquiry, it contemplates recovery from or forfeiture of gratuity wholly or partially as per misconduct committed and does not deal with punishments to be imposed and does not supersede the Rules 34.2 and 34.3 of the CDA Rules. The mandate of Section 4(6) of recovery of loss provided under Section 4(6)(a) and forfeiture of gratuity wholly or partially under Section 4(6)(b) is furthered by the Rules 34.2 and 34.3. If there cannot be any dismissal after superannuation, intendment of the provisions of Section 4(6) would be defeated.

Justice Rohatgi, dissenting

After conclusion of the disciplinary inquiry, if held guilty, indeed a penalty can be inflicted upon an employee/delinquent who stood retired from service and what should be the nature of penalty always depends on the relevant scheme of Rules and on the facts and circumstances of each case, but either of the substantive penalties specified under Rule 27 of the CDA Rules, 1978 including dismissal from service are not open to be inflicted on conclusion of the disciplinary proceedings and the punishment of forfeiture of gratuity commensurate with the nature of guilt may be inflicted upon a delinquent employee provided under Rule 34.3 of CDA Rules, 1978 read with sub­section (6) of Section 4 of the Payment of Gratuity Act, 1972.

[Chairman-­cum­-Managing Director, Mahanadi Coalfields Limited v. Rabindranath Choubey, 2020 SCC OnLine SC 470 , decided on 27.05.2020]