Supreme Court: The 3-judge bench of Sanjay Kishan Kaul, Dinesh Maheshwari and Hrishikesh Roy, JJ has observed that if an employee occupies a quarter beyond the specified period, the penal rent would be the natural consequence and such penal rent can be adjusted against the dues payable including gratuity.

The Court was hearing an appeal arising from a Jharkhand High Court judgment with respect to the right of a retired employee to retain quarters since the retiral dues were not paid. The respondent superannuated from service of SAIL on 30.11.1997. During his service period, he was occupying a Quarter in Bokaro Steel City, which was retained by him after retirement, as the gratuity and other retiral dues were not settled to him by SAIL. It was SAIL’s case that it was entitled to withhold the gratuity of the employee for non-vacation of the company’s accommodation and no interest was payable on the same.

Placing reliance on the Supreme Court’s decision in Secretary, ONGC Ltd. v. V.U. Warrier, (2005) 5 SCC 245, it was submitted before the High Court that in view of the statutory Rules the withholding of the gratuity is permissible.

In Secretary, ONGC Ltd. v. V.U. Warrier, (2005) 5 SCC 245 it was held,

“It is no doubt true that pensionary benefits, such as gratuity, cannot be said to be “bounty”. Ordinarily, therefore, payment of benefit of gratuity cannot be withheld by an employer. In the instant case, however, it is the specific case of the Commission that the Commission is having a statutory status. In exercise of statutory powers under Section 32(1) of the Act, regulations known as the Oil and Natural Gas Commission (Death, Retirement and Terminal Gratuity) Regulations, 1969 have been framed by the Commission. In Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi the Constitution Bench of this Court held that regulations framed by the Commission under Section 32 of the Oil and Natural Gas Commission Act, 1959 are statutory in nature and they are enforceable in a court of law.”

The High Court had observed,

“No penal rent could be levied from the appellants for the simple reason that the original writ petitioner was occupying the quarter in question after his retirement, for the fact that his retiral dues were not cleared by the Company.”

It, hence, held that the penal rent on the quarter in question could not be charged by the SAIL, rather only the normal rent was to be charged, and the amount of gratuity would carry the interest @ 6% per annum, as given to a similarly situated employee of SAIL itself, by the Supreme Court in Ram Naresh Singh v. Bokaro Steel Plant[1].

In Ram Naresh Singh Case, when the gratuity and the retiral dues of an employee were unpaid from the SAIL, the Supreme Court had ordered that the said amount be released alongwith the interest at the rate of 6% per annum from the date of retention of the amount till the date of actual payment, and in such circumstance, for retention of the quarter by the retired employee, only the normal rent (and not the penal rent) of the quarter was found to be leviable from the retired employee.

Relying on the said “order”, the High Court said,

“The original writ petitioner had a reasonable ground for retaining the quarter after his retirement as his retiral dues were not cleared by the Company, and subsequently, the quarter was also allotted in his favour for long term lease. As such, the original writ petitioner could not have been denied due interest on his retiral dues, which remained unpaid for a long time, and he even died without getting them. At the same time, he was also not liable to pay the penal rent on the Company’s accommodation retained by him.”

When the matter reached the Supreme Court, set aside the observations made by the High Court in paras 19 and 21 qua the principles of penal rent being charged and placed reliance on the judgment in Secretary, ONGC Ltd. v. V.U. Warrier, (2005) 5 SCC 245.

It further noted that the reliance placed in the impugned judgment on the case of Ram Naresh Singh case “is misplaced as is not even a judgment but an order in the given facts of the case.”

[Steel Authority of India Ltd. v. Raghabendra Singh, 2020 SCC OnLine SC 1063, order dated 15.12.2020]


[1] Civil Appeal No. 4740 of 2007, dated 31.03.2017

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