gratuity

Case BriefsSupreme Court

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]

Case BriefsHigh Courts

Jharkhand High Court: Dr S.N. Pathak, J., allowed the present petition, directing the respondents to make payment of the entire retiral benefits to the petitioner within 10 days.

The instant writ petition has been preferred by the petitioner for payment of his retiral dues i.e. pension, gratuity, arrears of pension and leave encashment and other benefits.

The facts of the case were that the petitioner was appointed to the post of Assistant Engineer under Rural Works Department on 28-03-1979 in the erstwhile State of Bihar. It is the case of the petitioner that he was denied the salary for several months and on several occasions without any rhyme and reason. The petitioner after his cadre allocation to the State of Jharkhand, superannuated from the services on 31-07-2011 from Rural Works Department, Work Division, Garhwa. The petitioner after superannuation in 2011, filed several representations for payment of retiral benefits but the respondents have not paid any heed to the same, therefore, the present petition.

Saibal Mitra, the counsel appearing for the petitioner urged that though the petitioner superannuated in the year 2011, he has not received a single farthing under the head of retiral benefits.

The High Court directed the Treasury Officer to immediately make payment of the entire retiral benefits to the petitioner within a period of 10 days since entire amount under the heads of retiral benefits have been sanctioned only a month’s back after eight years of the retirement. The Court also held that the Petitioner is entitled to retiral benefits along with 12% statutory interest. Reliance in this regard was placed on the judgment passed in case of Uma Agrawal v. State of U.P., (1999) 3 SCC 438 wherein it is settled principle of law that retiral benefits are not bounty to be given to the employees after retirement. Rather, it is the right of the employees to get retiral benefits.[Sukhram Prasad Mani v. State of Jharkhand, 2019 SCC OnLine Jhar 1137, decided on 20-08-2019]

Case BriefsSupreme Court

Supreme Court: In the case where the employees of Municipal Corporation governed by the Uttar Pradesh Municipal Corporation Act, 1959 claimed gratuity under the Payment of Gratuity Act, 1972, the bench of MM Shantanagoudar and Hemant Gupta, JJ held that liberal payment of gratuity is in the interest of the employees, thus, the gratuity would be payable under the Payment of Gratuity Act.

Court noticed that the Payment of Gratuity Act is applicable to

(1) every factory, mine, oilfield, plantation, port and railway company;

(2) every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, the said provision has two conditions, viz.

(i) a shop or establishments within the meaning of a State law and

(ii) in which ten or more persons are employed; and

(3) the establishments or class of establishments which Central Government may notify.

The Court, hence, said that in terms of the above said Section 1(3)(c) of the Act, the Central Government has published a notification on 08.01.1982 and specified Local Bodies in which ten or more persons are employed, or were employed, on any day of the preceding twelve months as a class of establishment to which this Act shall apply. It, therefore, held,

“Such notification makes it abundantly clear that the Act is applicable to the local bodies i.e., the Municipalities. Section 14 of the Act has given an overriding effect over any other inconsistent provision in any other enactment. … In view of Section 14 of the Act, the provision in the State Act contemplating payment of Gratuity will be inapplicable in respect of the employees of the local bodies.”

[Nagar Ayukt Nagar Nigam, Kanpur v. Sri Mujib Ullah Khan, 2019 SCC OnLine SC 462, decided on 02.04.2019]

Legislation UpdatesNotifications

Ministry of Finance has enhanced the income tax exemption for gratuity under Section 10 (10) (iii) of the Income Tax Act, 1961 to Rs 20 lakhs.  Shri Santosh Kumar Gangwar, Minister of State for Labour and Employment has expressed hope that this would benefit those employees of PSUs and other employees not covered by Payment of Gratuity Act, 1972 and has thanked the Finance Minister for enhancing the exemption limit.

The ceiling of Gratuity amount under the Payment of Gratuity Act, 1972 has been raised from time to time keeping in view over-all economic condition and employers capacity to pay and the salaries of the employees, which have been increased in private sector and in PSUs.  The latest such enhancement of ceiling of gratuity was made vide Government of India Notification dated 29-03-2018 under which the gratuity amount ceiling has been increased from Rs 10 lakhs to 20 lakhs w.e.f. 29-03-2018.

Ministry of Labour & Employment

Case BriefsHigh Courts

Patna High Court: The Division Bench comprising of A. P. Sahi, CJ and Anjana Mishra, J. allowed a civil writ petition seeking direction for release of gratuity to an employee who was accused of an economic offence.

Petitioner was accused of acquiring of assets disproportionate to his income. In a departmental proceeding initiated against him, a final order was passed whereby it was ordered that ten per cent of his pension amount shall be permanently deducted and he would be paid only subsistence allowance during the period of suspension. Even after three and a half years from lodging of the criminal case, neither any sanction was accorded by the department against him nor was any chargesheet submitted by the prosecution – Economic Offence Unit. Thus, the petitioner filed an instant petition seeking the release of full amount of gratuity payable to him and a direction for release of the full amount due to him by way of unutilized leave.

The Court noted that despite the fact that charges of disproportionate income were not established against the petitioner in the departmental enquiry, ten percent of his pension was withheld as per Bihar Pension Rules, 1950. It was opined that no order of punishment had been imposed in relation to gratuity, and therefore withholding of gratuity had no rationale. Relying on Rule 43(b) of the Pension Rules and Full Bench judgment of the Patna High Court in Arvind Kumar Singh v. State of Bihar, 2018 SCC OnLine Pat 749, the present Court directed the amount of gratuity payable to the petitioner to be released forthwith along with interest on the same from the date that amount became payable till the date of payment. [Lakshmi Kant Patel v. State of Bihar, 2018 SCC OnLine Pat 2250, decided on 17-12-2018]

Case BriefsHigh Courts

Bombay High Court: A Single Judge Bench comprising of S.C. Gupte, J. dismissed a writ petition which was filed challenging the forfeiture of payment of gratuity due to the petitioner.

The petitioner worked as a Branch Manager with the respondent Bank. He was charge-sheeted for misconduct alleging misappropriation of funds. It was alleged that a total sum of Rs. 30,000 was misappropriated by the petitioner. Accordingly, the services of the petitioner were terminated. Subsequently, the petitioner filed an application for payment of gratuity under Section 4 of Payment of Gratuity Act, 1972. Meanwhile, the respondent Bank forfeited the gratuity payable to the petitioner under Section 4(6)(b)(ii) of the Act. Petitioner’s application for payment of gratuity, mentioned hereinabove was allowed by the Controlling Authority, which order was reversed by the Appellate Authority on an appeal by the respondent Bank. Petitioner challenged the order of the Appellate Authority in the instant petition. His main contention was that for invoking Section 4(6)(b)(ii) for forfeiting gratuity, conviction of the concerned employee for any offence for the time being in force is a condition precedent.

On perusal of the said section, the High Court was of the view that contention of the petitioner was liable to be rejected. The Court opined that Section 4, read as a whole, does not lend itself any such construction as put forth by the petitioner. There was no basis for claiming that the act referred to clause (b)(ii) of the section, namely, “act which constitutes an offence involving moral turpitude”, must be proved in a criminal court of competent jurisdiction. Referring to a few decisions of the Supreme Court and other High Courts, the Hon’ble Judge held that conviction for an offence involving moral turpitude was not a condition precedent to forfeit the amount of gratuity under Section 4(6)(b)(ii). Holding thus, the Court held that the impugned order passed by the Appellate Authority does not suffer from any illegality, and thus no interference with the impugned order was called for. Accordingly, the petition was dismissed. [Laxman Balu Deualkar v. Kolhapur District Central Coop. Bank Ltd.,2018 SCC OnLine Bom 1284, decided on 14-6-2018]

Case BriefsHigh Courts

Patna High Court: The Division Bench comprising of Rajendra Menon, CJ, and Ravi Ranjan J., held in a challenge made by the petitioner that withholding his gratuity and encashment of earned leaves was valid if, at the time of superannuation, departmental or criminal proceedings were pending.

In a nutshell, the brief facts of the case are that the petitioner was working with the Public Works Department and a case was registered against him in the year 2013 when a raid was conducted in which the property and money found on his premises was found to be disproportionate in reference to the known source of income of the employee. Therefore, petitioner was booked under Sections 13(2) with Section 13(1) (e) of the Prevention of Corruption Act, 1988, in the continuance of these proceedings, he superannuated in the year 2015.

The submissions of the petitioner stated that he was sanctioned 90% of the provisional pension. Provident fund dues, 10% pension, full gratuity and admissible leave encashment were withheld. He placed reliance on a Supreme Court case of State of Bihar v. Md. Adris Ansari; 1995 Supp (3) SCC 56 in which it was stated that “until and unless the employee concerned is held guilty of the misconduct levelled against him or punished in the judicial proceedings pending, in view of the provisions of Rule 43(b) pension, gratuity and leave encashment cannot be withheld.” Similarly in the case of Bajrang Deo Narain Sinha v. State of Bihar; 1999 SCC OnLine Pat 673, the Court again placed reliance on Rule 43(b) of the Pension Rules, stating that “the dues of the petitioner including gratuity, pension and leave encashment cannot be withheld.”

However, on recordance of the stated statutory provisions and various circulars, it was clear that 10% pension could be withheld during the pendency of the departmental proceedings or a criminal case, whereas 90% provisional pension is to be granted. The High Court stated that if an employee is facing a criminal case or a departmental proceeding at the time of his retirement, the government has the power to withhold leave encashment.

Therefore, by stating the case of Vijay Kumar Mishra v. State of Bihar; 2017 (1) PLJR 575, it was held that leave encashment of a Government employee can be withheld and its withholding by executive instructions is permissible. [Arvind Kumar Singh v. State of Bihar; 2018 SCC OnLine Pat 749; dated 02-05-2018]

Case BriefsHigh Courts

Allahabad High Court: The Single Judge Bench comprising of Ashwani Kumar Mishra, J. decided a writ petition for the sanction of gratuity before completion of the age of 60 years.

The petitioner sought the gratuity of his wife who was a headmaster in the institution and died in the year 2013. The petitioner was refused for gratuity on the ground that such amount was payable only on the completion of service at the age of 60 years and not prior to it.

Observing the circumstances of the case, a similar Writ Petition No. 40568 of 2016 was considered by this Court, in which it was decided that the Government Order does not restrict payment of gratuity to an employee, who is otherwise covered under the scheme just because he has not attained the age of 60 years. Clause 5 of the Government Order, which provides that gratuity would be payable at the age of 60 years or upon death. Therefore, the petition from which reference has been taken upon, rejection of petitioner’s claim for payment of gratuity was held to be not justified.

In the present case, the Court concluded by quashing the impugned order and directed the authority concerned to re-consider the matter and take a decision with regard to payment of interest in terms of the applicable government order. [Chandra Prakash Saxena v. State of U.P., 2018 SCC OnLine ALL 532,  order dated 07-05-2018]

Hot Off The PressNews

Vide notification dated 29th March, 2018, the Central Government has specified for the purposes of clause (iv) of the Explanation to sub-section (2) of Section 2-A of the Payment of Gratuity Act, 1972 (39 of 1972), that the total period of maternity leave in the case of a female employee shall not exceed twenty-six weeks.

Ministry of Labour and Employment

[No. S-420121/02/2016-SS-II]

Amendments to existing lawsLegislation Updates

The Parliament passed the Payment of Gratuity (Amendment) Bill, 2018 as on 22-03-2018. The Bill seeks to double the ceiling of tax-free gratuity to Rs 20 lakh. Passage of the said Bill will hugely benefit the middle and senior management employees who are getting higher salaries. With the ceiling on gratuity being raised, they will receive a higher gratuity amount as tax-free compensation, at par with central government employees, which is Rs 20 lakh. A person who retires with a salary of Rs 10 lakh p.a. needs to work for about 41 years to reach the revised limit of Rs 20 lakh. Similarly, a person whose annual salary is Rs 20 lakh at the time of retirement will achieve the Rs 20 lakh gratuity limit in about 20 years of service.

In addition, the Bill also envisages to amend the provisions relating to calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave from ‘twelve weeks’ to such period as may be notified by the central government from time to time.

After enactment of the Act, the power to notify the ceiling of the amount of gratuity under the Payment of Gratuity Act, 1972 shall stand delegated to the central government so that the limit can be revised from time to time keeping in view the increase in wage and inflation and future pay commissions.

STATEMENT OF OBJECTS AND REASONS

1. The Payment of Gratuity Act, 1972 (the Act) was enacted to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments who have rendered a minimum five years of continuous service with the establishment employing ten or more persons. The calculation of gratuity amount is based on a formula, which is fifteen days of wages for each year of completed service, subject to a ceiling. The present ceiling, as provided under Section 4 of the Act is rupees ten lakhs which was fixed in the year 2010.

2. The period of twelve weeks of maximum maternity leave presently provided in Section 2A of the Act for the purpose of calculating continuous service under the Act is on the basis of period of maximum maternity leave as provided in the Maternity Benefit Act, 1961. The maximum maternity leave under the Maternity Benefit Act, 1961 has been enhanced from twelve weeks to twenty-six weeks by the Maternity Benefit (Amendment) Act, 2017. It is therefore proposed to empower the Central Government to enhance the period of existing twelve weeks to such period as may be notified by it.

3. The provisions contained in the Central Civil Services (Pension) Rules, 1972 for Central Government employees with regard to gratuity are similar to the provisions contained in the Act. After implementation of the 7th Central Pay Commission, the ceiling of gratuity for Central Government employees has been enhanced from rupees ten lakhs to rupees twenty lakhs. In the past, the ceiling amount of gratuity under the Act has followed the Central Pay Commission recommendations. Therefore, considering the inflation and wage increase even in case of employees engaged in private and public sector, the entitlement of gratuity is also required to be revised for employees who are covered under the Act. It has also been proposed to empower the Central Government to notify the ceiling proposed, instead of amending the said Act, so that the limit can be revised from time to time keeping in view the increase in wage and inflation, and future Pay Commissions.

4. The Payment of Gratuity (Amendment) Bill, 2017, inter alia, proposes to amend—

(a) Section 2A of the Act so as to empower the Central Government to notify the period of maternity leave in case of female employee as deemed to be in continuous service in place of existing twelve weeks;

(b) Section 4 of the Act to substitute the words “ten lakh rupees” with the words” such amount as may be notified by the Central Government from time to time”.

5. The Bill seeks to achieve the above objects.

Ministry of Labour and Employment

Case BriefsHigh Courts

Calcutta High Court: The petition has been filed by the primary school assistant teacher asking for interest on the gratuity amount which was released to his account after a long delay. The petitioner retired from the position of primary school assistant teacher on 31.7.2002, and his gratuity amount which is his statutory right was released on 19.04.2004, thereby he claimed interest on the delayed payment.

Various orders of the court have settled that if there is any delay on the payment of gratuity to a retired employee, then he is absolutely liable to claim interest on the delay. Arijit Banerjee, J., by taking the reference of the Hon’ble Supreme Court in Union of India v. Tarsem Singh, (2008) 8 SCC 648, stated that gratuity is not a bounty to be handed out by the State at its whim. If there is any delay in his payment of gratuity he is entitled to get interest on that delay. Therefore, the Director of Pension, Provident Fund and Group Insurance, Government of West Bengal as also the Treasury Officer concerned were directed to pay interest at the rate of 9% per annum on the calculated gratuity amount from August 1, 2002 till the actual payment date. [Ramchandra Majumdar v. State of West Bengal, 2017 SCC OnLine Cal 10043, decided on 19.07.2017]

Case BriefsHigh Courts

Allahabad High Court: Deciding a petition filed against the order of the Superintendent of Police, District Jalaun in withholding the payment of gratuity amount and holding that the petitioner was entitled to only interim pension due to pendency of criminal case, the Court held that gratuity can be withheld where  serious charges are levelled against the employee in a pending judicial proceeding and that the petitioner will be entitled for gratuity only after the criminal proceedings against him are culminated.

The petitioner, a Constable Driver in the Police Department having retired in 2013, was aggrieved that the  post-retiral benefits had  not been  paid in full. No gratuity had been paid and he was getting only interim pension. An FIR was registered against him among others accusing him of a conspiracy to implicate innocent persons in criminal charges and collecting false evidence against them during the investigation. The case is since pending before the court.

The Bench of Sunita Agarwal, J. observing the charges levelled against the  petitioner held that the allegations of lapses in discharge of duty with utmost integrity and honesty are serious charges. The charge-sheet has been filed and the criminal trial is going on. Not finding any illegality in the order passed by the Superintendent of Police, the Court held that the petitioner will be entitled for gratuity only after the criminal proceeding against him are culminated. [Ramsiya Yadav v. State of UP, 2016 SCC OnLine All 731, decided on September 6, 2016]