Case BriefsSupreme Court

Supreme Court: The Division Bench of Hemant Gupta and A.S. Bopanna, JJ., addressed whether the 2010 amendment of Payment of Gratuity Act 1972 is retrospective.

In the instant matter, Jharkhand High Court’s decision has been challenged whereby the claim of the appellants to declare the applicability of Payment of Gratuity (Amendment) Act, 2010 from 1-1-2007 was declined.

Appellants were employees of Coal India Limited. Government of India had approved the enhancement of gratuity to the executives and Non-Unionized Supervisors of Central Sector Enterprises such as the Coal India Limited where the appellants were employed and the said gratuity was raised to Rs 10 lakhs.

Later, the Payment of Gratuity Act was amended.

Grievance of the Appellants

Appellants were aggrieved that the tax was deducted at the source when the gratuity was paid to the appellants before the commencement of the Amending Act. Thus, the appellants challenged the date of commencement as 24-05-2010 but asserted that it should be made effective from 1-1-2007 and consequently the appellants would not be liable for deduction of tax on the gratuity amount.

The Judgment of D.S. Nakara v. Union of India, (1983) 1 SCC 305, came up for consideration before this Court in a Judgment of State Government Pensioners’ Assn. v. State of A.P., (1986) 3 SCC 501, wherein the payment of gratuity from a specified date of retirement was held to be not unconstitutional.

A similar view was taken in the Supreme Court decision of Union of India v. All India Service Pensioners’ Assn., (1988) 2 SCC 580, wherein it was held that the pension was payable periodically as long as the pensioner was alive whereas the gratuity was ordinarily paid only once on retirement.

Section 4(5) of the Gratuity Act protects the rights of an employee to receive better terms of gratuity under any award or contract with the employer. The gratuity paid to the appellants on strength of office memorandum would fall in the said sub-section.

 “…what is exempt from the Income Tax Act is the amount of gratuity received under the Gratuity Act to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of Section 4 of the Gratuity Act.”

The Gratuity Act contemplated Rs 10 lakhs as the amount of gratuity only from 24-5-2010. Such gratuity is the amount payable only once. Thus, the cut-off date cannot be said to be illegal, it being one-time payment.

Therefore, such amendment in the Gratuity Act cannot be treated to be retrospective. Hence, the said provisions of the statute cannot be said to be retrospective.

In a recent judgment Himachal Road Transport Corporation v. Himachal Road Transport Corporation Retired Employees Union, (2021) 4 SCC 502, in the case of payment of increased quantum of death-cum-retirement gratuity, it was held that the cut-off date cannot be said to be arbitrary which was fixed keeping in view financial constraints.

Lastly, in view of the above, Bench found that the date of commencement fixed by the Executive in exercise of power delegated by the Amending Act cannot be treated to be retrospective as the benefit of higher gratuity was one-time available to the employees only after the commencement of the Amending Act.

Concluding the matter, it was held that benefit paid to the appellants under the office memorandum is not entitled to exemption in view of specific language of Section 10(10)(ii) of the Income Tax Act.

No error was found in the Jharkhand High Court’s decision. [Krishna Gopal Tiwary v. Union of India, 2021 SCC OnLine SC 581, decided on 13-08-2021]

Case BriefsHigh Courts

Tripura High Court: Akil Kureshi, CJ., dismissed a writ petition which was filed aggrieved about non-payment of gratuity and pension after retirement.

The petitioner had joined the service of the Government of Tripura in the year 1992 as a Lower Division Clerk on a reserved post for Scheduled Tribe wherein she had claimed that she belonged to Laskar(Tripuri) community which was recognized as a Scheduled Tribe in Tripura.

The question of Laskar community being recognized as a Scheduled Tribe became a focal point of long legal controversy. Eventually, the Supreme Court had upheld the judgment of the Tripura High Court holding that the Laskar community is not a recognized Scheduled Tribe in the State of Tripura. It was however decided that those belonging to Laskar community and who had been granted any benefit of reservation up to 31-03-1990, the same shall not be withdrawn looking at the longstanding disputes.

The cancellation of the petitioner’s caste certificate and consequentially, her appointment in Government service also went through several legal stages. At one stage, the Judge allowed the petition and set aside the order passed by the State Level Scrutiny Committee(SLSC) cancelling her caste certificate, in the writ appeal the Division Bench confirmed the above order. SLSC once again passed a fresh order, cancelling the caste certificate of the petitioner and the government acting upon the order cancelled petitioner’s appointment which was based on the false claim of Scheduled Tribe status.

The petitioner aggrieved by this had approached the High Court and the Judge had stayed the implementation of the order and accordingly, the petitioner had rejoined the duties.

While this petition was pending the petitioner retired and the petition was eventually dismissed, the decision was challenged, which was again dismissed. In the present petition direction for release of her gratuity and pension was prayed for.

The Court after perusal of facts and documents opined that based on the cancellation of the caste certificate, her appointment also stood cancelled and these orders had achieved finality since Single Judge, as well as the Division Bench, had dismissed the petition challenging this order. The Court further held that in this view of the matter, the petitioner cannot claim post-retiral benefits of pension and gratuity.

The Court while dismissing the petition however held that on the principles of quantum meruit, the salary already paid to the petitioner for the work done cannot be a subject matter of recovery but the benefits of Government employment, promotion or admission in educational institutions on the strength of false claim of reserved category candidate, would be withdrawn once it is proved that the caste status was falsely claimed.[Sipra Debbarma v. State of Tripura, 2021 SCC OnLine Tri 380, decided on 29-07-2021]

Suchita Shukla, Editorial Assistant has reported this brief.

For Petitioner(s): Ms A Debbarma and Mr Samarjit Bhattacharjee

For Respondent(s): Mr Biswanath Majumder, CGC and Mr S Dey

Akaant MittalExperts Corner


A liquidation proceeding stands initiated once the corporate insolvency resolution process fails. Section 33 of the Insolvency and Bankruptcy Code, 2016 (IB Code) sets out the conditions laying down three scenarios wherein liquidation proceedings can be initiated against the corporate debtor.


First, when the adjudicating authority does not receive the resolution plan upon expiry of the insolvency process or it rejects the resolution plan.[1]


Second, when the resolution professional intimates the adjudicating authority that the committee of creditors has decided to liquidate the corporate debtor.[2]


Third, when any person, whose interests are prejudicially affected when the approved resolution plan is contravened by the corporate debtor, makes an application to the adjudicating authority to initiate liquidation proceedings.[3]


Once the liquidation process is initiated, the same concludes with the distribution of the assets of the corporate debtor in accordance with the waterfall (distribution) mechanism provided under Section 53 of the IB Code.


This column seeks to discuss about one peculiar aspect of liquidation wherein it is sought to be ensured that workers of a corporate debtor suffer the least on account of the expiration of the corporate debtor.


“Gratuity” and its Interplay with IB Code

While the Payment of Gratuity Act has not explicitly defined the term “gratuity”, it can be understood to be a sum payable by the employer to his workers upon completing service for the prescribed period of time.[4] Now once the company is brought to an end by the liquidation, then clearly such payment is to be paid to the workers.


Simultaneously, the IB Code provides for the formation of a “liquidation estate”[5] containing all the assets of the debtor. It is these proceeds that will be distributed to the respective stakeholders (creditors) in terms of waterfall mechanism under Section 53 of the IB Code.


Issue arises because if the gratuity falls under the “liquidation estate” and is to be distributed in terms of Section 53, then the workers may not get their dues in total. For instance, assuming that the only asset of the company is the gratuity sum to the tune of Rs 1 crore. Now if this sum forms part of the liquidation estate, then this sum of Rs 1 crore will be distributed firstly towards the insolvency resolution process costs and liquidation costs. If these costs run over Rs 1 crore, then the entire gratuity amount will be consumed under these expenses only. Otherwise, if these costs are, let us say, Rs 50 lakhs, then the remaining Rs 50 lakhs will be distributed towards the workers’ dues for the period of 24 months preceding the liquidation commencement date and dues towards secured creditors. The list goes so on and so forth.


However, Section 36 of the IB Code stipulates certain payments that are not to form part of the “liquidation estate”. Section 36(4)(a)(iii) of the IB Code stipulates that:

(4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation:

(a) assets owned by a third party which are in possession of the corporate debtor, including–

(i)-(ii)                             ***

(iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;


In other words, any amount due to the workers from the pension fund, provident fund, and the gratuity fund will not form a part of the liquidation estate of the corporate debtor and will not be used for recovery in liquidation.


Since in many instances, liquidation results in the complete closure of the business of the ailing debtor, which results in the termination of the employment of the workers. In legal parlance, this discharge of workers amounts to their retrenchment i.e. the termination of service of workers by the employer for any reason other than punishment inflicted by way of disciplinary action.[6] Naturally to protect the workers, funds such as pension fund, provident fund, and the gratuity fund are kept out of the liquidation distribution and to be used solely for the benefit of the workers.


This question was even dealt with by the National Company Law Appellate Tribunal (NCLAT) in Somesh Bagchi v. Nicco Corpn. Ltd.[7] (Somesh Bagchi) as well SBI v. Moser Baer Karamchari Union[8] (Moser Baer – NCLAT) wherein the Appellate Tribunal had held that gratuity does not form a part of the liquidation estate.


Unsettled Legal Issues Arising with Gratuity

Now further issue arises on whether a liquidator can be directed to make provision for the payment of gratuity to the workers in case the erstwhile management of the corporate debtor did not create such fund for the workers.


The recent ruling by the National Company Law Tribunal (NCLT) Allahabad in Standard Chartered Bank v. JVL Agro Industries Ltd.[9] (Agro Industries) brings out the trouble in how to counter balance the workers benefit wherein the employer had faulted in not providing for gratuity; all the while respecting the statutory limitations of the authority of a liquidator.


In Agro Industries[10], a resolution proceeding was initiated and consequently a moratorium was declared and a resolution professional was appointed. Since, no resolution plan was approved by the committee of creditors, the liquidation proceeding was initiated. The corporate debtor had nearly 500 employees some of whom had filed an application for payment of their dues after the public announcement of liquidation was made. The corporate debtor had taken gratuity policy for 92 of its employees from Life Insurance Corporation (LIC), and the other 403 were not covered by it. It was further represented before the NCLT that the corporate debtor has requisite funds to cover the gratuity payments of the rest of its employees as well as pay the renewals for the already existing policyholders.


The NCLT referring to the ruling in Alchemist Asset Reconstruction Co. Ltd. v. Moser Baer India Ltd.[11] (Moser Baer – NCLT) which had been upheld by the NCLAT allowed the same and directed the liquidator to pay for the existing holders whose premiums are due as well as procure a new gratuity policy for the other 403 employees.


The precedent of Moser Baer – NCLT[12] referred to by the NCLT in Agro Industries[13] was primarily on the issue of whether gratuity funds could be used to make up the “liquidation estate” and consequently available for distribution amongst other creditors in terms of Section 53 of the IB Code. Allowing the prayer of the workers, the NCLT held that amount due towards the workers cannot be used for the purposes of distribution in terms of Section 53 of the IB Code.


In Moser Baer – NCLT[14], the Court further directed the liquidator that in cases there is any deficiency to the provident, pension or the gratuity funds; the liquidator shall ensure that the fund is available in these accounts, “even if their employer has not diverted the requisite amount”.


This order was impugned by the State Bank of India – a secured creditor of Moser Baer in SBI v. Moser Baer Karamchari Union,[15] where the limited question that came before the NCLAT was whether the gratuity dues formed a part of the liquidation estate. Holding the answer in negative, the NCLAT decided not to interfere with the order of the NCLT.


However, complications arise from the facts that confronted the NCLAT in its ruling in Savan Godiwala v. Apalla Siva Kumar[16] (Siva Kumar) wherein the NCLAT had held that if there has been no fund set aside for the payment of gratuity, provident and pension dues then the liquidator cannot be directed to do so.


The ex employees of the corporate debtor herein had contended that since corporate debtor had failed to maintain a gratuity fund or obtain insurance for the fulfilment of its liability towards payment of the gratuity to its employees, the gratuity dues payable to the employees shall be treated as an asset of the employee lying in possession of corporate debtor and as such, cannot be treated as a claim at par with other creditors.


In the counter the liquidator submitted that if there is no separate fund for gratuity payments, the same cannot be done from the running accounts of the corporate debtor, presumably because under the statutory scheme[17] of the IB Code the gratuity funds are excluded from the ambit of “liquidation estate”.


The NCLAT, firstly, discussed judicial precedent in Moser Baer – NCLAT[18] and Section 36(4)(a)(iii) as to how funds such as gratuity and provident funds do not form part of liquidation estate, therefore, are outside the purview of any discussion on “liquidation estate”. Secondly, it referred to Section 36(2)[19] of the IB Code to reason that the liquidator holds the funds in the “liquidation estate” in a fiduciary capacity for the purposes of distribution amongst creditors in terms of Section 53 of the IB Code, therefore such funds cannot be used for any other purpose except the distribution mechanism under Section 53 of the IB Code. Thirdly and finally, the NCLAT referred to the facts and circumstances, where there was no separate fund provided by the erstwhile management for the purposes of gratuity funds.


Resultantly, the NCLAT concluded:

  1. [i]n a case, where no fund is created by a company, in violation of the statutory provision of Section 4 of the Payment of Gratuity Act, 1972, then in that situation also, the liquidator cannot be directed to make the payment of gratuity to the employees because the liquidator has no domain to deal with the properties of the corporate debtor, which are not part of the liquidation estate.[20]


The Agro Industries[21] case refers to a situation where funds for payment of gratuity have been set aside by the corporate debtor but are not enough to cover the dues. Siva Kumar[22] talks about a situation where the corporate debtor has failed to comply with its statutory obligation of creation of gratuity funds under the Payment of Gratuity Act – in such a situation no funds can be set aside by the liquidator since she/he lacks the domain to do so. Therefore, the ratio of Siva Kumar[23] seems to hold that unless there are funds specifically set aside for the payments of premium for gratuity; funds from the “liquidation estate” cannot be used for the payments of such payments. On the other hand, the Moser Baer – NCLT[24] as a matter of principle rules that provident, pension and gratuity funds should be kept duly furnished by the liqudiator even if the employer did not divert the requisite amount.



It is now a settled position of law that gratuity funds due towards the workers fall outside the scope of the liquidation estate, and cannot be used for payments of dues of other creditors.


That still leaves a difficult position (at least in equity) if the statutory duty to cover the workers with gratuity and provident is avoided purely on account of the illegality of the erstwhile management who originally did not create any funds for the payments of premiums towards these funds. The only consequence is that the workers stand to lose the rightful coverage.


† Akaant Kumar Mittal is an advocate at the Constitutional Courts, and National Company Law Tribunal, Delhi and Chandigarh. He is also a visiting faculty at the NUJS, Kolkata and the author of the commentary Insolvency and Bankruptcy Code – Law and Practice. 

†† 4th year law student at the National University of Juridical Sciences, Kolkata. She can be contacted at

[1] S. 33(1), Insolvency and Bankruptcy Code, 2016.

[2] S. 33(2), Insolvency and Bankruptcy Code, 2016.

[3] S. 33(3), Insolvency and Bankruptcy Code, 2016.

[4]Payment of Gratuity Act, 1972.

[5]IB Code, S. 36.

[6]S. 2(oo), Industrial Disputes Act, 1947.

[7]2018 SCC OnLine NCLAT 833 .

[8]2019 SCC OnLine NCLAT 447.

[9] CA No 294/2019 in CP No (IB) 223/ALD/2018, order dated 10-12-2020 (NCLT).

[10] Ibid.

[11]2019 SCC OnLine NCLT 118.


[13] CA No 294/2019 in CP No (IB) 223/ALD/2018, order dated 10-12-2020 (NCLT).

[14] 2019 SCC OnLine NCLT 118.

[15]2019 SCC OnLine NCLAT 447.

[16]2020 SCC OnLine NCLAT 191.

[17]See IB Code, S. 36(4)(a)(iii).

[18] 2019 SCC OnLine NCLAT 447.

[19]IB Code, S. 36(2) stipulates:

“(2) The liquidator shall hold the liquidation estate as a fiduciary for the benefit of all the creditors.”

[20]2020 SCC OnLine NCLAT 191.

[21] CA No 294/2019 in CP No (IB) 223/ALD/2018, order dated 10-12-2020 (NCLT).

[22] 2020 SCC OnLine NCLAT 191.

[23] Ibid.

[24] 2019 SCC OnLine NCLT 118.

Case BriefsSupreme Court

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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Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal (NCLT): The Coram of Dr Deepti Mukesh (Judicial Member) and Sumita Purkayastha (Technical Member), reiterated that any shortfall in gratuity payable to employees has to be made over by the Resolution Professional and payment of dues has to be paid outside the waterfall mechanism provided under Section 53 of the Insolvency and Bankruptcy Code, 2016.

The instant application was filed by Sandeep Tyagi on behalf of 52 Ex-Employees of MOSER BAER ELECTRONICS LTD. who sought directions to release the lawful dues of the ex-employees who submitted their resignation prior to the initiation of the CIRP process.


Facts pertaining to the present case are that the Corporate Debtor is a wholly-owned subsidiary of MOSER BAER INDIA LIMITED. It is stated that all the employees were forced to resign by the ex-management by March 2019. Further, it was stated that, they were not paid their dues.

The dues were not settled by the ex-management of the Corporate Debtor citing financial instability.

As an application for CIRP was preferred by Autonix Lighting Private Limited (Operational Creditor) under Section 9 of the IBC on account of default. Mr Hemant Sharma was appointed at the Interim Resolution Professional of the Corporate Debtor.

Applicant stated that the Corporate debtor did not deposit Provident Fund till their dates of resignation respectively. The salary slips of the ex-employees show that Provident Fund was deducted every month but admittedly it was not deposited with the EPFO.

Applicant relied on the decision of Principal Bench in CA (PB) No. 19 (PB) of 2019 dated 19-03-2019 filed by the Moser Baer Karamchari Union of the MOSERBAER INDIA LIMITED (Holding Company) against the Resolution Professional in CP No. (IB) 378(PB)/2017 Alchemist Asset Reconstruction Co. Ltd. v. Moser Baer India Limited for release of their dues.

It was observed that the above-stated Order dated 19-03-2019 of the Adjudicating Authority had been challenged before the Appellate Authority. In the Order dated 19-08-2019, the Appellate Authority upheld the same and stated the following:

“Para 24- Once the liquidation estate/asset of the Corporate Debtor under Section 36(1) read with Section 36(3), do not include all sum due to any workman and employees from the provident fund, the pension fund and the gratuity fund, for the purpose of distribution of assets under Section 53, the provident fund, the pension fund and the gratuity fund cannot be included.

Para 25- The Adjudicating Authority having come to such finding that the aforesaid funds i.e., the provident fund, the pension fund and the gratuity fund do not come within the meaning of liquidation estate’ for the purpose of distribution of assets under Section 53. we find no ground to interfere with the impugned order dated 19th March, 2019.”

Bench while parting with the decision held that it would like to fall in line with the ratio laid down by the Principal Bench:

“…any shortfall in gratuity has to be made over by the Resolution Professional and payments of the dues has to be paid outside the waterfall mechanism.”

Bench directed the Resolution Professional to release the dues of the ex-employees and deposit the Provident Fund with EPFO and release Gratuity dues forthwith.[Autonix Lighting Industries (P) Ltd. v. Moser Baer Electronics Ltd., 2020 SCC OnLine NCLT 1111, decided on 19-11-2020]

Advocates for parties:

For Resolution Professional: Milan Singh

For Applicant: Advocate Swarnendu Chatterjee

Ed. Note: See, however, the judgment of NCLAT in Savan Godiwala v. Apalla Siva Kumar, 2020 SCC OnLine NCLAT 191.

Case BriefsHigh Courts

Allahabad High Court: While deciding the petition in favour of the petitioner, Manish Kumar, J., prohibited the U.P. Government from adjusting the excess payment against gratuity.

The facts of the case are that the present petition had been filed by the petitioner for quashing the impugned order of District Development Officer, Sultanpur dated 21-01-2016 directing Senior Treasurer, Sultanpur to recover/adjust the excess payment made to the petitioner amounting to Rs 2,48,673 from his gratuity.

The petitioner retired from a Class III post on 31-01-2015. Vide order dated 31-1-2012 his grade pay was upgraded w.e.f. 01-12-2008 in pursuance of the Government orders at that point in time and the petitioner drew the increased grade pay till the date of his retirement.

Counsel for the petitioner, Vyas Narayan Shukla has contended that post one year of the petitioner’s retirement, the impugned order was passed in breach of the principles of natural justice as the petitioner was not served with any show cause, nor did he get any opportunity of hearing prior to the passing of the impugned order.

The State counsel argued that the impugned order has been passed in pursuance of the order dated 04-09-2013 passed by the Commissioner, Rural Development, Lucknow, U.P., wherein, the sanction of upgraded grade pay to the petitioner was held to be in contravention of relevant Government provisions, ordering the recovery of excess amount from the petitioner. The counsel for the respondent also exhibited a Request dated 06-07-2015 by the petitioner for fixation of his grade pay and sanction of pension after the necessary deduction of excess amount.

Upon careful examination of the facts, circumstances and arguments, the Court observed that the Commissioner was reticent about the manner in which relevant Government orders were transgressed.

The Court also remarked that even though the petitioner retired on 31-01-2015, his terminal benefits were withheld for a period of seven months, landing him in a predicament. It is clear that unpleasant treatment was meted out to the petitioner, exploiting his vulnerability thus compelling him into making the aforementioned request. Additionally, no person in his right frame of mind would go out of the way to give his assent for such an act of recovery.

Petitioner’s counsel cited the case of State of Punjab v. Rafiq Masih, (2015) 4 SCC 334 and the Court relied on the same while delivering the judgment in the present matter. The case lays down the circumstances under which recovery from retired employees is not permitted. The relevant para is quoted below for reference:

“18. It is not possible to postulate all situations of hardship, which would govern employees on the issue of recovery, where payments have mistakenly been made by the employer, in excess of their entitlement. Be that as it may, based on the decisions referred to herein above, we may, as a ready reference, summarise the following few situations, wherein recoveries by the employers, would be impermissible in law:

  • Recovery from employees belonging to Class-III and Class-IV service (or Group ‘C’ and Group ‘D’ service).
  • Recovery from retired employees, or employees who are due to retire within one year, of the order of recovery.
  • Recovery from employees, when the excess payment has been made for a period in excess of five years, before the order of recovery is issued.
  • Recovery in cases where an employee has wrongfully been required to discharge duties of a higher post, and has been paid accordingly, even though he should have rightfully been required to work against an inferior post.
  • In any other case, where the Court arrives at the conclusion, that recovery if made from the employee, would be iniquitous or harsh or arbitrary to such an extent, as would far outweigh the equitable balance of the employer’s right to recover.”

Later, the Court while rendering the judgment held that the recovery via deduction from gratuity has been approved and executed in ignorance of the Payment of Gratuity Act, 1972 declaring the order dated 21-01-2016 as untenable. The respondents were directed to release the amount of Rs 2,48,673 along with an interest of 7% to the petitioner, calculated w.e.f. 31-01-2015 till the date of actual payment. Also, payment was to be effectuated within three months of service of a copy of the order.

In view of the above, the petition was allowed without costs.[Kapil Dev Chaturvedi v. State Of U.P, 2020 SCC OnLine All 933, decided on 24-07-2020]

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]

Foreign LegislationLegislation 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.


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]