A three-judge Bench of the Supreme Court on May 27, 2020 in the case of Chairman-cum-Managing Director, Mahanadi Coalfields Limited v. Sri Rabindranath Choubey, has finally settled the issue of whether an employer would be permitted to withhold gratuity during the pendency of disciplinary proceedings against a superannuated employee.
Facts of the case:
At the time of superannuation of an employee of Mahanadi Coalfields Limited, the departmental enquiry initiated against such employee under the Conduct, Discipline & Appeal Rules, 1978 (“CDA Rules”) remained pending and the employer withheld the gratuity due and payable to the respondent employee in accordance with Rule 34 of the CDA Rules.
Rule 34 of the CDA Rules provided for special procedure in certain cases and permitted continuance of disciplinary proceedings even after the final retirement of an employee, provided the disciplinary proceedings were instituted while the employees was in service, whether before his retirement or during the re-employment. It further provided for a deeming provision to imply that such disciplinary proceedings could be continued and concluded by the authority, in the same manner as if the employee had continued in service. Thus, creating a legal fiction concerning the continuance of employee on a deemed basis.
Rule 34.3 of the CDA Rules further gave power to the company for withholding the payment of gratuity during the pendency of the disciplinary proceedings and it further permitted the recovery from gratuity of the whole or part of any pecuniary loss caused to the company, if an employee has been found guilty of offences/misconduct as mentioned under Section 4(6) of the Payment of Gratuity Act, 1972 (“Payment of Gratuity Act”), or to have caused pecuniary loss to the company by misconduct or negligence, during his service.
The Division Bench of the Orissa High Court, relying on the judgment of the Supreme Court in the case of Jaswant Singh Gill v. Bharat Coking Coal Limited, (2007) 1 SCC 663, had observed that where the employee had retired from service on superannuation, the question of imposing a major penalty of removal from service would not arise. The Division Bench further held that, the power to withhold payment of gratuity as contained in Rule 34(3) of the CDA Rules is subject to the provisions of the Payment of Gratuity Act, and the statutory right accrued to the superannuated employee to get gratuity could not be impaired by reason of the rules framed by the Coal India Limited which do not have the force of a statute. Consequently, the High Court directed the employer to release the amount of gratuity payable to the employee.
Arguments by the respondent Employee:
It was the case of the employee that as the employee was permitted to retire and at the time when he attained the age of superannuation, there was no order of termination on the basis of the departmental enquiry or conviction in a criminal case, therefore the employee was entitled to the amount of gratuity in accordance with Section 4 of Payment of Gratuity Act. Relying upon the decision of the Supreme Court in the case of Jaswant Singh Gill (supra), the employee had contended, that once an employee is permitted to retire on attaining the age of superannuation, no order of dismissal subsequently can be passed and therefore, once the order of dismissal is not permissible, Section 4 of the Payment of Gratuity Act shall be attracted making the employee entitled to the amount of gratuity.
Arguments by the Appellant - Management:
The appellants argued that, the facts and circumstances of the case and in view of the specific provisions under the CDA Rules, namely, Rules 34.2 and 34.3 of the CDA Rules, which allowed the employer to continue to proceed against the delinquent employee post superannuation, as if he continues to be in services justifies deviation from the decision in the case of Jaswant Singh Gill (supra), where the court had proceeded on the footing that after the final retirement of the employee, a penalty of removal or dismissal is not permissible.
In this regard, reliance was placed on the judgment the Supreme Court in the case of State Bank of India v. Ram Lal Bhaskar, 2011 (10) SCC 249, which while considering the pari materia provisions under the State Bank of India Officers’ Service Rules, 1992, had confirmed the order of dismissal of an employee which was passed after his retirement.
Since in the present case Rule 34.3 of the CDA Rules permitted the enquiry to continue even after the retirement of the employee, including a deemed penalty of dismissal from services, the employer claimed the right to forfeit the payment of gratuity of such an employee.
The issue which arose before the Supreme Court were:
Decision by the Supreme Court:
The majority bench of Supreme Court observed that the provisions of Section 4(6) of the Payment of Gratuity Act, which contains a non-obstante clause, provides for recovery or forfeiture of gratuity, where services of employee have been terminated for the reasons prescribed in Section 4(6)(a) and 4(6)(b). As the forfeiture is conditional upon the delinquent employee being terminated or dismissed from the services, no forfeiture is possible where the employee is not capable of being dismissed, presumably upon being superannuated. However, the situation is different, where the relevant provisions, such as Rule 34 of the CDA Rules in this case, contain a deeming provision of continuation of employment to enable dismissal from service even post superannuation.
The Supreme Court observed that the Payment of Graturity Act, makes no provision with respect to departmental inquiries and hence, no fetter is caused upon operation of Rule 34.2 of the CDA Rules providing for a continuation of the inquiry and deemed continuation of the employee in service after the age of superannuation.
After referring to various decisions, the Supreme Court observed that it was apparent that, under Rule 34.2 of CDA Rules inquiry could be held in the same manner as if the employee had continued in service and the appropriate major and minor punishment commensurate to guilt can be imposed including dismissal as provided in Rule 27 of the CDA Rules and apart from that in case pecuniary loss had been caused that can be recovered. Gratuity can be forfeited wholly or partially. Specifically, by relying on the decision of three judge Bench decision in the case of Ram Lal Bhaskar (supra), the majority bench of the Supreme Court ruled that, where the relevant disciplinary rules permit continuation of disciplinary proceeding against a superannuated employee and imposition of penalty of dismissal as if the employee had continued to be in employment:
The Supreme Court further overruled the Division Bench judgment rendered in the case of Jaswant Singh Gill (supra) on the grounds that (i) the order of termination was not questioned, nor the authority under the Payment of Gratuity Act, 1972, had jurisdiction to deal with it, (ii) The validity or enforceability and vires of service Rules 34.2 and 34.3 were not questioned and (iii) it did not consider the scope of provisions of the Payment Gratuity Act and provisions of Rule 34.2, providing legal fiction of employee deemed to be in service even after superannuation.
Notably, in a separate judgment penned by Ajay Rastogi J., whilst the issue of permissibility of withholding payment of gratuity after retirement from service on account of pendency of disciplinary proceeding was upheld, the right to impose penalty of dismissal after superannuation was not approved.
Please find a copy of the judgment here.
This update has been contributed by Arka Majumdar (Partner) and Juhi Roy (Associate).
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