The Special Officer Vs. the Joint Commissioner of Labour - Court Judgment

1. The matter arises under the Payment of Gratuity Act, 1972. The petitioner is the Management of Srirangam Co-operative Urban Bank Ltd., represented by its Special Officer. In this Writ Petition, they have sought to challenge an order passed by the first respondent (Appellate Authority under the payment of Gratuity Act), Joint Commissioner of Labour, Trichy in P.G.A.NO.316 of 2010, dated 06.01.2011. The appellate authority dismissed the appeal filed by the petitioner-Society, challenging an order passed by the second respondent (Controlling Authority under the Payment of Gratuity Act), Assistant Commissioner of Labour, Trichy, made in P.G.No.1/2009. Aggrieved by the order passed by the appellate Authority, the Writ Petition came to be filed.

2. When the matter came up on 08.03.2011, this Court ordered notice regarding admission. Pending the notice, an interim stay was granted, which was subsequently extended. Aggrieved by the grant of stay, the third respondent has filed M.P.(MD)No.2 of 2011 seeking to vacate the interim order, which was supported by a counter-affidavit dated 13.04.2011.

3. It is seen from the records that the third respondent was employed as an Office Assistant from 16.05.1974 and he had reached the age of superannuation on 30.11.2008, after rendering the service of thirty four years and seven months in the petitioner's Society. However, on the day of his reaching the age of superannuation viz., on 30.11.2008, he was relieved from the service of the petitioner-society, but, without prejudice to the criminal proceedings pending against him. When his gratuity was not paid, the third respondent filed an application before the second respondent claiming gratuity for the period of service rendered by him. The said application was taken on file as P.G.Application No.1/09 and notice was ordered to the petitioner's society. The petitioner's Society has filed a counter statement dated-Nil (June 2009). The defence taken by the petitioner-Society was that the criminal proceeding initiated against the third respondent was still pending and he was only relieved from the service of the Bank on the direction issued by the District Level Committee. The gratuity should be made applicable only if a person retired on superannuation. The pendency of the criminal case will dis- entitle him from getting gratuity. The gratuity has been withheld for valid reason though it was not a case of forfeiture.

4. The Controlling Authority viz., the second respondent, by a detailed order, rejected the stand of the Management and computed the gratuity for the 35 years' of service rendered by the third respondent and it worked out to Rs.2,98,502/-. He also ordered 10% interest from 01.12.2008 till the date of payment of gratuity as per the Act. Aggrieved by the order passed by the second respondent, the petitioner preferred an appeal under Section 7(7) of the Payment of Gratuity Act, 1972 before the first respondent-Appellate Authority. As a condition precedent for preferring an appeal, it is also stated that the amount had also been deposited with the second respondent. The appeal filed by the petitioner's Society was taken on file as P.G.A.316/2010. Even before the Appellate Authority, the petitioner's Society raised the same ground, as raised before the second respondent. The Appellate Authority held that merely because there is a pendency of a criminal case, the Society cannot allow a person from leaving the service after reaching the age of superannuation. After considering the various judgments on this issue, the petitioner Management was bound to pay the gratuity. In that view of the matter, the appellate authority dismissed the appeal.

5. In the affidavit filed in support of the Writ Petition, the contentions raised by the Management of the Society was that the third respondent was only relieved from the service of the Bank and not retired under the special By-laws governing the service conditions of the employes of the Bank to the effect that an employe shall be responsible for and liable to make any financial loss, which the bank may sustain on account of his negligence and the employees have got right to forfeit the gratuity and a reliance was also placed upon a judgment of the Delhi High Court in Mashroom Ahamed Vs. Union of India (2007 LLR (SN) P.318).

6. Per contra, the learned counsel for the third respondent submitted that even assuming, certain amounts are due by the third respondent, in law, there was no power on the petitioner's Society to deny the payment of gratuity. Pendency of the criminal proceedings has no bearing on the payment of the gratuity and he had not caused any financial loss to the petitioner's Society.

7. In the light of the rival contentions, four issues will arise for consideration:-

(i) Whether the petitioner on reaching the age of superannuation and relieved from service, was entitled to get gratuity in terms of the Act?

(ii) Whether the Society can withhold gratuity on account of any financial loss caused to the Society or on account of the pendency of any criminal case?

(iii) Whether the Society has any other method of recovering the amounts due to the Society? and

(iv) Whether the Society withholding the gratuity, notwithstanding Section 14 of the Payment of Gratuity Act is valid?

8. On the first question, it must be noted that under Section 4(1) of the Payment of Gratuity Act, gratuity shall be payable to an employee on the termination of his employment, if he had rendered five years continuous service. An employee, who is superannuated or retired or resigned or due to death or disablement due to accident or disease, is entitled for gratuity. The terminology used by the management for sending out a person from service is not relevant. It is stated that the third respondent had put in thirty four years and seven months service and was relieved on reaching the age of superannuation. Merely because in the relieving order, it was stated that it was without prejudice to the criminal proceedings, that will have no bearing in determining the liability for payment of gratuity under Section 4 (1) of the Gratuity Act. Therefore, that objection must necessarily fail.

9. The second contention was that if an employee had caused loss to an employer, Section 4(6) of the Payment of Gratuity Act enables the employer to forfeit the gratuity towards the damage or loss or destruction of the property of the employer to the extent of the damage or loss so caused. In the present case, the petitioner-Society did not spelt out the quantum of loss and they have not pointed out any surcharge proceedings initiated in terms of Section 87 of the Tamil Nadu Co-operative Society Act fixing liability on the third respondent, towards the loss therefore, the amount of gratuity can be forfeited. On the contrary, consistently, the Courts have held that the right of the employer to forfeit certain amounts from the gratuity must reflect in the order of termination itself and it should be a contemporaneous order and not a best defence taken by an employer. Even in cases of forfeiture, an opportunity will have to be given to the affected employee. For the purpose of exercising the power under Section 4(6) in forfeiting the gratuity, there should be a valid order of dismissal or imposition of punishment.

10. The Supreme Court while dealing with the right of the workman to receive gratuity under Section 4(1) as well as obligation of the employer to pass an order under Section 4(6) forfeiting the gratuity, dealt with the scope of the provisions vide its judgment in Jaswant Singh Gill v. Bharat Coking Coal Ltd., reported in (2007) 1 SCC 663 and in paragraphs 7,10,11,13 and 14, it had observed as follows:

7.The short question which arises for consideration in this appeal is as to whether the provisions of the said Act shall prevail over the rules framed by the Coal India Limited, holding company of Respondent 1, known as the Coal India Executives' Conduct, Discipline and Appeal Rules, 1978 (for short the Rules). Indisputably, the appellant was governed by the Rules. Rule 27 provides for the nature of penalties including recovery from pay or gratuity of the whole or part of any pecuniary loss caused to the Company by negligence or breach of orders or trust. Major penalties prescribed in Rule 27, however, include reduction to a lower grade, compulsory retirement, removal from service and dismissal. Rule 34 provides for special procedure in certain cases stating:

34.2. Disciplinary proceedings, if instituted while the employee was in service whether before his retirement or during his re-employment shall, after the final retirement of the employee, be deemed to be proceeding and shall be continued and concluded by the authority by which it was commenced in the same manner as if the employee had continued in service.

34.3. During the pendency of the disciplinary proceedings, the disciplinary authority may withhold payment of gratuity, for ordering the recovery 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 sub-section (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 including service rendered on deputation or on re-employment after retirement. However, the provisions of Sections 7(3) and 7(3-A) of the Payment of Gratuity Act, 1972 should be kept in view in the event of delayed payment, in the case the employee is fully exonerated.

10.The provisions of the Act, therefore, must prevail over the Rules. Rule 27 of the Rules provides for recovery from gratuity only to the extent of loss caused to the Company by negligence or breach of orders or trust. Penalties, however, must be imposed so long an employee remains in service. Even if a disciplinary proceeding was initiated prior to the attaining of the age of superannuation, in the event the employee retires from service, the question of imposing a major penalty by removal or dismissal from service would not arise. Rule 34.2 no doubt provides for continuation of a disciplinary proceeding despite retirement of employee if the same was initiated before his retirement but the same would not mean that although he was permitted to retire and his services had not been extended for the said purpose, a major penalty in terms of Rule 27 can be imposed.

11.Power to withhold penalty (sic gratuity) contained in Rule 34.3 of the Rules must be subject to the provisions of the Act. Gratuity becomes payable as soon as the employee retires. The only condition therefor is rendition of five years' continuous service.

13.The Act provides for a close-knit scheme providing for payment of gratuity. It is a complete code containing detailed provisions covering the essential provisions of a scheme for a gratuity. It not only creates a right to payment of gratuity but also lays down the principles for quantification thereof as also the conditions on which he may be denied therefrom. As noticed hereinbefore, sub-section (6) of Section 4 of the Act contains a non obstante clause vis-.-vis sub-section (1) thereof. As by reason thereof, an accrued or vested right is sought to be taken away, the conditions laid down thereunder must be fulfilled. The provisions contained therein must, therefore, be scrupulously observed. Clause (a) of sub-section (6) of Section 4 of the Act speaks of termination of service of an employee for any act, wilful omission or negligence causing any damage. However, the amount liable to be forfeited would be only to the extent of damage or loss caused. The disciplinary authority has not quantified the loss or damage. It was not found that the damages or loss caused to Respondent 1 was more than the amount of gratuity payable to the appellant. Clause (b) of sub- section (6) of Section 4 of the Act also provides for forfeiture of the whole amount of gratuity or part in the event his services had been terminated for his riotous or disorderly conduct or any other act of violence on his part or if he has been convicted for an offence involving moral turpitude. Conditions laid down therein are also not satisfied.

14.Termination of services for any of the causes enumerated in sub-section (6) of Section 4 of the Act, therefore, is imperative.

11. But, once an employee reached the age of superannuation or retired, no punishment can imposed including dismissal. In such cases, Section 4(6) cannot be invoked, as held by Madhya Pradesh High court in R.Khichrolia Vs. Madhya Pradesh State Co-operative Marketing Federation, Ltd., reported in 2002 (4) L.L.N 705. Further, this Court in Krishnaveni Textile Mills, Singanallur, Coimbatore Vs. Assistant Labour Commissioner reported in 2002 (4) L.L.N 363 has held that even for forfeiture of gratuity, an employee must be given notice and an opportunity has to be given. In the present case, instead exercising the power of forfeiture, the third respondent was allowed to be retired with a condition that it was without prejudice to the pendency of criminal case. Even the fate of the criminal case is not let known to this Court in the pleadings. Therefore, the second submission made before the authorities as well as before this Court must fail.

12. The third question is for an unspecified amount of loss whether they can withhold the gratuity, Section 14 and Section 13 of the Payment of Gratuity Act will give the complete answer to such a plea. Section 13 prohibits the gratuity from being attached in execution of any decree or order of any civil or revenue or criminal Court. In the present case, no such order has been produced. Even for such order to be passed, Section 13 will be a complete bar.

13. With regard to the last question, it is not as if the Co- operative Societies in Tamil Nadu are helpless and that they must pay gratuity even in cases where there are dues to a Society. Section 48 of the Tamil Nadu Co-operative Societies Act enables a Society to withheld any dues payable to the workmen including gratuity, in case there is an ascertainable loss caused to the Society. The petitioner-Society did not proceed against the workman with a vast power conferred under the Act. After the workman had approached the authority, the petitioner-Society cannot raise such issues and contend that the workman was not eligible for any gratuity. Even after the petitioner-Society pays gratuity to the third respondent, they have ample powers to proceed against him either under Section 87 or by way of an arbitration under Section 90. Therefore, that contention raised by the petitioner must necessarily fail.

14. In view of the above, the writ petition stands dismissed. In view of the dismissal of the writ petition, the third respondent is entitled to withdraw the amount lying in deposit with the second respondent. Consequently, connected miscellaneous petition is closed. No costs.