SC on can gratuity be withheld due to pendency of disciplinary proceedings

The Hon’ble Supreme Court, on 27th May 2020, in the matter of Chairman­cum­Managing Director, Mahanadi Coalfields Limited v. Sri Rabindranath Choubey observed that if a major penalty which includes the dismissal from service can be imposed, even after the employee has superannuated, provided the disciplinary proceedings were initiated while the employee was in service, the amount of gratuity can be withheld till the disciplinary proceedings are concluded.

Question before the Hon’ble Supreme Court

Whether is it permissible in law for the employer to withhold the payment of amount of gratuity payable to the ­employee, even after his superannuation from service, because of the pendency of the disciplinary proceedings against him?

Hon’ble Supreme Court’s observations

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, sub­section 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. (Para 9 of the judgement delivered by Hon’ble Justice M.R. Shah)

If a charge is proved and punishment of dismissal is given thereon, the provisions of sub­section 6 of Section 4 of the Payment of Gratuity Act would be attracted and it would be within the discretion of the employer to forfeit the gratuity payable to the respondent. Therefore, the employer has a right to withhold the payment of gratuity during the pendency of the disciplinary proceedings. (Para 9.2 of the judgement delivered by Hon’ble Justice M.R. Shah)

It depends upon the rules in a case where a departmental inquiry was instituted while the employee was in service, proceedings had been continued, under the Rule what kind of punishment can be imposed after the employee had attained the age of superannuation. (Para 10.5 of the judgement delivered by Hon’ble Justice M.R. Shah)

An inquiry has to be taken to a logical end. (Para 10.7 of the judgement delivered by Hon’ble Justice M.R. Shah)

The Payment of Gratuity Act, 1972 is to provide for a scheme for payment of gratuity to the employees. What is ensured under the Act is the minimum amount of gratuity. (Para 10.16 of the judgement delivered by Hon’ble Justice M.R. Shah)

Not only damage or loss can be recovered, but gratuity can be wholly or partially withheld in case services are terminated for the reasons specified in section 4(6)(b) of the Payment of Gratuity Act, 1972. (Para 10.17 of the judgement delivered by Hon’ble Justice M.R. Shah)

The Payment of Gratuity Act, 1972, can govern the conditions concerning payment of gratuity. It cannot control and provide with respect to an employer’s right to hold a departmental inquiry after retirement, and there is no provision prescribing what kind of punishment can be imposed in the departmental inquiry if it is continued after attaining the age of superannuation. The relevant rules would govern such matters. In case the Payment of Gratuity Act, 1972, is interpreted to interdict the departmental inquiry after the age of superannuation and to deal with the nature of punishment to be imposed, it would be taken as a case of over­inclusion in the Act which deals exclusively with the payment of gratuity. (Para 10.20 of the judgement delivered by Hon’ble Justice M.R. Shah)

In case of termination of service there is a distinction as to whether it is a simpliciter termination or a punitive dismissal and the Supreme Court can lift the veil and find out the real nature of termination whether it is simpliciter termination or punitive dismissal. (Para 10.23 of the judgement delivered by Hon’ble Justice M.R. Shah)

Section 4 of the Payment of Gratuity Act, 1972 contains no bar, and purposive construction has to be made of the provisions contained in section 4(1). Section 4(6) provides where particular misconduct is found established, how gratuity to be dealt with, but provisions cause no fetter on the power of an employer to impose a punishment of dismissal. It makes no provision in particular with respect to the departmental inquiry but rather buttresses the power of an employer to forfeit gratuity wholly or partially or to recover loss provided in Section 4(6). Neither the provisions in section 4(1) nor section 4(6) of the Payment of Gratuity Act create embargo on the departmental inquiry and its continuance after superannuation. (Para 10.25 of the judgement delivered by Hon’ble Justice M.R. Shah)

Even the executive instruction can hold the field in the absence of statutory rules and are equally binding. (Para 10.25 of the judgement delivered by Hon’ble Justice M.R. Shah)

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. (Para 10.31 of the judgement delivered by Hon’ble Justice M.R. Shah)

Retiral benefits are earned by an employee for a long and meritorious service rendered by him/her and it is not paid gratuitously or merely as a matter of boon, it is paid to him/her for dedicated and devoted work. (Para 11 of the judgement delivered by Hon’ble Justice Rastogi)

The purpose of holding an inquiry against a delinquent is not only with a view to establish the charge levelled against him or to impose a penalty, but is also conducted with the object of such an inquiry recording the truth of the matter, and in that sense, the outcome of an inquiry may either not establishing or vindicating his stand, hence result in his exoneration. Therefore, what is required is that there should be a fair action on the part of the authority concerned in holding disciplinary inquiry for the misconduct, if any, being committed by an employee in discharge of his duties even if retired from service during pendency of disciplinary proceedings after adopting the procedure prescribed under the relevant disciplinary rules. (Para 14 of the judgement delivered by Hon’ble Justice Rastogi)

Competence of an authority to hold an enquiry or to continue enquiry against an employee who has retired from service depends upon the scheme of rules and the terms and conditions of service of the employee are the determining factors as to whether and in what manner the disciplinary enquiry can be held against an employee who stood retired or superannuated from service. (Para 15 of the judgement delivered by Hon’ble Justice Rastogi)

Many a times ‘termination’ and ‘dismissal’ are held to be synonymous but the difference between ‘termination’ and ‘dismissal’ is that dismissal could be on account of misconduct with loss of future employment involving dishonesty or criminality and penal in character but that is not in the case of termination. The “termination” as per Black’s Law Dictionary is the complete severance of relationship of employer and employee. (Para 21 of the judgement delivered by Hon’ble Justice Ajay Rastogi)

Copy of judgment Judgement_27-May-2020

-Adv. Tushar Kaushik

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