When can gratuity be withheld from a retired employee? Supreme Court

When can gratuity be withheld from a retired employee

The Supreme Court observed that gratuity cannot be withheld from a retired employee when it is not a case of his riotous behaviour/criminal case involvement.

The court, in this case, emphasised that the denial of the employer’s contribution of Provident Fund (PF) and non-payment of gratuity because of the order of compulsory retirement is not justified.

The Court observed thus in an appeal filed by a man who was compulsorily retired as Sr. Manager, was denied the benefit of leave encashment, employer’s contribution of provident fund, gratuity and pension by the Punjab National Bank.

The two-Judge Bench comprising Justice J.K. Maheshwari and Justice K.V. Viswanathan held, “The learned Single Judge has correctly observed that as per the 1977 Regulations, compulsory retirement; removal from service which shall not be a disqualification for future employment and dismissal which shall ordinarily be a disqualification for future employment are distinct and separate punishments. The act of forfeiture of gratuity is not envisaged in the present case as the provisions are silent on the aspect of forfeiture in case of compulsory retirement.”

Advocate Irshad Ahmad appeared for the appellant/retired employee while Advocate Rajesh Kumar Gautam appeared for the respondent/bank.

Factual Background –

The appellant was served with a supplementary chargesheet and on submitting a reply, departmental enquiry was conducted. The enquiry report was submitted to the disciplinary authority who found him guilty and vide order, penalty of compulsory retirement was inflicted. The appeal filed by the appellant was also dismissed by the appellate authority and by filing a writ petition, he did not challenge the order of compulsory retirement but only claimed the terminal benefits i.e., leave encashment, employer’s contribution of provident fund, gratuity, and pension. In the meantime, his review was also dismissed and the Board of Directors vide a resolution, refused to give PF.

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On rejection of the appellant’s representation by the authorities, a challenge was made by filing a writ petition before the High Court and the same was contested by the Bank. It was contended that due to irregularities in granting loans and cash credit facilities under the Credit Guarantee Fund Trust Scheme for Micro & Small Enterprises (CGTMSE) and otherwise in routine loans, loss was caused to the Bank. The Single Judge denied benefit of pension to the appellant and then the Division Bench allowed the special appeal in part. Hence, the appellant approached the Apex Court.

The Supreme Court in the above context of the case observed, “… it is apparent that the provisions of the Gratuity Act have superiority over all other provisions of Regulations. … On a combined reading of the provisions of the Gratuity Act, 1979 Regulations and the circular, it becomes clear that the gratuity shall become payable to every officer on retirement, death, disablement or on resignation except in a case of termination of service in any other way, by way of punishment after completion of 10 years of continuous service.”

The Court said that under Regulation 4 of the 1977 Regulations, the compulsory retirement of an officer is a major penalty and that the explanation as given in clause 14(1)(a) of the Circular clarifies that in case of termination after at least 10 years of service in the Bank, if such termination is not by way of punishment as dismissal or removal, the gratuity may be paid.

… if we see the provisions of the Gratuity Act, gratuity can be withheld in case of damages or loss so caused or destruction of property belonging to the employer or otherwise where the termination of service is due to riotous or disorderly conduct or due to criminal case involving moral turpitude” also held the Court.

Furthermore, the Court noted that the facts of the case are not a case of riotous behaviour of the appellant or his involvement in any criminal case and while dealing with the issue of forfeiture of employers’ contribution of provident fund in the enquiry report, no finding regarding causing loss to the bank or on quantification of the amount of loss has been recorded. It added that the Division Bench erred in reversing the judgment of the Single Judge.

Accordingly, the Apex Court allowed the appal, affirmed the findings of the Single Judge, and set aside the judgment rendered by the Division Bench.

Cause Title- Jyotirmay Ray v. The Field General Manager, Punjab National Bank & Ors. (Neutral Citation: 2023 INSC 979)

Source: verdictum

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