In the case of Chairman-cum-Managing Director, Mahanadi Coalfields Limited vs Sri Rabindranath Choube, the Hon’ble Apex Court has held that an employer can withhold gratuity of an employee during pendency of a disciplinary proceeding against such an employee provided the same was instituted while (s)he was in service and there were rules in place to this effect which are not in contravention of the Payment of Gratuity Act.
Factual Matrix
The respondent (employee) was posted as Chief General Manager (Production) at Mahanadi Coalfields Limited, the appellant (employer). While in service, the Employee was served with a Charge sheet for alleged misconduct in dishonestly causing coal stock shortages amounting to Rs.31.65 Crore. A departmental enquiry was initiated against him under the Conduct, Discipline & Appeal Rules, 1978 (the CDA Rules) framed by the Employer. While this enquiry was pending, the Employee was suspended from his service however, a year later he resumed his employment without causing any prejudice to the enquiry. In 2010, the Employee was superannuated after reaching the age of 60 years but the departmental enquiry against him was still pending and therefore, in terms of provision of the CDA Rules, the gratuity payable to him was withheld by the employer. The employee made representations against this decision before the Director (personnel) and Controlling Authority under Payment of Gratuity Act and notice was served to the Employer. The employer justified the withholding of gratuity on the premise that a departmental enquiry is still pending against the employee, but, the Controlling Authority held that the employer’s claim was pre-mature. The employer thus, filed a Writ before learned Single Bench which dismissed the petition on the ground that the employer should have approached the Appellant Authority under the Gratuity Act. Aggrieved by this, the Employer preferred intra Court Writ before the Division bench, which observing that the employer was not removed from service and the rules formed by the Employer cannot be equated to a Statute and therefore, the CDA rules have to be considered subject to the provisions of the Payment of Gratuity Act, directed the Employer to release the amount of Gratuity. Thus, the Employer preferred this appeal before the Hon’ble Apex Court.
Questions of Law before the Apex Court
Whether is it permissible for an Employer to withhold the gratuity payable to an Employee, because of pendency of a Departmental Enquiry, even if Employee is retired from the service because of superannuation (that is attending maximum age)?
In case 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 the provisions made in Rule 34.2 of the CDA Rules of 1978?
Appellant’s case
The Appellant’s case primarily rested on the contention that for the purposes of an enquiry u/r 34.2 of the CDA Rules, even a retired Employee is treated in like manner as a serving Employee, provided the enquiry was initiated while (s)he was in Service and therefore, if an Employee is found guilty at the conclusion of such an enquiry, a major penalty of ‘dismissal’ can also be imposed even after the final retirement of such an Employee. The Appellant further contended that it was ‘even otherwise’ authorized u/r 34.3, as the Disciplinary Authority, to withhold payment of gratuity or recover from such gratuity, the amount of loss caused to it by misconduct of the Employee, if (s)he is found guilty under Payment Gratuity Act.
Respondent’s Case
With respect to the first question, the Employee contended that the minor and major punishments like withholding increment and promotions (including recovery of loss); and demotion, compulsory retirement, removal and dismissal, u/r 27 are applicable when an employee is in service or rejoin the service but not after the final retirement of the employee. It was further contended that for the purposes of Rule 34.2 ‘only the enquiry’ is deemed to be continued and conducted as if the employee was still in service and order of dismissal cannot not be passed after final retirement. The Respondent argued with respect to the second question that he was ‘terminated from service’ owing to his superannuation and therefore, has fulfilled the requirement specified u/s 4(1) of the Payment of Gratuity Act to become eligible for gratuity. Thus, in absence of any possibility of dismissal/ removal from service after final retirement, the gratuity payable to the Respondent can be withheld.
Reasoning of the Court
The Court observed that the CDA Rules were applicable to all Employees of the Appellant company and by virtue of these Rules, "an employee shall be deemed to be continued in service, after he attains the age of superannuation/ retired, for the limited purpose of continuing and conducting disciplinary enquiry which was instituted while he was in service." Therefore, at the conclusion of such an enquiry any of the punishments prescribed u/r 27 can be imposed including that of dismissal and sec 4 (6) of the Payment of Gratuity Act shall be attracted and the amount of gratuity can be withheld till the disciplinary proceedings are concluded. Thus, taking in the light the amount of alleged loss caused to the Appellant by misconduct of the Respondent, the Court noted that if such a charge is proved and dismissal is ordered, provisions of sec 4 (6), as mentioned above, would be attracted and the Appellant will have discretion to forfeit the gratuity payable to the Respondent. The Hon'ble Apex Court cited it's early judgement in the case of State Bank of India vs Ram Lal Bhaskar and Another (2011(10) SCC 249) to favour this reasoning.
The Court further observed that 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. It was noted that "shall be deemed to be in service" is a legal fiction because of which a disciplinary proceeding of a retired employee can be completed in the same manner as if the employee had remained in service after superannuation, and appropriate punishment can be imposed. Various provisions of the Gratuity Act discussed above do not come in the way of departmental inquiry and as provided in Section 4(6) and Rule 34.3 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.
Discussing the possibile areas of conflict between the Rules and the Payment of Gratuity Act, the Court held that; "we reiterate that the 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. The provisions of section 4(1) and 4(6) of Payment of Gratuity Act, 1972 have to be given purposive interpretation, and no way holding of the departmental inquiry and punishmentbe imposed is not the subject matter dealt with under the Act."
Court’s Decision
Answering the first question in affirmative, the Hon’ble Apex Court has held that by virtue of Rule 34.3 of the Rules, 1978, the employer has a right to withhold gratuity during pendency of the disciplinary proceedings. While with respect to the second question, the Court’s findings are as follows; “in my considered view, 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 is always depend 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 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 Rules, 1978 read with subsection (6) of Section 4 of the Act, 1972.” Thus, the Court set aside impugned judgment of the High Court dated 17th July, 2013, and held that the disciplinary authority may proceed and conclude the pending disciplinary proceedings expeditiously and take a final decision in accordance with the scheme of Rules, 1978 read with subsection (6) of Section 4 of the Payment of Gratuity Act, 1972.
Following are the details of this case:
Brfore: Supreme Court of India
Appellant: Chairman-cum-Managing Director, Mahanadi Coalfields Limited
Respondent: Sri Rabindranath Choubey
Decided on: May 27, 2020
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