IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 1583 of 2003 For Approval and Signature:
HONOURABLE MR.JUSTICE J.B.PARDIWALA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the judgment ?
Whether this case involves a substantial question of law as to
4 the interpretation of the constitution of India, 1950 or any order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
========================================================= UNION BANK OF INDIA - Petitioner(s) Versus PH PAEKH - Respondent(s) ========================================================= Appearance :
MR KM PATEL for Petitioner(s) : 1, MS HARSHAL N PANDYA for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE J.B.PARDIWALA Date : 01/08/2012 CAV JUDGMENT
1. By way of this petition under Article-226 of the Constitution of India, the petitioner seeks to challenge the order dated 11/7/2002 passed by the Controlling Authority under the Payment of Gratuity Act, 1972 and also the order dated 30/12/2002 of the Appellate Authority passed in Appeal.
2. Facts shortly stated be thus –
2.1) The respondent was an employee of Petitioner Bank. The petitioner Bank issued charge-sheet (Memo) to the respondent (Dy.Manager at Rajkot (M) Branch ) on 23/10/1997 for certain irregularities observed in advances of loans to customers. The petitioner bank by letter dated 15/1/19998 informed the respondent employee that, in terms of regulation 20(3)(iii) of UBI (Officers) Service Regulations, 1979 he will be deemed to be in continuous service after his retirement on 31/1/1998, on reaching the age of superannuation and that his gratuity amount will be withheld till completion of the disciplinary proceedings. (Annx.C). The respondent retired from services of the bank on 31/1/1998 on reaching the age of superannuation. Considering the explanation and the admission of guilt by the respondent, petitioner Bank imposed minor penalty of censure on 24/4/2000 upon the respondent. On 30/6/2000 the petitioner bank released the amount of gratuity on completion of disciplinary proceedings. The respondent accepted the gratuity without any protest.
2.2) After 15 months of receipt of the gratuity amount, on 29/10/2001 the respondent employee submitted his application to the Controlling Authority under the Act claiming interest for the delayed period of payment of Gratuity, i.e. for the period from 1st February, 1998 to 29th June, 2000 (Annx.E).
2.3) The petitioner Bank filed reply on 2/4/2002 to the above application stating that as per Sec.7(3-A) of the Act, no interest is payable, as the delay is due to the fault of the employee and the Bank’s Regulation authorizes the bank to withhold the amount of gratuity till the disciplinary proceedings are completed. On 11/7/2002 the Controlling Authority passed the impugned order ordering the petitioner bank to pay interest on the ground that the Bank’s Regulation is not applicable in the present case.
2.4) In August, 2002 the petitioner Bank had preferred appeal before the Appellate Authority under the Payment of Gratuity Act against the said order dated 11/7/2002 passed by the Controlling Authority. The petitioner deposited the interest amount with the appellate authority. The appellate authority, on 30/12/2002 passed the impugned order confirming the order of Controlling Authority dated 11/7/2002, mainly on the ground that the petitioner bank has earned interest for the said period of delayed payment of gratuity. Therefore, the petitioner Bank preferred the present petition.
3. Mr.Varun K. Patel, learned counsel appearing for the petitioner Bank, vehemently submitted that Regulation 20(3)(iii) of the Union Bank of India (Officers’) Services Regulations, 1979 (reproduced at Page-5 of the memo of the petition) empowers the Bank to continue the departmental inquiry against the employee even after the date of his superannuation and to withhold his retirement benefits till the completion of the disciplinary proceedings. Mr. Patel submitted that in the present case, relying on the said regulation 20(3)(iii), the disciplinary proceedings were continued against the petitioner even after his reaching the age of superannuation on 31/1/1998. Thereafter the order dated 24/4/2000 imposing minor penalty of censure was passed against the respondent by the disciplinary authority. Thereafter, the petitioner bank released the amount of gratuity on completion of disciplinary proceedings. Mr. Patel submitted that the respondent accepted the gratuity withbout any protest. Mr.Patel further submitted that the respondent, who attained the age of superannuation, continued in service of the Bank as ‘deemed employee’ for the purpose of completion of departmental action. In view of said Regulation 20(3)(iii), the right to get gratuity in case of the respondent accrues only after completion of departmental proceedings against him. Accordingly, it cannot be said that there was a delay in making payment of gratuity to the respondent in the present case. Mr.Patel submitted that there was no liability to pay interest on the gratuity in the present case and consequently, both the orders of appellate authority as well as Controlling Authority deserve to be quashed and set aside.
3.1) Mr.Patel submitted that in the present case, since the gratuity of the respondent was withheld by the Bank in terms of the Regulation 20(3)(iii) of the Regulations which are made in exercise of power conferred by S.19 r/w S.12(2) of the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970, interest is not payable to the respondent on the gratuity so legally withheld.
1) R.Veerabhadram v. Govt. of Andhra Pradesh (1999) 9 SCC -43 = 2000 (II) LLJ 766 (SC)
2) Union of India v. Ujagar Lal,1997 I CLR-130(SC)
4. On the other hand Ms. Harshal Pandya, learned counsel appearing for the respondent submitted that the authorities under the Act could not be said to have committed any error, much less an error of law warranting any interference at the end of this Court in the present petition. Ms.Pandya submitted that the conjoint reading of Sec.4(1), 7(2), 7(3), 7(3-A), 7(4)(a) of the Payment of Gratuity AC, the respondent was entitled to receive interest on the delayed payment of gratuity and the said aspect was rightly considered by the Controlling Authority as well as the Appellate Authority. Ms.Pandya submitted that as per Sub Section (6) of Section (4) of the Payment of Gratuity Act, 1972 the Gratuity of an employee can be forfeited/withheld only if his service is terminated for willful omission or negligence causing loss to the property of the employer or for riotous/disorderly/violent act or for an offence involving moral turpitude in the course of his employment. But none of these acts were attributed to the respondent. Moreover, the respondent retired from the Bank’s Service on reaching the age of his superannuation and not on account of termination of his service for any lapse on his part. She also submitted that there is no fault on the part of the respondent. But, assuming (without admitting) that respondent was at fault, the petitioner Bank had neither obtained prior written permission of the Controlling Authority for withholding the Gratuity nor the amount payable was deposited with the Authority at that time. The Petitioner had, therefore, miserably failed to observe these two essential legal requirements of the above quoted Section 7(3-A) & 4(a) of the payment of Gratuity Act, 1972. And hence now, at this juncture, the petitioner cannot avoid its liability of paying the interest for the excuse that the Gratuity was delayed owing to fault of the respondent. Ms.Pandya submitted that the petitioner bank has relied only on the Regulation No.20(3) (iii) of the Petitioner Bank, which is of no consequence on the following grounds. According to Sec.14 of the Payment of Gratuity Act, 1972, the Act has an overriding effect over all other enactments and/or Service Regulations, which are inconsistent with the Payment of Gratuity Act. Sec.14 of the Act reads as under:
“14. The provisions of this Act or any rule made there under shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument or contract having effect by virtue of any enactment other than this Act.”
Ms. Pandya states that according to the Service Regulation, the Petitoner Bank may forfeit/withhold Gratuity of any employee at the discretion of the bank. Whereas the provisions of Section 7(3-A) & (4) (a) of Gratuity Act stipulate prior written permission of, and depositing the amount with, the Controlling Authority. Hence this Regulation is inconsistent with the Act and therefore it is redundant.
4.1) Ms.Pandya stated that the Board of Directors of the Bank may be having certain administrative powers to frame Service Regulations for the Bank’s Officers, but it cannot be said that a Special Act like the Payment of Gratuity Act, passed by the Parliament, can be superseded by such Regulations. Ms.Pandya submitted that the history and the circumstances under which the provision of Regulation No.20(3)(iii) was inserted in the Officers’ Service Regulations of the Banks is also required to be considered, which is described in detail in Para-2.7 of the affidavit in reply. Ms.Pandya has submitted that the petitioner Bank has raised contention of delay in making application for payment of gratuity. Ms.Pandya submitted that delay aspect was raised for the first time in petition and same was not raised before the authorities below, which is so observed in the order also. Even otherwise the authorities below have power to condone the delay and same is so condoned in absence of objection by the petitioner bank.
5. In support of her contentions Ms.Pandya has relied upon the following case laws –
(i) (2003) 3 SCC 40 in case of H. Gangahanume Gowda vs. Karnataka Agro Industries Cor. Ltd. (Para-7, 8, 9).
(ii) 2009 (13) SCALE 109 in case of Kerala State Cashew Dev. Corp. Ltd. and ano. Vs. N. Asokan. (Para- 6, 7)
(iii) (2007) 1 SCC 662 in case of Jaswant Singh Gill Vs. Bharat Coking Coal Ltd. and others.
She also relied upon the judgment of this Hon’ble Court reported in –
(i) 2010(2) GLH 250 in case of Nadiad Nagarpalika Vs. Hasmukhlal Motilal Soni & others.
(ii) 2003 (3) GLH 376 in case of Gujarat State Road Transport Corporation Vs. Devendrabhai Mulvantrai Vaidya (Para 6,7) Ms.Pandya also relies upon the judgment and order of this Hon’ble Court dt.19/8/2002 in Special Civil Application No.8091 of 1988 as confirmed in the L.P.A.No.730 of 2002 on 18/12/2002, wherein even after dismissal, 12% interest is granted by the Hon’ble Court.
6. Having heard learned counsels for the respective parties and having gone through the materials on record, the only question that falls for my consideration in this petition is as to whether the authorities below were justified in granting interest on the delayed payment of the gratuity amount. It is necessary to look into certain provisions of Law in this regard. Sec.4(1) of the Payment of Gratuity Act provides as under :
“4(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years :-
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease..”
Sec.7(2) of the Payment of Gratuity Act provides as under :
“7(2) As soon as gratuity becomes payable, the employer shall, whether an application referred to in sub-section (i) has been made or not, determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable and also to the controlling authority specifying the amount of gratuity so determined.”
Sec.7(3) reads as under :
“The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable.”
Sec.7 (3-A) provides “If the amount of gratuity payable under sub- section (3) is not paid by the employer within the period of specified in sub-section (3) the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at such rate, not exceeding the rate notified by the Central Government from time to time for repayment of long term deposits, as that Government may, by notification specify:
Provided that no such interest shall be payable if the delay in the payment of due to the fault of the employee and the employer has obtained permission in writing from the Controlling Authority for the delayed payment on this ground.”
Further, sub-section 4(a) of Section 7 of the Payment of Gratuity Act, 1972 provides that :
“If there is any dispute as to the amount of gratuity payable to an employee under this Act or as to the admissibility of any claim of, or in relation to, an employee for payment of Gratuity or as to the person entitled to receive the gratuity, the employer shall deposit with the Controlling Authority such amount as he admits to be payable by him as gratuity.”
7. The provisions of law, as referred to above, makes the position very clear. In view of Sec.4(1) r/w sec. 7(3) gratuity was to be paid within 30 days from the date of retirement, however, in the present case the same was paid after a long delay. It is an admitted position that for such delayed payment, the petitioner Bank had not obtained permission in writing from the Controlling Authority as provided in Sec.7(3-A) of the Act and had also not deposited the amount with the Controlling Authority as per Sec. 4(a) of the Payment of Gratuity Act.
8. In my view, the issue stands squarely covered by the decision of the Supreme Court in the case of Jaswant Singh Gill Vs. Bharat Coking Coal Ltd. and others -(2007) 1 SCC 663. In the said case the company relied on Rule-27 of the Coal India Executives’ Conduct, Discipline and Appeal Rules, 1978 which provided for recovery from gratuity only to the extent of loss caused to the company by negligence or breach of orders or trust. Rule-34.2 of the Regulations framed by the company provided for continuation of a Disciplinary Proceedings despite retirement of employee if the same was initiated before the retirement of the employee. Supreme Court held that the same would not mean that although the employee was permitted to retire and his service has not been extended for the said purpose a major penalty in terms of Rule-27 could be imposed. The Court further held that the power to withhold gratuity contained in Rule-34.2 of the Rules must be subject to the provisions of the Act. Gratuity becomes payable as soon as the employee retires. These observations and findings of the Supreme Court answers the contentions of Mr.Patel as regards Regulation-20(3)
(iii) of the petitioner Bank is concerned. The following observations of the Supreme Court are quoted herein below :
“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 Coal India Limited, holding company of Respondent No. 1, known as 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 'recovering from pay or gratuity of the whole of 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 proceeding, 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 Section 7(3) and 7(3A) 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."
8. The Act was enacted with a view to provide for a scheme for payment of gratuity to employees engaged inter alia in mines. Section 3 of the Act provides for appointment of an officer to be the controlling authority.
Controlling authority is to be responsible for administration of the act. Different authorities, however, may be appointed for different areas. Section 4 of the Act entitles an employee to gratuity after he has rendered continuous service for not less than five years inter alia on his superannuation. Sub- section (6) of Section 4 contains a non-obstante clause stating:
"(a)the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused;
(b) the gratuity payable to an employee may be wholly or partially forfeited
(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act or violence on his part, or
(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment."
9. The Rules framed by the Coal India Limited are not statutory rules. They have been made by the holding company of Respondent No. 1.
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 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.
12. A statutory right accrued, thus, cannot be impaired by reason of a rule which does not have the force of a statute. It will bear repetition to state that the Rules framed by Respondent No. 1 or its holding company are not statutory in nature. The Rules in any event do not provide for withholding of retrial benefits or gratuity.
13. The Act provides for a closely neat 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, willful 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 No. 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.”
Considering the provisions of law as well as the decision of the Supreme Court in Jaswant Singh (Supra.) the employer is entitled to withhold the gratuity amount only on the eventualities which are enumerated under the said provision. The services of the respondent were never put to an end by way of termination as provided in Sub- Sec.6(a) or under sub-sec.6(b) of Sec. 4 of the Act.
9. Under the aforesaid circumstances and especially when the respondent was allowed to retire from service on reaching the age of superannuation, in my view the petitioner Bank had no power to withhold the gratuity amount and it can be withheld only on the eventualities, as provided in Sec.4 of the Act. When the respondent had already retired by reaching the age of superannuation it is not possible to accept the submission of Mr.Patel that on conclusion of the inquiry, the services of the respondent could be terminated or he could have been dismissed from service. Since the Bank had no power to withhold the gratuity amount and considering the provisions of Sec.4 of the Act, in my view it could not be said that the Appellate Authority or the Controlling Authority had committed any error of law in reaching the conclusion which they have reached. Accordingly, I do not find any merit in this petition. The petition is accordingly dismissed with no order as to cost. Ad- interim relief granted in terms of Para-6(B) stands vacated forthwith. It appears that at the time of admission of this petition the Controlling Authority was directed to invest amount in Fixed Deposit of a Nationalized Bank initially for a period of 1 year. The Controlling Authority is directed to release the amount and disburse the same in favour of respondent with interest accrued till the date of actual payment. Rule stand discharged.
(J.B.PARDIWALA, J.) Ashish N.