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Judgment
H.K. Rathod, J.—Heard learned advocate Mr. Saurabh Mehta for Nanavati & Nanavati on behalf of the petitioner, learned AGP Ms.
Kiran Pandey for respondent Nos. 1 and 3 and learned advocate Mr. Chari for respondent No. 2.
In the present petition, the petitioner has made prayer in Para.9(A), (B), (C) and (D) which is quoted as under:
A. This Hon''ble Court may be pleased to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or
directions quashing and setting aside the impugned recovery notice dated 29.5.06 issued by the respondent No. 2 - Mamlatdar, Alien Recovery,
Ahmedabad, as well as communication dated 2.9.2006 to Deputy Labour Commissioner at Annexure-A to the petition as being illegal, arbitrary,
without authority and without jurisdiction.
B. Pending hearing and final disposal of the present petition, this Hon''ble Court may be pleased to grant interim relief, staying implementation and
execution of the impugned recovery notice dated 29.5.2006 issued by the respondent No. 2 as well as communication dated 2.9.2006 to Deputy
Labour Commissioner herein at Annexure-A to the petition.
C. Pending hearing, an ex-parte ad interim relief in terms of Para9 (B) may kindly be granted.
D. Such other and further relief as this Hon''ble Court deems just and proper in the interest of justice may also be granted.
The Mamlatdar, Ahmedabad City has issued notice (Annexure-A) dated 29.5.2006 to the petitioner to pay the amount to the respondent
employee as per the order passed by the Controlling authority and the appellate authority. On 2.9.2006, the Mamlatdar, Alien Recovery,
Ahmedabad sent the papers back to the Deputy Labour Commissioner on the ground that post of one Recovery Officer has been sanctioned.
Therefore, the recovery proceedings is to be initiated by the office of the Deputy Labour Commissioner. The respondent employee addressed a
letter on 29.8.2006 to Ahmedabad City, Alien Recovery, Ahmedabad stating that he has not received the amount of gratuity interest and though 8
months have passed, no steps have been taken by the respondents. It is also stated that the Ahmedabad Jupiter Textile Mills is closed. So please
note that all financially and other matter decided by National Textile Corporation (G) Ltd.,1971 Ashram Road, Ahmedabad-9. According to
respondent employee, he is aged about 70 years old, has not received the gratuity interest and his worry is that it may be received after his death.
The recovery certificate is at Annexure-B which has been issued by the controlling authority dated 14.8.2003 and page-19 is the order passed by
controlling authority granting the amount of gratuity which comes to Rs. 1,00,000/- with simple interest of 10% w.e.f. 1.5.1997. Thereafter, appeal
was preferred by petitioner before the appellate authority. The appellate authority has passed the order which is at page-26 and appeal is rejected
considering the same is time barred and accordingly, appeal was not entertained u/s 7(7) of Payment of Gratuity Act,1972. The appellate authority
has no jurisdiction or having power to condone the delay beyond total period of 120 days. Therefore, on 29.10.2004, the appellate authority has
dismissed the appeal. At Annexure-E is the decision of Division Bench in LPA No. 1603 of 1999 in SCA No. 8351 of 1999 dated 30.12.1999
where establishment is before BIFR. Then, Section 22 is operated and permission from BIFR is necessary. Therefore, concerned party must have
to approach the BIFR. Then, similar order at page-32. Then notice issued by Mamlatdar, Alien Recovery, Ahmedabad city under Bombay Land
Revenue Code,1879 u/s 154. Affidavit in reply filed by respondent employee.
I have considered the record which has been produced by petitioner. I have heard learned advocates appearing for the respective parties. It is
necessary to note that petitioner has not challenged the order passed by the controlling authority and appellate authority under the provisions of
Gratuity Act,1972. The recovery certificate is challenged by petitioner based on order passed by controlling authority and appellate authority
which orders are not under challenge. Therefore, petition against recovery certificate based on order passed by controlling authority and appellate
authority cannot be entertained by this Court because it is a consequential order passed by authority when amount of gratuity and interest is not
paid by petitioner to the respondent employee.
The contention raised by petitioner before the controlling authority about sick unit under the provisions of SICA Act and proceedings is pending
before the BIFR. The controlling authority has considered it and rejected the contention raised by petitioner (page-21). Taking into consideration
the Section 14 of the Gratuity Act,1972, the amount of gratuity cannot be withheld or forfeited by employee because of proceedings is pending
under the SICA Act. Section 14 of the Act is quoted as under:
Section 14 : Act to override other enactments, etc. - The provisions of this Act or any rule made thereunder 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.
The overriding effect of any law and amount of gratuity is protected by statutory provisions. Therefore, such amount cannot be denied by the
employer to the employee or employer has no power to withhold or forfeit the said amount unless the provisions of Section 4(6) of Payment of
Gratuity Act is satisfied by the petitioner. It is not the case of the petitioner that procedure which is required u/s 4(6) of the Act was followed by
the petitioner because it is not the case of termination but it is the case of superannuation. Therefore, Section 4(6) of the Act procedure is not
followed by petitioner and it is also not the case of petitioner that such procedure was followed by petitioner. Learned advocate Mr.Saurabh
Mehta submitted that contention was raised by petitioner in Para.2 of the appeal that u/s 4(6) of the Payment of Gratuity Act,1972, the employee
was not entitled the gratuity. The petitioner remained silent that what steps are to be taken u/s 4(6) of the Payment of Gratuity Act,1972. Section
4(6) of the Payment of Gratuity Act,1972 is quoted as under:
Section 4(6) : Notwithstanding anything contained in Sub-section (1), -
(a) the gratuity of an employee, whose services have been terminated for any act, willful 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] -
if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
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.
It is the duty of the employer to take effective steps for withholding or forfeiting the gratuity as required u/s 4(6) of the Payment of Gratuity
Act,1972. That the steps have not been taken or procedure was not followed by the petitioner. Therefore, the petitioner is not entitled to withhold
or forfeit the amount of gratuity u/s 4(6) of the Payment of Gratuity Act,1972. So long the procedure is not followed, the petitioner is not entitled to
withhold the amount of gratuity. In the facts of this case, the respondent has retired from service and his service was not terminated and therefore,
the case of the respondent does not fall within the purview of Section 4(6) of the Payment of Gratuity Act,1972.
Learned advocate Mr. Saurabh Mehta raised contention that National Textile Corporation (Gujarat) Ltd., the Gratuity Rules, 1989 were
amended on 16.4.1996 with retrospective effect from 1989 and under Ruled 3(b) is relevant which is quoted as under:
3(b) An employee against whom disciplinary action/criminal or any other proceedings are contemplated or pending at the time of
resignation/retirement etc. will not be paid the gratuity unless such action/proceedings against him have been finalized and on finalization of such
action/proceedings the release of payment of amount of gratuity will depend on the final outcome of such action/proceedings and in keeping in view
the order of the concerned authority/Court. The gratuity will not be admissible to an employee whose services are terminated for misconduct,
insolvency or inefficiency.
8.1 Therefore, he submitted that Rules permit the petitioner to withhold or forfeit the amount of gratuity.
In view of the aforesaid rules, it was informed to the respondent employee by the petitioner on 28.4.1997 that CBI inquiry is going on against
him. Therefore, he is not entitled the amount of gratuity. Against which, the answer was given by respondent employee in reply that no
departmental inquiry was initiated against him by the petitioner and respondent employee reached the age of superannuation and accordingly, he
retired from service during the pendency of CBI inquiry ad no steps have been taken by petitioner either to issue charge sheet or suspend the
employee. Therefore, considering the aforesaid submissions made by learned advocate Mr.Saurabh Mehta relying upon the rules as referred
above, the petitioner is not entitled to withhold or forfeit the amount of gratuity under the aforesaid Rules because the view taken by the Apex
Court in the case of Jaswant Singh Gill v. Bharat Coking Coal Ltd. and Ors. reported in (2007) 1 SCC 663. That in respect to the claim of
gratuity of the concerned employee, whether service rule prevailed or provisions of the Act is prevailed. The Apex Court also observed that in
comparison to services rules, the statutory provisions of the Act is prevailed and not the service rules. The Apex Court further observed that,
amount of gratuity - Forfeiture of - Conditions laid down in Section 4(6) of Payment of Gratuity Act must be fulfilled - Provisions of the Act will
prevail over non-statutory rules framed by the company - R.34.3 of Coal India Executives'' Conduct, Discipline and Appeal Rules,1978 should be
read subject to the provisions of the Act- Disciplinary proceedings initiated against appellant Chief GM of respondent company - During pendency
of the proceedings appellant allowed to retire having attained age of superannuation - But gratuity payable to him withheld for making adjustment in
the event recovery therefrom directed to be made in the disciplinary proceedings - The controlling authority has allowed the application and
ultimately it has been held that requirement of Section 4(6) not satisfied and therefore, forfeiture of gratuity was not justified. Para.9, 10, 13, 14
and 15 are quoted as under:
The Rules framed by the Coal India Limited are not statutory rules. They have been made by the holding company of Respondent No. 1.
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.
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.
Termination of services for any of the causes enumerated in Sub-section (6) of Section 4 of the Act, therefore, is imperative.
In Balbir Kaur and Another Vs. Steel Authority of India Ltd. and Others, this Court opined:
As regards the provisions of the Payment of Gratuity Act, 1972 (as amended from time to time) it is no longer in the realm of charity but a statutory
right provided in favour of the employee....
The Calcutta High Court in case of Rabindra Nath Banerjee Vs. The Certificate Officer and Others, has in Para.14 observed as under:
Having regard to such the question as raised by respondents in the writ application that the recovery proceedings under Bengal Public
Demands Recovery Act as initiated for realization of gratuity amount could be resisted by application of Section 22 of SICA,1985, is answered
negatively by holding that Section 22 of SICA,1985 cannot resist any proceeding for realization of gratuity aSICK INDUSTRIAL mount
payablility of which is in the domain of emanated fundamental right of retired employee. Writ application accordingly is allowed in terms of prayer
(a), (b), (c) and (d). Respondent No. 1 is directed to realize the amount as mentioned in the said prayers along with the interest with effect from the
date as allowed by initiating the recovery proceeding and/or certificate proceeding under the concerned Public Demands Recovery Act within two
months from this date and thereby to disburse the amounts in accordance with law in favour of the petitioner. Controlling authority is directed to
take all steps by production of the records etc. to implement the judgment.
The Ahmedabad Jupiter Textile Mills is a unit of National Textile Corporation (Gujarat) Ltd. The petitioner Mill was declared sick industrial
undertaking under the provisions of SICA Act,1985. The Board of Industrial and Financial Re-Construction of 19.2.2002, after hearing the
submissions of all the concerned, sanctioned the scheme u/s 18(3) of the said Act with certain modification and the said scheme is under
implementation. Therefore, the proceedings before BIFR means Reference is come to an end. The NTC was declared sick on 6.3.1993.
Therefore, the decision which has been relied by the petitioner (Annexure-C) in LPA No. 1603 of 1999 as referred above is not applicable to the
facts of this case because it is not the decision on merits and facts are altogether different because there is no proceedings is pending with the
BIFR. Therefore, the question of making application does not arise. The order passed by this Hon''ble Court (Coram : M.S.Shah,J.0 dated
13.10.2000 in SCA No. 8108 of 2000 is also not applicable to the facts of this case because reference is already decided in the present case and
in case of aforesaid order, the reference was pending before BIFR. Therefore, both the decisions are not helpful to the petitioner. However, the
controlling authority has considered the contention of sick unit as well as delay in filing the gratuity application and come to the conclusion that
considering the overriding effect u/s 14 of the Gratuity Act, there is no bar of Section 22 of the SICA Act. Therefore, contention raised by learned
advocate Mr.Mehta cannot be accepted. The delay was rightly condoned by the controlling authority. In this case, the respondent has retired from
service. Therefore, it is the case of superannuation. Therefore, Section 4(6) of the Act is not applicable to the facts of this case.
The Apex Court has considered the said aspect in case of H. Gangahanume Gowda v. Karnataka Agro Industries Corpn. Ltd. reported in
2003 AIR SCW 885. Relevant observations are in Para.9, which is quoted as under:
It is clear from what is extracted above from the order of learned single Judge that interest on delayed payment of gratuity was denied only on
the ground that there was doubt whether the appellant was entitled to gratuity, cash equivalent to leave etc., in view of divergent opinion of the
Courts during the pendency of enquiry. The learned single Judge having held that the appellant was entitled for payment of gratuity was not right in
denying the interest on the delayed payment of gratuity having due regard to Section 7(3A) of the Act. It was not the case of the respondent that
the delay in the payment of gratuity was due to the fault of the employee and that it had obtained permission in writing from the Controlling
Authority for the delayed payment on that ground. As noticed above, there is a clear mandate in the provisions of Section 7 to the employer for
payment of gratuity within time and to pay interest on the delayed payment of gratuity. There is also provision to recover the amount of gratuity
with compound interest in case amount of gratuity payable was not paid by the employer in terms of Section 8 of the Act. Since the employer did
not satisfy the mandatory requirements of the proviso to Section 7(3A), no discretion was left to deny the interest to the appellant on belated
payment of gratuity. Unfortunately, the Division Bench of the High Court, having found that the appellant was entitled for interest, declined to
interfere with the order of the learned single Judge as regards the claim of interest on delayed payment of gratuity only on the ground that the
discretion exercised by the learned single Judge could not be said to be arbitrary. In the first place in the light of what is stated above, the learned
single Judge could not refuse the grant of interest exercising discretion as against the mandatory provisions contained in Section 7 of the Act. The
Division Bench, in our opinion, committed an error in assuming that the learned single Judge could exercise the discretion in the matter of awarding
interest and that such a discretion exercised was not arbitrary.
The Apex Court has considered the said aspect in case of M.C. Chamaraju Vs. Hind Nippon Rural Industrial (P) Ltd., Relevant observations
are in Para.15, which is quoted as under:
There is another aspect also which is relevant. The Act has been enacted with a view to grant benefit to workers, a ''weaker section'' in
industrial adjudicatory process. In interpreting the provisions of such beneficial legislation, therefore, liberal view should be taken. A benefit has
been extended by the Authorities under the Act to the workman by recording a finding that the applicant (appellant herein) had completed requisite
service of five years to be eligible to get gratuity. In that case, even if another view was possible, the Division Bench should not have set aside the
findings recorded by the Authorities under the Act and confirmed by a Single Judge by allowing the appeal of the employer.
The Bombay High Court has considered the said aspect in case of Modistone Ltd. and Ors. v. Deputy Commissioner of Labour, Mumbai and
Ors. reported in 1999 II LLJ 1042. Relevant observations are in Para.9, which is quoted as under:
Thus it is a settled law that it is not open for the company to take shelter of Section 22 in respect of the workers'' wages and other dues. A
feeble attempt was made by Mr.Vasudeo to distinguish the above judgment by contending that the present case relates to payment of gratuity to
the workmen and since such claim is in the nature of arrears, the case would be governed by the decision of the Apex Court in Tata Davy Ltd. Vs.
State of Orissa and Others, I am unable to accept the submissions made by the learned Counsel for the petitioners. By no stretch of imagination
gratuity can be called arrears of wages. The basic minimum which the workman is entitled to get is the wages and gratuity and other statutory
benefits.
The Bombay High Court has considered the said aspect in case of A.S. Iyer Vs. Union of India (UOI) and Others, Relevant observations are
in Para.8 and 9, which is quoted as under:
The Payment of Gratuity Act has been enacted as a special legislation for the purpose of payment of gratuity. Section 1(3) of the Act is
applicable to every factory, mine, oil field, plantation, port, railway company as well as every shop or establishment in which10 or more persons
are employed on any day of the preceding 12 months and such other establishments notified by the Central Government where 10 or more
employees are employed. u/s 4 of the Act, gratuity is payable to all employees employed in the aforesaid establishments at the rate of 15 days''
wages per year of service. However, Section 4 Sub-section (5) permits an employee to draw a higher amount of gratuity if the rules governing the
service conditions so permit. The regulations framed under the ONGC Act were framed in 1989 and cover the service conditions in respect to
death-cum-retirement and terminal gratuity applicable to the employees of the ONGC. The regulations being framed prior in point of time to the
enactment of the Payment of Gratuity Act, would not prevail over the Payment of Gratuity Act so far as the payment of gratuity is concerned. In
fact, Section 14 of the Payment of Gratuity Act, which is a non obstante clause, makes it very clear that anything inconsistent with the Payment of
Gratuity Act should not be given effect to. Admittedly, the Regulations of the ONGC and the Payment of Gratuity Act are not identical. The
Regulations impose a ceiling of Rs. 36,000/- for payment of gratuity. However, such a ceiling is not present in the Payment of Gratuity Act. At the
time when the petitioner retired in 1984, the maximum gratuity payable to an employee was 20 months salary. We see no reason why the gratuity
payable to the petitioner should not be paid in accordance with the Payment of Gratuity Act.
The reliance placed by Mr. Cama on the judgments in the cases of Jain Ink (supra) and the State of Uttar Pradesh (supra) is misplaced. In the
case of Jain Ink (supra), the Apex Court was considering the effect of a non obstante clause contained in two or more laws operating in the same
field and the effect if they operate in two different spheres though there may be some amount of overlap. The Apex Court was considering the
provisions of the Delhi Rent Control Act and the Public Premises (Eviction of Unauthorized Occupants) Act as compared to the Rent Control Act
had a broader spectrum and that the Public Premises (Eviction of Unauthorized Occupants) Act being a special Act overrides the provisions of the
Rent Control Act, especially since it was subsequent to the Rent Control Act. They are also considered the provisions of the Slum Areas
(Improvement and Clearance) Act,1956 in juxtaposition with the Public Premises (Eviction of Unauthorized Occupants) Act and held that the
Public Premises (Eviction of Unauthorized Occupants) Act overrides the Slum Areas (Improvement and Clearance) Act. In the present case, the
Payment of Gratuity Act is a special legislation for the payment of gratuity to employees working in certain establishments whereas the Regulations
framed under the ONGC Act operate qua the employees of the ONGC. A harmonious construction and interpretation of the Payment of Gratuity
Act and the Regulations leads us to the inevitable conclusion that the former will prevail. The Payment of Gratuity Act is a later enactment specially
enacted for the payment of gratuity in establishments mentioned in Section 1 and, therefore, that Act would prevail over the regulations so far as
the payment of gratuity is concerned. In the case of State of Uttar Pradesh (supra), the Apex Court considered whether the Rules framed under a
statute were to be treated for all purposes of construction or obligation exactly as if they were in the Act and whether they were to be given the
same effect as if contained in the Act. There is no doubt that the Regulations would have a statutory force of law. However, this does not mean
that the Regulations would automatically prevail over the provisions of the Payment of Gratuity Act
The Kerala High Court has considered the said aspect in case of Anappara Karinkallu Thozhilali Sahayam Co-op. Society Ltd. Vs. Many,
Relevant observations are in Para.12 and 13, which is quoted as under:
Section 2(f) of the Act provides that in relation to any establishment, belonging to or under the control of any Government or any local
authority, ""the person who, or the authority which has an ultimate control over the affairs of the establishment, factory, mine, oilfield, plantation,
port, railway, company or shop'' will be treated as employer. Admittedly, the appellant had taken on lease certain quarries. Necessarily, for the
purpose of quarrying work, going by the definition, the appellant shall be the ""employer"". Here, no matter whether the appellant employs, to
perform the work, the members or any one else. For such work, the member concerned is given wages. Necessarily, he will be an ""employee"" in
terms of Section 2(e) of the Act. In Section 4(5) of the Act, it is specifically provided that:
Nothing in this Section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the
employer''
Necessarily, the Act will apply only in the absence of a better provision for payment of gratuity than that is provided in the Act. The Act does not
discriminate anyone, for the purpose of computation of gratuity and while reckoning the continuous service, whether one performs the work for
240 days or less. But the provisions in the bye-law make it clear that only those who have worked for 240 days in a year will be eligible for
gratuity. Therefore, the provision contained in the bye-law is no more beneficial or better than what is contained in the Act. Therefore, the bye-law
cannot have any application, when provision in the Act provides for better rate of gratuity.
Moreover, Section 14 of the Act makes it clear that ""the provision of this Act and the Rules made thereunder 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"". The bye-law is an instrument registered in terms of the Co-operative Societies Act. Whatever provision contained
therein cannot have application unless it did provide for a better rate of gratuity. In other words, the Act will override the provisions in the bye-law.
So the payment of gratuity cannot be limited in terms of the bye-law. Appeal therefore, fails, dismissed.
The Karnataka High Court in case of Cement Corporation of India Ltd. Sedam Gulbarg District v. Regional Labour Commissioner, Central,
Bangalore reported in 2008 I LLJ 26 (Karn) has held that the provisions of Section 22(3) and (4) of SICA Act read with Section 7(7) of the
Gratuity Act - the sick industry not exempted from deposit requirement in proviso to Section 7(7) of the Gratuity Act.
In view of the law decided by the Apex Court as referred above as well as in light of the fact that not challenge is made to the order of the
controlling authority and appellate authority and only the petitioner has challenged the recovery certificate/notice which is based on order passed by
controlling authority and appellate authority and therefore, according to my opinion, the amount of gratuity which has been withheld or forfeited by
the petitioner is contrary to the order passed by the controlling authority and appellate authority. Therefore, there is no substance in the present
petition. Accordingly, present petition is dismissed. Rule is discharged. Interim relief, if any, stands vacated.
The respondent No. 1 is directed to immediately recover the amount of interest which comes to Rs. 74,795/- from the petitioner on the basis
of notice (Annexure-A) dated 29.5.2006 and pay the said amount of interest to the respondent No. 2 as early as possible.