General Manager & Another vs Appellate Authority Under Payment Of Gratuity & Others

Sharad Kumar Sharma, J

The petitioner is the employer of the private respondent no. 3. The brief facts as involved in the present case are that admittedly the respondent was employed with the petitioner as an Assistant Manager (Cash) at the Bulandshahar Branch of the Bank of the petitioner at the relevant point of time, and by virtue of the order dated 02.09.1997, he was compulsorily retired from the services on account of certain proven charges of misconduct and misappropriation of certain amount of money amounting to Rs.16,650/ on the conclusion of the disciplinary proceedings held by the bank.

The said imposition of the order of compulsory retirement vide order dated 02.09.1997, it was as a consequence of an order passed by the disciplinary authority, which had been permitted to attain its finality. After passing of the order of compulsory retirement on 02.09.1997 the exact controversy, which has now been arisen to be considered, germinated on an application, which was submitted by respondent no. 3 before the petitioner-Bank, that since the order happens to be of a compulsory retirement, hence, he would be entitled for the payment of gratuity for which he has moved an application before the Bank for its remittance. Instead of considering the application for the grant of gratuity, the Bank in turn, had passed an order by virtue of which the gratuity, which was otherwise payable to respondent no. 3, was forfeited. The question arose for consideration is that in view of the provisions contained under the Payment of Gratuity Act, particularly, the provisions as provided under Section 4(6)(b) (ii) whether the petitioners could have exercised the powers of forfeiting the gratuity of an employee, who is compulsorily retired from his services. Section 4(6)(b)(ii) is quoted hereunder:

"4. Payment of gratuity-

(6) Notwithstanding anything contained in sub-section (1),-

(b) the gratuity payable to an employee 17 [may be wholly or partially forfeited]-

(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."

On account of the forfeiture of his gratuity the respondent no. 3 had invoked the proceedings under Section 7 of the Act to be read with Rule 10 of the Payment of Gratuity Act by approaching before the controlling authority by raising his grievance against the forfeiture of the amount in question by the Trust, of the gratuity fund and as to whether they were empowered to forfeit the amount as per the letter dated 13.04.1999, which was said to have been issued by respondent no. 3, i.e. the Chief Officer of the Bank, in the exercise of powers under Section 4(6)(b)(ii) of the Act of 1972. The controlling authority vide its order dated 13.09.2000 had allowed the application of respondent no. 3 and had set aside the order of the respondent, and consequently, they have directed the Bank to make the payment of gratuity of an amount of Rs.2,38,896/- along with 10 percent of simple interest, which has been held out to be wrongfully forfeited by the Bank, which was otherwise payable to the respondent no. 3. The controlling authority has passed the following order:

"After many a though I have reached to the conclusion that observations of the disciplinary authority are binding on the Trustee of Payment of Gratuity Fund because disciplinary authority is an extended arm of the employer and any decision regarding forfeiture of Gratuity as per section 4(6)(i)(ii) 1(a)(b) if any can be taken only by the employer and not by any third party i.e. Trustees of Gratuity Fund in the case. Trustees of Gratuity Fund are not covered under definition of employer as per section 2(f) of Payment of Gratuity Act, 1972 and decision regarding forfeiture of Gratuity of employee can be taken by employer only.

In view of the above, I am of the considered opinion that condition laid down u/s 4(6)a, b, has not been satisfied and there is no valid order of forfeiture of Gratuity passed by the competent authority, I therefore order that Non Applicant UCO Bank to pay the Gratuity amount to the applicant Rs.2,38,896/- alongwith simple interest @ 10%

ORDER

Keeping in view of the above facts, I direct the Non-Applicant to pay a sum of Rs.2,38,896/- as gratuity alongwith simple interest for delayed payment of the gratuity @ 10% till the day of payment to applicant within 30 days of receipt of this order.

I order accordingly.

Given under my hand and seal on this day of 31st December, 2010."

Being aggrieved against the order of controlling authority, the petitioner has preferred a writ petition before the Allahabad High Court being Writ Petition No. 25012 of 2001 'UCO Bank vs. Regional Labour Commissioner Central and Others'. The writ petition ultimately came up for consideration before the Coordinate Bench of the High Court of Allahabad, and the High Court while considering the implications of the provisions contained under Section 4(6)(b)(ii) and the powers of the bank to forfeit the gratuity had opined that the disciplinary authority while inflicting its punishment could not have curtailed the gratuity as it as beyond the competence of the authority under the Act of 1972 to forfeit a gratuity, which was otherwise payable to an employee with reference to the powers, which has been conferred upon them under Section 4(6)(b)(ii) of the Act.

The Coordinate Bench of the Court took the view that the disciplinary authority while passing the order of forfeiture of the gratuity had rather absolutely ignored to consider the implications, which was flowing from the provisions contained under Section 4(6)(b)(i). Consequently, the Coordinate Bench of Allahabad High Court vide its judgment dated 11.01.2018 while allowing the writ petition has quashed the order of the controlling authority impugned in the petition and has remitted the matter to the Controlling Authority to reconsider the matter afresh keeping in mind the exercise of powers and implications as contained under Section 4(6)(b)(ii) of the Act of 1972, which pertained to the power of the disciplinary authority as to whether at all it could have while passing an order of compulsory retirement could have issued a direction for the forfeiture of the gratuity. The Coordinate Bench vide its judgment dated 11.01.2008 issued following directions:

"In view of the aforesaid, the orders impugned are hereby quashed. The matter is remanded to the Controlling Authority to decide the application of respondent no. 3 afresh after examining as to whether any observations made in the order of the Disciplinary Authority will have any binding effect on the competence of the concerned authority (in the facts of the case Board of Trustees of the Bank) under the Act, 1972 to exercise powers under Section 4(6)(b)(ii) of the Act, 1972 to forfeit the gratuity of respondent no. 3 or not whether the order of forfeiture had been passed by a competent authority or not.

The aforesaid exercise may be completed after affording opportunity of hearing to the parties concerned, preferably within three months from the date a certified copy of this order is filed before the Controlling Authority.

Writ petition is allowed subject to the observations made above."

However, one fact, which cannot be ignored, is that the order of 02.09.1997, which contemplated dispensation of services of the employee was on account of an act of any moral turpitude, the contention of the petitioner is that after the order of remand dated 11.01.2018 the controlling authority had yet again taken a decision by the impugned order dated 31.12.2010, and by virtue of which, the controlling authority while considering the implications of Section 4(6)(i)(ii)(a)(b) has held that the Trust of the gratuity fund of the trustees are not covered under the definition of an employer as defined under Section 2(f) of the Payment of Gratuity Act and, hence, the decision regarding the forfeiture of the gratuity of the employee can be taken by the employer only and not by the Trust with which the petitioner was discharging his duties at the time when he was compulsorily retired from the services by an order dated 02.09.1997.

In that view of the matter, the controlling authority took a decision that in view of the opinion, which has been contemplated under the provisions contained under Section 4(6)(a)(b), there is no valid reason or order for the forfeiture of the gratuity of the petitioner, which has been passed by the competent authority. That means the employer of the petitioner and therefore, it was held that the petitioner would not be entitled for forfeiting of the gratuity of an amount of Rs.2,38,896/-, which was otherwise payable to the respondent no. 3.

In order to substantiate his argument, the learned counsel for the petitioners has drawn the attention of this Court to the aforesaid provisions of the Payment of Gratuity Act of 1972 as contained under Section 4 (6)(a), which provides an exception as it starts with a non-obstinate clause that a gratuity of an employee can be forfeited only when there are conditions which stands satisfied as are contemplated under sub-clause (6)(a) of Section 4 of the Act, that means there has to a "termination", willful omission or negligence causing damage or loss or destruction of the property belonging to the employer, which should be a condition precedent for the purposes of exercising the power of forfeiture by the employer under sub-section (6) of Section 4 of the Act.

In the case at hand as it has already been held by the Allahabad High Court that the Trust with which the respondent no. 3 was attached would not be treated as to be an employer as defined under Section 2(f) of the Act, and, in such an eventuality, the implications or the rights to forfeit the gratuity under sub-clause (b) of sub-section (6) of Section 4 was not available with the petitioner. In order to substitute the implications of the 'compulsory retirement' by making it to be in paralance with the term 'termination', the learned counsel for the petitioners has drawn the attention to the service regulations, which governs the service conditions of the respondent no. 3 called as UCO Bank Officer Employees (Discipline and Appeal) Regulation 1976, wherein, in the classification of penalties, which has been provided under the Regulation 4 as applicable to the Bank, the term 'compulsory retirement' is also included in the classification of penalties as to be one of the major penalties, which is contemplated under the Regulations, which are applicable over the employees of the Bank.

Be that as it may, the regulations as applicable to the employees of the UCO Bank it in its clause (4) defines the penalties, which is to be imposed on an employee in an event of any action, which is required to be taken as a consequence of the disciplinary proceedings, or otherwise if there happens to be any violation of the provisions contained with regards to the mode of dispensation of services with the Bank. As per the regulations of 1976, the major penalties had been defined in the following manner:

"Major Penalties

(f) save as provided for in (e) above reduction to a lower stage in the time-scale of pay for a specified period, with further directions as to whether or not the officer will earn increments of pay during the period of such reduction and whether on the expiry of such period the reduction will or will not have the effect of postponing the future increments of his pay.

(g) reduction to a lower grade or post,

(h) compulsory retirement,

(i) removal from service which shall not be a disqualification for future employment,

(j) dismissal which shall ordinarily be a disqualification for future employment."

The compulsory retirement, which is contained under sub-clause (h) of Regulation 4 of the Regulations of 1979 though is one of the classifications of the major penalties, which could be imposed on the employee of the Bank on a establishment of a charge of a misconduct or a misappropriation due to any financial irregularities, which is a circumstance, which is prevailing in the instant case, that the respondent no. 3 was compulsorily retired from the Bank by the petitioner on imposition of the major penalty under Regulation 4 of the Regulations of 1979 on account of a disciplinary proceeding, which was held against him and a misconduct stood established against him, but be that as it may, if the employer on its own wisdom even after the establishment of a charge of misconduct against an employee, if he chooses to impose a major penalty by way of compulsory retirement contemplated under Regulation 4(h), this is of the view that, that in itself, will exclude the applicability of the powers of forfeiture of gratuity as contemplated under sub-clause (b) of sub-section (6) of Section 4 of the Payment of Gratuity Act of 1972, for the reason, that the legislature specifically in its wisdom while incorporating sub-clause (b) of sub-section (6) of Section 4 has contemplated certain contingencies under the which employer can exercise the power of forfeiting the gratuity and one of the conditions, which is provided under sub-clause (b) is that there has had to be a termination for his services for his misconduct. Meaning thereby, in this court's opinion in order to exercise the powers of forfeiture two elements, which are necessarily required to be specified and satisfied by the employer are, firstly, that the authority passing an order should be an employer as defined under Section 2(f) of the Act and secondly, for exercising the powers of forfeiture under sub-clause (b) of sub-section (6) of Section 4 of the Payment of Gratuity Act, there has had to be a termination. Sub-clause (b) of sub-section (6) of Section 4 as the aforesaid section does not contemplate a right of forfeiture with the employer in an eventuality where the services of an employee is dispensed as a consequence of an order of compulsory retirement due to the enforcement of the major penalty clause as contemplated under Regulation 4 of the Regulations of 1979 as applicable to the employees of the Bank. The power of forfeiture will not be attracted as its not a termination of services provided under Section 4(6)(b) of the Act.

Since, admittedly it is not in dispute between the parties that the respondent no. 3 had been compulsorily retired and the said nature of punishment contained under Regulation 4 will not fall to be within the ambit of provisions contained under sub-clause (b) of sub-section (6) of Section 4 of the Act of 1972, the appointing authority of respondent no. 3 could not have exercised the powers of forfeiture of the gratuity, which is not permissible under the statute itself, and, hence, it has been rightfully held by the Controlling Authority in the impugned order dated 31.12.2010 that the conditions as laid down under Section 4(6)(a)(b) are not being specifically attracted in order to enable the petitioner to forfeit the gratuity, which was otherwise payable to respondent no. 3.

Under the service jurisprudence both the terms, i.e. termination of compulsory retirement though under the present regulations of 1976 may be that it is falling to be under the head of major penalties contemplated under regulation 4, but the termination has not been included in the category of major penalties. Even otherwise also, the word 'termination', which finds place under sub-regulation (7) of Regulation 4, which reads as under:

"(vii) termination of the service-

(a) of an officer employee appointed on probation, during or at the end of the period of probation, in accordance with the terms of his appointment or the rules or orders governing such problem;

(b) of an officer employee appointed in a temporary capacity otherwise than under a contract or agreement, on the expiration of the period for which he was appointed or earlier in accordance with the terms of his appointment;

(c) of an officer employee appointed under a contract of agreement, in accordance with the terms of such contract or agreement; and

(d) of an officer employee on abolition of post."

The termination herein would mean an officer, who is appointed on probation is either dispensed with from his services on completion of a probation of an officer, who is temporarily appointed and his terms of contracts are over, his appointment could be terminated, or, if an officer is appointed as a consequence of abolition of a post is terminated from the services. This exclusive interpretation of the term' termination', which is given under the Rules altogether contemplates a different circumstances for dispensation of services and it has been that is why deliberately contained under the regulations under the head of minor penalties. Even otherwise also, the termination under the legal interpretation of the said term would mean that there is a dispensation of services as a consequence of the eventualities contemplated under the sub-regulation 7 of Regulation 4 of Regulations of 1976. It can also be said that it is a situation where an employer under a peculiar circumstances considers that the services of employee has to come to an end and consequently, he terminates from the services. This is not the situation, which is prevailing in the instant case.

In the case at hand and as would be apparent from the arguments extended by the learned counsel for the petitioner, is a case where the respondent no. 3 was dispensed from the services by invoking the term 'compulsory retirement' as extracted from clause(h) of Regulation 4 of Regulations of 1976. The word 'compulsory retirement' it means that it is a process adopted by an employer to weed out the dead wood whose continuance in service would be absolutely not in the interest of the organization for which he is employed. Thus, both the words under the service law have got altogether a different implications and if Section 4 of the Payment of Gratuity Act excludes its attraction, in those circumstances whether the services have been compulsorily retired, in that eventuality, the right of forfeiture of the gratuity will not be attracted.

For the aforesaid reasons, this Court is also in agreement with the observations, which has been made by the Controlling Authority, for passing the impugned order dated 31.12.2010 that the petitioner would not be entitled to forfeit the gratuity of respondent no. 3, because the services of respondent no. 3 was not terminated from the services, but rather he was compulsorily retired and which is not the provision contemplated under the Act, which gives the power of forfeiture of gratuity, which could enable the petitioner to forfeit the gratuity payable to respondent no. 3.

Consequently, this Court does not find any merit in the writ petition, and the same fails and is, accordingly, dismissed.