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CASE NO.: Appeal (civil)  4770 of 2006

PETITIONER: Jaswant Singh Gill                                                       

RESPONDENT: M/s. Bharat Coking Coal Ltd. & Ors.                              

DATE OF JUDGMENT: 10/11/2006

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T (Arising out of SLP (C) No. 16827 of 2004)

S.B. Sinha, J.

       Leave granted.

       Respondent \026 Bharat Coking Coal Limited is a government company  incorporated and registered under the Companies Act, 1956.  Appellant  herein joined as a Chief General Manager.  He was working in a coking coal  mine which vested in the Bharat Coking Coal Limited pursuant to an  appropriate notification issued by the Central Government either under  Section 7 of the Coking Coal Mines (Nationalisation) Act, 1972 or Section 5  of the Coal Mines (Nationalisation) Act, 1973.           A chargesheet was issued against him on the allegation of shortage of  stock of coal in Lodna area of Respondent No. 1.  During pendency of the  departmental proceeding, the appellant was allowed to retire.  He applied for  payment of gratuity under the Payment of Gratuity Act, 1972 (for short "the  Act") in the year 1998 which was denied.  He, therefore, filed an application  before the Additional Labour Commissioner, Dhanbad for payment of  gratuity on 4.01.2000.  Notices having been issued by the said authority,  Respondent No. 1 filed reply thereto inter alia contending that the gratuity  amount payable to the appellant had been withheld for the purpose of  making of adjustment, in the event recovery from the said amount is directed  to be made in the disciplinary proceedings.  The controlling authority on the  said premise allowed the disciplinary authority to proceed in the matter.   Upon conclusion of the departmental enquiry, the disciplinary authority by  an order dated 5.07.2000 opined:

"Whereas the undersigned has gone through the  chargesheet dated 24.02.97 issued to Shri Gill,  enquiry proceedings and report of Inquiring  Authority dated 18.08.99 and other documents  related to the case placed before him.  After careful  consideration of all the documents placed in the  case file, the undersigned, is convinced that Shri  Gill had a major role in causing the shortages in  the coal stock and conniving with the measurement  team in concealing the shortages at the time of  annual measurement.

       Now, therefore, the undersigned, Chairman- cum-Managing Director, Coal India Limited being  the Disciplinary Authority in exercise of power  conferred by the Conduct Discipline and Appeal  Rules 1978 of CIL, considering the seriousness of  the offence would have imposed the punishment of  dismissal from the service of Shri J.S. Gill, the  then Chief General Manager, BCCL, but for his

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superannuation.  The undersigned also hereby  orders forfeiture of his gratuity."

       The Assistant Labour Commissioner (Central), Dhanbad in the  application filed by the appellant under the Act, on the other hand, by an  order dated 11.04.2001 held:

"It is clear that Shri J.S. Gill retired on  superannuation as per notice for retirement w.e.f.  30.4.98, therefore, he is entitled for the payment of  gratuity under the P.G. Act, 1972.  As per section  4(6)(a) & 4(6)(b) of the P.G. Act, 1972, gratuity  can be forfeited partially or wholly when the  service of the employee is terminated for any act,  which constitute an offence involving moral  turpitude provided that such offence is committed  by him in the course of employment.  In the instant  case, the services of Sri J.S. Gill has not been  terminated for the offence mentioned under 4(6)(a)  & 4(6)(b) of the P.G. Act, 1972.  Therefore, the  order of forfeiture of gratuity of Sri J. S. Gill  issued by the C.M.D. and Disciplinary Authority  of CIL is not tenable.  The basic requirement of  termination of service for any of the misconduct as  enumerated under section 4(6)(a) & 4(6)(b) of the  P.G. Act, 1972 has not been fulfilled before the  issue of order of forfeiture of gratuity."

       On an appeal preferred by Respondent No. 1, the appellate authority  held:

"3. The appellant has appealed against the  direction of the Controlling Authority directing to  pay the gratuity to the respondent on the ground  that it was beyond his jurisdiction for enter into  merit of the forfeiture of the gratuity amount by  the competent authority under Section 4(6) of the  Act for the reasons mentioned therein.  On the  other hand the respondent had also filed an appeal  about not allowing interest by the Controlling  Authority for delayed payment of gratuity which is  numbered as P.G. Appeal/(53)/2001.  Since the  matter of appeal filed by the Appellant and the  respondent is against the same direction of the  controlling authority hence both cases heard jointly  and their oral argument were heard and hearing  was concluded on that date.

4.      ***             *** 5.      From perusal of the case record of the  Controlling Authority it is observed that the  respondent submitted an application in form \026 N  on 5.1.2001 after his superannuation from  30.4.1998 when the appellant did not pay the  gratuity amount.  It is observed from the decision/  direction of the Controlling Authority that he has  rightly determined the amount of gratuity as well  as correctly interpreted Section 4(6) of the  Payment of Gratuity Act, 1972.  For Application of  Section 4(6) it is pre-condition that the service  should have been terminated for any act.  For the  purpose of section 4(6)(a) such act should be about  willful omission or negligence causing any damage

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or loss to, or destruction of, property belonging to  the employer, shall be forfeited to the extent of the  damage or loss so caused and for the purpose of  sub-section 4(6)(b) the gratuity can be forfeited  wholly or partially only if the services of such  employee have been terminated for his riotous or  disorderly conduct or any other act of violence etc.  on his part.  It is observed from the punishment  order that the services have not been terminated  and rather could not have been terminated and also  does not indicate the extent of damage of loss.   Since neither the service terminated nor there is  anything about extent/ quantification of damage or  loss in punishment order, question of forfeiture of  gratuity does not arise as per Section 4(6)."

       Aggrieved by and dissatisfied with the orders of the authority under  the Act as also the appellate authority, a writ petition was filed by  Respondent No. 1 in the High Court of Jharkhand at Ranchi which was  marked as W.P.(C) No. 5957 of 2001.  By a judgment and order 13.12.2001,  a learned Single Judge of the said refused to interfere therewith and  dismissed the writ petition.  In an intra-court appeal preferred by Respondent  No. 1, a Division Bench of the said Court, however, set aside the judgment  and order of the learned Single Judge opining:

"In our opinion, the Controlling Authority under  the Act being not the appellate or the Competent  Authority against the order dated 5.7.2000 passed  by the CMD-cum-Disciplinary Authority inflicting  punishment of forfeiture of gratuity against the  respondent no. 3 the comments on the said order as  well as interference therewith either by him or the  Appellate Authority under section 7(7) of the Act  is unwarranted and without jurisdiction."

       The appellant is, thus, before us.

       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

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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."

       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."

       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.

       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.

       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.  

       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

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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 v. Steel Authority of India Ltd. and  Another [(2000) 6 SCC 493], 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..."

       Interpreting Section 4(1) of the Act, it was held:

"...We shall come back to the deposit of the  provident fund but as regards the gratuity amount,  be it noted that there is a mandate of the statute  that gratuity is to be paid to the employee on his  retirement or to his dependants in the event of his  early death the introduction of the Family Pension  Scheme by which the employee is compelled to  deposit the gratuity amount, as a matter of fact  runs counter to this beneficial piece of legislation  (Act of 1972). The statutory mandate is  unequivocal and unambiguous in nature and runs  to the effect that the gratuity is payable to the heirs  of the nominees of the employees concerned but  by the introduction of the Family Pension Scheme,  this mandate stands violated and as such the same  cannot but be termed to be illegal in nature. We do  find some substance in the contention as raised, a  mandatory statutory obligation cannot be trifled  with by adaptation of a method which runs counter  to the statute. It does not take long to appreciate  the purpose for which this particular Family  Pension Scheme has been introduced by deposit of  the provident fund and the gratuity amount and we  are not expressing any opinion in regard thereto  but the fact remains that statutory obligation  cannot be left high and dry on the whims of the  employer irrespective of the factum of the  employer being an authority within the meaning of  Article 12 or not."

We may notice that this Court in Bhagirathi Jena v. Board of  Directors, O.S.F.C. & Ors. [(1999) 3 SCC 666] was concerned with

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interpretation of Regulation 17 of the Orissa State Financial Corporation  Employees’ Provident Fund Regulations, 1959.  This Court noticed the  relevant Regulations and opined that therein no specific provision existed for  deducting any amount from the provident fund consequent to any  misconduct determined in departmental enquiry, nor was there any provision  for continuance of departmental enquiry after superannuation.  It was in the  aforementioned situation opined :

"In view of the absence of such a provision  in the abovesaid regulations, it must be held that  the Corporation had no legal authority to make any  reduction in the retiral benefits of the appellant.  There is also no provision for conducting a  disciplinary enquiry after retirement of the  appellant and nor any provision stating that in case  misconduct is established, a deduction could be  made from retiral benefits. Once the appellant had  retired from service on 30-6-1995, there was no  authority vested in the Corporation for continuing  the departmental enquiry even for the purpose of  imposing any reduction in the retiral benefits  payable to the appellant. In the absence of such an  authority, it must be held that the enquiry had  lapsed and the appellant was entitled to full retiral  benefits on retirement."

       These aspects of the matter although have been considered by the  authority under the Act as also the appellate authority wherewith the learned  Single Judge agreed, the Division Bench posed unto itself a wrong question  and, thus, misdirected itself while passing the impugned judgment.  The  controlling authority was exercising a power under a statute and, therefore, it  having been authorised to administer the provisions of the Act was entitled  to determine as to whether any case has been made out to deny the right of  the appellant to obtain the amount of gratuity in accordance with the  provisions thereof.  He, thus, did not exceed his jurisdiction.   

       Reliance has been placed by Mr. Rana Mukherjee, learned counsel  appearing on behalf of Respondent No. 1 on Management of Tournamulla  Estate v. Workmen [1973 (3) SCR 762].  In that case, this Court was  concerned with a scheme of gratuity.  The scheme contained a provision  which was in pari materia with Section 4(6)(b) of the Act.  The said scheme  was upheld stating:

"Although the provisions of this statute would not  govern the decision of the present case, the  importance of the enactment lies in the fact that the  principle which was laid down in the Delhi Cloth  Mills case with regard to forfeiture of gratuity in  the event of commission of gross misconduct of  the nature mentioned above, has been incorporated  in the statute itself. Even otherwise, such a rule is  conducive to industrial harmony and is in  consonance with public policy."

       Reliance has also been placed upon a decision of Karnataka High  Court in M/s. Bharath Gold Mines Ltd. v. The Regional Labour  Commissioner (Central), Bangalore and others [1986 Lab. I.C. 1976].  In  that case it was held that before the amount of gratuity can be directed to be  forfeited, an opportunity of hearing must be given.  The said decision may  not have any application to the fact of the present case as opportunity of  hearing was given both to the employer as also the employee by the  authority.

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       Reliance placed by Mr. Mukherjee on a decision of this Court in D.V.  Kapoor v. Union of India and Others [(1990) 4 SCC 314] is misplaced.   Therein having regard to the provisions of the Civil Services and Conduct  Rules, it was held that a departmental proceeding can be continued even  after allowing the delinquent employee to voluntarily retire.  However,  therein the rules provided for withholding or withdrawing pension  permanently.  In that case itself, it was opined:

"...The right to gratuity is also a statutory right.  The appellant was not charged with nor was given  an opportunity that his gratuity would be withheld  as a measure of punishment. No provision of law  has been brought to our notice under which, the  President is empowered to withhold gratuity as  well, after his retirement as a measure of  punishment. Therefore, the order to withhold the  gratuity as a measure of penalty is obviously  illegal and is devoid of jurisdiction."

       The said decision, thus, was rendered having regard to the rule which  was in operation.

       For the reasons aforementioned, the impugned judgment cannot be  sustained which is set aside accordingly.  The appeal is allowed.  The  appellant shall also be entitled to costs.  The counsel’s fee assessed at Rs.  25,000/-.