In Civil Appeal No. 6611 of 2015 -SC- Gratuity cannot be forfeited in compulsory retirement, rules Supreme Court
Justice J.K. Maheshwari & Justice K.V. Viswanathan [06-11-2023]

Read Order: Jyotirmay Ray V. The Field General Manager, Punjab National Bank & Ors

Chahat Varma

New Delhi, November 8, 2023: In a recent ruling, the Supreme Court has sided with a former Senior Manager at the Punjab National Bank who was compulsorily retired. The Apex Court has granted the individual various terminal benefits, including leave encashment, employer's contribution to provident fund, gratuity, and pension.

In the matter hand, the appellant had sought various terminal benefits, however, the Punjab National Bank had contested these claims, citing irregularities in loan granting that led to losses for the bank. The appellant had been charge-sheeted and faced a departmental enquiry, which ultimately resulted in a finding of guilt and a penalty of compulsory retirement. The appellant filed a writ petition to challenge the denial of these terminal benefits but did not contest the order of compulsory retirement. During the pendency of the writ petition, the bank's Board of Directors refused to release the employer's contribution to the provident fund. Initially, a Single Judge had allowed the writ petition in part, directing the bank to release the employer's contribution of provident fund, gratuity, and leave encashment. However, the Single Judge denied the benefit of pension based on the appellant not being an in-service candidate when the pension scheme became operational. On appeal by Punjab National Bank, the Division Bench upheld the grant of leave encashment but set aside the grant of provident fund and gratuity by holding the appellant responsible for the losses incurred.

The division bench of Justice J.K. Maheshwari and Justice K.V. Viswanathan observed that the provisions of the Payment of Gratuity Act, 1972, specify that forfeiture of gratuity may be directed in cases of damage, loss, or destruction of the employer's property. Additionally, gratuity shall be wholly forfeited in situations where termination is a result of riotous or disorderly conduct or the employee's involvement in a criminal case involving moral turpitude.

Upon a comprehensive examination of the Gratuity Act, the Punjab National Bank (Officers’) Service Regulations, 1979, and the Circular No. 1563 dated 16.01.1997, the bench found that gratuity shall become payable to every officer upon retirement, death, disablement, or resignation, except in cases of termination by way of punishment, after the completion of 10 years of continuous service.

The bench also observed that under Regulation 4 of the Punjab National Bank Officer Employees’ (Discipline and Appeal) Regulations 1977, compulsory retirement of an officer was considered a major penalty. The explanation provided in clause 14(1)(a) of the Circular clarified that if an employee was terminated after at least 10 years of service in the bank, and such termination was not a result of punishment like dismissal or removal, the gratuity may be paid. Importantly, the denial of gratuity to an employee subjected to the major penalty of compulsory retirement was not mentioned in this explanation. Therefore, the bench opined that the gratuity was payable to the appellant under the 1979 Regulations, as per the explanation provided in the Circular.

The bench further noted that the judgment of the Full Bench of the Punjab & Haryana High Court in Uco Bank & Others v. Anju Mathur [LQ/PunjHC/2013/796] was relevant in the context of forfeiture of gratuity. In that judgment, it was noted that the charge-sheet and enquiry report did not provide clear evidence of actual loss suffered by the bank due to the irregularities. It was emphasized that the bank should have mentioned the actual loss in the show cause notice to enable the respondent to address it. The bench observed that in the present case, the situation was similar, as the quantification of the loss had not been proven in the enquiry. Additionally, the appellant was not provided with an opportunity for a hearing before the order of forfeiture of gratuity was passed.

The bench concluded that the facts of the case did not involve riotous behaviour or the appellant's involvement in a criminal case. Furthermore, the enquiry report did not record any findings regarding causing a loss to the bank or quantification of the amount of loss, especially in the context of the forfeiture of the employer's contribution to the provident fund.

Thus, the Court highlighted that the Single Judge had made a correct observation in accordance with the 1977 Regulations, stating that compulsory retirement, removal from service (which does not disqualify future employment), and dismissal (which typically disqualifies future employment) were distinct and separate penalties. In this context, the act of forfeiting gratuity was not foreseen, as the provisions do not address forfeiture in the case of compulsory retirement. The Division Bench's decision to reverse the Single Judge's judgment was deemed erroneous, as per Circular No. 1563 dated 16.01.1997 of the Bank.

Therefore, taking a holistic view of the 1977 Regulations, 1979 Regulations, Circular dated 16.01.1997, and the facts on record, the present appeal was allowed. The findings of the Single Judge were affirmed, and the judgment rendered by the Division Bench was set aside.