Consumer courts can't decide gratuity disputes: Kerala High Court

The Kerala High Court recently held that an employee cannot approach consumer dispute rederessal forums to recover gratuity dues from an employer [The Tirur Service Co-operative Bank Ltd v Moideen M].

Justice Ziyad Rahman AA explained that an employer is not a 'service provider' nor is an employee a 'consumer' under the Consumer Protection Act, 2019. The relationship between an employer and employee is fundamentally different from that of a consumer and a service provider. Therefore, consumer courts have no authority to decide on gratuity disputes between employers and employees, the Court held.

"As far as an employer is concerned, he cannot be treated as a service provider and the employee cannot be treated as a person who availed the services from the employer," the ruling stated.

The Court added that in an employment relationship, it is the employee who provides services to the employer in return for salary and the employer who benefits from the service, not the other way around.

Thus, disputes relating to an employee's service conditions, including statutory benefits on retirement such as gratuity, cannot be treated as consumer disputes, the Court said.

The Court made the observation while setting aside an order of the Malappuram District Consumer Disputes Redressal Commission (DCDRC), which had directed a co-operative bank to pay gratuity arrears along with compensation and costs to a retired employee.

The case arose from a complaint filed by a retired employee of the Tirur Service Co-operative Bank before the DCDRC seeking the payment of ₹2.20 lakh towards gratuity allegedly due to him.

The employee had retired in March 2016 after rendering 38 years of service.

While the bank paid ₹10 lakh as gratuity, the employee claimed that he was entitled to ₹12.20 lakh under the Payment of Gratuity Act, 1972.

He filed a consumer complaint seeking the balance amount.

The consumer commission allowed the complaint and additionally awarded ₹25,000 as compensation and ₹10,000 as litigation costs.

Subsequently, the bank challenged this order before the High Court.

The High Court noted that in the Supreme Court's ruling in Jagmittar Sain Bhagat and ors v Director, Health Services, Haryana and ors, it was held that disputes relating to service conditions and retirement benefits cannot be decided under the Consumer Protection Act.

The Court added that there is a difference between a 'contract of service' and a 'contract for service.' Consumer law applied to the latter, whereas an employment relationship fell within the former (contract of service).

Since gratuity is a service benefit arising out of a contract of service, the consumer commission had no jurisdiction to entertain the complaint in this case, the Court concluded.

Advocates Arjun Raghavan and TR Harikumar appeared for the bank.

Advocates Thareeq Anver, KS Salma Jennath, K Shamsudheen, Arun Chand, Rassal Janardhanan A and Moyin KP appeared for the retired employee. 

[Read Judgment]