Can Payment of Gratuity be withheld for non-vacation of staff quarters? Calcutta HC says no [Read Judgment]

The Calcutta High Court recently reiterated that the statutory right to payment of gratuity cannot be curtailed, except in line with the provisions of the Payment of Gratuity Act, 1972.

Justice Shekhar B Saraf passed the ruling while allowing a writ petition filed by a former employee of the Steel Authority of India Limited (SAIL) challenging the non-payment of Rs 10 lakh as gratuity, citing his unauthorised occupation of staff quarters after his superannuation.

The petitioner had retired in October 2016, after over 36 years of continuous service in SAIL. He continued to occupy the staff accommodation allotted to him even after retirement.

In 2017, a controlling authority directed that he be paid gratuity only after vacation of the staff quarter allotted to him. This order was subsequently affirmed by an estate officer, who directed that the petitioner vacate the quarters within 15 days in June 2018. This order was later stayed by a district court.

After the appellate authority later dismissed the petitioner’s second appeal and ordered that penal rent for non-vacation of the staff quarters be recovered from the petitioner’s gratuity, the petitioner moved the High Court.

Before the High Court, SAIL argued that it had specific provisions in its regulations which allowed the entity to withhold the payment of gratuity for “unauthorised occupation” of accommodation by its employee. Among the various cases relief on to justify this practice, the Supreme Court cases of Wazir Chand v. Union of India and Secretary and ONGC Ltd. & Another v. VU Warrier were also cited.

The Calcutta High Court, however, found that these cases were distinguishable from the case at hand.

Law on when Gratuity can be withheld - What the Calcutta High Court has said before

Justice Saraf took note that a coordinate Bench of the High Court had already settled the issue in case involving SAIL itself in the 2010 decision of Steel Authorities of India Ltd. & anr. v. Taraknath Sengupta & Ors.

Justice Saraf highlighted that in the Taraknath case, after extensive reliance on Supreme Court judgments, the High Court has already found that “no deduction from the gratuity could be made by the employer in such a manner which is inconsistent with the provisions of the [Payment of Gratuity] Act.”

Notably, Section 4(6) of the 1972 Act lays down three circumstances in which the payment of gratuity may be withheld:

• the service of an employee is terminated for wilful omission or negligence on the part of the employee causing loss or damage or destruction of the property belonging to the company;

• service of the employee is terminated for riotous or disorderly conduct or any other act of violence;.

• termination of service due to an offence involving moral turpitude committed in course of this employment.

On the other hand, the Court noted that, "in the present matter none of the conditions are attracted and thus in this case, under no circumstances, can the statutory right of the petitioner be curtailed."

The Court further took note of the Calcutta High Court decision in Mining and Allied Machinery Corporation v. Ram Ranjan Mukherjee and Others, cited by the petitioner, in which it was held that payment of gratuity could not be deducted or withheld on account of arrear rent.

In view of these cases, the High Court proceeded to find that the appellate authority’s order against the petitioner is bad in the eyes of law.

"The writ petitioner was discharged from his services upon superannuation and is entitled to gratuity. Accordingly, relying on the ratios carved out in Taraknath Sengupta & Ors. (supra) and Ram Ranjan Mukherjee and Others (supra), I am of the view that ASP cannot withhold the petitioner’s gratuity other than for any other conditions as has been laid down in the Section 4(6) of the Act.”

Payment of Gratuity Act, 1972 has overriding effect over inconsistent Rules and Regulations

The Court also highlighted that in view of Section 14 of the 1972 Act, SAIL cannot fall back on its own regulations to deny the payment of gratuity contrary to the provisions of the Act.

The Court, therefore, allowed the writ plea, after also rejecting arguments made by SAIL against the maintainability of the petition. The Court thereby held that it is entitled to intervene to correct an order that is palpably illegal and against established law.

“It is true that the Writ Court does not act as a Court of appeal, however, the Writ Court is required to strike down an order that is palpably illegal and against the principles established in law. Under these circumstances, a wrong order passed by a quasi judicial authority cannot be allowed to stand.”

SAIL cautioned for having re-agitated settled issues

Before parting with the case, Justice Saraf also took critical note of SAIL’s reluctance to admit that the law on the issue had already been settled, particularly given that the High Court had pronounced the law in a case involving SAIL itself i.e. Taraknath Sengupta’s case.

"In fact, the Coordinate Bench had specifically dealt with not only the same provision of Section 4 (6) of the said Act but also Rule 3.2.1(c) of the Rules. The petitioner therein was the Steel Authority of India Ltd. who is one of the respondents in this writ petition along with its subsidiary ASP."

In response to the Court’s query, SAIL had earlier admitted that no appeal had been filed against the verdict in that case. However, the counsel had further argued that the law in the said case was per incurium and distinguishable from the case at hand. After finding that the Taraknath case was applicable in the present case, contrary to SAIL’s submissions, Justice Saraf opined,

“In my view, having not preferred an appeal against Taraknath Sengupta & Ors. (supra), the respondent authorities had accepted the issue in the case of a particular employee, and therefore, even though they were not hit by the Doctrine of Finality and/or the Doctrine of Res judicata, they should not have forced this Court to have gone through a protracted hearing. Having accepted the ratio in Taraknath Sengupta & Ors. (supra), the stand of the respondents that the judgment in Taraknath Sengupta & Ors. (supra) was per incuriam is not justified.”

In this backdrop, Justice Saraf sounded a note of caution to SAIL, remarking that,

“I would like to conclude my above observations with a caution to the counsel that the Court’s time is valuable and keeping in mind the fact that the pendency in the High Courts is so huge counsel should refrain from reagitating settled issues.”

With these observations, SAIL was directed to release the petitioner’s gratuity with interest from the date of his retirement, within a period of four weeks.

Advocate Arnab Roy appeared for the petitioner. Various respondents were represented by advocates Narayan Bhattacharya, Amitava Roy, Raj Kumar Gaurisaria and Dinabandhu Mukherjee.

[Read the Judgment]