2006 (11) TMI 550 - SC - Indian Laws

Supreme Court: Gratuity Act overrides Company Rules, Entitlement Upheld

Jaswant Singh Gill Versus Bharat Coking Coal Ltd. & Ors.

The Supreme Court held that the provisions of the Payment of Gratuity Act, 1972 prevail over the Coal India Executives' Conduct Discipline and Appeal ... Whether the provisions of the Payment of Gratuity Act, 1972 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? Held that:- 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. For the reasons aforementioned, the impugned judgment cannot be sustained which is set aside accordingly. The appeal is allowed. Issues Involved:1. Whether the provisions of the Payment of Gratuity Act, 1972 (the Act) prevail over the Coal India Executives' Conduct Discipline and Appeal Rules, 1978 (the Rules).2. The legality of the forfeiture of gratuity by the disciplinary authority under the Rules.3. Jurisdiction of the Controlling Authority under the Act to interfere with the forfeiture order.4. Entitlement of the appellant to gratuity and the conditions for its forfeiture under the Act.Issue-wise Detailed Analysis:1. Provisions of the Act vs. the Rules:The Supreme Court examined whether the provisions of the Payment of Gratuity Act, 1972, would prevail over the Coal India Executives' Conduct Discipline and Appeal Rules, 1978. The Court noted that the Act was enacted to provide a scheme for the payment of gratuity to employees, and it is a complete code containing detailed provisions covering the essential aspects of gratuity. The Act creates a statutory right to payment of gratuity, which cannot be impaired by rules that do not have the force of a statute. The Rules framed by Coal India Limited are not statutory in nature and must be subject to the provisions of the Act.2. Legality of Forfeiture of Gratuity:The disciplinary authority had ordered the forfeiture of the appellant's gratuity based on the allegation of causing shortages in coal stock. However, the Assistant Labour Commissioner (Central), Dhanbad, held that the forfeiture was not tenable as the appellant's services had not been terminated for any of the misconducts enumerated under Section 4(6)(a) & 4(6)(b) of the Act. The Act requires that gratuity can be forfeited only if the employee's services are terminated for specific acts such as willful omission, negligence, riotous conduct, or an offense involving moral turpitude. Since the appellant's services were not terminated, the conditions for forfeiture under the Act were not met.3. Jurisdiction of the Controlling Authority:The appellate authority and the High Court's Division Bench questioned the jurisdiction of the Controlling Authority under the Act to interfere with the forfeiture order passed by the disciplinary authority. The Supreme Court clarified that the Controlling Authority, being responsible for administering the Act, was entitled to determine whether the conditions for forfeiture were met. The Controlling Authority did not exceed its jurisdiction in examining the validity of the forfeiture order under the Act.4. Entitlement to Gratuity and Conditions for Forfeiture:The Supreme Court reiterated that gratuity becomes payable as soon as the employee retires, provided they have rendered continuous service for not less than five years. The Act's Section 4(6) contains a non-obstante clause, meaning it overrides other provisions. For forfeiture to occur, the employee's services must be terminated for specific reasons, and the loss or damage caused must be quantified. In this case, the disciplinary authority did not quantify the loss or damage, and the conditions for forfeiture under Section 4(6) were not satisfied. The Court emphasized that a statutory right to gratuity cannot be taken away without fulfilling the conditions laid down in the Act.Conclusion:The Supreme Court set aside the impugned judgment of the Division Bench, upheld the orders of the Controlling Authority and the appellate authority under the Act, and allowed the appeal. The appellant was entitled to gratuity as per the provisions of the Act, and the forfeiture order was deemed invalid. The appellant was also awarded costs, including counsel's fees assessed at Rs. 25,000/-.