Bombay High Court
Bank Of India vs R.V. Deshmukh on 18 September, 2014
Author: M.S. Sonak
Bench: M.S.Sonak
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 802 OF 2007
Bank of India .. Petitioner
Vs.
R.V. Deshmukh .. Respondents.
Mr. R.S. Pai with Mr. Anand Pai and Mr.Hemant Telkar i/b M/s Haresh
Mehta & Co. for petitioner.
Mr. Mahesh Londhe i/b M/s. Sanjay Udeshi & Co. for the Respondent.
CORAM : M.S.SONAK, J.
Date of Reserving the Judgment : 08.08.2014
Date of Pronouncing the Judgment : 18.09.2014
JUDGMENT:-
1] Rule. With the consent of learned counsel for the parties, rule is made returnable forthwith.
2] The petitioner bank questions the orders dated 30 June 2004 made by the controlling authority, under the Payment of Gratuity Act, 1972 (said Act) and the order dated 4 September 2006 made by the appellate authority under the said Act, both of which, in effect, direct the petitioner bank to pay the respondent gratuity in an amount of Rs.1,15,869/- together with simple interest at the rate of 8% per annum from 28 September 2001, till date of payment.
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3] The brief facts and circumstances in which the impugned
orders came to be made are as follows:
(a) The petitioner terminated the services of the
respondent, a bank clerk with effect from 28 September 2001 after charges of misappropriation of an amount of Rs.20,000/- were proved against him in a duly constituted departmental enquiry. On the date of termination, the respondent had put in over 24 years of service.
(b) On 6 March 2003, the respondent applied to the controlling authority, seeking directions against the petitioner bank for payment of gratuity in an amount of Rs.2,07,295.20.
(c) The petitioner bank, contested the aforesaid claim, primarily on two grounds:
(i) That Payment of Gratuity Act, 1972 was not applicable, as the petitioner bank had its own BOI Gratuity Fund Rules, 1975, which governed matters of payments of gratuity. In terms thereof, the respondent was entitled to gratuity in an amount of Rs.97,650/-, which at no stage, had the petitioner bank disputed or denied;
(ii) Assuming that the Payment of Gratuity Act, 1972, is applicable, then in terms of Section 4(6)(b)
(ii) thereof, the petitioner bank was entitled to 2/16 ::: Downloaded on - 24/09/2014 23:16:49 ::: dss 3 wp 802.07-j.doc forfeit the entire gratuity payable to the respondent, as the services of respondents had been terminated for an act committed by him in the course of his employment, which act, clearly constituted an offence involving moral turpitude. Therefore, the respondents claim, ought not to be entertained.
(d) By order dated 30 June 2004, the controlling authority, determined the amount of gratuity payable to the respondent at Rs.1,52,852/- and directed the petitioner bank to pay to the respondent an amount of Rs.1,32,852/- towards gratuity , after deduction of an amount of Rs.20,000/-, corresponding to the amount said to be misappropriated by the respondent.
(e) The petitioner bank, appealed against the aforesaid order dated 30 June 2004 to the appellate authority under Section 7(7) of the said Act .
(f) By order dated 4 September 2006, the appellate authority, partly allowed the appeal; determined the gratuity payable at Rs.1,35,869/-; and directed payment of an amount of Rs.1,15,869/- towards gratuity to the respondent, together with interest at the rate of 8% per annum on the said amount from 28 September 2001, till date of payment.
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(g) Aggrieved by the aforesaid, the petitioner bank has
preferred the present petition, questioning the two orders dated 30 June 2004 and 4 September 2006. Since, the former order has merged with the later, in effect, the challenge is to the impugned order dated 4 September 2006.
4] Mr. Pai, learned counsel for the petitioner bank, made the following submissions, in support of the petition:
(a) The appellate authority has committed an error of jurisdiction in applying the provisions of Section 4(6)(a) of the said Act to the facts and circumstances of the present case, when in fact the situation was governed by the provisions of Section 4(6)(b)(ii) of the said Act, which clearly permits forfeiture of the entire gratuity amount when services of an employee are terminated for an act committed by him in the course of his employment and such act constitutes an offence involving moral turpitude.
The services of the respondent came to be terminated for misappropriation of funds to the extent of Rs.20,000/-. Considering that the petitioner is a Nationalized bank, or even otherwise, act of misappropriation of funds, involves moral turpitude and therefore, provisions contained in Section 4(6)(b)(ii) of the said Act were clearly attracted. These provisions, vest discretion in the employer to forfeit, wholly or partially, the gratuity amount otherwise payable;
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(b) The petitioner bank, having exercised 'discretion'
vested in it under Section 4(6)(b)(ii) of the said Act, there was absolutely no scope for the controlling authority and the appellate authority to interfere with the exercise of the same. In this regard, reliance was placed upon the case of The Management of Tournamulla Estate vs. Workmen AIR 1973 SC 2344, Ch, cum Man. Director Mahanadi Coalfield Ltd. v. Rabindranath Choubey JT 2013 (14)SC 332, and Ramchandra S. Amonkar v. Bank of India 2000 II CLR 166;
5] Mr. Londhe, learned counsel for the respondent defended the impugned orders, by submitting that the provisions contained in Section 4(6)(b)(ii) of the said Act, apply only where an employee is convicted of an offence involving moral turpitude. In any case, the said provisions are attracted, only where "offence" as defined under Section 3 (38) of the General Clauses Act, 1897 is committed by an employee in the course of his employment. That not being the case, there arises no question of any forfeiture of gratuity amount. Further, the learned counsel submitted, that principles of natural justice and fair play are required to be followed, before any forfeiture is effected. None have been followed in the present case. The discretion that may be vested in the employer, is by no means unfettered, and can always be corrected by the controlling authority or the appellate authority under the said Act. If therefore, the two authorities have permitted forfeiture to the extent of Rs.20,000/-, even though there was no compliance with principles of natural justice before effecting of such forfeiture, the authorities cannot be said to have either exceeded their 5/16 ::: Downloaded on - 24/09/2014 23:16:49 ::: dss 6 wp 802.07-j.doc jurisdiction or exercised their powers whimsically or arbitrarily. The learned counsel also submitted that the petitioner bank, in its reply filed before the controlling authority, never disputed its liability to pay gratuity to the respondent. The only dispute raised was that the quantum of gratuity had to be determined in accordance with the BOI Gratuity Fund Rules, 1975 and not as per the said Act. Accordingly, the petitioner bank, had clearly forfeited, or in any case, waived its right to forfeit any amount from out of the respondent's gratuity. The learned counsel pointed out that it was the precise case of the petitioner bank that the BOI Gratuity Fund Rules, 1975 were applicable, though in terms thereof gratuity in an amount of Rs.95,650/- only, is payable. The Rules of 1975, do not either contemplate or permit any forfeiture. The learned counsel placed reliance upon the decisions in the case of Ramchandra S. Joshi vs. Bank of Baroda 2010-IV-LLJ-119 (Bom), Dena Bank vs. Smt. Manjulaben M. Thakor & Anr.
2012 (134) FLR 144, and Union Bank of India vs. K. R. Ajwalia 2005 (105) FLR
364. 6] The rival contentions, now fall for my determination.
7] There can be no serious dispute that the provisions of said Act apply to the petitioner bank. This is in fact clear from the provisions contained in Section 1(3) of the said Act, inasmuch as the petitioner bank is an establishment in which ten or more persons are employed, on the date when the said Act came into force or were employed, on any day of the preceding twelve months. Section 4 (1) of the said Act provides that gratuity shall be payable to an employee 6/16 ::: Downloaded on - 24/09/2014 23:16:49 ::: dss 7 wp 802.07-j.doc on the termination of his employment after he has rendered continuous service for not less than five years, on his superannuation or retirement, resignation or on his death or disablement due to accident or disease. Section 4(2) of the said Act provides that for every completed year of service or part thereof in excess of six months, the employer shall pay gratuity at the rate of 15 days wages based on the rate of wages last drawn by the employees concerned, subject to upper ceiling of Rs.3,50,000/- as provided by Section 4(3) of the said Act. Section 4(5) of the said Act provides that nothing in the section shall affect the right of an employee to receive better terms of gratuity under any award, agreement or contract with the employer. Section 4(6) of the said Act , which is most relevant for the determination of issues raised in this petition, reads thus:
"Notwithstanding anything contained in sub-section (i),-
(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 of 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."
8] The analysis of sub-section 6 of Section 4 of the said Act, at the outset indicates that it is in the nature of an exception to the provisions contained in sub-section 1 of Section 4 of the said Act. Whereas, sub-section 1 of Section 4 of the said Act casts an obligation 7/16 ::: Downloaded on - 24/09/2014 23:16:49 ::: dss 8 wp 802.07-j.doc upon the employer to pay gratuity to an employee on termination of his employment after he has rendered continuous service of not less than of five years, sub-section 6 of Section 4 of the said Act, dilutes such obligation to the extent and in the circumstances indicated. Sub-
section 6 of Section 4 of the said Act, commences with a non-obstante clause. Sub-clause (a) thereof deals with a situation where an employee, whose services have been terminated for any act, willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, then the gratuity payable to such an employee, shall be forfeited to the extent of the damage or loss so caused. Sub-clause (b) thereof, deals with two situations, wherein gratuity payable to an employee "may be wholly or partially forfeited":
(i) Sub-clause (i) deals with a situation where services of an employee are terminated for his riotous for disorderly conduct or any other act of violence on his part;
(ii) Sub-clause (ii) deals with a situation where the services of an employee are 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.
9] There is no merit in the contention of Mr. Mahesh Londhe, learned counsel for the respondent that the provisions of Section 4(6)
(b)(ii) of the said Act authorize forfeiture of gratuity, whether wholly or partially only where an employee is convicted of an offence involving in moral turpitude. Neither the express wordings of the sub- section, nor does the legislative intent support any such strained construction. So also, there is no substance in the contention that the term "offence" employed in the sub-sections has to be construed by 8/16 ::: Downloaded on - 24/09/2014 23:16:49 ::: dss 9 wp 802.07-j.doc reference to the said term under Section 3 (38) of the General Clauses Act, 1897. The said section, defines the term "offence"to mean any act or omission made punishable by any law for the time being in force. Sub-clause (ii) of clause (b) of Section 4(6) of the said Act, contemplates termination for an act involving moral turpitude, which may constitute an offence, in the sense of a misconduct as may be defined under the conditions of service which govern him. Such construction is in consonance with the tenor of Section 6 of the said Act as also the legislative intent. Such construction is consistent with the expression "in the course of his employment" used in the sub-clause.
There is no reason to delve into this issue any further, because, even if we were to apply definition of the term "offence" as contained in Section 3(38) of the General Clauses Act, 1897, misappropriation of the bank funds by the bank clerk, would certainly constitute an act punishable by the Indian Penal Code 1860. Therefore, there is no merit in the contention that the provisions contained in Section 4(6)
(b)(ii) of the said Act were not all attracted.
10] The aforesaid provisions, as contained in Section 4(6)(b)
(ii) of the said Act, undoubtedly confer a discretion upon the employer to forfeit, wholly or partially, the gratuity otherwise payable to the employee, where services of such employees have been terminated for an act which constitute an offence involving moral turpitude committed by him in the course of his employment. Such discretion, by its very nature, can never be unfettered or unguided. Such discretion, shall have to be exercised in a fair and reasonable manner. The exercise of such discretion, is by no means immune from any form 9/16 ::: Downloaded on - 24/09/2014 23:16:49 ::: dss 10 wp 802.07-j.doc of judicial review. In fact, both the controlling authority and the appellate authority under the said Act would have the power and jurisdiction to determine whether the exercise of such discretion has been fair and proper. Further, forfeiture of gratuity, undoubtedly would visit an employee with civil and pecuniary consequences. Therefore, prior to the exercise of the discretionary powers of forfeiture, the employer would be bound to comply with principles of natural justice and fair play.
11] In the case of Ramchandra S. Joshi (supra), the Division Bench of this Court noted that Section 4(6) of the said Act by itself, does not specifically provide for a show cause notice in the matter of forfeiture of gratuity. But considering that forfeiture of gratuity involves a civil liability and has civil consequences, the principles of natural justice have to be followed and opportunity must be made available to the employee to give his say as to why gratuity should not be forfeited.
12] In the case of Dena Bank vs. Manjula Ben Thakur (supra), the learned Single Judge of this Court noted that in the order of dismissal of the employee from the bank, there was no direction for forfeiture of gratuity, which is otherwise the statutory right. No proceedings were initiated for forfeiture of gratuity, on the ground that the termination was for an act involving moral turpitude. In such circumstances, it was held that the orders made by the controlling authority and appellate authority, directing payment of entire gratuity amount were "unexceptionable".
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13] In the case of Union Bank of India Vs. K.R. Ajwalia (supra),
learned Single Judge of the Gujrat High Court, in a situation where services of an employee were terminated for misconduct of negligence in discharge of duties which had occasioned financial loss to the bank, ruled that gratuity could not be forfeited without minimum compliance with principles of natural justice and fair play. The contention based upon "useless formality theory" or a plea that "post decisional hearing" would suffice, was rejected by reference to several decisions of the Supreme Court and English Courts on the subject.
14] In the case of Tournamulla Estate (supra), upon which reliance was placed by Mr. Pai, learned counsel for the petitioner, the principle enshrined in Section 4(6)(b) of the said Act, in that gratuity can be forfeited where services of an employee have been terminated for his riotous or disorderly conduct or for any other act of violence on his part was upheld as being conducive to industrial harmony and in consonance with public policy. In the case of Ramchandra S. Amonkar (supra), the action of the bank in recovering the loss caused by the employee, from out of the gratuity payable to him, was held to be legal and valid. However, the facts in the said case would indicate that the bank had served a show cause notice upon the employee, requiring him to show cause as to why the loss caused to the bank be not recovered from the gratuity and order of forfeiture was made, upon due consideration of the employee's defence. The decision in the case of Mahanadi Coalfield (supra) dealt with a question of the powers of forfeiture of gratuity pending departmental enquiry. It was observed that where charge is proved and punishment for dismissal is 11/16 ::: Downloaded on - 24/09/2014 23:16:49 ::: dss 12 wp 802.07-j.doc given thereupon, the provisions for Section 4(6) of the said Act would naturally apply and it would be within the discretion of the employer to forfeit the gratuity payable to the employee. As a corollary one can safely say that the employer has a right to withhold the gratuity pending departmental enquiry, only where the employer has the necessary powers to continue the enquiry and impose penalty of dismissal upon an employee, even after his retirement. However, noticing some conflict between the decisions in the case of State Bank of India Vs. Ramlal Bhaskar - JT 2000 (12) SC 286 and Jaswant Singh Gill Vs. Bharat Coking Coal Ltd.- JT 2007 (9) SC 1, the issue was referred to be considered authoritatively by a larger Bench. Suffice to state that such issue does not even remotely arise in the present case.
15] In the present case, the order of dismissing the respondent from service, makes no reference to forfeiture of gratuity. At no time thereafter, did the petitioner issue any show cause notice to the respondent or initiate any proceedings for forfeiture of gratuity. In fact, from the petitioner's response dated 18 September 2003 to the respondent's application before the controlling authority for payment of gratuity, the petitioner stated that at no stage had they denied the liability for payment of gratuity to the respondent and that under the BOI Gratuity Fund Rules, 1975, the gratuity to which the respondent would be otherwise entitled to is Rs.97,650/-, but not Rs.2,07,295.20 as claimed by him. The petitioner disputed the applicability of payments under the said Act, which they themselves assessed at Rs.1,35,869/-. From the tenor of reply, it appears that the petitioner bank was agreeable to pay to the respondent gratuity of Rs.97,650/-
12/16 ::: Downloaded on - 24/09/2014 23:16:49 :::dss 13 wp 802.07-j.doc in terms of the BOI Gratuity Fund Rules, 1975, but in case the respondent insisted upon payment of gratuity in an amount of Rs.1,35,869/-in terms of the said Act, then, the petitioner proposed forfeiture of entire gratuity amount, which according to the petitioner was permissible under the said Act. Reference to some extracts from the petitioner's written statement dated 18 September 2003, will bear out this position.
"iv) At no point of time, the Bank had denied the payment of gratuity to him. On the contrary, we had advised the Maheshwari Udyan Branch where he was last posted to inform the applicant that the matter in respect of settlement of gratuity has been referred to Head Office for guidance and on hearing from them, Bank will do the needful in the matter. Since we have now received the guidelines from head Office, we are looking into the matter of settlement of his gratuity. In the meantime, the applicant had filed the application before the Controlling Authority under the Payment of Gratuity Act."
vi) The Applicant has claimed an amount of Rs.2,07,295.20 as the gratuity payable to him. However, he is not entitled to that amount, even if the gratuity is calculated under the Act as well as the Rules.
The applicant in the normal course is entitled to receive the Gratuity under the Bank's rule as well as under Gratuity Act, 1972 whichever is higher. Since the applicant had completed 24 years 4 months of service (till the time of his suspension from the bank's service), he is entitled to receive 15 months gratuity under bank's Rules and for 24 years under Gratuity Act, 1972. We give below the working of two computation of Gratuity payable to the applicant in the normal course:-
Under BOI Gratuity Fund Rules,1975 Under Gratuity Act, 1972 December, 1997 December, 1997 AVERAGE Basic Pay Rs.5,730.00 Basic Pay Rs.9,360.00 Spl. Allowance Rs. 410.00 D.A. Rs. 452.76 F.P. Allowance Rs. 230.00 Personal Pay Rs. 140.00
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Total Rs.6,510.00 Rs.9,812.76
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Amount of Gratuity Amount of Gratuity payable
payable
Rs.6510 x15 months = Rs.9812x15x24= Rs.1,35,868.98
Rs.97,650/- 26
Say Rs.1,35,869.00
You will notice that from the above calculations, the applicant is entitled to receive the Gratuity of Rs.97,650/- under Bank's Rule and Rs.1,35,869/- under Gratuity Act, 1972.
vii) Since the Bank had suffered a monetary loss of Rs.20,000/- arising out of his misconduct, the entire amount gratuity payable to him under the Gratuity Act, 1972 is to be forfeited. However, he is entitled to receive the Gratuity of Rs.97,650/- under Bank's Rules and from this amount the loss of Rs.20,000/- suffered by the Bank will have to be recovered.
viii) In the result, we summarise that Bank is not liable to pay any gratuity to the applicant under the Payment of Gratuity Act, 1972, in view of the forfeiture clause referred herein above and Bank is prepared to settle the gratuity of the applicant under the Bank of India Gratuity Fund Rules 1975, subject to recovery of Rs.20,000/- the loss suffered by the Bank on account of fraud committed by the applicant and held as proved in the disciplinary action taken against him by the Bank."
[Emphasis supplied] 16] Normally, where gratuity is forfeited without compliance with principles of natural justice and fair play, matter shall have to be remanded to the authorities, so that appropriate action is taken after due compliance with principles of natural justice and fair play. In the peculiar facts and circumstances of this case, however, remand may not be the appropriate course of action to be followed. The services of the respondent came to be terminated on 28 September 2001, by which date, the respondent had put in over 24 years of service with the bank. The specific allegation is that loss of Rs.20,000/- was occasioned to the bank on account of the respondent's misconduct.
14/16 ::: Downloaded on - 24/09/2014 23:16:49 :::dss 15 wp 802.07-j.doc This is not to say that the forfeiture has to always be commensurate to the quantum of loss in a case covered by Section 4(6)(b)(ii) of the said Act, but the quantum of loss is not an extraneous or irrelevant factor. Most importantly, the petitioner in its written statement dated 18 September 2003, had repeatedly stated that since the loss occasioned to the bank was Rs.20,000/-, the petitioner was agreeable to forfeit Rs.20,000/- and pay the balance gratuity amount to the respondent. There is no substance in the petitioner's contention that gratuity had to be determined in terms of BOI Gratuity Fund Rules, 1975. Section 4(5) of the said Act provides that nothing in the section shall affect the right of an employee to receive "better terms of gratuity" under any award, agreement or contract. If the BOI Gratuity Fund Rules, 1975 are regarded as some agreement or contract between the parties, even then, since they do not offer better terms, they cannot override the provisions of the said Act. In fact this position has been admitted by the petitioner bank in its written statement referred earlier. The material on record therefore, indicates that even the petitioner bank desired to forfeit not more than Rs.20,000/- from out of the gratuity amount payable to the respondent. Only because the respondent insisted upon payments in terms of the said Act and approached the controlling authority for enforcement, that the petitioner bank, has raised the issue of forfeiture of entire gratuity amount. Further, even if the petitioner bank, after compliance with principles of natural justice, were to order a forfeiture, the respondent would have remedy by way of approaching the controlling authority and the appellate authority, under the said Act. In the peculiar facts and circumstances of the present case, the two authorities have 15/16 ::: Downloaded on - 24/09/2014 23:16:49 ::: dss 16 wp 802.07-j.doc already ruled that forfeiture of Rs.20,000/- would meet the ends of justice. The approach of the two authorities has been balanced and there is no arbitrariness or perversity involved. The approach and conclusion of the two authorities is quite consistent with the doctrine of proportionality. In such circumstances, no useful purpose would be served by remand to the petitioner bank, at this belated stage.
17] Upon consideration of totality of the circumstances, there is no reason to interfere with the impugned order. Accordingly, the petition fails. Rule is discharged. The interim orders, stand vacated.
18] If the petitioner bank has deposited any amounts in terms of the impugned orders, either in this court or before the appellate authority, the same are directed to be paid to the respondent together with interest, if any, as may have accrued thereon within a period of four weeks from today. In case, no deposit has been made, the petitioner is directed to effect payments in terms of the impugned order dated 4 September 2006 to the respondent, within a period of six weeks.
(M.S. SONAK, J.) 16/16 ::: Downloaded on - 24/09/2014 23:16:49 :::