Calcutta High Court (Appellete Side)
M/S. Transafe Services Ltd vs Union Of India And Others on 27 July, 2016
Author: Sambuddha Chakrabarti
Bench: Sambuddha Chakrabarti
IN THE HIGH COURT AT CALCUTTA
CONSTITUTIONAL WRIT JURISDICTION
APPELLATE SIDE
Present:
The Hon'ble Justice Sambuddha Chakrabarti
W. P. No. 11041 (W) of 2015
M/s. Transafe Services Ltd.
Vs.
Union of India and Others.
For the petitioners : Mr. S. N. Mookherjee, Advocate
Mr. Debasis Kundu, Advocate
Mr. S. Fernandez, Advocate
Mr. Suddhasatwa Banerjee, Advocate
Ms. Sanghamitra Mukherjee, Advocate
For the respondent no. 5 : Mr. Soumya Majumder, Advocate
Ms. Anamika Pendey, Advocate
Heard on : 04.04.2016, 18.04.2016
Judgement on : 27.07.2016
Sambuddha Chakrabarti, J.:
In the present writ petition the petitioner has, inter alia, prayed for a writ in the nature of certiorari for transmission of record to this Court so that the order dated April 7, 2015 issued by the respondent no. 2 and the order dated March 3, 2014 issued by the respondent no. 3 respectively may be set aside and a writ in the nature of mandamus for quashing the above two orders.
The petitioner is a joint venture company and is engaged in the business of manufacturing, selling and leasing containers and equipments. Sri Gopal Krishna Mukherjee, i.e., the respondent no. 5 was in the employment of the petitioner company from the year 1995. In August, 2006, the Board of Directors appointed him as Manager and Chief Operating Officer and in the next year he was nominated to be appointed as the Managing Director and Chief Executive Officer on the Board of the petitioner company. On November 10, 2009, he submitted his resignation giving three months' notice and on November 20, 2009, some senior management executives of the company disclosed to its Chairman that some of its outstandings as shown in the accounts of the company were not collectable as these were fictitiously created with a view to inflating profits. Other financial irregularities were also brought to the fore.
The Board of Directors, therefore, decided to initiate an independent enquiry which started in December 2009. Various incriminating materials were unearthed against the respondent no. 5 which resulted in substantial financial loss to the company and substantial financial gain to himself by misusing his power. The petitioner has given details of the alleged financial manipulations by the respondent no. 5 as a result of which the company has suffered huge loss on various counts.
For the present purpose it is not necessary to enter into the details of the alleged misconduct on the part of the respondent no.
5. Suffice, however, it to say that after receiving the draft report of enquiry, the Board of Directors decided to initiate an appropriate legal action against the respondent no. 5 for defalcating and embezzling huge sums of money from the company and fraudulently manipulating accounts of the company leading to his wrongful personal gains and losses to the company.
An application under Section 156(3) of the Code of Criminal Procedure was filed against the respondent no. 5 before the Learned Chief Metropolitan Magistrate at Kolkata under various provisions of law. Subsequently, a First Information Report was lodged with the concerned Police Station against the respondent no. 5 and other persons.
However, in the meantime in the meeting of the Board of Directors held on November 21, 2009, it was decided to accept the resignation of the respondent no. 5 on certain conditions.
The company because of the pendency of the investigation of the case and pending ascertainment of its total losses, decided to withhold the payment of gratuity to the respondent no. 5. According to the petitioner, because of the heavy losses suffered by the company as a result of the alleged misdeeds committed by the respondent no. 5 he is not entitled to any gratuity till he is acquitted after a regular trial.
The respondent no. 5, therefore, made an application before the Controlling Authority under the Payment of Gratuity Act, 1972 (the 'Act', for short) for release of his gratuity. His case was that he had completed 13 years of continuous service and was entitled to gratuity under Section 4 of the Act which the petitioner had refused to entertain.
The petitioner company had entered appearance and filed a written statement justifying their stands of holding back the gratuity.
By an order dated March 3, 2014, the Controlling Authority under the Act, i.e., the respondent no. 3 herein, found that the respondent no. 5 was entitled to Rs. 3,50,000/- as gratuity from the petitioner along with an interest on delayed payment of gratuity under the Act at the rate of 10 per cent. simple interest. The petitioner was directed by the respondent no. 3 to make the payment within 30 days from the date of receipt of the notice.
Against the said order, the petitioner filed an appeal to the Appellate Authority under the Act, i.e., the respondent no. 2 herein. By an order dated April 7, 2015, the respondent no. 2 dismissed the appeal and upheld the decision of the Controlling Authority. The petitioner herein was directed to implement the order of the Controlling Authority.
Both the orders, as mentioned above, are subject matters of challenge in the present writ petition.
The respondent no. 5 did not file any affidavit-in-opposition. Despite a being given liberty on August 11, 2015 the respondent no. 5 did not file any affidavit. Subsequently, on September 30, 2015, time to file affidavit-in-opposition was further extended by more than one and a half month. In spite of it, he did not file any affidavit and on April 4, 2016, the respondent no. 5 prayed for further extension of time to file affidavit-in-opposition which was declined by the Court.
It has been the contention of the petitioner that the orders impugned suffer from various infirmities and has been passed without taking into consideration the relevant materials on record. According to the company, the respondent no. 5 is not entitled to any benefit under the provisions of the Act and the entire sum of money was liable to be forfeited by the petitioner as consequent upon the act of the respondent no. 5, the petitioner company has suffered huge financial loss. Mr. Mookherjee, the learned Senior Counsel appearing for the petitioner, laid great stress on the defalcation and embezzlement of huge sum of money which has resulted in a loss of Rs. 1194.20 lakhs. For this a criminal case is pending against him.
The petitioner's justification for withholding the payment of gratuity is his alleged direct involvement in the financial irregularities thereby causing loss to the company and as such the petitioner has every right not only to withhold the gratuity for the time being but even to forfeit the same to the extent the loss suffered by the company because of the respondent no. 5.
Mr. Majumder the learned Advocate for the respondent no. 5 has naturally opposed the submission of the petitioner company. According to him, the petitioner is not entitled to withhold the gratuity in terms of Section 4(6) of the Act. The reasons mentioned by the petitioner for holding back the gratuity has no manner of application to the facts of the present case.
It appears that the Controlling Authority had framed three issues. The first of them is the point of limitation which has been quite rightly condoned by the Controlling Authority. That apart, this has also not been challenged by the petitioner. The other two issues relate to termination of the respondent no. 5 by the petitioner and justification of forfeiting the gratuity of the respondent no. 5. The Controlling Authority found that the respondent no. 5 had resigned from his service in the year 2009 but the entire allegation against him regarding financial misconduct was brought against him about five months after the resignation of the applicant before the Controlling Authority from the services of the petitioner. The Controlling Authority had considered the scope of Section 4(6) of the Act which confers right on an employer to forfeit gratuity under certain circumstances provided his service is terminated. He had also concluded that in the case of forfeiture the petitioner herein should have given respondent no. 5 an opportunity of being heard. The allegation of financial loss to the organization has not been corroborated either by the departmental enquiry or through a criminal justice system. The Controlling Authority very specifically found that the action of the petitioner herein was against Section 4(6) read with Section 14 of the Act.
The Appellate Authority has considered and recorded the rival contentions and observed that the petitioner herein did not initiate any proceeding and the respondent was in employment till he tendered his resignation on his own accord. He has also, like the Controlling Authority, recorded that the criminal action against the respondent no. 5 was initiated about five months after his resignation and failed to take any action against the respondent during his service tenure. He has concluded that such criminal action had been taken about five months after his resignation only with a view to depriving him of his legitimate dues including the gratuity. In the absence of any order under Section 4(6)(b) of the Act an employer cannot withhold gratuity arbitrarily and illegally. Thus, the appeal of the petitioner company was dismissed.
I have considered the rival contentions and the orders impugned. I do not find any infirmity in either of the orders assailed in the writ petition. It is the duty of the employer to pay gratuity to an employee on cessation of employer-employee relationship. This is a statutory right which accrues in favour of an employee at the time of the end of this relationship. The only circumstance justifying forfeiture of gratuity, either wholly or in part, has been provided in Section 4(6) of the Act which is produced herebelow:-
S. 4 (6): Notwithstanding anything contained in sub-section (1),-
(a) the gratuity of 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 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.
Thus unless an employer can bring a case within any of the conditions as mentioned in Section 4(6) of the Act the gratuity of an employee cannot be forfeited. The writ petition makes it clear that there were allegations of financial irregularities or even misdeeds resulting in huge loss to the company even before his resignation was accepted. The petitioner says that the respondent no. 5 at the time of tendering his resignation was aware that there were allegations against him while managing the affairs of the company and an investigation was pending against him and he anticipated that he might he terminated from the service once the final report of investigation is placed before the Board of Directors.
If this is a probable approach to the conduct of the respondent no. 5 the other side of how the company behaved cannot also be lost sight of. The sequence of events as emerging from the writ petition is that the respondent no. 5 had submitted his resignation on November 10, 2009 giving three months' notice commencing from November 13, 2009. The Board of Directors had held a meeting to consider the resignation. Even before the scheduled date of the meeting the Chairman of the company was made aware of the financial irregularities and it was decided to initiate an independent enquiry into the matter. However, the Board had accepted his resignation. Even if the acceptance of resignation was communicated to the petitioner with the endorsement without prejudice that does not alter the basic fact of acceptance of resignation by the Board of Directors. As a matter of fact, the petitioner also submitted his notice of resignation to the company without prejudice. It is not clear if the company had had knowledge of the discrepancies in the conduct of the business of the company during the tenure of the respondent no. 5 as its Managing Director, as recorded in the minutes of proceedings of the meeting of the Board of Directors, observed on November 21, 2009 why they allowed him to resign. At the said meeting of the Board of Directors, the Chairman placed the draft report submitted by the said agency in respect of certain allegations leveled against the respondent no. 5 and the Chairman reported that in spite of it, it was desirable that the Board should agree to accept his resignation and to release him from both the positions with immediate effect. The company did not initiate any disciplinary proceeding against him to terminate him from his service. If the main reason of the respondent no. 5 to tender his resignation was the fear of termination, as alleged by the petitioner, it is not understood why the company allowed the fear to be pampered by accepting the resignation. Forfeiture of gratuity of an employee is permissible only in the circumstances as provided in Section 4(6) of the Act. The termination of employment for the reasons as mentioned in the said provision of law is a pre-condition to allow the employer to withhold the gratuity.
The Appellate Authority has rightly held that after all the company did not initiate any proceeding against the respondent no. 5 and the respondent no. 5 was in employment till he tendered his resignation. Unless the service of an employee is terminated for the reasons as mentioned in Section 4(6) of the Act, the said provision cannot be pressed into service. There has been a consensus in the judicial ratiocination that without termination of service either on the basis of a departmental enquiry or for any act constituting an offence involving moral turpitude provided such offence is committed by him in the course of his employment, gratuity of an ex-employee cannot be forfeited by an employer. The provision of S. 4(6) of the Act do not come into operation unless there is a termination on the grounds mentioned therein. Since a retired employee in general has a right to receive gratuity the provision of law conferring a right on the employer to forfeit it must be construed strictly and in order to forfeit the payment of gratuity or even to withhold it temporarily, the employer must establish that the pre-conditions therefore, as contained in S. 4(6) of the Act, have been fulfilled and not otherwise.
The petitioner relied on the case of Chairman-cum-Managing Director, Mahanadi Coalfield Ltd. Vs. Rabindranath Choubey, reported in (2013) 16 SCC 411. In that case the question that cropped up for consideration was whether it was permissible in law for the employer to withhold payment of gratuity of the respondent even after his superannuation from his service, because of the pendency of disciplinary proceedings against him. In that case there was an allegation of misconduct against the respondent of causing substantial loss to the employer. The Supreme Court had held that such a charge was proved and punishment of dismissal was given thereupon. The provision of Section 4(6) of the Act would, naturally, get attracted and it would be within the discretion of the applicant to forfeit the gratuity payable to the respondent. "As a corollary one can safely say that the employer has right to withhold the gratuity pending departmental enquiry. However, as explained above, the course of action is available only if disciplinary authority has necessary powers to impose the penalty of dismissal upon the respondent even after his retirement", the Supreme Court observed. However, in view of the two earlier judgments the Division Bench of the Supreme Court considered that the issue involved therein was required to be considered authoritatively by a larger bench and the matter was referred for being placed before the Hon'ble Chief Justice for constituting a larger bench.
Thus, the opinion expressed by the Supreme Court has been referred to the larger bench as it differed with two earlier judgments. That apart, even without any reference the facts of the said judgment make the case inapplicable to the facts of the present one. The employee in the reported judgment was already facing a departmental enquiry at the time of his retirement and the Supreme Court had said that the employer has a right to withhold the gratuity pending departmental enquiry and such course of action is available only if disciplinary authority has necessary power to impose the penalty of dismissal upon the respondent even after his retirement. There was no disciplinary proceeding pending when the petitioner had resigned and as such, the question of imposition of any major penalty of dismissal upon the respondent no. 5 does not arise. Thus, the case of Mahanadi Coalfield Ltd. (Supra) does not come to the aid of the contentions of the petitioner.
Similarly, the judgment in the case of B.L. Gopalakrishna Vs. Karnataka Soaps and Detergents Ltd., reported in 1996 (3) L.L.N. 233, can also be distinguished on facts from the present case. A learned Single Judge of the Karnataka High Court had held that the power to forfeit the amount of gratuity to the extent of the amount of loss caused by the employee would be incapable of a meaningful exercise unless the same is understood to carry with it the power to withhold the payment of the amount claimed pending the finalization of the enquiry proceedings instituted against the delinquent employee. Rule 19 of the Conduct and Disciplinary Action Rules of the concerned company gave such a power to the employer. The High Court had held that there was thus no conflict between the Rule 19 of the Conduct Rules and Section 4 of the Act. When, however, Rule 19 of the relevant rules provided that no gratuity should be paid to an employee until conclusion of domestic enquiry proceedings and issue of final order the same could not be made applicable to the facts of the present case. The retired employee in the reported judgment was already facing a disciplinary enquiry in respect of a charge-sheet issued against him. As mentioned earlier, no enquiry was pending against the present petitioner. As such, there is no question of now of terminating him for any of the acts provided in Section 4(6) of the Act after his resignation has been accepted unreservedly by the company. That apart, as rightly observed by the Appellate Authority that the company does not have any service rules empowering management to withhold the gratuity amount in case of any eventualities mentioned in Section 4(6) of the Act. Moreover, as pointed out in the case of Mahanadi Coalfield Ltd. (Supra) a statutory right accrued cannot be impaired by reason of a rule which does not have the force of a statute.
For the reasons aforesaid, I find no reason to interfere with the orders passed either by the Controlling Authority or the Appellate Authority. Both the authorities have approached the issues from proper perspectives, adjudicated the issues legalistically and rightly held the respondent no. 5 herein to be entitled to payment of gratuity and concurrently found the petitioner company to have no authority to forfeit the amount. If the amount cannot be forfeited and ultimately has to be paid to an employee, the employer should have no right to hold back such payment till the conclusion of the criminal case pending against him. That which ultimately must fail cannot be made a temporary success in the short run.
The writ petition has no merit and is hereby dismissed. There shall be no order as to costs.
Urgent Photostat certified copy of this order, if applied for, be supplied to the parties on priority basis upon compliance of all requisite formalities.
(Sambuddha Chakrabarti, J.) S. Banerjee