Antitrust Laws in India: Overview of the Competition Act

Antitrust laws also called competition laws are statutes to protect consumers from predatory business practices. Such laws are expected to regulate economic activity that monopolizes competition within the market with aims to protect consumers and small enterprises and ensures the freedom of trade.

The major focus of “The Competition Act 2002” and the predecessor Monopolistic and Restrictive Trade Practices Act, 1969 (MRTP Act) was structured around regulating monopolistic behaviour however the erstwhile MRTP Act was not equipped enough to combat the aspects of market competition brought about after the LPG (Liberalization, Privatization, Globalization) policies in the 1990s. The world in general and India in specific was going through a shift towards globalisation. India in particular was moving towards opening its economy in the wake of privatisation and liberalisation.

Aims and Objectives of the Competition Act 2002

As per the preamble of the Competition Act, the objective of this Act is “…keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto”.

The true mandate of this Act is present in its Preamble. The Act is aimed to focus on promoting sustainable and fair competition in the market; preventing and restricting the practises that cause appreciable adverse effect on competition; to promote and protect the best interest of the consumers, and to ensure the freedom of free and fair trade in the market. BY promoting and protecting these principles enshrined in the preamble of the Act, we move towards a more efficient economic system. The primary focus of the Act is to ‘protect and promote competition’ which shall result in benefits for all the stakeholders associated with the market including the competitors as well as the consumers. 

In the case of the Competition Commission of India v. Steel Authority of India Ltd & Anr, the Supreme Court observed, “The main objective of the Competition Law is to promote economic efficiencies using competition as one of the means of assisting the creation of market responsive to consumer preferences.” The National Competition Policy, 2011 also stated that the primary role of the competition policy in India is to ensure the welfare by encouraging the optimal allocation of resources and granting economic agents appropriate incentives to pursue productive efficiency, quality, and innovation.  Competition has a close relationship with the growth of the economy. There is sufficient statistical data do deduce that there is a directly proportional relationship between competition and GDP growth. Competitiveness results in GDP growth by increasing employment. This further increases the competitiveness in the market which results in increased productivity. Subsequently, this reduces the prices for the consumers.


The Competition Act was implemented in stages. One of the more significant changes were brought about in May 2009 when the provisions dealing with anti-competitive agreements as mentioned in Section 3 of the Act and the abuse of dominant position as mentioned in Section 4 of the Act were implemented. Section 5 and 6 of the Act dealing with combinations, acquisitions, and mergers were brought into force in June 2011.

There are four most important components of the Competition Act of 2002, namely anti-competitive agreements, abuse of dominance, regulation of combinations, and competition advocacy. The Competition Act is a comprehensive Act consisting of 66 sections and 10 chapters.

Competition Commission of India (CCI)

Section 7 of the Competition Act, 2002 calls for the establishment of the “Competition Commission of India” (CCI). The CCI was established as a body corporate having perpetual succession and a common seal with power as per Section 7(2) of the Competition Act. Section 8 of the Act sets out the composition of the CCI. The CCI consists of a Chairperson along with not less than two and not more than six other Members to be appointed by the Central Government. Section 8 (2) of the Act states that all the members of the CCI including the Chairperson shall be persons of ability, integrity, and standing who have relevant and special knowledge of the market and industry along with at least 15 years of professional experience in economics, business, trade, finance, accountancy, public affairs and matters related to competition law, et al. Section 10 talks about the term of office of Chairperson and other members of CCI. According to Section 10 (1) of the Act, The Chairperson and every other Member shall hold office as such for a term of five years from the date on which they enter upon their office and shall be eligible for re-appointment, provided that the Chairperson or other Members shall not hold office as such after they have attained the age of sixty-five years.

The Delhi High Court held in the case of Google Inc. v. CCI that CCI has the power to review or recall its own order, but the same shall be subject to certain restrictions and the same should only be done sparingly.

COMPAT – Competition Appellate Tribunal

The Competition Appellate Tribunal (COMPAT) was a statutory body established pursuant to provisions under the Competition Act to hear and dispose of any appeals against any decision or direction by the Competition Commission of India (CCI). It also had jurisdiction over claims for compensation that may arise from the findings of the CCI or the Appellate Tribunal in an appeal against the findings of the CCI. COMPAT was set up on 19th October 2009 with its headquarters at New Delhi.

The COMPAT has been replaced with the National Company Law Appellate Tribunal (NCLAT) since 2017.

Prohibition of Anti-Competitive Agreements

Section 3 of the Act is a very important provision dealing with anti-competitive agreements and arrangements. It states that enterprises or persons or associations are prohibited from entering into agreements concerning supply, distribution, storage, production, acquisition or control of goods or services that can impact the market in a manner that causes “appreciable adverse effect” on the competition in the relevant market. In other words, an anti-competitive agreement is an agreement having an appreciable adverse effect (AAEC) on the competition. All such agreements are considered void as stated in Section 3(2) of the Act. The term appreciable adverse effect (AAEC) however, has not been defined in the Act.

Anti-Competitive Agreements can broadly be divided into two categories,

  1. Horizontal Agreements
  2. Vertical Agreements

Horizontal Agreements

Horizontal Agreements are agreements between parties who happen to be at the same level of production in the market. All such agreements, if present shall be considered anti-competitive and illegal. The proviso to this particular subsection states that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

Agreements under Section 3(3) are mostly between two or more manufacturers, two or more distributors or two or more retailers or parties which deal with similar kinds of products in the same market. These agreements have a direct negative impact on effective competition and the prices of commodities in the market. Hence, these are considered void.

Vertical Agreements

Vertical Agreements are agreements between parties or enterprises that happen to be at different levels or stages of production in the market.  For these agreements, the presumption is not that they are always anti-competitive, but one has to establish that the agreement in question does indeed cause an appreciable adverse effect on competition for them to be declared void, unlike horizontal agreements.

There are certain exceptions to the section which are enumerated under Section 3(5) of the Act. The effect of Section 3(5) is that Section 3 dealing with anti-competitive agreements shall not be invoked in cases where the owner of any intellectual property rights under 6 enactments provided in Section 3 (5) (i) does anything in the exercise of their right to restrain the infringement of any of those rights or imposes reasonable conditions as may be necessary for the protection of any of those rights.

In the case of Mohit Manglani v. M/s Flipkart India Pvt. Lt.d & Ors it was alleged that e-commerce platforms were engaging in anti-competitive agreements by signing “exclusive agreements” with distributors and sellers of goods. The informant further alleged that this left the consumer with no option concerning purchasing the product other than to purchase it from the e-commerce website. The question before the court was whether the practise of entering into exclusive sale and purchase agreements by e-commerce platforms could be considered an anti-competitive agreement. It was held that such exclusive agreements were not in violation of Section 3 of the Act, instead, they were assisting the consumer to make an informed choice.

The CCI in M/s Jasper Infotech Private Limited (Snapdeal) v. M/s Kaff Appliances (India) Pvt. Ltd. held that the display of products at a price which was less than the pre-determined price agreed to by the distributor hinders their ability to compete. This was considered a violation of Section 3(4) read with Section 3(1) of the Act.

Abuse of Dominant Position

According to the Competition Act, 2002, dominant position means a position of strength or dominance in the relevant market that is maintained by an enterprise. That dominant position must enable the enterprise to operate independently of the competitive forces in that relevant market and affect competitors, consumers, or the relevant market in its favour. Dominant position is when one or more undertakings in a defined market use their position in that relevant market to affect price, supply, the amount of production and distribution, by acting independently of their competitors and the customers of that relevant market.

Section 4 of the Competition Act, 2002 prevents any enterprise or group from abusing its dominant position. The relevant section lists situations where there may be an abuse of dominant position. 

An enterprise in dominant position performs any of the following acts:

  1. directly or indirectly, imposes unfair or discriminatory practices
  2. limits or restricts the production of goods or provision of any services in any form
  3. indulges in practice or practices resulting in denial of market access
  4. concludes contracts subject to acceptance by other parties of supplementary obligations which have no connection with the subject of such contracts; or
  5. uses its dominant position in one relevant market to enter into, or protect other relevant markets.

The Competition Act does not frown on dominance as such. An enterprise is free to grow as large as it pleases or achieve as big a market share as it can. The problem arises only when there is an abuse of dominance. Section 4 of the Act is attracted when an enterprise or firm, or group of enterprises or firms which are dominant in the market engage themselves in eliminating or affecting their competitor(s) in a way or when they deter the free entry of new players in the market which results in reducing or lessening the competition in that relevant market.

An important term and concept to understand this is the ‘relevant market’. Section 2(r) of the Act defines the term relevant market as, the market which may be determined regarding the relevant product market or the relevant geographic market or regarding both the markets.

Another important concept is that of ‘Predatory Pricing’. For instance, if one player in the market decides to sell their product, which is similar to the competitors in that relevant market at a price that is lower than that of their competitors intending to drive them out of the market, then that is known as Predatory Pricing, According to Explanation (b) to Section 4 of the Competition Act, 2002, predatory price means the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.


A Cartel is a kind of an agreement between enterprises or firms in an industry to restrict competition for their mutual benefit. These agreements cater for minimum prices, setting limits on output or capacity, restrictions on non-price competition, division of markets between firms either geographically or in terms of the type of product, or agreed measures to restrict entry to the industry to create a monopoly in a given market. Usually, cartels involve an agreement between parties not to compete with one another and they can occur in any industry and can involve goods or services at the manufacturing, distribution, or retail level. These cartels form combinations to control prices and supply. These restraints are also known as anti-competitive, anti-trust, monopolies, trade combinations, restrictive trade practices, restraint of trade, or competition law.

Cartels are considered to pose a threat to competition by causing AAEC and affecting fair competition negatively. Cartels are more likely to affect the developing economies and markets due to the presence of favourable conditions which exist when there are few competitors; products are uniform and leave little scope for competition; the existence of communication chances between members; the market is hit by either excess capacity or general recession.

Section 3 (3) when applied with Section 3 (1) of the Act prohibits cartel-like behaviour or formation of cartels in India. Under the Act, a Cartel is presumed to have an adverse appreciable effect on competition (AAEC) until otherwise proved. Some of the effects of cartelization on the relevant market are mentioned below:

  1. Determining purchase or sale prices (Sec.3(3a))
  2. Limiting or controlling production/supply markets technical development, investment or provision of services (Sec.3(3b))
  3. Sharing of market/sharing of the source of production by the allocation of geographical areas, number of customer or types of goods or services (Sec.3(3c))
  4. Resorting to bid-rigging or collusive bidding (Sec.3(3d))

Rajasthan Cylinders & Ors v Union of India (2018)

In 2018, the Supreme Court gave a landmark judgment which changed the jurisprudence of Competition Law in India with regards to bid-rigging or collusive bidding. The Supreme Court in Rajasthan Cylinders and Tired Limited v. Union of India noted that to reach an adverse finding such as that of bid-rigging as under Section 3 (3) of the Competition Act, 2002, mere parallel pricing cannot satisfy the requirements. The case was in an appeal against the decision of COMPAT which upheld the decision of the CCI. The DG in his report in the case of Pankaj Gas Cylinder v. Indian Oil Corporation Limited (IOCL) stated that there seemed to be some sort of an anti-competitive agreement between the bidders. The CCI started a Suo Motu proceeding against the bidding companies and held them in violation of Sec 3 (3) of the Act. The CCI looked into the market conditions, barriers to new entrants in the market, the presence of an active trade association, identical products with little or no substitutes, and other ancillary factors. IOCL held about 48% of the market share which should be considered ‘substantial’. Along with that the fact that the market consisted of only 3 buyers, deterring new entrants. Moreover, the infamous meeting of the association which was alleged by the DG in his report was reportedly only attended by 19 parties, and the parties which were not present for this meeting had also quoted similar or near-identical bids. Considering these submissions, the CCI held the bidders in violation of Sec 3 (3) of the Act. After an appeal was filed, the COMPAT upheld the decision of the CCI stating that IOCL did not receive the honest competitive prices that it would have and hence the actions of collusive bidding caused AAEC. The appellants approached the Supreme Court of India.  The Supreme Court took a very interesting approach in this case. Considering the arguments made by the counsel for the appellants, the apex court stated that market conditions are a very relevant factor while determining collusive bidding. Relying on the Excel Crop judgement, the Supreme Court reiterated that mere identical or parallel pricing is not sufficient to establish collusive bidding, other factors are also very important and relevant. The court in this case accepted the submission of the appellants stating that the market conditions were that of an oligopsony. In an oligopsony, the substantial share of the market is controlled by one party or a few parties. In such situations, the inter-relationship of the parties is such, that there can be no fair competition due to the dominant presence of the largest market shareholder. Here, IOCL controlled 48% of the market share which can safely be considered substantial. IOCL thus had control over the market prices, demand, and supply, et al. it also had the ability and power to affect the market price, demand, and supply in the identifiable ‘relevant market’. The appellants argued that in the present case the entire control was with IOCL and thus there can be no question of entering into an agreement for collusive bidding. Stating in other words, that the market conditions in the present case are unique and thus there is not pre-existing fair competition present in the market. The suppliers are powerless because the market is dominated by IOCL, which may control the market price, demand, and supply in the entire relevant market. In such a scenario, the bidders getting into an agreement of anti-competitive nature would simply not make sense or have any benefits. Hence, there was no bid-rigging and no cartelization proved against the appellants.

Conclusion Undoubtedly the Covid-19 pandemic has caused a disruption in businesses everywhere. Certain businesses are facing losses across sectors and the revenue has reduced greatly and then there are certain businesses engaged in essential services and other goods and services which have become a necessity in the pandemic. The Competition Act, 2002 is a very comprehensive and well-crafted piece of legislation that aims to regulate the market. The CCI and the appellant tribunals have, in a very short period of time attempted to create fruitful jurisprudence in the realm of competition law in India. We must keep in mind that the benefits of competition in the market are for all the stakeholders. Anti-trust laws are one of the most important requirements for economic development.

— Dhananjai Shekhawat, an intern at Ravindra Vikram Law Associates

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Rules and regulations for Sole Proprietorship Businesses in India

A sole proprietorship firm is an entity that is owned by a single individual. It is different from a company; partnership firm, or a one-person company. None of the legislation in India defines a sole proprietorship firm. It is considered to be the simplest form of organization structure in terms of registration and compliance. With the introduction of One-person Company in Companies Act, 2013, the legislature has taken up a step towards regularizing and protecting the interest of entrepreneurs who wish to do business solely. “One person company” and “Sole proprietorship firm” are two different concepts. A sole proprietorship firm is not a separate legal entity, unlike a Company. The identity of the proprietor and that of the firm is essentially the same.

In Miraj Advertising Corporation v. Vishaka Engineering 115 (2004) DLT  it was held that;

“A proprietorship firm has no legal entity like a registered firm.   A suit cannot be instituted in the name of an unregistered proprietorship firm and the said suit is to be instituted in the name of the proprietor.”

Registrations and Compliances for Sole Proprietorship:

The necessary documentation for a proprietorship firm shall essentially depend upon the area in which the said business intends to operate. A tentative checklist for a person intending to incorporate a sole proprietorship firm shall be as follows:

  • Licensing and registration under the Shop and Establishment Act: The shop and establishment act comes under the state list of legislation. In essence, any “establishment”, which can be in the nature of shop; commercial establishment; residential hotel; theatre; any place of public amusement or entertainment, etc have the Shop and establishment act applicable to it. Registration under this act is mandatory. The license under this act is generally mandatory for all business entities, even if you are working from home. An establishment generally is required to register itself within 30 days of commencement of operations.
  • Registration under the Micro, Small, Medium Enterprises (MSME) Act, 2006: The registration under this act is not mandatory. However, the act provides considerable benefits for the MSME sector and in order to reap the benefits under the act, the registration is required. The registration process can be provisional or permanent.
  • Intellectual Property Registration (IPR): According to the requirements the business can register to get exclusives right by registering under any or selected types of (IPR) i.e. Trade Secrets, Trademarks, Copyrights, and Patents.
  • GST registration: Chapter VI of Central Goods and Services Tax Act, 2017 mentions the entities required to get registration under GST. Central Excise Duty, Additional Excise Duty; Service Tax; Countervailing Duty; Special Additional Duty of Customs; State Value Added Tax/Sales Tax; Entertainment Tax (except for tax levied by local bodies); Central Sales Tax; Purchase Tax; Octroi and entry tax; Luxury Tax;  Taxes on lottery and betting are taxes subsumed under the GST Act. 
  • Opening a current account is a necessary requirement for most businesses.

Income tax treatment for Sole Proprietorship Business:

Sole proprietorship business is not taxed as a separate legal entity. The owner files the business taxes on their personal tax returns. i.e. business income gets added to the individual income of the sole proprietor. Since a sole proprietorship is not a legal entity a separate PAN cannot be issued in the name of the sole proprietorship firm. PAN of the owner is the PAN of the business.

A sole proprietorship firm based on its annual turnover is also exempted from maintaining books of accounts of the business and its auditing. The taxation in such cases is done on the basis of the “presumptive income” method and the scheme is applicable to an individual, a HUF or a partnership firm (not available to a Company). The turnover of the business for which an individual/ sole proprietor can avail this scheme should be less than Rs 2 crore. The scheme cannot be adopted by the taxpayer, if he has claimed deduction under section 10, 10A, 10B, Section 10BA, or Section 80HH to 80RRB in the relevant year. The scheme is also not applicable “Income from commission or brokerage”; “Agency business”; “Business of plying, hiring or leasing goods carriage”; “Professionals”.

Highlights of Sole Proprietorship:

The structurization of a business entity as a “Sole Proprietorship Firm” requires less legal formalities, in comparison to other entities. However, since they are not categorized as a separate legal entity, therefore, the liability of the proprietor is unlimited in case of such business structures.  Also, the continuity of the organization is entirely dependent upon the life of the owner.

— Advocate Ravindra Vikram, Ph: +91-94100-22521

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Withholding of gratuity vide an undertaking

Payment of gratuity in India is regulated by the provisions of Payment of Gratuity Act, 1972 (“Act“). The Act is applicable to all factories, mine, oilfield, plantation, port, railway companies and also to every shop and establishment within the meaning of law in which ten (10) or more persons are employed, or were employed, on any day of the preceding twelve months.

Section 4 (6) of the Act permits an employer to forfeit gratuity payable to an employee in certain circumstances. As per the said provision:

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;
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.

As regards the waiver of rights in employment agreements or any other form of an agreement it is permissible for an employee to waive off contractual rights to potential employment claims. However, an employee is not permitted to waive off statutory rights by way of a contractual agreement with an employer. There are specific provisions in the labour legislation in India which state that the provisions of the respective legislation shall supersede and have an overriding effect over anything contained in any instrument or contract which is inconsistent with provisions of such legislation

Section 14 of the Payment of Gratuity Act 1972 states that “the provisions of this Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument or contract to have an effect by virtue of any enactment other than this Act.” The judiciary also dealt with the said subject in Jaswant Singh Gill v. Bharat Cooking Coal Limited and Others [2007 (1) SCC 663], wherein it has observed that the rules framed under the Coal India Executives’ Conduct Discipline and Appeal Rules, 1978 (“Rules“) which provided a clause on forfeiture of gratuity were not statutory rules and thus the provisions of the Act must, therefore, prevail over the said Rules.

In Krishna Bahadur-vs.-M/s. Purna Theatre, in support of his submission that a statutory right can be waived by a party for whose benefit the statute has been enacted. In that case, the Hon’ble Apex Court clarified that a right can be waived by the party for whose benefit certain requirements or conditions have been provided by the statute subject to the condition that no public interest is involved therein. In that case, it was held that the requirement to comply with the provisions of Sec. 25F(b) of the Industrial Disputes Act, 1947 is mandatory before retrenchment of a workman is given effect to and such right/protection cannot be waived. In United Bank of India v. B B Haldar High Court At Calcutta CAN No. 8857 of 2017 the court while relying on the above-stated decision recorded that the Payment of Gratuity Act 1972 has been enacted in public interest and the right/protection granted to a retired employee by the said Act cannot be waived.

Supreme Court of India in R. Kapur v. Director of Inspection (Painting and Publication) Income Tax and Anr.1994] while dealing with forfeiture of gratuity on account of a pending civil dispute imposed a penalty of 18 (eighteen) percent on the employer and observed that death cum retirement gratuity cannot be withheld merely because the claim for damages is pending. In the said case damages were claimed by the employer for unauthorized occupation (by the employee) of official occupation.

In Radhey Shyam Gupta-vs.-Punjab National Bank, the Apex Court held that retiral benefits such as pension and gratuity even when received by the retiree, do not lose their character and continue to be covered by proviso (g) to Sec. 60 (1) of the CPC and continue to enjoy immunity against attachment.

In-State of Jharkhand-vs.-Jitendra Kumar Srivastava, the Apex Court reiterated that gratuity and pension are not bounties. An employee earns these benefits by dint of his long, continuous and faithful service. It is a hard-earned benefit that accrues to an employee and is in the nature of ‘property’. Such a right to property cannot be taken away without due process of law as per the provisions of Article 300A of the Constitution of India.

In the unreported judgment of a Division Bench of the Kerala High Court in WA 1628 of 2014 in WP (C) 923 of 2014 the employer Bank sought to adjust alleged dues from the deceased employee against the gratuity payable to his legal heirs. The Division Bench upheld the learned Single Judge’s order striking down such action on the part of the Bank holding that the gratuity due to an employee could not be withheld except under Sec. 4(6) of the 1972 Act.

The contrary stand taken by courts

In Secretary, O.N.G.C. Ltd. & Anr. v. V.U. Warrier (2005) 5 SCC 245, the Hon’ble Supreme Court sanctioned the action of the employer appropriating Rs. 53,632/- from the gratuity amount payable to the employee on account of unauthorized occupation charges of official accommodation mainly for the reason that the ONGC has framed the Oil and Natural Gas Commission (Death Retirement and Terminal Gratuity) Regulations, 1969, and the regulations framed by the ONGC were statutory in nature

In the said case it was held by the court that “it is no doubt true that pensionary benefits, such as gratuity, cannot be said to be ‘bounty’. Ordinarily, payment of benefit of gratuity cannot be withheld by an employer. In the instant case, however, it is the specific case of the ONGC that the ONGC is having a statutory status. In exercise of statutory powers under Section 32(1) of the Oil and Natural Gas Commission Act ,1959 regulations known as the Oil and Natural Gas Commission (Death. Retirement and Terminal Gratuity) Regulations, 1969 have been framed by the ONGC. In Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi and Anr. (1975)ILLJ399SC the Constitution Bench of this Court held that regulations framed by the ONGC under Section 32 of the Oil and Natural Gas Commission Act ,1959 are statutory in nature and they are enforceable in a court of law.”

The case discussed the ratio of R. Kapoor v. Director of Inspection (Painting and Publication) Income and held the same as not applicable, as in that case, the claim for damages for unauthorized occupation against the appellant-retired employee was “pending” and the proceedings were not finally disposed of. In the present case, the facts clearly reveal that the last day of lawful occupation of quarter by the respondent was June 30, 1990, and before that date, the appellant Commission had informed the respondent that his prayer for extension or retention of quarter had not been accepted and he should vacate by June 30, 1990. If he would not vacate the quarter, penal rent would be recovered from him. He did not challenge the action of not extending the period nor the recovery of penal rent. He, therefore, cannot make a grievance against the action of the Commission. In the line with the above-stated case laws, and legal provisions it is opined that “payment of gratuity”, can be forfeited only in accordance with Section 4(6) of the Payment of Gratuity Act 1972. Also since it is a right involving public interest it cannot be waived through an undertaking it is opined that such an undertaking shall not be valid in law. The only exception was found in Secretary, O.N.G.C. Ltd. & Anr. v. V.U. Warrier, where the action is taken, was in accordance with certain regulations and the regulations had statutory backing.

— Advocate Ravindra Vikram, Ph: +91-94100-22521

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Withholding of gratuity of an employee, after superannuation from service, pending disciplinary proceedings

Section 4 of the Payment of Gratuity Act 1972 entitles an employee to gratuity after he has rendered continuous service for not less than five years inter alia on his superannuation. Sub- Section (6) of Section 4 contains a non-obstante clause stating:

(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 employees have been terminated for any act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.


  1. In Jaswant Singh Gill vs. Bharat Coking Coal Ltd. & Ors. (2007) 1 SCC 663. The case pertained to ECDA rules of Coal India Ltd. The High Court held that the power to withhold payment of gratuity as contained in Rule 34(3) of the Rules of Coal India 1978 shall be subject to the provisions of the Payment of Gratuity Act, 1972 and the statutory right accrued to the employee to get gratuity cannot be impaired by reason of the Rules framed by the Coal India Ltd. which do not have the force of a statute.

The principles which are laid down in the aforesaid judgment are recapitulated below:-

(i) Rule 34.2 of CDA Rules provides for continuation of disciplinary proceedings despite the retirement of an employee if the same was initiated before his retirement, However, after his retirement, a major penalty in terms of Rule 27 cannot be imposed. Major penalties that are prescribed under Rule 27 are a reduction to a lower grade, compulsory retirement, removal from service and dismissal. The Court thus, held that these major penalties cannot be imposed upon a retired employee.

(ii) Gratuity Act gives the right to an employee to receive gratuity on the rendition of 5 years of continuous service. Gratuity becomes payable as soon as the employee retires. This statutory right which accrues to an employee cannot be impaired by reason of a rule which does not have the force of a statute. Therefore, Rule 34.3 of the CDA Rules, which is nonstatutory in nature, is contrary to the provisions of the Gratuity Act. As such, gratuity cannot be withheld on the retirement of an employee even if departmental proceedings were initiated against him before his retirement and are pending at the time of retirement.

  • However in State Bank of India vs. Ram lal Bhaskar and Anr, 2011(10)SCC249. the issue raised was whether inquiry could continue after the retirement of the respondent from service. This question was answered in the affirmative having regard to Rule 19(3) of the SBI Officers Service Rules. In that case, the chargesheet was served upon the respondent before his retirement. The proceedings continued after his retirement and were conducted in accordance with relevant rules wherein charges were proved. On that basis punishment of dismissal was imposed. 
  • The Madras High Court Special Officer, in Suthamalli Primary Agriculture Co-op Bank Limited v. Joint Commissioner of Labour & Ors Under Section 4(6), if any order is passed and contingency for payment of gratuity under Section 4(1) arises, it is necessary that the employer will have to pay gratuity. It is not as if the employer has no remedy in recovering the amount from the employee. They can always file a civil suit claiming the amount misappropriated by him. There is no legal bar in recovering the amount in case the petitioner proves that there was actual embezzlement. But, having allowed the employee to retire, the petitioner was bound to pay gratuity. And order of forfeiture will also have to be passed along with order of termination for withholding gratuity.
  • However in Ch. cum Man. Director Mahanadi Coalfield Ltd. v. Rabindranath Choubey, SLP No. 31583 OF 2013 a two-judge bench has interpreted the above case and stated that the matter primarily answers whether the inquiry would continue after the retirement of the respondent from service, which was answered in affirmative by the court. The court states however as an inference, one can deduce the principle that when the Rules, by creating fiction, treat the officer still in service, albeit for the limited purpose of the continuance and conclusion of such proceedings, then any of the prescribed penalties, including dismissal, can be imposed.
  • The court has recorded that such a supposition, however, goes against the dicta laid down in Jaswant Singh Gill.

On the issue of, whether in the scheme of Gratuity Act, gratuity has to be necessarily released to the concerned employee on his retirement even if departmental proceedings are pending against him the court has opined that Jaswant Singh Gill’s case directly answers this question, but the said judgment proceeds on the premise that after the retirement of an employee, penalty of dismissal cannot be imposed upon the retired employee., which if is not right stand and the imposition of penalty of dismissal is still  permissible, employer will get the right to forfeit the gratuity of such an employee in the eventualities provided under Sections 4(1) & 4 (6).

For invoking Clause (a) or (b) of sub-section 6 of Section 4 necessary pre-condition is the termination of service on the basis of departmental inquiry or conviction in a criminal case.

The court in Ch. cum Man. Director Mahanadi Coalfield Ltd. v. Rabindranath Choubey has stated that owing to the conflict between the cases of State Bank of India v. Ram lal Bhaskar and Anr and Jaswant Singh Gill vs. Bharat Coking Coal Ltd. & Ors, the bench, in this case, has referred the matter to larger bench of three judges to decide this issue.

In State of Jharkhand & Ors v. Jitendra Kumar Shrivastav and Ors. Interpreting Rule 43(b) (Bihar Pension Rules) The SC held that even after the conclusion of the departmental inquiry, it is permissible for the Government to withhold pension etc. ONLY when a finding is recorded either in departmental inquiry or judicial proceedings that the employee had committed grave misconduct in the discharge of his duty while in his office. There is no provision in the rules for withholding of the pension/ gratuity when such departmental proceedings or judicial proceedings are still pending. The honorable court also held that other that the Rules framed under law, no other administrative order of the employer can withhold the pension, gratuity and Provident fund.

— Advocate Ravindra Vikram, Ph: +91-94100-22521

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Nature of presumption drawn for Negotiable Instrument

Nature of presumption drawn under Section 139 of Negotiable Instrument Act : Basalingappa v. Mudibasappa SLP (Crl.) No. 8641/2018


  1. The Complainant gave a notice to the accused( the appellant in the present matter) complaining of dishonour of cheque dated 27.02.2012 for an amount of Rs. 6,00,000 for want of sufficient funds.
  2. On non-payment of the amount, a complaint was filed by complainant under Section 138 of Act, 1881. Trial court held that, if accused was able to raise a probable defense which created doubts about existence of a legally enforceable debt or liability, prosecution could fail.
  3. Trial court acquitted the accused for offence under Section 138.
  4. Complainant aggrieved by said judgment filed a Criminal Appeal under Section 378(4) of Code of Criminal Procedure, 1973 (CrPC). High Court set aside judgment of trial court and convicted the accused for offence under Section 138.
  5. The accused being aggrieved by the decision of the High Court filed the SLP before the Supreme Court.

The present case notes the legal principles regarding nature of presumptions to be drawn Under Section 139 of the Act and the manner in which it can be rebutted by an Accused.

  • Section 139. Presumption in favour of holder.—It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability.
  • Section 118 of the Negotiabel Instrument Act 1881 provides for presumptions as to negotiable instruments. Section 118 is as follows:

Section 118. Presumptions as to negotiable instruments. –Until the contrary is proved, the following presumptions shall be made:

(a) of consideration –that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;

(b) as to date –that every negotiable instrument bearing a date was made or drawn on such date;

The complainant being holder of cheque and the signature on the cheque having not been denied by the Accused, presumption shall be drawn that cheque was issued for the discharge of any debt or other liability. The presumption under Section 139 is a rebuttable presumption.

The honorable court relied on the following decisions of the court:

  1. Bharat Barrel & Drum Manufacturing Co. v. Amin Chand Pyarelal, (1999) 3 SCC 35. The honorable Supreme Court held that once the execution of the promissory note is admitted, the presumption Under Section 118(a) would arise that it is supported by a consideration. Such a presumption is rebuttable and defendant can prove the non-existence of a consideration by raising a probable defence.
  2. Kumar Exports v. Sharma Carpets, (2009) 2 SCC While relying on the aid decision the relevant paragraphs are quoted as follows. In paragraph Nos. 18 to 20 of this decision it has been laid down that:

Quote …… Applying the definition of the word “proved” in Section 3 of the Evidence Act to the provisions of Sections 118 and 139 of the Act, it becomes evident that in a trial Under Section 138 of the Act a presumption will have to be made that every negotiable instrument was made or drawn for consideration and that it was executed for discharge of debt or liability once the execution of negotiable instrument is either proved or admitted. As soon as the complainant discharges the burden to prove that the instrument, say a note, was executed by the Accused, the Rules of presumptions Under Sections 118 and 139 of the Act help him shift the burden on the Accused. The presumptions will live, exist and survive and shall end only when the contrary is proved by the Accused, that is, the cheque was not issued for consideration and in discharge of any debt or liability. A presumption is not in itself evidence, but only makes a prima facie case for a party for whose benefit it exists.

……The use of the phrase “until the contrary is proved” in Section 118 of the Act and use of the words “unless the contrary is proved” in Section 139 of the Act read with definitions of “may presume” and “shall presume” as given in Section 4 of the Evidence Act, makes it at once clear that presumptions to be raised under both the provisions are rebuttable. When a presumption is rebuttable, it only points out that the party on whom lies the duty of going forward with evidence, on the fact presumed and when that party has produced evidence fairly and reasonably tending to show that the real fact is not as presumed, the purpose of the presumption is over.

 ……The Accused may adduce direct evidence to prove that the note in question was not supported by consideration and that there was no debt or liability to be discharged by him. However, the court need not insist in every case that the accused should disprove the non-existence of consideration and debt by leading direct evidence because the existence of negative evidence is neither possible nor contemplated. At the same time, it is clear that bare denial of the passing of the consideration and existence of debt, apparently would not serve the purpose of the Accused. Something which is probable has to be brought on record for getting the burden of proof shifted to the complainant. To disprove the presumptions, the accused should bring on record such facts and circumstances, upon consideration of which, the court may either believe that the consideration and debt did not exist or their non-existence was so probable that a prudent man would under the circumstances of the case, act upon the plea that they did not exist. Unquote

The Honorable Supreme Court has laid down the following principles in the present matter:

(i) Once the execution of cheque is admitted Section 139 of the Act mandates a presumption that the cheque was for the discharge of any debt or other liability.

 (ii) The presumption Under Section 139 is a rebuttable presumption and the onus is on the accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities.

(iii) To rebut the presumption, it is open for the accused to rely on evidence led by him or accused can also rely on the materials submitted by the complainant in order to raise a probable defence. Inference of preponderance of probabilities can be drawn not only from the materials brought on record by the parties but also by reference to the circumstances upon which they rely.

(iv) That it is not necessary for the accused to come in the witness box in support of his defense, Section 139 imposed an evidentiary burden and not a persuasive burden. (v) It is not necessary for the accused to come in the witness box to support his defense.

— Advocate Ravindra Vikram, Ph: +91-94100-22521

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