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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