Allowed

Union Bank of India v. Sri S N Balasubramanian

Karnataka HC15 Feb 2024WP/24081/2012

Case brief

AI extract

What is this about?

A bank forfeited a dismissed employee's gratuity for misconduct causing quantified loss; the controlling and appellate authorities had ordered payment of gratuity with interest. The High Court held forfeiture was valid under the Payment of Gratuity Act since loss was quantified in disciplinary proceedings, set aside both orders, and allowed the writ petition.

What did the court decide?

Impugned orders of appellate and controlling authorities set aside; deposited amount to be refunded to the bank with accrued interest within four weeks.

Union Bank of India Vs Sri S N… — Labour and Industrial Disputes | Karnataka HC (2024)

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1 - NC: 2024:KHC:6598 WP No. 24081 of 2012

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 15^TH DAY OF FEBRUARY, 2024

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BEFORE

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THE HON'BLE MRS JUSTICE K.S. HEMALEKHA WRIT PETITION NO. 24081 OF 2012 (L-PG)

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BETWEEN:

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UNION BANK OF INDIA A BODY CONSTITUTED UNDER THE BANKING COMPANIES, (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1980, HAVING ITS HEAD OFFICE AT NO.10A "CHANDRAKIRAN", KASTURBA RAOD, BENGALURU - 560 001, REPRESENTED BY ITS ZONAL BANAGER, BANGALORE.

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…PETITIONER

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(BY SRI. SYED KASHIF ALI, ADVOCATE FOR SRI. S.R. KAMALACHARAN, ADVOCATE)

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Digitally signed by MAHALAKSHMI B M Location: HIGH COURT OF KARNATAKA

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AND:

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SRI. S.N. BALASUBRAMANIAN, AGED ABOUT 57 YEARS, S/O S.K. NARAYANAN, RESIDING AT 011 X,"C" BLOCK, DIVYA JOTHI LAKE VIEW COUNTY, MANIPAL COUNTY ROAD, SINGASANDRA OFF HOSUR ROAD, BANGALORE - 560 068.

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CONTROLLING AUTHORITY UNDER PAYMENT OF GRATUITY ACT 1972 AND

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ASSISTANT LABOUR COMMISSIONER (CENTRAL), "SHRAM SADAN", 3RD CROSS, 3RD MAIN, YESHWANTHPUR INDUSTRIAL SUBURB II STAGE, TUMKUR ROAD, BANGALORE - 560 022.

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APPELLATE AUTHORITY UNDER PAYMENT OF GRATUITY ACT 1972 AND REGIONAL LABOUR COMMISSIONER (CENTRAL) "SHRAM SADAN", 3RD CROSS, 3RD MAIN, YESHWANTHPUR INDUSTRIAL SUBURB II STAGE, TUMKUR ROAD, BANGALORE - 560 022

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…RESPONDENTS

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(BY SMT. M.L. SUVARNA, ADVOCATE FOR SRI. K. PUTTE GOWDA, ADVOCATE FOR R1;

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SRI. HARSHA P. BANAD, ADVOCATE FOR R2 TO R3)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226

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AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER DATED 10.01.2012 (ANNEXURE-P) PASSED BY THE APPELLATE AUTHORITY UNDER THE PAYMENT OF GRATUITY ACT, 1972 (RESPONDENT NO.3) IN APPEAL NO.36 (351) OF 2010-B2 AND CONSEQUENTLY ALLOW THE APPEAL FILED BY THE PETITIONER AND ETC.

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THIS PETITION, COMING ON FOR DICTATING ORDERS, THIS DAY, THE COURT MADE THE FOLLOWING:

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ORDER

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The petitioner–Union Bank of India assails the order

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dated 10.01.2012 passed by the appellate authority under the Payment of Gratuity Act, 1972 ('the Act’ for short) confirming the order dated 03.11.2010 passed by the Controlling Authority under the Act, whereby, the application filed by respondent No.1 under Section 7 of the Act was allowed directing the petitioner -bank to pay a sum of Rs.3,50,000/- as gratuity with interest thereon at the rate of 10% p.a.

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2. The facts of the case are that:

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a. The petitioner is a Nationalised Bank constituted under the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 and the bank is governed by the Act to the employees.

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b. Respondent No.1 joined the services of the bank on 30.10.1980, during the period between 30.06.2004 and then to 10.02.2006, for serious financial

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irregularities in the matter of purchase of cheques, respondent No.1 was placed under suspension with effect from 16.03.2006 and pending investigation, disciplinary proceedings were initiated.

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c. The Enquiry officer submitted the report finding that respondent No.1 was guilty of the charges leveled against him. The disciplinary authority after carefully considering the entire material on record and the findings recorded by the enquiry officer held respondent No.1 guilty of charges and by considering the gravity of misconduct committed by respondent No.1, the disciplinary authority imposed the punishment of dismissal from the service of the bank vide order dated 17.09.2007, while dismissing, the disciplinary authority also computed the loss caused

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to the bank on account of the misconduct committed by respondent No.1 and held that respondent No.1 has caused huge financial loss to the extent of Rs.69.10 lakh as a result of the act of respondent No.1.

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d. The punishment imposing by the disciplinary authority was assailed by respondent No.1 in an appeal before the appellate authority, the appellate authority upheld the order of the disciplinary authority and the review petition filed by respondent No.1, which came to be dismissed and confirmed the order of the disciplinary authority.

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e. The disciplinary authority pursuant to the order of dismissal and confirmation in the appeal issued a notice to respondent No.1 directing to remit an amount of Rs.69.10 lakh towards the loss caused to the bank by way of a show-cause notice. Respondent No.1 did not respond to the said notice nor made the loss good, the amount of gratuity payable to respondent No.1 was forfeited by the bank under Section 4(6)(a) of the Act and the petitioner was informed by the letter of communication.

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f. Being aggrieved by the action of the bank, respondent No.1 approached the Controlling Authority under the Act, seeking for determination of

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the amount of gratuity in a sum of Rs.3,50,000/with interest. The petitioner-bank appeared before the Controlling Authority and filed statement of objections contending that the gratuity was forfeited on account of loss caused to the bank resulting from the misconduct of respondent No.1.

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g. The controlling authority by the impugned order directed the petitioner to pay Rs.3,50,000/- with simple interest thereon at the rate of 10% p.a. The order of the Controlling Authority, was assailed before the appellate authority by the petitioner, which came to be confirmed. Hence, the bank is before this Court in the present writ petition.

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Heard Sri Syed Kashif Ali, learned counsel appearing on behalf of Sri S.R. Kamalacharan, learned counsel for the petitioner, Smt. M.L. Suvarna, learned counsel for Sri K. Putte Gowda, learned counsel for respondent No.1 and Sri Harsha P Banad, learned counsel for respondent Nos.2 and 3.

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Learned counsel appearing for the petitioner

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would submit that the disciplinary authority had quantified the financial loss caused by the respondent No.1 and the forfeiture is in the administrative process to be initiated by the employer following the disciplinary authority’s order, in case of financial loss is indicated and would contend that the second show-cause notice is issued only to make the good loss quantified in the disciplinary proceedings caused to the bank due to his misconduct, failing which, the bank would be constrained to forfeit the same from the terminal benefits. Learned counsel would contend that the appellate authority has gone to the extent of observing that in light of the protection under Sections 13 and 14 of the Act, the action of the bank by adjusting the gratuity proceeds against the alleged financial loss is totally illegal, unlawful and unjustified, without considering the fact that the financial loss caused to the bank was computed in the disciplinary proceedings and the protection as held by the appellate authority was not available to respondent No.1. Learned counsel would contend that due to the misconduct

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on the part of respondent No.1 which resulted in financial loss to the bank, the action on the part of bank in forfeiting the gratuity amount payable to the respondent No.1-workman was in accordance with law and as per Section 4 (6) (a) of the Act. Learned counsel would contend that the second show-cause notice was only a notice to make the good loss to the bank, which is already determined in the disciplinary proceedings.

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Learned counsel in support of his contention

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has placed reliance on the following decisions:

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1. Jaswant Singh Gill vs Bharat Coking Coal ltd. and others¹ (Jaswant Sing Gill)

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2. Prakash Pai vs Corporation Bank and other² (Prakash Pai)

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Per contra, learned counsel appearing for the respondent No.1-workman would justify the orders passed by the authorities and contend that if the employer fails to prove before the controlling authority which is functioning

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1 (2007) 1 SCC 663

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2 WP No.28053 of 2019 (S-R) DD 07.12.2023

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under the Act, the extent of damage or loss caused by the employee because of his act of alleged major misconduct, the right to forfeit the gratuity under Section 4(6)(a) of the said Act is not available to the employer and that admittedly, the extent damage or loss caused by the employee has not been quantified. Learned counsel would contend that the employer should afford an opportunity to the employee to the extent as to why the amount of gratuity is to be forfeited and no opportunity has been accorded to respondent No.1–workman to put-forth his contention and thus, the authority was justified in holding that respondent No.1 is entitled for the amount of gratuity and the decision to forfeit the gratuity amount is not justified and protection needs to be accorded under Sections 13 and 14 of the Act.

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7 In support of contention, the learned counsel has placed reliance on the following decisions:

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1. Vijaya Bank and Others vs Sri Mohan Das Ramana Shetty³ (Mohan Das Ramana Shetty)

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2. H. Gangahanume Gowda vs Karnataka Agro Industries Corporation ltd.⁴ (H. Gangahanume Gowda)

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Having heard the learned counsel for the parties, the only point that arises for consideration is,

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" Whether the controlling authority and the appellate authority were justified in directing the petitioner to pay a sum of Rs.3,50,000/- towards gratuity amount with simple interest @ 10% p.a. without considering that the extent of damage or loss caused by the employee has been quantified before the disciplinary authority?

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9. This Court has carefully considered the rival

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contentions urged by the learned counsel for the parties and perused the material on record.

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Section 4(6)(a) of the Act in this regard is as

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under:

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"4 Payment of gratuity: XXXX

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3 ILR 2008 KAR 5022

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4 (2003) 3 SCC 40

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(6) Notwithstanding anything contained in sub-section (1),

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(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."

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It is true that the object of gratuity scheme is to provide retiral benefit to the workman who had rendered long and unblemished service to the employer and thereby, contributing to the prosperity of the employer, but it is not correct to say that any misconduct, however grave, may not be visited with forfeiture of gratuity in view of Section 4(6)(a) of the Act, as rightly contended by the learned counsel for the petitioner.

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In other words, if the workman is guilty of serious misconduct, then the gratuity can be forfeited in

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its entirety as held in the case of Tournamulla Estate vs. their workman⁵ (Tournamulla Estate).

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A bare reading of Section 4(6)(a) of the Act, shows that the right of the employer to forfeit the amount of gratuity to the extent of the damage or loss caused because of the alleged major misconduct, the right to forfeit the gratuity amount under Section 4(6)(a) of the Act is available when such damage is quantified in the proceedings that have been initiated against the workman. The provisions of Section 4(6)(a) did not contemplate that further determination of the claim or damage that has been caused to the employer needs to be re-determined when the amount is sought to be forfeited under Section 4(6)(a) of the Act.

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The Controlling Authority and the appellate authority have gone beyond the scope of Section 4(6)(a) of the Act and directing the petitioner to pay the gratuity

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5 (1973) 2 SCC 502

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amount, while, the appellate authority has gone to the extent of saying that Sections 13 and 14 of the Act are to be attracted in the present situation without considering that, Section 13 provides for protection of gratuity inasmuch, it prevents gratuity from being attached in the execution of any decree or order of any civil/criminal/revenue court. Interpreting these provisions, the Courts have often held that set off or forfeiture of gratuity towards loss or dues of an employer cannot be resorted to, unless it falls within the scope of Section 4(6) of the Act. In the instant case, the forfeiture of gratuity

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by the bank was following the orders of the disciplinary authority in a domestic enquiry and therefore, Section 13 of the Act is not attracted.

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Section 14 provides that the provisions of payment of the Act shall have an overriding effect over any other enactment having contrary provisions. It is relevant to note that the forfeiture of gratuity by the bank was not under the Regulation 46 of the Officers Service

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Regulation, but by way of a consequence punishment imposed after the disciplinary action was taken against respondent No.1, thereafter, Section 4(6)(a) of the Act would be attracted and provides for a manner in which the gratuity could be forfeited by the employer.

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The Apex Court in the case of Jaswant Singh Gill stated supra has held at para No.13 as under:

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"13. The Act provides for a close-knit scheme providing for payment of gratuity. It is a complete code containing detailed provisions covering the essential provisions of a scheme for a gratuity. It not only creates a right to payment of gratuity but also lays down the principles for quantification thereof as also the conditions on which he may be denied there from. As noticed hereinbefore, subsection (6) of Section 4 of the Act contains a non obstante clause vis-à-vis sub-section (1) thereof. As by reason thereof, an accrued or vested right is sought to be taken away, the conditions laid down thereunder müst be fulfilled. The provisions contained therein must, therefore, be scrupulously observed. Clause (a) of sub-section (6) of Section 4 of the Act speaks of termination of service of an employee for any act, wilful omission or

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negligence causing any damage. However, the amount liable to be forfeited would be only to the extent of damage or loss caused. The disciplinary authority has not quantified the loss or damage. It was not found that the damages or loss caused to Respondent 1 was more than the amount of gratuity payable to the appellant. Clause (b) of sub-section (6) of Section 4 of the Act also provides for forfeiture of the whole amount of gratuity or part in the event his services had been terminated for his riotous or disorderly conduct or any other act of violence on his part or if he has been convicted for an offence involving moral turpitude. Conditions laid down therein are also not satisfied."

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The Apex court held that Section 4(6)(a) of the Act speaks of termination of service of an employee for any act, willful omission or negligence causing any damage, however, the amount liable to be forfeited would be only to the extent of the damage or loss caused. The situation in the present case is fully covered by Section 4(6)(a) of the Act and the bank is entitled to forfeit the entire gratuity amount, since the extent of loss caused to

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the bank is more than the gratuity payable to respondent No.1.

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Even in the decisions placed reliance by the learned counsel appearing for the respondents in Mohan Das Ramana Shetty’s case stated supra, this Court has held that before forfeiting the gratuity amount, the employer should afford an opportunity to the employee to the extent why the amount of gratuity not to be forfeited, which leads to the conclusion that if no material is brought on record to show that the service of the employee was terminated for any act, willful omission or negligence causing damage, loss or destruction of the employer’s property, and if the extent of such damage is not quantified, the provisions of Section 4(6)(a) would not come into effect.

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In the instant case, opportunity was afforded to the employee in the domestic enquiry, amount was quantified towards the loss caused and pursuant to which, the respondent was issued with the show cause notice

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directing him to remit the amount of Rs.69.10 lakh towards the loss caused to the bank due to the misconduct, and respondent No.1 failure to respond to the notice, the petitioner passed an order forfeiting the gratuity payable to respondent No.1.

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The quantification of amount of Rs.69.10 lakhs was determined while the disciplinary authority had conducted the proceedings, this aspect has been failed to be considered by the authorities, there is no violation of the principles of natural justice on part of the petitionerbank, scope of interference with the findings of the fact recorded by the disciplinary authority is very limited and the controlling authority and the appellate authority have jurisdiction only to determine the claim as per the provisions of the Act subject to the maximum limit prescribed under the Act and not de hors the provisions of the Act.

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The appellate authority has gone beyond the manifest error of law in traversing the pleadings and

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holding that respondent No.1 is eligible to receive gratuity under Sections 13 and 14 of the Act, while ignoring the provisions as enumerated under Section 4(6)(a) of the Act, the Co-ordinate Bench of this Court in Prakash Pai case stated supra, has taken a similar view and has held at Paragraph Nos.15 and 16 as under:

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"15. As noticed by the Hon'ble Supreme Court, in the very judgment relied upon by the learned counsel for the petitioner in paragraph 15, has observed as under -

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15. Under sub-section(6)(a), also the gratuity can be forefeited only to the extent of damage or loss caused to the Bank. In case, the termination of the employee is for any act or willful omission or negligence causing any damage or loss to the employer or destruction of property belonging to the employer, the loss can be recovered from the gratuity by way of forfeiture. Whereas under clause(b) of sub-section(6), the forfeiture of gratuity, either wholly or partially, is permissible under two situations: (i) in case the termination of an employee is on account of riotous or disorderly conduct or any other act of violence on his part, (ii) if the termination is for any act

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which constitutes an offence involving moral turpitude and the offence is committed by the employee in the course of his employment. Thus, a clause (a) and clause (b) of subsection (6) of Section 4 of the Act operate in different fields and in different circumstances. Under clause (a), the forfeiture is to the extent of damage or loss caused on account of the misconduct of the employee whereas under clause (b), forfeiture is permissible either wholly or partially in totally different circumstances. Clause (b) operates either when the termination is on account of: (i) riotous, or (ii) disorderly, or (iii) any other act of violence on the part of the employee, and under clause (ii) of sub-section (6)(b) when the termination is on account of any act which constitutes on offence involving moral turpitude committed during the course of employment."

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16. The forfeiture of gratuity can be under two circumstances. The first circumstance is enumerated under clause (a), whereas the second circumstance is under clause (b) as already held by the Hon'ble Supreme Court. If the termination of the employee is for an act of willful omission which causes loss to the employer, clause(a) of subsection(6) of Section 4 would stand attracted and

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not clause(b) of sub-section(6) of Section 4 of the Act."

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From the decisions stated supra and provisions

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of Section 4(6)(a) of the Act, and the material on record,

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this Court is of the considered view that the approach of the controlling authority and the appellate authority warrants interference by this Court and the point framed for consideration is answered in favour of the petitionerbank.

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23. For the foregoing reasons, this Court pass the

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following:

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ORDER

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