Common Order:
1. In this writ petition, the petitioner is a bank and is seeking a writ of certiorari to call for the records pertaining to the impugned order vide Case No.PGA-34/2019, dated 15.07.2019 passed by the respondent No.1 and consequently, to declare the impugned orders passed by the respondents No.1 and 2 as illegal, arbitrary and unconstitutional and consequently, to quash the same and to pass such other order or orders in the interest of justice.
2. Brief facts leading to the filing of the present writ petition are that respondent No.3 is an employee of the petitioner bank. He was initially appointed as a Clerk-cum-Cashier in the year 1982 and was promoted to the post of Junior Manager in the year 2003 and while working as an Assistant Manager at Andhra Bank, JM-I Officer, at the Zonal Office, Lucknow in 2011, respondent No.3/employee received a charge sheet alleging that he failed to follow bank guidelines regarding a 2009 housing loan transaction in Hyderabad. The following is the charge:
It is alleged against you that, while working as CRO at Retail Credit branch, Hyderabad, you have committed certain serious irregularities in housing loan a/c of Mr R. Arunodaya Kumar & Mrs B R Ramadevi. The irregularities that have come to light so far and detailed in the Statement of Allegations (Annexure-I) would indicate that:
1. You have failed to adhere to guidelines of the bank in entertaining housing loan proposal and sanction terms and conditions, in respect of housing loan sanctioned to Mr R. Arunodaya Kumar and Mrs B R Ramadevi and failed to ensure end use of funds which led to financial loss to the Bank.
The aforesaid acts committed by you clearly indicate that you have failed to discharge your duties with utmost integrity, honesty, devotion, and diligence and failed to protect the interest of the Bank. Thus you have committed breach of Regulation 3(1) of Andhra Bank Officer Employees' (Conduct) Regulations, which constitute misconduct as per Regulation 24 of the said Regulations.
3. On receipt of the charge sheet, respondent No.3/employee requested to supply relevant documents to provide a proper explanation. The respondent No.3/employee claims that instead of considering his request, the bank ordered a domestic enquiry and the Enquiry Officer submitted a report concluding the charges as proven. The respondent No.3/employee thereafter, submitted a representation against the report dated 02.06.2012 and after considering the same, on 22.11.2012, the disciplinary authority imposed the punishment of compulsory retirement under bank regulations. Aggrieved by the same, respondent No.3/employee filed an appeal on 26.12.2012 and while the appeal was pending, the writ petition was also filed before this Court challenging the punishment and in the meantime, the appellate authority rejected the appeal and subsequently issued orders dated 04.04.2013 to forfeit the gratuity of respondent No.3/employee. It is submitted that respondent No.3/employee filed a miscellaneous petition in the year 2013 to amend the prayer in the writ petition as well as the grounds i.e., in W.P.No.10230 of 2013 and the writ petition is still pending adjudication before this Court. In the meantime, respondent No.3/employee, in reply to the show cause notice of forfeiture of gratuity, replied that his service was not terminated and that no specific financial loss was attributed to him at that time. However, the bank issued a forfeiture order in April 2013, holding that the accrued gratuity was Rs.10 lakhs, but the loss to the bank was quantified as Rs.14.66 lakhs and therefore, the entire gratuity was to be forfeited.
4. Aggrieved thereby, respondent No.3/employee filed an application with the controlling authority i.e., respondent No.2 herein, who, vide orders dated 22.03.2019, directed the bank to pay Rs.14,37,073/- Plus 10% annual interest from the date of issuance of the order of compulsory retirement. Against the same, the petitioner bank filed an appeal before the respondent No.1 on 15.05.2019 vide Appeal No.PGA No.34/2019 and vide orders dated 15.07.2019, the appellate authority/respondent No.1 upheld the orders of respondent No.2, holding that compulsory retirement does not constitute termination or dismissal from service and therefore, it does not justify forfeiture of gratuity under the Act. The respondent No.1 further directed the bank to disburse the gratuity and an additional sum within fifteen days. Aggrieved by the order of respondent No.1, the present writ petition has been filed.
5. This Court, vide orders dated 27.08.2019 directed both parties to maintain status quo obtaining as on that date with reference of the withdrawal of the amount deposited with the respondent No.1. Seeking vacation of the said interim order the respondent No.3/employee has filed I.A.No.2 of 2019.
6. Learned Standing Counsel appearing for the bank/petitioner while reiterating the above submissions made in the writ affidavit, submitted that an internal investigation led to the issuance of a charge sheet to respondent No.3/employee on 04.10.2011 and that all the required procedures were followed during the departmental enquiry into the charges and that respondent No.3/employee participated through a representative. It is submitted that based on the inquiry report and the gravity of charges, the disciplinary authority imposed a punishment of compulsory retirement on 22.11.2012 and the appeal against the said order was also dismissed on 24.04.2013 and the said order has not been suspended by this Court even in W.P.No.10230 of 2013. It is submitted that since the punishment of compulsory retirement was due to proven misconduct involving a financial loss of Rs.14.66 lakhs and a show cause notice was issued to forfeit respondent No.3/employee’s gratuity to cover the bank losses under Section 4(6)(a) of the Payment of Gratuity Act. It is submitted that respondent No.3/employee was given a fair opportunity to reply, adhering to the principles of natural justice and the order of forfeiture was passed on 04.04.2013 and the same has been challenged by respondent No.3/employee before respondent No.2, who set aside the order of forfeiture and the order of respondent No.2 has been confirmed by the respondent No.1.
7. Learned Standing Counsel further submitted that orders of both the authorities i.e., respondents No.1 and 2 are illegal because they failed to acknowledge the financial loss suffered by the bank. He submitted that Section 4(6)(a) of the Payment of Gratuity Act permits the employer to forfeit gratuity if the negligence or willful omissions on the part of the employee caused damage or loss to the employer. It is submitted that the financial loss of the bank was clearly quantified in the year 2011 and the charge sheet was communicated to respondent No.3/employee before the forfeiture of gratuity but the respondents No.1 and 2 failed to consider the same. It is further submitted that the authorities ignored the total lack of recovery in the specific housing loan account the liability of which stood Rs.42,42,010/- as on the date of arguments and he reiterated that respondent No.3/employee’s failure to follow due guidelines led to a loss of Rs.14.66 lakhs since the property used for security was already mortgaged to another bank. It is submitted that the findings of respondents No.1 and 2 and reliance on the decisions which involved moral turpitude are totally irrelevant and factually incorrect. Thus, according to him, both parties passed orders mechanically without considering the specific facts of the financial loss suffered by the bank and therefore, the orders are liable to be set aside.
8. He placed reliance upon the decision of the Hon’ble Supreme Court in the case of Delhi Cloth and General Mills Company Limited Vs. Workmen and Others((1969) 2 S.C.R.307), which defines the purpose of gratuity and categorizes misconduct into three types i.e., technical, misconduct causing property damage (compensable by forfeiture) and serious misconduct (violence or riotous behaviour). He also placed reliance upon the decision of the Hon’ble Supreme Court in the case of Food Corporation of India Vs. Union of India(2015 (147) FLR 1060) and argued that Delhi High Court has upheld the forfeiture of gratuity for losses caused by negligent and deliberate acts. Further, he referred to the decision of the Bombay High Court in the case of Ramchandra S.Joshi Vs. Bank of Baroda(MANU/MH/0416/2010, 2011(128) FLR 158), where an employee was held liable for significant losses and therefore, he contended that the orders passed by the authorities i.e., respondents No.1 and 2 are directly in violation of Section 4(6)(a) of the Payment of Gratuity Act.
9. Learned counsel appearing for respondent No.3/employee, on the other hand, supported the orders of respondents No.1 and 2 and submitted that the order of compulsory retirement has not become final as it is challenged before this Court in W.P.No.10230 of 2013 and the same is pending adjudication before this Court. He also argued that the bank did not issue forfeiture proceedings at the time of compulsory retirement in the year 2012 but forfeited the gratuity only by rejecting the appeal of respondent No.3/employee in the year 2013. Therefore, according to him, it is illegal and should be set aside. It is further submitted that since the order of compulsory retirement cannot be equated with an order of dismissal from service and no specific financial loss was attributed to him at that time, the same cannot be forfeited subsequently. It is submitted that the bank issued the forfeiture order in April 2013, incorrectly claiming that the accrued gratuity was only Rs.10 lakhs and forfeiting the determined loss of Rs.14.66 lakhs, leading the petitioner to file an application before respondent No.2 and therefore, respondent No.2 has directed the bank to pay Rs.14,37,073/- Plus 10% annual interest from the date of respondent No.3/employee’s compulsory retirement and the same has been confirmed by the appellate authority order dated 15.07.2019 and the petitioner bank has filed this writ petition and has obtained an ex-parte stay, which is causing severe financial difficulties to the petitioner and he is therefore, seeing vacation of the interim orders and dismissal of the writ petition.
10. It is further submitted that the decisions relied upon by the petitioner bank are not applicable to the specific facts of the case because those cases did not involve compulsory retirement as a bar to receipt of gratuity. Thus, he prayed for the dismissal of the writ petition.
11. Having regard to the rival contentions and the material on record, this Court finds that gratuity has been forfeited under Section 4(6)(a) of the Payment of Gratuity Act. For proper appreciation of the case, the relevant provision is reproduced here under:
Section 4(6) of Payment of Gratuity Act, 1972:
(6) Notwithstanding anything contained in sub-section (1)-
(a) the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer shall be forfeited to the extent of the damage or loss so caused;
(b) the gratuity payable to an employee [may be wholly or partially forfeited] –
(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.
12. The phrase ‘termination of services’ is used under the Section entitling the employer to forfeit the gratuity. The respondents No.1 and 2 have held that compulsory retirement is a retirement but not termination of service and therefore, the provisions of Section 4(6)(a) of the Payment of Gratuity Act are not applicable to the case of the petitioner.
13. Therefore, this Court finds that in this case, the question to be considered is whether the compulsory retirement, by way of punishment, is to be treated as termination as would disentitle the employee of his pensionary benefits. The Andhra Bank Officer Employees (Discipline and Appeal) Regulations, 1981 and Section 4 thereof prescribe penalties to be imposed on an officer/employee for acts of misconduct or for any other good and sufficient reasons and compulsory retirement is one of the major penalties. Therefore, the compulsory retirement is not a retirement on attaining the age of superannuation, but it is on account of an order passed by the disciplinary authority. Further, Clause (7) of the explanation to Section 4 provides for circumstances which should not amount to a penalty within the meaning of regulation and Clause (8) thereof details the instances of services which do not amount to termination of services and ‘compulsory retirement’ is not mentioned therein. The explanation is provided to explain the term ‘dismissal’ which shall ordinarily be disqualification for future employment and the instances under the explanation are the exceptions to the said clause. Therefore, the compulsory retirement is in the form of a major penalty terminating the services of the employee before his attaining the age of superannuation and therefore, it has to be considered as a termination and mere use of words ‘compulsory retirement’ would not take it out the ambit of termination. Therefore, this Court is of the opinion that the provisions of Section 4(6)(a) of Payment of Gratuity Act would apply to this case.
14. Another factor to be considered in this case, is whether the petitioner bank has quantified the loss at the time of issuing the charge sheet. On going through the charge sheet, it is noticed that the charge mentioned incurring of financial loss by the bank. However, the quantum of loss has not been mentioned in the charge or in the statement of allegations or during the enquiry. There is no reference to the financial loss incurred by the bank. The allegation was that the sale deed was registered for an amount of Rs.6.62 lakhs only instead of Rs.19.90 lakhs as per the agreement of sale and thus, diluted the security and in view of the above mentioned irregularity on the part of respondent No.3/employee, there was no recovery in the account and that the account was classified as NPA with a liability of Rs.15,45,836/- as on 07.02.2011 and that the documents are not enforceable either under SARFAESI Act or under any other civil law. It was further held in the order of disciplinary authority that the allegation was proved against the employee. However, while passing the order of punishment of compulsory retirement from bank service as provided under regulation 4(h) of ABOE (D&A) regulations, there is no qualification of loss and there is no order of recovery of the loss. On this issue, this Court agrees with the contentions of respondent No.3/employee that unless the disciplinary authority passes an order of punishment for recovery of the financial loss incurred by the bank, the same cannot be forfeited under the Payment of Gratuity Act. The respondents have resorted to forfeiture of gratuity by issuing a show cause notice subsequent to an order of compulsory retirement and not as a part of the punishment. Therefore, this Court agrees with the findings of the respondents No.1 and 2 that the recovery of the amount from the gratuity is not permissible.
15. In the result,
(i) forfeiture of the gratuity of respondent No.3/employee by the petitioner bank is not permissible;
(ii) the stay vacate petition in I.A.No.2 of 2019 is allowed vacating the interim order granted on 27.08.2019;
(iii) the petitioner bank is directed to make payment of the gratuity amount to respondent No.3/employee within a period of two (2) months from the date of receipt of a copy of this order;
(iv) the writ petition is thus, partly allowed.
(v) there shall be no order as to costs.
16. Miscellaneous petitions, if any, pending in this writ petition, shall stand closed.
