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                        [REPORTABLE]

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  9693/2013 [SPECIAL LEAVE PETITION (CIVIL)NO. 31583 OF 2013]

Ch. cum Man. Director Mahanadi Coalfield Ltd. ...........Appellant

Versus

Rabindranath Choubey            ........Respondent

J U D G M E N T

A.K. SIKRI, J.

1. Leave granted.

2. The respondent was working as Chief General Manager (Production) since  

17.2.2006 at Rajmahal area under Mahanadi Coalfields Ltd., the appellant  

herein.  A  memo  containing  articles  of  charge  was  issued  to  him  on  

1.10.2007 alleging that  there  was shortage of  stock of  coal  in Rajmahal  

Group  of  mines  which  was  under  his  management  and  enquiry  was  

proposed  to  be  conducted  under  Rule  29  of  the  Conduct,  Discipline  &  

Appeal Rules.

3. During the pendency of the departmental proceeding, the Respondent was  

allowed to retire on 31.7.2010 on attaining the age of superannuation. The  

Respondent  submitted  an  application  on  21.9.2010  to  the  Director  1

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(Personnel) for payment of gratuity. On the same date, he also submitted an  

application before the Controlling Authority under Payment of Gratuity Act  

cum-Regional Labour Commissioner for payment of gratuity.

4. Notice was issued to the Appellant to appear. The appellant appeared and  

stated  that  the  payment  of  gratuity  was  withheld  due  to  reason  that  

disciplinary case is pending against him. The controlling authority held that  

the claim of the Respondent was pre-mature.

5. The respondent challenged the order by filing the writ petition. The single  

Judge dismissed the writ petition holding that in view of the existence of an  

appellate forum against the order passed by the Authority, the Respondent  

may file an appeal before the Appellate Authority within 21 days from the  

date of passing of the impugned order.

6. The Respondent then filed Intra Court Writ Appeal. The Division Bench of  

the High Court has held that writ petition was maintainable. On merits, it  

ruled that the disciplinary proceedings against the respondent were initiated  

prior to attaining the age of superannuation. The respondent retired from  

service  on  superannuation  and  hence  the  question  of  imposing  a  major  

penalty of  removal or  dismissal  from service would not  arise as  per  the  

decision of the Supreme Court in  Jaswant Singh Gill  vs.  Bharat Coking  

Coal Ltd. & Ors. (2007) 1 SCC 663. The High Court has further held that  

the power to withhold payment of gratuity as contained in Rule 34(3) of the  

Rules, 1978 shall be subject to the provisions of the Payment of Gratuity  2

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Act, 1972. Therefore, the statutory right accrued to the Respondent 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. On that basis,  direction is  

given  to  the  appellant  to  release  the  amount  of  gratuity  payable  to  the  

respondent.

7. In the aforesaid circumstances, the question which falls for consideration is  

as  to  whether  it  is  permissible  in  law for  the  appellant  to  withhold  the  

payment of gratuity to the respondent, even after his superannuation from  

service, because of the pendency of disciplinary proceedings against him.  

8. Before  we  proceed  to  answer  this  question  in  the  light  of  arguments  

advanced by Counsel on either side, we would like to point out that the  

question  of  maintainability  of  the  writ  petition  against  the  order  of  the  

Controlling Authority under the Payment Gratuity Act was not raised before  

us by the learned Counsel for the appellant. Thus, the learned Counsel did  

not challenge the approach of the writ appeal Court in entertaining the writ  

appeal  on  merits  by  giving  the  reason  that  it  was  so  doing  to  avoid  

confusion  and  ambiguity,  more  so  when  there  were  no  disputed  facts  

involved and the issue involved was pure question of law. We are, therefore,  

not called upon to decide as to whether the approach of the Division Bench  

in entertaining the writ appeal on merits was erroneous or not.  

9. Reverting  to  the  issue  framed  above,  before  we  examine  the  same,  we  

would also like to narrate some more facts for clear understanding of the  3

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issue involved. The appellant- Ch.-cum-Man. Director Mahanadi Coalfield  

Limited (CIL) has framed the Conduct Discipline and Appeal Rules, 1978  

(hereinafter  to  be  referred  as  'CDA Rules').  These  are  applicable  to  the  

employees of the appellant company as well.  

10.Rule 27 of these CDA Rules mentions the authorities who are empowered to  

impose  various  punishments  which  are  specified  in  column  III  of  the  

Schedule  attached  to  these  Rules.  Rule  29  enlists  the  procedure  for  

imposing major penalties for misconduct and misbehaviour. The CDA Rules  

are  not  statutory  in  nature.  However,  they govern  the  employees  of  the  

appellant.

11.When the respondent was served with charge sheet dated 1.10.2007, he was  

posted as Chief General Manager, Rajmahal, Group of Mines, ECL. Shortly,  

after  the service  of  charge  sheet,  respondent  was made to  join as  Chief  

General Manager, Mining in M-3 Grade on transfer and was posted as Chief  

General Manager, Production, MCL. On 9.2.2008, he was suspended from  

service under Rule 24.1. of the CDA Rules, pending departmental inquiry  

against  him.  This  suspension,  however,  was  revoked  from  27.2.2009  

without prejudice to the departmental inquiry. On completion of 60 years of  

age,  the  respondent  was  superannuated  with  effect  from  31.7.2010  for  

which notice for retirement on superannuation was given by the appellant to  

the respondent vide letter dated 8.2.2010.

12.It would also be pertinent to mention that the inquiry against the respondent  4

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was concluded on 25.3.2009. However, thereafter nothing has been heard by  

the  respondent.  It  is  not  known  as  to  whether  the  Inquiry  Officer  has  

submitted the report on the said inquiry and if a report is submitted whether  

he has exonerated the respondent or held him guilty of the charges. Be as it  

may even if there is any report, no further action has been taken on the said  

report by the disciplinary authority till date and more than 4 ½ years have  

lapsed in the meantime.  

13.On the aforesaid facts, the case of the respondent before the courts below  

was that his statutory rights to receive the gratuity could not be interdicted  

and as per the provisions of Payment of Gratuity Act he was entitled to have  

the  payment  of  gratuity  on his  superannuation.  Since,  the  appellant  had  

referred  to  the  Rules  framed  under  which  gratuity  could  be  withheld  

pending inquiry, this position was sought to be countered by the respondent  

with a submission that such Rules which were non-statutory in nature could  

not  thwart  the  right  of  the  respondent  to  claim  the  gratuity  which  was  

statutorily  recognised  in  his  favour  under  the  Payment  of  Gratuity  Act,  

1972. As noted above, while giving brief narration of facts, the High Court  

has accepted the aforesaid plea of the respondent and while doing so it has  

referred to the judgment of this Court in the case of Jaswant Singh Gill v.  

Bharat Coking Coal Ltd. and Ors. (supra). Some of the judgments cited by  

the appellant before the High Court, which would be referred to at a later  

stage, have been distinguished by the High Court holding that they are not  5

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applicable.  

14.The arguments of the learned Counsel for the respondent were same which  

were addressed before the High Court. Likewise, learned Counsel for the  

appellant also made the very same submissions. He argued that in view of  

Rule  34  of  the  CDA Rules,  the  management  had  a  right  to  withhold  

payment of gratuity. He also submitted that this rule was not contrary to any  

provisions of the Payment of Gratuity Act. The submission in this behalf  

was that in Payment of Gratuity Act there is no provision that gratuity has to  

be released even when departmental  proceedings are  pending against  an  

employee.   The  learned  Senior  Counsel  for  the  appellant  placed  strong  

reliance on the judgment of this Court in State Bank of India vs.  Ram Lal   

Bhaskar and Anr. ; 2011(11)SCALE 589; 2011(10)SCC249.

15.In so far as rule position is concerned, it is not in doubt that Rule 34 permits  

the  management  to  withhold  the  gratuity  during  the  pendency  of  the  

disciplinary proceedings. Rule 34.2 and 34.3 of the CDA Rules are relevant  

in this behalf which make the following reading:

“34.2 Disciplinary proceeding, if instituted while the employee  was in service whether before his retirement or during his re- employment shall, after the final retirement of the employee, be  deemed to be proceeding and shall be continued and concluded  by the authority by which it was commenced in the same manner  as if the employee had continued in service.

34.3 During the pendency of the disciplinary proceedings, the  Disciplinary  Authority  may  withhold  payment  of  gratuity,  for  

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ordering the recovering from gratuity of the whole or part of any  pecuniary  loss  caused  to  the  company if  have  been guilty  of  offences/ misconduct as mentioned in Sub-section (6) of Section  4  of  the  payment  of  gratuity  act,  1972  or  to  have  caused  pecuniary  loss  to  the  company  by  misconduct  or  negligence,  during his service including service rendered on deputation or on  re-employment  after  retirement.  However,  the  provisions  of  Section 7(3)  and 7(3A) of  the  Payment  of  Gratuity  Act  1972  should be kept in view in the event of delayed payment in the  case the employee is fully exonerated.”

16. The bone of  contention is  as  to whether  this  rule  is  contrary to  the  

provisions of the Payment of Gratuity Act and, therefore, this rule being non-

statutory is  to  be  ignored and the  provisions  of  the  Gratuity  Act  are  to  be  

preferred. In this behalf we will have to examine the scheme of the Gratuity  

Act to find whether as per the Gratuity Act, such a person like the respondent,  

would become entitled to receive the gratuity under this Act.  

17. It is because of the reason that a statutory right accrued, thus, cannot be  

impaired by reason of a rule which does not have the force of statute. It will  

bear  repetition  to  state  that  the  Rules  framed  by  Respondent  No.  1  or  its  

holding company are not statutory in nature.  

18. It would be of interest to note that the inter play of these  very CDA  

Rules, 1978 of CIL and the Provisions of Gratuity Act came for consideration  

in the case of Jaswant Singh Gill (supra) and this Court explained the legal  

position of CDA Rules vis-a-vis Gratuity Act/ gratuity of an employee in the  

following manner:-

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“The Act was enacted with a view to provide for a scheme for  payment of  gratuity to employees engaged inter  alia  in mines.  Section 3 of the Act provides for appointment of an officer to be  the  controlling  authority.  Controlling  authority  is  to  be  responsible  for  administration  of  the  act.  Different  authorities,  however, may be appointed for different areas. Section  4 of the  Act  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 or 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.

9. The Rules framed by the Coal India Limited are not statutory  rules.  They  have  been  made  by  the  holding  company  of  Respondent No. 1. The provisions of the Act, therefore, must  prevail  over  the  Rules.  Rule  27  of  the  Rules  provides  for  recovery from gratuity only to the extent of loss caused to the  company by negligence or breach of orders or trust. Penalties,  however, must be imposed so long an employee remains in  service. Even if a disciplinary proceeding was initiated prior  to the attaining of the age of superannuation, in the event, the  employee  retires  from  service,  the  question  of  imposing  a  major penalty by removal or dismissal from service would not  arise.  Rule  34.2  no  doubt  provides  for  continuation  of  a  disciplinary proceeding despite retirement of employee if the  

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19. The  principles  which  are  laid  down  in  the  aforesaid  judgment  are  

recapitulated below:-

(i) No  doubt,  Rule  34.2  of  CDA  Rules  provides  for  continuation of disciplinary proceedings despite retirement  of  an  employee  if  the  same  was  initiated  before  his  retirement However, after his retirement, major penalty in  terms of Rule 27 cannot be imposed. We may state here that  rule 27 of CDA Rules provides for the nature of penalties  including 'recovery from pay or gratuity of the whole part of  any back loss cause to the company by negligence or breach  of  orders  for  trust'.  Major  penalties  which  are  prescribed  under Rule 27 are 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 right to an employee to receive gratuity  on rendition of 5 years continuous service. Gratuity become  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  non- statutory  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.  

20. Jaswant  Singh Gill  (supra)  was  a  judgment  delivered  by  two judge  

Bench. Mr. Mahavir Singh, learned senior counsel has placed strong reliance to  

a three Bench judgment of this Court which is later in point of time. This case  

is  known  as  State  Bank  of  India vs.  Ram  lal  Bhaskar  and  Anr.  10

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2011(10)SCC249. In that case, Rule 19(3) of the State Bank of India Officers  

Service Rules, 1992 came up for interpretation which was  para materia  with  

rule 13.42 of the CDA Rules. Said rule 19(3) of SBI Officers Service Rules  

also permits disciplinary proceedings to continue even after the retirement of  

an employee if  those were instituted when the delinquent  employee was in  

service.  Then  for  the  purpose  of  such  proceedings  the  otherwise  retired  

employee is deemed to be in service and those proceedings shall be continued  

and concluded as  if  the  employee  had continued in  service.  Thus,  such an  

employee is deemed to be in service for limited and specified purpose only viz.  

for the purposes of continuance and conclusion of the proceedings. In that case,  

charge  sheet  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.  After  exhausting  the  departmental  remedies,  the  

respondent filed the writ petition in the High Court which was allowed and  

order of dismissal was quashed. This Court reversed the said decision of the  

High Court. However, we find that there is no direct discussion,  in the said  

judgment,  on the issue  as  to  whether  it  is  permissible  for  the disciplinary  

authority to impose the penalty of dismissal of service after the retirement of  

the employee.   In fact the Court had dealt  with two aspects.  One question  

which  was  deliberated  was  as  to  whether  inquiry  could  continue  after  the  

retirement of the respondent from service. This question was answered in the  11

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affirmative having regard to Rule 19(3) of the SBI Officers Service Rules. The  

Court distinguished another judgment in  UCO Bank & Anr. vs.  Rajinder Lal   

Capoor; 2007(6)SCC694  on  a  ground  that  in  the  said  case  the  delinquent  

officer had already been superannuated and the charge sheet was served after  

his retirement.  In these circumstances the court had taken the view in Rajinder  

Lal  Capoor’s  case  that  when  an  employee  is  allowed  to  superannuate,  no  

inquiry can be initiated against  him thereafter.   However,  if  charge sheet is  

served before the retirement enquiry can continue even after the retirement as  

per Rule 19(3).  This proposition thus stands settled viz. if  the Rules permit,  

enquiry can continue even after the retirement of the employee.

21. Other  aspect which was dealt with was as to whether the High Court  

could interdict the findings of disciplinary authority and arrive at its conclusion  

that the findings recorded by the Inquiry Officer was not substantiated by any  

officer on record on the basis of evidence produced.  This Court held that so  

long the findings of the disciplinary authority are supported by some evidence,  

the High Court is not empowered to re-appreciate the   evidence as an appellate  

authority and came to a different and independent findings on the basis of that  

evidence. This is not the issue before us in the instant case.

22. It  is  thus,  clear  that  the question as to whether penalty of  dismissal  

could be imposed after a retirement was not categorically raised or dealt with.  

No doubt, penalty of dismissal was inflicted upon the employee in that case.  

But it  was not  specifically on in clear  terms contended that  such a penalty  12

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could not be imposed on an employee who is already permitted to retire. At the  

same time, innuendo, the judgment gives a semblance of indication that such a  

penalty  is  permissible  because  of  the  reason  that  as  per  the  rules,  for  the  

purposes of  enquiry,  the employee shall  be deemed to be in service.   As a  

sequittor, 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. However, as we have pointed out above,  

the issue of permissibility of penalty of dismissal on such a retired official was  

neither raised nor any direct discussion followed thereupon.  At the same time,  

fact remains that penalty of dismissal, even after the retirement, was upheld.  

This goes contrary to the dicta laid down in Jaswant Singh Gill (supra) which  

took the view that no major penalty is permissible after retirement was not even  

referred to.

23. The issue which confronts us in the instant appeal is as to whether  

gratuity  can  be  withheld  in  the  wake  of  Rule  34  of  CDA Rules  when  

examined in juxtaposition with the provisions of the Gratuity Act. To put it  

otherwise,  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.   We find  that  Jaswant  

Singh Gill's  case directly answers this  question,  that  too in the context  of  

these very CDA Rules.  However,  it  is  because of  the reason that  the said  13

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judgment  proceeds  on the  basis  that  after  the  retirement  of  an  employee,  

penalty of dismissal  cannot be imposed upon the retired employee.  If  this  

view  is  not  correct  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) of the  

Payment of Gratuity Act which reads as under:-

     Section 4 - Payment of gratuity   

(1) Gratuity  shall  be  payable  to  an  employee  on  the  termination of his employment after he has rendered continuous  service for not less than five years,--

(a) on his superannuation, or (b) on his retirement or resignation, or (c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five  years  shall  not  be  necessary  where  the  termination  of  the  employment of any employee is due to death or disablement:

Provided further that in the case of death of the employee,  gratuity payable to hi m shall be paid to his nominee or, if no  nomination has been made, to his heirs,  and where any such  nominees or heirs is a minor, the share of such minor, shall be  deposited  with the controlling  authority  who shall  invest  the  same  for  the  benefit  of  such  minor  in  such  bank  or  other  financial  institution,  as  may  be  prescribed,  until  such  minor  attains majority.]

Explanation.--For  the  purposes  of  this  section,  disablement  means such disablement as incapacitates an employee for the  work which he was capable of performing before the accident  or disease resulting in such disablement.

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(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 hi m in the course  of his employment.

24. Thus 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 enquiry or conviction in a criminal case.  This provision would  

not get triggered if there is no termination of services.   

25. It is the case of the appellant that in the charge sheet served upon the  

respondent herein, there are very serious allegations of misconduct alleging  

dishonestly causing coal stock shortage amounting to Rs. 31.65 crores, and  

thereby causing substantial loss to the employer. If such a charge is proved  

and punishment of  dismissal  is  given thereupon, the provisions of Section  

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4(6) of the Payment of Gratuity would naturally get attracted and it would be  

within the discretion of  the appellant to forfeit  the gratuity payable to the  

respondent. As a corollary one can safely say that the employer has right to  

withhold the gratuity pending departmental inquiry. However, as explained  

above,  this  course  of  action  is  available  only if  disciplinary  authority  has  

necessary  powers  to  impose  the  penalty  of  dismissal  upon the  respondent  

even after his retirement. Having regard to our discussion above of Jaswant  

Singh  Gill  (supra)  and  Ram  Lal  Bhaskar  (supra),  this  issue  needs  to  be  

considered authoritatively by a larger Bench. We, therefore, are of the opinion  

that present appeal be decided by a Bench of three Judges.  

26. We accordingly direct the Registry to place the matter before Hon'ble  

the Chief Justice for constituting a larger Bench to hear this appeal.

….......................................J. [K.S. RADHAKRISHNAN]

…........................................J. [A.K. SIKRI]

New Delhi October  29 , 2013

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