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“  REPORTABLE”   

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.9087  OF 2012 (Arising out of SLP (Civil) No.14570 of 2012)

Y.K. Singla …. Appellant

Versus

Punjab National Bank & Ors. …. Respondents

O R D E R

JAGDISH SINGH KHEHAR, J.

1. Leave granted.

2. The appellant was inducted into the service of the Punjab National  

Bank  (hereinafter  referred  to  as,  the  PNB)  in  the  clerical  cadre  on  

19.2.1958.  He was successively promoted against the posts of Special  

Assistant and Accountant with effect from 23.8.1972 and 26.12.1974.  He  

also  gained further  promotions  to  the cadres  of  Manager-B Grade and  

thereafter, Manager-A Grade with effect from 24.11.1977 and 18.12.1982  

respectively.  He finally came to be promoted to the post of Chief Manager  

with effect from 1.10.1986.  Whilst holding the post of Chief Manager, the  

appellant retired from service, on attaining the age of superannuation on  

31.10.1996.  

3. During 1981-1982, when the appellant was posted as Manager at the  

Sector  19,  Chandigarh Branch of  the  PNB,  he was  accused of  having  

entered into a conspiracy with R.L. Vaid, the then Regional Manager of the  

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PNB, Chandigarh, and Dr. A.K. Sinha, IAS, the then Secretary, Department  

of Town and Country Planning, Haryana and thereby, of fraudulently having  

sanctioned a loan of Rs.2,70,000/- to Mrs. Rama Sinha (wife of Dr. A.K.  

Sinha, aforementioned).  The said loan was granted to Mrs.Rama Sinha,  

for construction of a building on a plot in Sector 6, Panchkula.  The said  

building,  after  its  construction,  was  leased  to  the PNB,  at  an allegedly  

exorbitant  rent  of  Rs.4,985/-  per  month.   The loan  amount,  was  to  be  

adjusted out of the rent account.  The PNB was allegedly, not in the need of  

the said building, because it was already housed in a building in Sector 17,  

Chandigarh, at a nominal rent of Rs.1,650/- per month.  The building rented  

from  Mrs.  Rama  Sinha  was  said  to  have   remained  unoccupied  from  

1.5.1982 to 21.1.1987.  This factual position, it was alleged,  was sufficient  

to infer, that the PNB was not in need of the building taken on rent from  

Mrs.Rama Sinha.  Based on the aforesaid factual position, it was felt, that  

the action of the conspirators caused a pecuniary loss of Rs.2,70,000/- to  

the PNB.  It was also sought to be assumed, that the aforesaid loan and  

lease were favours extended to Dr. A.K. Sinha, IAS, through his wife Mrs.  

Rama  Sinha.   Based  on  the  aforesaid  allegations,  the  appellant  Y.K.  

Singla,  the aforesaid  R.L.  Vaid  and Dr.  A.K.  Sinha,  IAS,  were charged  

under Section 120B of the Indian Penal Code and Section 5(2) read with  

Section 13(1)(d) of the Prevention of Corruption Act, 1988.

4. The trial in the above matter was conducted by the Special Judge,  

CBI Court, Chandigarh.  On the conclusion of the trial, the Special Judge,  

CBI Court, Chandigarh arrived at the conclusion, that the prosecution had  

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failed to produce any evidence on the issue of criminal conspiracy.  The  

trial  Court  accordingly,  acquitted  all  the  three  accused  of  the  charges  

framed against them on 31.10.2009, by holding, that the prosecution had  

failed to establish the charges beyond a shadow of reasonable doubt.

5.  During the subsistence of the aforesaid criminal  proceedings, the  

appellant Y.K. Singla retired from the employment of the PNB, on having  

attained the age of superannuation, on 31.10.1996.  On his retirement, on  

account  of  the  pendency  of  the  criminal  proceedings  being  conducted  

against him, gratuity, leave encashment and commutation of permissible  

portion  of  pension,   were  withheld.   While  withholding  the  aforesaid  

monetary  benefits,  the  appellant  was  informed  by  the  PNB  through  a  

communication dated 13.5.2000, that the eventual release of the aforesaid  

retiral  benefits,  would  depend  on  the  outcome  of  the  pending  criminal  

proceedings.

6. As already noticed above, the appellant was acquitted of the charges  

framed  against  him,  by  the  Special  Judge,  CBI  Court,  Chandigarh,  on  

31.10.2009.  Based on his aforesaid acquittal, the appellant addressed a  

letter  dated  26.11.2009  to  the  Executive  Director  of  the  PNB  seeking  

release  of  his  gratuity,  encashment  of  privileged  leave  balance  and  

commutation of permissible portion of pension.  Additionally,  he claimed  

interest, from the date the aforesaid retiral benefits became due to him, till   

the actual payment thereof.  It will also be relevant to mention, that by this  

time, the appellant was over 73 years old.  In its reply dated 5.2.2010, the  

PNB informed  the  appellant,  that  it  had released  leave  encashment  of  

Rs.1,28,716.24 on that day itself i.e., on 5.2.2010 itself.  The appellant was  

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also informed through the aforesaid communication, that a duly sanctioned  

gratuity  proposal  had  been  sent  to  the  Provident  Fund  and  Pension  

Department  of  the  PNB,  for  disbursement  of  gratuity.   Thereupon,  the  

appellant actually received the gratuity payable to him, on 12.2.2010.

7. Having received encashment of privileged leave balance, as also,  

gratuity in February, 2010, the appellant reiterated his claim for interest, on  

account of  delayed payment  of  the aforesaid  amounts,  through another  

letter dated 17.2.2010.  In the instant letter, the appellant pointed out, that  

he had retired on attaining the age of superannuation on 31.10.1996, and  

as such, the PNB had withheld the aforesaid monetary benefits due to him  

for a period of more than 13 years up to February, 2010.  The appellant’s  

request for interest on the aforesaid delayed payments, was responded to  

by the PNB through a letter dated 12.3.2010.  The appellant was informed,  

that  he was  entitled  to  interest  on account  of  withholding  of  his  retiral   

benefits, only with effect from the date of culmination of the proceedings  

pending against him.  Having found the appellant entitled to interest with  

effect  from  31.10.2009  i.e.,  when  the  Special  Judge,  CBI  Court,  

Chandigarh  acquitted  him,  the  PNB  released  a  sum  of  Rs.1,881/-  as  

interest towards delayed payment of leave encashment, and another sum  

of Rs.3,336/- as interest on account of having withheld his gratuity.  The  

aforesaid interest, the appellant was informed, had been calculated at the  

rate of 5.5%.

8. Dissatisfied with the action of the PNB, in not paying interest to him  

from the date the aforesaid retiral benefits became due (on his retirement  

on 31.10.1996), till their eventual release (in February, 2010), the appellant  

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filed Civil Writ Petition no. 6469 of 2010 before the High Court of Punjab &  

Haryana at Chandigarh (hereinafter referred to as, the High Court).  The  

aforesaid Writ Petition came to be allowed on 4.5.2011.  While allowing the  

Writ Petition filed by the appellant, the High Court directed the PNB to pay  

the appellant, interest at the rate of 8% from the date retiral benefits had  

became due to the appellant, till the actual payment thereof to him.

9. Dissatisfied with the order dated 4.5.2011, passed by the learned  

Single Judge of the High Court, the PNB preferred Letters Patent Appeal  

no. 1950 of 2011.  The Letters Patent Appeal filed by the PNB was partly  

allowed  by  a  Division  Bench  of  the  High  Court,  on  29.11.2011.   The  

Division  Bench  of  the  High  Court  arrived  at  the  conclusion,  that  the  

appellant was not entitled to any interest on delayed payment of Gratuity.  

The  award  of  interest  to  the  appellant  for  withholding  the  other  retiral  

benefits  was,  however,  not  interfered  with.   The  decision  (dated  

29.11.2011) rendered by the Division Bench of the High Court, has been  

assailed by the appellant, through the instant appeal.

10. The reasons which prompted the Division Bench of the High Court to  

deny  interest  on  the  withheld  amount  of  gratuity  to  the  appellant,  are  

ascertainable from the paragraph 7 of the impugned order, which is being  

extracted hereunder:-

“7. On having considered the matter, we are in agreement with  the submission made by the learned counsel appearing for the  appellant-Bank insofar as withholding of gratuity is concerned.  The language of  the relevant Rule i.e.  Rule 46 of  the 1995  Rules is clear and unambiguous.  The mandate of the Rule is  such  that  it  operates  as  a  bar  insofar  as  the  Bank  is  concerned, as regards the release of gratuity to an employee  against whom the departmental or judicial  proceedings were  pending  on  the  date  such  employee  attains  the  age  of  superannuation.   The  Rule  stipulates  that  such  withheld  

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amount  of  gratuity  would  become  payable  only  upon  conclusion  of  the  proceedings.   Admittedly,  judicial  proceedings were pending against the respondent on the date  of his superannuation i.e. 31.10.1996 and concluded only upon  his acquittal  vide order dated 31.10.2009.  The amount viz.  gratuity  has since been released on 13.2.2010 and interest  thereupon has also been paid for the period 31.10.2009 till the  date of payment.  We, accordingly, hold that respondent no. 1  is not entitled to any interest for the period 31.10.1996 till the  conclusion of the trial and his acquittal i.e. 31.10.2009 on the  withheld amount of gratuity.”

11. It is apparent from a perusal of the reasoning recorded by the High  

Court, that the High Court relied upon Regulation 46 of the Punjab National  

Bank (Employees) Pension Regulations, 1995 (hereinafter referred to as,  

the 1995 Regulations).  Regulation 46 is being extracted hereunder:-

“46. Provisional Pension

(1) An employee who has retired on attaining the age of  superannuation  or  otherwise  and  against  whom  any  departmental  or  judicial  proceedings  are  instituted  or  where  departmental  proceedings  are  continued,  a  provisional  pension,  equal  to  the  maximum  pension  which would  have been admissible  to  him,  would  be  allowed  subject  to  adjustment  against  final  retirement  benefits  sanctioned  to  him,  upon  conclusion  of  the  proceedings but no recovery shall  be made where the  pension finally  sanctioned is  less  than the provisional  pension or the pension is reduced or withheld etc. either  permanently or for a specified period.

(2) In such cases the gratuity shall not be paid to such an  employee  until  the  conclusion  of  the  proceedings  against  him.   The  gratuity  shall  be  paid  to  him  on  conclusion of the proceedings subject to the decision of  the proceedings.  Any recoveries to be made from an  employee  shall  be  adjusted  against  the  amount  of  gratuity payable.”

(emphasis is ours)

Having perused Regulation 46(2), we are of the view, that the High Court  

was fully justified in concluding, that it was open to the PNB not to pay to  

the  appellant  gratuity,  till  the  culmination  of  the  proceedings  pending  

against him.  It is, therefore, apparent, that non-release of gratuity to the  

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appellant  after  31.10.1996  (when  the  appellant  retired  from  his  

employment,  with the PNB), till  his  acquittal  by the Special  Judge, CBI  

Court, Chandigarh, on 31.10.2009, cannot be faulted.   

12. The right to withhold gratuity, is an issue separate and distinct, from  

the claim of interest, which has been raised by the appellant.  The question  

that arises for consideration is, whether an employee whose gratuity has  

been withheld under Regulation 46(2) of the 1995 Regulations, would he  

be entitled to interest on the withheld payment of gratuity, if he is found not  

to be at fault?  According to the simple logic of the appellant, since his  

gratuity was withheld from 1996 (when he retired from service) till  2010  

(when gratuity  was eventually  released to  him),  i.e.,  for  a period  of  14  

years, for no fault  of his, he is most definitely  entitled to interest on the  

delayed payment.  It  is,  however,  not the simple logic of the appellant,  

which  will  determine  the  controversy  in  hand.   For,  logic  gave  rise  to  

diametrically  opposite  views,  one of  which was  expressed  by  the  Writ  

Court,  and the other  by  the Letters  Patent  Bench.   We  shall  therefore  

endeavour to search for a legal answer, to the issue in hand.   

13. The 1995, Regulations, are silent on the subject of an employee’s  

rights whose gratuity has been withheld, even in circumstances where it  

has eventually been concluded, that he was not at fault.  This is exactly the  

situation in the present controversy,  inasmuch as,  the appellant’s  retiral  

benefits including gratuity, were withheld on 31.10.1996 when he retired on  

attaining the age of superannuation.  The aforesaid withholding, was on  

account  of  a  pending  criminal  proceeding.  The  said  withholding  has  

appropriately  been  considered  as  valid,  under  Regulation  46(2)  of  the  

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1995,  Regulation.   But  the  appellant  was  acquitted  from  the  criminal  

prosecution initiated against him on 31.10.2009.  As such, it is inevitable to  

conclude, that his gratuity was withheld without the appellant being at fault.  

It  is in the aforesaid background, that we shall  venture to determine the  

claim of the appellant for interest, despite the PNB having validly withheld  

his gratuity under Regulation 46(2) of the 1995, Regulations.

14. Insofar as the issue in hand is  concerned, reference needs to be  

made  to  certain  provisions  of  the  Payment  of  Gratuity  Act,  1972  

(hereinafter  referred  to  as,  the  Gratuity  Act).   In  our  considered  view,  

Sections 4, 7 and 14 of the Gratuity Act are relevant.  Section 4 is being  

extracted hereunder:-

“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 him 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  

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process  of  consideration,  the  aforesaid  conclusion,  namely,  that  an  

employee who receives gratuity under a provision, other than the Gratuity  

Act, would be entitled to better terms of gratuity, will constitute one of the  

foundational  basis,  of  determination.  Having examined section 4 of  the  

Gratuity  Act,  we may unhesitatingly  record,  that  none of  the other sub-

sections of section 4 of the Gratuity Act, as well as, the other provisions of  

the  Gratuity  Act,  have  the  effect  of  negating  the  conclusion  drawn  

hereinabove.

16. For the determination of the present controversy, it is also relevant to  

take  into  consideration  Section  7  of  the  Gratuity  Act,  which  is  being  

extracted hereunder:-

“7. Determination of the amount of gratuity.-  

(1) A person who is eligible for payment of gratuity under  this Act or any person authorized, in writing, to act on his  behalf shall send a written application to the employer,  within  such  time  and  in  such  form,  as  may  be  prescribed, for payment of such gratuity.

(2) As  soon  as  gratuity  becomes  payable,  the  employer  shall,  whether an application referred to in sub-section  (1)  has  been  made  or  not,  determine  the  amount  of  gratuity and give notice in writing to the person to whom  the  gratuity  is  payable  and  also  to  the  controlling  authority  specifying  the  amount  of  gratuity  so  determined.

(3) The  employee  shall  arrange  to  pay  the  amount  of  gratuity,  within  thirty  days  from  the  date  it  becomes  payable to the person to whom the gratuity is payable.

(3A) If the amount of gratuity payable under sub-Section (3)  is not paid by the employer within the period specified in  sub-Section (3), the employer shall  pay, from the date  on which the gratuity becomes payable to the date on  which  it  is  paid,  simple  interest  at  such  rate,  not  exceeding the rate notified by the Central Government  from time to time for repayment of long-term deposits,  as that Government may, by notification specify:

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Provided that  no such interest  shall  be payable  if  the  delay in the payment is due to the fault of the employee  and  the  employer  has  obtained  permission  in  writing  from the controlling authority for the delayed payment on  this ground.

(4) (a) If there is any dispute as to the amount of gratuity  payable  to  an  employee  under  this  Act  or  as  to  the  admissibility  of  any  claim  of,  or  in  relation  to,  an  employee for payment of gratuity, or as to the person  entitled  to  receive  the  gratuity,  the  employer  shall  deposit with the controlling authority such amount as he  admits to be payable by him as gratuity.

(b) Where there is a dispute with regard to any matter  specified in clause (a), the employer or employee or any  other  person  raising  the  dispute  may  make  an  application to the controlling authority  for deciding the  dispute.

(c) The controlling authority shall, after due inquiry and  after  giving  the  parties  to  the  dispute  a  reasonable  opportunity  of  being  heard,  determine  the  matter  or  matters in dispute and if, as a result of such inquiry any  amount  is  found to  be  payable  to  the employee,  the  controlling  authority  shall  direct  the  employer  to  pay  such amount or, as the case may be, such amount as  reduced  by  the  amount  already  deposited  by  the  employer.

(d)  The  controlling  authority  shall  pay  the  amount  deposited  including  the  excess  amount,  if  any,  deposited  by  the  employer,  to  the  person  entitled  thereto.

(d) as soon as may be after a deposit  is made under  clause (a), the controlling authority shall pay the amount  of the deposit-

(i) to the applicant where he is the employee;  or

(ii) where the applicant is not the employee, to  the nominee or,  as the case may be,  the  guardian  of  such  nominee  or  heir  of  the  employee  if  the  controlling  authority  is  satisfied that there is no dispute as to the  right of the applicant to receive the amount  of gratuity.

(5) For  the  purpose  of  conducting  an  inquiry  under  sub- section (4), the controlling authority shall have the same  powers  as  are  vested  in  a  court,  while  trying  a  suit,  

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under the Code of Civil Procedure, 1908, (5 of 1908) in  respect of the following matters, namely :- (a) enforcing  the  attendance  of  any  person  or  

examining him on oath; (b) requiring  the  discovery  and  production  of  

documents; (c) receiving evidence on affidavits; (d) issuing  commission  for  the  examination  of  

witnesses. (6) Any  inquiry  under  this  section  shall  be  a  judicial  

proceeding within the meaning of sections 193 and 228,  and for the purpose of section 196, of the Indian Penal  Code (45 of 1860).

(7) Any person aggrieved by an order under sub-section (4)  may, within sixty days from the date of the receipt of the  order, prefer an appeal to the appropriate Government  or  such  other  authority  as  may  be  specified  by  the  appropriate Government in this behalf:

Provided that  the  appropriate  Government  or  the  appellate  authority,  as the case may be,  may,  if  it  is  satisfied that the appellant was prevented by sufficient  cause from preferring the appeal within the said period  of sixty days, extend the said period by a further period  of sixty days:

Provided further that no appeal by an employer shall be  admitted unless at the time of preferring the appeal, the  appellant either produces a certificate of the controlling  authority to the effect that the appellant has deposited  with  him  an  amount  equal  to  the  amount  of  gratuity  required  to  be  deposited  under  sub-Section  (4),  or  deposits with the appellate authority such amount.

(8) The appropriate Government or the appellate authority,  as the case may be, may, after giving the parties to the  appeal  a  reasonable  opportunity  of  being  heard,  confirm, modify or reverse the decision of the controlling  authority.”

(emphasis  is ours)

A perusal  of sub-Section (2) of Section 7 reveals,  that it  is  the onerous  

responsibility of the employer, to determine the amount of gratuity payable  

to  a  retiring  employee.   Sub-Section  (3)  of  Section 7  enjoins  a  further  

responsibility on the employer, to disburse the amount of gratuity payable  

to an employee, within 30 days from the date it becomes payable.  Since  

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the appellant had attained the age of superannuation on 31.10.1996, it is  

apparent,  that  gratuity  had  become  payable  to  him  on  31.10.1996.  

Accordingly,  the same ought  to  have been calculated  in  terms  of  sub-

Section  (2)  of  Section  7  of  the  Gratuity  Act,  and  should  have  been  

dispersed to the appellant by 30.11.1996 in terms of  sub-Section (3) of  

Section 7 of the Gratuity Act.   

17. Sub-Section (3A) of Section 7 of the Gratuity Act is the most relevant  

provision for the determination of the present controversy.  A perusal of the  

sub-Section (3A) leaves no room for any doubt, that in case gratuity is not  

released to an employee within 30 days from the date the same become  

payable  under  sub-Section  (3)  of  Section  7,  the  employee  in  question  

would be entitled to “…simple interest at such rate, not exceeding the rate  

notified by the Central Government from time to time for repayment of long  

term loans, as the Government may, by notification specify…”  There is,  

however, one exception to the payment of interest envisaged under sub-

Section (3) of Section 7 of the Gratuity Act.  The aforesaid exception is  

provided for in the proviso under sub-Section (3A) of Section 7.  A perusal  

of the said proviso reveals, that no interest would be payable “…if the delay  

in the payment is due to the fault of the employee, and the employer has  

obtained permission in writing from the controlling authority for the delayed  

payment  on this  ground…”  The exception contemplated  in  the proviso  

under sub-Section (3A) of Section 7 of the Gratuity Act, incorporates two  

ingredients.  Where the two ingredients contemplated in the proviso under  

sub-Section  (3A)  are  fulfilled,  the  concerned  employee  can  be  denied  

interest despite delayed payment of gratuity.  Having carefully examined  

the proviso under sub-Section (3A) of Section 7 of the Gratuity Act, we are  

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of  the  view,  that  the first  ingredient  is,  that  payment  of  gratuity  to  the  

employee was delayed because of some fault  of the employee himself.  

The  second  ingredient  is,  that  the  controlling  authority  should  have  

approved, such withholding of gratuity (of the concerned employee) on the  

basis of the alleged fault of the employee himself.  None of the other sub-

sections of Section 7 of the Gratuity Act, would have the effect of negating  

the conclusion drawn hereinabove.

18. Insofar as the present controversy is concerned, the appellant was  

accused of having entered into a conspiracy with a bank employee superior  

to him, so as to extend unauthorized benefits to a member of the Indian  

Administrative Services belonging to the Haryana Cadre.  Based on the  

aforesaid  alleged  fault  of  the  appellant,  the  PNB,  by  an  order  dated  

13.5.2000, informed the appellant, that the release of certain retiral benefits  

including  gratuity  was  being  withheld,  because  of  pending  of  criminal  

proceedings against him.  The appellant was also informed, through the  

aforesaid  communication,  that  release  of  his  retiral  benefits  including  

gratuity,  would  depend  on  the  outcome  of  the  pending  criminal  

proceedings.   It  is,  therefore  apparent,  that  the  second  ingredient  

expressed  in  the  proviso  under  sub-Section  (3A)  of  Section  7  of  the  

Gratuity Act was clearly satisfied, when the competent authority approved  

the action of withholding the appellant’s gratuity.  The instant conclusion is  

inevitable,  because  it  is  not  the  case  of  the  appellant,  that  the  

communication dated 13.5.2000, by which his gratuity was withheld, had  

not been issued at the instance of the concerned controlling authority.  The  

only question which, therefore,  arises for consideration is, whether the first  

ingredient (culled out above) for the applicability, of the proviso under sub-

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Section (3A) of Section 7 of the Gratuity Act, can be stated to have been  

satisfied, in the facts and circumstances of the instant case.  If it  can be  

concluded,  that  the  aforesaid  ingredient  is  also  satisfied,  the  appellant  

would have no right to claim interest, despite delayed release of gratuity.  

Our determination of  the first  ingredient  is,  as  follows.   We  are  of  the  

considered view, that consequent upon the acquittal of the appellant by the  

Special Judge, CBI Court, Chandigarh, it would be erroneous to conclude,  

that  the  gratuity  payable  to  the  appellant  on  attaining  the  age  of  

superannuation i.e., on 31.10.1996, was withheld on account of some fault  

of the appellant himself.  We may hasten to add, if the appellant had been  

convicted  by  the  Special  Judge,  CBI  Court,  Chandigarh,  then the  first  

ingredient  would  also  be  deemed to  have been satisfied.   Conversely,  

because the appellant has been acquitted, he cannot be held to be at fault.  

Accordingly it emerges, that the “fault” ingredient of the employee himself,  

for denial of gratuity when it became due, remains unsubstantiated.  Since  

one of the two salient ingredients of the proviso under sub-Section (3A) of  

Section 7 of the Gratuity Act is clearly not satisfied in the present case, we  

are of  the view,  that  the appellant  cannot be denied interest  under the  

proviso to section 7(3A) of the Gratuity Act.  Accordingly, the appellant has  

to be awarded interest under section 7(3A) of the Gratuity Act.  Therefore, if  

the provisions of the Gratuity Act are applicable to the appellant, he would  

most definitely be entitled to interest under sub-Section (3A) of Section 7 of  

the Gratuity Act, on account of delayed payment of gratuity.  

19. The most important question which arises for our consideration is,  

whether the provisions of the Gratuity Act can be extended to the appellant,  

so as to award him interest under sub-Section (3A) of Section 7 of  the  

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Gratuity Act.  Insofar as the instant aspect of the matter is concerned, it  

was the vehement contention of the learned counsel appearing on behalf of  

the appellant, that the provisions of the Gratuity Act are extendable to the  

appellant, and as such, he would be entitled to disbursement of interest  

under Section 7(3A) thereof.  The plea at the behest of the PNB, however,  

was to the contrary.  The contention of the learned counsel representing the  

PNB was, that the PNB having adopted the 1995, Regulations, the claim of  

the appellant could only be determined under the provisions of the said  

Regulations.  It was pointed out, that denial of payment of gratuity in the  

present case, was valid and justified under Regulation 46(2) of the 1995  

Regulations.  Furthermore, it was pointed out, that the 1995 Regulations,  

did not make any provision for the award of interest in case of delayed  

payment  of  gratuity.   Therefore,  since  gratuity  had  legitimately  been  

withheld, under the provisions of the 1995, Regulations, and the payment of  

gratuity to the appellant is not regulated under the Gratuity Act, there was  

no question of payment of interest to the appellant.   It was submitted that  

the appellant’s gratuity had been withheld during the pendency of criminal  

proceedings initiated against him, his entitlement to gratuity stood extended  

to such time as the said criminal proceedings were eventually disposed of.  

Thus viewed, the entitlement to gratuity stood extended to 31.10.2009 (i.e.,  

the date of the disposal of the proceedings pending against him).  In this  

behalf, it  was also pointed out, that as soon as the criminal proceedings  

pending against the appellant, concluded in his favour, the PNB released  

all  the  appellant’s  retiral  benefits,  including  gratuity.   The  documents  

available on the record of the case reveal, that gratuity was released to the  

appellant on 12.2.2010.  As such, the delay in release of gratuity, if at all,  

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was  only  from  31.10.2009  to  12.2.2010.   For  the  aforesaid  delayed  

payment  of  gratuity,  the  appellant  was  admittedly  awarded  interest  

quantified at Rs.3,336/- (calculated at the rate of 5.5%).

20. In order to determine which of the two provisions (the Gratuity Act, or  

the 1995, Regulations) would be applicable for determining the claim of the  

appellant,  it  is  also essential  to  refer  to Section 14 of  the Gratuity  Act,  

which is being extracted hereunder:-

“14. Act to override other enactments, etc. –  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 having effect by virtue of any enactment other than  this Act.”

(emphasis is ours)

A perusal  of  Section 14 leaves no room for  any doubt,  that a superior  

status has been vested in the provisions of the Gratuity Act, vis-à-vis, any  

other enactment (including any other instrument or contract) inconsistent  

therewith.  Therefore, insofar as the entitlement of an employee to gratuity  

is concerned, it is apparent that in cases where gratuity of an employee is  

not regulated under the provisions of the Gratuity Act, the legislature having  

vested  superiority  to  the  provisions  of  the  Gratuity  Act  over  all  other  

provisions/enactments  (including  any  instrument  or  contract  having  the  

force of law), the provisions of the Gratuity Act cannot be ignored.  The  

term “instrument” and the phrase “instrument or contract having the force of  

law”  shall  most  definitely  be  deemed to  include the 1995  Regulations,  

which regulate the payment of gratuity to the appellant.

21. Based on the conclusions drawn hereinabove, we shall endeavour to  

determine the present controversy.  First and foremost, we have concluded  

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on the basis of Section 4 of the Gratuity Act, that an employee has the right  

to  make  a  choice  of  being  governed  by  some  alternative  

provision/instrument, other than the Gratuity Act, for drawing the benefit of  

gratuity.   If  an  employee  makes  such a  choice,  he is  provided  with  a  

statutory  protection,  namely,  that  the  concerned  employee  would  be  

entitled  to  receive  better  terms  of  gratuity  under  the  said  

provision/instrument, in comparison to his entitlement under the Gratuity  

Act.   This  protection  has  been  provided  through  Section  4  (5)  of  the  

Gratuity Act. Furthermore, from the mandate of Section 14 of the Gratuity  

Act, it is imperative to further conclude, that the provisions of the Gratuity  

Act  would  have  overriding  effect,  with  reference  to  any  inconsistency  

therewith in any other provision or instrument.  Thus viewed, even if  the  

provisions of the 1995, Regulations, had debarred payment of interest on  

account  of  delayed  payment  of  gratuity,  the  same  would  have  been  

inconsequential.  The benefit  of  interest  enuring to an employee,  as has  

been  contemplated under section 7(3A)  of  the Gratuity  Act,  cannot be  

denied  to  an  employee,  whose  gratuity  is  regulated  by  some  

provision/instrument other than the Gratuity Act. This is so because, the  

terms of payment of gratuity under the alternative instrument has to ensure  

better  terms,  than the ones provided under the Gratuity  Act.  The effect  

would be the same, when the concerned provision is silent on the issue.  

This  is  so,  because  the  instant  situation  is  not  worse  than  the  one  

discussed above, where there is a provision expressly debarring payment  

of interest in the manner contemplated under Section 7(3A) of the Gratuity  

Act. Therefore, even though the 1995, Regulations, are silent on the issue  

of payment of interest, the appellant would still be entitled to the benefit of  

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Section 7(3A) of the Gratuity Act.    If such benefit is not extended to the  

appellant, the protection contemplated under section 4(5) of the Gratuity  

Act  would  stand  defeated.   Likewise,  even  the  mandate  contained  in  

section 14 of  the Gratuity  Act,  deliberated  in detail  hereinabove,  would  

stand negated.  We, therefore, have no hesitation in concluding, that even  

though the provisions of the 1995, Regulations, are silent on the issue of  

payment of interest, the least that the appellant would be entitled to, are  

terms equal to the benefits envisaged under the Gratuity Act.  Under the  

Gratuity  Act,  the appellant  would  be  entitled  to  interest,  on account  of  

delayed payment of gratuity (as has already been concluded above).  We  

therefore hold, that the appellant herein is entitled to interest on account of  

delayed payment, in consonance with sub-Section (3A) of Section 7 of the  

Gratuity  Act.   We,  accordingly,  direct  the PNB to  pay to  the appellant,  

interest at “…the rate notified by the Central Government for repayment of  

long term deposits…”.  In case no such notification has been issued, we  

are of the view, that the appellant would be entitled to interest,  as was  

awarded to him by the learned Single Judge of the High Court vide order  

dated 4.5.2011, i.e., interest at the rate of 8%.  The PNB is directed, to pay  

the aforesaid interest to the appellant, within one month of the appellant’s  

furnishing to the PNB a certified copy of the instant order.  The appellant  

shall also be entitled to costs quantified at Rs.50,000/-, for having had to  

incur expenses before the Writ Court, before the Division Bench, and finally  

before  this  Court.   The aforesaid  costs  shall  also  be  disbursed  to  the  

appellant within the time indicated hereinabove.

22. Disposed of in the aforesaid terms.

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   …………………………….J.     (B.S. Chauhan)

   …………………………….J.     (Jagdish Singh Khehar)

New Delhi; December 14, 2012.

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