Supreme Court: Gives A Nod To Withholding Employees’ Gratuity For Recovery Of Dues

The Apex Court, vide its order dated December 15, 2020, in Steel Authority of India Limited vs. Raghbendra Singh & Ors, propounded that there does not exist any constraint regarding withholding an employee’s gratuity against the recovery of dues from such employee, including penal rent, which in the instant case pertained to the overstay by the employee in official company provided accommodation.

Gratuity is a lump sum amount payable by an employer to an employee, as a sign of gratitude for the services rendered by the latter during the course of his employment. The respondent, in the present case (the employee), was initially appointed as a Work Assistant in the year 1967 and was subsequently regularized in the year 1969 and was eventually superannuated from employment on November 31, 1997. The respondent was allotted a housing quarter in pursuance of the SAIL Scheme (a scheme by the appellant, i.e. SAIL), which was an allotment scheme for leasing houses.

The respondent, however, had neither deposited the balance amount in respect of the quarter nor could the amount due be adjusted in entirety from his retiral dues. In pursuance of this, a letter was issued to the employee by SAIL intimating him that the quarter could not be used for being granted on long term lease to him and he was accordingly advised to vacate the quarter. To this affect, the High Court of Jharkhand at Ranchi, by virtue of its judgment dated July 3, 2015 in Raghbendra Singh and Ors. v. Steel Authority of India Ltd. and Ors., held that the employee had extinguished his legal right to continue the occupancy of the premises post completion of two months commencing from the date of his superannuation, as a result of which the penal rent imposed upon the employee was justifiable.

The High Court further observed that the employee had applied for obtaining the long term lease after the expiry of a long period of time and hence the allotment of the premises could not be considered since the outstanding amount payable to SAIL was in excess of the adjustment of the retiral dues of the employee. Therefore, the High Court refused to grant relief to the employee in respect of the letter issued to him since the employee had failed to establish his legal right to be enforced by way of a writ. The High Court, however, concluded that in so far as the retiral dues of the employee are concerned, SAIL shall authorize a responsible officer to consider the payment of the said amount to the heirs of the employee, since the employee was no more.

Subsequently, the Jharkhand High Court, vide judgment and order dated February 13, 2020 in respect of the impugned matter (“JHC Judgment“), rejected the contentions raised by SAIL in furtherance of recovering penal rent from the employee, since the latter had failed to pay the dues and had overstayed in the accommodation post his retirement in the year 2016. The Court drew inference from the order of the Supreme Court in Ram Naresh Singh v. Bokaro Steel Ltd. & Ors. wherein the Apex Court had observed that the order of release of gratuity was passed on grounds of equity and that gratuity was offered as a security. Consequently, withholding of gratuity payable to an employee could not be equated with withholding the retirement benefits.

Contrarily, the Supreme Court, by virtue of the present order dated December 15, 2020, set aside the High Court Order in respect of the principles of penal rent enumerated in paragraphs 19 and 20 of the JHC Judgment. The Supreme Court placed judgment on its decision in the case of Secretary, ONGC Ltd. v. V.U. Warrier,, wherein it was held that the commission could effect the recovery of dues payable by any officer from his gratuity amount, without obtaining his consent. In view of the same, the Apex Court held that if an employee occupies the accommodation (i.e. the quarter) beyond the specified period of time, the imposition of penal rent would be a ‘natural consequence’ and that such penal rent could be adjusted against the dues payable to him, including gratuity.

Having said this, the Court enunciated that the reliance placed on the order of the Supreme Court in the case of Ram Naresh Singh v. Bokaro Steel Ltd. & Ors., mentioned hereinabove, is misplaced since it was merely an order specific to the facts and circumstances of that case, as opposed to a judgment.

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