Bank employees gratuity payment can be adjusted against outstanding dues

M/S CANARA BANK Vs. SMT. M SHANTHA KUMARI
WRIT PETITION NO. 11463 OF 2020 (L-RES)
KARNATAKA HIGH COURT

HELD THAT

Bank Employees' Gratuity Can't Be Adjusted Against Their Outstanding Loan.Home loan is governed by the agreement of loan. It is for the Bank to act in terms of the said agreement and exercise all rights under the said agreement as against the debtor. The Bank could not have adjusted the same from and out of gratuity amount, which are protected under Section 7 of The Payment of Gratuity Act, 1972.

BRIEF FACTS

1. The petitioner is a nationalised Bank constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970.

2. One Mr. Srimantha D, husband of the respondent joined the service of the petitioner-Bank on 13.3.1975 as a Peon and subsequently was promoted as a Clerk with effect from 24.8.1987. During his service, the petitioner had availed Housing Loan which was being repaid by him from time to time.

3. In year 2005 gross misconduct has been alleged and punishment of compulsory retirement has been imposed.

4. The decision of the authority has been opposed by the employee and an industrial dispute raised. In between the employee has died.

5. On his expiry, his legal heirs, i.e. the wife and children, were impleaded in the said industrial dispute, which came to be withdrawn on 11.12.2018.

6. In the meanwhile, an application filed by the husband in the year 2017 for release of the gratuity amount came to be rejected. Hence, the employee hadapproached the Controlling Authority for a direction to make payment of the said amounts.

7. In the proceedings, it was contended by the Bank that there are dues liable to be paid on account of the housing loan and the dues which are due on account of the Staff Welfare Fund. These dues have to be adjusted from and out of the gratuity amount, and as such, no amount is due.

8. The Controlling Authority, after considering the matter, came to the conclusion that adjustment of gratuity amount towards loans of the employee was permissible and as such rejected the application filed by the employee vide its order dated 19.12.2017

9. An appeal came to be filed by the respondent herein before the Appellate Authority in Appeal No.36(129)/2018/B1, and the Appellate Authority by way of its order dated 21.10.2019, set aside the order of the Controlling Authority and directed theBank to make payment of gratuity amount along with interest at 10% p.a. from the date it became due till the actual date of payment. It is challenging the said order, the petitioner-Bank is before this Court.

ISSUE

10. The short question that would arise in the present matter is whether the loan account of an employee can be adjusted towards the gratuity amounts?

11. There is a special treatment for payment of gratuity both under the Payment of Gratuity Act and also under the Code of Civil Procedure, 1908. Gratuity has been given a special protection and specialtreatment inasmuch as it is made absolutely clear that the gratuity amounts can neither be attached nor can any garnishee order be passed.

Section 7 of the Payment of Gratuity Act, 1972 is herewith reproduced for easy reference

Determination of the amount of gratuity

(1) A person who is eligible for payment of gratuity under this Act or any person authorised, 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 gratuity so determined.

(3) The employer 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:

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 or matters 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.

(e) 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 subsection (4), the controlling authority shall have the same powers as are vested in a court, while trying a suit, 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 commissions 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, 1860 (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 producesa 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 subsection (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.

12. The protection to gratuity is granted in order to safeguard the financial security of a person at the time of his retirement. In the present case, the petitionerBank has sought to adjust a sum of Rs.9,85,420.24 towards the housing loan and a sum of Rs.1,29,691/- on account of Staff Welfare Fund liability. The Staff Welfare Fund would come within the domain of the service conditions. However, home loan occupies a completely different position inasmuch as the home loan would be governed by the terms of the loan agreement which is a commercial transaction between the bank and the debtor. Whether the debtor is an employee or not, it is the said terms of the loan which would govern the said relationship.

SECTION 10 OF THE PAYMENT OF GRATUITY ACT, 1972

Application to controlling authority for direction.-

(1) If an employer-

(i) refuses to accept a nomination or to entertain an application sought to be filed under rule 7, or
(ii) issues a notice under sub-rule (1) of rule 8 either specifying an amount of gratuity which is considered by the applicant less than what is payable or rejecting eligibility to payment of gratuity, or
(iii) having received an application under rule 7 fails to issue any notice as required under rule 8 within the time specified therein, the claimant employee, nominee or legal heir, as the case may be, may, within ninety days of the occurrence of the cause for the application, apply in Form ‘N’ to the controlling authority for issuing a direction under subsection(4) of section 7 with as many extra copies as are the opposite parties.

Provided that the controlling authority may accept any application under this sub-rule, on sufficient cause being shown by the applicant, after the expiry of the specified period.

(2) Application under sub-rule (1) and other documents relevant to such an application shall be presented in person to the controlling authority or shall be sent by registered post acknowledgement due.

DECISION OF COURT

13. From the facts, it is seen that the retirement order dated 27.07.2006 was challenged before the Appellate Authority and thereafter industrial dispute was raised in CR No.72/2008 before the CGIT, Labour Court in the event of the employee having applied for payment of gratuity that would amount to giving up the employment in the proceedings before the CGIT/Labour Court since the employee could only be paid after the person accepts his retirement.

14. In the present case, compulsory retirement order was under challenge there is no scope for the employee to have made a claim for gratuity, it is only in the year 2017 that upon he attaining the age of superannuation, that application for release of gratuity amount has been filed and consequently, the proceedings before the Labour Court were also withdrawn.

15. While going through provisions of Section 7 referred above ,it is cleared that Section 7 protects payment of gratuity of an employee and same cannot be adjusted or forfeited by the employer in any case.

16. Therefore, I am of the considered opinion that there is no delay in filing the application for payment of gratuity amounts. Be that as it may, even otherwise in terms of the proviso to sub clause (iii) of sub Rule (1) of Rule 10, the Authority is also authorised to condone the delay if any. There is neither restriction on the period which could be condoned nor there is an embargo imposed under the said Rules which would disentitle the applicant to receive any interest.

17. Hence, on this ground also the writ petition will have to be rejected.

CONCLUSION

The gratuity of an employee whose services are being considered to be terminated on the accountability of an act of wilful omission/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/vandalization so caused. In above case employer bank has adjusted outstanding home loan of employee against payment of gratuity, which will not be allowed.

DISCLAIMER: The case law presented here is only for sharing knowledge with the readers.