Employee Entitled To Interest On Withheld Gratuity Amount On Acquittal In Criminal Proceedings: Calcutta High Court

A Division Bench of the Calcutta High Court comprising of Justice Tapabrata Chakraborty and Justice Uday Kumar while deciding a Writ Petition in the case of Md. Farid Vs. Union of India & Ors has held that an employee is entitled to interest on the withheld amount of gratuity upon acquittal in the criminal proceedings pending against him on the date of his retirement.

Background Facts

Md. Farid (Petitioner) was appointed as a carpenter in the Railways in 1983 and he superannuated on 31.12.2006. On retirement, all retiral benefits were disbursed to him except gratuity which was withheld on account of pendency of a criminal proceeding against him under section 302, 307, 380 and 452 of the IPC, 1860. By a memo in 2007, it was communicated to the Petitioner that the release of the withheld gratuity would depend on the outcome of the pending criminal proceeding. The Petitioner was acquitted from all criminal charges in 2018 and the gratuity amount of the Petitioner was released but without any interest. The Petitioner wrote a letter in 2020 and claimed cumulative 12% compound interest on the gratuity amount from the date of retirement.

Since there was no reply to the letter of the Petitioner, he filed an Original Application before the Central Administrative Tribunal, Kolkata Bench (Tribunal) for directions to the Respondents for payment of cumulative compound interest at the rate of 12% over the withheld gratuity amount from the date of retirement of the Petitioner. The Tribunal dismissed the application of the Petitioner on the grounds that the action of withholding the gratuity amount cannot be said to be on account of lapses on the part of the Respondents. Thus, the Petitioner filed the Writ Petition.

It was contended by the Petitioner that under Section 7(3A) of the Payment of Gratuity Act, 1972 (Gratuity Act), the Petitioner was entitled to interest from the date of his retirement. Further, a “No Dues Certificate” was issued in favour of the Petitioner which showed that nothing was due by the Petitioner toward the Railways and that no disciplinary proceeding was pending against the Petitioner at the time of retirement. Further, gratuity can only be withheld to adjust the government dues payable by the employee. It was further contended that a co-accused of the Petitioner in the criminal proceedings was paid the gratuity amount during the pendency of the criminal proceedings. Thus, the act of applying a different yardstick in case of the Petitioner is blatantly discriminatory.

On the other hand, it was contended by the Respondents that the denial of payment of gratuity was in strict consonance with Rule 10(1)(c) of the Railway Services (Pension) Rules, 1993 (1993 Rules). Further, under the 1993 Rules there is no provision towards award of interest in case of delayed payment of gratuity. Further, it was contended that the Tribunal had rightly held that erroneously paying gratuity to a similarly situated employee cannot become a precedent and confer a right on the employee contrary to the 1993 Rules.

Findings of the Court

The court observed that Rule 10(1)(c) of the 1993 Rules provides that “No gratuity shall be paid to the Railway Servant until the conclusion of the departmental or judicial proceedings and issue of final orders thereon”. Further Section 7(3A) of the Gratuity Act provides that if the amount of gratuity is not paid by the employer on the date it becomes due, then the employer shall pay simple interest on the gratuity from the date it becomes payable to the date on which it is paid.

The court further observed that the right to claim interest on gratuity arose upon acquittal of the Petitioner in the criminal proceedings. Thus, it cannot be concluded that the gratuity payable to the petitioner was withheld on account of some fault of the Petitioner. Since the gratuity was withheld without any fault of the Petitioner, he is entitled to get interest on the withheld gratuity amount.

The court further relied on the case of Y.K. Singla vs Punjab National Bank wherein the Supreme Court had clearly held that employees are entitled to get interest on the delayed payment of gratuity as per section 7(3A) of the Gratuity Act even in the absence of any explicit provisions in any Rules to that effect. The Supreme Court had further held that the provisions of the Gratuity Act will have overriding effect with respect to any inconsistency in any other provision or instrument.

The court further held that:

“When the employee has been acquitted in the criminal proceeding which was pending against him at the time of superannuation, he cannot be held to be at fault disentitling him to the interest over the gratuity amount on and from the date of his superannuation till the date of his acquittal in the concerned criminal proceeding”

The court thus observed that the gratuity amount was withheld by the Respondents at their own risk on the basis of the mere assumption that the Petitioner may be found guilty after conclusion of the criminal proceedings. Thus, the Respondents cannot deny the payment of interest over the withheld gratuity amount.

With the aforesaid observations, the Writ Petition was allowed.

Case No.- WP. CT 154 of 2023

Case Name- Md. Farid Vs. Union of India & Ors

Counsel for the Petitioner- Mr. Asim Kumar Niyogi, Mr. A.K. Pal, Mr. Vaskar Pal

Counsel for Respondent- Mr. Ajit Kumar Mishra, Mr. Ayanabha Raha, Mr. Abhishek Dey, Mr. Suprovat Banerjee

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