Before retiring as the chairman and managing director (CMD) of MSTC, an employee faced a disciplinary case against him. The company accused him of causing financial loss of Rs 10 lakhs due to negligence. As a result, the company withheld his gratuity and later ordered that the pecuniary loss should be recovered from his gratuity amount.
The employee challenged the order, saying gratuity is his legal right under the Payment of Gratuity Act, 1972. He argued that the case was unfair, based on old allegations, and that the punishment was disproportionate. He also pointed out that other officers involved in the same decision were not penalised.
Initially, the statutory authorities and a Single Judge of the High Court ruled in favour of the employee, directing that gratuity be paid to him with interest. The company, however, appealed further, arguing that the Gratuity Act does not apply to senior managerial staff such as the CMD. The company chose to rely on its own Conduct, Discipline and Appeals (CDA) Rules, which allow withholding or recovery of gratuity if an employee causes financial loss.
The company cited a case from the past wherein it was held that service rules can continue to apply even after retirement for disciplinary purposes.
The employee, however, claimed that gratuity is a statutory right that accrues automatically on retirement. According to him, the forfeiture was unfair because the loss was not properly calculated under Section 4(6) of the Gratuity Act. He also alleged that the inquiry was biased and discriminatory, since there was only one witness against him, and others involved were not penalised.
The Division Bench of the Court (Justice Lanusungkum Jamir and Justice Rai Chattopadhyay) supported the company saying MSTC’s CDA rules give an independent right to recover proven losses from gratuity, even beyond the strict limits of the Gratuity Act. And since the disciplinary order had already reached finality, it could not be reopened. Therefore, the employee’s claim for gratuity was was declared invalid.
The Court set aside the orders of the Appellate Authority and the Single Judge, and upheld the Controlling Authority’s decision to deny gratuity. It became clear that gratuity is not absolute and that if the rules of the company allow recovery for financial loss caused by negligence or misconduct, those rules can operate independently of the Gratuity Act.
What also became clear from the Calcutta HC’s ruling is that disciplinary proceedings can continue even after retirement, and gratuity can be withheld or reduced if losses are proven.