Supreme Court: An Employer has the Authority to Withhold Gratuity during Pendency of the Disciplinary Proceedings

Author- Anshika Sharma


The employee who is the respondent of the case was posted as the Chief General Manager at Mahanadi Coalfields Ltd who is the appellant of the case. While the employee was in service he was served with a charge sheet for alleges misconduct and dishonesty, which caused coal-stock shortages up to Rs 31.65 Crore.  The employer initiated a departmental enquiry against the employee under the Conduct, Discipline, and Appeal Rules which were framed by him.

The employee was suspended by the employer although the enquiry was pending and a year later he resumed his service without causing any prejudice to the enquiry. In 2010, he was superannuated from the service as he attained the age of 60, but as the enquiry was still pending the gratuity of payment was kept on hold by the employer as per the provisions of the CDA Rules. The employee took the case to the Director and Controlling Authority under the Payment of Gratuity Act and made his representations and the result of which was, a notice was served to the employer.

The employer on his part justified by saying that as the enquiry was still pending and it was right of him of withholding the payment of gratuity but the Controlling Authority held that the employer’s claim was premature. As a result of which the employer filed a writ before the learned Single Bench, which was dismissed on the grounds that the employer should have approached the Appellant Authority under the Gratuity Act.

The employer being aggrieved by this preferred to file an Intra Court Writ before the Division Bench which observed that the employer was not removed from service and the rules formed by the Employer cannot be equated to a Statute and therefore, the CDA rules have to be considered subject to the provisions of the Payment of Gratuity Act, directed the Employer to release the amount of Gratuity. Thus, the Employer preferred this appeal before the Hon’ble Apex Court.


  • The first and the most important question put forth was whether it is permissible for an employer to withhold the payment of gratuity of an employee because of some pendency in an enquiry even when the employee has been retired from service due to superannuation?
  • The second question put forth was that if any departmental enquiry had been initiated against any employee while he was in service and continued even after his retirement, whether the punishment of disposal can be imposed if found guilty in view of the provisions specified under Rule 34.2 of the CDA Rules of 1978?


The employer who is the appellants of the case rested on the contention that for the purpose of a departmental enquiry under rule 34.2 of the CDA Rules, even a retired employee is served as a serving employee provided that the enquiry was initiated while he/she was in service. If the employee is found guilty then a major penalty of dismissal can be imposed even after retirement. The employer also contended that it was right of him to withhold the payment of gratuity as per Rule 34.3 in order to recover all the losses suffered by the company or the organisation due to the misconduct of the employer if he/she is found guilty.


As far as the first question is concerned, the employee was contented that withholding promotions and increments, removal and dismissal, etc are all applicable only till the time the employee is in service or rejoins the service and not after the employee’s retirement. He further also stated that as per Rule 34.2, only the enquiry is deemed to be continued and conducted if the employee was still in service and the order of dismissal cannot be passed after his/her final retirement.

In regards to the second question in view, he argued that he had attained the age of 60 and was superannuated from the service therefore he had completed the specified requirement under section 4(1) of the Payment of Gratuity Act and thus was eligible for gratuity. Thus, in absence of any possibility of dismissal/ removal from service after final retirement, the gratuity payable to the Respondent can be withheld.


The Court stated that the CDA Rules which were framed by the employer were applicable to all the employees and by virtue of those rules an employee is deemed to be in service even after he has attained the age of superannuation for a limited period of time for the sole purpose of the completion of the enquiry initiated against him. Therefore, once the enquiry is concluded, any of the punishments prescribed under rule 27 can be imposed, including that of the dismissal of the employee and the section 4(6) of the Payment of Gratuity Act can also be attracted and thus the payment can be withheld by the employer.

The Court further stated that it would go against the public policy to let the employee go scot-free and provide him with various service benefits which he is not entitled to, also the benefit of him attaining the age of superannuation would not come to his rescue and would amount condonation of guilt. The various provisions of the Gratuity Act discussed above do not come in the way of the inquiry initiated and as per section 4(6) and Rule34.3 in case of any dismissal the gratuity payment can be forfeited partially or wholly and the loss can also be recovered.

The Court also discussed the areas of conflict between the Rules and the Payment Act we reiterate that the Act does not deal with the matter of disciplinary inquiry, it contemplates recovery from or forfeiture of gratuity wholly or partially as per misconduct committed and does not deal with punishments to be imposed and does not supersede the Rules 34.2 and 34.3 of the CDA Rules. The mandate of Section 4(6) of recovery of loss provided under Section 4(6)(a) and forfeiture of gratuity wholly or partially under Section 4(6)(b) is furthered by Rules 34.2 and 34.3.

If there cannot be any dismissal after superannuation, the intendment of the provisions of Section 4(6) would be defeated. The provisions of section 4(1) and 4(6) of Payment of Gratuity Act, 1972  have to be given purposive interpretation,  and  no way holding of the departmental inquiry and punishment be imposed is not the subject matter dealt with under the Act.”


The Hon’ble Apex Court held that as per the virtue of Rule 34.3 the employer can withhold the payment of gratuity during the pendency of a departmental inquiry. Further, in its view, it’s stated that if the employee is held guilty, then a penalty indeed can be inflicted even if he/she stood retired from service and what should be the nature of the penalty is always depend on the relevant scheme of Rules and on the facts and circumstances of each case, but either of the substantive penalties specified under Rule 27 of the Rules, 1978 including dismissal from service is not open to being inflicted on conclusion of the disciplinary proceedings and the punishment of forfeiture of gratuity commensurate with the nature of guilt may be inflicted upon a delinquent employee provided under Rule 34.3 of Rules, 1978 read with subsection (6) of Section 4 of the Act, 1972.

I also strongly support the Court’s decision that the disciplinary authority should proceed and conclude the pending disciplinary proceedings expeditiously and take a final decision in accordance with the scheme of Rules, 1978 read with subsection (6) of Section 4 of the Payment of Gratuity Act, 1972. According to my point of view, this decision was very much needed as the company or the organisation would still have some security so as to recover its losses which it had to bear due to the misconduct of the employee. Also, the Court had passed the decision on the grounds of equity and that gratuity was offered as a security.

Author Anshika Sharma is a second-year law student from ILS LAW COLLEGE, PUNE. She strongly believes that such a decision was very much needed to provide security for any organisation and treat everyone with equity and justice.

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