Supreme Court of India
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & ORS. ETC.versusK. CHANDRAN ETC.
- Citation
- 2022 INSC 310
- Decided
- 15 March 2022
- Disposal
- Appeal(s) allowed
- Bench
- SANJAY KISHAN KAUL
Holding
Rule 3A must be read in conjunction with Rule 3, Note 2 and Ruling 3, allowing the State to withhold DCRG until the conclusion of any disciplinary or judicial proceedings, including a pending criminal appeal.
Summary
The Supreme Court examined whether a government employee convicted of corruption, with a criminal appeal pending, is entitled to his death‑cum‑retirement gratuity (DCRG) under the Kerala Service Rules. The Court held that Rule 3A cannot be read in isolation; it must be read together with Rule 3, Note 2 and Ruling 3, which together allow the State to withhold DCRG until any disciplinary or judicial proceedings, including a pending appeal, are finally resolved. Consequently, the High Court’s decision to release the DCRG was set aside. The Court clarified that the Gratuity Act does not bar forfeiture of DCRG in such cases and that the State may recover liabilities from the DCRG after giving the employee a reasonable opportunity to explain. The appeals filed by the Secretary, Local Self‑Government Department were allowed, restoring the State’s right to withhold the gratuity.
Issues considered
- Whether a conviction in a criminal case with an appeal pending bars the release of DCRG under Kerala Service Rules.
- How Rule 3A of the Kerala Service Rules should be interpreted – independently or in conjunction with Rule 3, Note 2 and Ruling 3.
- Whether the High Court correctly read down Rule 3A to permit payment of DCRG pending appeal.
- Whether provisions of the Payment of Gratuity Act, 1972 apply to government employees in this context.
Legislation cited
- Indian Penal Code, 1860s. Section 120B
- Kerala Financial Codes. Clause 303A(4)
- Kerala Service Ruless. Note 2, s. Rule 3, s. Rule 3A, s. Ruling 3
- Payment of Gratuity Act, 1972s. Section 4(6), s. Section 4(6)(a), s. Section 4(6)(b)
- Prevention of Corruption Act, 1998s. Section 13(1)(d), s. Section 13(2), s. Section 7
Subjects
Service lawDeath-cum-Retirement GratuityKerala Service RulesRule 3ACriminal convictionPending appealWithholding of pensionGratuity ActDepartmental proceedingsJudicial proceedings
Judgment
[2022] 4 S.C.R. 287
THE SECRETARY, LOCAL SELF GOVERNMENT
DEPARTMENT & ORS. ETC.
v.
K. CHANDRAN ETC.
(Civil Appeal Nos.7437-7438 of 2021)
MARCH 15, 2022
[SANJAY KISHAN KAUL AND M. M. SUNDRESH, JJ.]
Service Law – Death-cum-Retirement Gratuity (DCRG) –
Kerala Service Rule – Rules 3 & 3A – Interpretation of – On
conviction in a criminal case for violation of integrity norms in
performance of official duties and an appeal pending before the
High Court, whether the employee is still entitled to the release of
his DCRG – Held: Rule 3A cannot be read in isolation nor the latter
part of it struck down – Rule 3, Note 2, Ruling 3, and Rule 3A have
to be read in conjunction as they provide for the treatment of the
DCRG in case of disciplinary or judicial proceedings pending at
the stage of retirement – Even in absence of these proceedings in
certain eventualities the amounts can be recovered from the DCRG
– An appeal is a continuation of the proceedings in trial and would
be, thus, a continuation of judicial proceedings – Pendency of the
appeal cannot disentitle the State from withholding the DCRG,
considering that it is a hiatus period within which certain
arrangements have to be made which would be dependent on the
outcome of the appeal – It cannot be opined that the DCRG would
have to be released pending consideration of the criminal appeal.
Allowing the appeals, the Court
HELD:1. The very objectives of holding back pension or
the DCRG must be kept in mind. One can be to recover the
amounts found due from the delinquent employee of any nature
whatsoever after appropriate notice and proceedings. The second
eventuality is if an employee is dismissed from service. It can
hardly be doubted that in the second eventuality of the dismissal
from service the employee would lose all retirement benefits.
[Para 28][303-B-C]
287
288 SUPREME COURT REPORTS [2022] 4 S.C.R.
A 2. The important aspect is whether Rule 3A is to be
construed in the context of Rule 3 or should be read
independently of itself. The High Court seeks to take a view that
Rule 3A is in a sense assisting Rule 3 and does not have any
independent existence. One is unable to agree to this line of
reasoning. Rule 3 commences where the Government reserves
B
to themselves the right to withhold or withdraw a pension or any
part of it, whether permanently or for a specified period, and all
its ramifications. Certain protective provisions have been made
even in that eventuality. This provision is applicable to pension
is clarified by Note 2, as it is stipulated that the word ‘pension’
C would not include DCRG. Thus, DCRG and pension have been
dealt with as separate aspects. However, Note 2 provides that
the liabilities fixed against an employee or a pensioner can be
recovered from DCRG without the departmental/judicial
proceedings referred to in this Rule but after giving an employee
D or pensioner concerned a reasonable opportunity to explain. Rule
3A starts which refers to the grant of provisional pension not
exceeding the maximum pension which would have been
admissible on retirement where departmental or judicial
proceedings have been initiated under Rule 3. It is clearly
stipulated that no gratuity or DCRG shall be paid to him until the
E conclusion of such proceedings and the issuance of final order
thereof. [Paras 31-35][304-B, E-G; 305-B-C]
3. The High Court has introduced a new legislation by
undertaking the exercise of reading down. There is absolutely
no need to do so when the language of the rule is so clear
F conveying its intended meaning without any ambiguity. Rule 3A
cannot be read in isolation nor the latter part of it struck down as
done by the High Court. Rule 3, Note 2, Ruling 3, and Rule 3A
have to be read in conjunction as they provide for the treatment
of the DCRG in case of disciplinary or judicial proceedings
G pending at the stage of retirement. Even in the absence of these
proceedings in certain eventualities the amounts can be
recovered from the DCRG. [Paras 36 & 37][305-C-E]
H
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & 289
ORS. ETC. v. K. CHANDRAN ETC.
4. Also, it is a very restrictive view to disburse DCRG on A
account of the proceedings against a pensioner coming to an end,
even where a conviction has arisen. This is especially so where
the convicted person has availed of the remedy of appeal. The
pendency of the appeal cannot disentitle the State from
withholding the DCRG, considering that it is a hiatus period within
B
which certain arrangements have to be made which would be
dependent on the outcome of the appeal. It cannot be opined
that the DCRG would have to be released pending consideration
of the criminal appeal. [Paras 39 and 42][307-D, E-F; 308-A-B]
Chairman-cum-Managing Director, Mahanadi Coalfields
C
v. Rabindranath Choubey (2020) 18 SCC 71 – relied
on.
Case Law Reference
(2020) 18 SCC 71 relied on Para 24
D
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 7437-
7438 of 2021.
From the Judgment and Order dated 08.09.2020 of the High Court
of Kerala at Ernakulam in O.P. (KAT) Nos.78 of 2015 and 428 of 2019.
With E
Civil Appeal Nos. 7440 and 7441 of 2021.
C. K. Sasi, Abdulla Naseeh V. T., Ms. Meena K. P., Roy Abraham,
Ms. Reena Roy, Akhil Abraham, Himinder Lal, Deepak Goel, Kamal
Kr. Pandey, Ms. Madhvi Gupta, P. K. Manohar, Renjith B. Marar, Ms. F
Lakshmi N. Kaimal, M. J. Santhosh, Ms. Surabhi Santosh, Arun Poomulli,
Ms. Srilakshmi Nair, Ms. Aiswarya Thankachan, Anil Sharma, Advs.
for the appearing parties.
The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J. G
1. On the conviction in a criminal case for violation of integrity
norms in performance of official duties and an appeal pending before
the High Court, is the employee still entitled to the release of his Death-
H
290 SUPREME COURT REPORTS [2022] 4 S.C.R.
A cum-Retirement Gratuity (for short ‘DCRG’) is the moot point arising
for consideration in the present appeals. We are, in fact, examining a
Full Bench judgment of the Kerala High Court which resolved the conflict
of view of the Division Benches and ruled in favour of the employees.
The controversy having been set down, the Government of Kerala, which
is naturally aggrieved by the decision of the Full Bench is before us on
B
the aforesaid issue.
Factual Background:
2. In the main appeal before us, the question of law is the same
but the facts differ in the two cases of the two employees.
C
3. (A) K. Chandran, the respondent in the appeal was working
as Village Extension Officer, Noolaphuza. In the course of his employment
the Vigilance Department registered a crime under Sections 7, 13(1)(d)
read with Section 13(2) of the Prevention of Corruption Act, 1998
(hereinafter referred to as the ‘PC Act’) alleging that he had received
D Rs.500 as bribe from one K.K. Mohanan. Mr. Chandran was suspended
from service on 27.10.2006 and was reinstated in service on 01.03.2008.
He retired from service on 31.03.2011 on superannuation while working
as the General Extension Officer in Wayanad.
4. The Inquiry Commissioner and Special Judge, Kozhikode
E convicted K. Chandran vide judgment dated 29.07.2011 in CC No.13/
2008 and sentenced him to undergo rigorous imprisonment (for short
‘RI’) for 2 years and a fine of Rs.5,000. Aggrieved by the same, K.
Chandran filed an appeal before the High Court of Kerala, which was
registered as Crl. A. No.6053/2013. The appeal was admitted and the
F sentence was suspended in the meantime.
5. K. Chandran submitted a request before the Accountant
General to release his DCRG in 2014. On not receiving a favourable
response, he filed an application numbered O.A.(EKM) No.104/2014
before the Kerala Administrative Tribunal (for short ‘KAT’), which
G dismissed his application on 09.12.2014 on the ground that judicial
proceedings had been concluded and K. Chandran had been convicted.
The issue which arose pertained to the intent and purport of Rule 3A
of Part III of the Kerala Service Rules (for short ‘KSR’), which was
stated to require the outcome of departmental or judicial proceedings
to be concluded for the release of DCRG. Thus, if the criminal case
H
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & 291
ORS. ETC. v. K. CHANDRAN ETC. [SANJAY KISHAN KAUL, J.]
went against K. Chandran, it had to be withheld or otherwise it had to A
be released. It was opined that K. Chandran being a convict and that
too for receiving a bribe, could not claim entitlement to the DCRG and,
thus, accepting his application would defeat the very purpose of the
Rule.
6. (B) D. Alexander, another respondent in this matter allegedly B
committed an offence punishable under Section 120B of the Indian Penal
Code, 1860 (hereinafter referred to as the ‘IPC’) and Sections 7, 13(1)(d)
read with Section 13(2) of the PC Act while he was in service and a
vigilance case was initiated against him. He was suspended from service
on 28.11.2003 and was reinstated in service on 29.03.2004. He retired C
from service on 30.04.2004 on superannuation while working as the
Taluk Supply Officer of Mukundapuram, Irinjalakuda.
7. The Inquiry Commissioner and Special Judge, Thrissur
convicted D. Alexander vide judgment dated 11.07.2014 in CC No.07/
2006 and sentenced him to undergo RI for 2 years and a fine of Rs.2,000. D
An appeal was filed before the High Court of Kerala, being Crl. A.
No.672/2014, the same was admitted and the sentence suspended pending
the disposal of the appeal which is still pending before the High Court of
Kerala.
8. D. Alexander was also aggrieved by the non-issuance of the E
DCRG and, thus, filed O.A. No.300 of 2015 before the KAT.
9. He submitted that the DCRG can only be withheld only until
the proceedings against an employee are concluded. The vigilance case
against him had already been concluded in terms of the judgment dated
F
11.07.2014. The KAT, however, observed that the pensionary claims of
D. Alexander had been duly admitted but only provisional pension was
granted to him since a vigilance inquiry was pending against him at the
time of retirement.
10. It was opined that the appeal instituted by D. Alexander was G
not capable of being treated as a proceeding against him and therefore,
no judicial proceedings were pending against him. The KAT directed the
State to release the DCRG and other pensionary benefits of D. Alexander
without any delay, within a period of three months from the date of
receipt of the order.
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292 SUPREME COURT REPORTS [2022] 4 S.C.R.
A 11. We thus set forth the factual matrix of the two cases wherein
different conclusions were reached on the interpretation of the rules.
We may also note here that the Government of Kerala had issued specific
guidelines on 27.03.2002 directing the authorities to finalise departmental
action or vigilance inquiries within one year of the retirement. That period
expired a long time ago. Thus, there is no issue here of any future
B
departmental proceedings being initiated irrespective of the results of
the criminal appeals. The result of the appeals or any proceeding arising
further would determine the fate of the respondents insofar as the charge
against them is concerned. The only issue, thus, to be examined by the
High Court was whether pending criminal appeal, and with the sentence
C being suspended, could the DCRG be directed to be released on the
construction of the applicable rules.
12. In the two factual matrices referred to, K. Chandran
approached the High Court of Kerala in O.P.(KAT) No.78/2015 seeking
to set aside the order and requiring the disbursement of DCRG within a
D fixed time, while the State in the latter matter of D. Alexander approached
the High Court of Kerala in O.P.(KAT) No.428/2019 for setting aside of
the relief which had been granted to the employee.
13. In view of there being a divergence of opinion, the Division
Bench considered it appropriate to refer the matter to a larger Bench as
E the two applications before the KAT had produced different results.
The High Court proceedings:
14. The State of Kerala sought to advance a plea that normally
there cannot be any proceedings continued against a Government servant
F after retirement as the employer-employee relationship does not subsist.
However, Rule 3 in the KSR deems continuation of service in the case
of a delinquent servant even after superannuation if any departmental or
judicial proceedings are initiated, for the limited purpose of their
finalisation. A punishment under Rule 3 could be for grave misconduct
or negligence which may also lead to dismissal. In the event of an order
G of dismissal being passed, even after retirement, the Government servant
would have to forfeit his pension and DCRG.
15. On the other hand, the counsel for K. Chandran and D.
Alexander sought to canvas the valuable right of a Government servant
flowing from service rules. As a consequence, any action could only be
H
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & 293
ORS. ETC. v. K. CHANDRAN ETC. [SANJAY KISHAN KAUL, J.]
taken against pension and not against DCRG. There was contended to A
be no enabling provision allowing automatic forfeiture of DCRG on
conviction in a criminal proceedings and hence it cannot be withheld
even if the proceedings culminate adversely against the employee.
16. The High Court in terms of the impugned judgment dated
08.09.2020 opined in favour of the respondent-employees. Rule 3 of B
the KSR was read as empowering the Government to punish the
delinquent employee by withholding, withdrawing or reducing, for a
specified period or permanently, the pension payable or to order
recovery for any pecuniary loss, but again only from the pension. The
same could not be done from the DCRG. Rule 3A of the KSR was C
opined to be only tailored towards the effective implementation of Rule
3 and could not have any separate or distinct consequences. Rule 3A
having two parts, it was opined that the first part dealt with certain
conditions on the disbursal of pension in the cases of a continuing
proceeding while the second part allowed DCRG or gratuity to be
withheld until the conclusion of the proceedings. The second part was D
held to have an unnecessary penalising effect on an employee while
proceedings are pending and would have onerous consequences if the
proceedings ended in exoneration. This was so as the provision did not
contemplate any modality for recompensation if the DCRG is paid
after a long period of time. E
17. The High Court also referred to Ruling Nos. 2 & 3 under Rule
3 of the KSR providing that the disciplinary authority was only empowered
to reach a finding and the ultimate action could only be taken by the
Public Service Commission. The conclusion, thus, sought to be drawn
was that it showed that the Government was conscious of the deleterious F
effect of withholding of pension on an employee. Note 2 to Rule 3 provided
that the word ‘pension’ did not include DCRG and, thus, liabilities could
be recovered from DCRG only after giving the employee a reasonable
opportunity to explain. Ruling 3 clarified that consent was not necessary
from the employee before recovering the same and only a communication
G
of such liability was necessary.
18. In view of the aforesaid, it was held that the recovery under
Rule 3 could only be against pension and not DCRG, and Rule 3A insofar
as it permitted DCRG to be withheld was struck down.
H
294 SUPREME COURT REPORTS [2022] 4 S.C.R.
A The Rules:
19. The relevant Rules of the KSR read as under:
“THE KERALA SERVICE RULES
PART III
B PENSION
CHAPTER I
SECTION 1 – General Rules”
xxxx xxxx xxxx xxxx
C “3 The Government reserve to themselves the right of withholding
or withdrawing a pension or any part of it, whether permanently
or for a specified period, and the right of ordering the recovery
from a pension of the whole or part of any pecuniary loss caused
to government if in a departmental or judicial proceeding, the
pensioner is found guilty of grave misconduct or negligence during
D
the period of his service, including service rendered upon re-
employment after retirement:
Provided that –
(a) such departmental proceeding, if instituted while the employee
E was in service, whether before his retirement or during his re-
employment, shall after the final retirement of the employee, be
deemed to be a proceeding under this rule and shall be continued
and concluded by the authority by which it was commenced in
the same manner as if the employee had continued in service;
F (b) such departmental proceeding, if not instituted while the
employee was in service, whether before his retirement or during
his reemployment,-
(i) shall not be instituted save with the sanction of the Government;
(ii) shall not be in respect of any event which took place more
G than four years before such institution; and
(iii) shall be conducted by such authority and in such place as the
Government may direct and in accordance with the procedure
applicable to departmental proceeding in which an order of
dismissal from service could be made in relation to the employee
H during his service;
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & 295
ORS. ETC. v. K. CHANDRAN ETC. [SANJAY KISHAN KAUL, J.]
(c) no such judicial proceedings, if not instituted while the employee A
was in service whether before his retirement or during his
reemployment, shall be instituted, save with the sanction of the
Government, in respect of a cause of action which arose or an
event which took place more than four years before such institution
and;
B
(d) The public Service Commission shall be consulted before final
orders are passed.
Explanation: - For the purpose of this rule –
(a) a departmental proceeding shall be deemed to be instituted on C
the date on which the statement of charges is issued to the
employee or pensioner or if the employees has been placed under
suspension from an earlier date, on such date; and
(b) a judicial proceeding shall be deemed to be instituted-
(i) in the case of a criminal proceeding, on the date on which the D
complaint or report of police officer on which the Magistrate takes
cognizance, is made, and
(ii) in the case of a civil proceeding, on the date of presentation of
the plaint in the Court.
E
Note1.- As soon as proceedings of the nature referred to in this
rule are instituted the authority which institutes such proceedings
should without delay intimate the fact to the Audit Officer. The
amount of pension withheld under this rule should not ordinarily
exceed one–third of the pension originally sanctioned. In fixing
the amount of pension to be so withheld regard should be had to F
the consideration whether the amount of the pension left to the
pensioner in any case would be adequate for his maintenance.
Note2.- The word ‘pension’ used in this rule does not include
death-cum-retirement-gratuity. Liabilities fixed against an
employee or pensioner can be recovered from the death-cum- G
retirement-gratuity payable to him without the departmental /
judicial proceedings referred to in this rule, but after giving the
employee or pensioner concerned a reasonable opportunity to
explain.
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296 SUPREME COURT REPORTS [2022] 4 S.C.R.
A Note-3 The liabilities of an employee should be quantified either
before or after retirement and intimated to him before retirement
within a period of three years on becoming pensioner. The liabilities
of pensioner should be quantified and intimated to him.
RULING No. 1
B Amounts due from a Government employee or pensioner to
Government Companies, Local Bodies, Co-operative Societies,
etc., though not treated as Government dues may be recovered
from the death-cum-retirement gratuity payable to him with his
consent in writing.
C RULING No. 2
According to proviso (a) under this rule, departmental proceedings,
if instituted while the employee was in service, whether before
his retirement or during his reemployment, shall after the final
retirement of the employee be deemed to be a proceeding under
D this rule and shall be continued and concluded by the authority by
which it was commenced in the same manner as if the employee
had continued in service. A doubt was raised as to whether in the
case of an employee whose case falls within the purview of the
proviso and proceedings against whom were instituted by an
E authority subordinate to Government, order for withdrawal/
withholding of pension can be passed by the subordinate authority
on the conclusion of the proceedings. The function of the
Disciplinary Authority is only to reach a finding on the charge and
to submit a report recording its findings to the Government.
Government will then consider the findings and take a final decision.
F In case Government decide to take further action under Rule 3
the Government will serve the person concerned with a show-
cause notice specifying the action proposed to be taken under this
rule and the person concerned will be required to submit his reply
to the show-cause notice within such time as may be specified by
G the Government. The Government will consider the reply in
consultation with the Public Service commission and pass
necessary orders in the name of the Governor.
The above procedure in regard to the issue of show-cause notice
will also apply to a case where the Governor functions as the
Disciplinary Authority.
H
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & 297
ORS. ETC. v. K. CHANDRAN ETC. [SANJAY KISHAN KAUL, J.]
RULING No. 3 A
The note 2 above does not mean that the employee’s or pensioner’s
consent should be obtained for recovering the liabilities from the
death-cum-retirement gratuity payable to him. What it
contemplated is only a communication of such liabilities to him so
as to enable him to submit his explanation before the recovery is B
effected. It should be specifically stated in the communication
that if no reply is received within 30 days of its issue, it will be
presumed that the employee or pensioner has no explanation to
offer and that further action will be taken on that basis.
3-A. (a) Where any departmental or judicial proceedings is instituted C
under Rule 3 or where a departmental proceeding is continued
under clause (a) of the proviso thereto, against an employee who
has retired on attaining the age of compulsory retirement or
otherwise he shall be paid during the period commencing from
the date of his retirement to the date on which, upon conclusion of
such proceeding final orders are passed, a provisional pension not D
exceeding the maximum pension which would have been
admissible on the basis of his qualifying service up to the date of
retirement, or if he was under suspension on the date of retirement
up to the date immediately preceding the date on which he was
placed under suspension, but no gratuity or death-cum-retirement E
gratuity shall be paid to him until the conclusion of such proceeding
and the issue of final orders thereon.
(b) Payment of provisional pension made under clause (a) shall
be adjusted against the final retirement benefits sanctioned to such
employee upon conclusion of the aforesaid proceeding, but no F
recovery shall be made where the pension finally sanctioned is
less than the provisional pension or the pension is reduced or
withheld either permanently or for a specified period.
Note:- The grant of pension under this rule shall not prejudice
operation of Rule 59 when final pension is sanctioned upon G
conclusion of the proceeding.”
The Appellant’s submissions:
20. Learned counsel for the appellant contended that Rule 3
reserves with the Government the right to withhold or withdraw pension
and the proviso stipulates that if such departmental proceedings are H
298 SUPREME COURT REPORTS [2022] 4 S.C.R.
A instituted while an employee was in service, they are to be deemed to be
proceedings under this Rule even post retirement. Note 2 to Rule 3 of
the KSR states that the liabilities against an employee or pensioner can
be recovered from the DCRG without any departmental or judicial
proceedings but after giving such a person a reasonable opportunity to
explain. Thus, DCRG can be utilised to compensate the losses of the
B
department. Ruling 1 to Rule 3 states that the amounts due from a
Government employee or pensioner may be recovered though not
treated as Government dues. It was, thus, contended that Rule 3 allows
recovery of amounts due to the Government from DCRG even as
recovery from pension is restricted so as to enable the pensioner to
C maintain themselves.
21. Rule 3A was contended to be applicable to departmental/judicial
proceedings which had not concluded. Thus, it provided for payment of
provisional pension to an employee and was independent of what has
been observed in Rule 3. His contention was that the High Court
D proceeded on a wrong premise that Rule 3A was only for effective
implementation of Rule 3.
22. A reference was also made to Clause 303A(4) of the Kerala
Financial Code, Volume I, which provides that a loss sustained by the
Government can be recovered from the DCRG. The relevant portion
E reads as under:
“General principles and procedure for fixing and
enforcing responsibility for losses
303A. The following general principles should be followed in
enforcing the personal responsibility of the Government servant
F or servants concerned for a loss sustained by the Government
through fraud or negligence on his part or on the part of any other
Government servant to the extent be contributed to the loss by his
own action or negligence and of any person for a loss sustained
by the Government on account of a criminal offence committed
G by him:—”
xxxx xxxx xxxx xxxx
“(4). (a) In cases where a competent authority holds that a
Government servant is responsible for a loss sustained by the
Government and orders that any amount should be recovered from
H him and he is about to retire from service, the amount should be
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & 299
ORS. ETC. v. K. CHANDRAN ETC. [SANJAY KISHAN KAUL, J.]
recovered as far as possible by deduction from the last pay and A
allowances or leave salary due to him. If the amount due to
Government exceeds the amount payable to the Government
servant, the excess shall be recovered from his claim for death-
cum-retirement-gratuity after giving the officer a reasonable
opportunity to explain. If the amount proposed to be recovered
B
exceeds the death-cum-retirement-gratuity, the excess over death-
cum-retirement-gratuity can be recovered from the arrears of
pension, if any, due to the officer if written consent is obtained
from him as pension (as distinct from death-cum-retirement-
gratuity) enjoys the protection of the ‘Pension Act’. A written
consent is valid only to the extent it covers the amount of pension C
earned by him till the date of such written consent.
(b) If, however, the liabilities could not be finalised but could be
estimated at the time of retirement, either the estimated amount
of the outstanding dues plus 25 per cent thereof should be withheld
from death-cum-retirement-gratuity or a surety bond or cash D
deposit not exceeding the estimated amount of the outstanding
dues plus 25 per cent thereof should be accepted before releasing
pension and death-cum-retirement gratuity.
(c) If disciplinary proceedings are being continued against an
officer under the Service Rules on the date of retirement, only a E
provisional pension should be sanctioned to him withholding
however, the entire death-cum-retirement-gratuity due to him.
(d) In cases where the liabilities could not be estimated the pension
and death-cum-retirement-gratuity will be released provisionally
after withholding from the death-cum-retirement gratuity the F
amount noted below:
(1) Officers in charge of cash The full amount of death-cum-
or stores retirement gratuity.
(2) Gazetted Officers other 10 per cent of the death-cum-
than those in (1) above retirement gratuity or Rs. 2,000 G
whichever is higher.
(3) Non-Gazetted Officers 10 per cent of the death-cum-
other than (1) retirement gratuity or Rs. 600
whichever is higher
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300 SUPREME COURT REPORTS [2022] 4 S.C.R.
A In all cases where the liabilities could not be assessed and fixed
before retirement of the Government servants, efforts should be
made to assess and adjust the recoverable dues within a period of
one year from the date of retirement of the Government servant
concerned. If in any case, the liability could not be assessed and
adjusted within one year, the amount withheld from the death-
B
cum-retirement gratuity or the surety bond or cash deposit accepted
under paragraph (c) or (d) above will be released. Disciplinary action
shall be taken against the officers responsible for the failure to assess
and adjust the liabilities within the prescribed period.
(e) If in any case the amount withheld from the death-cum-
C retirement gratuity or the cash deposit, or the surety bond taken
from the officer is not adequate to cover the liabilities finally fixed,
action should be taken against him under the Service Rules to
make up the loss by withholding, withdrawing or effecting
recoveries from the pensions sanctioned. If action under the Service
D Rules is not possible due to the expiry of the time limit prescribed
for such action or due to any other reason, the retired officer will
be proceeded against through a Civil Court for recovering the
pecuniary loss caused to Government.
(f) When a retired Government servant whose pension has already
E been sanctioned is held to have caused a loss to the Government
by fraud or negligence while in service and it appears likely that
the amount could be recovered by bringing a suit against him, the
matter should be reported to the Government for orders. If in any
particular case, it is not found feasible to take action against a
retired Government servant in regard to a loss sustained by the
F Government on account of any fraud or negligence found to have
been committed by him while in service, this should not be made
an excuse for absolving any other Government servants who are
also responsible for the loss and are still in service. Similarly, the
fact that it is not possible to fix responsibility on the officials who
G initiated or acquiesced in the initiation of any irregularity resulting
in loss to Government will not exonerate those who subsequently
acquiesced in the continuation of the irregularity. It is the duty of
all Government officials to look after the financial interests of
Government and Government will hold their officers responsible
for such irregularities, not only those who originated them but also
H those who subsequently permitted their continuance.”
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & 301
ORS. ETC. v. K. CHANDRAN ETC. [SANJAY KISHAN KAUL, J.]
23. In view of the aforesaid provision, it was contended that Rule A
3A is necessary for temporary forfeiture of DCRG during pendency of
departmental proceedings. Another contention sought to be raised was
that Section 4(6)(b) of the Payment of Gratuity Act, 1972 (hereinafter
referred to as the ‘Gratuity Act’) enables forfeiture of gratuity if the
service of an employee has been terminated. Thus, unless a provision
B
for forfeiture of DCRG during pendency of proceedings is maintained,
no forfeiture at all can be effected after the disciplinary proceedings are
complete and the observations of the High Court would render Section
4(6)(b) otiose. The relevant provision reads as under:
“4. Payment of gratuity. – (1) Gratuity shall be payable to an
C
employee on the termination of his employment after he has
rendered continuous service for not less than five years, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:” D
xxxx xxxx xxxx xxxx
“(6) Notwithstanding anything contained in sub-section (1), -
(a) the gratuity of an employee, whose services have been
terminated for any act, wilful omission or negligence causing any E
damage or loss to, or destruction of, property belonging to the
employer, shall be forfeited to the extent of the damage or loss so
caused.
(b) the gratuity payable to an employee may be wholly or partially
forfeited] - F
(i) if the services of such employee have been terminated for his
riotous or disorderly conduct or any other act of violence on his
part, or
(ii) if the services of such employee have been terminated for any G
act which constitutes an offence involving moral turpitude, provided
that such offence is committed by him in the course of his
employment.”
24. Learned counsel for the appellant submitted that the issue
was really no more res integra in view of the judgment of this Court in
H
302 SUPREME COURT REPORTS [2022] 4 S.C.R.
A Chairman-cum-Managing Director, Mahanadi Coalfields v.
Rabindranath Choubey1 opining that an employer can withhold payment
of gratuity even after retirement due to pendency of disciplinary
proceedings until the same are concluded and that the High Court had
incorrectly distinguished the judgment on the ground that the KSR did
not have a provision for recovery of gratuity.
B
The Respondent’s submissions:
25. Learned counsel for the respondent, on the other hand
defended the High Court’s judgment and submitted that Chairman-cum-
Managing Director, Mahanadi Coalfields2 of this Court interpreted
C the provisions of the Conduct, Discipline and Appeal Rules, 1978, which
are the rules of a private company and provided for withholding of gratuity.
The KSR stood on a different footing and did not empower the
Government to withhold or recover any amount from the DCRG. Further,
the Gratuity Act did not apply to Government employees of the State. In
this behalf a reference was made to the definition of “employee” under
D Section 2(e) of the Gratuity Act, which reads as under:
“2. Definitions.—In this Act, unless the context otherwise
requires, -”
xxxx xxxx xxxx xxxx
E “(e) “employee” means any person (other than an apprentice)
employed on wages, in any establishment, factory, mine, oilfield,
plantation, port, railway company or shop to do any skilled, semi-
skilled, or unskilled, manual, supervisory, technical or clerical work,
whether the terms of such employment are express or implied,
F [and whether or not such person is employed in a managerial or
administrative capacity, but does not include any such person who
holds a post under the Central Government or a State Government
and is governed by any other Act or by any rules providing for
payment of gratuity].
26. It was submitted that there is a specific exclusion of a person
G
who holds the post under the Central or a State Government and is
governed by any other Act or by any rules providing for payment of
gratuity.
1
(2020) 18 SCC 71
2
H (supra)
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & 303
ORS. ETC. v. K. CHANDRAN ETC. [SANJAY KISHAN KAUL, J.]
Our View: A
27. We have given thought to the matter and find it difficult to
sustain the judgment of the High Court on the interpretation of the Rules.
28. We must keep in mind the very objectives of holding back
pension or the DCRG. One can be to recover the amounts found due
from the delinquent employee of any nature whatsoever after appropriate B
notice and proceedings. The second eventuality is if an employee is
dismissed from service. It can hardly be doubted that in the second
eventuality of the dismissal from service the employee would lose all
retirement benefits.
29. In the present case separate departmental proceedings have C
not been concluded within the given timeframe. The State in its wisdom
has deemed it appropriate to await the outcome of the criminal
proceedings. The result of this would mean that the State would still be
empowered to dismiss an employee from service based on the conviction
in the criminal case. The State cannot have an opportunity to have separate
D
disciplinary proceedings even if the acquittal takes place. If this were
the intention, the departmental proceedings should have been concluded
in the stipulated time. We are conscious of the fact that a mere acquittal
in a criminal case would not imply that no action can be taken in
departmental proceedings. However, the choice was with the State
Government as to whether they would like to hold separate departmental E
proceedings or go by the final view of the criminal court, the latter is
naturally based not on preponderance of probabilities but on proof beyond
reasonable doubt. It is the latter course which the State has followed.
Thus, an employee’s entitlement to all benefits and the right not to be
now dismissed from service all inure if the criminal proceedings conclude
in favour of the employee. However, were these proceedings to be F
concluded against the employee and the conviction upheld it cannot be
said that the department would still be required to pay all the retirement
benefits. The department can also pass an order of dismissal based solely
on the criminal conviction.
30. The aforesaid being the position, the question is as to what G
should be done in the hiatus period as per the Rules.
31. The KSR do provide for a provisional pension so that the
economic sustenance requirements of an employee are taken care of.
The provisional pension cannot be more than the actual pension. It is
nobody’s case that the respondents-employees are not getting provisional H
304 SUPREME COURT REPORTS [2022] 4 S.C.R.
A pension. Note 1 to Rule 3 clarifies that even if the pension is finally
withheld, ordinarily the withheld portion should not be more than 1/3rd of
the pension originally sanctioned, as the issue of sustainability comes to
the fore. However, there is no such limitation on the DCRG. The important
aspect is whether Rule 3A is to be construed in the context of Rule 3 or
should be read independently of itself. The High Court seeks to take a
B
view that Rule 3A is in a sense assisting Rule 3 and does not have any
independent existence.
32. We are unable to agree to this line of reasoning.
33. Rule 1 to Part III of the KSR begins with the entitlement of
C pension of all employees to whom the service rules apply. Rule 2
stipulates that future good conduct shall be an implied condition of every
grant of a pension and there is entitlement to withhold or withdraw a
pension or part thereof whether permanently or for a specified period.
In terms of Rule 2(b), where a pensioner is convicted of a serious crime
by a court of law, action under clause (a) shall be taken in the light of the
D judgment of the court relating to such conviction. In the facts of the case
it can hardly be said that the conviction on the ground of corruption
would not be classified as a serious crime for a person holding a public
post. In terms of clause (c) of Rule 2, in case of prima facie guilt of
grave misconduct, a procedure has been prescribed to be followed, which
E includes as per clause (d) of Rule 2 consultation with the Public Service
Commission. It is after the aforesaid Rules that Rule 3 commences where
the Government reserves to themselves the right to withhold or withdraw
a pension or any part of it, whether permanently or for a specified period,
and all its ramifications. Certain protective provisions have been made
even in that eventuality. This provision is applicable to pension is clarified
F by Note 2, as it is stipulated that the word ‘pension’ would not include
DCRG. Thus, DCRG and pension have been dealt with as separate
aspects. The three Notes are followed then by Rulings 1, 2, & 3.
34. However, Note 2 provides that the liabilities fixed against an
employee or a pensioner can be recovered from DCRG without the
G departmental/judicial proceedings referred to in this Rule but after giving
an employee or pensioner concerned a reasonable opportunity to explain.
If any part of DCRG was not supposed to be available for recovery of
amounts, there would be no reason of inclusion of this aspect of DCRG
in Note 2 and a view to the contrary would make the latter part of Note
H 2 otiose.
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & 305
ORS. ETC. v. K. CHANDRAN ETC. [SANJAY KISHAN KAUL, J.]
35. The aforesaid Note 2 is further clarified by Ruling No. 3, A
which stipulates that Note 2 does not mean that the employee’s or
pensioner’s consent should be obtained for recovering the liabilities from
DCRG. What has been contemplated is only a communication of such
liabilities to him so as to enable him to submit his explanation. Thus, this
Ruling No.3 also deals with the DCRG. It is thereafter that Rule 3A
B
starts which refers to the grant of provisional pension not exceeding the
maximum pension which would have been admissible on retirement
where departmental or judicial proceedings have been initiated under
Rule 3. It is clearly stipulated that no gratuity or DCRG shall be paid to
him until the conclusion of such proceedings and the issuance of final
order thereof. C
36. The High Court, in our view, has introduced a new legislation
by undertaking the exercise of reading down. We do believe that there is
absolutely no need to do so when the language of the rule is so clear
conveying its intended meaning without any ambiguity.
37. We are, thus, of the view that Rule 3A cannot be read in D
isolation nor the latter part of it struck down as done by the High Court.
Rule 3, Note 2, Ruling 3, and Rule 3A have to be read in conjunction as
they provide for the treatment of the DCRG in case of disciplinary or
judicial proceedings pending at the stage of retirement. Even in the absence
of these proceedings in certain eventualities the amounts can be recovered E
from the DCRG.
38. We are of the view that the principle as enunciated in
Chairman-cum-Managing Director, Mahanadi Coalfields3 would
apply even though it is in the context of a different set of Rules. It would
be suffice to reproduce paragraphs 11 & 11.2 and 46 & 47 of the said
judgment as under: F
“11. Once it is held that a major penalty which includes the
dismissal from service can be imposed, even after the employee
has attained the age of superannuation and/or was permitted to
retire on attaining the age of superannuation, provided the
disciplinary proceedings were initiated while the employee was in G
service, sub-section 6 of Section 4 of the Payment of Gratuity
Act shall be attracted and the amount of gratuity can be withheld
till the disciplinary proceedings are concluded.”
.... .... .... ....
3
(supra) H
306 SUPREME COURT REPORTS [2022] 4 S.C.R.
A “11.2. It is required to be noted that in the present case the
disciplinary proceedings were initiated against the respondent-
employee for very serious allegations of misconduct alleging
dishonestly causing coal stock shortages amounting to Rs.31.65
crores and thereby causing substantial loss to the employer.
Therefore, if such a charge is proved and punishment of dismissal
B
is given thereon, the provisions of sub-section 6 of Section 4 of
the Payment of Gratuity Act would be attracted and it would be
within the discretion of the appellant-employer to forfeit the gratuity
payable to the respondent. Therefore, the appellant-employer has
a right to withhold the payment of gratuity during the pendency of
C the disciplinary proceedings.”
.... .... .... ....
“46. Several service benefits would depend upon the outcome of
the inquiry, such as concerning the period during which inquiry
D remained pending. It would be against the public policy to permit
an employee to go scot-free after collecting various service
benefits to which he would not be entitled, and the event of
superannuation cannot come to his rescue and would amount to
condonation of guilt. Because of the legal fiction provided under
the rules, it can be completed in the same manner as if the
E
employee had remained in service after superannuation, and
appropriate punishment can be imposed. Various provisions of
the Gratuity Act discussed above do not come in the way of
departmental inquiry and as provided in Section 4(6) and Rule
34.3 in case of dismissal gratuity can be forfeited wholly or partially,
F and the loss can also be recovered. An inquiry can be continued
as provided under the relevant service rules as it is not provided in
the Payment of Gratuity Act, 1972 that inquiry shall come to an
end as soon as the employee attains the age of superannuation.
We reiterate that the Act does not deal with the matter of
G 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
H
THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT & 307
ORS. ETC. v. K. CHANDRAN ETC. [SANJAY KISHAN KAUL, J.]
furthered by the Rules 34.2 and 34.3. If there cannot be any A
dismissal after superannuation, 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 interdict holding of the
departmental inquiry and punishment to be imposed is not the
B
subject matter dealt with under the Act.
47. Thus considering the provisions of Rules 34.2 and 34.3 of the
CDA Rules, the inquiry can be continued given the deeming
fiction in the same manner as if the employee had continued in
service and appropriate punishment, including that of dismissal C
can be imposed apart from the forfeiture of the gratuity wholly
or partially including the recovery of the pecuniary loss as the
case may be.”
39. We also believe that it is a very restrictive view to disburse
DCRG on account of the proceedings against a pensioner coming to an D
end, even where a conviction has arisen. This is especially so where the
convicted person has availed of the remedy of appeal. An appeal is a
continuation of the proceedings in trial and would be, thus, a continuation
of judicial proceedings. For example, if no appeal had been filed, can it
be said that despite conviction in the criminal case, the State is without
authority of forfeiting the DCRG or pension for that matter? If it is not E
so, as we believe, then the pendency of the appeal cannot disentitle the
State from withholding the DCRG, considering that it is a hiatus period
within which certain arrangements have to be made which would be
dependent on the outcome of the appeal.
F
40. Learned counsel for the respondent did seek to contend before
us that if the appeals are pending over a long period of time it should not
prejudice the respondents. That is a matter for them to take up before
the High Court for disposal of the appeals, which are undoubtedly quite
old.
G
41. We have aforesaid also clarified that there is no question of
any other departmental proceedings arising independently against the
respondents, as the conclusion of the criminal proceedings would entitle
the State to pass appropriate orders based solely on the result of the
aforesaid proceedings.
H
308 SUPREME COURT REPORTS [2022] 4 S.C.R.
A Conclusion:
42. We are, thus, of the view that the impugned judgment of the
Full Bench of the Kerala High Court cannot be sustained, and it cannot
be opined that the DCRG would have to be released to the respondents
pending consideration of the criminal appeal.
B 43. The impugned judgment is set aside and the appeals are
accordingly allowed leaving the parties to bear their own costs.
Devika Gujral Appeals allowed.
(Assisted by : Shubhanshu Das, LCRA)
C
D
E
F
G
H
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