Supreme Court Upholds Withholding of Gratuity Pending Criminal Appeal: Local Self Government Dept. vs. K. Chandran (2022)

Date of the Judgment: March 15, 2022

Citation: 2022 INSC 239

Judges: Sanjay Kishan Kaul, J., M.M. Sundresh, J.

Can an employee receive their retirement benefits, specifically the Death-cum-Retirement Gratuity (DCRG), even after being convicted of corruption, while their appeal against the conviction is still pending? This was the core question before the Supreme Court in a set of appeals filed by the Government of Kerala. The Court examined whether the Kerala Service Rules (KSR) permit withholding DCRG in such cases. The Supreme Court bench, comprising Justices Sanjay Kishan Kaul and M.M. Sundresh, overturned the Kerala High Court’s decision, ruling in favor of the government.

Case Background

The appeals before the Supreme Court involved two employees of the Kerala government, K. Chandran and D. Alexander, who were both convicted of corruption-related offenses but had appeals pending in the High Court.

K. Chandran: A Village Extension Officer, was accused of accepting a bribe of Rs. 500. He was suspended on October 27, 2006, and later reinstated on March 1, 2008. He retired on March 31, 2011. A Special Judge convicted him on July 29, 2011, sentencing him to two years of rigorous imprisonment and a fine of Rs. 5,000. He appealed to the High Court, which suspended his sentence.

D. Alexander: A Taluk Supply Officer, was accused of offenses under Section 120B of the Indian Penal Code, 1860 and the Prevention of Corruption Act, 1988. He was suspended on November 28, 2003, and reinstated on March 29, 2004. He retired on April 30, 2004. A Special Judge convicted him on July 11, 2014, sentencing him to two years of rigorous imprisonment and a fine of Rs. 2,000. He also appealed to the High Court, which suspended his sentence.
Both employees sought the release of their DCRG, which was denied by the government, leading to litigation.

Timeline

Course of Proceedings

Kerala Administrative Tribunal (KAT): K. Chandran’s application for DCRG release was dismissed by the KAT on December 9, 2014, citing his conviction. D. Alexander’s application was initially allowed, with the KAT directing the State to release his DCRG, reasoning that the appeal was not a continuation of proceedings against him.

High Court of Kerala: Due to conflicting decisions by the KAT, the matter was referred to a larger bench of the High Court. The High Court ruled in favor of the employees, stating that the DCRG could not be withheld based on Rule 3 of the KSR, which only allowed for recovery from pension, not DCRG. The High Court struck down Rule 3A of the KSR, which permitted withholding of DCRG, deeming it unduly penalizing.

Legal Framework

The case revolves around the interpretation of the Kerala Service Rules (KSR), specifically:

• Rule 3 of the KSR: This rule allows the government to withhold or withdraw a pension or part thereof, and order recovery from a pension for any pecuniary loss caused to the government due to misconduct or negligence during service. It also clarifies that the term “pension” does not include DCRG. Note 2 to Rule 3 states that liabilities can be recovered from DCRG after giving the employee a chance to explain.
  
  “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 the period of his service, including service rendered upon re-employment after retirement:”
  
  “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-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.”
• Rule 3A of the KSR: This rule stipulates that where departmental or judicial proceedings are initiated, the employee shall be paid a provisional pension, but no gratuity or DCRG shall be paid until the conclusion of such proceedings.
  
  “3-A. (a) Where any departmental or judicial proceedings is instituted 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 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 gratuity shall be paid to him until the conclusion of such proceeding and the issue of final orders thereon.”
• Ruling No. 3 under Rule 3 of the KSR: This clarifies that the employee’s consent is not needed for recovering liabilities from DCRG, only a communication of such liabilities is necessary.
  
  “RULING No.3
  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 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.”

These rules are framed under the authority of the State of Kerala and govern the service conditions of its employees.

Arguments

Appellants (Government of Kerala):

• Argued that Rule 3 of the KSR allows for recovery of dues from DCRG and that Rule 3A is independent of Rule 3, providing for temporary forfeiture of DCRG during pending proceedings.
• Contended that Note 2 to Rule 3 clarifies that liabilities can be recovered from DCRG, and Rule 3A is necessary for temporary forfeiture during pending departmental proceedings.
• They also relied on Clause 303A(4) of the Kerala Financial Code, Volume I, which allows for recovery of government losses from DCRG.
• They argued that Section 4(6)(b) of the Payment of Gratuity Act, 1972, enables forfeiture of gratuity if an employee’s service is terminated, and that the High Court’s interpretation would render this provision useless.
• The appellant also relied on the judgment of the Supreme Court in Chairman-cum-Managing Director, Mahanadi Coalfields v. Rabindranath Choubey [(2020) 18 SCC 71], which allowed for the withholding of gratuity pending disciplinary proceedings.

Respondents (Employees):

• Argued that the KSR does not allow the government to withhold or recover any amount from DCRG and that the Chairman-cum-Managing Director, Mahanadi Coalfields v. Rabindranath Choubey [(2020) 18 SCC 71] case was based on different rules of a private company.
• Contended that the Payment of Gratuity Act, 1972, does not apply to state government employees, as they are specifically excluded under Section 2(e) of the Act.
• They argued that Rule 3 of the KSR only allows for recovery from pension and not from DCRG. They further contended that Rule 3A is only for the effective implementation of Rule 3 and cannot have any separate consequences.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether an employee is entitled to the release of Death-cum-Retirement Gratuity (DCRG) upon conviction in a criminal case for violation of integrity norms, when an appeal is pending before the High Court.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

The Supreme Court also considered the following legal provisions:

• Rule 3 of the Kerala Service Rules (KSR): This rule allows the government to withhold or withdraw a pension or part thereof, and order recovery from a pension for any pecuniary loss caused to the government due to misconduct or negligence during service. It also clarifies that the term “pension” does not include DCRG.
• Rule 3A of the Kerala Service Rules (KSR): This rule stipulates that where departmental or judicial proceedings are initiated, the employee shall be paid a provisional pension, but no gratuity or DCRG shall be paid until the conclusion of such proceedings.
• Note 2 to Rule 3 of the Kerala Service Rules (KSR): It clarifies that liabilities can be recovered from DCRG after giving the employee a chance to explain.
• Ruling No. 3 under Rule 3 of the KSR: This clarifies that the employee’s consent is not needed for recovering liabilities from DCRG, only a communication of such liabilities is necessary.
• Clause 303A(4) of the Kerala Financial Code, Volume I: This provision allows for recovery of government losses from DCRG.
• Section 4(6)(b) of the Payment of Gratuity Act, 1972: This provision enables forfeiture of gratuity if an employee’s service is terminated.

Judgment

How each authority was viewed by the Court:

• Chairman-cum-Managing Director, Mahanadi Coalfields v. Rabindranath Choubey [(2020) 18 SCC 71]*: The Supreme Court applied the principle from this case, stating that an employer can withhold gratuity pending disciplinary proceedings, even after retirement.
• Rule 3 of the Kerala Service Rules (KSR): The Court interpreted this rule along with Note 2, stating that liabilities can be recovered from DCRG.
• Rule 3A of the Kerala Service Rules (KSR): The Court held that Rule 3A is independent and provides for temporary forfeiture of DCRG during pending proceedings.
• Note 2 to Rule 3 of the Kerala Service Rules (KSR): The Court clarified that this note allows for recovery of liabilities from DCRG.
• Ruling No. 3 under Rule 3 of the KSR: The Court stated that this ruling clarifies that the employee’s consent is not needed for recovering liabilities from DCRG.
• Clause 303A(4) of the Kerala Financial Code, Volume I: The Court noted this provision as supporting the recovery of government losses from DCRG.
• Section 4(6)(b) of the Payment of Gratuity Act, 1972: The Court acknowledged this provision but did not base its decision on it, as the Act does not apply to state government employees.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors:

• Interpretation of Rules: The Court emphasized the plain reading of Rule 3A of the KSR, stating that it clearly stipulates that no gratuity or DCRG shall be paid until the conclusion of such proceedings.
• Continuation of Proceedings: The Court considered that an appeal is a continuation of the proceedings in trial and the DCRG can be withheld till the final outcome of the proceedings.
• Purpose of Withholding Benefits: The Court noted that the objective of withholding pension or DCRG is to recover dues from a delinquent employee and to account for the possibility of dismissal from service.
• Consistency with Precedent: The Court applied the principle from Chairman-cum-Managing Director, Mahanadi Coalfields v. Rabindranath Choubey [(2020) 18 SCC 71], that gratuity can be withheld pending disciplinary proceedings.
• Avoiding Absurdity: The Court stated that if the DCRG was to be released even when a conviction has arisen, it would lead to an absurd situation, especially when the convicted person has availed the remedy of appeal.

Logical Reasoning:

The Court rejected the High Court’s interpretation that Rule 3A was merely an extension of Rule 3 and held that Rule 3A had an independent existence and was clear in its meaning. The Court also rejected the argument that DCRG should be released once the trial proceedings were over, as the appeal was a continuation of the proceedings.

Key Takeaways

• The Supreme Court upheld the government’s right to withhold Death-cum-Retirement Gratuity (DCRG) pending the outcome of a criminal appeal, even after conviction by a lower court.
• Rule 3A of the Kerala Service Rules (KSR) was interpreted as an independent provision that allows for the withholding of DCRG until the conclusion of judicial proceedings.
• The Court emphasized that an appeal is a continuation of the proceedings in trial.
• The judgment clarifies that the principle of withholding gratuity pending proceedings, as established in Chairman-cum-Managing Director, Mahanadi Coalfields v. Rabindranath Choubey [(2020) 18 SCC 71], applies even in cases with different service rules.
• Government employees facing criminal charges may have their DCRG withheld until the final outcome of their case, including appeals.

Directions

The Supreme Court set aside the impugned judgment of the Full Bench of the Kerala High Court and allowed the appeals, stating that the DCRG does not have to be released to the respondents pending the criminal appeal.

Development of Law

Ratio Decidendi: The Supreme Court held that Rule 3A of the Kerala Service Rules (KSR) allows for the withholding of Death-cum-Retirement Gratuity (DCRG) pending the outcome of a criminal appeal, and that an appeal is a continuation of the proceedings in trial.

Change in Law: The judgment clarifies that the principle of withholding gratuity pending proceedings, as established in Chairman-cum-Managing Director, Mahanadi Coalfields v. Rabindranath Choubey [(2020) 18 SCC 71], applies even in cases with different service rules, thus setting aside the Kerala High Court’s view that the rules of a private company cannot be applied to government employees.

Conclusion

The Supreme Court’s judgment in The Secretary, Local Self Government Department & Ors. vs. K. Chandran ETC. clarifies that government employees in Kerala are not entitled to the release of their Death-cum-Retirement Gratuity (DCRG) upon conviction in a criminal case if an appeal is pending. The Court emphasized the independent nature of Rule 3A of the Kerala Service Rules, which allows for the withholding of DCRG until the conclusion of judicial proceedings. This decision overturns the Kerala High Court’s ruling and aligns with the principle that an employer can withhold gratuity pending disciplinary proceedings.