THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT VS K. CHANDRAN

 THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT VS K. CHANDRAN

REPORTABLE
 IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL Nos.7437-7438 OF 2021
THE SECRETARY,
LOCAL SELF GOVERNMENT
DEPARTMENT & ORS. ETC. …Appellants
Versus
K. CHANDRAN ETC. …Respondents
With
CIVIL APPEAL No.7440/2021
CIVIL APPEAL No.7441/2021
J U D G M E N T
SANJAY KISHAN KAUL, J.
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-cumRetirement Gratuity (for short ‘DCRG’) is the moot point arising for
1
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 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.
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
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
2
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
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 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 went against K. Chandran, it
had to be withheld or otherwise it had to 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
3
would defeat the very purpose of the Rule.
6. (B) D. Alexander, another respondent in this matter allegedly
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
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. 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
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
4
proceedings against an employee are concluded. The vigilance case
against him had already been concluded in terms of the judgment dated
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 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.
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 departmental proceedings being initiated irrespective
5
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 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 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 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 after
retirement as the employer-employee relationship does not subsist.
6
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
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 taken
against pension and not against DCRG. There was contended to 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 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
7
pecuniary loss, but again only from the pension. The same could not be
done from the DCRG. Rule 3A of the KSR was 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 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.
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 effect of
withholding of pension on an employee. Note 2 to Rule 3 provided that
8
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 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.
The Rules:
19. The relevant Rules of the KSR read as under:
“THE KERALA SERVICE RULES
PART III
PENSION
CHAPTER I
SECTION 1 – General Rules”
xxxx xxxx xxxx xxxx
“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:
9
Provided that –
(a) such departmental proceeding, 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 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;
(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
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
during his service;
(c) no such judicial proceedings, if not instituted while the
employee 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;
(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
the date on which the statement of charges is issued to the
employee or pensioner or if the employees has been placed under
10
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
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.
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
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-cumretirement-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.
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
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.
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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 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 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. 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 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.
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
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explanation to offer and that further action will be taken on that
basis.
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.
(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
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
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 instituted
13
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
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 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
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
14
Government can be recovered from the DCRG. The relevant portion
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
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 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 him and he is about to retire from service, the amount
should be recovered as far as possible by deduction from the
last pay and 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 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 earned by him till the date of
such written consent.
(b) If, however, the liabilities could not be finalised but could
15
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 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
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 amount noted below:
(1) Officers in charge of cash
or stores
The full amount of death-cumretirement gratuity.
(2) Gazetted Officers other
than those in (1) above
10 per cent of the death-cumretirement gratuity or Rs.
2,000 whichever is higher.
(3) Non-Gazetted Officers
other than (1)
10 per cent of the death-cumretirement gratuity or Rs. 600
whichever is higher
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-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
16
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-cumretirement 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 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 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 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 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 those who subsequently permitted
their continuance.”
23. In view of the aforesaid provision, it was contended that Rule 3A
17
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 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
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:”
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 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.
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(b) the gratuity payable to an employee may be wholly or
partially forfeited] -
(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 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
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.
The Respondent’s submissions:
25. Learned counsel for the respondent, on the other hand defended
the High Court’s judgment and submitted that Chairman-cum1
(2020) 18 SCC 71 
19
Managing Director, Mahanadi Coalfields2
 of this Court interpreted 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
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) “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, [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 who
holds the post under the Central or a State Government and is governed
2
(supra)
20
by any other Act or by any rules providing for payment of gratuity.
Our View:
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 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 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 disciplinary
proceedings even if the acquittal takes place. If this were the intention,
the departmental proceedings should have been concluded in the
21
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
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 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 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
22
nobody’s case that the respondents-employees are not getting provisional
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 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
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
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
23
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
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 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
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
24
in Note 2 and a view to the contrary would make the latter part of Note 2
otiose.
35. The aforesaid Note 2 is further clarified by Ruling No. 3, 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 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.
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 isolation
25
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
from the DCRG.
38. We are of the view that the principle as enunciated in Chairmancum-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:
“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
service, subsection 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.”
.... .... .... ....
“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.
3
(supra)
26
Therefore, if such a charge is proved and punishment of dismissal
is given thereon, the provisions of subsection 6 of Section 4 of the
Payment of Gratuity Act would be attracted and it would be
within the discretion of the appellantemployer to forfeit the
gratuity payable to the respondent. Therefore, the appellantemployer has a right to withhold the payment of gratuity during
the pendency of the disciplinary proceedings.”
.... .... .... ....
“46. Several service benefits would depend upon the outcome of
the inquiry, such as concerning the period during which inquiry
remained pending. It would be against the public policy to permit
an employee to go scotfree 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
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, 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 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 the Rules 34.2 and 34.3. If there
cannot be any 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
subject matter dealt with under the Act.
27
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
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 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 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.
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
28
High Court for disposal of the appeals, which are undoubtedly quite old.
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.
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.
43. The impugned judgment is set aside and the appeals are
accordingly allowed leaving the parties to bear their own costs.
………………………J.
[Sanjay Kishan Kaul]
....……………………J.
[M.M. Sundresh]
New Delhi.
March 15, 2022.
29

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

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