A. Sathyamoorthy v. Palakkad District Co-operative Bank & Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE ALEXANDER THOMAS** ## **&** ## **THE HONOURABLE MRS. JUSTICE SHOBA ANNAMMA EAPEN** **TUESDAY, THE 14[TH] DAY OF JUNE 2022 / 24TH JYAISHTA, 1944** **WA NO. 1273 OF 2021** **JUDGMENT IN WP(C) 16011/2014 OF HIGH COURT OF KERALA** ## **APPELLANT/3rd RESPONDENT:** A.SATHYAMOORTHY, AGED 70 YEARS (SENIOR MANAGER RETD), 31/567, DURGA NIVAS, RAJESWARY STREET, PALAKKAD-PIN - 678014. BY ADVS.T.R.HARIKUMAR ARJUN RAGHAVAN ## **RESPONDENTS/PETITIONER & RESPONDENTS 1 & 2:** 1 PALAKKAD DISTRICT CO-OPERATIVE BANK, REPRESENTED BY ITS GENERAL MANAGER (IN - CHARGE), H.P.O ROAD, PALAKKAD - PIN - 678014, (PRESENTLY, KERALA STATE CO-OPERATIVE BANK LTD., REPRESENTED BY ITS GENERAL MANAGER, COBANK TOWERS, PALAYAM, THIRUVANANTHAPURAM, PIN - 695033. 2 STATE OF KERALA, REPRESENTED BY ITS SECRETARY, COOPERATION DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM - 695001. 3 REGISTRAR OF CO-OPERATIVE SOCIETIES. THIRUVANANTHAPURAM - 695001. BY ADV M.SASINDRAN ## **OTHER PRESENT:** SRI. SAIGY JACOB PALATTY-SR. GP, THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 14.06.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WA NO.1273 OF 2021 ..2.. ## **ALEXANDER THOMAS & SHOBA ANNAMMA EAPEN, JJ.** --------------------------------------------------------------------------- WA No. 1273 of 2021 [ _arising out of the impugned judgment dated 17.12.2020 in WP(C) No.16011/2014_ ] ---------------------------------------------------------- Dated this the 14[th] day of June, 2022 ## **JUDGMENT** ## ALEXANDER THOMAS, J. The impugned judgment dated 17.12.2020 rendered by the learned Single Judge in the instant Writ Petition (Civil), WP(C).No.16011/2014, is the subject matter of challenge in this intra court appeal filed under Sec.5(i) of the Kerala High Court Act, 1958. 2. The appellant herein is the 3[rd] respondent in the writ petition. The 1[st] respondent in the writ appeal is the writ petitioner. Official respondents 2 & 3 are the official respondents 1 & 2 in the writ petition. 3. Heard Sri.T.R.Harikumar, learned counsel appearing for the appellant in the writ appeal; Sri.M.Sasindran, learned Standing Counsel for the Palakkad District Co-operative Bank appearing for the 1[st] respondent in the writ appeal; and Sri.Saigy WA NO.1273 OF 2021 **==> picture [31 x 8] intentionally omitted <==** Jacob Palatty, learned Senior Government Pleader appearing for the official respondents 2 & 3 in the writ appeal. 4. The above writ petition was disposed of by the learned Single Judge on 17.12.2020 along with a batch of cases with a general direction that the writ petitions are allowed in terms of the directions contained in the Full Bench judgment of this Court in the case in _**Chandrasekharan Nair G. & Others**_ v. _**Kerala State Co-operative Agricultural & Rural Development Bank Ltd. & Others**_ [2017 (4) KLT 276]. No other directions have been given thereunder. 5. A brief reference to the facts would be pertinent. The Palakkad District Co-operative Bank (1[st] respondent in the WA) is the petitioner is the writ petition. The appellant (3[rd] respondent in the writ petition) had joined the service of the Palakkad District Co-operative Bank (1[st] respondent in the WA) as Junior Clerk on 27.11.1978 and retired from service on 31.07.2006 while holding the post of Senior Manager. There is no dispute that the petitioner has altogether 27 years 8 months and 3 days of service, which, as per the norms, could be rounded of as 28 years for the purpose of computation of gratuity. The appellant was paid only ₹3,50,000/- WA NO.1273 OF 2021 **==> picture [31 x 8] intentionally omitted <==** as gratuity by the respondent bank on the premise that he is not entitled for any gratuity amount higher than the ceiling limit of ₹3,50,000/- fixed in terms of Section 4(3) of the Payment of Gratuity Act, 1972. The appellant contended that various other similarly situated incumbents, who were holding the same post, were granted much higher gratuity than him consequent to their retirement and that, this appeared to be on the basis of the higher amounts paid by the Life Insurance Corporation of India to the respondent bank in the scheme of payment of gratuity. In that regard, it was pointed out that one Sri.V.Farooq, a similarly situated retiree, was given a total gratuity of ₹6,60,277/-. The appellant would point out that Ext.P5 would show that other similarly situated retirees were given gratuity amounts higher than the ceiling limit fixed under Section 4(3) of the Payment of Gratuity Act. Since the grievance of the appellant was not redressed by the respondent bank, the matter was taken up before the Government. This resulted in Ext.P6 decision of the Government as per letter No.6325/B2/2013/CD dated 26.07.2013, whereby the State Government has directed the respondent bank to give enhanced amount of gratuity as paid to the other similarly WA NO.1273 OF 2021 **==> picture [31 x 8] intentionally omitted <==** situated retirees. The respondent bank did not choose to implement Ext.P6 directions of the Government and has filed the instant writ petition before this Court to challenge the afore said Ext.P6 order of the Government. The learned Single Judge, without considering the facts of this individual case, has disposed of the writ petition with a batch of other cases holding that the matter is covered by the Full Bench decision referred to above and that the writ petition would stand allowed. The 1[st] respondent in the writ petition (employee) has filed this instant writ appeal. 6. Sri.T.R.Harikumar, learned counsel appearing for the appellant, submits, on the basis of the instructions from his party, that the appellant is not pressing the larger reliefs based on the Full Bench judgment referred to above and would confine his submission only in the light of the dictum laid down by the Division Bench of this Court as per common judgment dated 16.03.2022 in WA Nos.1509/2021 & 1547/2021. It is pointed out that therein, this Court has held that the second proviso to Rule 59 of the Kerala Co-operative Societies Rules (for short, “the KCS Rules”) was introduced only from 02.11.2010 and that since the appellants therein have retired on 31.07.2007, which is before the WA NO.1273 OF 2021 **==> picture [31 x 8] intentionally omitted <==** introduction of the afore said statutory amendment by way of the second proviso, they are entitled to get the benefit of Rule 59 of the KCS Rules and the sole proviso thereto as is existed at the time of their retirement. It is pointed out that this Court has considered the similar plea made by certain claimants, who retired from the Co-operative Society concerned before 02.11.2010, and this Court held that if the gratuity payable to the retiree in terms of Rule 59 of the KCS Rules and its proviso prior to 02.11.2010 is higher than the ceiling limit fixed in Section 4(3) of the Central Act, then, such claimants will be protected by Section 4(5) of the Central Act and are entitled to get such gratuity amounts, payable by the State Rule, which is higher than the ceiling limit of Rs.3.50 lakh. 7. After hearing both sides, it is seen that the appellant has retired from service on 31.07.2006, which is much prior to the statutory introduction of the second proviso to Rule 59, which was made effective only from 02.11.2010. Hence, we are of the view that the matter in issue, in this particular case, is covered by the dictum laid down in the judgment dated 16.03.2022 in WA Nos.1509/2021 & 1547/2021. 8. Rule 59 of the KCS Rules as is stood prior to 02.11.2010 WA NO.1273 OF 2021 ..7.. ## reads as follows; _“Rule 59. Gratuity.- Every society shall make in its byelaws provision for payment of gratuity to its employees and frame regulations for its administration. Among other matters such regulations shall provide for the following--_ _(i) all monthly paid employee on the permanent establishment shall be eligible for gratuity;_ _(ii) service rendered by employees must be continuous and satisfactory;_ _(iii) when an employee who has put in at least 5 years satisfactory service is retired voluntarily from service or if he is permanently disabled while in service or if he dies while in service the society shall pay to him or to his legal heirs as the case may be a gratuity not exceeding half months pay for every completed year of service:_ _Provided that in no case shall the gratuity exceed fifteen months pay.”_ (At that time, prior to 02.11.2010, there was only a sole proviso appended to the operative portion of Rule 59 of the KCS Rules). It was later that a statutory amendment was made as per SRO 10o5/2010 published in Kerala Gazette dated 02.11.2010 and the same was made effective from 02.11.2010. As per the said amendment, the sole proviso to Rule 59 of the KCS Rules as is stood prior to 02.11.2010 was re-nomenclatured as the first proviso and the new proviso made effective from 02.11.2010 became the second proviso. So, as per the amendment made effective from 02.11.2010, the second proviso to Rule 59 of the KCS Rules, reads WA NO.1273 OF 2021 ..8.. as follows; _“Provided further that the amount of gratuity payable shall not exceed the amount which an employee is eligible as per the Payment of Gratuity Act, 1972 (Central Act 39 of 1972) or under the Act and these Rules, whichever is applicable irrespective of the amount received out of any scheme chosen or implemented by a society for the purpose.”_ 9. So, as per the Rules that was invoked prior to 02.11.2010, the operative portion of Rule 59 of the KCS Rules has mandated that when an employee has put in at least five years of satisfactory service, then, on retirement, he is liable to get gratuity not exceeding half month's pay for every completed year of service. The sole proviso, as is stood then, further has mandated that in no case shall the gratuity exceed 15 months' pay, whereas going by Section 4(2) of the Central Act, for every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of 15 days' wages based on the rate of wages last drawn by the employee concerned. Further, Section 4(3) of the Central Act would mandate that the amount of gratuity payable to an employee shall not exceed such amount as per the notification issued at the relevant time and as per the norms prevalent at the relevant time. WA NO.1273 OF 2021 **==> picture [31 x 8] intentionally omitted <==** 10. In this case, the ceiling limit was only up to ₹3.50 lakh. Hence, there is no dispute between the parties that the basic pay and Dearness Allowance alone can be reckoned for the purpose of computation of gratuity. Further that, in the instant case, the basic pay of the appellant was ₹23,600/- and his DA was Rs.5,664/- at the time of retirement and thus, his total wages for the purpose of gratuity computation will be ₹29,264/- (viz., ₹23,600 + ₹5,664 = ₹29,264/-). Going by the formula contained in Section 4(2) of the Central Act, the daily wage of the claimant is to be determined by taking the total monthly wage divided by 26 number of days going by the explanation appended to Section 4(2) of the Central Act. Hence, the gratuity payable in terms of Section 4(2) of the Central Act in case of the appellant would amount to ₹4,72,726/[(₹29,264/26) x 15 x 28 (qualifying years of service)]. But, Section 4(3) of the Central Act would stipulate the maximum ceiling limit of gratuity as ₹3.50 lakh. 11. Now, the computation for gratuity in terms of Rule 59 of the KCS Rules as is stood at the relevant time would be reckoned. As per the operative portion of Rule 59 of the KCS Rules, the gratuity payable is half month's pay for every completed year of WA NO.1273 OF 2021 **==> picture [37 x 8] intentionally omitted <==** service. In the case of the appellant, that would amount to ₹4,09,696/- [(29,264/2) x 28 (qualifying years of service)]. But, the sole proviso (as is stood then) to Rule 59 would limit the gratuity amount payable only up to 15 months' pay and in the case of the appellant, the gratuity amount payable in terms of the sole proviso to Rule 59 would be ₹4,38,960/-[₹29,264 x 15]. Going by Section 4(2) of the Central Act, the appellant is otherwise entitled for gratuity amount of ₹4,72,726/-. But, the same would be limited by Section 4(3) of the Central Act only up to ₹3.50 lakh. The operative portion of the State Rule would reckon that the gratuity amount payable would be ₹4,09,696/-. But, applying the sole proviso, the maximum gratuity would go only up to ₹4, 38,960/-. Since the gratuity amount payable in terms of the operative portion of Rule 59 is less than the maximum limit stipulated in the sole proviso thereto, the appellant can only claim gratuity amount of ₹4,09,696/-, which can be reckoned in terms of the operative portion of Rule 59 of the KCS Rules. So, in that regard, it has to be borne in mind that though Section 4(3) of the Central Act provides for a ceiling limit, it is further mandated in Section 4(5) of the Central Act that nothing in Section 4 shall affect the right of an WA NO.1273 OF 2021 **==> picture [37 x 8] intentionally omitted <==** employee to receive better terms of gratuity under any award or agreement or contract with the employer. So, if the provisions contained in Rule 59 of KCS Rules as above are construed as coming within the scope and ambit of contract or agreement or award as envisaged in Section 4(5) of the Central Act, then, the appellant is entitled to claim the higher gratuity amount as above under the State Rules, which is higher than the ceiling limit of Rs.3.5 lakh fixed as per Section 4(3) of the Central Act. 12. In that regard, Sri.M.Sasindran, learned Standing Counsel appearing for the 1[st] respondent/writ petitioner, would urge that the above provisions contained in Rule 59 of the KCS Rules as is stood prior to 02.11.2010 are contrary to Section 4(3) of the Central Act and therefore, in view of the mandate contained in Section 14 of the Central Act, the Central Act would prevail over the State Rules. Further, it is also urged that Rule 59 of the KCS Rules as above cannot be construed either as an agreement or award within the meaning of Section 4(5) of the Central Act. As regards the second objection, the matter in issue is fully covered in favour of the writ appellant by the dictum laid down by the Division Bench of this Court in common judgment dated 16.03.2022 in WA WA NO.1273 OF 2021 **==> picture [37 x 8] intentionally omitted <==** Nos.1509/2021 & 1547/2021. Therein, the Division Bench has categorically held that the above said provisions of Rule 59 of the KCS Rules should be treated as part and parcel of the statutory conditions of service of the employees concerned of a Co-operative Society and further that, therefore, such statutorily prescribed conditions of service would form part of the contract of service or contract of employment entered into between the Co-operative Society employer and the employee concerned. Hence, we have held that if the State Rules as above would provide for a gratuity amount, which is higher than the ceiling limit containing in Section 4(3) of the Central Act, then, Section 4(5) of the Central Act would apply inasmuch as the above said State norms should be treated as part and parcel of the statutorily prescribed conditions of service forming part of the contract of personal service as above. 13. As regards the first objection, it has to be noted that Section 4(3) of the Central Act, certainly, provides a ceiling limit. That ceiling limit under Section 4(3) of the Central Act is vis-a-vis the formula for gratuity computation as reckoned in Section 4(2). So also, it is true that Section 14 of the Central Act gives overriding effect of the said Central Act. But, the Parliament, in its wisdom, WA NO.1273 OF 2021 **==> picture [37 x 8] intentionally omitted <==** has consciously and guardedly provided in Section 4(5) of the Act that nothing in Section 4 shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer. Therefore, if the employer organization themselves provide for a better scheme or terms of gratuity, either under a contract of employment or agreement etc., then, such higher benefits conceived by the employer organization is protected by Section 4(5) of the Central Act and therefore, it has to be treated as an exception to Section 4(2). Hence, there is no question of Section 14 of the Central Act applying against such a better scheme, which is fully covered by Section 4(5). The legal position in that regard is well settled and therefore, there is no necessity for us to get into any further aspect of the matter. Moreover, it has also to be borne in mind that Section 80(3) of the KCS Act mandates that the State Government is empowered to frame rules on various subject matters including for regulating the conditions of service of employees. Section 109 of the KCS Act also provides for rule making powers. It is by virtue of these powers conferred under the legislation that the State Government has framed the KCS Rules, including Rule 59 thereof. In view of the WA NO.1273 OF 2021 **==> picture [37 x 8] intentionally omitted <==** mandate contained in the KCS Act and Rules, an employer organization come within the ambit of the above said Act and Rules is bound to statutorily comply with the said requirements. The said statutory prescription would amount to making inroads into the freedom of contract to the employer to get into a contract of employment or contract of personal service with the employees. Hence, such statutory prescription made in terms of the KCS Act and KCS Rules including Section 59 of the KCS Act as above would amount to statutorily prescribing conditions of service of the employees concerned. Hence, we are of the view that even a provision contained in the rules as Rule 59 would certainly get the protection of Section 4(5) of the Central Act. 14. _Prima facie_ , we would say that it is realizing the consequences of the amended provision that the rule making authority has made an amendment subsequently effective from 02.11.2010 by introducing second proviso to Rule 59 of the KCS Rules, which stipulates that the amount of gratuity payable shall not exceed the amount, which an employee is eligible as per the Payment of Gratuity Act, 1972 or under the Act and the Rules, whichever is applicable, irrespective of the amount received out of WA NO.1273 OF 2021 **==> picture [37 x 8] intentionally omitted <==** any scheme chosen or implemented by a society for the purpose. We need not get into those aspects for the simple reason that the appellant has retired long prior to the introduction of the second proviso made effective from 02.11.2010. 15. It is also to be borne in mind that Section 4(1) of the Central Act would mandate that gratuity shall be payable to an employee on termination of his/her employment after he/she has rendered continuous service for not less than five years consequent to superannuation, retirement or resignation, death, disablement etc. Section 7(3) would further mandate that the employee shall arrange to pay the gratuity amount within 30 days from the date it becomes payable to the person concerned. So, in the instant case, the right to receive the gratuity became accrued and vested with the appellant consequent to his retirement on 31.07.2006 and hence, the amended provisions made effective from 02.11.2010 cannot govern his case. In other words, the claim of the appellant would be regulated by the rules as is stood at the time of his retirement as above. The upshot of the above discussion is that the appellant is entitled for a total gratuity amount of ₹4,09,696/-. It is common ground that the appellant was earlier paid gratuity WA NO.1273 OF 2021 **==> picture [37 x 8] intentionally omitted <==** amount of ₹3,50,000/-. Hence, the balance of the gratuity amount payable is ₹59,696/- (₹4,09,696 - ₹3,50,000 = ₹59,696/-). 16. Sri.T.R.Harikumar, learned counsel appearing for the appellant, would also urge that Section 7(3A) of the Central Act would statutorily mandate that the employee is entitled for interest for the delayed payment of gratuity and the maximum limit of the interest so payable could be notified to the Central Government. Further that, the Central Government has notified that the said interest could be up to 10% per annum. 17. The plea for interest is strongly opposed by Sri.M.Sasindran, learned Standing Counsel for the respondent bank. The aspects arising out of the claim for statutory interest under Section 7(3A) of the Central Act have been considered by the Division Bench of this Court in the judgment in the case of _**Viswanathan**_ v. _**FACT**_ [2021 (2) KLT 899 (DB)], wherein it was noted that the last of the statutory notification issued by the Government of India is one, whereby the rate of interest could be up to 10% per annum. It has to be borne in mind that Section 7(3A) of the Central Act only stipulates that for the delayed payment of gratuity, the same entails payment of simple interest and such rate WA NO.1273 OF 2021 **==> picture [37 x 8] intentionally omitted <==** not exceeding the rate notified by the Central Government from time to time for repayment of long term deposits as the Central Government, may by notification, specify. Proviso to Section 7(3A) of the Central Act further stipulates that no such interest shall be payable if the delay in the payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment on this ground. 18. Going by the facts of this case, the respondent has no case, whatsoever, that the payment of gratuity was delayed on account of the fault of the appellant herein. So also, the respondent bank does not have any case that they have obtained permission in writing from the controlling authority under the Payment of Gratuity Act for the delayed payment. The appellant after his retirement has been continuously agitating for the claim for higher gratuity amount. The Government has allowed the claim on a much higher scale, as per Ext.P6 order, which was sought to be challenged in the instant writ petition filed as early as on 20.06.2014. The judgment in the writ petition was delivered on 17.12.2020. Since the appellant was continuously agitating for his WA NO.1273 OF 2021 **==> picture [37 x 8] intentionally omitted <==** rights to get a higher gratuity amount and since the non payment of the gratuity is only on account of the fault of the employer, we are of firm view that the appellant is entitled for interest as statutorily mandated in Section 7(3A) of the Central Act. In **FACT** 's case [2021 (2) KLT 899 (DB)] ( _supra_ ), the Division Bench ordered grant of interest on the delayed payment of gratuity at the rate of 8% per annum from the date of retirement until the date of disbursal with a further rider that if the direction is not complied with within the time limit, the said interest would stand enhanced to 9% per annum. 19. The instant case is covered by common judgment dated 16.03.2022 in WA Nos.1509/2021 & 1547/2021, wherein the Division Bench ordered grant of interest at the rate of 7% per annum as the employer Cooperative Society pleaded about their financial difficulties. Taking note of the facts of the instant case, we are of the view that the appellant should be granted interest at least at the rate of 7% per annum. Hence, it is ordered that the 1[st] respondent bank will immediately disburse the differential amount of gratuity coming to Rs.59,696/- along with interest thereon @ 7% from 01.08.2006 (30 days after the date of retirement on WA NO.1273 OF 2021 **==> picture [37 x 8] intentionally omitted <==** 31.07.2006) up to the date of actual disbursal and within six weeks from the date of receipt of a copy of this judgment. If the said amount is not paid within the said time limit, then the above said rate of interest would stand enhanced to 9% per annum. 20. These aspects of the matter have not been duly taken note in the rendering of the instant impugned judgment in the instant writ petition. Accordingly, it is ordered that the impugned judgment dated 17.12.2020 of the learned Single Judge disposing of WP(C) No.16011/2014 will stand modified and substituted as above. With these observations and directions, the above writ appeal will stand finally disposed of. ## **Sd/-** ## **ALEXANDER THOMAS** **JUDGE** **Sd/-** **SHOBA ANNAMMA EAPEN JUDGE** bka/-