Mathew Korah v. Kaduthuruthy Urban Co-operative Bank, Life Insurance Corporation of India, Joint Registrar of Co-operative Societies

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **WEDNESDAY, THE 23RD DAY OF OCTOBER 2013/1ST KARTHIKA, 1935** ## **WP(C).No. 21861 of 2013 (G)** **----------------------------** **PETITIONER(S):** - **--------------** **MATHEW KORAH, AGED 58 YEARS EDAKKARAYIL, MUTHUCHIRA, KOTTAYAM.** **BY ADVS.SRI.DEVAN RAMACHANDRAN SRI.K.M.ANEESH SRI.ADARSH KUMAR** **RESPONDENT(S):** - **---------------** **1. KADUTHURUTHY URBAN CO-OPERATIVE BANK REPRESENTED BY ITS GENERAL MANAGER, KADUTHURUTHY KOTTAYAM.** **2. LIFE INSURANCE CORPORATION OF INDIA REPRESENTED BY ITS BRANCH MANAGER P & GS UNIT JEEVAN JYOTHI, STAR JUNCTION, MC ROAD KOTTAYAM.** **3. JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) KOTTAYAM.** **R1 BY ADV. SRI.P.N.MOHANAN** **R1 (B/O) BY ADV. SRI.HARSHAN.K.B., SC, KADUTHURUTHY URBAN CO OP.BANK.** - **R2 BY ADV. SRI.LAL GEORGE R2 BY SRI.S.EASWARAN** **R3 BY GOVERNMENT PLEADER SRI.D.SOMASUNDARAM** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 23-10-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **MNS** **WP(C).No. 21861 of 2013 (G)** **----------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS** **--------------------------------------** **P1- TRUE COPY OF THE COMMUNICATION MADE BY THE PETITIONER TO THE IST RESPONDENT DATED 1.6.2013.** **P2- TRUE COPY OF THE COMMUNICATION DATED 7.6.13 CAUSED BY THE 2ND RESPONDENT TO THE IST RESPONDENT.** **P3- TRUE COPY OF THE COMMUNICATION CAUSED TO THE GENERAL MANAGER OF THE IST RESPONDENT DATED 28.6.2013 BY THE PETITIONER.** **P4- TRUE COPY OF THE COMMUNICATION/ORDER DATED 16.7.2013 MADE BY THE IST RESPONDENT TO THE PETITIONER.** **P4(A)- TRUE COPY OF LAST SALARY SLIP.** **P5- TRUE COPY OF THE JUDGMENT IN WP[C] 18276 OF 2012.** **P6- TRUE COPY OF THE COMPLAINT/REPRESENTATION MADE BY THE PETITIONER TO THE 3RD RESPONDENT DATED 26.7.2013.** ## **RESPONDENT(S)' EXHIBITS** **--------------------------------------EXT.R1(a): A TRUE COPY OF THE DEMAND OF RS.51,69,566/- MADE BY THE LIC.** **EXT.R1(b):A TRUE COPY OF THE LETTER DATED 03.08.2009** **EXT.R1(c): A TRUE COPY OF THE DEMAND OF LIC DATED 26.8.2009.** **EXT.R1(d):A TRUE COPY OF THE LETTER DATED 01.09.2010** **EXT.R1(e): A TRUE COPY OF THE DEMAND OF THE LIC DATED 26.7.2011.** **EXT.R1(f): A TRUE COPY OF THE DEMAND OFTHE LIC DATED 10.8.2012.** **EXT.R1(g): TRUE COPIES OF THE LETTER DATED 26.09.2012 ALONG WITH DEMAND DRAFT SEND TO THE LIC** **EXT.R1(h): TRUE COPIES OF THE LETTER DATED 29.12.2012 ALONG WITH DEMAND DRAFT SEND TO THE LIC** **EXT.R1(i):A TRUE COPY OF THE RESOLUTION DATED 29.05.2013** **EXT.R2(a): TRUE PHOTOSTAT COPY OF THE RESOLUTION OF THE 1ST RESPONDENT BANK.** **EXT.R2(b): TRUE PHOTOSTAT COPY OF THE ENDORSEMENT DATED 18.06.2009** **EXT.R2(c): TRUE PHOTOSTAT COPY OF THE CLAIM FORM SUBMITTED BY THE 1ST RESPONDENT BANK.** **EXT.R2(d): TRUE PHOTOSTAT COPY OF THE LETTER DATED 05.06.2013 BY THE 1ST RESPONDENT BANK.** **//TRUE COPY//** **P A TO JUDGE** ## **K.VINOD CHANDRAN, J** - - - - - - - - - - - - - - - - - W.P.(C).No. 21861 of 2013 - - - - - - - - - - - Dated this the 23[rd] day of October, 2013 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ## **JUDGMENT** ## **“CR”** The petitioner is a retired employee of the 1[st] respondent Bank. The petitioner had, on retirement, made an application to the 1[st] respondent Bank for gratuity and admittedly, he was paid Rs.10 Lakhs as gratuity for the service rendered; which is the maximum permissible under the Payment of Gratuity Act, 1972 (for brevity 'the Gratuity Act') as has been amended w.e.f. 24.05.2010. The payment was opposed by the Life Insurance Corporation (for brevity 'LIC'), with whom the 1[st] respondent Bank insured its gratuity liability. 2. The short contention of the petitioner based on Ext.P2 communication of the LIC to the respondent Bank, is that, in fact, the eligible claim of gratuity was Rs.14,37,772/- where as the claim submitted by the Bank was for only Rs.10 Lakhs. The petitioner relies on Ext.P2 communication from the LIC. The petitioner having received the amounts payable as per the Gratuity Act was again before the 1[st] respondent Bank for disbursing the balance amount ## **WP(C).21861/2013** due, as has been noticed in Ext.P2. The 1[st] respondent Bank declined the same by Ext.P4 wherein it was contended that as per Rule 59 of the Kerala Co-operative Societies Rules (for brevity 'the Rules'), there is a stipulation that the gratuity paid shall not exceed 15 months pay and the 2[nd] proviso to Rule 59 of the Rules prohibits payment of gratuity in excess of the amounts which an employee is eligible as per the Gratuity Act. 3.The petitioner assails the decision of the respondent Bank on the ground that when a Scheme provides for better benefits then, as per sub section 5 of Section 4 of the Gratuity Act the rights of the employee to receive such amounts shall not be affected. The petitioner also relies on Ext.P5 judgment of a learned single Judge of this Court and the decisions reported in **Retnavalli v. - Ambalapadu Service Co operative Bank Ltd. (2005 (3) KLT 320)** and **Nedupuzha Service Co-operative Bank Ltd. v. Rugmini (2011 (3) KLT 134)** . It is the contention of the learned counsel for the petitioner that this Court and the Honourable Supreme Court consistently held that though the payment of ## **WP(C).21861/2013** 3 gratuity is regulated by the Gratuity Act; any scheme, award or contract which entitle the employee to better benefits than that provided under the Gratuity Act shall not be affected and the employee's entitlement under such scheme, award or contract cannot be curtailed on the strength of the provision in the Gratuity Act prescribing the maximum limit. 4. The learned counsel for the respondent Bank would submit that the liability of the employer to pay gratuity is statutorily fixed on the employer and there is no award or scheme or any contract with the employees of the 1[st] respondent Bank entitling them to any better benefit than that are prescribed under the Gratuity Act. The 1[st] respondent Bank, noticing its recurring liability for payment of gratuity to the employees, had enrolled in a premium linked policy with the LIC which shifts the liability of payment of gratuity to the LIC, the insurer. The contract between the 1[st] respondent Bank, the insured and the LIC is for payment of gratuity on the retirement of the employees; with the unique advantage of the sum assured under the gratuity policy being fully paid to an employee who dies while in ## **WP(C).21861/2013** 4 service. However, it is contended that being premium linked, the liability of the LIC is only to the extent of the premium paid by the respondent Bank; the insured and it cannot be over and above that prescribed under the Gratuity Act especially in view of the amendment brought into Rule 59 of the Rules by addition of the 2[nd] proviso in the year 2010, w.e.f. 02.11.2010. 5. The learned counsel appearing for the LIC supports the argument of the 1[st] respondent Bank; but, contends that if more premium is paid they have no objection in paying the higher amounts due under the policy. However, in the present case, the premium paid was only to cover the liability of a maximum of Rs.10 Lakhs and the LIC, the insured, cannot be asked to pay anything over and above that to the extent to which the LIC had insured the 1[st] respondent Bank, with reference to the premium paid. 6. The learned counsel for the petitioner contends that the LIC has specifically averred in its counter affidavit that the Master Policy Holder is entitled to claim gratuity to the tune of ## **WP(C).21861/2013** 5 Rs.14,37,772/- and any change regarding gratuity is possible only through the Board resolution and will have effect only from the next renewal date ie., 15.09.2013. Here the reference made is to the Board resolution of the LIC. Though the Scheme covers the liability of the insured Bank to the extent of Rs.14,37,772/-; in the absence of payment of premium, the LIC cannot be directed to pay the entire amounts by reason only of that amount being the maximum possible under the Master Policy Scheme. The scheme in which the 1[st] respondent is enrolled is a Group Gratuity Cash Accumulation scheme and irrespective of the maximum amount payable, the liability of the insurer is limited to the amount available in the fund. The amount available in the fund is that remitted by the Bank as premium, which has a nexus with its statutory liability. The statutory liability of the employer/insured, admittedly, stands satisfied by the insurer/LIC. In the context of the 1[st] respondent employer having statutory liability only to the extent of the amounts prescribed under Section 4 of the Gratuity Act, the 1[st] respondent Bank also cannot be directed to pay any premium over and above the requirement to satisfy the said liability. The maximum ## **WP(C).21861/2013** entitlement under the Master Policy Scheme, in which the respondent Bank has enrolled cannot entitle its employees to the same since the employer's liability is limited, statutorily to Rs.10 Lakhs. The employer too has paid premium only to the extent of insuring its statutory liability. 7. The contention of the petitioner is based on the decisions cited above. Ext.P5 was a case in which the LIC had paid an amount of Rs.13,15,000/- to the Bank in discharge of its liability to pay gratuity to an employee. However, relying on the 2[nd] proviso to Rule 59, the Bank paid only the amount of Rs.10 Lakhs and retained the balance Rs.3,15,000/-. In such circumstances, definitely subsection (5) of Section 4 of the Gratuity Act would come into play and though there is no contract, agreement or scheme with the employee, the minute an employee attained superannuation his entitlement would be decided on the basis of the policy; of course with reference to the premium paid. In the said case the premium paid entitled the employee to an amount over and above Rs.10 Lakhs and that was disbursed by the LIC. The retention of such ## **WP(C).21861/2013** 7 amounts by the Bank was found to be bad and was directed to be paid to the petitioner therein. ## 8. **Retnavalli** (supra) and **Nedupuzha Service Co-operative** **Bank** (supra) were both dealing with the issue before the amendment; of Rule 59, which amendment inserted the 2[nd] proviso. It is also pertinent to notice that in **Retnavalli** , the question decided was whether the employee is entitled to receive higher gratuity as per the Scheme by which the LIC insured the 1[st] respondent Bank, though the employee is not a party to the said Scheme. Rule 59 as it stood at the period considered in **Retnavalli** , provided that in no case shall the gratuity exceed fifteen months pay. As against this a Circular was issued by the Registrar that the gratuity shall be limited to that provided under the Gratuity Act. (at that time Rs. 1 Lakh). It was held that the circular is bad since it was without reference to the bye-laws of the Society; which as per Rule 59 has to provide for the gratuity payable to employees. While the Court affirmed the power of the Government to fix the maximum limit of gratuity payable to an employee of a Co-operative Society ## **WP(C).21861/2013** 8 under Section 80(3) of the Act; the glaring absence of exercise of such power, when framing Rule 59, as it existed then, was highlighted. This Court found that the employee would be entitled to any higher amounts, relying on sub section (5) of Section 4 of the Gratuity Act. However, it is pertinent to notice that this Court specifically in paragraph 16 said so:- “The result of these findings, is that the 1[st] respondent Society is bound to pass on entire amounts paid by the LIC pursuant to Ext.P1 in respect of the gratuity liability of the Society towards each employee, taken over by the LIC in full, withholding any amount in their fund even if it is in excess of the amount prescribed as per Rule 59 or the bye-laws of the Society”. ## 9. The period considered in **Nedupuzha Service Co-** **operative Bank** (supra) was when the Gratuity Act provided for a statutory maximum limit of Rs. 3.5 Lakhs. It was also noticed that if a higher amount is payable, the LIC would prescribe a higher premium; making it clear that the liability of the insurer is premium linked. The issue raised was whether the amount of gratuity paid ## **WP(C).21861/2013** 9 by the LIC in excess of what was statutorily prescribed in the Gratuity Act, was liable to be retained by the Society for enriching its coffers. The Registrar too issued a circular to that effect entitling the Societies to the additional amounts. The dictum laid down in **Retnavalli** that the amounts paid by the LIC to the Banks are not entitled to be retained by them was the subject matter of one appeal (W.A.No.197/2010), in the said common judgment. That appeal alone was dismissed by the Division Bench of this Court. The employers were held to be disentitled to the policy benefit which was in excess of the statutory limit. With respect to the other appeals, claiming gratuity in terms of the Co-operative Societies Act ie., 15 days wages for each completed years of service, it was held so : “The claim is in excess of statutory limit of Rs.3.5 Lakhs provided under Section 4(3) of the Act. It is seen that Group Gratuity Policies taken by the appellant Banks with the LIC limited the gratuity liability to each of the employee including the respondents at the maximum amount of Rs.3.5 Lakhs provided under Section 4(3) of the Act. Admittedly, 10 ## **WP(C).21861/2013** the LIC has collected premium from the appellants for the maximum amount of gratuity payable under the statute to each of the employee. We do not know on what basis the respondents can claim gratuity in excess of statutory limit, which is covered in the Policies taken by the appellant Banks. As already held above, benefit of the employees is limited to the gratuity amount receivable under the Policy, and when it is limited to the statutory amount of Rs.3.5 Lakhs, the LIC passes on only the said amount to the appellants, which in turn should go to the employees. This reasoning is what is adopted by this Court also in finding the claim having been satisfied on the basis of the premium linked policy. 10. In the context of the LIC having paid the gratuity as against the premium paid by the respondent Bank, one aspect assumes significance. If the employer had insured itself with a policy, and had failed to pay the premium at all, definitely the insurer would not have the liability to pay the gratuity. In that situation would the employee have a legal right under Section 4(5) ## **WP(C).21861/2013** 11 of the Gratuity Act, to claim from the employer an amount as entitled under the policy ? The answer would be definitely in the negative. It is very pertinent that in the instant case, there is no contention that any amounts exceeding Rs.10 Lakhs was paid by the LIC to the 1[st] respondent Bank. It is also evident from the pleadings that the Scheme entered into by the 1[st] respondent Bank with the LIC was premium linked and the liability of the LIC is only to the extent of the premium paid. The entitlement of the petitioner to gratuity, does not flow from the Scheme; but from the Gratuity Act and Rule 59 of the Rules. The scheme or the policy in which the 1[st] respondent Bank is said to have enrolled, is only to insure the liability statutorily imposed on the employer ie: the 1[st] respondent Bank. 11. In such circumstances, the above cited decisions do not at all support the stand of the petitioner and it is to the contrary. It is also pertinent that Rule 59 has been amended prescribing the maximum limit as statutorily prescribed in the Gratuity Act. This is the vested power exercised by the Government, as this Court ## **WP(C).21861/2013** 12 conceded to the Government, in **Retnavalli.** In any event, the 2[nd] proviso inserted in Rule 59 in the year 2010 is not seen challenged by the petitioner. This Court does not see any compelling legal ground to interfere with the decision of the employer; the 1[st] respondent Bank or its insurer, the LIC, and the claim raised is neither supported by the statutory provisions nor the binding precedents. The findings above persuades this Court to find the writ petition as devoid of any merit. The writ petition is dismissed. No costs. **K.VINOD CHANDRAN, Judge** mrcs