T.D. Mohanan v. Alwaye Urban Co-operative Bank Ltd. and Life Insurance Corporation of India

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR. JUSTICE ANIL K.NARENDRAN** **MONDAY, THE 15TH DAY OF JANUARY 2018 / 25TH POUSHA, 1939** **WP(C).No. 19867 of 2011** ## **PETITIONER:** **T.D.MOHANAN, S/O.DAMODARAN PILLAI AGED 62, POURNAMI, AROOR VILLAGE, AROOR MURI, CHETHALA TALUK, ALAPPUZHA DISTRICT, PIN 688 534. (RTD. INTERNAL AUDITOR)** **BY ADVS.DR.V.N.SANKARJEE** **SRI.ANIL R.NATH SRI.A.V.CHARLES** ## **RESPONDENT(S):** **1. THE ALWAYE URBAN CO-OPERATIVE BANK LTD., HEAD OFFICE, MARKET ROAD, ALWAYE - 683 101, REPRESENTED BY ITS GENERAL MANAGER IN CHARGE.** - ***ADDL. R2 IMPLEADED** **2. THE LIFE INSURANCE CORPORATION OF INDIA,** **DIVISIONAL OFFICE, M.G.ROAD, OPPOSITE MAHARAJA'S COLLEGE GROUND, ERNAKULAM, REPRESENTED BY ITS DIVISIONAL MANAGER.** **ADDL.R2 IS IMPLEADED AS PER ORDER DATED 27.09.2011 IN IA.15412/2011.** **R1 BY ADVS. SRI.V.G.ARUN SRI.T.R.HARIKUMAR SRI.PRASAD CHANDRAN ADDL.R2 BY ADV. SRI.S.EASWARAN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 15-01-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **mbr/** **WP(C).No. 19867 of 2011** **APPENDIX** ## **PETITIONERS' EXHIBITS:** **EXHIBIT P1 : A TRUE COPY OF THE RESPONDENT'S NOTICE DATED 9.12.2010 ISSUED TO THE PETITIONER.** **EXHIBIT P2 : TRUE COPY OF THE JUDGMENT DATED 9.1.2009 IN WPC.NO.20168/2008 OF THIS HONOURABLE COURT.** ## **RESPONDENTS' EXHIBITS: NIL** **/TRUE COPY/** **P.S.TO JUDGE** ## **mbr/** ## **ANIL K. NARENDRAN, J. ----------------------------------------------W.P(C) No.19867 of 2011 -----------------------------------------------** Dated this the 15[th] day of January, 2018 ## **J U D G M E N T** The petitioner, who retired from the service of the 1[st] respondent Society while working as Internal Auditor on 31.3.2007, with a pay of 40,202/-, is before this Court in this₹ writ petition filed under Article 226 of the Constitution of India seeking a writ of certiorari to quash Ext.P1 notice dated 9.12.2010 issued by the 1[st] respondent Society and seeking a declaration that he is not liable to re-pay the amount obtained as gratuity from the Life Insurance Corporation, the 2[nd] respondent herein, under the Group Gratuity Scheme. 2. The petitioner retired from service on superannuation on 31.3.2007, while working as Internal Auditor in the 1[st] respondent Co-operative Society. The employees of the 1[st] respondent Co-operative Society, in the matter of payment of gratuity, are covered by the Group Gratuity Scheme with the Life Insurance Corporation of India. On 10.5.2007, the petitioner was disbursed with a sum of 3,50,000/- towards₹ **W.P(C) No.19867 of 2011 :2:** gratuity, which was followed by a further payment of 40,202/-₹ on 30.6.2016, as received from the 2[nd] respondent Life Insurance Corporation. Later, the petitioner was issued with Ext.P1 notice dated 9.12.2010 of the 1[st] respondent Society, whereby, he was asked to pay back the aforesaid sum of ₹40,202/- alleging that it was an excess payment as per the audit objection. 3. On 21.7.2011 when this writ petition came up for admission, this Court admitted the matter on file and issued urgent notice to the respondent by speed post. This Court has also granted an interim stay of Ext.P1 notice for a period of one month and the said interim order was revived and extended for a period of one month on 27.9.2011. The Life Insurance Corporation of India was impleaded as additional 2[nd] respondent by the order dated 27.9.2011 in I.A.No.15412/2011. 4. Heard the learned counsel for the petitioner, the learned counsel for the 1[st] respondent Society and also the learned counsel for the 2[nd] respondent Life Insurance Corporation of India. 5. The issue raised in this writ petition regarding the **W.P(C) No.19867 of 2011 :3:** entitlement of the employees of the Co-operative Societies covered by the provisions under the Payment of Gratuity Act to receive better terms under Section 4(5) of the said Act is now settled by the decision of the Full Bench of this Court in **Chandrasekharan Nair G. and others v. Kerala State Cooperative Agricultural and Rural Development Bank Ltd. and others (2017 (4) KLT 276)** . Paragraphs 5 to 8 of the said decision read thus; “5. The liability to pay gratuity does not get shifted to the insurer by the compulsory insurance and the effect is only that the maturity value of the master policy would go to the credit of the dues of the employee. Any amount in excess of the gratuity due would also go to the employee since the contract of insurance would fall within the ambit of Section 4(5) of the Central Act. Any deficit in the amount due as gratuity to the employee after payment by the insurer has to be met by the employer only as the liability squarely rests on him under Section 4(2) of the Central Act. The insurer cannot be made liable to pay any amount in excess of the maturity value of the master policy as the same would be dependent on the premium paid to him. The compulsory insurance under S.4A of the Central Act is only to facilitate the ## **W.P(C) No.19867 of 2011 :4:** employer to discharge his liability and the premium paid is part of the wages only. Of course the wording of the second proviso to Rule 59(iii) of the Rules gives rise to a doubt that the employee would be pinned down to the amount of gratuity specified in the Central Act. Such an interpretation would render Section 4(5) of the Central Act otiose whereunder the employee has a right to receive better terms of gratuity under any award or agreement or contract with the employer. The provisions of the Central Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other enactment or instrument or contract. The overriding effect of the Central Act over other enactments is explicit from Section 14 of the Central Act which is to the following effect: "14. Act to override other enactments, etc.- The provisions of this Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument or contract having effect by virtue of any enactment other than this Act." 6. The co-operative societies wherein the employees are engaged is Entry 32 of List II - State List and gratuity to which a claim is laid is Entry 24 of List III - ## **W.P(C) No.19867 of 2011 :5:** Concurrent List of the Seventh Schedule to the Constitution of India. The Central Act which is the law made by the Parliament shall prevail over the law made by the Legislature of the State i.e. the second proviso to Rule 59(iii) of the Rules. The inconsistency between laws made by Parliament and laws made by the Legislatures of States can be ironed out by calling in aid Article 254 of the Constitution of India. The same reads as follows: "254. Inconsistency between laws made by Parliament and laws made by the Legislatures of States.-- (1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament, which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of Clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void. (2) Where a law made by the Legislature ## **W.P(C) No.19867 of 2011 :6:** of a State with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State: Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State." (emphasis supplied) There is no case that the second proviso to Rule 59(iii) of the Rules made by the Legislature of the State has received the assent of the President in order to prevail in the State under Article 254(2) of the Constitution of India. Every amendment to the State Act or the Rules has also to obtain the assent of the President which is absent in regard to the second proviso to Rule 59(iii) of the Rules. The irresistible conclusion is that Section 4(5) of the Central Act which enables an employee to opt for a better terms ## **W.P(C) No.19867 of 2011 :7:** of gratuity will prevail over the second proviso to Rule 59(iii) of the Rules. Only the case of employees who are both covered under the Central Act and the Rules framed under the State Act is dealt with in this bunch of writ petitions since the Central Act does not apply to all establishments. Section 1(3)(b) of the Central Act is categoric that the same applies only to an establishment in which ten or more persons are employed or were employed during the preceding twelve months. 7. The dominant intention of the Central Act is to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments. The dominant intention of the State Act is to provide for the orderly development of the co-operative societies in the State as self-governing democratic institutions. A provision in the Central Act to give effect to its dominant purpose may incidentally be on the same subject as covered by the provision in the State Act. But such partial coverage of the same area in a different context and to achieve a different purpose does not bring about the repugnancy which is intended to be covered by Article 254(2) of the Constitution. We shall quote the decision in Vijay Kumar Sharma v. State of Karnataka, 1990 KHC 805 wherein it is held as follows: ## **W.P(C) No.19867 of 2011 :8:** "53. The aforesaid review of the authorities makes it clear that whenever repugnancy between the State and Central legislation is alleged, what has to be first examined is whether the two legislations cover or relate to the same subject matter. The test for determining the same is the usual one, namely, to find out the dominant intention of the two legislations. If the dominant intention i.e. the pith and substance of the two legislations is different, they cover different subject matters. If the subject matters covered by the legislations are thus different, then merely because the two legislations refer to some allied or cognate subjects they do not cover the same field. The legislation, to be on the same subject matter must further cover the entire field covered by the other. A provision in one legislation to give effect to its dominant purpose may incidentally be on the same subject as covered by the provision of the other legislation. But such partial coverage of the same area in a different context and to achieve a different purpose does not bring about the repugnancy which is intended to ## **W.P(C) No.19867 of 2011 :9:** be covered by Article 254(2). Both the legislations must be substantially on the same subject to attract the article." (emphasis supplied) There is no repugnancy (in the sense that one Act cannot be obeyed without disobeying the other) and therefore every endeavor has to be made to reconcile the provisions and give a harmonious construction. 8. The following decisions were cited at the Bar by the counsel for either sides: - (i) Retnavalli v. Ambalapadu Service Cooperative Bank Ltd. [2005 (3) KLT 320] - (ii) Nedupuzha Service Co-operative Bank Ltd. v. Rugmini [2011 (3) KLT 134 (DB)] - (iii) Mathew Korah v. Kaduthuruthy Urban Co-operative Bank [2013 (4) KLT 558] (iv) The Travancore Cements Employees' Co-operative Bank Ltd. v. Ramachandran Nair [2014 (1) KLT 889 (DB)] and - (v) Life Insurance Corporation of India v. K.P.Varughese [ILR 2015 (3) Kerala 420 (DB)]. None of the above decisions dealt with the second proviso to Rule 59(iii) of the Rules substituted with effect from 2.11.2010 only and hence do not help to resolve the controversy in this bunch of cases. The second proviso to Rule 59(iii) of the Rules referable to **W.P(C) No.19867 of 2011 :10:** the amount received out of any scheme implemented by a society shall be construed in the context explained above. The employee in other words is entitled to the higher amount if he has opted in terms of Section 4(5) of the Central Act even if a lesser amount is due under Section 4(2) thereof. The decision in Nedupuzha's case (supra) to the extent that excess amount if any received by the employer under the policy would inure to the employee is affirmed. The said decision does not lay down the proposition that the entitlement of the employee is confined to the amount received under the policy even if it falls short of the statutory limit. Circular No.5/2016 and similar circulars issued by the Registrar of Co-operative Societies stem out of a misconception of the statutory provisions and are quashed to this extent. The reference is answered accordingly and the writ petitions shall be posted before the single Judge as per roster for disposal dependent on individual facts.” 6. In **Chandrasekharan Nair's case (supra)** , the Full Bench of this Court held that, the liability to pay gratuity does not get shifted to the insurer by the compulsory insurance and the effect is only that the maturity value of the master policy would go to the credit of the dues of the employee. Any amount **W.P(C) No.19867 of 2011 :11:** in excess of the gratuity due would also go to the employee since the contract of insurance would fall within the ambit of Section 4(5) of the Central Act. Any deficit in the amount due as gratuity to the employee after payment by the insurer has to be met by the employer only as the liability squarely rests on him under Section 4(2) of the Central Act. The insurer cannot be made liable to pay any amount in excess of the maturity value of the master policy as the same would be dependent on the premium paid to him. The compulsory insurance under Section 4A of the Central Act is only to facilitate the employer to discharge his liability and the premium paid is part of the wages only. 7. In **Chandrasekharan Nair's case (supra)** the Full Bench held further that, the wording of the second proviso to Rule 59(iii) of the Rules, of course, gives rise to a doubt that the employee would be pinned down to the amount of gratuity specified in the Central Act. Such an interpretation would render Section 4(5) of the Central Act otiose whereunder the employee has a right to receive better terms of gratuity under any award or agreement or contract with the employer. The **W.P(C) No.19867 of 2011 :12:** provisions of the Central Act or any rule made thereunder shall have effect, notwithstanding anything inconsistent therewith contained in any other enactment or instrument or contract. The overriding effect of the Central Act over other enactments is explicit from Section 14 of the Central Act. The Co-operative Societies wherein the employees are engaged is Entry 32 of List II-State List and gratuity to which a claim is laid is Entry 24 of List III-Concurrent List of the Seventh Schedule to the Constitution of India. The Central Act, which is the law made by the Parliament shall prevail over the law made by the Legislature of the State, i.e., the second proviso to Rule 59(iii) of the Rules. The inconsistency between laws made by Parliament and laws made by the Legislatures of States can be ironed out by calling in aid Article 254 of the Constitution of India. There is no case that the second proviso to Rule 59(iii) of the Rules made by the Legislature of the State has received the assent of the President in order to prevail in the State under Article 254(2) of the Constitution of India. Every amendment to the State Act or the Rules has also to obtain the assent of the President which is absent in regard to the second proviso to Rule 59(iii) of the ## **W.P(C) No.19867 of 2011 :13:** Rules. Therefore, the irresistible conclusion is that Section 4(5) of the Central Act, which enables an employee to opt for a better term of gratuity will prevail over the second proviso to Rule 59(iii) of the Rules. 8. In **Chandrasekharan Nair's case (supra)** , the Full Bench held that, the second proviso to Rule 59(iii) of the Rules referable to the amount received out of any scheme implemented by a society shall be construed in the context explained above. The employee in other words is entitled to the higher amount if he has opted in terms of Section 4(5) of the Central Act even if a lesser amount is due under Section 4(2) thereof. The Full Bench affirmed the decision of the Division Bench in **Nedupuzha's case (2011 (3) KLT 134)** to the extent that excess amount, if any, received by the employer under the policy would inure to the employee. The Full Bench noticed that, the said decision does not lay down the proposition that the entitlement of the employee is confined to the amount received under the policy, even if it falls short of the statutory limit, and that, Circular No.5/2016 and similar circulars issued by the Registrar of Co-operative Societies stem out of a misconception ## **W.P(C) No.19867 of 2011 :14:** of the statutory provisions and are therefore quashed to that extent. The Full Bench has made it clear that, it has dealt with only the case of employees who are both covered under the Central Act and the Rules framed under the State Act, since the Central Act does not apply to all establishments. 9. In view of the law laid down by the Full Bench of this Court in **Chandrasekharan Nair's case (supra)** , an employee of a Co-operative Society, who is covered both under the Payment of Gratuity Act, 1972 and the Kerala Co-operative Societies Rules, 1969 framed under the Kerala Co-operative Societies Act, 1969 is entitled to the higher amount, if he has opted in terms of Section 4(5) of the Payment of Gratuity Act, even if a lesser amount is due under Section 4(2) thereof. Therefore, the excess amount, if any, received by the employer Society under the policy would inure to the benefit of such an employee. 10. Admittedly, the petitioner received a sum of ₹3,90,202/- towards the gratuity from the 1st respondent Society in terms of the Group Gratuity Scheme with the 2[nd] respondent Life Insurance Corporation. It was thereafter that the 1[st] ## **W.P(C) No.19867 of 2011 :15:** respondent Society has issued Ext.P1 notice, whereby the petitioner was directed to pay back a sum of 40,202/-. In view₹ of the law laid down by the Full Bench of this Court in **Chandrasekharan Nair's Case** (supra) the petitioner is entitled for payment of the entire amount of gratuity of ₹3,90,202/- received by the 1st respondent Society from the 2nd respondent Life Insurance Corporation of India and as such the demand made in Ext.P1 cannot be sustained. In the result, this writ petition is disposed of by setting aside Ext.P1 demand made by the 1[st] respondent and it is declared that the petitioner is entitled for the entire amount of gratuity received by the 1[st] respondent Society from the 2[nd] respondent Life Insurance Corporation of India. Sd/- ## **ANIL K. NARENDRAN JUDGE** //True Copy// P.A to Judge Ab