The Managing Director, Kerala Financial Corporation v. V. AUGASTHIALINGOM and The Kerala Lok Ayukta

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE P.N.RAVINDRAN FRIDAY, THE 25TH DAY OF MAY 2012/4TH JYAISHTA 1934 WP(C).No. 23333 of 2011 (N) --------------------------- PETITIONER : ------------ THE MANAGING DIRECTOR, KERALA FINANCIAL CORPORATION, VELLAYAMBALAM, THIRUVANANTHAPURAM. BY ADVS.SRI.E.K.NANDAKUMAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH MENON SRI.MILLU DANDAPANI,SC,K.F.C. RESPONDENT(S): -------------- 1. V. AUGASTHIALINGOM, S/O.K.A.VELAYUDHAN PRATHYAKSHA, T.C.21/539, NEDUMKADU, KARAMANA P.O., THIRUVANANTHAPURAM-695 002. 2. THE KERALA LOK AYUKTA, LEGISLATIVE COMPLEX, VIKAS BHAVAN P.O. THIRUVANANTHAPURAM-695 033. R1 BY ADV. SRI.A.AHZAR THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 25-05-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: DSV/- ## WP(C).No. 23333 of 2011 (N) ## APPENDIX ## PETITIONER'S EXHIBITS : EXHIBIT P1: COPY OF THE ORDER DATED 1/7/2011 OF THE KERALA LOK AYUKTA IN COMPLAINT NO.856/2010B. EXHIBIT P2: COPY OF THE MEMORANDUM OF SETTLEMENT DATED 28/7/2007. EXHIBIT P3: COPY OF THE OFFICE ORDER DATED 26/11/2007 ISSUED BY THE PETITIONER. EXHIBIT P3(a): COPY OF THE MINUTES OF THE MEETING 26/4/2008 EVIDENCING THE DECISION TAKEN COLLECTIVELY. EXHIBIT P4: COPY OF THE COMPLAINT DATED 19/5/2010 (WITHOUT ITS ANNEXURES) FILED BY THE 1ST RESPONDENT. EXHIBIT P5: COPY OF THE OBJECTION/COMMENTS FILED BY THE PETITIONER IN OCTOBER 2010, BEFORE THE 2ND RESPONDENT. RESPONDENTS' EXHIBITS : NIL /TRUE COPY/ P.A.TO JUDGE DSV/- ## **P.N.RAVINDRAN,J.** ------------------------------- W.P.(C) No.23333 of 2011 -------------------------------------Dated this the 25[th] day of May, 2012 ## **JUDGMENT** The Managing Director of the Kerala Financial Corporation (hereinafter referred to as 'the Corporation' for short) has filed this writ petition challenging Ext.P1 order passed by the Upa Lok Ayukta on 1.7.2011 whereby the Upa Lok Ayukta directed him to pay a further sum of Rs.1,00,000/- to the first respondent towards gratuity in addition to the sum of Rs.3.50 lakhs disbursed to him on his retirement. The brief facts of the case are as follows:- 2. The first respondent entered service in the Corporation on 3.1.1976. He retired from service on attaining the age of superannuation on 31.7.2006. The pay and allowances of employees of the Corporation are determined after discussions with service organizations and are incorporated in the memorandum of settlement entered into between the management and the employees represented by service organizations from time to time. The last of such bilateral settlements ceased to be in force on 30.6.2011. Thereafter no W.P.(C) No.23333 of 2011 2 memorandum of settlement had been entered into between the management and the employees. Such a memorandum of settlement was arrived at covering the period from 1.7.2001 to 30.6.2011 only on 28.7.2007 when Ext.P2 memorandum of settlement was entered into between the Managing Director of the Corporation and KFC Officers Association, KFC Professionals Forum, KFC Employees Association and KFC Staff Union. 3. After Ext.P2 memorandum of settlement was entered into, the Managing Director of the Corporation issued Ext.P3 office order dated 26.11.2007 incorporating the stipulations in Ext.P2. After Ext.P2 memorandum of settlement was entered into and Ext.P3 office order was issued, the first respondent filed Ext.P4 complaint before the Hon'ble Upa Lok Ayukta constituted under section 4 of the Kerala Lokayukta Ordinance, 1999. In that complaint he contended that as Ext.P2 bilateral agreement covers the period from 1.7.2001 to 30.6.2006 and 1.7.2006 to 30.6.2011 he is entitled to receive the sum of Rs.4.50 lakhs by way of gratuity, but by Ext.P3 office order dated 26.11.2007, the Managing Director denied the right of those employees who W.P.(C) No.23333 of 2011 3 retired from service before 1.8.2007 to enhanced gratuity, that under the bilateral agreement all employees who retired between 1.7.2001 to 31.7.2007 are eligible for enhanced gratuity in terms of paragraph 14 of the bilateral agreement, but the management disbursed enhanced gratuity only to those employees who retired from service after 1.8.2007 and thereafter. He contended that on the terms of Ext.P2 bilateral agreement, he is entitled to receive a further sum of Rs.1,00,000/- towards gratuity. 4. Upon receipt of notice from the Upa Lok Ayukta, the petitioner entered appearance and filed Ext.P5 objections. In paragraph 3 he stated that as per sub section (3) of section 4 of the Payment of Gratuity Act, 1972, (hereinafter referred to as 'the Act' for short) the gratuity payable to an employee is limited to Rs.3.50 lakhs, that in sub section (5) of section 4 thereof, it is stipulated that noting contained 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, that the last memorandum of settlement between the service organizations and the management was signed on 28.7.2007, that thereafter W.P.(C) No.23333 of 2011 4 the Board of Directors of the Corporation that met on 24.11.2007 resolved to implement the revision and to release the revised pay with effect from 1.8.2007 and also authorised the Managing Director of the Corporation to negotiate with the service organizations regarding payment of arrears for the period from 1.7.2001 to 31.8.2007, that accordingly negotiations were held on 15.4.2008 and 26.4.2008 and Ext.P3(a) minutes was also prepared. In paragraph 5 and 6 of the counter affidavit, the petitioner disputed the claim of the first respondent for payment of an additional sum of Rs.1,00,000/- towards gratuity. Paragraphs 5 and 6 of the objection filed by the petitioner to Ext.P4 complaint are extracted below:- "5. The averments in para 8 and 9 are denied. The benefits of settlement was extended to those employees who joined the Corporation after 01.07.2001 and who are on the roll of the Corporation on the date of agreement ie. 28.7.2007. The complainant entered in the service of the Corporation on 31.01.1976 and retired on 31.07.1976 and retired on 31.07.2006 on superannuation. Hence he is not entitled to get the benefit of enhanced gratuity of Rs.4.5 lakhs. His eligible gratuity amount of Rs.3.5 lakhs had already been disbursed. The office order dated 26.11.2007 (Ext.A2) has been issued by the Corporation as approved W.P.(C) No.23333 of 2011 5 by the Board of Directors in its meeting held on 30.07.2007 and 24.11.2007 based on the terms agreed between Service Organizations and KFC. 6. Averments in para 10 of the complaint are denied. As per Claus “C-14 other matters” the maximum limit of gratuity was fixed as 4.5 lakhs. The enhancement of gratuity was given effect only from 1.8.2007, i.e., for persons who retire after the date of signing of agreement. This matter was communicated to all concerned vide Office Order No.Psl./3798/07 dated 26.11.2007. The enhancement of limit of gratuity was given only prospective effect since the same was discussed and finalized not as a part of pay but as part of the bilateral agreement signed between the service organisations and the management. Hence it is evident that the Corporation was paying the amount of Rs.3.5 lakhs bound by the Gratuity Act 1972 and the increased amount of Rs.4.5 lakhs was given as part of the mutually agreed bilateral agreement between the service organisation and management w.e.f. 1.8.2007 for which the employees who retired before 1.8.2007 cannot make a claim. Hence the contention of the complainant does not hold good. The recent amendment regarding enhancing of gratuity limit to Rs.10 lakhs by the Government of India was also not given the retrospective effect. It may please be noted that for the above enhancement, the effective date was fixed as 24.5.2010, the date on which the payment of Gratuity (Amendment) Act 2010 (15 of 2010) came into force.” ## 5. Shorn of details, the contention raised in paragraph 5 W.P.(C) No.23333 of 2011 6 and 6 as extracted above was that the benefit of the settlement is extended to those employees who joined the Corporation after 1.7.2001 and were on the rolls of the Corporation on the date of the agreement and therefore the complainant who entered service on 31.1.1976 and retired from service on 31.7.2006 is not entitled to get the benefit of enhanced gratuity. It was also contended that the enhancement of gratuity takes effect only from 1.8.2007 i.e., to persons who retired after the date of the agreement. In other words, it was contended that enhancement of the limit of gratuity has only prospective effect. The Upa Lok Ayukta considered the rival contentions and upheld the claim of the first respondent and directed the petitioner to pay a further sum of Rs.1,00,000/- towards gratuity. Hence this writ petition challenging Ext.P1 and seeking the following reliefs: “(i) Call for the records leading to Exhibit P1 order of the 2[nd] respondent and quash the same by issuing a writ of certiorari. (ii) To declare that the clause relating to gratuity in Ext.P2 Settlement has only prospective effect.” 6. The main contention raised by the petitioner is that the stipulation regarding payment of enhanced gratuity in Ext.P2 W.P.(C) No.23333 of 2011 7 bilateral agreement has only prospective effect and that only those employees who retired from service after 1.8.2007 are entitled to enhanced gratuity of Rs.4.50 lakhs. It is contended that the stipulation regarding the period of validity under the heading “D” occurring in Ext.P2 settlement does not cover gratuity and that as per Ext.P2 settlement, revision of allowances has only prospective effect from 1.8.2007 and therefore the petitioner who retired from service on 31.7.2006 is not entitled to gratuity in excess of Rs.3.50 lakhs. The first respondent has entered appearance through counsel and filed counter affidavit dated 10.11.2011 reiterating the contentions raised in Ext.P4 compliant and justifying the order passed by the Upa Lok Ayukta. 7. I heard Sri.Millu Dandapani, learned counsel appearing for the petitioner and Sri.Ahzar, learned counsel appearing for the first respondent. I have also gone through the pleadings and the materials on record. Shorn of details, the claim made by the first respondent before the Upa Lok Ayukta was that under the terms of Ext.P2 bilateral settlement which governs a period of ten years from 1.7.2001 to 30.6.2011, as an employee in service W.P.(C) No.23333 of 2011 8 was on 1.7.2011, he is entitled to all the benefits contemplated therein including revised gratuity. The stand of the petitioner is that revised gratuity is payable only to those employees who retire from service on and after 1.8.2007. Ext.P2 memorandum of settlement deals with scales of pay, fitment, weightage, fixation of pay, option and increment beyond maximum, which are grouped together under the heading "A". Various types of allowances like Dearness Allowance, House Rent Allowance, City Compensatory Allowance, etc. (22 in number) are grouped under the heading "B". Medical benefits, canteen subsidy, group tour, etc. are grouped under the heading "C-Other Matters". Item 14 therein deals with gratuity. The stipulation in paragraph 14 under the heading "C-Other Matters" reads as follows: ## "14. **Gratuity** : Existing system of calculation will continue subject to the condition that the maximum limit is enhanced from Rs.3.5 lakhs to Rs.4.5 lakhs." 8. Paragraph 14 does not stipulate that the maximum limit of gratuity is enhanced from Rs.3.5 lakhs to Rs.4.5 lakhs only prospectively or that such enhanced gratuity is applicable W.P.(C) No.23333 of 2011 9 only to those employees who retire on and after 1.8.2007. It is relying on the stipulations under the heading "D-Period of Validity" and "E-Miscellaneous" occurring in Ext.P2 memorandum of settlement that the petitioner contends that revised gratuity is payable only to those employees who retire from service on and after 1.8.2007. The relevant portions of the agreement relied on by the petitioner are extracted below: ## " **D. PERIOD OF VALIDITY:** The settlement will be in operation from 1.7.2001 to 30.6.2011. (i) Pay revision shall take effect from 1.7.2001 for 10 years up to 30.6.2011. (ii) Allowances revision shall have prospective effect i.e. from 1.8.2007. ## **E. MISCELLANEOUS** i) The benefit of settlement will be extended to the employees who joined the Corporation after 1.7.2001 and who are on the rolls of the Corporation on the date of agreement (28.7.2007). ii) This settlement will be full and final settlement of the memorandum of demands of the employees through the recognised organisations. It is also agreed that they will not raise any fresh demands during the period of operation of the settlement. iii) The existing practice and rules will be made applicable to the matters which are not mentioned/covered under this W.P.(C) No.23333 of 2011 10 ## agreement of settlement. iv) The employees promised to co-operate in proving their efficiency and the output of the Corporation by putting their maximum efforts. It is also agreed that they will strive for maximising the income of the Corporation so as to bring down the total Administrative and Establishment Expenses to 8% of the total income of the Corporation as insisted by SIDBI in the MOU." 9. The petitioner also relies on paragraph 14 of Ext.P3 office order issued in implementation of Ext.P2 settlement and it is extracted below: ## "14. **Gratuity** : Existing system of calculation will continue subject to the condition that the maximum limit is enhanced from Rs.3.5 lakhs to Rs.4.5 lakhs. This will have effect from 1.8.2007" A comparison of paragraph 14 of Ext.P2 settlement and paragraph 14 of Ext.P3 order indicate that the words "this will have effect from 1.8.2007" was not a stipulation which was agreed upon between the management and the employees. The stipulation in paragraph 14 of Ext.P3 order to the effect that the enhancement of gratuity with effect from 1.8.2007 was not a stipulation which was agreed upon by the employees. But it was incorporated by the Managing Director of the Kerala Financial W.P.(C) No.23333 of 2011 11 Corporation, after the Board of Directors that met on 30.7.2007 and 24.11.2007, approved the memorandum of settlement evidenced by Ext.P2. It is evident from the stipulations in Ext.P2 agreement under the heading "Period of Validity" that Ext.P2 memorandum of settlement governs the period from 1.7.2001 to 30.6.2011. The petitioner was admittedly in service during that period, he having retired from service only on 31.7.2007. It is also stipulated therein that the pay revision shall take effect from 1.7.2001 and it will be valid for ten years ending with 30.6.2011. Yet another stipulation is that revision of allowances shall have prospective effect from 1.8.2007. However, nothing is stated as regards enhanced gratuity under the heading "Period of Validity". But strangely enough, when Ext.P3 office order was issued it was stipulated that this will have effect from 1.8.2007 only. It is relying on that stipulation and the stipulation in clause (i) under the heading "E" that the petitioner disputes the first respondent's entitlement for payment of enhanced gratuity. Clause (i) under the heading 'E' in Ext.P2 agreement also does not in express terms stipulate that enhanced gratuity will be paid only to those W.P.(C) No.23333 of 2011 12 employees who retire from service on and after 1.8.2007. All that is stipulated in Clause (i) of Ext.P1 under the heading "E" is that the benefit of settlement will be extended to the employees who joined the Corporation after 1.7.2001 and who are on the rolls of the Corporation on the date of agreement (28.7.2007). The Upa Lok Ayukta after considering the relevant provisions in the agreement held as follows: "14. Having thus noticed the pertinent aspects relevant for consideration I would propose to deal with the contention of the respondent that the complainant is not entitled to get the benefit of the enhanced rate of gratuity as he had entered the service of the Corporation on 31.1.1976 and had retired on 31.07.2006. It is evident from the miscellaneous provision that the aforesaid clause was incorporated in the Memorandum of Settlement to extend the benefit of the settlement to those employees who joined the Corporation after 01.07.2001, and not to deny the benefits of Ext A to the then existing employees. By no stretch of imagination the above clause in Ext A can be made use of to contend for the position that the benefits provided under Ext A are not available to those employees who had joined the service of the Corporation before 01.07.2001 and not to those who were already in service. Contention to the contrary is only to be rejected." 10. It was held that clause (i) under the heading "E" was W.P.(C) No.23333 of 2011 13 incorporated in the memorandum of settlement only for the purpose of extending the benefit of the settlement to those employees who joined the Corporation after 1.7.2001 and not to deny benefits to existing employees. It was held that by no stretch of imagination can the stipulation in clause (i) under the heading "E" in Ext.P2 settlement be made use of to contend for the position that the benefits provided under the Memorandum of Settlement are not available to those employees who joined the Corporation before 1.7.2001 and are already in service. I am in agreement with the said reasoning adopted by the Lok Ayukta. That apart, if as contended by the petitioner, the benefit of the settlement is extended only to those employees who joined the Corporation after 1.7.2001 and were on the rolls of the Corporation on the date of the agreement (28.7.2007), then it will militate against the stipulation under the heading "D" that the settlement will be in operation from 1.7.2001 to 30.6.2006. It is also not in dispute that pursuant to Ext.P2 settlement the revision of wages took effect from 1.7.2001, though pursuant to Ext.P3(a) minutes, the employees agreed to forego 50% of the W.P.(C) No.23333 of 2011 14 arrears of pay during the period from 1.7.2001 to 30.6.2006. Ext.P3(a) minutes coupled with the fact that 50% of arrears of pay consequent on Ext.P2 settlement was given to employees during the period from 1.7.2001 to 30.6.2006 and entire arrears of pay from 1.7.2006 establishes beyond doubt that the benefit of the settlement is available to all those employees who were in service in the Corporation on 1.7.2001. The first respondent was admittedly in service on 1.7.2001. He retired from service on 31.7.2006. On the terms of the settlement the petitioner is entitled to the benefit of pay revision. In the absence of any stipulation to the effect that enhanced gratuity will not be paid to those employees who retire during the period from 1.7.2001 to 30.6.2006, but only to those who retire after 1.8.2007, the objection raised by the petitioner to the claim for enhanced gratuity made by the first respondent was in my opinion rightly rejected by the Lok Ayukta. As stated by the petitioner himself sub-section (5) of section 4 of the Payment of Gratuity Act, 1972 recognises the right of the employee to receive better terms of gratuity under an award or agreement or contract with the W.P.(C) No.23333 of 2011 15 employer. Such right was recognised in the employees with the signing of Ext.P2 memorandum of settlement. The management which had agreed to pay enhanced gratuity to the employees cannot in my opinion be heard to contend that no employee who retired prior to the signing of memorandum of settlement will be entitled to enhanced gratuity. 11. Though the learned counsel appearing for the petitioner contended that in view of the stipulations in subsection (1) of section 8 of the Kerala Lok Ayukta Act, 1999 and the second schedule to clause (d), the Lok Ayukta could not have entertained the complaint regarding the payment of gratuity, I am of the opinion that the said contention cannot be entertained in view of the decision of this Court in **Director, Economics and Statistics v. Subramani Pillai [2007 (3) KLT 366]** which was affirmed by a Division Bench of this Court in **K.S.R.T.C. v. Padmavathy [2008 (1) KLT 584]** . In **K.S.R.T.C. v. Padmavathy supra,** a Division Bench of this Court held that Lok Ayukta has jurisdiction to entertain complaints relating to claims for terminal benefits including gratuity. W.P.(C) No.23333 of 2011 16 For the reasons stated above, I hold that the challenge to Ext.P1 order is without merit. The writ petition fails and is dismissed. No costs. Sd/- **P.N.RAVINDRAN JUDGE** /TRUE COPY/ P.A. To JUDGE VPV