SAIL Can Withhold Gratuity, Adjust It Against Penal Rent If Ex-Employees Illegally Retain Quarters: Supreme Court

The Supreme Court has ruled that the Steel Authority of India Limited (SAIL) is entitled to withhold gratuity and adjust penal rent from the dues of retired employees who continue to occupy company quarters beyond the permissible period, setting aside contrary directions issued by the Jharkhand High Court.Affirming SAIL's powers under Rule 3.2.1(c) of the SAIL Gratuity Rules, the Court held that the employer is entitled to withhold gratuity for non-compliance with company rules, including failure to vacate accommodation, and that no interest is payable for the period of unauthorised occupation.A bench of Justices Pankaj Mithal and S.V.N. Bhatti allowed a batch of appeals filed by SAIL challenging High Court orders which had directed release of gratuity, in some cases with interest, to former employees of Bokaro Steel Plant who had not vacated staff quarters after retirement.The dispute arose from multiple writ petitions filed by retired employees who were allotted company quarters during service and continued in occupation even after superannuation. While the High Court had granted relief by directing payment of gratuity and limiting recovery to nominal rent, SAIL contended that its Gratuity Rules, 1978, permitted withholding of gratuity and adjustment of dues, including penal rent, for unauthorised occupation.The Supreme Court has observed that an employee holding the Steel Authority of India's staff quarters beyond the permissible time period cannot simultaneously demand the refund of the gratuity dues with interest. “Retention of a staff quarter allotted to an employee beyond the permissible period warrants determination of rent strictly as per the management policy. Without discharging the obligation of vacating the staff quarters, directing the management to refund gratuity with a rate of interest and adjust only nominal or normal rent is ex facie illegal...”, observed a bench of Justices Pankaj Mithal and SVN Bhatti. The dispute centred on retired employees who continued to occupy staff quarters even after retirement. SAIL withheld its gratuity, invoking its internal rules, which permit such withholding until the accommodation is vacated.Employees, however, approached the High Court seeking release of gratuity, leading to the passing of an order to pay interest on gratuity, having regard to the SAIL Gratuity Rules, 1978. Aggrieved by the High Court's order, the management of SAIL appealed to the Supreme Court. Allowing the appeal, the judgment authored by Justice Bhatti held that the direction in the impugned judgment, to pay interest on gratuity, having regard to the SAIL Gratuity Rules, 1978, is unsustainable “Having availed of the benefit of retaining the staff quarters by offering the gratuity amount as security, the employee cannot simultaneously claim that withholding the said amount entitles the Ex-Employees to interest on the withheld gratuity/security amount. To award interest in such circumstances would effectively reward unauthorised occupation of public premises.”, the court observed. Further, the Court referred to the case of M/s Steel Authority Of India v. Raghbendra Singh (2020), to hold that “if an employee occupies a quarter beyond the specified period, the penal rent would be the natural consequence and such penal rent can be adjusted against the dues payable including gratuity.” Accordingly, the Court ordered that the Respondents, Ex-Employees/Legal Heirs of the Ex-Employees, to vacate the staff quarters in their respective possession within an additional 4 weeks' time. “The reciprocal obligations are discharged simultaneously, i.e., (i) the payment of gratuity by the management and (ii) the handing over of vacant possession to the management by the Ex-Employees or their legal heirs.”, the court ordered.However, the Court exercised its equitable jurisdiction to moderate the financial impact on the employees. It fixed a uniform penal rent of ₹1,000 per month for the period of unauthorised occupation in the present batch of cases, noting that strict enforcement of SAIL's policy could result in complete erosion of gratuity, particularly affecting retired workers from skilled and semi-skilled categories. It also took into account that some employees had retired before the relevant policy was introduced.The Court clarified that this fixation was confined to the present batch and would not operate as a precedent.Setting aside the High Court's directions to pay interest, the Court held that awarding interest on withheld gratuity in such circumstances would effectively reward unauthorised occupation of company premises.The Court directed SAIL to calculate and communicate the payable amounts within four weeks and granted the employees or their legal heirs an additional four weeks to vacate the quarters. It ordered that the payment of gratuity and handing over of possession should take place simultaneously.HeadnoteService Law – Payment of Gratuity – Retention of Staff Quarters –...

SAIL Can Withhold Gratuity, Adjust It Against Penal Rent If Ex-Employees Illegally Retain Quarters: Supreme Court

Yash Mittal

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Yash Mittal

SAIL Can Withhold Gratuity, Adjust It Against Penal Rent If Ex-Employees Illegally Retain Quarters: Supreme Court

Yash Mittal

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