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Case Number

Writ Petitions Nos. 25950-51 of 2000

Attorney(S)

Sri A.J Srinivasan.
1.— Sri M.R.C Ravi.
2.— Sri K. Nagaraj, Government Advocate.

Judges

Sri M.F Saldanha, J.

Acts

provisions of S. 4(6) of the Payment of Gratuity Act, 1972.
PAYMENT OF GRATUITY ACT 1972

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Smart Summary

Opinion Summary: Withholding of Gratuity — Payment of Gratuity Act, 1972 (S.4(6))

Factual and Procedural Background

This summary is based exclusively on facts and procedural history as stated in the provided opinion.

The two petitions were heard together because they involved a common point of law. Both petitioners were office-bearers of the Usha Martin Industries Union. The first petitioner died after the petition was filed, but the court observed that this did not materially affect the narrow legal question before it.

On 7 March 1997 it was alleged that the first petitioner reported for a night shift to which he did not belong; when refused, he argued with company officers and, together with the second petitioner, allegedly persuaded or caused the other employees to leave their work stations, amounting to an instigation of a strike-like action. The company both instituted disciplinary proceedings and, under the Payment of Gratuity Act, 1972, issued show-cause notices and passed an order withholding the gratuity of the petitioners invoking S.4(6).

The Controlling Authority / Assistant Labour Commissioner, by order dated 15 November 1999, upheld the petitioners' claim to gratuity and quantified the amount; the company deposited the quantified amount with the authority but appealed. The appellate authority set aside the Controlling Authority's order by holding that S.4(6) applied; the present petitions challenge the appellate authority's order dated 28 April 2000.

The court limited its order strictly to whether withholding the gratuity was justified under the Payment of Gratuity Act, 1972, and expressly stated that observations in this order would have no bearing on other disciplinary proceedings such as the dismissal proceedings initiated by the company.

Legal Issues Presented

Whether the respondent-company was justified in withholding the petitioners' gratuity under Section 4(6) of the Payment of Gratuity Act, 1972.
Whether the petitioners' alleged conduct (instigating or causing employees to leave their work stations) constitutes "riotous or disorderly conduct" within the meaning of S.4(6)(b)(i).
Whether S.4(6)(a) or S.4(6)(b)(ii) applies — specifically, whether there was property damage/loss or an offence involving moral turpitude committed in the course of employment to justify forfeiture.
Whether loss of production (as opposed to property loss) can justify withholding gratuity under S.4(6)(a) absent quantification and apportionment of that loss to the individual employees.

Arguments of the Parties

Petitioners' Arguments (as presented in the opinion)

The petitioners relied on three decisions (cited in the opinion) to support the position that S.4(6) is inapplicable unless misconduct is very grave or there is monetary/property loss that must be offset; withholding gratuity is an additional punishment and must be narrowly applied.
Under S.4(6)(a) forfeiture is confined to cases where damage or loss to employer's property is caused — no such allegation exists here.
S.4(6)(b)(ii) (offence involving moral turpitude) does not apply because there is no allegation of moral turpitude.
S.4(6)(b)(i) (riotous or disorderly conduct) requires conduct that fits within the definitions of riotous or disorderly behaviour; mere instigation of a strike without violence or disorder does not, according to their submission, satisfy that requirement.

Respondent-Company's Arguments (as presented in the opinion)

The company argued that the petitioners had no right to insist on working in a shift they did not belong to and that when instructed otherwise they defied the instruction and then moved through the unit persuading or herding other employees to leave their work stations, thereby bringing production to a standstill.
The company characterized that conduct as riotous or at least disorderly behaviour, including defiance of lawful authority, and relied on authorities (including a Supreme Court decision and a Division Bench decision) where forfeiture of gratuity was upheld or where limits of legitimate trade union activity were analyzed.
The company submitted that the Payment of Gratuity Act does not require criminal-level riotous conduct; any activity disrupting the company's smooth working would fall within the statutory description of disorderly conduct for the purposes of forfeiture.

Amicus / Government Advocate (representing the Controlling Authority) submissions

The Government Advocate, appearing as amicus for the (Controlling) Authority, urged strict construction of the statutory provisions but submitted that if it was established that the petitioners were responsible for causing the workmen to leave the unit, that fact should be construed as disorderly behaviour sufficient to justify forfeiture even if it did not amount to riot in the strict criminal sense.
He supported the impugned order on the basis that the section postulates either "riotous" or "disorderly" conduct and argued the facts satisfied the latter.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court in this Opinion
1994 — I L.L.J 907 (as cited by petitioners)	One of three decisions invoked to support the proposition that forfeiture under S.4(6) requires very gross misconduct or monetary loss and that withholding gratuity functions as an additional punishment to be sparingly applied.	The court treated this decision as authority supporting the petitioners' narrow construction of S.4(6); it informed the court's view that, in the absence of property loss or grave misconduct, forfeiture is not justified.
1987 (1) L.L.N 308 (as cited by petitioners)	Also relied upon for the proposition that the gravity of misconduct must be high and that forfeiture is appropriate principally where there is monetary/property loss to be offset.	The court considered it as supporting the petitioners' contention that S.4(6) should not be applied where there is no property loss or moral turpitude; this assisted the court in concluding S.4(6)(a) and (b)(ii) did not apply on the record.
1992 L.& I.C 1335 — Brundaban Sahu v. Orissa State Road Transport Corporation, Ltd (as cited by petitioners)	Specifically cited as authority for the view that withholding gratuity requires gross misconduct or monetary loss and is an additional form of punishment, and thus should be limited in application.	The court treated Brundaban Sahu as directly supporting the petitioners' statutory interpretation; it contributed to the court's conclusion that S.4(6)(a) and (b)(ii) did not apply on the facts and that the court must closely scrutinize any finding of "disorderly" conduct.
1973 (2) L.L.N 190 — Management Of Tournamulla Estate v. Workmen (as cited by respondent)	Cited by respondent as a Supreme Court decision that upheld forfeiture of gratuity in circumstances the respondent regarded as analogous.	The court acknowledged this authority as supporting forfeiture in certain circumstances, but nonetheless evaluated whether the factual basis required by the statute (property loss, quantified loss, or disorderly conduct properly proved) existed in the present record and concluded it did not.
(1976) 1 Kar.L.J 245 — Chandrana Bros. v. K. Venkata Rao (Division Bench decision, as cited by respondent)	Cited for its analysis of the limits of legitimate trade union activity and where trade union leaders' conduct crosses into impermissible territory; described as drawing a thin line between legitimate and illegitimate activity.	The court recognized this decision's doctrinal analysis but found that, on the evidence before it, the factual threshold for disorderly behaviour identified in that and other cases was not met; accordingly, the authority was not sufficient to sustain the appellate authority's finding of forfeiture here.

Court's Reasoning and Analysis

The court's analysis proceeded in a focused, sequential manner constrained by the narrow issue framed — whether withholding the petitioners' gratuity was justified under S.4(6) of the Payment of Gratuity Act, 1972.

Statutory Framework and Claims Considered: The court examined S.4(6) and identified three distinct heads under which gratuity may be forfeited: (a) loss/damage to employer's property (S.4(6)(a)); (b)(i) termination for riotous or disorderly conduct or any other act of violence; and (b)(ii) termination for an offence involving moral turpitude committed in the course of employment.
Assessment of the Record Against Each Head:
- S.4(6)(a): The company put forward evidence aimed at showing loss of production, not damage to property. The court explained that S.4(6)(a) is concerned with damage or loss to property and requires quantification of any loss and apportionment to employees before gratuity can be withheld to that extent. The company had not quantified loss nor apportioned it to individual employees, so forfeiture under S.4(6)(a) could not be sustained.
- S.4(6)(b)(ii): There was no allegation or evidence of an offence involving moral turpitude committed by the petitioners in the course of employment; thus this limb did not apply.
- S.4(6)(b)(i) — Riotous or Disorderly Conduct: The court distinguished "riotous" conduct (which was not shown) from "disorderly" conduct and examined whether the material on record demonstrated the element of disorder. It held that "disorderly behaviour" necessarily involves acts creating disorder (examples given by the court included destroying or damaging machinery, furniture, throwing things around, or otherwise creating a situation answering the definition of disorder). Mere persuasion or causing workers to leave work stations, without evidence of disorderly acts by the workforce, did not meet that standard on the record before the court.
Evaluation of Evidentiary Approach by the Company: The court identified a critical inconsistency in the company's case: the evidence adduced focused on loss of production (a compensatory theory) while the order actually proceeded on the basis of disorderly conduct (a punitive statutory ground). Because the company advanced a dual approach without quantifying production loss and because the evidence of disorderly conduct was effectively nil in these proceedings, the application of S.4(6) could not be sustained.
Consideration of Authorities: The court considered the precedents cited by both sides. Decisions relied upon by the petitioners supported a narrow construction of S.4(6) (forfeiture only for grave misconduct or quantified loss), whereas decisions cited by the company supported forfeiture in some disruptive situations. The court resolved this by applying the principles but emphasizing the need for appropriate factual proof specific to the statutory head invoked — and found that the factual proof was lacking.
Limitation of Order: The court reiterated that its findings were confined to the single issue of withholding gratuity under the Act and explicitly stated that its observations would not affect other disciplinary proceedings, including any proceedings relating to dismissal.

Holding and Implications

Holding: The court set aside the impugned appellate authority order and restored the order of the Controlling Authority. In the words of the opinion: the impugned order will have to be set aside. The order of the controlling authority is restored. The petition succeeds to this extent. Petition allowed.

Direct Consequences for the Parties:

The petitioners' gratuity claim as quantified by the Controlling Authority is restored (the company had deposited the amount with the authority following the Controlling Authority's order).
No order as to costs was made.
The court's order is expressly limited: it does not affect other disciplinary proceedings (including any proceedings relating to the petitioners' dismissal) and the observations made are not intended to influence those separate matters.

Broader Implications: The opinion does not purport to lay down a new or sweeping precedent beyond applying settled principles to the facts before it. The court applied established authorities and statutory text and declined to extend forfeiture of gratuity to these petitioners in the absence of either (a) quantified and apportioned loss to employer's property/production under the statutory scheme, or (b) proven disorderly or riotous conduct as demonstrated on the record. The court therefore declined to broaden the applicability of S.4(6) on the facts of this case.

Petition allowed. (No order as to costs.)

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Bopalaswamy (Since Deceased By L.Rs) And Another v. Management Of Usha Martin Industries And Another

1. These two petitions involved a common point of law and have therefore been heard together and have been disposed of through a common order. The brief facts that have given raise to the dispute are that the two petitioners were office-bearers of the Usha Martin Industries Union. The first petitioner has passed away since the filing of the petition but that does not make much difference because the issue centres around the question as to whether the respondent-company was justified in passing an order for the withholding of the payment of the gratuity payable to the two petitioners. I am confining this order strictly to the short question as to whether the withholding or non-payment of the gratuity was justified within the framework of the Payment of Gratuity Act, 1972, and it is made clear that the observations made in this order shall not have any bearing in other proceedings. The reason for this is because I find from the record that the company had passed an order dismissing the two petitioners from service and the withholding of the gratuity was an incidental and separate order and in the event that any proceedings may be ending in relation to the order of dismissal, it is made clear that this order will have no bearing on those proceedings

2. It was alleged that on 7 March, 1997 the first petitioner reported for duty in the night shift even though he did not belong to that shift and when he was told that he could not be allowed to work he is alleged to have not only got into an argument with the company's officers but furthermore, it is alleged that the two petitioners had succeeded in getting all the remaining employees to leave their work stations and resort to what may be termed as a strike of sorts. The company ultimately charge, sheeted the two employees and took disciplinary proceedings against them but we are here concerned with the other branch of action that was taken under the Payment of Gratuity Act whereby the company passed an order after, issuing requisite show-cause notice to the employees that their gratuity was liable to be withheld by virtue of the provisions of S. 4(6) of the Payment of Gratuity Act, 1972. The Controlling Authority and Assistant Labour Commissioner under the Payment of Gratuity Act, 1972, by order, dated 15 November, 1999, upheld the claim to gratuity of the petitioners and quantified the amount in question which the company ultimately deposited with the authority. Being aggrieved by the decision however, the company filed an appeal and the appellate authority upheld the company's contention that the provisions of S. 4(6) would apply to the present case and therefore set aside the earlier order and it is against the order of the appellate authority, dated 28 April, 2000 that the petitioners have approached this Court.

3. This case effectively involves a pure point of law and the petitioner's learned advocate has relied on the following three decisions in support of his contention that the provisions of S. 4(b) would be inapplicable to the record of the present case:

(1) 1994 — I L.L.J 907 (sic).

(2) 1987 (1) L.L.N 308.

(3) 1992 L.&.I.C 1335, (Brundaban Sahu v. Orissa State Road Transport Corporation, Ltd).

4. Essentially, the Courts in these decisions have taken the view that the gravity of misconduct must be very gross or more importantly that the withholding of gratuity would be in the nature of additional punishment in cases where monetary loss has been caused by the employee and it is necessary to off-set that loss. The petitioners' learned counsel has relied heavily on the provisions of Ss. 4(6)(a) and 4(6)(b) which reads as follows:

Section 4(6). Notwithstanding anything contained in Sub-sec. (1):

(a) The gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused.

(b) the gratuity payable to an employee (may be wholly or partially forfeited)—

(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part; or

(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.

In essence, he has pointed out that Sub-cl. (a) of the section would be attracted only in a case where damage or loss or destruction is caused to property belonging to the employer in order to forfeit that part of the gratuity that is equivalent to the loss of property that is involved. His submission is that the facts of the present case do not allege that the petitioners have caused any property loss and to this extent, the argument does seem to be justified because a careful examination of the imputation and the allegations levelled against the petitioners indicate that there was no charge against them that they had caused any property loss in that sense of the term. The learned counsel then submitted that Sub-cl. (ii) of Cl. (b) again confines itself to misconduct involving moral turpitude and allied offences and he again demonstrated that there is no such accusation against the petitioners and that therefore this provision will not apply. Lastly, on the question of whether Sub-cl. (i) applies, his submission is that the law contemplates a behaviour that comes within the definition of riotous or disorderly conduct or an act of violence. He submits that even though the petitioners are alleged to have instigated an illegal strike that there is no accusation of their naving indulged in any violence and that consequently, the entire case would have to stand or fall on the short question of whether what is alleged or what is proved against the petitioners constitutes riotous or disorderly behaviour.

5. The learned counsel who represents the company submitted that the petitioners had no business to insist on being allowed to work in a shift to which they did not belong and that they were politely informed by the company's officials that they could not, be accommodated in this shift but in a typical trade union fashion they defied instructions given to them and that they went around the unit and got everyone of the employees to leave their work stations. His submission is that a careful perusal of the articles of charges would indicate that the petitioners did not merely persuade the workers to leave but that they virtually herded them out of the unit and such an act does constitute riotous and disorderly behaviour. He also submitted that defiance to lawful authorities which accompanied these actions would bring them within the definition of such behaviour and therefore the appellate authority has very rightly upheld the order passed by the company. He drew my attention to two decisions, the first of them reported in 1973 (2) L.L.N 190; Management of Management Of Tournamulla Estate v. Workmen, and the other one being a decision of the Division Bench of the Karnataka High Court reported in (1976) 1 Kar.L.J 245; Chandrana Bros. v. K. Venkata Rao. in the first of these decisions, the Supreme Court had upheld the forfeiture of gratuity and in the second of them the Division Bench of this Court had occasion to do an elaborate analysis of the situations in which responsible trade unionism is permissible ana the limits within which trade union leaders are required to function and it has also drawn a thin line between the activity that passes the test of legitimate order and much of which it does not. The learned counsel submitted that the Payment of Gratuity Act does not require acts and offences that are serious enough to come within the definition of riot and disorder as understood in the criminal parlance and that any activity which tends to disrupt the smooth working of the company squarely come within the definition.

6. The short question is as to whether, on the material that is placed before the Court the withholding of the gratuity was justified. It is precisely for this reason that I have prefixed this judgment with the observation that what is pointed out herein will have no bearing on the other disciplinary proceedings or the extension thereof. I need to mention that the learned Government Advocate who normally would have represented the authority which is a formal authority but who has made his submissions as amicus curiae as I desired to hear him since he represents an independent authority, submitted that the provisions of the Act have to be strictly construed and it was his contention that once it is established that the petitioners were responsible for the entire act of the workmen being made to leave the unit on that night that ipso facto it would have to be construed as disorderly behaviour even if it does not come within the strict definition of riotous behaviour. He emphasised the fact that the section postulates either of the two and in this view of the matter he supported the impugned order.

7. I have already held that none of the other provisions of S. 4(6) would apply to the facts of the present case. On a scrutiny of the record, I find that the emphasis at all times, on the part of the company was directed towards pointing out that as a result of the petitioners having got the workers to leave the unit on that night that the production came to a stand still and that therefore the company did suffer loss of production. The allegation was not that there was any property loss. Had the company desired to take action on the lines or the evidence led by it which proceeded on the footing that the petitioners were responsible for loss of production, it would have been necessary for them to have the loss quantified because this is condition precedent for the payment of gratuity in so far as once the loss is quantified it has then got to be apportioned to the individual employee because the gratuity can be withheld only to the extent of making up the loss occasioned by the workmen; Though I find some reference in the evidence to the fact that production loss had taken place, the loss has neither been quantified nor apportioned and consequently, there is no question of any compensatory withdrawal of gratuity under this head. Again, I find that the company has adopted a dual approach in so far as even though the thrust of the allegations were on the loss of production aspect and evidence has been led in this behalf, the order proceeds effectively on the footing that the petitioners had indulged in disorderly behaviour. This to my mind is the error committed in so far as the evidence with regard to the latter is virtually nil as far as this proceeding is concerned. The contention raised basically was that where the record shows that all the employees left the unit on that night and that this was not only at the instigation but because of the fact that the petitioners virtually goaded them to do it, the argument is that the two petitioners who are responsible for this had indulged in disorderly behaviour. Obviously, what is contended is that one is to understand disorderliness as the opposite of orderly behaviour and if this is to be the standard, that the action of the company is justified. I am taking the charges levelled against the petitioners at their very highest for purposes of testing as to whether those acts come within the ambit of riotous or disorderly behaviour to justify the company's action. The first of the two ingredients is again lacking here because it is nobody's case that the workers either individually or collectively assembled and involved themselves in conduct that could be termed as riotous and we are therefore left, through a process of elimination with the last aspect namely the question as to whether it constitutes disorderly behaviour. To my mind, one needs to look at the broad definitions under different heads of law with regard to the concept of disorder. While the learned counsel who represents the company may be right in pointing out that there can be disorderly behaviour even in the absence of violence or riotousness, one needs to take note of the fact that disorderly behaviour involves necessarily an element of disorder or in other words, acts or activities which create a level of disorder and in relation to a unit of the present type had the workers been instigated by the petitioners to misbehave in the unit to destroy or damage the machinery or the furniture or to throw things around or to create a situation that would answer to the definition of disorder, then alone it would be permissible to bring the action within the four comers of the definition. Assuming, taking advantage of their position that the petitioners got the employees or even forced the other employees to leave their work stations, there is nothing on record to indicate that there was any disorderly conduct on the part of anybody nor is there any evidence to this effect and consequently, to my mind the finding that the action is justified on the ground that the petitioners are guilty of disorderly behaviour cannot be sustained.

8. Having regard to the aforesaid situation, the impugned order will have to be set aside. The order of the controlling authority is restored. The petition succeeds to this extent and stands disposed of. No order as to costs.

Petition allowed.

Bopalaswamy (Since D... v. Management Of Usha M...