The Supreme Court has ruled that an employer (Steel Authority of India) is entitled to withhold gratuity and adjust penal rent from it for the unauthorised occupation of company quarters by a retired employee, in accordance with the governing service rules. The Court held that the obligations to vacate the accommodation and to release gratuity are mutual and reciprocal.
However, an order passed by a court on the specific facts of a case, without laying down a legal principle, does not serve as a binding precedent. Further, where service rules authorise the withholding of gratuity for non-vacation of quarters, the employee is not entitled to any interest on the withheld amount for the period of unauthorised occupation.
However, exercising its equitable jurisdiction, the Apex Court fixed a penal rent of Rs. 1,000 per month for the present batch of cases only, considering the hardship to retired workers and other specific circumstances, explicitly stating that this shall not be treated as a precedent.
A Two-Judge Bench comprising Justice Pankaj Mithal and Justice S.V.N. Bhatti observed that under Rule 3.2.1(c) of the SAIL Gratuity Rules, 1978, the management is expressly empowered to withhold the gratuity amount for non-compliance with company rules, including the non-vacation of accommodation. The rules further stipulate that no interest shall be payable on the gratuity amount so withheld during the period of unauthorised occupation.
The Bench affirmed that the obligation of the Ex-Employee to vacate the quarters and the obligation of the management to release the gratuity are mutual and reciprocal, and neither can be enforced in isolation. Citing the binding judgment in Secretary, ONGC Ltd. v. V. U. Warrier, it was established that if an employee occupies a quarter beyond the specified period, penal rent is a natural consequence and can be adjusted against dues payable, including gratuity.
Briefly, the issue revolves around Steel Authority of India’s (SAIL) right to withhold the gratuity of Ex-Employees who failed to vacate the company-allotted quarters after their retirement. The lead respondent, Shambhu Prasad Singh, retired on May 31, 2006 and, along with other employees, made representations to retain the allotted quarters, which were denied by the management, who then issued eviction notices.
Initially, the petitions filed by the employees were dismissed. However, in the Letters Patent Appeals (LPAs), the Division Bench of the High Court directed the release of gratuity with interest, allowing SAIL to only charge normal rent for the overstay period. Subsequently, a later order affirmed that penal rent is a natural consequence of overstaying and can be adjusted against dues, including gratuity.
Case Relied On:
ONGC Ltd. vs. V.U. Warrier – (2005) 5 SCC 245
Appearances:
AORs Ashok Anand and Anshul Rai, along with Advocates Moni Cinmoy, Rakesh Kumar Singh, Mallika Ranjan, and Raunaq Singh, for the Appellant
AORs Chandan Kumar, Kumar Shivam, Anshuman Siddharth Nayak, and Ashok Anand, along with Advocates N. S. Dalal, Devesh Pratap Singh, Rahul Kulhare, Baibhaw Gahlaut, Krishan Mourya, Divya Prakash Arya, Ratnadeep Raha, Garima Yadav, Somanatha Padhan, Akash Kakade, Kameshwar Gumber, Ajay Gupta, Mukul Dev Mishra, and Seemab Qayyum, for the Respondent
