Devki Nandan Sharma vs Registrar Cooperative Society Lucknow & Ors.

Hon'Ble Garima Prashad, J.

Heard Sri Anurag Shukla, learned Senior Advocate, assisted by Sri Nandesh Verma, learned counsel for the petitioner and Sri Arun Kumar Singh, learned Standing Counsel for the State. None appears on behalf of the respondent -Registrar Cooperative Society Lucknow.

This Writ Petition raises the question whether gratuity, leave encashment and group insurance could be withheld for several years merely because an inquiry under Section 68 of the Uttar Pradesh Cooperative Societies Act, 1965 was pending and no-dues certificates had not been received.

The petitioner had entered service as a clerk on 01.01.1963. He was promoted as Executive Officer and, in 1984, as Secretary-cum-General Manager. He retired on attaining the age of superannuation on 30.04.1997 from the non-pensionable post of Secretary-cum-General Manager in the Cooperative Banks Centralised Service.

Learned counsel for the petitioner states that provident fund was paid in time, but the other retiral dues were not released when they became payable. He made repeated representations from May 1997 onwards. The Writ Petition was instituted in 2006 seeking payment of the unpaid dues and interest on the delayed payments.

Learned Standing Counsel for the State accepts the dates of retirement and the payments. According to him, the Cadre Authority sought no-dues certificates on 24.05.1997 from the District Cooperative Banks at which the petitioner had served. The certificates from Aligarh and Jaunpur were not received because proceedings under Section 68 of the Uttar Pradesh Cooperative Societies Act, 1965 were pending against him. After the proceedings ended and the petitioner was exonerated, Aligarh and Jaunpur issued no-dues certificates on 30.07.2003 and 21.04.2004 respectively.

The respondents state that gratuity of Rs.2,24,357.33 was then calculated. After deducting Rs.55,639, a net amount of Rs.1,68,717 was paid by cheque dated 19.05.2004. Leave encashment of Rs.61,582.65 was paid on 11.11.2005 and group insurance of Rs.7,783 was paid on 05.08.2006. The State further admits that Rs.3,930.25 towards leave encashment remained payable and would be released after receipt from the concerned District Cooperative Banks. Provident fund of Rs.5,81,215.47 had been paid on 12.07.1997.

On behalf of the petitioner, it is submitted that none of these dues could have been withheld merely because a proceeding under Section 68 was pending. The proceeding ultimately ended in his exoneration. The Cadre Authority was responsible for completing the formalities and could not shift the consequence of an internal delay to a retired employee. It is further submitted that the deduction of Rs.55,639 from gratuity was made without an order, notice or authority of law.

Learned counsel also relies upon the Reserve Bank of India directive dated 02.11.1987 and claims interest at the rates mentioned in it. Reliance is placed upon Gorakhpur University and others v. Dr Shitla Prasad Nagendra and others, (2001) 6 SCC 591, and Dr A. Selvaraj v. C.B.M. College and others, Civil Appeal No. 1698 of 2022, decided on 04.03.2022.

The respondents maintain that the delay was not attributable to the Cadre Authority. They submit that gratuity could not be settled until no-dues certificates were received from all the District Cooperative Banks. They also object that those banks have not been joined as parties.

The following questions arise for determination: whether the pendency of the Section 68 proceedings and the non-receipt of no-dues certificates justified withholding the petitioner's retiral dues; whether the deduction of Rs.55,639 from gratuity can be sustained; and whether interest is payable on the amounts released after delay and on the admitted unpaid balance.

Section 68 of the Act of 1965 deals with surcharge. Sub-sections (1) and (2), which are material, read:

The provision thus contemplates an inquiry into specified acts and permits an order of surcharge only after the person concerned has been afforded a reasonable opportunity of hearing. The effect of a pending inquiry upon the petitioner's retiral dues must be examined in that statutory setting.

The question whether retiral dues may be withheld must be considered in the light of the requirement of authority of law. In State of Jharkhand and others v. Jitendra Kumar Srivastava and another, (2013) 12 SCC 210, the Supreme Court held that pension, gratuity and leave encashment cannot be taken away without authority of law. Although the petitioner's post was non-pensionable, his entitlement to gratuity and leave encashment is admitted. The same requirement of lawful authority governs their withholding or deduction.

The respondents' own case shows that the petitioner was not found liable in the Section 68 proceedings. The proceeding ended in his exoneration by the order dated 20.03.2002. Even thereafter, the no-dues certificate from Aligarh was issued on 30.07.2003 and that from Jaunpur on 21.04.2004. Gratuity was paid only in May 2004, leave encashment in November 2005 and group insurance in August 2006. There is no allegation that the petitioner delayed the inquiry or withheld any document required for settlement of his dues.

The Cadre Authority sent its first communication seeking no-dues certificates on 24.05.1997, but the reminders began only in April 1999. The record also does not explain the further delay after the petitioner had been exonerated.

In Gorakhpur University and others v. Dr Shitla Prasad Nagendra and others (supra), the Supreme Court did not permit pension and other retiral benefits to be withheld against a disputed claim of the employer. The employer was left free to pursue its claim in accordance with law, but the retired employee's terminal benefits could not be retained for that purpose.

Dr A. Selvaraj v. C.B.M. College and others (supra) applies the same principle to a dispute among the authorities responsible for payment. The Supreme Court held that a retired employee should not suffer because the management and the Government disputed which of them was responsible for the delay. Interest was directed to be paid to the employee, while leaving the responsible institution free to recover it from the person ultimately found liable.

Tested against the statutory framework, the admitted facts and the principles stated above, the pending inquiry under Section 68 did not authorise the automatic withholding of the petitioner's retiral dues. No rule or other provision conferring such authority has been shown. The internal process of collecting no-dues certificates could not suspend the petitioner's entitlement for an indefinite period, and the delay cannot be placed at his door.

In the present case, the Administrative Committee of the U.P. Cooperative Bank and the Cadre Authority constituted under the Cooperative Banks Centralized Service Rules, 1976, both of which are respondents to this Writ Petition, calculated and released the gratuity, leave encashment and group-insurance amounts. The objection that the District Cooperative Banks at Aligarh and Jaunpur have not been joined as parties cannot defeat the petitioner's claim against these respondent authorities. Any question of contribution or reimbursement among the Cadre Authority and the District Cooperative Banks is an internal matter and does not affect the petitioner's right to receive the admitted dues and compensation for their delayed payment. It is accordingly held that, in the absence of a rule or other provision authorising such withholding, neither the pendency of an inquiry under Section 68 nor the non-receipt of no-dues certificates can justify withholding an employee's retiral dues.

The second question concerns the deduction of Rs.55,639 from gratuity. The respondents merely describe the amount as due from the petitioner. They do not disclose any order determining that liability, the provision under which it was recoverable from gratuity, or any opportunity of hearing afforded before the deduction. The inquiry under Section 68, which had been relied upon to withhold payment, ended in exoneration. In the absence of lawful authority, the admitted gratuity could not be reduced in this manner. The second question is accordingly answered by holding that the deduction of Rs.55,639 cannot be sustained.

The third question is whether interest is payable on the delayed and unpaid amounts and, if so, at what rate. The Reserve Bank directive dated 02.11.1987 does not govern the rate of interest in this case. It regulates the interest payable by State and Central Cooperative Banks on savings and term deposits accepted by them. The petitioner's unpaid retiral dues were not deposits within that directive. The claim for interest at 24 per cent per annum with compounding has no contractual or statutory foundation and is excessive. That, however, does not reduce the respondents' obligation to make reasonable compensation for the delay.

The authorities relied upon by the petitioner show that interest on delayed retiral dues is not a nominal addition. In Gorakhpur University and others v. Dr Shitla Prasad Nagendra and others (supra), the High Court had awarded interest at 18 per cent per annum. The Supreme Court dismissed the University's appeal and emphasised that culpable delay in settling retiral benefits must be dealt with by an appropriate award of interest.

Dr A. Selvaraj v. C.B.M. College and others (supra) directed payment of interest from the date of retirement until the dates on which the retiral benefits were actually paid, although no numerical rate was prescribed. In State of Kerala and others v. M. Padmanabhan Nair, (1985) 1 SCC 429, the Supreme Court held that culpable delay in settling pension and gratuity must be visited with interest at the current market rate until actual payment; the rate of 6 per cent awarded was not enhanced because the employee had not challenged it. In State of Uttar Pradesh and others v. Dhirendra Pal Singh, (2017) 1 SCC 49, the Supreme Court awarded 8 per cent per annum on unpaid gratuity and 6 per cent per annum on unpaid pension. The decisions show that the rate depends upon the nature of the benefit, the period of deprivation and the circumstances of the default.

The original petitioner was kept out of substantial retiral dues for periods ranging from about seven to more than nine years, without any fault on his part. When the length of that delay is placed against the judicial benchmarks discussed above, 6 per cent per annum would understate the deprivation during the original period of default. Simple interest at the rate of 8 per cent per annum from the date each amount became payable until its principal payment is fair and moderate compensation for that delay.

The payment of the principal amounts in 2004, 2005 and 2006 did not discharge the interest which had accrued until those dates. The accrued interest became a fixed amount when each principal sum was paid, but it remained unpaid throughout the pendency of this Writ Petition. If no compensation is allowed for that later period, the respondents would retain without consequence the amount already due for the earlier delay. In exercise of this Court's jurisdiction under Article 226 of the Constitution, that continued deprivation also calls for compensation. The interest calculated at 8 per cent per annum up to the date of each principal payment shall therefore carry further simple interest at 6 per cent per annum from that date until actual payment. This is confined to the fixed amount of accrued interest; it does not involve annual or periodic compounding, and no further interest shall run on the 6 per cent component. The third question is answered accordingly.

The original petitioner died during the pendency of the writ petition. The cause of action, however, survived his death. The unpaid principal and accrued interest formed part of his estate. The surviving substituted petitioner, as the legal heir now representing the estate, is entitled to receive those amounts.

The Writ Petition is allowed in part. Respondent nos. 2 and 3 shall calculate the amounts payable in terms of this judgment and pay them to the surviving substituted petitioner within eight weeks from the date of service of a certified copy of this judgment. There shall be no order as to costs.