The Karnataka High Court has ruled that the amount of gratuity payable to a bank employee cannot be adjusted by the bank with the amount of his outstanding loan.
A single bench of judges of Judge Suraj Govindaraj thus dismissed a motion filed by Canara Bank contesting the order of the Appeals Authority which set aside the order of the Supervisory Authority authorizing the adjustment of the gratuity on the employee’s loans.
The bench said,
“The home loan is governed by the loan agreement. It is the Bank’s responsibility to act under the terms of said agreement and to exercise all rights resulting from said agreement against the debtor. The Bank could only have settled this gratuitous amount, which are protected under section 7 of the Payment of Gratuities Act 1972. »
A certain Srimantha D, husband of the respondent, joined the service of the applicant bank in 1975 as a Peon and was later promoted to clerk in 1987. During his service, Srimantha had benefited from a housing loan which he repaid from time to time. . In 2005, alleging serious misconduct on his part, disciplinary proceedings were initiated. The retirement sentence was imposed by the disciplinary authority in 2006.
A request by Srimantha for the release of the gratuity amount was denied. Consequently, he had applied to the Supervisory Authority to obtain the order to effect the payment of the said amounts. The bank argued that there are dues which may be payable under the housing loan and dues which are due under the Staff Provident Fund. These contributions must be adjusted from the amount of the gratuity and, as such, no amount is due. The same was accepted by the authority. However, on appeal, the finding was reversed and the bank was ordered to pay a gratuity amount along with interest.
The bench noted that there is special treatment for the payment of the gratuity both under the Payment of the Gratuity Act and also under the Code of Civil Procedure 1908. The gratuity was granted a special protection and treatment to the extent that it is absolutely clear that the gratuity amounts cannot be garnished and no garnishment order can be made.
Referring to section 7 of the Payment of Gratuities Act 1972, the bench said: “Gratification protection is provided to safeguard a person’s financial security upon retirement.“
He noted that in the present case, the petitioner-Bank sought to adjust a sum of Rs.9,85,420.24 towards the housing loan and a sum of Rs.1,29,691/- due to the liability of the Property Fund – to be staff. The Staff Provident Fund would be in the area of conditions of service. However, the home loan occupies a completely different position in that the home loan would be governed by the terms of the loan agreement which is a commercial transaction between the bank and the debtor. Whether the debtor is an employee or not, it is the said conditions of the loan that would govern this relationship.
Noting that there is no request for reimbursement of the interest of the Housing loan by the Bank on the employee and/or after its expiry on his legal heirs/legal representatives, the head office declared: “The Bank has unilaterally, on the basis of an alleged authorization, determined itself the amount due and recovered it from the amount of the gratuity owed by it.”
Rejecting the bank’s assertion based on section 10 of the Act that interest should not be payable on the amount and that the employee could have applied within 90 days for the release of the amount, the bench said,
“The mandatory retirement order was challenged, there is no possibility for the employee to have applied for the gratuity, it was only in 2017 that once he reached the age of retirement, this request for release of the amount of the gratuity was filed and therefore the procedure before the labor court was also abandoned. Accordingly, I am of the view that there is no delay in filing the claim for payment of the gratuity amounts.“
He added “Under the proviso of sub-clause (iii) of sub-rule (1) of rule 10, the Authority is also entitled to tolerate delay, if any. There is no restriction of the period which could be tolerated, nor embargo imposed under the said rules which would deprive the applicant of the right to collect interest.“
As a result, the court ordered the bank to comply with the appeal authority’s order.
Case Title: M/S CANARA BANK v. Mr SHANTHA KUMARI
Case No.: BRIEF PETITION NO. 11463 OF 2020
Citation: 2022 LiveLaw (kar) 414
Order date: SEPTEMBER 13, 2022
Appearance: UDAYA SHANKAR RAI P., LAWYER for the applicant; GEETA R. SHINDE, COUNSEL for the defendant
Click here to read/download the order