Introduction:
Gratuity forms a crucial component of an employee’s terminal benefits, particularly in cases of death or retirement. The Payment of Gratuity Act, 1972, provides statutory protection to such payments, and gratuity cannot be forfeited except under specific exceptional circumstances outlined in the Act. Moreover, gratuity is generally shielded from attachment in execution proceedings under a civil decree.
Nonetheless, in rare and exceptional situations, gratuity payable to a deceased employee may be subject to attachment. One such notable instance was recently adjudicated by the Hon’ble Delhi High Court (“Hon’ble HC”)in the case titled Bureau of Outreach and Communications and DD M/o Information and Broadcasting vs. Canara Bank[1].
Brief Facts:
In the present matter, the respondent (“Bank”) had instituted a suit for recovery of a loan availed by a deceased employee. The trial court decreed the suit in favour of the Bank, following which the Bank initiated execution proceedings to enforce the recovery decree.
Initially, the executing court held that terminal benefits, including gratuity, are exempt from attachment under a civil decree, citing Section 60 clauses (g), (k), and (ka) of the Code of Civil Procedure, 1908 (“CPC”). The court relied on the precedent set by the Hon’ble Supreme Court in Radhey Shyam Gupta vs. Punjab National Bank[2], reaffirming the statutory protection afforded to such benefits.
However, in a subsequent order, the executing court took a divergent view. Referring to the decision in Ramwati vs. Krishan Gopal & Ors.[3], the court held that the Bank was entitled to the release of the gratuity amount and directed the issuance of a warrant of attachment against the gratuity held by the deceased employee’s employer. This order became the subject of challenge in the writ petition filed before the Hon’ble HC.
Arguments before the Hon’ble HC:
The employer argued that the death gratuity of the deceased employee was immune from attachment in view of Clause (g) of the proviso to Section 60 CPC. He submitted that since there were no claimants to the gratuity, the same could be forfeited by the employer and by operation of Rule 52 of the Central Civil Services (Pension) Rules, the gratuity would lapse in favour of the employer.
On the other hand, the Bank argued that clause (g) of Section 60 CPC is only applicable where the gratuity is received by the employee. In the present case, the gratuity was not received by the deceased employee, and insofar as his legal heirs are concerned, they would be entitled to receive the gratuity only as part of the estate of the deceased employee, which is attachable by law.
Legal Issue before the Hon’ble HC:
Whether the gratuity which was payable to a deceased employee is liable to be attached against decree for recovery of money passed against the heirs of the employee.
Observation of the Hon’ble HC:
The Hon’ble HC revisited the precedent set in Radhey Shyam Gupta vs. Punjab National Bank, which held that gratuity, even when received by a retiree, retains its character and remains immune from attachment under Clause (g) of the proviso to Section 60 CPC. However, in the present case, the employee had died prior to the release of the gratuity amount. Consequently, the gratuity was payable to his legal heirs, and the Bank sought attachment of the unreleased amount from the employer.
To answer the present question the Hon’ble HC relied on the ruling of Ramwati and Diwansingh vs. Kusumbai[4] where in it was held that only if the gratuity is payable to the employee only then the same is not liable to be attached but if the employee dies, the gratuity becomes payable to the legal heirs of the deceased employee, which becomes attachable in the hands of the employer as the employer is legally bound to pay the said gratuity to the legal heirs of the employee.
The Hon’ble HC also discussed the judgement in Murugaiah Velar vs. Velammal[5] where a similar issue arose before the Hon’ble Madras High Court wherein it was held that Section 60(g) CPC, provides that the gratuity amount allowed to the pensioners alone is exempted from attachment and once the gratuity amount is lying in the hands of the legal representatives of the pensioners, it would come under the classification of the estate in the hands of the legal representatives and therefore, the legal representatives cannot seek the benefit of the immunity provided under Section 60 of CPC.
In light of these precedents, the Hon’ble Delhi High Court concluded that had the gratuity been released to the employee during his lifetime, it would have been protected under Clause (g) of the proviso to Section 60 CPC. However, since the gratuity was not received by the deceased, and is now payable to his legal heirs, it forms part of his estate and is not immune from attachment.
Future Insights for Employers:
The ruling of the Hon’ble HC in the present case has made it squarely clear that any gratuity amount which is payable to the heirs of the deceased employee is liable to attachment for execution of a civil decree. Even if the gratuity amount is still with the employer, the executing court may direct the employer to pay the amount to the decree holder. This underscores the importance of maintaining clear internal protocols by employers for handling terminal benefits and staying vigilant about potential third-party claims, especially in cases involving unresolved financial liabilities of deceased employees.
References:
[1] CM (M) 623/2022 and Cm Appl. 29452/2022
[2] 2009 (1) SCC 376.
[3] 34 (1988) DLT 136
[4] 1969 MPLJ (SN) 63
[5] (2017) SCC Online Mad 2821.
Authors:
Gyanendra Mishra, Partner
Maruti Nandan, Associate
Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.