Gratuity and leave encashment cannot be withheld solely because a criminal prosecution remains pending.

The three petitioners were retired employees of the North Eastern Electric Power Corporation Ltd. (NEEPCO). They superannuated on 31 December 2016, 31 March 2017 and 31 December 2023, respectively, but their gratuity and leave-encashment dues remained unpaid.

NEEPCO withheld the benefits because a CBI prosecution arising from FIR dated 14 December 2005 and charge-sheet dated 15 May 2008 in R.C. No. 7(A)/2005 was pending against them before the Special Judge, Dimapur.

NEEPCO relied on its Circular dated 26 March 2013, which required vigilance clearance before releasing final dues, including retiral benefits.

No departmental proceeding had been initiated against any petitioner during service, and all had retired normally on attaining superannuation.

The criminal trial had remained pending for nearly two decades, with approximately 37 of 98 prosecution witnesses examined.

Whether gratuity payable under the Payment of Gratuity Act, 1972 can be withheld merely because a criminal prosecution is pending against an employee who has retired on superannuation, in the absence of termination or dismissal attracting Section 4(6).

Whether an administrative vigilance circular requiring vigilance clearance can authorise NEEPCO to withhold gratuity and leave encashment contrary to the statutory scheme and Article 300A of the Constitution.

Whether the continued withholding of the petitioners’ retiral benefits for an indefinite period, solely on account of the pending criminal case, is arbitrary and legally sustainable.

Section 4 of the Payment of Gratuity Act, 1972 creates an entitlement to gratuity upon superannuation, retirement, resignation, death or disablement, while Section 4(6) permits forfeiture only in the expressly specified circumstances, including loss caused to the employer, riotous or disorderly conduct, violence, or termination for an offence involving moral turpitude committed in the course of employment.

In Union Bank of India v. C.G. Ajay Babu, (2018) 9 SCC 529, the Supreme Court held that forfeiture of gratuity is not automatic and cannot be effected outside Section 4(6); the statutory conditions must be strictly satisfied.

Jaswant Singh Gill v. Bharat Coking Coal Ltd. was relied upon for the principle that forfeiture requires compliance with the conditions in Section 4(6), including the requisite termination and, in the relevant context, conviction.

Dr. Hira Lal v. State of Bihar, (2020) 4 SCC 346, Deokinandan Prasad v. State of Bihar and D.S. Nakara v. Union of India establish that pension and gratuity are earned legal and property rights, not bounties, and cannot be withheld by executive instruction.

State of Jharkhand v. Jitendra Kumar Srivastava, (2013) 12 SCC 210, holds that executive instructions lacking statutory force cannot justify withholding pension or gratuity under Article 300A.

The Court also referred to the principle that leave encashment is an enforceable retiral entitlement and cannot be denied solely on the basis of an administrative directive.

The Court held that although the NEEPCO Circular required vigilance clearance before release of final dues, the Circular could not override the Payment of Gratuity Act, 1972.

The petitioners had not been dismissed, removed or otherwise terminated; they had retired normally, and no departmental proceedings had been initiated against them.

Consequently, the foundational condition for invoking Section 4(6)—termination of service for one of the specified grounds—was absent.

Mere pendency of a criminal prosecution did not amount to a statutory ground for withholding or forfeiting gratuity.

Since the respondents identified no statutory provision authorising withholding of gratuity or leave encashment in these circumstances, reliance solely on the absence of vigilance clearance was legally insufficient.

The prolonged pendency of the CBI case, extending from 2005 with the trial still substantially incomplete, made the indefinite withholding particularly arbitrary and inconsistent with the petitioners’ property rights under Article 300A.

The Court held that gratuity and leave encashment could not be withheld merely because the criminal prosecution remained pending or because vigilance clearance had been declined under an administrative circular, particularly where the petitioners had retired on superannuation and Section 4(6) of the Payment of Gratuity Act was not attracted.

NEEPCO and the concerned authorities were directed to release and disburse the entire outstanding gratuity and leave-encashment amounts payable to the petitioners within one month from receipt of a certified copy of the judgment.