Penal rent for unauthorized occupation of company quarters is adjustable against gratuity without interest liability.

The Appellants (SAIL/Bokaro Steel Plant) challenged orders of the Jharkhand High Court which directed the release of full gratuity with interest to retired employees (Respondents) who had failed to vacate official quarters post-retirement

Shambhu Prasad Singh retired on 31.05.2006 but remained in occupation of his allotted quarter despite eviction notices

The High Court originally relied on Ram Naresh Singh v. Bokaro Steel Limited (Civil Appeal No. 4740 of 2017) to hold that only normal rent could be charged and gratuity must be released

SAIL sought a review based on a subsequent Three-Judge Bench order of the Supreme Court dated 15.12.2020 (SLP (C) No. 11025 of 2020), which permitted adjustment of penal rent from gratuity; however, the High Court dismissed the reviews

The Court primarily applied Rule 3.2.1(c) of the SAIL Gratuity Rules, 1978, which grants the company the right to withhold gratuity for non-vacation of company accommodation and prohibits interest on such withheld amounts during unauthorized occupation

It further relied on the principle established in Secretary, ONGC Ltd. v. V.U. Warrier (2005) 5 SCC 245, which affirms that penal rent for unauthorized occupation can be adjusted against dues including gratuity

The Court also distinguished between orders passed on specific facts/equity and binding precedents under Article 141 of the Constitution

The Court determined that the High Court’s reliance on Ram Naresh Singh was erroneous because that order was a fact-specific concession based on equity and did not establish a binding legal precedent

Conversely, the Three-Judge Bench order in SLP (C) No. 11025 of 2020 explicitly held that penal rent is a "natural consequence" of unauthorized occupation and is adjustable against gratuity

The Court reasoned that the obligations of the parties are "mutual and reciprocal": the employee must surrender possession, and the employer must then release the balance gratuity

Furthermore, since employees provided written undertakings to treat gratuity as security, they cannot claim interest on the withheld amount, as doing so would "reward unauthorised occupation of public premises"

It held that SAIL is legally entitled to adjust penal rent from gratuity and is not liable to pay interest for the period of unauthorized occupation

However, exercising equitable jurisdiction specifically for this batch of cases (due to the employees' status as skilled/semi-skilled workers), the Court fixed a flat penal rent of ₹1,000 per month for the period beyond the grace period

The Court ordered SAIL to communicate the calculated dues within four weeks, granted the Ex-Employees four additional weeks to vacate, and directed that the reciprocal discharge of obligations (vacating premises and paying balance gratuity) be performed simultaneously

This fixation is not to be treated as a precedent