Supreme Court Clarifies Gratuity Rights After Resignation
In a significant ruling, the Supreme Court has confirmed that an employee who resigns after completing five years of continuous service is entitled to gratuity under the Payment of Gratuity Act, 1972. The Court emphasised that resignation does not disqualify an employee from receiving gratuity unless the employer is exempted under Section 5 of the Act.
This judgment was delivered in Ashok Kumar Dabas (Dead Through Legal Heirs) v. Delhi Transport Corporation, where the Court partly allowed the appeal filed by the employee’s legal heirs.
Background of the Case
The employee had joined Delhi Transport Corporation (DTC) in 1985 and resigned in 2014 citing family reasons. DTC accepted his resignation and later refused his request to withdraw it. Although the employee had nearly three decades of service, DTC denied pension, gratuity, and leave encashment, granting only the provident fund.
Both the Central Administrative Tribunal and the Delhi High Court upheld this decision, prompting the appeal before the Supreme Court.
Pension Denied Due to Forfeiture of Service on Resignation
The Supreme Court rejected the claim for pension by applying Rule 26(1) of the Central Civil Services (Pension) Rules, 1972.
The rule states that resignation results in automatic forfeiture of past service, making the employee ineligible for pension—even if they completed 20 years or more of qualifying service.
The Court relied on its earlier ruling in BSES Yamuna Power Ltd. v. Ghanshyam Chand Sharma, reiterating that resignation and voluntary retirement are legally distinct and cannot be interchanged.
Gratuity Payable Under Section 4 of the Payment of Gratuity Act
The Court held that DTC could not deny gratuity because:
- Section 4 of the Payment of Gratuity Act clearly states that gratuity is payable upon resignation, retirement, or superannuation, provided the employee has completed five years of service.
- DTC failed to show any government exemption notification under Section 5 of the Act.
- The employee had far exceeded the minimum five-year requirement.
Therefore, the legal heirs were held entitled to gratuity for the service he rendered.
Leave Encashment Must Also Be Paid
During the proceedings, DTC conceded that leave encashment was payable. The Supreme Court directed that the outstanding leave encashment amount be released along with gratuity.
Court’s Final Directions
The Supreme Court ordered:
- Payment of gratuity as per the Payment of Gratuity Act
- Payment of leave encashment dues
- Interest at 6% per annum, payable from the date of resignation until actual disbursement
- Rejection of pension claim, due to forfeiture of service under Rule 26(1)
The amounts must be released within six weeks.
Why This Ruling Matters
This judgment is crucial for both employers and employees across India. It highlights that:
- Gratuity is a statutory right, not dependent on employer discretion.
- Resignation does not affect gratuity entitlement, as long as the employee has completed five years of service.
- Pension eligibility under CCS Pension Rules is strict, and resignation automatically cancels prior service unless withdrawal is permitted in public interest.
Case title: ASHOK KUMAR DABAS (DEAD THROUGH LEGAL HEIRS) VERSUS DELHI TRANSPORT CORPORATION
