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Civil Law

Gratuity Can Be Withheld Until All Judicial Proceedings

10-Sep-2026

Bharatiya Nyaya Sanhita, 2023 (BNS)

Union of India & Ors. v. Sh. Jamuna Dass

"The expression 'judicial proceedings' would also include Criminal Appeal filed by the respondent, which continues to remain pending."

Justice C. Hari Shankar and Justice Vinod Kumar

Delhi High Court

Why in News?

A Division Bench of the Delhi High Court comprising Justice C. Hari Shankar and Justice Vinod Kumar, in Union of India & Ors. v. Sh. Jamuna Dass (2026), set aside a judgment of the Central Administrative Tribunal and held that gratuity could lawfully be withheld from a retired Government servant so long as his criminal appeal remained pending, even though no disciplinary proceedings had been instituted against him.

What was the Background of Union of India & Ors. v. Sh. Jamuna Dass (2026) Case?

The respondent was working as a Tax Assistant in the Office of the Commissioner of Income Tax.
Criminal proceedings were instituted against him while he was in service, culminating in an order of conviction, with the Special Judge, CBI passing the sentence order on January 23, 2012.
The respondent had superannuated on December 31, 2011, prior to the sentence order.
He challenged the Special Judge's decision by way of a Criminal Appeal, which remained pending before the Delhi High Court, and in which the High Court had suspended the order of sentence.
The respondent contended that the petitioner had illegally withheld his gratuity and leave encashment.
He approached the Central Administrative Tribunal by filing an Original Application, which was allowed on the ground that no disciplinary proceedings had been instituted against him, and that more than four years having passed since his superannuation, no such proceedings could be initiated in view of the bar under Rule 9(2)(b)(3) of the Pension Rules on initiating disciplinary proceedings against a retired Government servant for events more than four years old.
Aggrieved by the Tribunal's judgment, the Union of India filed a writ petition before the Delhi High Court.

What were the Court's Observations?

On the Scope of Rule 69(1)(c) of the Pension Rules:
The Division Bench held that Rule 69(1)(c) applies not merely to pending departmental proceedings but equally to pending judicial proceedings, and that the petitioner was correct in contending that the Tribunal had failed to appreciate this distinction.
On Whether the Criminal Appeal Constitutes "Judicial Proceedings":
The Court held that the bar against release of gratuity to an employee facing judicial proceedings continues until such proceedings come to an end, and that the expression "judicial proceedings" includes a criminal appeal filed by the employee, which remained pending in the present case.
On the Tribunal's Error:
The Court held that the Tribunal had erred in restricting its consideration to the absence of disciplinary proceedings against the respondent, while ignoring the fact that judicial proceedings in the form of the pending Criminal Appeal continued against him.
On the Legality of Withholding Gratuity:
The Court held that there was no error in the petitioner's decision to withhold the respondent's gratuity so long as the Criminal Appeal remained pending, and clarified that the respondent's claim for gratuity would revive once the appeal is disposed of, one way or the other.
In view of the above, the judgment of the Tribunal was quashed and set aside, and the writ petition filed by the Union of India was allowed.

What is Gratuity?

Gratuity is a lump-sum monetary benefit paid by an employer to an employee as a token of recognition for long and continuous service rendered, payable on the employee's retirement, superannuation, resignation, death, or disablement:

Nature of the Benefit: Gratuity is a statutory retiral benefit, distinct from pension and leave encashment, intended to reward an employee for a minimum period of qualifying service rendered to the employer.
Governing Frameworks: For Central Government employees, gratuity (termed "retirement gratuity" or "death gratuity") is governed by the CCS (Pension) Rules, 1972; for employees in the private sector and other establishments covered under it, gratuity is governed by the Payment of Gratuity Act, 1972.
Eligibility (Payment of Gratuity Act, 1972): Under Section 4 of the Payment of Gratuity Act, gratuity is ordinarily payable to an employee who has rendered continuous service of not less than five years, on the termination of employment by superannuation, retirement, resignation, or on death or disablement due to accident or disease, with the five-year requirement not applicable in cases of death or disablement.
Rate of Gratuity: Gratuity is generally calculated at the rate of fifteen days' wages for every completed year of service (or part thereof exceeding six months), based on the last drawn wages of the employee.
Forfeiture and Withholding: Gratuity may be wholly or partially forfeited or withheld in specified circumstances, such as termination of service for riotous or disorderly conduct, an act of violence, or an offence involving moral turpitude committed in the course of employment; in the case of Government servants, Rule 69 of the CCS (Pension) Rules similarly permits withholding of gratuity pending the conclusion of departmental or judicial proceedings, as reaffirmed by the Delhi High Court in the present case.

Civil Law

Outgoing Partner's Share Must Be Valued on Date of

10-Sep-2026

The Indian Partnership Act, 1932

Sumitra Reddy & Anr. v. K. Ranganadha Reddy & Ors.

"The significance of referring to this date is limited to ascertainment of profits and losses alone and it has no relevance to the right of the partners to receive the value in the residue of the assets."

Justice Ujjal Bhuyan and Justice Vipul M Pancholi

Supreme Court

Why in News?

A Bench of Justice Ujjal Bhuyan and Justice Vipul M Pancholi, in V. Sumitra Reddy & Anr. v. K. Ranganadha Reddy & Ors. (2026), affirmed the Andhra Pradesh High Court's judgment and held that an outgoing partner's share in the immovable property of a dissolved partnership firm must be valued as on the date of actual assessment or sale, and not as on the date of dissolution.

What was the Background of V. Sumitra Reddy & Anr. v. K. Ranganadha Reddy & Ors. (2026) Case?

The dispute arose out of the dissolution of a partnership firm, M/s Viraj Constructions, which owned 3.27 acres of land in Hyderabad.
One of the partners sought dissolution of the partnership at will, and the firm stood dissolved with effect from October 18, 1983.
The question before the Court was whether the outgoing partner's share in the firm's immovable property was to be valued as on October 18, 1983 (the date of dissolution), or at the value prevailing when the property was actually assessed or sold.
It also emerged that some of the remaining partners had continued the business by constituting a fresh partnership, while retaining and using the assets of the dissolved firm.
The Andhra Pradesh High Court ruled in favour of valuing the outgoing partner's share as on the date of actual assessment, and against the appellants' contention that the retained assets could be used by the newly constituted firm without settlement.
Aggrieved, the appellants approached the Supreme Court.

What were the Court's Observations?

On the Date Relevant for Ascertaining Profits and Losses:
The Court, in a judgment authored by Justice Bhuyan, held that while the profits or losses of the partnership business have to be determined as on the date of dissolution, this date is relevant only for ascertaining profits and losses, and has no bearing on the value of the partner's share in the residue of the assets.
On the Valuation of the Outgoing Partner's Share:
The Court held that an outgoing partner's right to receive his share in the residue of the partnership assets is not frozen as on the date of dissolution, and that the partner is entitled to have his share determined based on the value of the assets as on the date of their actual valuation.
On the Requirement of Liquidation Upon Dissolution:
The Court observed that dissolution of a partnership firm ordinarily requires liquidation of its assets, unless one or more partners come forward to pay the market value of the other partners' shares in lieu of liquidation, with the consent of those partners.
On the Rights of a Reconstituted Partnership:
The Court held that a reconstituted firm has no right to utilise the assets of the dissolved firm unless all partners of the dissolved firm reach an agreement to settle accounts and pay the outgoing partner his share; absent such agreement, the assets must be liquidated and the realised value distributed among the partners in proportion to their shares.
On Retention of Assets by the New Partnership:
The Court rejected the argument that the newly constituted partnership could simply continue to retain and use the assets of the erstwhile firm without first settling the rights of its partners, holding that the land in question continued to belong to the erstwhile partnership, M/s Viraj Constructions, and could be retained by the new partnership only by purchasing it from the dissolved firm.
On the Legality of Retention Without Settlement:
The Court held that since the new partnership had not purchased the land from the erstwhile firm, its retention of the land was illegal.
In view of the above, the appeal was dismissed.

What is the Law Governing Dissolution and Settlement of Accounts under the Indian Partnership Act, 1932?

The Indian Partnership Act, 1932 governs the rights and obligations of partners, including upon dissolution of a firm:

Dissolution of Firm (Section 39): The dissolution of partnership between all the partners of a firm is called the "dissolution of the firm."
Dissolution by Agreement (Section 40): A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.
Dissolution at Will (Section 43): Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm; the firm is dissolved as from the date mentioned in the notice, or if no date is mentioned, from the date of communication of the notice.
Settlement of Accounts (Section 48): In settling the accounts of a firm after dissolution, losses are to be paid first out of profits, then out of capital, and then by the partners individually; the assets of the firm, including any sums contributed by partners to make up deficiencies of capital, are applied first in paying debts to third parties, then in paying each partner rateably for advances, then in paying capital, and the residue, if any, is divided among partners in proportion to their entitlement to share profits.
Right of Outgoing Partner to Share Profits (Section 37): Where a partner dies or otherwise ceases to be a partner and the surviving or continuing partners carry on the business without a final settlement of accounts, the outgoing partner is entitled, at his option, to a share of profits attributable to the use of his share of property, or interest at the rate of six per cent per annum on the amount of his share.