The Rajasthan High Court has clarified that an employer’s statutory obligation to pay retiral benefits - gratuity and privilege leave encashment - cannot be evaded by shifting liability to a third party through internal administrative arrangements. This judgment reinforces the principle that the employer at the time of retirement bears primary responsibility for dues, irrespective of contractual or regulatory allocations between related entities.
Background & Facts
The Dispute
The petitioners, retired Vyavasthapaks (managers) of Gram Seva Sahkari Samitis (village cooperative societies), were employed under the administrative control of the Central Co-Operative Bank Ltd. (Respondent No. 3) at the time of their retirement. Despite their long service and formal retirement orders issued by the Bank, they were denied gratuity and encashment of accumulated privilege leave. The Bank refused payment on the ground that the petitioners were technically employees of the Gram Seva Sahkari Samitis (Respondent No. 4), and therefore, payment liability rested with those societies under the Rajasthan Co-operative Societies Rules.
Key Facts
- Petitioner 1: Ramjas Gurjar, retired on 30.07.2020 (Annexure 14)
- Petitioner 2: Chhitar Lal Verma, retired on 30.06.2020 (Annexure 16)
- Both were appointed as Vyavasthapaks by the Gram Seva Sahkari Samitis (Respondent No. 4)
- Both were placed under the administrative supervision and payroll control of the Central Co-Operative Bank Ltd. (Respondent No. 3)
- Retirement orders were issued by the Bank, not the Samitis
- Both petitioners received their pensionary benefits from the Bank
- Gratuity and leave encashment were withheld by the Bank on the basis of Rule 17(2) of the Rajasthan Co-operative Societies (Service) Rules, 1974, which allegedly makes the Samiti liable
- No payment was made by either the Bank or the Samitis despite repeated representations
Procedural History
- 2020: Both petitioners retired and submitted claims for gratuity and leave encashment
- 2020 - 2021: Multiple representations made to Respondent Nos. 3 and 4; no response or payment
- 2021: Writ Petitions filed before the Rajasthan High Court:
- S.B. Civil Writ Petition No. 10282/2021 (Ramjas Gurjar)
- S.B. Civil Writ Petition No. 10009/2021 (Chhitar Lal Verma)
- 08.04.2026: Both petitions heard together and disposed of by a single order
The Parties' Positions
Petitioners: Argued that they were under the direct administrative and financial control of the Central Co-Operative Bank at the time of retirement. The Bank issued retirement orders, managed their service records, and disbursed pension. Therefore, the Bank was their employer for all purposes, including retiral benefits.
Respondent No. 3 (Bank): Contended that the petitioners were employees of the Gram Seva Sahkari Samitis (Respondent No. 4) under the Co-operative Societies Rules, and thus, payment liability lay solely with the Samitis. The Bank had no objection to the Samitis paying, but refused to pay directly.
Respondent No. 4 (Samitis): Did not appear or file any written submission; their liability was not directly contested in oral arguments.
Relief Sought
The petitioners sought:
- Payment of gratuity amount as per the Payment of Gratuity Act, 1972
- Encashment of accumulated privilege leave
- Interest on delayed payments
- A direction to the Bank to settle the dues immediately
The Legal Issue
The central question was whether the Central Co-Operative Bank, as the entity that issued the retirement order and exercised administrative control at the time of retirement, is legally obligated to pay gratuity and privilege leave encashment, even if internal rules assign financial liability to the cooperative society.
Arguments Presented
For the Petitioner
Learned counsel for the petitioners relied on the doctrine of employer-employee relationship as determined by control, supervision, and issuance of service documents. They cited State of Punjab v. Jagjit Singh to argue that the entity issuing the retirement order and managing service records is the employer for statutory benefit purposes. They emphasized that the petitioners’ service records, pay slips, and pension disbursements were all handled by the Bank. The Co-operative Rules, they argued, cannot override the statutory obligation under the Payment of Gratuity Act or the principles of natural justice.
For the Respondent
The State’s counsel contended that under Rule 17(2) of the Rajasthan Co-operative Societies (Service) Rules, 1974, the Gram Seva Sahkari Samiti is the employer and thus liable for all retiral dues. The Bank, they argued, was merely an administrative agent and had no financial liability. They cited internal circulars and departmental guidelines to support the division of roles.
The Court's Analysis
The Court rejected the Respondent No. 3’s argument at the threshold. It held that the nature of employment cannot be determined solely by administrative labels or internal rules. The critical factor is the employer-employee relationship at the time of retirement.
"The respondent No.3 was the employer of the petitioners at the time of retirement, which is reflected from the orders of retirement as referred above. When it is the employer, it is under obligation to pay retiral benefits to the petitioners."
The Court emphasized that the Co-operative Rules, even if they impose financial liability on the Samiti, do not absolve the Bank of its statutory and common law duties as the employer. The Court observed that the Bank’s refusal to pay was an attempt to shift liability to a party with limited financial capacity, thereby prejudicing the petitioners’ rights.
The Court further held that any internal arrangement between the Bank and the Samiti - whether contractual, regulatory, or administrative - cannot operate to the detriment of the employee. The employee’s right to timely payment of retiral dues is inviolable.
"This Court finds that it is an internal arrangement between respondent Nos.3 and 4, and on that basis the petitioners’ benefits cannot be deprived of."
The Court dismissed the notion that the Bank was merely a "facilitator" or "agent". It held that the issuance of retirement orders, maintenance of service records, and disbursement of pension collectively establish the Bank as the employer for all purposes under service law.
The Verdict
The petitioners succeeded. The Court directed the Central Co-Operative Bank Ltd. (Respondent No. 3) to pay the gratuity amount and the encashment of privilege leave within one month of receipt of a copy of this order. The amount due, as determined by the Bank, shall be paid with interest at the rate of 6% per annum from the date the dues became due until the date of actual payment. The Bank is granted liberty to seek reimbursement from Respondent No. 4 (the Gram Seva Sahkari Samiti), subject to the liability under the Co-operative Rules. All pending applications are disposed of.
What This Means For Similar Cases
Employer at Retirement Is Liable for All Statutory Dues
- Practitioners must now argue that the entity issuing the retirement order and managing service records is the employer, regardless of contractual or regulatory labels
- Co-operative societies or other entities cannot evade liability by claiming "administrative separation" from the paying authority
- This applies equally to employees of public sector undertakings, cooperative banks, and other quasi-governmental bodies
Internal Rules Cannot Override Statutory Rights
- Statutory entitlements under the Payment of Gratuity Act, 1972, and service rules cannot be negated by internal circulars or cooperative by-laws
- Employees are not bound by disputes between their employer and a third party
- Any attempt to delay payment on grounds of "liability allocation" is legally untenable
Procedural Clarity for Pension Disbursers
- Banks and financial institutions managing retirement benefits for cooperative employees must now treat themselves as primary payers
- They must calculate and disburse gratuity and leave encashment without waiting for reimbursement from cooperatives
- Reimbursement claims against cooperatives must be pursued separately, without affecting the employee’s right to timely payment
