Resignation vs Voluntary Retirement: Pension and Gratuity Rights

Source: Supreme Court 

Why in News? 

The bench of Justices Rajesh Bindal and Manmohan in the case of Ashok Kumar Dabas (Dead Through Legal Heirs) v. Delhi Transport Corporation (2025) clarified that resignation from service results in forfeiture of pension benefits under Rule 26 of the Central Civil Services (Pension) Rules, 1972, while upholding the right to gratuity and leave encashment even after resignation. 

What was the Background of Ashok Kumar Dabas v. Delhi Transport Corporation (2025) Case? 

• Ashok Kumar Dabas was appointed as a conductor with Delhi Transport Corporation (DTC) in 1985. 
• In 1992, he opted for the new pension scheme introduced by the Corporation through Office Order No.16 dated 27.11.1992. 
• On 07.08.2014, he resigned from his job citing family circumstances after serving nearly 30 years. 
• His resignation was accepted by the competent authority on 19.09.2014. 
• Later, on 13.04.2015, he requested withdrawal of his resignation, which was declined by the Corporation on 28.04.2015. 
• On 15.10.2015, the deceased employee requested release of his retiral benefits including gratuity, provident fund, leave encashment, and pension. 
• On 23.10.2015, the Corporation informed him that he was entitled only to provident fund and no other benefits since he had resigned. 
• During his service career, the employee had been suspended on five occasions, received nine warnings for misconduct, and faced major and minor punishments seven times. 
• The employee filed an application (O.A. No.4645/2015) before the Central Administrative Tribunal, which was dismissed on 24.09.2018. 
• His review application (R.A. No.207/2018) was also dismissed by the Tribunal on 29.10.2018. 
• The High Court of Delhi dismissed his writ petition (W.P.(C) No.13642/2018) on 20.12.2022, upholding the Tribunal's orders. 
• After the employee's death, his legal heirs approached the Supreme Court challenging the denial of pension and other retiral benefits. 

What were the Court's Observations? 

On Pension Benefits: 

• The Court examined Rule 26(1) of the CCS Pension Rules, 1972, which states that resignation entails forfeiture of past service unless withdrawal is allowed in public interest. 
• The Court emphasized the distinction between resignation and voluntary retirement, citing BSES Yamuna Power Limited v. Ghanshyam Chand Sharma (2020), holding that re-classifying resignation as voluntary retirement would render Rule 26 nugatory. 
• The Court held that irrespective of completing 20 years of service, Rule 26 mandates forfeiture of past service upon resignation, making pension claims inadmissible. 

On Gratuity: 

• The Court examined Section 4 of the Payment of Gratuity Act, 1972, which provides gratuity on termination after five years of service, including resignation cases. 
• The Court noted no exemption notification existed for Delhi Transport Corporation under Section 5 of the Act. 
• The Court held that gratuity is a statutory right distinct from pension and cannot be denied even in case of resignation. 

On Leave Encashment: 

• The respondent's counsel fairly conceded that leave encashment was due to the deceased employee. 
• The Court directed payment of leave encashment to the family members. 

Court's Directions” 

• The legal heirs of the deceased employee were held entitled to receive gratuity in terms of provisions of the Payment of Gratuity Act, 1972. 
• They were also held entitled to receive the amount towards leave encashment. 
• The Court directed that the amounts due (gratuity and leave encashment) be paid within six weeks along with interest at 6% per annum from the date of resignation till payment. 
• The appeal was partly allowed to this extent. 

What is the Distinction Between Resignation and Voluntary Retirement? 

Resignation: 

• Resignation is a voluntary act by which an employee terminates their employment with immediate or specified effect. 
• Under Rule 26 of the CCS Pension Rules, 1972, resignation entails automatic forfeiture of past service unless withdrawal is allowed in public interest. 
• An employee who resigns loses entitlement to pension benefits regardless of years of service completed. 
• Resignation can be submitted at any time during service without any minimum service requirement. 
• The legal consequences of resignation are immediate termination of employment relationship and loss of pension rights. 

Voluntary Retirement: 

• Voluntary retirement is governed by Rules 48 and 48-A of the CCS Pension Rules, 1972. 
• Rule 48 allows voluntary retirement after completion of 30 years of qualifying service with entitlement to pension. 
• Rule 48-A permits voluntary retirement after completion of 20 years of qualifying service with pension benefits. 
• Voluntary retirement requires giving three months' notice to the Appointing Authority. 
• A government servant who voluntarily retires is entitled to retiring pension as per Rule 36 of the 1972 Rules. 
• The employee retains all pensionary benefits earned during the qualifying service period. 

Key Legal Distinction: 

• The Supreme Court in BSES Yamuna Power Limited v. Ghanshyam Chand Sharma (2020) held that courts cannot re-classify resignation as voluntary retirement as it would render Rule 26 nugatory. 
• The distinction is fundamental to service law and cannot be blurred based on sympathetic considerations. 
• The intent and form of the employee's application determine whether it is resignation or voluntary retirement, not subsequent interpretation. 

What are Gratuity Rights under the Payment of Gratuity Act, 1972? 

About the Act: 

• The Payment of Gratuity Act, 1972 is a legislation that provides for the payment of gratuity to employees in factories, mines, oilfields, plantations, ports, railway companies, shops, and other establishments.  
• The Act establishes the rules for eligibility, calculation, and payment of gratuity, which is a form of retirement benefit paid by employers to their employees for rendering continuous service for five years or more.

About Gratuity: 

• Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for services rendered. 
• It is a statutory benefit governed by the Payment of Gratuity Act, 1972. 
• Section 4(1) of the Act makes gratuity payable on termination of employment after completion of not less than five years of continuous service. 

Grounds for Gratuity Payment: 

• Superannuation (retirement at the prescribed age). 
• Retirement or resignation. 
• Death or disablement due to accident or disease. 
• For death or disablement cases, the five-year service requirement is not necessary. 

Key Features: 

• Gratuity is payable regardless of whether the employee retires or resigns, as long as five years of service is completed. 
• The employer cannot deny gratuity to an employee who has completed the qualifying service period. 
• Unless specifically exempted under Section 5 by the appropriate government, all establishments are covered under the Act. 
• Gratuity is distinct from pension and is a statutory right independent of service rules. 
• The amount of gratuity is calculated based on the last drawn salary and years of service rendered.