Kerala High Court: Consumer Forums Cannot Decide Employee Gratuity Disputes

The Kerala High Court has ruled in The Tirur Service Co-operative Bank Ltd v Moideen M that consumer dispute redressal commissions cannot decide claims relating to gratuity between employers and employees. The Court held that such disputes arise from employment and do not fall within consumer law.

Justice Ziyad Rahman AA observed that an employer cannot be treated as a service provider under the Consumer Protection Act, 2019. Similarly, an employee cannot be considered a consumer who hires or receives services from the employer for any consideration.

The Court explained that the nature of an employment relationship is different from a transaction between a consumer and a service provider. In employment, the employee performs services for the employer and receives salary in return, while the employer receives the benefit of those services.

“As far as an employer is concerned, he cannot be treated as a service provider and the employee cannot be treated as a person who availed the services from the employer,” the ruling stated.

The decision came in a challenge filed by Tirur Service Co-operative Bank against an order passed by the Malappuram District Consumer Disputes Redressal Commission. The consumer commission had directed the bank to pay gratuity arrears, compensation and litigation expenses to a retired employee.

The employee had retired in March 2016 after completing 38 years of service. The bank paid him ₹10 lakh as gratuity. However, he claimed that he was entitled to ₹12.20 lakh under the Payment of Gratuity Act, 1972.

Seeking the remaining ₹2.20 lakh, the retired employee approached the district consumer commission. The commission accepted his complaint and also awarded ₹25,000 as compensation and ₹10,000 towards litigation costs. The bank then moved the Kerala High Court against the order.

The High Court relied on the Supreme Court’s ruling in Jagmittar Sain Bhagat and ors v Director, Health Services, Haryana and ors. That decision had clarified that disputes involving employment conditions and retirement benefits cannot be resolved through proceedings under consumer protection law.

Justice Rahman also distinguished between a “contract of service” and a “contract for service”. Consumer protection law may apply to a contract for service, where a person hires services from another. However, an employer-employee relationship is governed by a contract of service.

Since gratuity is a statutory retirement benefit arising from employment, the Court concluded that the consumer commission lacked jurisdiction to entertain the complaint. It consequently set aside the commission’s order directing the co-operative bank to pay the disputed gratuity amount, compensation and costs.