Resignation Forfeits Pension Rights, But Gratuity Is Statutory: Supreme Court Partly Allows Appeal of DTC Employee’s Legal Heirs

“Reclassifying resignation as voluntary retirement would render Rule 26 nugatory”, On December 9, 2025, the Supreme Court delivered a vital judgment on service law and labour rights, clearly distinguishing between resignation and voluntary retirement in the context of pension eligibility, while upholding the statutory right to gratuity under the Payment of Gratuity Act, 1972.

A Bench comprising Justice Rajesh Bindal and Justice Manmohan ruled that resignation leads to automatic forfeiture of past service under Rule 26 of the CCS (Pension) Rules, 1972, and therefore disqualifies an employee from pension unless the resignation is withdrawn in public interest.

“If this Court were to reclassify his resignation as a case of voluntary retirement, this would obfuscate the distinction between the concepts of resignation and voluntary retirement and render the operation of Rule 26 nugatory,” the Court held emphatically.

Pension Denied: Rule 26 Is Absolute on Forfeiture Upon Resignation

The deceased employee, Ashok Kumar Dabas, a conductor with DTC since 1985, resigned in 2014 after nearly 29 years of service, citing family reasons. His resignation was accepted. A later request to withdraw the resignation was rejected by the Corporation. When his legal heirs sought pensionary benefits, their claim was denied by the employer and rejected by the Tribunal and High Court. The matter reached the Supreme Court.

The apex court examined Rule 26(1) of the CCS (Pension) Rules, 1972, which provides:

“Resignation from a service or a post, unless it is allowed to be withdrawn in the public interest by the Appointing Authority, entails forfeiture of past service.”

Despite arguments that the resignation letter was inelegantly drafted and should be read as a request for voluntary retirement, the Court refused to adopt a lenient interpretation:

“It is clear that the deceased employee had resigned from service and his withdrawal from resignation was not accepted… Hence, he will not be entitled to any pension.”

The Court cited and relied upon the precedent in BSES Yamuna Power Ltd. v. Ghanshyam Chand Sharma (2020) 3 SCC 346, reiterating that the difference between resignation and voluntary retirement is not one of form but of fundamental legal consequence. It added:

“Even if the first respondent had served twenty years, under Rule 26… his past service stands forfeited upon resignation.”

Gratuity Awarded Despite Resignation: Pension Rules Do Not Override Statutory Entitlement

Turning to the claim for gratuity, the Court adopted a completely different lens, observing that while pension eligibility is governed by service rules, gratuity flows from the Payment of Gratuity Act, 1972, a beneficial social welfare legislation.

The Court cited Section 4 of the Act, which mandates gratuity payment to any employee who has rendered five years of continuous service, and includes termination due to resignation. The Court found no exemption notification issued under Section 5, which could have excluded DTC from the scope of the Act.

“Once it could not be established by the respondent that the 1972 Act is not applicable to the Corporation, the claim of the appellant for release of gratuity cannot be denied even if he had resigned from service,” the Court concluded.

Accordingly, the Court allowed the gratuity claim with 6% interest per annum from the date of resignation.

Leave Encashment Also Allowed: DTC Concedes No Bar

In respect of leave encashment, the counsel for DTC fairly conceded that there was no legal bar to releasing the same. The Court directed that the amount be paid to the deceased employee’s family members along with interest.

Prior Misconduct Cannot Be a Ground to Withhold Gratuity

Though the respondent DTC submitted that the deceased had a blemished service record—citing multiple suspensions, warnings, and stoppage of increments—the Supreme Court did not entertain any argument that such service history could nullify the statutory right to gratuity. It held that in the absence of a statutory bar or exemption, misconduct cannot be a reason to deny gratuity where resignation is undisputed and the service condition of 5 years is met.

Pension Denied, Gratuity and Leave Encashment Allowed with Interest

The appeal was partly allowed. While rejecting the claim for pension based on a clear legal bar under Rule 26, the Supreme Court protected the rights of the deceased employee’s legal heirs to gratuity and leave encashment. The Court directed:

“The amount due to the deceased employee be paid within a period of six weeks along with interest @ 6% p.a. from the date of his resignation till payment.”

Date of Decision: 09 December 2025