Bombay High Court Orders Breach Candy Club to Pay Ex-Manager ₹11.67-Lakh Gratuity; Rejects ₹5-Crore Loss Defence, Awards 15% Compound Interest and ₹1-Lakh Costs Against Trust
Bombay High Court Rejects Breach Candy Club’s Challenge to Ex-Manager’s Gratuity; Says ₹5-Crore Alleged Loss Cannot Justify Forfeiture Without Statutory Procedure
Facts
The case arose from a dispute between Breach Candy Swimming Bath Trust, which operates the Breach Candy Club in Mumbai, and its former Manager, Rajesh Somnath Nerkar. Nerkar had served the Trust for approximately 23 years, joining as an Office Clerk in November 2000, later becoming Assistant Manager and eventually Manager.
The Trust alleged that during digitisation of its membership records in 2012–2013, Nerkar shredded original membership application records. Following changes in the Club’s management and long-running governance disputes, he was suspended in January 2023 and his services were terminated on 2 July 2023. The Trust claimed that his conduct had caused losses of approximately ₹5 crore.
Nerkar challenged his suspension and termination before the City Civil Court. The Civil Court ultimately held the termination to be illegal and awarded him ₹15,38,874 towards salary arrears, while rejecting the Trust’s ₹5-crore counterclaim. Both sides filed appeals against that decree.
Separately, Nerkar claimed gratuity. When the Trust failed to pay, he filed Application (PGA) No. 127 of 2025 before the Controlling Authority under the Payment of Gratuity Act, 1972.
The Trust did not appear in those proceedings, which proceeded ex parte. On 19 November 2025, the Controlling Authority directed the Trust to pay ₹11,67,785 as gratuity with simple interest at 10% per annum from 2 July 2023.
Instead of filing the statutory appeal under Section 7(7) of the Payment of Gratuity Act, the Trust and its trustees approached the Bombay High Court under Article 227 after the statutory limitation period had expired.
Issues
The principal issues before the High Court were whether the Trust could directly maintain an Article 227 petition after failing to avail the statutory appeal under Section 7(7); whether the notices in the gratuity proceedings had been validly served upon the Trust and trustees; whether individual trustees could claim an independent right of appeal separate from the Trust; whether the alleged ₹5-crore loss caused by the former Manager justified forfeiture of gratuity under Section 4(6)(a); whether gratuity could be forfeited without a proper notice in Form-M and prior opportunity to the employee; and whether the Controlling Authority’s gratuity award warranted interference.
Petitioners’ Arguments
The Trust primarily argued that the proceedings before the Controlling Authority had been decided ex parte without proper service.
It submitted that the notices had been handed to Krishnanath Satardekar, whom it claimed was not authorised to accept service on behalf of the Trust or individual trustees. Since a trust is not itself a juristic entity and must act through its trustees, the individual trustees allegedly required separate service.
The petitioners further contended that their gratuity liability had been validly forfeited under Section 4(6)(a) of the Payment of Gratuity Act because Nerkar had allegedly caused substantial financial loss by shredding original membership records. The termination letter quantified the alleged loss at ₹5 crore.
They argued that once this loss exceeded the gratuity amount, they were entitled to adjust the loss against the gratuity payable.
The Trust also submitted that the statutory appeal remedy was no longer available because the maximum condonable period had expired, and therefore Article 227 jurisdiction should be exercised.
Respondent’s Arguments
Nerkar opposed the petition principally on the ground of alternate statutory remedy.
He argued that Section 7(7) provides an appeal against the Controlling Authority’s order within 60 days, extendable by another 60 days, subject to the employer depositing the gratuity amount. The Trust had consciously allowed this remedy to lapse and could not thereafter use Article 227 to circumvent the statutory limitation and deposit requirement.
He further contended that the Trust had been properly served. The eight notices were accepted by its Administrative Manager, Krishnanath Satardekar, who had previously received communications on behalf of the Trust that were acted upon.
Nerkar also argued that no lawful forfeiture of gratuity had ever taken place. The Trust had never issued a Form-M notice communicating forfeiture and had never followed the statutory procedure required under Section 4(6) read with the Payment of Gratuity Rules.
He relied on the City Civil Court’s finding that his termination was illegal and that the Trust’s ₹5-crore counterclaim had been rejected.
Analysis of the Law
Statutory appeal cannot be bypassed after limitation expires
The High Court emphasised that the Payment of Gratuity Act is a social welfare legislation containing a deliberately strict appellate mechanism.
Under Section 7(7), an appeal ordinarily must be filed within 60 days, with a maximum further extension of another 60 days. An employer must also deposit the awarded gratuity as a precondition to having the appeal entertained.
The Court held that the statutory maximum of 120 days cannot be circumvented merely by allowing the limitation period to expire and thereafter directly invoking writ or supervisory jurisdiction.
The legislative purpose is to ensure that employees are not forced into endless litigation over gratuity, which is intended to provide financial security following cessation of employment.
Accordingly, the Trust could not take advantage of its own failure to file a timely appeal.
Service of notices was valid
The Court rejected the Trust’s plea that it had no knowledge of the gratuity proceedings.
Before Nerkar filed the statutory application, he had repeatedly demanded gratuity through correspondence. The Trust had acknowledged those communications and even stated that its Managing Committee was reviewing the issue.
Thereafter, the bailiff personally delivered eight notices relating to the eight respondents to Krishnanath Satardekar at the Trust’s premises. The High Court found that he was in fact the Administrative Manager, not merely a clerk, and was authorised to receive communications on behalf of the Trust.
The Court held that authority to sanction leave, which he may not have possessed, was entirely different from authority to accept notices. His previous receipt of correspondence which the Trust acted upon confirmed his authority.
Accordingly, the gratuity notices were duly served.
Trust and trustees could not split their liability
The Court accepted the legal proposition that a trust is not a juristic entity and is represented through its trustees.
However, that principle did not assist the individual trustees.
For payment of statutory gratuity, the employer was the Trust, while the trustees had been impleaded only to represent it. Once the Trust’s gratuity liability crystallised, individual trustees could not artificially separate themselves and claim independent appellate rights.
Precedent Analysis
Nanded Zilla Dekhrekh Sahakari Sanstha Maryadit v. Narhar Pralhadrao Kulkarni
The Bombay High Court had held that an appeal under Section 7(7) cannot be entertained beyond the maximum 60 + 60 day statutory period.
The Court applied that principle to reject Breach Candy Club’s attempt to revive its challenge through Article 227 after allowing the appeal limitation to expire.
Mahanagar Media Network Pvt. Ltd. v. Stanny Pariera
This recent Bombay High Court judgment was relied upon for the broader principle that employers cannot bypass Section 7(7), including its mandatory gratuity-deposit requirement, by approaching the High Court directly.
The Court reiterated that gratuity legislation is intended to prevent employers from keeping former employees embroiled in prolonged litigation.
Assistant Commissioner (CT) v. Glaxo Smith Kline Consumer Health Care Ltd.
The Supreme Court authority supported the proposition that once a statutory remedy has become time-barred because the litigant failed to use it within the legislatively prescribed period, writ jurisdiction should not ordinarily be invoked merely to circumvent that limitation.
Chairman and Managing Director, Bank of Maharashtra v. Kishore
This precedent was crucial on forfeiture of gratuity.
The Bombay High Court had held that even issuance of Form-M by itself may not suffice. Because forfeiture is a drastic consequence, the employer should first give the employee a proper opportunity through a show-cause notice identifying the alleged loss, its basis and extent, after which a reasoned decision regarding forfeiture may be taken.
The Court applied that principle against the Trust, which had not even issued Form-M.
Court’s Reasoning
Even after holding the writ petition non-maintainable because of the statutory appeal mechanism, the Court considered the merits and found that the Trust had no valid defence for denying gratuity.
No valid forfeiture
Section 4(6)(a) permits forfeiture only to the extent of actual damage or loss caused by an employee’s act, wilful omission or negligence.
The Court emphasised that if the employer intends to reject a gratuity claim, Rule 8 requires a Form-M notice specifying the reasons for non-payment.
No such Form-M notice had ever been served upon Nerkar.
The Court held that forfeiture of an important statutory benefit such as gratuity “cannot be lightly or readily inferred.”
Termination letter itself did not forfeit gratuity
The termination letter quantified an alleged loss of ₹5 crore and stated that salary from November 2022 onwards would be adjusted against that loss.
Crucially, however, the letter did not state that gratuity was being forfeited.
The High Court therefore found nothing demonstrating any contemporaneous decision by the Trust to exercise its statutory power of forfeiture.
₹5-crore loss claim rejected
The High Court further held that Section 4(6)(a) contemplates an actual and direct loss, not a merely perceived or speculative loss.
The allegation here was that Nerkar shredded original membership records. The Trust had simply quantified its alleged loss at ₹5 crore without demonstrating a direct financial loss corresponding to that figure.
The Court described the ₹5-crore figure as “whimsical and fanciful.” It also noted that the City Civil Court had already dismissed the Trust’s ₹5-crore counterclaim, though the resulting appeal remained pending.
For purposes of gratuity, therefore, the requirements of Section 4(6)(a) were not satisfied.
Club’s conduct criticised
The Court strongly criticised the Trust’s conduct before, during and after the gratuity proceedings.
It found that despite repeated demands and notices, the Trust deliberately failed to act. Even after receiving the Controlling Authority’s order, it failed either to comply or challenge the order within limitation, forcing Nerkar to commence recovery proceedings.
The Court also noted material indicating that the Trust had withdrawn ₹11,67,785 representing Nerkar’s gratuity from the LIC gratuity fund even while telling him that his request was under consideration.
The Court considered this conduct serious enough to warrant exemplary costs.
Conclusion
The Bombay High Court held that the Trust could not use Article 227 to overcome its own failure to file the statutory appeal within the maximum period prescribed under Section 7(7).
It further held on merits that there had been no lawful forfeiture of Nerkar’s gratuity. No Form-M notice was issued; the termination letter itself did not forfeit gratuity; and the alleged ₹5-crore loss was not demonstrated to be the kind of direct, quantified loss contemplated by Section 4(6)(a).
Accordingly, the Court upheld the Controlling Authority’s award of ₹11,67,785 gratuity.
The Court went further on interest. Although the Controlling Authority had awarded 10% simple interest, Section 8 and the applicable Central Government notification provided for 15% compound interest on unpaid gratuity during recovery. Since the Trust’s conduct had forced Nerkar to initiate recovery proceedings, the High Court directed payment of the gratuity with 15% compound interest.
The Court also imposed ₹1 lakh costs upon the petitioners for deliberately ignoring correspondence and statutory notices and subsequently taking a false plea of lack of knowledge.
The entire gratuity amount with statutory interest and ₹1 lakh costs was directed to be paid within six weeks.
Case Details
Case: Breach Candy Swimming Bath Trust & Ors. v. Rajesh Somnath Nerkar
Court: High Court of Judicature at Bombay, Civil Appellate Jurisdiction
Case Number: Writ Petition No. 9972 of 2026
Judge: Justice Sandeep V. Marne
Reserved on: 18 August 2026
Date of Judgment: 1 September 2026
Result: Writ Petition dismissed. Ex-Manager’s ₹11,67,785 gratuity upheld; petitioners directed to pay 15% compound interest and ₹1 lakh costs within six weeks. Court held that the statutory appeal could not be bypassed after limitation expired and that gratuity had never been validly forfeited under Section 4(6).
