The gratuity is a socially beneficial payment, which would be payable to an employee upon completion of a minimum continuous period of services in an organisation as prescribed under the Payment of Gratuity Act, 1972, and the rules issued thereunder (PG Act). In terms of the PG Act, gratuity entitlement is a statutory right of an employee upon fulfilling the prescribed conditions, and an employer is obligated to pay such a gratuity amount as and when it is payable. However, the gratuity amount of an employee may be forfeited by the employer on account of certain acts and conduct of an employee as further prescribed under the PG Act. One of the grounds for forfeiture of gratuity is when an employee's service is terminated due to misconduct. Section 4(6) of the PG Act provides for the forfeiture of gratuity under certain conditions, particularly in cases where the employee has been terminated for misconduct that constitutes an offence involving moral turpitude. A significant question that arises is whether such forfeiture can occur without the requirement of a criminal conviction or even the initiation of criminal proceedings. This question has been debated in several court cases, however, in a recent ruling in the case of Western Coal Fields Ltd. vs. Manohar Govinda Fuzzle1, the Supreme Court of India (SC) has provided clarity on this aspect.
In this instance, the case involves appeals by two entities: a Public Sector Undertaking (PSU), and the Maharashtra State Road Transport Corporation (MSRTC). The appeals challenge the finding that forfeiture of gratuity was impermissible under the PG Act, relying heavily on the previous SC decision in Union Bank of India and Ors. vs. C.G. Ajay Babu2.
In the C.G. Ajay Babu case, the employee was dismissed after a departmental inquiry proved his involvement in misconduct that could be categorized as acts involving moral turpitude. Despite this, the High Court ruled that forfeiture of gratuity was improper, as there was no financial loss to the bank, which would have been the only ground for forfeiture under the bipartite settlement regulating the conduct and behaviour of the employees of the bank, including disbursal of gratuity.
The SC upheld the order of the High Court on the ground that sub-section (6) of Section 4 of the PG Act, which deals with the forfeiture, is inapplicable in the present case since employee service is regulated by a bipartite settlement document that also contains provisions for payment of gratuity and its forfeiture. The SC further looked at the sub-section (6) of Section 4 and observed that the requirement of a statute is not the proof of the misconduct of acts involving moral turpitude, but the act should also constitute an offence involving moral turpitude, and such an offence should be duly established in a court of law.
The legal provision in question pertains to sub-section (6) of Section 4 of the Act, which allows for the forfeiture of gratuity if an employee is terminated due to an offence involving moral turpitude. The SC had earlier interpreted the provision in the C.G. Ajay Babu case, where it was stated that a conviction in a court was necessary to establish that the act in question involved moral turpitude.
In a subsequent ruling in the case of Jaswant Singh Gill vs. Bharat Coking Coal Ltd.3, the SC observed that sub-section (6) would indicate that such forfeiture could be effected only in the event of termination for reason of wilful omission or negligence causing loss to the employer ; or if the termination is on account of riotous or disorderly or any other act of violence; or if the employee has been terminated for any act that constitutes an offence involving moral turpitude. However, this case did not conclude that forfeiture of gratuity under Section 4(6)(b)(ii) is only permissible if there is a conviction by a criminal court for an offence, which alone could lead to the misconduct being regarded as one involving moral turpitude.
Present Case
The present case specifically deals with the interpretation of sub-section (6) of Section 4 of the PG Act. The SC observes that the statutory provision does not stipulate that the misconduct alleged and proved in a departmental inquiry must not only constitute an offence involving moral turpitude, but also must be conclusively established in a court of law. The words "duly established in a court of law" cannot be supplied to the provision.
The SC further observed that an offence, as defined in the General Clauses Act, means 'any act or omission made punishable by any law for the time being' and does not call for a conviction, which definitely can only be on the basis of evidence led in a criminal proceeding. The standard of proof required in a criminal proceeding is quite different from that required in a disciplinary proceeding, the former being regulated by a higher standard of 'proof beyond reasonable doubt' while the latter is governed by 'preponderance of probabilities'. The provision of forfeiture of gratuity under the Act does not speak of a conviction in a criminal proceeding for an offence involving moral turpitude. On the contrary, the PG Act provides for such forfeiture in cases where the delinquent employee is terminated for misconduct, which constitutes an offence involving moral turpitude. Hence, the only requirement is for the Disciplinary Authority or the Appointing Authority to decide as to whether the misconduct could, in normal circumstances, constitute an offence involving moral turpitude, with a further discretion conferred on the authority forfeiting gratuity, to decide whether the forfeiture should be of the whole or only a part of the gratuity payable, which would depend on the gravity of the misconduct.
In the present case, the PSU employee was found to have submitted a fraudulent date of birth certificate to secure his appointment. This act was considered to involve moral turpitude, as it constituted fraud. The SC cited the decision in Devendra Kumar vs. State of Uttaranchal4 to contend that suppression of material information at the time of selection or appointment would constitute an offence involving moral turpitude. In this instance, the employee's very appointment was deemed invalid due to the fraudulent nature of the certificate, making him ineligible to claim any benefits, including gratuity.
In the case of the MSRTC, employees were found guilty of misappropriating fares collected from passengers. Misappropriation, even of small amounts, is recognized as a misconduct involving moral turpitude. However, the Court took a more sympathetic approach, observing that the amounts involved in misappropriation were meagre and that the Appointing Authority should have shown more sympathy in determining the extent of forfeiture. The SC modified the forfeiture to 25% of the gratuity, allowing the remaining balance to be released to the employees.
Conclusion:
The case brings clarity to the legal understanding of forfeiture of gratuity under the PG Act. The SC ruled that a criminal conviction is not a prerequisite for forfeiture if the misconduct constitutes an offence involving moral turpitude. The decision reinforces the notion that misconduct involving moral turpitude can justify forfeiture of gratuity, but the extent of forfeiture should be proportional to the gravity of the misconduct. The ruling also highlights the difference in standards of proof between disciplinary inquiries and criminal proceedings, emphasizing that the latter's higher threshold is not required for the forfeiture of gratuity.
Footnotes
1. 2025 INSC 233
2. (2018) 9 SCC 529
3. (2007) 1 SCC 663
4. (2013) 9 SCC 363
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