2018 (8) TMI 934 - SC - Indian Laws

Forfeiture of Gratuity Not Automatic on Dismissal: Court Upholds Employee's Entitlement

UNION BANK OF INDIA AND OTHERS Versus C.G. AJAY BABU AND ANOTHER

The Supreme Court held that forfeiture of gratuity is not automatic upon dismissal from service and must adhere to specific conditions under sub-Sections ... Whether forfeiture of gratuity, under The Payment of Gratuity Act, 1972 (hereinafter referred to as ‘the Act’), is automatic on dismissal from service? Held that:- There is no case for the Bank that the misconduct of the respondent-employee has caused any financial loss to the Bank, and therefore, forfeiture, taking recourse to sub-Section (6) of Section 4 of the Act, cannot be resorted to - the respondent-employee is entitled to the protection of the bipartite settlement. Though the learned Counsel for the appellant-Bank has contended that the conduct of the respondent-employee, which leads to the framing of charges in the departmental proceedings involves moral turpitude, the contention cannot be appreciated. It is not the conduct of a person involving moral turpitude that is required for forfeiture of gratuity but the conduct or the act should constitute an offence involving moral turpitude. To be an offence, the act should be made punishable under law. That is absolutely in the realm of criminal law. In the present case, there is no conviction of the respondent for the misconduct which according to the Bank is an offence involving moral turpitude. Hence, there is no justification for the forfeiture of gratuity on the ground stated in the order dated 20.04.2004 that the “misconduct proved against you amounts to acts involving moral turpitude” - the requirement of the statute is not the proof of misconduct of acts involving moral turpitude but the acts should constitute an offence involving moral turpitude and such offence should be duly established in a court of law. Forfeiture of gratuity is not automatic on dismissal from service; it is subject to sub-Sections (5) and (6) of Section 4 of The Payment of Gratuity Act, 1972. Appeal dismissed - decided against appellant. Issues Involved:1. Whether forfeiture of gratuity under The Payment of Gratuity Act, 1972 is automatic upon dismissal from service.2. Interpretation and application of Section 4(6) of The Payment of Gratuity Act, 1972.3. The impact of bipartite settlement on the forfeiture of gratuity.4. Whether the misconduct of the respondent-employee amounted to an offence involving moral turpitude.Detailed Analysis:1. Whether forfeiture of gratuity under The Payment of Gratuity Act, 1972 is automatic upon dismissal from service:The Supreme Court held that forfeiture of gratuity is not automatic upon dismissal from service. It is subject to the conditions specified under sub-Sections (5) and (6) of Section 4 of The Payment of Gratuity Act, 1972. The Court emphasized that the statutory provisions must be scrupulously observed and the forfeiture can only occur under specific circumstances outlined in the Act.2. Interpretation and application of Section 4(6) of The Payment of Gratuity Act, 1972:Section 4(6) of the Act provides conditions under which gratuity can be forfeited. Sub-Clause (a) allows forfeiture to the extent of damage or loss caused to the employer due to the employee's willful omission or negligence. Sub-Clause (b) permits forfeiture, either wholly or partially, if the termination is due to riotous or disorderly conduct, any act of violence, or an act constituting an offence involving moral turpitude committed during the course of employment. The Court clarified that sub-Clause (a) and sub-Clause (b) operate in different fields and circumstances.3. The impact of bipartite settlement on the forfeiture of gratuity:The appellant-Bank had a bipartite settlement dated 19.08.1966, which stipulated that forfeiture of gratuity is permissible only if the misconduct leading to dismissal caused financial loss to the Bank. The Court noted that the settlement provides better terms of gratuity under sub-Section (5) of Section 4 of the Act. Since there was no financial loss caused to the Bank by the respondent's misconduct, the forfeiture could not be justified under the bipartite settlement.4. Whether the misconduct of the respondent-employee amounted to an offence involving moral turpitude:The Court held that for forfeiture under sub-Section (6)(b)(ii), the misconduct must constitute an offence involving moral turpitude and must be duly established in a court of law. In this case, the Bank did not initiate any criminal proceedings to establish that the respondent's misconduct constituted an offence involving moral turpitude. Therefore, the Bank's decision to forfeit gratuity on the grounds of moral turpitude was not justified.Conclusion:The Supreme Court concluded that forfeiture of gratuity is not automatic upon dismissal from service and must comply with the specific conditions under sub-Sections (5) and (6) of Section 4 of The Payment of Gratuity Act, 1972. The Court upheld the High Court's decision that the respondent-employee was entitled to gratuity as per the bipartite settlement, which only allowed forfeiture in cases of financial loss to the Bank. The appeal was dismissed with no costs.