1. Dismissal from service and subsequent forfeiture of gratuity under The Payment of Gratuity Act, 1972 — Dispute over entitlement based on bipartite settlement and moral turpitude. (Para 2 , 3 , 4 , 5 )
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2018 Supreme(SC) 810
SUPREME COURT OF INDIA
KURIAN JOSEPH, SANJAY KISHAN KAUL, JJ.
UNION BANK OF INDIA AND OTHERS – APPELLANT(S)
VERSUS
C.G. AJAY BABU AND ANOTHER – RESPONDENT(S)
CIVIL APPEAL NO. 8251 OF 2018 (Arising out of S.L.P.(Civil) No. 3852/2017)
Decided On : 14-08-2018
Important Points
IMPORTANT POINTS
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.
Distinction between ‘conduct involving moral turpitude’ and ‘offence constituting moral turpitude’.
Any rule framed by employer cannot prevail over the statute.
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.
Distinction between ‘conduct involving moral turpitude’ and ‘offence constituting moral turpitude’.
Any rule framed by employer cannot prevail over the statute.
Subject
Employment Law - Gratuity
Act Referred
Headnote
(a) Payment of Gratuity Act, 1972 – Section 4(5) – Expression “while providing for better terms of gratuity under any award or agreement or contract” – does not deal only with quantum of gratuity – ‘better terms’ means all terms of the contract – clause 12.2 of bipartite settlement dated 19.08.1966 providing for non-forfeiture of gratuity on dismissal for misconduct to the extent of financial loss caused by such misconduct – Instantly no financial loss caused by respondent to the bank by his misconduct – Respondent-employee held entitled to protection of bipartite settlement. (Para 12, 15)
(2006) 8 SCC 514; (2013) 3 SCC 472 – Relied upon
(b) Payment of Gratuity Act, 1972 – Section 4(6)(a) – Forfeiture of gratuity on termination – When on account of any act constituting an offence involving moral turpitude – ‘Conduct involving moral turpitude’ and ‘offence constituting moral turpitude’ – Distinction – An act should be punishable to constitute an offence determinable by a court, not the employer – Instantly Bank not filing FIR or complaint – The act of respondent not established as offence – Statute requiring not the proof of misconduct of acts involving moral turpitude – It requires that the acts should constitute an offence involving moral turpitude – Such offence should be duly established in a court of law. (Para 18, 20)
(2007) 1 SCC 663 – Relied upon
(c) Administrative law – Any rule framed by employer cannot prevail over the statute. (Para 21)
Facts of the case:
Whether forfeiture of gratuity, under The Payment of Gratuity Act, 1972, is automatic on dismissal from service, is the issue for consideration in this case.
The High Court has held that it is automatic.
Finding of the Court:
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.
Result: Appeal dismissed.
Legal Category Hierarchy
- labour and employment law
- crime and sentencing
Table of Contents
2. Whether Section 4(5) of the Act regarding better terms of gratuity applies only to the quantum of payment or extends to the entitlement of gratuity. (Para 12 )
3. Analysis of Section 4(5) and 4(6) — Distinction between financial loss and offences involving moral turpitude — Requirement of criminal conviction for forfeiture under Section 4(6)(b)(ii). (Para 10 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 )
4. Forfeiture of gratuity is not automatic upon dismissal and is governed by Section 4(5) and 4(6) of The Payment of Gratuity Act, 1972. (Para 22 )
5. Appeal dismissed; respondent-employee held entitled to gratuity. (Para 23 )
6. Does the provision for better terms of gratuity under Section 4(5) of the Act apply only to the quantum of gratuity?
No, the expression better terms refers to all terms of the contract, award, or agreement. An employee can choose to be governed by an alternative instrument if it provides better terms than the statute. (Para 10 , 12 , 13 , 14 )
7. Can gratuity be forfeited based on a departmental finding of misconduct involving moral turpitude?
No, forfeiture under Section 4(6)(b)(ii) requires the act to constitute an offence involving moral turpitude, which must be established through a criminal conviction by a court of competent jurisdiction. (Para 17 , 18 , 19 , 20 )
8. What is the difference between forfeiture under Section 4(6)(a) and Section 4(6)(b) of the Act?
Section 4(6)(a) allows forfeiture only to the extent of actual damage or loss caused to the employer, whereas Section 4(6)(b) allows whole or partial forfeiture for riotous conduct or offences involving moral turpitude. (Para 16 )
9. Which prevails in case of a conflict between the Payment of Gratuity Act and the employer's internal rules?
The Payment of Gratuity Act prevails over the rules on payment of gratuity framed by the employer. (Para 21 )
JUDGMENT
KURIAN, J.:
Leave granted.
2. Whether forfeiture of gratuity, under The Payment of Gratuity Act, 1972 (hereinafter referred to as ‘the Act’), is automatic on dismissal from service, is the issue for consideration in this case.
3. The respondent was an employee of the appellant-Bank.
While serving as a Branch Manager, disciplinary proceedings were initiated against him on the following charges:
“a) Failure to take all steps to ensure and protect the interest of the Bank.
b) Failure to discharge his duties with utmost devotion, diligence, honesty and integrity.
c) Doing acts unbecoming of an Officer Employee.”
4. On the charges being duly established, the respondent was dismissed from service on 03.06.2004. The order of dismissal has attained finality.
5. In the meanwhile, the respondent was issued a show-cause notice as to why the gratuity should not be forfeited on account of proved misconduct involving moral turpitude. His explanation was rejected and the gratuity was forfeited by order dated 20.04.2004.
The order reads as follows:
“We refer to the show cause notice no. CO:IRD:654 dated 30.01.2004, seeking your explanation as to why the gratuity payable to you should not be forfeited on account proved misconduct against you and the explanation dated 26.02.2004 submitted by you thereto.
The misconduct proved against you amounts to acts involving moral turpitude. In this regards, the explanation submitted by you in terms of your above reference reply is not satisfactory and therefore not acceptable to the bank.
Therefore, in accordance of the provisions of section 4, subsection 6(b)(ii) of the Gratuity Act, 1972 and clause 3 to Schedule “A” of the Banks Gratuity Rules, the Bank has decided to forfeit an amount of Rs. 1,77,900/-from the Gratuity amount payable to you.” (Emphasis supplied)
6. The dismissal and forfeiture were the subject matters of challenge before the High Court leading to the impugned judgment dated 08.01.2016 of the learned Single Judge. The Court did not interfere with the dismissal; however, it was held that the respondent was entitled to gratuity as there was no financial loss caused to the Bank. It was also held that as per the bipartite settlement, forfeiture of gratuity is permissible only in case the misconduct leading to the dismissal has caused financial loss to the Bank and only to that extent.
7. While dismissing the intra-Court appeal, the Division Bench of the High Court took the view that Section 4 (6)(a) and (b) have to be read together and only if there is any loss to the Bank on account of the misconduct, then alone, the forfeiture is permissible to the extent of loss. Thus, aggrieved, the appellant is before this Court.
8. Heard the learned Counsel appearing for the Bank and the respondent-employee.
9. Section 4 of the Act, to the extent relevant, reads as follows:
“4 Payment of gratuity.—(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,—
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.
Explanation .— For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such di
