1. Termination of service for misconduct constituting an offence involving moral turpitude — dispute over permissibility of gratuity forfeiture without criminal conviction under Payment of Gratuity Act, 1972. (Para 2 )
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2025 Supreme(SC) 356
SUPREME COURT OF INDIA
SUDHANSHU DHULIA, K. VINOD CHANDRAN, JJ.
Western Coal Fields Ltd. – Appellant
Versus
Manohar Govinda Fulzele – Respondent
Civil Appeal No. 2608 of 2025 [Special Leave Petition (C) No. 10088 of 2020], Civil Appeal No. 2609 of 2025 [Special Leave Petition (C) No. 21957 of 2022], Civil Appeal No. 2610 of 2025 [Special Leave Petition (C) No. 1907 of 2025]
Decided On : 17-02-2025
Important Points
Forfeiture of gratuity for misconduct involving moral turpitude is permissible without a criminal conviction, emphasizing the discretion of the appointing authority in determining the extent of forfeiture.
Subject
Employment Law - Gratuity and Termination
Act Referred
Headnote
(A) Payment of Gratuity Act, 1972 - Section 4(6) - Forfeiture of gratuity - Permissibility of forfeiture of gratuity upon termination for misconduct involving moral turpitude without a criminal conviction - The court held that misconduct must constitute an offence involving moral turpitude, but does not require a conviction. (Paras 2, 10, 13)
(B) Judicial Precedents - The court relied on Union Bank of India vs. C.G. Ajay Babu, (2018) 9 SCC 529, which established that forfeiture of gratuity is impermissible without proof of financial loss to the employer. (Paras 4, 5)
(C) Interpretation of Law - The court clarified that the interpretation in C.G. Ajay Babu was an obiter dictum and not binding, as it misapplied the statutory provisions of the Act. (Paras 9, 10)
Facts of the case:
The appeals involve the forfeiture of gratuity of employees terminated for misconduct involving moral turpitude, specifically the production of fraudulent documents and misappropriation of funds. (Paras 3, 11, 13)
Findings of Court:
The court upheld the forfeiture of gratuity for the PSU employee due to fraudulent appointment but limited the forfeiture for MSRTC conductors to 25% of gratuity. (Paras 15, 16)
Issues: The main issues were whether forfeiture of gratuity is permissible without a criminal conviction and the extent of forfeiture applicable in cases of misconduct. (Paras 2, 10)
Ratio Decidendi: The court ruled that forfeiture of gratuity can occur for misconduct involving moral turpitude without a criminal conviction, emphasizing the discretion of the appointing authority in determining the extent of forfeiture. (Paras 10, 15)
Result: Appeals allowed with modification on gratuity forfeiture.
(B) Judicial Precedents - The court relied on Union Bank of India vs. C.G. Ajay Babu, (2018) 9 SCC 529, which established that forfeiture of gratuity is impermissible without proof of financial loss to the employer. (Paras 4, 5)
(C) Interpretation of Law - The court clarified that the interpretation in C.G. Ajay Babu was an obiter dictum and not binding, as it misapplied the statutory provisions of the Act. (Paras 9, 10)
Facts of the case:
The appeals involve the forfeiture of gratuity of employees terminated for misconduct involving moral turpitude, specifically the production of fraudulent documents and misappropriation of funds. (Paras 3, 11, 13)
Findings of Court:
The court upheld the forfeiture of gratuity for the PSU employee due to fraudulent appointment but limited the forfeiture for MSRTC conductors to 25% of gratuity. (Paras 15, 16)
Issues: The main issues were whether forfeiture of gratuity is permissible without a criminal conviction and the extent of forfeiture applicable in cases of misconduct. (Paras 2, 10)
Ratio Decidendi: The court ruled that forfeiture of gratuity can occur for misconduct involving moral turpitude without a criminal conviction, emphasizing the discretion of the appointing authority in determining the extent of forfeiture. (Paras 10, 15)
Result: Appeals allowed with modification on gratuity forfeiture.
Legal Category Hierarchy
- labour and employment law
- administrative law
- criminal law
Advocates appeared:
For the Petitioner(s): Ms. Mayuri Raghuvanshi, AOR Mr. Vyom Raghuvanshi, Adv. Ms. Akanksha Rathore, Adv. Ms. Kinjal Sharma, Adv. Mr. Tushar Mehta, Solicitor General Mr. Uddyam Mukherjee, AOR Mr. Swapnil Pattanayak, Adv. Mr. Agnibha Chatterjee, Adv.
For the Respondent(s): Mr. Pratik R. Bombarde, AOR Mr. Devendra Singh, Adv. Mr. Jitendra Kumar, Adv. Mr. Rohit Verma, Adv. Ms. Kirti Anand, Adv. Mr. Naman Tandon, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR
For the Petitioner(s): Ms. Mayuri Raghuvanshi, AOR Mr. Vyom Raghuvanshi, Adv. Ms. Akanksha Rathore, Adv. Ms. Kinjal Sharma, Adv. Mr. Tushar Mehta, Solicitor General Mr. Uddyam Mukherjee, AOR Mr. Swapnil Pattanayak, Adv. Mr. Agnibha Chatterjee, Adv.
For the Respondent(s): Mr. Pratik R. Bombarde, AOR Mr. Devendra Singh, Adv. Mr. Jitendra Kumar, Adv. Mr. Rohit Verma, Adv. Ms. Kirti Anand, Adv. Mr. Naman Tandon, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR
Table of Contents
2. Whether forfeiture of gratuity under Section 4(6)(b)(ii) of the Act requires a criminal conviction or if departmental findings of moral turpitude are sufficient. (Para 2 , 3 , 11 )
3. Disciplinary proceedings rely on preponderance of probabilities; Section 4(6)(b)(ii) does not mandate a court conviction, only that the act constitutes an offence involving moral turpitude. (Para 9 , 10 )
4. Forfeiture of gratuity is permissible if termination is for an act constituting an offence involving moral turpitude, regardless of whether a criminal conviction has been obtained. (Para 10 )
5. Appeals allowed — full forfeiture upheld for fraud in appointment; forfeiture limited to 25% for misappropriation of meagre amounts. (Para 14 , 15 , 16 )
6. Does forfeiture of gratuity under Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972 require a criminal conviction?
No. The statute does not require the offence to be established in a court of law. An offence, as defined in the General Clauses Act, is an act punishable by law and does not necessitate a conviction for gratuity to be forfeited. (Para 9 , 10 )
7. What is the difference in the standard of proof between criminal and disciplinary proceedings regarding gratuity forfeiture?
Criminal proceedings require proof beyond reasonable doubt, whereas disciplinary proceedings are governed by the preponderance of probabilities. Forfeiture depends on whether the misconduct constitutes an offence involving moral turpitude based on the latter standard. (Para 10 )
8. Can gratuity be forfeited if the initial appointment was obtained through fraud?
Yes. If an appointment is obtained by suppressing material information or employing fraud, the foundation of the employment is removed, justifying the forfeiture of the entire gratuity. (Para 11 , 12 , 14 , 15 )
9. Is the authority forfeiting gratuity required to provide notice to the employee?
Yes. The terminated employee must be issued a notice and allowed to represent their position on whether the misconduct constitutes an offence involving moral turpitude and the extent of the forfeiture. (Para 10 )
JUDGMENT :
K. VINOD CHANDRAN, J.
1. Leave granted.
2. The question raised in the above cases is the permissibility of forfeiture of gratuity, in the event of termination of service on misconduct, which can be categorised as an act constituting an offence involving moral turpitude; without there being any conviction in a criminal case or even a criminal proceeding having been initiated.
3. The appellant in one of the appeals is a Public Sector Undertaking1 [For brevity ‘PSU’] on whose behalf learned Solicitor General Mr. Tushar Mehta appears. The other appeals are by the Maharashtra State Road Transport Corporation2 [For brevity ‘MSRTC’] for whom Ms. Mayuri Raghuvanshi, learned Standing Counsel appears. Impugned judgments found the forfeiture of gratuity to be not permissible under the Payment of Gratuity Act, 1972 (the Act) relying on the decision of this Court in Union Bank of India and Others vs. C.G. Ajay Babu, (2018) 9 SCC 529. On behalf of the contesting respondent in the appeal filed by the PSU, Mr. Shivaji M. Jadhav appears to defend the reasoning in the judgment and none appears for the respondent in the appeals filed by the MSRTC; though served with notice.
4. Before we look into the facts of the separate cases, we have to dwell upon the law as declared in C.G. Ajay Babu3 [(2018) 9 SCC 529]. C.G. Ajay Babu (supra) was a case in which a delinquent employee, while working as Branch Manager in a Bank was dismissed from service pursuant to allegations of misconduct being proved against him in a departmental proceeding. The misconducts alleged and proved were the failure to take steps to ensure and protect the interests of the Bank, failure to discharge duties with utmost devotion, diligence and honesty and for acts unbecoming of an Officer employee. Further show cause notice was issued threatening forfeiture of gratuity, on the ground that the misconducts proved, amounts to acts involving moral turpitude. The challenge made against the dismissal before the High Court failed, but the forfeiture was held to be bad. The forfeiture was upset, on the finding that, there was no allegation of financial loss caused to the bank; which was the only ground on which gratuity could be forfeited as per the Bipartite Settlement regulating the conduct and behaviour of the employees of the Bank; including disbursal of gratuity.
5. A Division Bench of this Court found that subsection (5) of Section 4 of the Act is a non-obstante clause which does not affect the right of an employee to receive better terms of gratuity, under any award, agreement or contract with the employer. While subsection (5) made inapplicable the other provisions of Section 4 , subsection (6); which deals with forfeiture of gratuity, despite being a non obstante provision made inapplicable only the provisions of subsection (1); which created the statutory right for gratuity on an employee, limited for the purposes of forfeiture. It was held that, insofar as the delinquent employee having been in the service of a bank, which service is regulated by the Bipartite Settlement, which also contains provisions for payment of gratuity and its forfeiture, subsection (6) of Section 4 of the Act is inapplicable to the employees of the bank. The Settlement providing for better terms of gratuity also provided for its forfeiture when the misconduct results in financial losses to the bank and only to the extent of the loss; while specifically prohibiting forfeiture of gratuity for dismissal on any other ground. The order of the High Court was upheld finding that the forfeiture; in the teeth of the provisions of the Bipartite Settlement, could not have been carried out by the bank.
6. Having held the forfeiture to be bad, the Bench also looked at the provision for forfeiture under Section 4 (6) of the Act and specifically found that “the requirement of the statute is not the proof of misconduct of acts involving moral turpitude but the act should constitute an offence involving mo
