The main legal point established in the judgment is that the employer's discretion to forfeit gratuity under the Payment of Gratuity Act must be exercised in a fair and reasonable manner, and compliance with principles of natural justice and fair play is necessary in such cases.

M.S. Sonak, J.

1. Rule. With the consent of learned counsel for the parties, rule is made returnable forthwith.

2. The petitioner bank questions the orders dated 30 June 2004 made by the controlling authority, under the Payment of Gratuity Act, 1972 (said Act) and the order dated 4 September 2006 made by the appellate authority under the said Act, both of which, in effect, direct the petitioner bank to pay the respondent gratuity in an amount of Rs.1,15,869/- together with simple interest at the rate of 8% per annum from 28 September 2001, till date of payment.

3. The brief facts and circumstances in which the impugned orders came to be made are as follows:

(a) The petitioner terminated the services of the respondent, a bank clerk with effect from 28 September 2001 after charges of misappropriation of an amount of Rs.20,000/- were proved against him in a duly constituted departmental enquiry. On the date of termination, the respondent had put in over 24 years of service.

(b) On 6 March 2003, the respondent applied to the controlling authority, seeking directions against the petitioner bank for payment of gratuity in an amount of Rs.2,07,295.20.

(c) The petitioner bank, contested the aforesaid claim, primarily on two grounds:

(i) That Payment of Gratuity Act, 1972 was not applicable, as the petitioner bank had its own BOI Gratuity Fund Rules, 1975, which governed matters of payments of gratuity. In terms thereof, the respondent was entitled to gratuity in an amount of Rs.97,650/-, which at no stage, had the petitioner bank disputed or denied;

(ii) Assuming that the Payment of Gratuity Act, 1972, is applicable, then in terms of Section 4(6)(b)(ii) thereof, the petitioner bank was entitled to forfeit the entire gratuity payable to the respondent, as the services of respondents had been terminated for an act committed by him in the course of his employment, which act, clearly constituted an offence involving moral turpitude. Therefore, the respondents claim, ought not to be entertained.

(d) By order dated 30 June 2004, the controlling authority, determined the amount of gratuity payable to the respondent at Rs.1,52,852/- and directed the petitioner bank to pay to the respondent an amount of Rs.1,32,852/- towards gratuity, after deduction of an amount of Rs.20,000/-, corresponding to the amount said to be misappropriated by the respondent.

(e) The petitioner bank, appealed against the aforesaid order dated 30 June 2004 to the appellate authority under Section 7(7) of the said Act.

(f) By order dated 4 September 2006, the appellate authority, partly allowed the appeal; determined the gratuity payable at Rs.1,35,869/-; and directed payment of an amount of Rs.1,15,869/- towards gratuity to the respondent, together with interest at the rate of 8% per annum on the said amount from 28 September 2001, till date of payment.

(g) Aggrieved by the aforesaid, the petitioner bank has preferred the present petition, questioning the two orders dated 30 June 2004 and 4 September 2006. Since, the former order has merged with the later, in effect, the challenge is to the impugned order dated 4 September 2006.

4. Mr. Pai, learned counsel for the petitioner bank, made the following submissions, in support of the petition:

(a) The appellate authority has committed an error of jurisdiction in applying the provisions of Section 4(6)(a) of the said Act to the facts and circumstances of the present case, when in fact the situation was governed by the provisions of Section 4(6)(b)(ii) of the said Act, which clearly permits forfeiture of the entire gratuity amount when services of an employee are terminated for an act committed by him in the course of his employment and such act constitutes an offence involving moral turpitude. The services of the respondent came to be terminated for misappropriation of funds to the extent of Rs.20,000/-. Considering that