Forfeiture of gratuity under the Payment of Gratuity Act, 1972 cannot apply to acts occurring after employment cessation, and necessitates prior notice to the employee.

ORDER :

Manish Pitale, J.

These petitions are filed by the same petitioner-Company against ex-employees. The petition arises out of concurrent orders passed by the Controlling Authority (Labour Court) and Appellate Authority (Industrial Court), under the provisions of the Payment of Gratuity Act, 1972 (Gratuity Act). Both the authorities have concurrently held that the petitioner-Company was not justified in forfeiting gratuity payable to the respondents, by taking recourse to Section 4(6)(b)(ii) of the Gratuity Act and accordingly, while allowing the applications of the respondents, a direction has been issued to the petitioner-Company to pay the gratuity with simple interest at the rate of 10% per annum, till payment of such amounts.

2. Mr. Anand Pai, the learned counsel appearing for the petitioner-Company in both these petitions, submitted that the concurrent orders passed by the two authorities below, deserve interference, for the reason that the acts of the respondents, as alleged by the petitioner-Company, amounted to acts of moral turpitude and hence, the petitioner-Company was justified in forfeiting the gratuity by taking recourse to Section 4(6)(b)(ii) of the Gratuity Act. Attention of this Court was invited to Section 4(1) of the Gratuity Act, to submit that termination of employment under the said provision, is contemplated in various situations, including superannuation, retirement or resignation, death or disablement due to accident or disease. It was emphasized that since in the present case, both the respondents had resigned from their employment with the petitioner-Company, that in itself would not come in the way of the petitioner-Company exercising power under Section 4(6)(b)(ii) of the Gratuity Act, which refers to termination of service of an employee.

3. It was further submitted that in the present case, it is undisputed that there was a non-disclosure policy contained in the employees handbook, which applied to the respondents and it mandated that the employees would not disclose trade secrets or confidential business information of the petitioner-Company. Any violation of the said stipulation would invite disciplinary action, including termination of employment.

4. The learned counsel for the petitioner-Company submitted that after resigning from the petitioner-Company, the respondents took up employment with a rival company, in breach of the relieving letter, which stipulated that they would not take such employment with a rival company within a period of one year from cessation of their employment with the petitioner-Company. It was submitted that the respondents-employees not only breached the said stipulation, but they acted in a manner prejudicial to the petitioner-Company to the extent that at least two clients of the petitioner-Company were poached by the rival company, indicating that the respondents had utilized the trade secrets and confidential business information of the petitioner-Company. According to the petitioner-Company, this clearly amounted to an act constituting an offence of moral turpitude, justifying recourse to Section 4(6)(b)(ii) of the Gratuity Act.

5. Reliance was placed on the judgment of the Supreme Court in the case of Western Coal Fields Ltd. vs. Manohar Govinda Fulzele (2025 SCC OnLine 345), to contend that the law pertaining to the aforesaid provision, was now clarified by the Supreme Court to the effect that the expression ‘offence’ used in the aforementioned provision, would not mean an offence involving moral turpitude requiring conviction in a criminal proceeding, but it would be tested on the touchstone of the test of ‘preponderance of probabilities’.

6. It was further submitted that the respondents could not claim breach of principles of natural justice on the ground that notice was not issued before forfeiting the gratuity, for the reason that the petitioner-Company had placed sufficient material on record before the Controlling Authority to prove its case of clear act