17 February 2025 Unpaid salary/bonus/gratuity >> Workplace/ Professional Related  

The Supreme Court of India has delivered a significant judgment clarifying the circumstances under which gratuity can be forfeited under the Payment of Gratuity Act, 1972. The ruling addresses the contentious issue of "moral turpitude" and its application in forfeiture cases, specifically in the context of misconduct proven in departmental inquiries, even without a criminal conviction.

The Court addressed appeals from a Public Sector Undertaking (PSU) and the Maharashtra State Road Transport Corporation (MSRTC), both of which had forfeited the gratuity of employees terminated for misconduct. The central question was whether forfeiture was permissible without a criminal conviction for an offense involving moral turpitude.

Key Legal Interpretations and Departures:

The judgment notably departs from the interpretation in Union Bank of India and Ors. vs. C.G. Ajay Babu, which had suggested that forfeiture under Section 4(6)(b)(ii) of the Gratuity Act required a conviction in a court of law. The Supreme Court clarified that the Act does not mandate a criminal conviction for forfeiture. Instead, it allows forfeiture if the employee is terminated for an act that "constitutes an offence involving moral turpitude," as determined by the disciplinary authority.

The Court emphasized that the standard of proof in disciplinary proceedings (preponderance of probabilities) differs from criminal proceedings (proof beyond reasonable doubt). Therefore, a conviction is not a prerequisite for forfeiture under the Gratuity Act.

Case-Specific Rulings and Implications:

In the PSU case, the employee was terminated for submitting a fraudulent date of birth certificate to secure employment. The Court upheld the complete forfeiture of gratuity, citing the principle that "a foundation being removed, the superstructure falls." The Court also affirmed that suppressing material information during appointment constitutes moral turpitude.

In the MSRTC cases, where conductors were terminated for misappropriating fares, the Court acknowledged the misconduct but deemed the complete forfeiture of gratuity excessive. It directed the MSRTC to limit the forfeiture to 25% of the gratuity, recognizing the need for a more sympathetic approach in cases involving relatively minor misappropriations.

Broader Significance:

This ruling provides crucial clarity on the application of Section 4(6)(b)(ii) of the Gratuity Act. It empowers disciplinary authorities to forfeit gratuity based on misconduct that constitutes an offense involving moral turpitude, even without a criminal conviction. This decision balances the need to uphold integrity in employment with the employee's right to gratuity.

The judgment underscores the importance of a fair disciplinary process, including adequate notice and opportunity for representation, before forfeiting gratuity. It also highlights the discretionary power of authorities to determine the extent of forfeiture based on the gravity of the misconduct. This ruling will have significant ramifications for employers and employees across various sectors, particularly in public sector undertakings and government bodies.

Payment of Gratuity Act, 1972