Supreme Court Rules: Gratuity can be forfeited for misconduct involving Moral Turpitude without Criminal Conviction
Dur
Final year B.com LLB (Hons.), Institute of Law, Nirma University
- While the Payment of Gratuity Act, 1972 ensures employees receive a financial reward for their service, it also permits employers to forfeit gratuity under specific circumstances.
- Employers can forfeit gratuity for misconduct involving moral turpitude, even without a criminal conviction, based on findings from a departmental inquiry.
- Criminal cases require proof beyond a reasonable doubt, whereas disciplinary proceedings follow the preponderance of probabilities, allowing forfeiture without a court ruling.
- Gratuity forfeiture should be proportionate in certain cases, such as financial misappropriation, to ensure fairness and balance.
Introduction
Recently, a division bench of the Supreme Court of India, in Western Coal Fields v. Manohar Govinda Fulzele,[1] ruled that under the Payment of Gratuity Act, 1972, an employer may forfeit gratuity upon an employee’s termination for proven misconduct involving moral turpitude, even in the absence of a criminal conviction. The judgment addressed three appeals with similar facts, where employers had denied gratuity following employee terminations due to misconduct.
Background
In the present case, an employee of a public sector undertaking (PSU) was found to have submitted a fraudulent date of birth certificate to secure employment. This misrepresentation remained undiscovered for 22 years, leading to disciplinary proceedings and the forfeiture of his gratuity under Section 4(6) of the Payment of Gratuity Act, 1972 (the act). The employee challenged this action, relying on the ruling of the Supreme Court (SC) in Union Bank of India & Ors. v. C.G. Ajay Babu,[2] (Ajay Babu) which observed that gratuity forfeiture for misconduct involving moral turpitude is valid only if the offence is duly established in a court of law.
Additionally, the case involved connected appeals by the Maharashtra State Road Transport Corporation (MSRTC), where several conductors were found guilty of misappropriating passenger fares. As a result, their gratuity was also forfeited by the employer. The key issue before the SC was whether a criminal conviction is necessary for gratuity forfeiture under the Act when misconduct involving moral turpitude is proven through disciplinary proceedings.
Reasoning and Decision
The SC ruled that an employer can forfeit gratuity under Section 4(6)(b)(ii) of the act, if an employee’s misconduct constitutes an offence involving moral turpitude, without requiring a criminal conviction. It clarified that a departmental inquiry is sufficient for forfeiture and declared the Ajay Babu case interpretation as obiter dicta. Additionally, the SC in the PSU case, upheld the full forfeiture for fraudulent misrepresentation in obtaining employment. And, in the MSRTC case, while fare misappropriation was deemed an offence involving moral turpitude, full forfeiture was considered disproportionate, and only 25% of gratuity was ordered to be forfeited. The basis of the SC’s decision is as enunciated below:
Interpretation of Section 4(6) of the Act
The Court held that Section 4(6) of the act, does not require that misconduct proven in a departmental inquiry must also be established by a court of law to justify forfeiture of gratuity. It clarified that the phrase “duly established in a court of law,” as mentioned in the Ajay Babu case, was an obiter dictum and should not be read into the statutory provision. Consequently, the Court found no need to refer the issue to a larger bench.
This interpretation aligns with the ruling in Mahanadi Coalfields Ltd. v. Rabindranath Choubey,[3] which upheld the continuation of disciplinary proceedings of an employee post-retirement. In doing so, the Court overruled Jaswant Singh Gill v. Bharat Coking Coal Ltd,[4] and rejected Ajay Babu as obiter, emphasizing that proven misconduct in a departmental inquiry is sufficient grounds for forfeiture.
Distinction Between Criminal and Disciplinary Proceedings
The Court emphasized the difference in the standard of proof required in criminal and disciplinary proceedings. It referred to the definition of “offence” in the General Clauses Act, 1897, which describes it as any act made punishable by law. The Court clarified that an offence does not require a criminal conviction to justify gratuity forfeiture. While criminal cases require proof “beyond reasonable doubt,” disciplinary proceedings are determined based on a “preponderance of probabilities.”
Employer’s Right to Forfeit Gratuity
The Court accentuates that an employer does not need to wait for a criminal conviction before forfeiting gratuity if an internal inquiry establishes misconduct involving moral turpitude. It reaffirmed that suppression of material facts, such as misrepresentation of the date of birth, constitutes such misconduct, even if the employer does not pursue criminal action.
The Court also referred to Devendra Kumar v. State of Uttaranchal,[5] to assess whether gratuity forfeiture should be partial or total, ensuring a proportional approach.
Implications on Financial Misappropriation Cases
The Court highlighted that in cases of financial misappropriation, employers can forfeit gratuity upon proving misconduct at the departmental level. The ruling suggests that waiting for a court determination on the extent of financial misappropriation may no longer be necessary, reinforcing the employer’s authority to act upon proven misconduct without undue delay.
Thus, the Court reaffirmed that the ruling in Ajay Babu, wherein the court held that for an act to qualify as an offence, it must be punishable under law, and it is not the employer but the court that determines whether an offence has been committed, does not hold in the present case.
Concluding Remarks
The SC’s ruling in the case at hand, clarifies that gratuity can be forfeited for misconduct involving moral turpitude without requiring a criminal conviction, reinforcing employer discretion in disciplinary proceedings. It upholds the principle that gratuity is a statutory right but not an unconditional entitlement, particularly in cases of fraud and financial misappropriation. The judgment balances employer authority with fairness, ensuring proportionality in forfeiture decisions while emphasizing the importance of integrity and ethical conduct in employment.
References:
[1] 2025 SCC Online SC 345.
[2] (2018) 9 SCC 529.
[3] (2020) 18 SCC 71.
[4] (2007) 1 SCC 663.
[5] (2013) 9 SCC 363, ¶ 25.