Forfeiture of Gratuity in the event of termination of service on misconduct.

Can your gratuity be forfeited, in the event of termination of service on misconduct (act constituting moral turpitude) without there being any conviction in a criminal case or even a criminal proceeding having been initiated. 

 

Recently, in the decisions of Western Coal Fields Lt v. Manohar Govinda Fulzele, the Supreme Court of India examined the aforesaid issue. In the impugned decision challenged before the Hon’ble Supreme Court, relying on Union Bank of India and Ors. v. C.G. Ajay Babu, it was held that the forfeiture of gratuity to be not permissible under the Payment of Gratuity Act, 1972 (“Act”). 

 

The sub­-clause (ii) of Section 4(6)(b) of the Act enables forfeiture of gratuity, wholly or partially, if the delinquent employee is terminated for any act which constitutes an offence involving moral turpitude if the offence is committed in the course of his employment. ‘Offence’ as defined in General Clauses Act means   ‘any   act   or   omission   made punishable by any law for the time being’ and does not call for a conviction, which definitely can only be on the basis of evidence led in a criminal proceeding. The provision of forfeiture of gratuity under the Act does not speak about of a conviction in a criminal proceeding, for an offence involving moral turpitude. On the contrary the act provides for forfeiture in cases where the delinquent employee is terminated for a misconduct which constitutes an offence involving moral turpitude. Only requirement is for the Disciplinary Authority or the Appointing Authority to decide as to whether the misconduct could, in normal circumstances, constitute an offence involving moral turpitude, with a further discretion conferred   on   the   authority   forfeiting   gratuity. 

 

In the present case, the Appellant was proceeded against for the misconduct of producing a fraudulent ‘date of birth certificate’ to obtain appointment. The argument put forth against the receipt of gratuity was that the very substratum of the Appellant’s employment was the fraudulent date of birth mentioned in the certificate, hence, no leniency ought to be showed against the Appellant. It was submitted that suppression of the details as regards the ‘date of birth’ at the time of selection/appointment would constitute an offence of moral turpitude. In the given facts where the suppression of actual date of birth is proved, the Hon’ble Court held that the failure of the employer to initiate a criminal proceeding on the fraud employed by way of the fabricated/forged certificate produced for the purpose of employment, does not militate against the forfeiture. Misappropriation definitely is an act constituting an offence involving moral turpitude. The appointment itself was invalid for reason of suppression of the actual date of birth and production of a forged certificate. Therefore, forfeiture in such cases is permissible. 

 

Another question decided in this case was, whether the forfeiture of gratuity of the terminated employees should be only partly or wholly? 

 

The Hon’ble Court held that the appointment itself being illegal, there   is   no   question   of   the   terminated   employee seeking fruits of his employment by way of gratuity. Court upheld the PSU’s decision in forfeiting the gratuity. In one of the SLPs, the act alleged and proved was of misappropriation of meagre amounts. Court held that even if minimal amounts are misappropriated it would constitute a misconduct warranting termination. Cumulatively, the Hon’ble Court took a sympathetic view and directed the authority to limit the forfeiture to 25%. 

 

Read the entire case at - 16870_2020_12_1502_59547_Judgement_17-Feb-2025.pd

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