No Forfeiture Of Gratuity For ‘Acts Involving Moral Turpitude’, If Not Convicted By A Court Of Law: SC [Read Judgment]

‘To be an offence, the act should be made punishable under law. That is absolutely in the realm of criminal law. It is not for the Bank to decide whether an offence has been committed.’

Interpreting Section 4(6)(b)(ii) of the Payment of Gratuity Act, the Supreme Court has held that forfeiture of gratuity on the ground of misconduct which constitutes an offence involving moral turpitude, is permissible only if he is convicted by a court of competent jurisdiction for the said offence.

The bench of Justice Kurian Joseph and Justice Sanjay Kishan Kaul (in Union Bank of India vs. CG Ajay Babu) also observed that forfeiture of gratuity is not automatic on dismissal from service; but it is subject to sub-Sections (5) and (6) of Section 4 of the Payment of Gratuity Act, 1972.

Background

While serving as a branch manager, disciplinary proceedings were initiated against Ajay Babu which culminated in his dismissal. Later the bank also forfeited the gratuity on account of proved misconduct involving moral turpitude. Though refused to interfere with ‘dismissal’, the high court held that as per the bipartite settlement between the bank and its employees, forfeiture of gratuity is permissible only in case the misconduct leading to the dismissal has caused financial loss to the bank and only to that extent.

The bench, agreeing with the high court view, noted that the settlement provides for forfeiture only if there is a loss caused on account of misconduct leading to dismissal, is also not in dispute. It also observed that Section 4(5) provides that an employee is entitled to receive better terms of gratuity under any award or agreement or contract with the employer, notwithstanding other provisions of Section 4.

The bench also rejected the contention that the expression in the provision “while providing for better terms of gratuity under any award or agreement or contract”, deals only with the quantum of the gratuity and not with the entitlement under any award or agreement or contract as such.

“We are afraid, this submission cannot be appreciated. The statute provides for better terms of gratuity under any award or agreement or contract which means all terms of the contract. The choice is between the award or agreement or contract and the statute, but not partially of either,” the bench observed.

Though it was observed that the bank could not have taken recourse to sub-Section (6) of Section 4 of the Act, the bench examined scope of these provisions as well. It particularly noted that in Sub-Clause (ii) of sub-Section (6)(b) when the termination is on account any act which constitutes an offence involving moral turpitude committed during the course of employment, forfeiture is permissible. The bank’s contention was that the conduct of the employee, which leads to the framing of charges in the departmental proceedings involves moral turpitude and hence the said provision can be invoked.

Rejecting said contention, the bench said: “We are afraid the contention cannot be appreciated. It is not the conduct of a person involving moral turpitude that is required for forfeiture of gratuity but the conduct or the act should constitute an offence involving moral turpitude. To be an offence, the act should be made punishable under law. That is absolutely in the realm of criminal law. It is not for the Bank to decide whether an offence has been committed. It is for the court. Apart from the disciplinary proceedings initiated by the appellant Bank, the Bank has not set the criminal law in motion either by registering an FIR or by filing a criminal complaint so as to establish that the misconduct leading to dismissal is an offence involving moral turpitude. Under sub-Section (6)(b)(ii) of the Act, forfeiture of gratuity is permissible only if the termination of an employee is for any misconduct which constitutes an offence involving moral turpitude, and convicted accordingly by a court of competent jurisdiction.”

The bench, on facts of this case, observed: “There is no conviction of the respondent for the misconduct which according to the Bank is an offence involving moral turpitude. Hence, there is no justification for the forfeiture of gratuity on the ground stated in the order dated 20.04.2004 that the “misconduct proved against you amounts to acts involving moral turpitude”.  At the risk of redundancy, we may state that the requirement of the statute is not the proof of misconduct of acts involving moral turpitude but the acts should constitute an offence involving moral turpitude and such offence should be duly established in a court of law.”

Read the Judgment Here