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Synopsis

The Supreme Court, on February 17, 2025, said that an employer's failure to initiate criminal proceedings against an employee for fraud committed through a fabricated or forged certificate for employment does not prevent the forfeiture of gratuity.

A bench of Justices Sudhanshu Dhulia and K Vinod Chandran explained that the 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, to decide whether the forfeiture should be of the whole or only a part of the gratuity payable, which would depend on the gravity of the misconduct. 

"Necessarily, there should be a notice issued to the terminated employee, who should be allowed to represent both on the question of the nature of the misconduct; whether it constitutes an offence involving moral turpitude, and the extent to which such forfeiture can be made," the bench said.

The court disagreed with view taken in Union Bank of India Vs C G Ajay Babu (2018) but preferred not to refer the matter to larger bench as it noticed that the statutory provision did not make it a requirement that the misconduct alleged and proved in a departmental enquiry should not only constitute an offence involving moral turpitude, but also should be duly established in a Court of Law.

The words "duly established in a Court of Law" cannot be supplied to the provision, the bench held, declaring these observations were obiter dicta.

On civil appeals filed by Western Coal Fields Ltd and others, the bench examined the question in respect of the permissibility of forfeiture of gratuity, in the event of termination of service on misconduct, which can be categorised as an act constituting an offence involving moral turpitude; without there being any conviction in a criminal case or even a criminal proceeding having been initiated.

The impugned judgments found the forfeiture of gratuity to be not permissible under the Payment of Gratuity Act, 1972, relying upon 2018 Ajay Babu judgment.

Court noted that the Ajay Babu judgment placed reliance upon another judgment in Jaswant Singh Gill Vs Bharat Coking Coal Ltd (2007).

The bench, however, opined, according to it, Jaswant Singh Gill judgment did not find that forfeiture of gratuity under Section 4(6)(b)(ii) is only possible if there is a conviction by a criminal court for an offence, which alone could result it the misconduct being treated as one constituting moral turpitude.

The court also pointed out Jaswant Singh Gill judgment was overruled by a three judge bench in Mahanadi Coalfields Ltd Vs Rabindranath Choubey (2020).

"We cannot but reiterate that, Jaswant Singh Gill had not considered the issue as to whether there could be a forfeiture of gratuity if the delinquent employee is found to have committed an offence involving moral turpitude even when there is no conviction entered by a criminal court on the very same offence," the bench said.

The bench held that the interpretation in Ajay Babu does not come out of the statutory provision; Section 4(6)(b)(ii) of the Act. 

"Normally we would have referred the matter for consideration by a larger bench, but, as we noticed, the statutory provision does not make it a requirement that the misconduct alleged and proved in a departmental enquiry should not only constitute an offence involving moral turpitude, but also should be duly established in a Court of Law," the bench said.

The interpretation, hence, was an obiter making a reference unnecessary, it said.

Court emphasised that the provision of forfeiture of gratuity under the Act does not speak of a conviction in a criminal proceeding, for an offence involving moral turpitude. On the contrary, the Act provides for such forfeiture; in cases where the delinquent employee is terminated for a misconduct that constitutes an offence involving moral turpitude.

In the case at hand, the employee was found to have indulged in fraudulent date of birth certificate to obtain an appointment. His counsel said he had served almost 22 years in the PSU and that gratuity was the fruits of his service; which was otherwise unblemished, and was also a statutory right as per the Act, which could not be denied to him on termination.

The appellant, in fact was born in 1953, as proved at the enquiry, while the date of birth submitted for his appointment was of the year 1960. The very substratum of the appointment having been removed, the appellant cannot plead for any leniency and the terminated employee deserves no sympathy, the PSU counsel said.

"In the present case it has been proved that the petitioner supressed his actual date of birth. The failure of the employer to initiate a criminal proceeding on the fraud employed by way of the the fabricated/forged certificate produced for the purpose of employment, does not militate against the forfeiture," the bench said.

The court said obviously, as coming out from the provision, no conviction in a criminal proceeding is necessitated, if the misconduct alleged and proved constitutes an offence involving moral turpitude.

"The appointment itself being illegal, there is no question of the terminated employee seeking fruits of his employment by way of gratuity. We uphold the decision of the PSU forfeiting his entire gratuity," the bench said.

“However, on the question of forfeiture of gratuity, we are of the opinion that the Appointing Authority should have taken a more sympathetic approach. We do not propose to send back the matter for fresh consideration but direct the appointing authority to limit the forfeiture to 25% of the gratuity payable and release the balance amounts to the respondent employees," the bench ordered.

The court thus modified the decision in the appeals.

Case Title: Western Coal Fields Ltd Vs Manohar Govinda Fuizele