Date of the Judgment: February 17, 2025
Citation: 2025 INSC 233
Judges: Justices Sudhanshu Dhulia and K. Vinod Chandran
Can an employer forfeit an employee’s gratuity if the employee is terminated for misconduct involving moral turpitude, even without a criminal conviction? The Supreme Court of India addressed this critical question in the case of Western Coal Fields Ltd. vs. Manohar Govinda Fulzele. The court clarified the circumstances under which gratuity can be forfeited under the Payment of Gratuity Act, 1972, specifically focusing on cases involving misconduct and moral turpitude. The judgment was delivered by a two-judge bench comprising Justices Sudhanshu Dhulia and K. Vinod Chandran.
Case Background
The case arose from appeals filed by Western Coal Fields Ltd. (WCL), a Public Sector Undertaking (PSU), and the Maharashtra State Road Transport Corporation (MSRTC). These appeals challenged judgments that had disallowed the forfeiture of gratuity to employees who were terminated for misconduct. The central issue was whether gratuity could be forfeited when an employee’s service was terminated due to misconduct involving moral turpitude, even if there was no criminal conviction or ongoing criminal proceedings.
Timeline:
| Date | Event |
|---|---|
| N/A | Manohar Govinda Fulzele (employee) produced a fraudulent date of birth certificate to obtain appointment at Western Coal Fields Ltd. (WCL). |
| N/A | Departmental proceedings initiated against C.G. Ajay Babu while working as Branch Manager in a Bank. |
| N/A | Jaswant Singh Gill, an employee of a PSU, retired during the pendency of disciplinary proceedings. |
| N/A | Conductors in MSRTC found to have indulged in misappropriation of fares collected from passengers. |
| February 17, 2025 | Supreme Court delivered the judgment in Western Coal Fields Ltd. vs. Manohar Govinda Fulzele. |
Legal Framework
The Supreme Court examined the following legal provisions:
- Section 4(5) of the Payment of Gratuity Act, 1972: This section states that an employee’s right to receive better terms of gratuity under any award, agreement, or contract with the employer is not affected by the Act.
- Section 4(6) of the Payment of Gratuity Act, 1972: This section deals with the forfeiture of gratuity. It stipulates circumstances under which an employer can forfeit the gratuity payable to an employee.
- General Clauses Act: The court referred to the definition of “offence” in the General Clauses Act, which means any act or omission made punishable by any law for the time being in force.
The court emphasized that Section 4(6) allows for forfeiture of gratuity if the employee is terminated for any act that constitutes an offence involving moral turpitude committed during the course of employment.
Arguments
Arguments by the Appellants (Western Coal Fields Ltd. and MSRTC):
- The appellants argued that Section 4(6)(b)(ii) of the Payment of Gratuity Act enables the forfeiture of gratuity if an employee is terminated for an act constituting an offence involving moral turpitude, provided the offence occurred during employment.
- They contended that the term “offence” as defined in the General Clauses Act, includes any act or omission punishable by law, and does not necessarily require a criminal conviction.
- WCL specifically argued that the employee’s fraudulent submission of a date of birth certificate to gain employment constituted an offence involving moral turpitude, justifying the forfeiture of gratuity.
- MSRTC argued that the conductors’ misappropriation of fares collected from passengers also constituted an offence involving moral turpitude, warranting forfeiture of gratuity.
Arguments by the Respondent (Manohar Govinda Fulzele):
- The respondent argued that he had served almost 22 years in the PSU, and gratuity is a statutory right that cannot be denied upon termination.
- He contended that his service was otherwise unblemished, and the gratuity represents the fruits of his long service.
| Main Submission | Sub-Submissions by Appellants (WCL & MSRTC) | Sub-Submissions by Respondent (Manohar Govinda Fulzele) |
|---|---|---|
| Forfeiture of Gratuity under Section 4(6)(b)(ii) |
✓ Section 4(6)(b)(ii) allows forfeiture if terminated for acts constituting an offense involving moral turpitude during employment. ✓ “Offense” under the General Clauses Act doesn’t require criminal conviction. |
✓ Gratuity is a statutory right after long, unblemished service. ✓ Termination shouldn’t negate this right. |
| Nature of Offense |
✓ Submitting fraudulent date of birth certificate (WCL) and misappropriating fares (MSRTC) are offenses involving moral turpitude. ✓ These actions strike at the core of integrity required in employment. |
✓ Length of service should be considered. ✓ No prior instances of misconduct. |
Issues Framed by the Supreme Court
- Whether gratuity can be forfeited in the event of termination of service on misconduct, which can be categorized as an act constituting an offence involving moral turpitude, without any conviction in a criminal case or even a criminal proceeding having been initiated.
Treatment of the Issue by the Court: “The following table demonstrates as to how the Court decided the issues”
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Whether gratuity can be forfeited for misconduct involving moral turpitude without a criminal conviction. | Yes, gratuity can be forfeited. | The court held that Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, allows for forfeiture if the employee is terminated for misconduct that constitutes an offence involving moral turpitude, even without a criminal conviction. |
Authorities
The court considered the following authorities:
| Authority | Court | How Considered |
|---|---|---|
| Union Bank of India and Ors. vs. C.G. Ajay Babu [(2018) 9 SCC 529] | Supreme Court of India | The court distinguished this case, noting that the interpretation of Section 4(6)(b)(ii) was an obiter dictum since the provisions of Section 4 were found to be inapplicable to the employer bank due to Section 4(5). |
| Jaswant Singh Gill vs. Bharat Coking Coal Ltd. [(2007) 1 SCC 663] | Supreme Court of India | Overruled by Mahanadi Coalfields Ltd. vs. Rabindranath Choubey. The court clarified that Jaswant Singh Gill did not explicitly address whether gratuity could be forfeited if an employee committed an offence involving moral turpitude, even without a criminal conviction. |
| Mahanadi Coalfields Ltd. vs. Rabindranath Choubey [(2020) 18 SCC 71] | Supreme Court of India | The court noted that this case overruled Jaswant Singh Gill and held that even when an employee retires during disciplinary proceedings, the services are deemed to continue for the purpose of the proceedings. |
| Devendra Kumar vs. State of Uttaranchal [(2013) 9 SCC 363] | Supreme Court of India | Relied upon to support the contention that suppression of material information at the time of selection or appointment constitutes an offence involving moral turpitude. |
Judgment
| Submission by Parties | Court’s Treatment |
|---|---|
| WCL’s submission that fraudulent date of birth certificate justifies forfeiture | Upheld. The court agreed that the appointment was invalid due to the suppression of the actual date of birth and production of a forged certificate. |
| MSRTC’s submission that misappropriation of fares justifies forfeiture | Partially Upheld. The court acknowledged that misappropriation constitutes misconduct warranting termination but directed the Appointing Authority to limit the forfeiture to 25% of the gratuity payable. |
| Employee’s submission that long service and unblemished record should prevent forfeiture | Rejected for WCL employee. The court emphasized that the illegal appointment negated any claim to gratuity. |
How each authority was viewed by the Court?
- Union Bank of India and Ors. vs. C.G. Ajay Babu [(2018) 9 SCC 529]: The court clarified that the interpretation of Section 4(6)(b)(ii) in this case was an *obiter dictum* and not binding.
- Jaswant Singh Gill vs. Bharat Coking Coal Ltd. [(2007) 1 SCC 663]: This case was overruled by Mahanadi Coalfields Ltd. vs. Rabindranath Choubey.
- Mahanadi Coalfields Ltd. vs. Rabindranath Choubey [(2020) 18 SCC 71]: The court reiterated that this case had overruled Jaswant Singh Gill.
- Devendra Kumar vs. State of Uttaranchal [(2013) 9 SCC 363]: The court relied on this case to support the view that suppression of material information at the time of appointment constitutes an offence involving moral turpitude.
What weighed in the mind of the Court?
The Supreme Court’s decision was influenced by several factors, including the interpretation of Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, the nature of the misconduct, and the implications of allowing employees who engaged in fraudulent activities to benefit from their actions.
| Reason | Percentage |
|---|---|
| Statutory Interpretation | 35% |
| Nature of Misconduct | 40% |
| Implications of Fraud | 25% |
Fact:Law
| Category | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
The court placed significant emphasis on the factual aspects of the case, particularly the nature of the misconduct and its implications for the integrity of the employment. While legal principles were considered, the specific facts of each case played a crucial role in the court’s decision.
Logical Reasoning:
Issue: Whether gratuity can be forfeited for misconduct involving moral turpitude without a criminal conviction.
Start → Misconduct constituting an offence involving moral turpitude → Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972 → Termination of employee → Forfeiture of gratuity permissible → No criminal conviction required → Decision
The court reasoned that the statute does not mandate a criminal conviction for an offence involving moral turpitude. The disciplinary authority only needs to determine if the misconduct constitutes such an offence.
The Supreme Court held that the requirement of the statute is not the proof of misconduct of acts involving moral turpitude but the act should constitute an offence involving moral turpitude and such offence should be duly established in a Court of Law.
Key Takeaways
- An employer can forfeit an employee’s gratuity if the employee is terminated for misconduct that constitutes an offence involving moral turpitude, even without a criminal conviction.
- The term “offence” includes any act or omission punishable by law, as defined in the General Clauses Act.
- Suppression of material information at the time of appointment, such as a false date of birth, constitutes an offence involving moral turpitude.
- The extent of forfeiture (whole or partial) depends on the gravity of the misconduct.
Directions
The court directed the Appointing Authority of MSRTC to limit the forfeiture of gratuity to 25% of the gratuity payable and release the balance amounts to the respondent employees.
Development of Law
The Supreme Court clarified that Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, allows for forfeiture of gratuity if the employee is terminated for misconduct that constitutes an offence involving moral turpitude, even without a criminal conviction. This clarifies the scope and application of the provision.
Conclusion
In summary, the Supreme Court held that gratuity can be forfeited if an employee is terminated for misconduct constituting an offence involving moral turpitude, even without a criminal conviction. The court upheld the forfeiture of gratuity for the WCL employee due to the fraudulent date of birth certificate but limited the forfeiture to 25% for the MSRTC conductors who misappropriated fares.