Supreme Court Rules Criminal Conviction Not Required for Gratuity Forfeiture Under Payment of Gratuity Act; Upholds Full Forfeiture for Fraudulent Employment and Partial Forfeiture for Misappropriation

Court’s Decision

The Supreme Court ruled that under Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, gratuity can be forfeited if an employee is terminated for misconduct that constitutes an offense involving moral turpitude, even if there is no criminal conviction. The Court overruled the decision in C.G. Ajay Babu v. Union Bank of India (2018), which had held that forfeiture is permissible only when there is a criminal conviction.

The judgment sets an important precedent by clarifying that disciplinary authorities can decide whether misconduct amounts to moral turpitude, and they have the discretion to forfeit gratuity, either wholly or partially, without requiring a criminal court’s verdict.

The Court upheld full forfeiture of gratuity for an employee who secured a job using a fraudulent birth certificate, while limiting forfeiture to 25% for bus conductors who misappropriated small amounts of passenger fares.

Facts

1. The case involved three civil appeals:
   • One appeal was filed by a Public Sector Undertaking (PSU), which had terminated an employee for securing employment using a fraudulent date of birth certificate.
   • Two appeals were filed by the Maharashtra State Road Transport Corporation (MSRTC) against High Court rulings that invalidated the forfeiture of gratuity of bus conductors who were terminated for misappropriating fares collected from passengers.
2. High Court Ruling: The High Court relied on C.G. Ajay Babu v. Union Bank of India (2018) to hold that gratuity can only be forfeited if the employee is convicted in a criminal case for an offense involving moral turpitude. The High Court had directed the PSU and MSRTC to release gratuity payments to the terminated employees.
3. Challenge before the Supreme Court: The PSU and MSRTC appealed, arguing that the requirement of a criminal conviction is an incorrect interpretation of Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972. They contended that the act of misconduct itself is sufficient to justify forfeiture.

Issues Before the Court

1. Does the Payment of Gratuity Act require a criminal conviction to forfeit gratuity under Section 4(6)(b)(ii)?
2. Does the submission of a fraudulent date of birth certificate and misappropriation of collected fares constitute “offenses involving moral turpitude”?
3. Should gratuity be wholly forfeited or only partially forfeited in cases of termination for misconduct?

Petitioner’s Arguments (PSU and MSRTC)

• No Conviction Required for Forfeiture: The appellants argued that Section 4(6)(b)(ii) permits forfeiture if an employee is terminated for misconduct that constitutes an offense involving moral turpitude, even if the misconduct was not proven in a criminal court.
• Fraudulent Conduct is Moral Turpitude: The PSU contended that the terminated employee submitted a fake birth certificate to gain employment, which was an act of fraud, amounting to moral turpitude.
• Misappropriation is Moral Turpitude: MSRTC asserted that the terminated bus conductors were found guilty of misappropriating passenger fares, which is a clear offense involving moral turpitude.
• Reliance on Previous Precedents:
  • Devendra Kumar v. State of Uttaranchal (2013): The Supreme Court ruled that suppression of material facts at the time of appointment is an act of moral turpitude.
  • Mahanadi Coalfields Ltd. v. Rabindranath Choubey (2020): Held that disciplinary proceedings can continue even after an employee retires, and forfeiture of benefits is valid.

Respondent’s Arguments (Terminated Employees)

• Gratuity is a Statutory Right: The terminated PSU employee argued that he served for 22 years and that gratuity is a statutory right under the Payment of Gratuity Act, which should not be forfeited.
• Misconduct Does Not Involve Moral Turpitude: The bus conductors contended that the amounts they misappropriated were small, and the punishment of termination was already harsh.
• Reliance on C.G. Ajay Babu v. Union Bank of India (2018):
  • The respondents cited this judgment, arguing that gratuity can only be forfeited if there is a criminal conviction.

Analysis of the Law

The Supreme Court examined Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, which states that an employee’s gratuity may be wholly or partially forfeited if:

• The employee is terminated for misconduct.
• The misconduct constitutes an offense involving moral turpitude.
• The offense was committed during employment.

The Court ruled:

1. No Conviction Required: Section 4(6)(b)(ii) does not require a criminal conviction to justify forfeiture.
2. Definition of ‘Offense’: The General Clauses Act defines an ‘offense’ as any act or omission punishable by law, and disciplinary authorities can determine whether an offense involving moral turpitude has occurred.
3. Different Standards of Proof:
   • Criminal Court Standard: Requires proof beyond reasonable doubt.
   • Disciplinary Proceedings Standard: Requires proof based on preponderance of probabilities.
4. Obiter in C.G. Ajay Babu Invalid: The Court held that the interpretation in C.G. Ajay Babu was incorrect and was merely an obiter dictum (non-binding statement).

Precedent Analysis

Overruled Decision

• C.G. Ajay Babu v. Union Bank of India (2018): The Supreme Court overruled this judgment and held that a criminal conviction is not necessary for forfeiture of gratuity.

Key Judgments Relied Upon

• Devendra Kumar v. State of Uttaranchal (2013): Suppression of material facts at the time of appointment constitutes moral turpitude.
• Mahanadi Coalfields Ltd. v. Rabindranath Choubey (2020): Disciplinary proceedings can continue even after an employee retires.

Court’s Reasoning

• PSU Employee’s Misconduct (Fraudulent Birth Certificate):
  • The Court ruled that securing a job through fraud (submission of a false birth certificate) constitutes moral turpitude.
  • Since the appointment itself was illegal, the employee had no right to gratuity.
• MSRTC Employees’ Misconduct (Misappropriation of Fares):
  • Misappropriation of even small amounts is an act of dishonesty and moral turpitude.
  • However, considering the small amounts involved, forfeiting only 25% of gratuity was deemed appropriate.

Conclusion

1. Full forfeiture of gratuity for the PSU employee who submitted a fraudulent birth certificate.
2. Partial forfeiture (25%) for MSRTC conductors due to small-scale misappropriation.
3. Clarification of the Law: Section 4(6)(b)(ii) does not require a criminal conviction for gratuity forfeiture.

Implications of the Judgment

• Employers Now Have More Authority: Public and private employers can forfeit gratuity for serious misconduct, even if no criminal charges are filed.
• Employees Must Exercise Caution: Any act of fraud, suppression of facts, or misappropriation may result in loss of gratuity.
• Stronger Disciplinary Mechanisms: This judgment strengthens the ability of employers to take strict disciplinary action without waiting for criminal convictions.

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