This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.

Date: 17 August 2018
Supreme Court on Employment Law: Forfeiture of Gratuity is not automatic on dismissal of service

The Supreme Court of India, vide its order dated 14 August 2018 in the matter of Union Bank of India Vs. CG Ajay Babu, has held that forfeiture of gratuity under the Payment of Gratuity Act, 1972 ("Act") is not automatic on dismissal from service. The same is subject to Section 4(5) and 4(6) of the Act. 

Law: Section 4(5) states that nothing will affect the right of a person to receive better terms of the gratuity under any award, agreement or contract to the contrary. Further, the Act provides for circumstances in which the gratuity payable to an employee may be forfeited by the employer. Section 4(6) provides that gratuity of an employee, who has been terminated on the grounds that he has wilfully caused damage to the employer, can be forfeited to the extent of that loss or damage. Further, it also provides that gratuity payable to an employee may be wholly or partially forfeited - (i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or  (ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment. 

Facts: In this matter, the respondent was dismissed from service in June 2004 by the Petitioner Bank on the charges that he failed to take steps to protect the interest of the Bank, failed to discharge his duties with utmost devotion and conducted himself in a manner unbecoming of an officer. After the dismissal order attained finality, the Bank forfeited the gratuity payable to the respondent citing the provisions of the Act and Banks's gratuity rules. This forfeiture of gratuity was challenged before the High Court, which held that since the misconduct did not lead to any financial loss to the Bank, the respondent was entitled to gratuity. The High Court also held that as per bipartite settlement prevailing in the bank, the forfeiture of gratuity is permissible only in case misconduct leading to the dismissal has caused financial loss to the Bank and only to the extent of the loss. The appeal finally came to the Apex Court after being dismissed by the division bench of the High Court. 

Held: The Court held that dismissal of an employee from service doesn't automatically result into forfeiture of the gratuity payable to him. While pronouncing the judgement, the court interpreted Section 4(6)(ii) of the Act and stated that under the said Section, the 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. 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. It is not for the Bank to decide whether an offence has been committed. It is for the court to decide whether an offence has been actually committed or not. In this matter, the Bank had only framed the charges on the employee and had not filed any FIR or criminal complaint so as to establish that the misconduct leading to dismissal is an offence involving moral turpitude. 

Further, the Court also interpreted Section 4(5) and stated that it has an overriding effect on all other sub-sections of Section 4. Therefore, an employee is entitled to receive better terms of gratuity under any award or agreement or contract to the contrary. The Court noted that there is a clause in the Bank's gratuity rules which provides for forfeiture of gratuity only in case misconduct leading to the dismissal has caused financial loss to the Bank and only to the extent of the loss. The Court, then, held that the employee is entitled to the protection of the bipartite settlement. 

CRI Comment: The key learning from the aforesaid judgement is that the companies should carefully review and draft their internal policies regarding terms of employment for its employees so as to ensure that the disciplinary proceedings initiated against an employee reach their logical conclusions. Further, the disciplinary procedures should be devised in such a manner so as to ensure that before taking any disciplinary action against an employee, the agreed terms of employment should be carefully examined in light of the then existing legal position as per applicable law and judicial pronouncements. 

Development in Sexual Harassment: Disclosure regarding formation of ICC
The Government of India has now made it mandatory for the companies to disclose in its Directors' reports that they have complied with the provisions relating to the constitution of Internal Complaints Committee/ICC under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013/Act.

As per the Act, ICC is required to be mandatorily constituted in case of 10 or more employees. Where the offices or administrative units of the workplace are located at different places or divisional or sub-divisional level, ICC is required to be constituted at all administrative units or offices. The government has amended the Companies (Accounts) Rules, 2014 issued under Section 134 of the Companies Act, 2013 in this regard. The non-disclosure will attract penal provisions. 

The objective of the amendment is to ensure that this issue gets proper attention of the Board of Directors of the companies and encourage them to constitute ICC for redressing complaints relating to sexual harassment of women at workplace in accordance with the Act and the rules issued thereunder.
Our Employment Practice: Recent Delhi High Court Order

Recently, our litigation team represented the Jute Corporation of India (“Client”) before the High Court of Delhi in respect of a writ petition. The said petition was filed for quashing an order passed by the Central Administrative Tribunal, New Delhi ("CAT") and for directing the reinstatement of Mr. Mahendra Prasad Yadav (“Petitioner”) in service of our Client. The Petitioner alleged that he had been employed as a typist with our Client since 1990 and had instituted proceedings before CAT seeking regularization of his job in view of his long-standing service from the year 1990 to 2009 and alleged discrimination as other daily wagers were regularized, whereas he continued to serve as a daily wager till the year 2009, when his services were terminated. The proceedings before the CAT were dismissed as it was brought it to the knowledge of the CAT that the Petitioner along with similarly placed daily wagers had participated in selection process for regular appointment twice, once in the year 1995 and again in 1997. However, on both occasions, he had failed to qualify the same. Moreover, the Petitioner was not an employee of our Client, but of Sheraton Security Services, a separate security agency. The Court duly noted the aforesaid facts and stated that the Petitioner was admittedly a daily wager. Merely because he had worked for a long time as a daily wager, in itself, cannot be a ground for seeking reinstatement and regularization of service in view of the settled legal position declared by the Supreme Court of India in Secretary, State of Karnataka and Ors. Vs. Uma Devi & Ors. He cannot have any indefeasible right for regularization of his services more so when his case was considered along with the others and he failed to qualify in the examination conducted for the subject post. Accordingly, the writ petition was dismissed for being devoid of merits.

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Chambers of Rajan & Indraneel is a premier full service law firm headquartered at New Delhi, India. The Firm represents amalgamation of vast experiences and practices of two eminent lawyers. Indranil Ghosh is highly reputed as a disputes lawyer. He was a senior partner and head of litigation practice in one of the oldest Indian law firm Fox Mandal for several decades before setting up his own practice. Rajan D Gupta is a rank holder Chartered Accountant turned Corporate Lawyer. He is also a licensed Insolvency Resolution Professional. He has been associated with internationally renowned big law firms in past and has held senior level positions in firms like PwC, Fox Mandal, Khaitan & Co. and SRGR Law, etc. before starting the Firm.

We have a team of experienced Lawyers, Chartered Accountants, Company Secretaries and Insolvency Resolution Professionals with access to network of high quality experienced lawyers in all major commercial cities of India.

The Firm offers a wide range of expert legal services in the areas of corporate and commercial laws and specializes in representing major foreign and domestic corporations with diverse business interests in India. The Firm is professionally equipped to handle large sized and complex corporate transactions like Mergers & Acquisitions, Corporate Restructuring, Joint Ventures, Inbound & Outbound Investments, Private Equity and Venture Capital Investment Transactions, Real Estate Transactions, Infrastructure Projects, Project Finance, Power Projects, Non-Conventional Energy Projects, Highways & Road Projects and Corporate Taxation as well as GST, etc. The Firm also offers proven capabilities in litigation and dispute resolution practice areas, especially in handling international and domestic arbitrations as well as litigation in Supreme Court, various High Courts of India and various judicial and quasi-judicial tribunals/forums including at National Client Law Tribunal, Appellate Tribunals, Tax Tribunals, Competition Commission, Electricity Tribunal, Telecom Disputes Tribunal, Designated Authorities and other adjudicatory bodies.

We have set up a Japan Business Desk (JBD) in order to serve our Japanese clients in a better way. The endeavour of the JBD is to act as a bridge between our professionals and clients from Japan so as to ensure that there are no barriers as to linguistic and cultural differences. This will indeed facilitate Japanese corporates doing business in India. 
This newsletter contains general information available in public domain at the time of its preparation. It is intended as a general news update and is not intended to be comprehensive nor to provide specific business, financial, investment, legal, tax or other professional advice or opinion or services. This newsletter is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and refer to the source pronouncement/documents on which this business alert is based. It is also expressly clarified that this newsletter is neither a solicitation nor an invitation of any sort whatsoever or a source of advertising from our firm or any of its partners or lawyers or other professionals to create any adviser-client relationship. Whilst every effort has been made to ensure the accuracy of the information contained in this news alert, this cannot be guaranteed, and neither our firm nor any related person/entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user's risk.
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