LexCognito

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. 

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.