Date of Judgement:
14 August 2018
Bench:
Justice Kurian Joseph
Justice Sanjay Kishan Kaul
Parties:
Appellant – Union Bank Of India and Ors.
Respondent – C.G. Ajay Babu and Anr.
Subject
Gratuity is an after-job perk that an employee receives. This case decided to what extent such gratuity can be forfeited if the employee is dismissed for any misconduct.
Overview
- C.G. Ajay Babu (respondent) was working as a Branch Manager in the Union Bank of India (appellant). He was dismissed from his service on 03.06.2004 on the grounds of proved misconduct involving moral turpitude.
- Later, he was issued a show-cause notice to explain why the gratuity payable to him should not be forfeited. The explanation given by the respondent was rejected and the bank forfeited an amount of Rs. 1,77,900/- payable to the respondent as gratuity, under the provisions of Section 4(6) subclause (b)(ii) of the Gratuity Act, 1972 and clause 3 in Schedule “A” of the Banks Gratuity Rules.
- This order of the bank was challenged by the respondent in the High Court. Both the Single Judge and the Division Bench held that as per the bipartite settlement, forfeiture of gratuity is allowed only when the bank has suffered any financial loss due to the misconduct of the employee and only to that extent. Aggrieved by this, the appellant approached the Supreme Court.
- The main contention of the learned counsel for the appellant was that Section 4 subsection (5) of the 1972 Act deals only with the quantum of gratuity that is payable and not whether the employee is entitled to be paid if he is terminated for misconduct.
Issues
- Whether the forfeiture of gratuity, under the 1972 Act is automatic on dismissal from service on grounds of moral turpitude.
Legal Provisions
- Section 4 subsection(6) subclause(b)(ii) of the Gratuity Act, 1972 – gratuity of a terminated employee shall be forfeited to the extent of the loss or damage caused to the employer.
- Section 4 subsection (5) of the 1972 Act – Employee entitled to receive better terms of gratuity under any award or agreement or contract with the employer.
Judgement
- After listening to both the parties and before passing the judgement, the honourable Court made a careful perusal of Section 4 of the 1972 Act. It held that subsection (5) has an overriding effect on all other sub-Sections under Section 4. Hence, an employee shall be entitled to receive better terms of gratuity under any award, agreement, or contract with the employer.
- The Court fully agreed with the award passed by the High Court and rejected the contention made by the appellant bank. It held that the respondent-employee is entitled to the protection of the bipartite settlement.
- In terms of payment of gratitude, the Court held that the departmental proceedings by the bank were not sufficient because it is not for the Bank to decide whether an offence has been committed or not.
- Basically, it said that the guilt of the accused has to be proved in the court of law by a competent judge, clearly given under Section 4 subsection (6)(b)(ii) and held in Jaswant Singh Gill V. Bharat Coking Coal Limited.
- In this matter, the Court held that the forfeiture of gratuity by the appellant bank was not justified, because the sine qua non of the statute is not proof of misconduct of employee but the proof of an offence involving moral turpitude and a proper conviction by the court of law.
- The Court also pointed out that the bank passed such an order based on its own framed rules on payment of gratuity. However, statutory acts shall prevail over such rules, as already established in the Jaswant Singh Gill case. Hence, the appellant bank cannot take recourse to its own rules, ignoring the Act. Based on these observations, the appeal was dismissed and no costs were imposed.
Conclusion
This judgement very clearly established that an employer can forfeit the gratuity to the extent of financial loss caused to him due to misconduct by the employee. In case of an offence of moral turpitude, gratuity cannot be forfeited unless the employee has been found guilty by a criminal court.
It held that forfeiture of gratuity is not automatic and is subject to Sub-Sections(5) and (6) of Section 4 of the Payment of Gratuity Act, 1972.
Click here to download the original copy of the judgement
