The Supreme Court, in the case of Western Coal Fields Ltd. vs. Manohar Govinda Fulzele, has delivered a crucial judgment stating that an employee's gratuity can be forfeited even without a criminal conviction if their misconduct constitutes an offense involving moral turpitude.

In this ruling, the Supreme Court clarified the provisions of Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, stating:

"If an employee commits an act that constitutes an offense involving moral turpitude, their gratuity can be forfeited, even if no criminal case has been initiated or proved in a court of law."

This interpretation corrects the C.G. Ajay Babu vs. Union Bank of India (2018) judgment, where it was suggested that gratuity could only be forfeited upon criminal conviction. The Court clarified that this was merely an obiter dictum (a passing remark) and not a binding rule of law.

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Referring to the General Clauses Act, the Supreme Court stated:

"An 'offense' means any act or omission punishable under any law. It does not necessarily require a conviction, as criminal and disciplinary proceedings have different standards of proof."

• In criminal cases, the standard is "proof beyond reasonable doubt."
• In disciplinary proceedings, decisions are based on "preponderance of probabilities."

The Court emphasized that forfeiture of gratuity does not require a criminal conviction, as the law only demands that the offense be established in disciplinary proceedings.

Key Observations by the Supreme Court

Justice K. Vinod Chandran, who authored the judgment, stated:

"The Payment of Gratuity Act does not mandate a criminal conviction for forfeiture. Instead, it allows forfeiture if the employee is terminated for misconduct that amounts to an offense involving moral turpitude."

Further, the Court explained that if an employee:

1. Provides false information for securing employment,
2. Submits forged documents,
3. Engages in financial misappropriation,
4. Commits acts of dishonesty,

Then such acts qualify as offenses involving moral turpitude, making gratuity forfeiture lawful.

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Case Study: Western Coal Fields Ltd. vs. Manohar Govinda Fulzele

In this case, the employee misrepresented his date of birth while securing employment, later discovered to be fraudulent. The Supreme Court ruled that:

"Since the appointment itself was obtained through fraud, the employee cannot claim any benefits, including gratuity."

The Court emphasized that an employee who gains employment through misrepresentation cannot later claim the right to gratuity under the Act.

The Supreme Court applied the same principle to cases involving Maharashtra State Road Transport Corporation (MSRTC), where conductors were found guilty of embezzling fare collections from passengers.

However, recognizing that the amounts misappropriated were minimal, the Court ruled:

"While even a small misappropriation justifies termination, forfeiting the entire gratuity may not always be necessary."

Thus, in the case of MSRTC employees, the Court limited gratuity forfeiture to 25% and directed the release of the remaining amount.

1. A criminal conviction is not required for gratuity forfeiture.
2. Misconduct involving moral turpitude can lead to forfeiture.
3. Criminal and disciplinary proceedings follow different standards of proof.
4. Fraudulent misrepresentation during recruitment justifies gratuity forfeiture.
5. In cases of minor financial misconduct, partial forfeiture may be more appropriate.