Featured image for Supreme Court Judgment dated 14-08-2018 in case of petitioner name Union Bank of India and Others vs C.G. Ajay Babu and Another
| |

Forfeiture of Gratuity on Dismissal: Supreme Court Clarifies Legal Position

The case of Union Bank of India and Others vs. C.G. Ajay Babu and Another deals with a crucial question regarding the forfeiture of gratuity upon dismissal from service. The case reached the Supreme Court after the respondent challenged the bank’s decision to withhold his gratuity benefits following his dismissal from employment on grounds of misconduct.

Background of the Case

The respondent, an employee of the Union Bank of India, was dismissed from service after a disciplinary inquiry. The charges against him included failure to protect the bank’s interests, lack of integrity, and conduct unbecoming of an officer. Following his dismissal, the bank initiated proceedings under the Payment of Gratuity Act, 1972, issuing a show-cause notice as to why his gratuity should not be forfeited.

The bank relied on Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, which permits forfeiture in cases involving moral turpitude. The respondent’s explanation was rejected, and the bank proceeded to forfeit his gratuity of Rs. 1,77,900/-.

Legal Framework

The Payment of Gratuity Act, 1972, safeguards gratuity payments for employees who have completed at least five years of service. However, Section 4(6) provides exceptions:

  • Section 4(6)(a) – Gratuity may be forfeited if the employee’s misconduct causes financial loss to the employer, but only to the extent of the loss.
  • Section 4(6)(b)(ii) – Gratuity may be forfeited wholly or partially if the employee is terminated for an offense involving moral turpitude committed during service.

Petitioner’s (Union Bank of India) Arguments

  • The respondent’s misconduct involved dishonesty and moral turpitude, justifying forfeiture under Section 4(6)(b)(ii) of the Payment of Gratuity Act.
  • The forfeiture was in line with the bank’s gratuity rules, which allow withholding of gratuity upon termination for grave misconduct.
  • Since the respondent was dismissed for serious charges, he lost his entitlement to gratuity.

Respondent’s Arguments

  • Dismissal from service does not automatically lead to forfeiture of gratuity under the Act.
  • The bank failed to prove that his misconduct caused financial loss or amounted to an offense involving moral turpitude.
  • The forfeiture was arbitrary and violated the Payment of Gratuity Act, 1972.

High Court’s Decision

The High Court ruled in favor of the respondent, stating that the bank had failed to establish that his misconduct involved moral turpitude. The court directed the bank to release the forfeited gratuity.

Supreme Court’s Analysis

The Supreme Court analyzed the Payment of Gratuity Act, 1972, and considered whether the bank’s action met the statutory criteria for forfeiture. The Court observed:

  • “Forfeiture of gratuity is not automatic upon dismissal from service.”
  • “The employer must establish that the misconduct falls within the specific categories under Section 4(6) before forfeiting gratuity.”
  • “An internal disciplinary finding does not constitute an offense involving moral turpitude unless proven in a competent court.”

Supreme Court’s Judgment

The Supreme Court ruled:

  • The bank’s forfeiture of gratuity was unjustified, as it failed to prove that the respondent’s misconduct constituted an offense involving moral turpitude.
  • The respondent was entitled to gratuity under the Payment of Gratuity Act, 1972.
  • The High Court’s judgment was upheld.
  • The appeal by the bank was dismissed.

Precedents Considered

The Supreme Court referred to the following landmark cases:

  • D.V. Kapoor vs. Union of India – Held that an employee’s right to gratuity cannot be arbitrarily denied.
  • Y.K. Singla vs. Punjab National Bank – Confirmed that gratuity is a statutory right and cannot be forfeited unless the conditions under Section 4(6) are met.
  • Jaswant Singh Gill vs. Bharat Coking Coal Ltd. – Established that an employer cannot deny gratuity based solely on disciplinary findings without legal backing.

Impact of the Judgment

The Supreme Court’s decision clarifies the conditions under which gratuity may be forfeited. This ruling has significant implications:

  • It establishes that forfeiture of gratuity is not an automatic consequence of dismissal.
  • It upholds employees’ rights under the Payment of Gratuity Act, 1972.
  • It ensures that gratuity is protected unless specific legal conditions for forfeiture are met.

Conclusion

The Supreme Court’s ruling in Union Bank of India vs. C.G. Ajay Babu reinforces the principle that forfeiture of gratuity requires proof of financial loss or conviction for an offense involving moral turpitude. This judgment protects employees from arbitrary forfeiture and ensures compliance with the Payment of Gratuity Act.


Petitioner Name: Union Bank of India and Others.
Respondent Name: C.G. Ajay Babu and Another.
Judgment By: Justice Kurian Joseph, Justice Sanjay Kishan Kaul.
Place Of Incident: India.
Judgment Date: 14-08-2018.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: Union Bank of India vs C.G. Ajay Babu and A Supreme Court of India Judgment Dated 14-08-2018.pdf

Direct Downlaod Judgment: Direct downlaod this Judgment

See all petitions in Pension and Gratuity
See all petitions in Disciplinary Proceedings
See all petitions in Employment Disputes
See all petitions in Judgment by Kurian Joseph
See all petitions in Judgment by Sanjay Kishan Kaul
See all petitions in dismissed
See all petitions in supreme court of India judgments August 2018
See all petitions in 2018 judgments

See all posts in Service Matters Category
See all allowed petitions in Service Matters Category
See all Dismissed petitions in Service Matters Category
See all partially allowed petitions in Service Matters Category

Similar Posts