SC Judgment: Gratuity Can Be Forfeited for Moral Turpitude Without Criminal Conviction

New Delhi, February 17, 2025 - The Supreme Court of India (“Court”) has ruled on the forfeiture of gratuity in cases where an employee’s service is terminated due to misconduct involving moral turpitude. The Court ruled that such forfeiture is permissible under the Payment of Gratuity Act, 1972 (“Act”), even in the absence of a criminal conviction.

The judgment was delivered by a bench comprising Justices Sudhanshu Dhulia and K. Vinod Chandran in 3 (three) connected civil appeals: Civil Appeal No. 2608 of 2025 (Western Coal Fields Ltd. vs. Manohar Govinda Fulzele), Civil Appeal No. 2609 of 2025, and Civil Appeal No. 2610 of 2025. The appeals raised the question of whether gratuity can be forfeited when an employee is terminated for misconduct that constitutes an offence involving moral turpitude, without the necessity of a criminal conviction.

Key Legal Issues and Findings

Forfeiture of Gratuity under Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972

The Court examined whether gratuity can be forfeited if an employee is terminated for misconduct that constitutes an offence involving moral turpitude, even if no criminal proceedings have been initiated or a conviction obtained.

The Court held that Section 4(6)(b)(ii) of the Act allows for the forfeiture of gratuity, wholly or partially, if the employee is terminated for any act that constitutes an offence involving moral turpitude, provided the act was committed during the course of employment.

The Court clarified that the provision does not require a criminal conviction. The determination of whether the misconduct constitutes an offence involving moral turpitude can be made by the disciplinary authority based on the evidence presented during departmental proceedings.

The Court Held: “The provision of forfeiture of gratuity under the Act does not speak of a conviction in a criminal proceeding, for an offence involving moral turpitude. On the contrary, the Act provides for such forfeiture; in cases where the delinquent employee is terminated for a misconduct, which constitutes an offence involving moral turpitude. Hence, the only requirement is for the Disciplinary Authority or the Appointing Authority to decide as to whether the misconduct could, in normal circumstances, constitute an offence involving moral turpitude, with a further discretion conferred on the authority forfeiting gratuity, to decide whether the forfeiture should be of the whole or only a part of the gratuity payable, which would depend on the gravity of the misconduct.”

Distinction Between Criminal and Disciplinary Proceedings

The Court emphasized that the standard of proof in criminal proceedings (beyond reasonable doubt) is different from that in disciplinary proceedings (preponderance of probabilities). Therefore, a criminal conviction is not a prerequisite for forfeiture of gratuity under the Act.

The Court Held: “An ‘Offence’ as defined in the General Clauses Act, means ‘any act or omission made punishable by any law for the time being’ and does not call for a conviction; which definitely can only be on the basis of evidence led in a criminal proceeding. The standard of proof required in a criminal proceeding is quite different from that required in a disciplinary proceeding; the former being regulated by a higher standard of ‘proof’ beyond reasonable doubt’ while the latter governed by ‘preponderance of probabilities’.”

Overruling of Previous Judgments

The Court distinguished its earlier judgment in Union Bank of India vs. C.G. Ajay Babu (2018), where it was held that forfeiture of gratuity required a criminal conviction. The Court noted that the interpretation in C.G. Ajay Babu was unnecessary and obiter, as the case was decided on the basis of a bipartite settlement, not the statutory provisions of the Act.

The Court Held: “With all the respect at our command, the interpretation in C.G. Ajay Babu does not come out of the statutory provision; Section 4(6)(b)(ii) of the Act. Normally we would have referred the matter for consideration by a Larger Bench, but, as we noticed, the statutory provision does not make it a requirement that the misconduct alleged & proved in a departmental enquiry should not only constitute an offence involving moral turpitude, but also should be duly established in a Court of Law. The words "duly established in a Court of Law" cannot be supplied to the provision. Moreover, as we observed; the interpretation of subclause (b)(ii) of subsection (6) of Section 4 was uncalled for in C.G. Ajay Babu since the provisions of the Section 4, including subsection (6) was found to be inapplicable to the employer Bank and its employee, by virtue of subsection (5) of Section 4. The interpretation, hence, with due respect was an obiter making a reference unnecessary”

Case-Specific Findings

The respondent, Manohar Govinda Fulzele, was terminated for producing a fraudulent date of birth certificate to obtain employment. The Court upheld the forfeiture of his entire gratuity, stating that the appointment itself was invalid due to the suppression of material facts. The Court relied on its earlier judgment in Devendra Kumar vs. State of Uttaranchal (2013), which held that suppression of material information at the time of appointment constitutes an offence involving moral turpitude. Further, in the appeals involving Maharashtra State Road Transport Corporation (MSRTC), the employees (conductors) were terminated for misappropriation of fares collected from passengers. The Court held that misappropriation, even of small amounts, constitutes an offence involving moral turpitude. However, the Court took a sympathetic view and directed that only 25% of the gratuity be forfeited, with the remaining 75% to be released to the employees.

The Court Held: “In the present case it has been proved that the petitioner supressed his actual date of birth. The failure of the employer to initiate a criminal proceeding on the fraud employed by way of the fabricated/forged certificate produced for the purpose of employment, does not militate against the forfeiture. Obviously, as coming out from the provision, no conviction in a criminal proceeding is necessitated, if the misconduct alleged & proved constitutes an offence involving moral turpitude. The very same reasoning applies in the appeals by the MSRTC were the delinquent employees, conductors in the stage carriages operated by the MSRTC were found to have indulged in misappropriation of fares collected from passengers. Misappropriation definitely is an act constituting an offence involving moral turpitude. The appointment itself being illegal, there is no question of the terminated employee seeking fruits of his employment by way of gratuity. We uphold the decision of the PSU forfeiting his entire gratuity. However, in the case of conductors (Civil Appeal No._____________ @SLP (C) No.21957 of 2022), we see that the act alleged and proved is of misappropriation of meagre amounts. It is trite that even if minimal amounts are misappropriated it would constitute a misconduct warranting termination, as held by this Court. However, on the question of forfeiture of gratuity, we are of the opinion that the Appointing Authority should have taken a more sympathetic approach. We do not propose to send back the matter for fresh consideration but direct the Appointing Authority to limit the forfeiture to 25% of the gratuity payable and release the balance amounts to the respondent employees.”

Conclusion:

The Supreme Court’s judgment clarifies the legal position on the forfeiture of gratuity under the Payment of Gratuity Act, 1972. It confirms that employers can forfeit gratuity in cases of termination for misconduct involving moral turpitude, even in the absence of a criminal conviction. However, the Court also emphasized the need for a balanced approach, particularly in cases involving minor misappropriation, where partial forfeiture may be more appropriate.