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Forfeiture of gratuity only on conviction against offence involving moral turpitude

In Union Bank Of India vs C.G. Ajay Babu, the question before the Supreme Court was whether forfeiture of gratuity, under The Payment of Gratuity Act, 1972 is automatic on dismissal from service.

Background: The respondent was an employee of the appellant-Bank. While serving as a Branch Manager, disciplinary proceedings were initiated against him on the following charges:

a) Failure to take all steps to ensure and protect the interest of the Bank.
b) Failure to discharge his duties with utmost devotion, diligence, honesty and integrity.
c) Doing acts unbecoming of an Officer Employee

Subsequently the respondent was dismissed from service and was issued a show-cause notice as to why the gratuity should not be forfeited on account of proved misconduct involving moral turpitude. His explanation was rejected and the gratuity was forfeited.

The dismissal and forfeiture was challenged before the High Court which did not interfere with the dismissal; however, it was held that the respondent was entitled to gratuity as there was no financial loss caused to the Bank. It was also held that as per the bipartite settlement, forfeiture of gratuity is permissible only in case the misconduct leading to the dismissal has caused financial loss to the Bank and only to that extent. While dismissing the intra-Court appeal, the Division Bench of the High Court took the view that only if there is any loss to the Bank on account of the misconduct, then alone, the forfeiture is permissible to the extent of loss. Thus, aggrieved, the appellant is before this Court.

On appeal the Supreme Court referring to various judgments including Beed District Central Coop. Bank Ltd. v. State of Maharashtra, Y.K. Singla v. Punjab National Bank, Jaswant Singh Gill v. Bharat Coking Coal Limited held that in the present case, there is no conviction of the respondent for the misconduct which according to the Bank is an offence involving moral turpitude. Hence, there is no justification for the forfeiture of gratuity on the ground stated in the order against the show cause notice that the “misconduct proved against you amounts to acts involving moral turpitude”. At the risk of redundancy, we may state that the requirement of the statute is not the proof of misconduct of acts involving moral turpitude but the acts should constitute an offence involving moral turpitude and such offence should be duly established in a court of law. That the Act must prevail over the Rules on Payment of Gratuity framed by the employer is also a settled position as per Jaswant Singh Gill (supra). Therefore, the appellant cannot take recourse to its own Rules, ignoring the Act, for denying gratuity.

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