Forfeiture of Gratuity for Offences Involving Moral Turpitude Without Requiring Criminal Conviction

1. Introduction

The Supreme Court of India, in Western Coal Fields Limited v. Manohar Govinda Fulzele (2025 INSC 233), addressed a crucial question under the Payment of Gratuity Act, 1972: whether an employer can forfeit gratuity if an employee’s services are terminated for misconduct amounting to an offence involving moral turpitude—without there being a formal criminal conviction.

This dispute involved multiple appeals. One of the appellants is Western Coal Fields Ltd. (a Public Sector Undertaking), and the other appellant is the Maharashtra State Road Transport Corporation (MSRTC). Their respective employees were terminated for alleged misconduct of a serious nature. When they attempted to forfeit the employees’ gratuity under Section 4(6)(b) of the Payment of Gratuity Act, the High Courts had intervened, disallowing the forfeiture by relying on earlier precedents. The Supreme Court took up the matter to clarify the applicability of Section 4(6)(b)(ii) and whether a criminal conviction is a prerequisite for forfeiting gratuity on grounds of moral turpitude.

In doing so, the Court examined earlier landmark decisions—most notably Union Bank of India & Ors. v. C.G. Ajay Babu (2018), Jaswant Singh Gill v. Bharat Coking Coal Ltd. (2007), and Mahanadi Coalfields Ltd. v. Rabindranath Choubey (2020)—and revisited the interpretation of the forfeiture clause under the statutory framework.

The respondent employees in these cases argued that gratuity is a statutory right that automatically vests upon completion of continuous service, and that lacking a criminal conviction, the employer could not deprive them of their gratuity. The appellants, on the other hand, contended that serious misconduct—such as fabricating employment documents or misappropriating public funds—falls squarely within the ambit of “an offence involving moral turpitude,” justifying total or partial forfeiture of gratuity.

2. Summary of the Judgment

The Supreme Court allowed the appeals filed by Western Coal Fields Ltd. and the MSRTC, clarifying that whether or not there is an actual criminal conviction is immaterial for validly forfeiting gratuity if the misconduct in question constitutes an offence involving moral turpitude. The key points of the judgment are:

• Scope of Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972: The Court held that the statute does not require a criminal conviction. If misconduct proven in a departmental inquiry would constitute an act punishable by law and is categorized as moral turpitude, forfeiture under Section 4(6)(b)(ii) is permissible.
• Deemed Extension of Service: The Court drew a distinction between employees who retired during the pendency of disciplinary proceedings and those who were dismissed before superannuation. In all events, if an employee is “deemed” to continue in service for disciplinary purposes, the major penalty of forfeiture can apply.
• Quantum of Forfeiture: For employees found guilty of misappropriating comparatively small sums, only partial forfeiture (25%) was entertained, while an employee who procured appointment fraudulently was subjected to total forfeiture of gratuity.
• Overruling/Clarification: The Court explained that passages in Union Bank Of India v. C.G. Ajay Babu suggesting that conviction in a criminal court is necessary for forfeiture were obiter dicta and not binding, given the ultimate holding that the statutory provision was inapplicable to that banking dispute.

3. Analysis

3.1 Precedents Cited

The Judgment analyzes several important decisions:

1. Union Bank of India & Ors. v. C.G. Ajay Babu (2018) 9 SCC 529: In Ajay Babu, the Supreme Court held that sub-section (6) of Section 4 is inapplicable when the employee is covered by a more beneficial agreement on gratuity (i.e., a Bipartite Settlement). There, forfeiture of gratuity was possible only if the misconduct led to financial loss—an aspect covered by the settlement. The Court commented that Section 4(6)(b)(ii) requires an act constituting an offence involving moral turpitude to be “duly established in a Court of Law,” yet that pronouncement was deemed obiter, as ultimately the Act did not apply.
2. Jaswant Singh Gill v. Bharat Coking Coal Ltd. (2007) 1 SCC 663: The Court in Jaswant Singh Gill originally found that an employee’s gratuity could not be withheld post superannuation through employer-specific disciplinary rules that conflicted with the statutory provisions. However, Mahanadi Coalfields Ltd. v. Rabindranath Choubey later overruled aspects of Jaswant Singh Gill regarding continuation of disciplinary proceedings after superannuation.
3. Mahanadi Coalfields Ltd. v. Rabindranath Choubey (2020) 18 SCC 71: A three-judge bench held that if an employee retired during the pendency of proceedings, they could be deemed to remain in service solely for the purpose of finalizing disciplinary proceedings, thus allowing major penalties (including possible termination and forfeiture of gratuity).
4. Devendra Kumar v. State Of Uttaranchal (2013) 9 SCC 363: The Court held that suppression of material information in obtaining employment is itself “moral turpitude,” thereby justifying dismissal or termination. Following the logic of Devendra Kumar, the Supreme Court in the present case deemed falsification of date of birth to be a serious fraud.

3.2 Legal Reasoning

The Supreme Court observed that the statutory definition of “offence” under the General Clauses Act includes any act or omission made punishable by law. There is no express stipulation in Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, requiring a formal criminal trial or conviction prior to forfeiture. Instead, the Disciplinary Authority’s determination—or the Appointing Authority’s view in the course of a valid departmental inquiry—regarding misconduct constituting an offence involving moral turpitude is sufficient.

The Court differentiated between:

• Standard of Proof in Criminal Proceedings: “Beyond reasonable doubt.”
• Standard in Departmental Inquiries: “Preponderance of probabilities.”

Because a departmental proceeding does not require the same evidentiary threshold as a criminal trial, the employer can legitimately decide that the proven misconduct amounts to moral turpitude (for instance, fraud, forgery, misappropriation, or dishonesty) and invoke Section 4(6)(b)(ii) to forfeit gratuity.

3.3 Impact on Future Cases and the Relevant Area of Law

This judgment significantly clarifies the scope of an employer’s right to withhold or forfeit gratuity under the Payment of Gratuity Act, 1972. Key effects include:

• Uniform Interpretation: The ruling rejects the notion that an employer must wait for a criminal court conviction to prove moral turpitude. Departmental findings (with due process) now suffice to justify forfeiture.
• Heightened Compliance Requirements: Employers must comply with due process—namely, issuing notice to the employee, specifying reasons, and granting a fair hearing on whether the misconduct satisfies the moral turpitude threshold and if whole or partial forfeiture is warranted.
• Greater Employer Leeway but with Checks: While the doors are opened wider for forfeiture, the Court emphasized the need for careful calibration of the penalty, as evidenced by the partial forfeiture (25%) in cases of minimal misappropriation versus absolute forfeiture in fraud cases.
• Impact on Disciplinary Policies: Companies, especially public sector undertakings, may revise or clarify their policies for disciplinary inquiries and gratuity forfeiture to align with the statutory framework as elucidated by the Court.

4. Complex Concepts Simplified

Offence Involving Moral Turpitude: Moral turpitude refers to conduct that gravely violates the sentiment or accepted standard of the community. It typically suggests dishonesty, fraud, or actions that seriously compromise moral standing, such as misappropriation of money, falsification of documents, or harm to persons or property.

Departmental Inquiry vs. Criminal Trial:

• The standard of proof in a disciplinary or departmental inquiry is preponderance of probabilities—an allegation is treated as established if it is more likely than not to have occurred.
• The standard of proof in a criminal trial is beyond reasonable doubt. This higher threshold is not required for an employer to conclude an act involves moral turpitude under service rules.

Forfeiture vs. Withholding of Gratuity: “Forfeiture” refers to the permanent loss of the right to gratuity (wholly or partly) due to serious misconduct. By contrast, “withholding” may be a temporary measure pending resolution of an inquiry or suit.

5. Conclusion

This Supreme Court ruling cements the principle that forfeiture of gratuity under Section 4(6)(b) of the Payment of Gratuity Act, 1972, does not depend on a criminal conviction. The employer must, however, ensure that:

• A valid departmental inquiry (or equivalent due process) establishes the employee’s misconduct constitutes an offence involving moral turpitude.
• The employee is given notice and the opportunity to be heard regarding both the nature of the misconduct and the degree of forfeiture (partial or total).

The Court deftly balanced the statutory right to gratuity against the employer’s legitimate interest in punishing genuinely reprehensible behavior. By sustaining full forfeiture when an employee secured employment on fraudulent grounds and partial forfeiture for relatively small-scale misappropriation, the Court underscored the importance of proportionality.

In the larger scheme of labor and employment law, the ruling reinforces the sanctity of trust and honest dealing within an enterprise. Moving forward, both public-sector enterprises and private employers will likely reassess how they define and penalize misconduct, keeping in mind that the Payment of Gratuity Act does provide for forfeiture in serious cases—even absent a formal conviction.