MP High Court clarifies: No automatic forfeiture of gratuity for dismissed bank officers; Payment of Gratuity Act overrides service regulations; conviction required for ‘moral turpitude’ forfeiture

Introduction

In Smt. Babita Mor v. Central Madhya Pradesh Gramin Bank (WP No. 21393 of 2021, decided on 06 October 2025), the Madhya Pradesh High Court at Jabalpur (per Justice Vivek Jain) addressed whether a bank can deny gratuity to a dismissed “officer” by relying on its service regulations, despite the statutory regime under the Payment of Gratuity Act, 1972. The petitioner, the widow of a dismissed bank officer, sought release of her late husband’s gratuity. The bank had refused, invoking its 2010 Service Regulations—specifically, a clause that purported to forfeit gratuity upon dismissal of an officer for misconduct.

The case sits at the intersection of three recurring themes in Indian labour law: (i) the primacy of the Payment of Gratuity Act, 1972 and its non obstante clause; (ii) the narrow grounds on which gratuity can be forfeited under Section 4(6) of the Act; and (iii) employers’ attempts, via service regulations or contracts, to curtail statutory gratuity, especially for “officers” as distinct from “employees.” The High Court emphatically reaffirmed that the Gratuity Act governs, and that forfeiture is permissible only within the tight confines of Section 4(6).

Parties and counsel:

Petitioner: Smt. Babita Mor (widow of late Rajesh Mor, dismissed bank officer) — represented by Shri Ashish Trivedi.
Respondent: Central Madhya Pradesh Gramin Bank — represented by Shri Vikram Johri.

Background and Issues

The deceased employee was charge-sheeted on 30 August 2016 on two counts: (a) not opening the bank branch on 30 July 2016 despite being in charge; and (b) defalcation of Rs. 1,00,000 from the branch cash chest on 29 July 2016. Following a departmental inquiry, he was dismissed from service on 30 April 2017, and his appeal was rejected on 02 November 2017. He died on 19 November 2017.

His widow’s request for gratuity was rejected by the bank on 20 January 2018, citing Section 4(6)(b) of the Payment of Gratuity Act read with Clause 72(e) of the bank’s 2010 Service Regulations. A previous writ (WP 7205/2020) culminated in a direction to decide her representation; the bank again declined by order dated 18 August 2021 (Annexure P-9), asserting that as an “officer,” the deceased was excluded from the protective proviso that saves “employees” from forfeiture absent financial loss.

The core issues were:

Does the Payment of Gratuity Act, 1972 override bank service regulations that purport to forfeit gratuity upon dismissal, especially for “officers”?
When, and to what extent, can gratuity be forfeited under Section 4(6) of the Gratuity Act?
Is a criminal conviction necessary to invoke forfeiture for “an offence involving moral turpitude” under Section 4(6)(b)(ii)?
What is the effect of restitution (refund) of the allegedly defalcated amount on forfeiture under Section 4(6)(a)?

Summary of the Judgment

The Payment of Gratuity Act, 1972 prevails over inconsistent service regulations by virtue of Section 14. The bank’s 2010 Service Regulations cannot extinguish statutory gratuity rights.
Section 4(6) of the Gratuity Act strictly circumscribes forfeiture:
- Under Section 4(6)(a), forfeiture is only “to the extent of loss” caused; here, the alleged defalcation amount was refunded and no quantified loss was established.
- Under Section 4(6)(b)(ii), forfeiture for an act “constituting an offence involving moral turpitude” requires a criminal conviction by a court of competent jurisdiction; a mere departmental finding is insufficient. No prosecution or conviction existed here.
The bank’s reliance on the “officer” vs “employee” distinction in its regulations fails against the overriding force of the Gratuity Act. Dismissal does not automatically entail forfeiture of gratuity.
The writ petition was allowed. The bank was directed to compute and pay gratuity as per the Act within 60 days, with interest at 6% per annum from the date of the employee’s death until actual payment.
The petitioner was granted liberty to approach the Controlling Authority under the Act for any dispute on quantification.

Detailed Analysis

Precedents Cited and Their Influence

The Court grounded its reasoning in two leading Supreme Court authorities and distinguished a third:

Jaswant Singh Gill v. Bharat Coking Coal Ltd., (2007) 1 SCC 663
The Supreme Court held that the Payment of Gratuity Act is a complete code and prevails over employer rules; gratuity is a statutory right that cannot be impaired by non-statutory rules. Forfeiture under Section 4(6) requires strict compliance: under clause (a), only to the quantified extent of loss; under clause (b), in narrowly defined situations. The MP High Court relied on Jaswant Singh Gill to underscore two points:
- The Gratuity Act’s primacy over inconsistent service regulations.
- The necessity of quantifying loss before invoking Section 4(6)(a), and the narrow scope of Section 4(6)(b).
Union Bank of India v. C.G. Ajay Babu, (2018) 9 SCC 529
The Supreme Court clarified that forfeiture of gratuity is not automatic upon dismissal; Section 4(6)(b)(ii) requires that the act be an offence involving moral turpitude, duly established by a criminal conviction. The Court cannot presume an “offence” from departmental findings, nor can the employer decide that an “offence” exists without invoking the criminal process. The MP High Court applied this ratio to reject the bank’s plea that the disciplinary finding sufficed to forfeit gratuity for moral turpitude.
P. Rajan Sandhi v. Union of India, (2010) 10 SCC 338
The bank cited this decision to argue that a special law can prevail over the Gratuity Act. The High Court found the reliance misplaced: P. Rajan Sandhi involved the Working Journalists Act, 1955—a special statute expressly governing gratuity for working journalists. By contrast, the Regional Rural Banks Act, 1976 contains no repugnancy on gratuity, and the bank’s service regulations (executive instructions) cannot trump the Gratuity Act’s mandate, especially in light of Section 14 of the Act.

Legal Reasoning

Primacy of the Gratuity Act (Section 14):
Section 14 provides that the Act overrides any inconsistent provisions in any other enactment or instrument. The bank’s Clause 72(2) and its proviso, which purport to treat “officers” differently and permit forfeiture upon dismissal by way of punishment, cannot displace statutory rights conferred by the Gratuity Act. The Court also noted Clause 72(1) of the bank’s own regulations contemplates payment “either as per the Gratuity Act or as per the regulations, whichever is higher,” implicitly acknowledging the statutory floor created by the Act.
Forfeiture under Section 4(6)(a): “to the extent of loss”
The Court found that even if misconduct is established departmentally, forfeiture under Section 4(6)(a) is confined to the quantified damage or loss caused. Since the alleged defalcated amount (Rs. 1 lakh) was refunded and no residual loss was quantified, there was no basis for forfeiture under this clause. This mirrors Jaswant Singh Gill’s insistence that loss be determined and capped; an unquantified, blanket forfeiture is impermissible.
Forfeiture under Section 4(6)(b)(ii): “offence involving moral turpitude”
The bank argued that dismissal for misconduct akin to moral turpitude allowed forfeiture wholly or partially under Section 4(6)(b)(ii). The Court rejected this because:
- An “offence” must be an act punishable under criminal law; departmental findings do not suffice.
- Per Ajay Babu, forfeiture requires a criminal conviction by a competent court for the offence involving moral turpitude.
- No criminal proceedings were initiated, much less a conviction. Therefore, Section 4(6)(b)(ii) could not be invoked.
“Officer” versus “Employee”
The bank attempted to exploit its internal definitions to argue that protections applied only to “employees,” not “officers.” The Court held that the Gratuity Act’s regime applies regardless of such internal taxonomies. Employers cannot contract out of the Act. In effect, “officer”-specific forfeiture provisions in service regulations cannot dilute statutory gratuity rights.
Relief and interest
Recognizing that the bank’s refusal contravened the Act, the Court directed the bank to compute and pay gratuity under the Gratuity Act within 60 days, together with interest at 6% per annum from the date of the employee’s death until payment. The Court preserved the petitioner’s right to approach the Controlling Authority under the Act for any dispute regarding quantification—an acknowledgment of the specialized statutory mechanism for adjudicating gratuity claims.

Impact and Prospective Significance

Reinforcement of statutory floor:
The judgment fortifies the principle that the Payment of Gratuity Act is a non-derogable social welfare statute setting a minimum floor. Employers, including banks and regional rural banks, cannot draft service regulations to reduce or extinguish statutory gratuity entitlements, whether for “officers” or any class of staff.
Tightened compliance on forfeiture:
Employers seeking forfeiture must meet the exacting standards of Section 4(6): quantify and record the loss (for clause (a)) and, for moral turpitude (clause (b)(ii)), prosecute and obtain a conviction. Departmental findings alone will not justify forfeiture under clause (b)(ii). This significantly limits the scope for unilateral, regulation-based forfeiture on dismissal.
Officer/managerial cadre included:
The judgment effectively forecloses attempts to exclude “officers” from the Act’s protection by definitional sleight of hand in internal regulations. It aligns with the Act’s broad definition of “employee,” which encompasses supervisory/managerial roles.
Restitution negates “loss” forfeiture:
Where alleged defalcation is made good and no residual loss is quantified (including, if applicable, provable consequential loss), forfeiture under Section 4(6)(a) is unavailable. Banks must carefully record and prove any net loss if they intend to set it off against gratuity.
Administrative practice changes:
HR and disciplinary authorities in banks should:
- Abandon blanket “dismissal equals forfeiture” practices for gratuity.
- Quantify and document loss in the disciplinary outcome if invoking Section 4(6)(a).
- Set the criminal law in motion where moral turpitude is alleged and proceed to conviction if seeking forfeiture under Section 4(6)(b)(ii).
- Ensure service regulations state “whichever is higher” and avoid provisions that purport to negate statutory rights.
Litigation and remedy design:
The Court’s directions emphasize quick resolution: pay within 60 days with interest, and leave quantification disputes to the Controlling Authority. This allocates fact-intensive calculations to the statutory forum while ensuring that wrongful denials do not indefinitely delay payment.

Complex Concepts Simplified

What is the Payment of Gratuity Act’s “overriding effect” (Section 14)?
It means the Act controls over any inconsistent rules, regulations, contracts, or even other enactments (unless a later special statute expressly governs gratuity for a specific class, as in the Working Journalists Act). Employers cannot contract out of the Act’s protections.
When can gratuity be forfeited (Section 4(6))?
- Section 4(6)(a): If service is terminated for acts causing damage/loss to the employer’s property, gratuity can be forfeited only up to the quantified loss amount.
- Section 4(6)(b)(i): Whole or part forfeiture is possible if termination is for riotous/disorderly conduct or any act of violence.
- Section 4(6)(b)(ii): Whole or part forfeiture is possible if termination is for any act constituting an offence involving moral turpitude committed during employment—but only upon criminal conviction.
What is “moral turpitude” and why is conviction necessary?
“Moral turpitude” refers to conduct that is gravely contrary to accepted moral standards and is punishable as a criminal offence. Per Ajay Babu, an employer’s disciplinary finding does not establish a criminal offence; only a court can, upon prosecution. Hence, conviction is required to forfeit gratuity on this ground.
Does dismissal automatically cancel gratuity?
No. Dismissal does not, by itself, extinguish gratuity. Forfeiture must be justified under Section 4(6) and is narrowly construed. This protects the social-welfare character of gratuity as deferred wages.
Who decides disputes about gratuity amount?
The Controlling Authority under the Act (appointed under Section 3) is the primary forum to resolve disputes about entitlement and quantification. Courts may direct payment and leave computation issues to that authority, as done here.
“Whichever is higher” in service regulations:
Many employer regulations lawfully provide that an employee will get either the statutory gratuity or the amount under the regulations, whichever is higher. This aligns with the Gratuity Act’s minimum-floor policy. What is impermissible is a regulation that purports to give less than the Act or to deny statutory gratuity altogether where the Act mandates it.

Key Takeaways

Service regulations cannot override the Payment of Gratuity Act; Section 14 ensures the Act’s primacy.
Forfeiture under Section 4(6)(a) is limited to the quantified extent of loss; if restitution is made and no loss is shown, forfeiture fails.
Forfeiture for “moral turpitude” under Section 4(6)(b)(ii) requires a criminal conviction; disciplinary findings alone are insufficient.
Dismissal is not synonymous with forfeiture of gratuity; the statute’s conditions must be strictly met.
“Officers” are not outside the Act’s protective ambit; internal labels cannot contract out of a welfare statute.
Courts may award interest on delayed gratuity and channel computation disputes to the Controlling Authority.

Conclusion

The Madhya Pradesh High Court’s decision in Smt. Babita Mor is a clear reaffirmation of the Payment of Gratuity Act’s supremacy over conflicting employer-made regulations and a meticulous restatement of the narrow grounds on which gratuity can be forfeited. By applying the Supreme Court’s guidance in Jaswant Singh Gill and Ajay Babu, the Court rejected a blanket, regulation-based forfeiture for a dismissed bank officer, emphasized the necessity of quantifying loss for Section 4(6)(a), and insisted on a criminal conviction for Section 4(6)(b)(ii).

The judgment meaningfully protects the social-welfare character of gratuity by ensuring that employers cannot rely on internal classifications (such as “officer”) or disciplinary findings to defeat statutory entitlements. For banks and other employers, it signals the need to align disciplinary and HR practices with the statutory scheme: if forfeiture is to be pursued, it must be within the exact confines the Act allows. For employees and their families, including widows like the petitioner, it provides a robust avenue to claim what the law guarantees, with judicial reinforcement of interest for delay and recourse to the Controlling Authority for disputes on computation.