Whether forfeiture of gratuity, under The Payment of Gratuity Act, 1972 (hereinafter referred to as ‘the Act’), is automatic on dismissal from service = 20. 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 dated 20.04.2004 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. 11 21. 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. 22. To sum-up, forfeiture of gratuity is not automatic on dismissal from service; it is subject to sub-Sections (5) and (6) of Section 4 of The Payment of Gratuity Act, 1972.

REPORTABLE
SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8251 OF 2018
(Arising out of S.L.P.(Civil) No. 3852/2017)
UNION BANK OF INDIA AND OTHERS … APPELLANT (S)
VERSUS
C.G. AJAY BABU AND ANOTHER … RESPONDENT (S)
J U D G M E N T
KURIAN, J.:
Leave granted.
2. Whether forfeiture of gratuity, under The Payment of
Gratuity Act, 1972 (hereinafter referred to as ‘the Act’), is automatic
on dismissal from service, is the issue for consideration in this case.
3. 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.”
1
4. On the charges being duly established, the respondent was
dismissed from service on 03.06.2004. The order of dismissal has
attained finality.
5. In the meanwhile, the respondent 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 by order dated 20.04.2004.
The order reads as follows:
“We refer to the show cause notice no. CO:IRD:654
dated 30.01.2004, seeking your explanation as to
why the gratuity payable to you should not be
forfeited on account proved misconduct against you
and the explanation dated 26.02.2004 submitted by
you thereto.
The misconduct proved against you amounts to acts
involving moral turpitude. In this regards, the
explanation submitted by you in terms of your above
reference reply is not satisfactory and therefore not
acceptable to the bank.
Therefore, in accordance of the provisions of section
4, subsection 6(b)(ii) of the Gratuity Act, 1972 and
clause 3 to Schedule “A” of the Banks Gratuity Rules,
the Bank has decided to forfeit an amount of Rs.
1,77,900/- from the Gratuity amount payable to
you.” (Emphasis supplied)
6. The dismissal and forfeiture were the subject matters of
challenge before the High Court leading to the impugned judgment
2
dated 08.01.2016 of the learned Single Judge. The Court 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.
7. While dismissing the intra-Court appeal, the Division Bench
of the High Court took the view that Section 4(6)(a) and (b) have to
be read together and 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.
8. Heard the learned Counsel appearing for the Bank and the
respondent-employee.
9. Section 4 of the Act, to the extent relevant, reads as follows:
“4 Payment of gratuity.—(1) Gratuity shall be
payable to an employee on the termination of his
employment after he has rendered continuous service
for not less than five years,—
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or
disease:
Provided that the completion of continuous service
of five years shall not be necessary where the
termination of the employment of any employee is due
3
to death or disablement:
Provided further that in the case of death of the
employee, gratuity payable to him shall be paid to his
nominee or, if no nomination has been made, to his
heirs, and where any such nominees or heirs is a minor,
the share of such minor, shall be deposited with the
controlling authority who shall invest the same for the
benefit of such minor in such bank or other financial
institution, as may be prescribed, until such minor
attains majority.
Explanation .— For the purposes of this section,
disablement means such disablement as incapacitates
an employee for the work which he was capable of
performing before the accident or disease resulting in
such disablement.
xxx xxx xxx xxx
(5) Nothing in this section shall affect the right of an
employee to receive better terms of gratuity under any
award or agreement or contract with the employer.
(6) Notwithstanding anything contained in sub-section
(1),—
(a) the gratuity of an employee, whose services
have been terminated for any act, willful omission
or negligence causing any damage or loss to, or
destruction of, property belonging to the employer
shall be forfeited to the extent of the damage or
loss so caused;
(b) the gratuity payable to an employee may be
wholly or partially forfeited—
(i) if the services of such employee have been
terminated for his riotous or disorderly conduct or
any other act of violence on his part, or
(ii) if the services of such employee have
been terminated for any act which
constitutes an offence involving moral
turpitude, provided that such offence is
committed by him in the course of his
employment.” (Emphasis supplied)
4
10. The subtle distinction between sub-Section (5) and subSection
(6) is that the former is a non-obstante clause of the entire
Section whereas the latter is only in respect of sub-Section (1). In
other words, sub-Section (5) has an overriding effect on all other
sub-Sections under Section 4 of the Act. Thus, notwithstanding
anything contained under Section 4 of the Act, an employee is
entitled to receive better terms of gratuity under any award or
agreement or contract with the employer.
11. In the case of the appellant-Bank, as noted by the learned
Single Judge, there is a bipartite settlement dated 19.08.1966
prevailing in the Bank and the clause dealing with the forfeiture of
gratuity reads as follows:
“12.2 There will be no forfeiture of gratuity for dismissal
on account of misconduct except in cases where such
misconduct causes financial loss to the bank and in that
case to that extent only.”
(Emphasis
supplied)
12. Learned Counsel for the appellant-Bank submits that subSection
(5) of Section 4, “while providing for better terms of gratuity
under any award or agreement or contract”, deals only with the
quantum of the gratuity and not with the entitlement under any
award or agreement or contract as such. We are afraid, this
5
submission cannot be appreciated. The statute provides for better
terms of gratuity under any award or agreement or contract which
means all terms of the contract. The choice is between the award or
agreement or contract and the statute, but not partially of either.
13. In Beed District Central Coop. Bank Ltd. v. State of
Maharashtra and others1
, it has been held that the expression
‘terms’ as appearing under sub-Section (5) of Section 4 of the Act
must ordinarily mean all terms to the contract and that the
employee is not entitled to best terms of both the statute and the
contract. Paragraph-14 reads as follows:
“14. Applying the “golden rule of interpretation of
statute”, to us it appears that the question should be
considered from the point of view of the nature of the
scheme as also the fact that the parties agreed to the
terms thereof. When better terms are offered, a
workman takes it as a part of the package. He may
volunteer therefor, he may not. Sub-section (5) of
Section 4 of the 1972 Act provides for a right in favour
of the workman. Such a right may be exercised by the
workman concerned. He need not necessarily do it. It is
the right of individual workman and not all the
workmen. When the expression “terms” has been used,
ordinarily it must mean “all the terms of the contract”.
While interpreting even a beneficent statute, like, the
Payment of Gratuity Act, we are of the opinion that
either contract has to be given effect to or the statute.
The provisions of the Act envisage for one scheme. It
could not be segregated. Sub-section (5) of Section 4 of
the 1972 Act does not contemplate that the workman
would be at liberty to opt for better terms of the
contract, while keeping the option open in respect of a
1
(2006) 8 SCC 514
6
part of the statute. While reserving his right to opt for
the beneficent provisions of the statute or the
agreement, he has to opt for either of them and not the
best of the terms of the statute as well as those of the
contract. He cannot have both. If such an interpretation
is given, the spirit of the Act shall be lost…..”
14. In Y.K. Singla v. Punjab National Bank and others2
, the
position has been reiterated holding that the employee has to make
a choice between the two for drawing the benefit of gratuity and the
choice has a statutory protection under sub-Section (5) of Section 4
of the Act. To quote paragraph-23:
“23. Based on the conclusions drawn hereinabove,
we shall endeavour to determine the present
controversy. First and foremost, we have concluded on
the basis of Section 4 of the Gratuity Act that an
employee has the right to make a choice of being
governed by some alternative provision/instrument
other than the Gratuity Act, for drawing the benefit of
gratuity. If an employee makes such a choice, he is
provided with a statutory protection, namely, that the
employee concerned would be entitled to receive better
terms of gratuity under the said provision/instrument,
in comparison to his entitlement under the Gratuity Act.
This protection has been provided through Section 4(5)
of the Gratuity Act.”
15. That there is a bipartite settlement in the appellant-Bank is
not in dispute. That the settlement provides for forfeiture only if
there is a loss caused on account of misconduct leading to dismissal,
is also not in dispute. There is no case for the Bank that the
misconduct of the respondent-employee has caused any financial
2
(2013) 3 SCC 472
7
loss to the Bank, and therefore, forfeiture, taking recourse to subSection
(6) of Section 4 of the Act, cannot be resorted to. Thus, we
are in respectful agreement with the view taken by the High Court
that the respondent-employee is entitled to the protection of the
bipartite settlement.
16. Under sub-Section (6)(a), also the gratuity can be forfeited to
only to the extent of damage or loss caused to the Bank. In case, the
termination of the employee is for any act or wilful omission or
negligence causing any damage or loss to the employer or
destruction of property belonging to the employer, the loss can be
recovered from the gratuity by way of forfeiture. Whereas under
sub-Clause (b) of sub-Section (6), the forfeiture of gratuity, either
wholly or partially, is permissible under two situations– (i) in case the
termination of an employee is on account of riotous or disorderly
conduct or any other act of violence on his part, (ii) if the
termination is for any act which constitutes an offence involving
moral turpitude and the offence is committed by the employee in
the course of his employment. Thus, sub-Clause (a) and sub-Clause
(b) of sub-Section (6) of Section 4 of the Act operate in different
fields and in different circumstances. Under sub-Clause (a), the
forfeiture is to the extent of damage or loss caused on account of
8
the misconduct of the employee whereas under sub-Clause (b),
forfeiture is permissible either wholly or partially in totally different
circumstances. Sub-Clause (b) operates either when the termination
is on account of- (i) riotous or (ii) disorderly or (iii) any other act of
violence on the part of the employee, and under Sub-Clause (ii) of
sub-Section (6)(b) when the termination is on account any act which
constitutes an offence involving moral turpitude committed during
the course of employment.
17. ‘Offence’ is defined, under The General Clause Act, 1897, to
mean “any act or omission made punishable by any law for the time
being in force”.
18. Though the learned Counsel for the appellant-Bank has
contended that the conduct of the respondent-employee, which
leads to the framing of charges in the departmental proceedings
involves moral turpitude, we are afraid the contention cannot be
appreciated. It is not the conduct of a person involving moral
turpitude that is required for forfeiture of gratuity but the conduct or
the act should constitute an offence involving moral turpitude. To be
an offence, the act should be made punishable under law. That is
absolutely in the realm of criminal law. It is not for the Bank to
decide whether an offence has been committed. It is for the court.
9
Apart from the disciplinary proceedings initiated by the appellantBank,
the Bank has not set the criminal law in motion either by
registering an FIR or by filing a criminal complaint so as to establish
that the misconduct leading to dismissal is an offence involving
moral turpitude. Under sub-Section (6)(b)(ii) of the Act, forfeiture of
gratuity is permissible only if the termination of an employee is for
any misconduct which constitutes an offence involving moral
turpitude, and convicted accordingly by a court of competent
jurisdiction.
19. In Jaswant Singh Gill v. Bharat Coking Coal Limited
and others3
, it has been held by this Court that forfeiture of
gratuity either wholly or partially is permissible under sub-Section
(6)(b)(ii) only in the event that the termination is on account of
riotous or disorderly conduct or any other act of violence or on
account of an act constituting an offence involving moral turpitude
when he is convicted. To quote paragraph-13:
“13. The Act provides for a close-knit scheme
providing for payment of gratuity. It is a complete code
containing detailed provisions covering the essential
provisions of a scheme for a gratuity. It not only creates
a right to payment of gratuity but also lays down the
principles for quantification thereof as also the
conditions on which he may be denied therefrom. As
noticed hereinbefore, sub-section (6) of Section 4 of the
3
(2007) 1 SCC 663
10
Act contains a non obstante clause vis-à-vis sub-section
(1) thereof. As by reason thereof, an accrued or vested
right is sought to be taken away, the conditions laid
down thereunder must be fulfilled. The provisions
contained therein must, therefore, be scrupulously
observed. Clause (a) of sub-section (6) of Section 4 of
the Act speaks of termination of service of an employee
for any act, wilful omission or negligence causing any
damage. However, the amount liable to be forfeited
would be only to the extent of damage or loss caused.
The disciplinary authority has not quantified the loss or
damage. It was not found that the damages or loss
caused to Respondent 1 was more than the amount of
gratuity payable to the appellant. Clause (b) of subsection
(6) of Section 4 of the Act also provides for
forfeiture of the whole amount of gratuity or part in the
event his services had been terminated for his riotous
or disorderly conduct or any other act of violence on his
part or if he has been convicted for an offence involving
moral turpitude. Conditions laid down therein are also
not satisfied.”
20. 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 dated
20.04.2004 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.
11
21. 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.
22. To sum-up, forfeiture of gratuity is not automatic on
dismissal from service; it is subject to sub-Sections (5) and (6) of
Section 4 of The Payment of Gratuity Act, 1972.
23. Thus, though for different reasons as well, we find no merit
in the appeal and it is accordingly dismissed. No costs.
……….……………………J.
(KURIAN JOSEPH)
..……..……………………J.
(SANJAY KISHAN KAUL)
NEW DELHI;
AUGUST 14, 2018.
12