Section 4(1) of the Payment of Gratuity Act, 1972 stipulates that 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.
Clause (a) of sub-section (6) of section 4 of the Act stipulates that notwithstanding anything contained in sub-section (1), the gratuity of an employee, whose services have been terminated for any act, wilful 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.
Clause (b) of sub-section (6) of section 4 of the Act as it originally stood, stipulated that the gratuity payable to an employee shall be wholly forfeited, if his services have been terminated for riotous or disorderly conduct or any act of violence on his part or if his services 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.
The words ‘shall be wholly forfeited’ were replaced by the words ‘may be wholly or partially forfeited’ with effect from 01-07-1984 by Act 25 of 1984.
# Case Laws on Gratuity
In M/s. Bharat Gold Mines Ltd. Vs. Regional Labour Commissioner (Central) Bangalore, 1986 Lab.I.C. 1976 a Division Bench of the Karnataka High Court considered the question whether theft is an offence involving moral turpitude and if the services of an employee had been terminated on the charge of theft committed by him in the course of his employment, the gratuity payable to him under the provisions of the Act stands wholly forfeited in view of Sec. 4(6)(b)(ii) of the Act.
The employee in that case was a workman in the service of Bharat Gold Mines. Disciplinary action was initiated against him on the charge that he committed theft of gold of the value of Rs.155.61 in the course of his employment. Based on the report of the enquiry which found him guilty of the charge, the disciplinary authority dismissed him from service forfeiting all rights and privileges that had accrued to him from his past service.
The employee thereafter moved the Assistant Labour Commissioner claiming gratuity for the services rendered by him prior to the date of termination. The employer contended that as the employee was dismissed from service after finding him guilty of theft which constitutes an offence involving moral turpitude, the gratuity payable to him stood wholly forfeited in view of Sec. 4(6)(b)(ii) of the Act, as it then stood.
The Assistant Labour Commissioner held that as no show cause notice was issued to the employee, the forfeiture of gratuity was wrong. The application filed by the employee was accordingly allowed and the employer was directed to pay gratuity. Though an appeal was taken before the appellate authority it was dismissed relying on the decision of a learned single Judge of the Karnataka High Court in W.P.No.13303 of 1978 wherein it had been held that the offence of theft did not involve moral turpitude and therefore Sec. 4(6) (b)(ii) of the Act was not applicable.
Overruling the said decision of the learned single Judge, a Division Bench of the Karnataka High Court in Bharat Gold Mines Ltd. (supra) held that when a person is found guilty of the charge of theft it means that he has acted dishonestly and therefore it follows that he has committed an offence involving moral turpitude.
The Division Bench thereafter proceeded to hold that as the conditions necessary for the applicability of sec. 4(6)(b)(ii) of the Act existed, the employer was right in taking the stand that the gratuity payable to the employee stood wholly forfeited. The Division Bench also held that though for forfeiting gratuity under Sec. 4(6)(b) of the Act as it originally stood, it was unnecessary to comply with the rules of natural justice, in view of the amendment to Sec. 4(6)(b) of the Act with effect from 01.07.1984 the position has changed and thereafter the employer has to take an independent decision after the termination of service of an employee as to whether the gratuity payable to the employee should be forfeited.
The same view was reiterated by another Division Bench of the Karnataka High Court in Vijaya Bank Vs. Mohan Das Ramana Shetty, 2009 (II) LLJ 241. In that case an employee of the Vijaya Bank was removed from service after holding a domestic enquiry. The said order was upheld by the appellate authority.
One of the charges against the employee was that his acts had caused pecuniary loss to the bank. Though in the enquiry, the employee had admitted the charges levelled against him, he challenged the orders passed by the disciplinary authority/appellate authority by filing a writ petition in the Karnataka High Court. The decisions of the disciplinary authority and the appellate authority removing the employee from service were upheld.
However the learned single Judge of the Karnataka High Court directed the employer bank to pay gratuity, leave encashment benefits and the contribution to the provident fund with statutory interest. Aggrieved thereby the employer bank preferred an appeal. Relying on sec. 4(6)(a) of the Act, the bank contended that as the acts of misconduct committed by the employee had caused loss to the bank, the gratuity payable to him is liable to be forfeited and therefore the direction issued by the learned single Judge to pay gratuity is liable to be set aside.
On appeal, a Division Bench of the Karnataka High Court held that before passing an order forfeiting gratuity on the ground that the act or omission of the employee had caused loss to the employer, the employee is entitled to be put on notice and that having not been done, the direction issued by the learned single Judge does not merit interference.
In Ahmedabad Municipal Corporation Vs. Ellvina Samualbhai Christian, 2002 (I) LLJ 342 an employee of the Ahmedabad Municipal Corporation was dismissed from service after holding a domestic enquiry. The employee thereafter moved the Controlling Authority under the Act seeking payment of gratuity. It was contended that gratuity has not been paid though no order of forfeiture had been passed. The Controlling Authority passed an order directing the employer to pay gratuity. The appeal therefrom was dismissed by the appellate authority. The Ahmedabad Municipal Corporation thereupon moved the High Court of Gujarat challenging those orders.
A learned single Judge of the Gujarat High Court held that unless a specific order for forfeiture of gratuity, either in part or as a whole, has been passed by the employer, the employee is entitled to receive gratuity.
A similar view was taken by a learned single Judge of the Allahabad High Court in Hindalco Industries Ltd. Vs. Appellate Authority, 2004 (III) LLJ 148. It was held that right to receive gratuity is a statutory right and therefore, to forfeit the gratuity which an employee is entitled to, an order is required to be passed determining the quantum of gratuity forfeited after giving an opportunity to the employee.
In Remington Rand of India Ltd. Vs. The Workmen, AIR 1970 SC 1421 : (1969) 3 SCC 913, the Supreme Court considered the qualifying period for payment of gratuity, and the consequences of payment of gratuity on the termination of services for misconduct. It was held that gratuity is paid to ensure good conduct throughout the period that the workman serves his employer is an accepted proposition.
In Management of Tournamulla Estate Vs. Their Workmen, AIR 1973 SC 2344 : (1973) 2 SCC 502 : 1973 II LLJ 241 the Apex Court held that if the workman is guilty of serious misconduct, then the gratuity can be forfeited in its entirety.
In Dhanalakshmi Bank Ltd. Vs. N.R. Ramachandran, 2012 (2) KLT 170 : 2012 (2) KLJ 236 : ILR 2012 (2) Ker. 165 the Kerala High Court after referring the all the above judgments held that right to receive gratuity is a statutory right and therefore, to forfeit the gratuity which an employee is entitled to, an order is required to be passed determining the quantum of gratuity forfeited after giving an opportunity to the employee.
In the instant case the petitioner has no case that an order forfeiting the gratuity had been passed with notice to the employee. The petitioner has also no case that an order forfeiting the gratuity had been passed even initially while dismissing the employee from service. In other words the petitioner has not established the fact that an order forfeiting the whole of the gratuity payable to the first respondent had been passed with notice to him. Such being the situation, as the employer has not passed an order forfeiting the whole or any part of the gratuity payable to the first respondent after putting him on notice, the Court held following the principles laid down in the decisions referred to above that the direction issued by the appellate authority under the Act in Ext.P6 order does not merit interference.