A) ABSTRACT / HEADNOTE

The Supreme Court examined whether forfeiture of gratuity under Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972 is permissible where an employee is terminated for misconduct that constitutes an offence involving moral turpitude, even though there has been no criminal conviction or the initiation of criminal proceedings. The Court held that the statutory language does not require a criminal conviction: a disciplinary finding that the misconduct constitutes an offence involving moral turpitude suffices to authorise whole or partial forfeiture, subject to procedural fairness and reasoned exercise of discretion.

The Court rejected reading into the statute words like “duly established in a Court of Law” (an interpretation earlier articulated in Union Bank of India v. C.G. Ajay Babu), treating that part of C.G. Ajay Babu as obiter in any event because Section 4(5) rendered Section 4(6) inapplicable to the bank in that case. Applying the principle, the Court upheld complete forfeiture where an appellant obtained employment by producing a forged date of birth certificate (appointment thereby being illegal), relying on Devendra Kumar v. State of Uttaranchal for the proposition that suppression of material information at appointment amounts to moral turpitude.

In contrast, in cases of misappropriation of meagre passenger fares by MSRTC conductors, the Court recognised misappropriation as moral turpitude but directed that forfeiture be limited to 25% of gratuity as a sympathetic and proportionate exercise of discretion. The ruling clarifies statutory scope, emphasises notice and representation before forfeiture, and balances the employee’s accrued statutory right with employer interest where misconduct is established administratively.

Keywords: Forfeiture of gratuity; Payment of Gratuity Act, 1972 s.4(6)(b)(ii); moral turpitude; forgery / suppression of date of birth; misappropriation of fares; C.G. Ajay Babu; Devendra Kumar.

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The central statutory provision is Section 4(6) of the Payment of Gratuity Act, 1972, which permits forfeiture whole or part of gratuity where services are terminated for certain causes including “any act which constitutes an offence involving moral turpitude” (s.4(6)(b)(ii)). Prior Supreme Court precedents generated doctrinal tension on whether such forfeiture can follow only after a criminal conviction or whether a departmental finding suffices.

In Union Bank of India v. C.G. Ajay Babu the Court, while deciding issues specific to bank employees governed by a bipartite settlement, observed that an offence must be “duly established in a Court of Law” for forfeiture under s.4(6)(b)(ii) an observation treated as obiter in the present judgment. Other authorities like Jaswant Singh Gill and Mahanadi Coalfields dealt with scope of disciplinary proceedings and post-superannuation penalties; Devendra Kumar dealt expressly with suppression of material information in appointment as amounting to moral turpitude.

The present appeals arose from distinct fact-patterns: a PSU employee who secured appointment by producing a forged date of birth certificate and a set of MSRTC conductors found to have misappropriated passenger fares. Lower courts (including High Court) had set aside forfeiture relying on earlier authorities.

The Supreme Court therefore had to resolve:

(a) the correct statutory interpretation of s.4(6)(b)(ii) vis-à-vis the requirement of criminal conviction;

(b) whether suppression of age / production of forged certificate constitutes moral turpitude sufficient to forfeit gratuity; and

(c) the appropriate quantum of forfeiture where misappropriation of small sums was proved.

The Court emphasised statutory text, the ordinary meaning of “offence” in the General Clauses Act, difference in standards between criminal and disciplinary fora, and the discretionary nature of forfeiture subject to procedural fairness.

D) FACTS OF THE CASE

The appeals concern two clusters of disciplinary terminations. In the PSU appeal the employee obtained appointment by submitting a date of birth certificate representing his birth year as 1960 while he was in fact born in 1953. After service of approximately twenty-two years the employer initiated disciplinary inquiry which proved suppression of the true date of birth and fabrication of the certificate.

The disciplinary authority terminated service and forfeited the entire gratuity. The employee contended long unblemished service and statutory entitlement to gratuity; the employer submitted the appointment was obtained by fraud thereby vitiating any entitlement. No criminal prosecution for forgery was instituted.

In the MSRTC appeals a number of conductors were subjected to disciplinary proceedings and found to have misappropriated fares collected from passengers. The misappropriated amounts were small. The disciplinary authorities terminated service and ordered forfeiture of gratuity.

MSRTC appealed against High Court orders which had held forfeiture impermissible under the precedent in C.G. Ajay Babu. The appellants before the Supreme Court urged that misappropriation is an act of moral turpitude permitting forfeiture; the respondents sought reinstatement of gratuity on the basis of statutory protection and prior High Court rulings. Both fact-scenarios therefore required the Court to determine whether departmental findings, absent criminal conviction, can found forfeiture and if so whether complete or partial forfeiture is warranted taking into account gravity, amounts, and equities.

E) LEGAL ISSUES RAISED

1. Whether Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972 requires a criminal conviction or proof in a criminal court before gratuity may be wholly or partially forfeited where termination is for an act which constitutes an offence involving moral turpitude?

2. Whether suppression of actual date of birth and production of a forged certificate to secure appointment amounts to an offence involving moral turpitude permitting forfeiture of gratuity?

3. Whether misappropriation of small/meagre amounts by conductors constitutes moral turpitude and, if so, what is the appropriate quantum (whole v. partial) of forfeiture?

4. What procedural safeguards (notice, representation, discretion) must disciplinary or appointing authorities observe before ordering forfeiture under s.4(6)?

F) PETITIONER / APPELLANT’S ARGUMENTS

The PSU/Appellant argued that the appointment was vitiated because the employee produced a fabricated date of birth certificate and thereby suppressed material information; by Devendra Kumar such suppression is an act of moral turpitude and disentitles the wrongdoer from statutory benefits earned by virtue of an illegal appointment.

The employer submitted that the right to gratuity is not absolute where the service itself was obtained by fraud and that forfeiture under s.4(6)(b)(ii) may be ordered on a departmental finding without awaiting criminal conviction. MSRTC (appellant in other appeals) contended that misappropriation of fares even small amounts amounts to moral turpitude and justifies termination and forfeiture; reliance was placed on disciplinary findings and the need to protect public funds and employer trust.

G) RESPONDENT’S ARGUMENTS

The respondents (delinquent employees) relied on the statutory entitlement to gratuity and prior High Court decisions (following C.G. Ajay Babu) that interpreted s.4(6)(b)(ii) as requiring stronger proof or criminal adjudication; they stressed long service and proportionality, arguing that minor financial lapses or unprosecuted misconduct should not deprive an employee of accrued statutory benefits. In the PSU matter the respondent highlighted long service and vested expectations, asking for leniency against complete forfeiture.

H) RELATED LEGAL PROVISIONS

i. Payment of Gratuity Act, 1972 — Section 4(1), Section 4(5), Section 4(6)(a) & (b)(ii).
ii. General Clauses Act — definition of “offence” as any act or omission made punishable by any law for the time being.
iii. Rules of natural justice and statutory safeguards applicable to disciplinary proceedings (notice, representation, reasoned order).

I) JUDGEMENT 

The Court allowed the appeals with modifications. It held that Section 4(6)(b)(ii) does not by its text mandate a criminal conviction or that the alleged misconduct be “duly established in a Court of Law” before forfeiture. The Court analysed C.G. Ajay Babu and concluded that the passage requiring proof in a criminal court was obiter and unnecessary to decision in that bank-specific case where s.4(5) rendered s.4(6) inapplicable. Relying on the ordinary statutory language and on the General Clauses Act meaning of “offence”, the Court emphasised that an offence is any act made punishable by law and that the standard applicable in a disciplinary enquiry differs from criminal standard; the statute contemplates forfeiture on termination for an act which constitutes an offence involving moral turpitude, determined on the facts by the disciplinary authority.

Procedural fairness is required: the employee must be given notice and opportunity to represent both on the nature of misconduct and on extent of forfeiture.

Applying these principles, the Court found in the PSU appeal that the employee produced a fraudulent date of birth certificate and suppressed true birthdate, thereby obtaining appointment by fraud. Relying on Devendra Kumar the Court held suppression of material information at selection/appointment constitutes moral turpitude and that an illegal appointment defeats any claim to gratuity; accordingly entire gratuity forfeiture was upheld.

By contrast, in the MSRTC appeals although misappropriation of passenger fares was found which the Court accepted as an act involving moral turpitude the amounts were meagre. The Court directed the appointing authority to exercise discretion sympathetically and ordered that forfeiture be limited to 25% of gratuity payable with the balance released to the employees. The Court thus balanced statutory forfeiture power with proportionality and equitable considerations and directed parties to bear their own costs.

a. RATIO DECIDENDI

The operative ratio is that s.4(6)(b)(ii) authorises whole or partial forfeiture of gratuity when the appointing/disciplinary authority terminates service for an act which constitutes an offence involving moral turpitude, and such forfeiture does not require prior conviction in a criminal court. The statute’s plain text and the General Clauses Act definition of “offence” show Parliament did not condition forfeiture on criminal adjudication.

The standard of proof in disciplinary proceedings (preponderance of probabilities) suffices to determine whether the misconduct would, in normal circumstances, amount to an offence involving moral turpitude committed in the course of employment. The disciplinary authority must, however, adhere to principles of natural justice, provide notice, and apply its discretion to determine whether forfeiture should be whole or partial depending on gravity, consequences, and equities.

b. OBITER DICTA

The Court observed obiter that the statement in Union Bank of India v. C.G. Ajay Babu requiring the offence to be “duly established in a Court of Law” cannot be read into s.4(6)(b)(ii) as a textual requirement; that statement in C.G. Ajay Babu was unnecessary given the bank-specific exemption under s.4(5) and therefore constituted obiter. The Court reiterated authority from Devendra Kumar that suppression of material information at the time of appointment is inherently mala fide and can amount to moral turpitude even without separate criminal adjudication. The bench also remarked that misappropriation, however small, constitutes an offence involving moral turpitude; yet proportionality demands that the quantum of forfeiture reflect the gravity and pecuniary consequence.

c. GUIDELINES

1. Textual approach: Do not read into s.4(6)(b)(ii) requirements absent from statute (e.g., court conviction).

2. Standard of proof: Disciplinary findings on moral turpitude may be based on preponderance of probabilities; such findings can ground forfeiture.

3. Notice & representation: Before forfeiture the delinquent employee must be given specific notice and opportunity to represent on (a) whether the misconduct constitutes moral turpitude and (b) the extent (whole / part) of forfeiture.

4. Discretionary exercise: Appointing/disciplinary authority must record reasons for extent of forfeiture and consider mitigating factors (length of service, quantum of misappropriation, nature of fraud, whether appointment itself was illegal).

5. Proportionality: Where misconduct involves minor pecuniary amounts, authorities should consider partial forfeiture and proportionate sanctions rather than automatic total forfeiture.

6. Illegal appointment: If appointment is vitiated by fraud at the outset, courts may treat gratuity claim as barred; falsity of foundational documents calls for stricter consequence.

7. Criminal proceedings: The absence of criminal proceedings does not preclude forfeiture but employers may still pursue criminal remedies if warranted.

J) CONCLUSION & COMMENTS

The decision provides necessary statutory clarity by rejecting an interpretation that makes forfeiture contingent on criminal conviction. This aligns the statutory scheme with administrative realities: disciplinary fora are expected to police workplace misconduct and to apply sanctions proportionate to proven misconduct. The ruling preserves employer prerogative to protect public funds and organisational integrity while safeguarding procedural fairness for employees. Two important practical consequences follow.

First, employers exercising disciplinary power must meticulously document findings, apply natural justice, and articulate reasons for the extent of forfeiture; a cursory or arbitrary order will be vulnerable on judicial review. Second, courts will scrutinise proportionality: misappropriation of trivial sums, though misconduct, will not automatically justify full forfeiture as illustrated by the 25% ceiling directed in the MSRTC appeals.

The judgment also sends a deterrent message against fraud at the appointment stage: concealment of material facts or forged credentials can nullify an employee’s entitlement to statutory benefits. Finally, while the decision empowers administrative findings to trigger forfeiture, it preserves the employee’s right to challenge both fact and proportionality before courts thus maintaining a balance between employer discipline and judicial oversight.

K) REFERENCES

a. Important Cases Referred

1. Western Coal Fields Ltd. v. Manohar Govinda Fulzele & Anr., [2025] 3 S.C.R. 183 : 2025 INSC 233.

2. Union Bank of India & Ors. v. C.G. Ajay Babu, (2018) 9 SCC 529.

3. Jaswant Singh Gill v. Bharat Coking Coal Ltd., (2007) 1 SCC 663.

4. Mahanadi Coalfields Ltd. v. Rabindranath Choubey, (2020) 18 SCC 71.

5. Devendra Kumar v. State of Uttaranchal, (2013) 9 SCC 363.

b. Important Statutes Referred

1. Payment of Gratuity Act, 1972 (esp. s.4(1), s.4(5), s.4(6)(a) & (b)(ii)).

2. General Clauses Act (definition of “offence”).