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

[Mr. M. GOVINDARAJAN]

Section 4(1) of the Payment of Gratuity Act 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, on superannuation or on his retirement or resignation or on his death or disablement due to accident or disease.  Section 4(6)(a) of the Act stipulates that gratuity of an employee, whose services has 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. 

In ‘Bharat Gold Mines Limited V. Regional Labour Commissioner (Central), Bangalore’ – 1986 (7) TMI 357 - KARNATAKA HIGH COURT the employee was in the services of the Bharat Gold Mines.  Disciplinary action was initiated against him on the charge that the committed theft of gold 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 Section 4(6)(b)(ii) of the Act. 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.  The matter went to Division Bench of the High Court after travelling the proper channels.  The High Court held that in view of the amendment to Section 4(6) (b) an employer has to  take an independent decision after termination of service of an employee as to whether gratuity payable should at all be forfeited  and if so, to what extent.   The decision must necessarily depend on the facts and circumstances of the case, such as, the length and past record of the service, extend and magnitude of the offence and other relevant considerations.  Therefore, it follows that the decisions has to be taken after giving notice of the proposal to the employee concerned and after due consideration of the reply furnished.

In ‘Vijaya Bank V. Mohan Das Ramana Shetty’ – 2009-II-LLJ-241(kar) 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 act has 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 before the High Court.  The High Court upheld the order of the disciplinary authority and the appellate authority.  However the High Court directed the bank to pay gratuity, leave encashment benefits and the contributions to the provident fund with statutory interest.   Aggrieved by the order the bank filed appeal before the Division Bench.  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 single judge is to set aside.  The Division Bench held that before passing an order forfeiting gratuity on the ground that the act or omission of the employee had caused loss to the employee, the employee is entitled to be put on notice and that having not been done, the direction issued by the single judge does not merit interference.  The Division Bench further held that the object of having gratuity scheme is to provide a retiring benefit to the workman who has rendered long and unblemished service to the employer and thereby contributed to the prosperity of the employer; but it is not correct to say that any misconduct, however, grave, may not be visited with the forfeiture of gratuity in view of Section 4(6) of the Act.

In ‘Management of Tournamalla Estate  V. Their workmen’ – 1973 (3) TMI 117 - SUPREME COURT the Supreme Court held that a bare looking at Section 4(6)(a) shows that the right of the employer to forfeit the amount of earned gratuity sine qua non to the extent of damage or loss so caused but such a power is not automatic.  If the employer fails to prove before the Competent Authority which is functioning under the Act the extent of damage or loss so caused by the employee because of his act of alleged major misconduct the right to forfeit the gratuity under Section 4(6)(a) is not available to the employer.  In other words, before forfeiting the gratuity amount, the employee should afford an opportunity to the employee to the extent why his amount of gratuity be not forfeited, which leads to the conclusion that  if no material is brought on record to show that the service of the employee was terminated for any act wilful omission or negligence causing damage, loss or destruction of the employer’s property and if the extent of such damage is not quantified, the provisions of Section 4(6)(a) do not come into operation, the statutory provision for forfeiture of gratuity therefore must be construed  strictly.  taxmanagementindia.com

In ‘Dhanalakshmi BankLimited V. Ramachandran’ – 2012-IV-LLJ-235 (ker) the respondent was an employee of the bank. Hen was placed under suspension pending disciplinary action. An enquiry officer was appointed to enquire into the charges levelled against him. The workman did not participate in the enquiry.  Therefore the enquiry was held ex-parte. The disciplinary authority, based on the enquiry report, dismissed the workman from services Challenging the said order the employee filed an appeal before the Board of Directors of the Bank which rejected the appeal. The workman raised an industrial dispute. The workman submitted before the Controlling Authority for the payment of a sum of Rs.2.25 lakhs as gratuity considering his 26 years of service and his last pay drawn @ Rs.15000/- per month. The bank contended that under the provisions of the Group Gratuity Scheme of the bank and the Act an employee whose services have been terminated for fraud or misconduct is not entitled to gratuity. The misconduct committed by the workman was very grave and serious, that the misconduct alleged and proved in the enquiry involves moral turpitude and therefore he is not entitled to gratuity under the Act. The Controlling authority upheld the decisions of the bank. On appeal before the Regional Labour Commissioner, he directed the bank to pay the gratuity amount with 10% interest till the date of payment. The bank moved the high court in this regard. The High Court held that the bank has not established the fact that an order forfeiting the whole of the gratuity payable to the workman 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 workman after patting him on notice, the Court held that the direction issued by the appellate authority does not merit interference.

In short, the decision to forfeit the gratuity can be taken only after assessing the loss, which can be arrived at only after affording an opportunity to the employee concerned to be heard which is mandatory before taking such a decision.