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.”  

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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

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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

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10. The  subtle  distinction  between  sub-Section  (5)  and  sub-

Section (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  sub-

Section (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

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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 others  1,  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

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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 others  2, 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

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loss to the Bank, and therefore, forfeiture, taking recourse to sub-

Section (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

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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.

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Apart from the disciplinary proceedings initiated by the appellant-

Bank,  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  others  3,  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

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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  sub- section  (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.

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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.  

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