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Union Bank of India and Others v. C.G. Ajay Babu and Another

Civil Appeal · 2018 INSC 708Decided 14 Aug 2018
Civil Appeal No. 8251 of 2018
Justice Kurian Joseph · Justice Sanjay Kishan Kaul

Background

The respondent, a bank Branch Manager, was dismissed from service after disciplinary proceedings found him guilty of misconduct (failure to protect the bank's interests and acts unbecoming of an officer). The bank then forfeited his gratuity, treating the misconduct as "an offence involving moral turpitude." The High Court held that under the bank's own bipartite settlement (which allowed forfeiture only where the misconduct caused financial loss), and since no financial loss was shown, the employee was entitled to his gratuity. The Bank appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that under Section 4(5) of the Payment of Gratuity Act, an employee is entitled to the benefit of better terms under any contract or settlement instead of the Act, and here the bank's own bipartite settlement permitted forfeiture only when the misconduct caused the bank financial loss, which admittedly had not happened. Separately, the Court clarified that forfeiture under Section 4(6)(b)(ii) of the Act for an "offence involving moral turpitude" requires that the employee actually be convicted of a criminal offence by a court of law: a bank's own internal disciplinary finding of misconduct is not enough, since only a court, not the employer, can determine whether an offence has been committed. Since the respondent was never criminally convicted, forfeiture on that ground also failed. The Court held that forfeiture of gratuity is not automatic merely because an employee is dismissed, and dismissed the Bank's appeal.

Lesson Learnt

An employer cannot withhold an employee's gratuity simply by dismissing them for "misconduct": forfeiture under the Gratuity Act requires either proven financial loss to the employer or an actual criminal conviction for an offence involving moral turpitude; an internal departmental finding alone is not sufficient.

Official source (sci.gov.in)View Judgment (PDF)

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