When You Can Forfeit the Gratuity Payable to an Employee

After conducting a domestic enquiry, the management found the employee guilty of misconducts related to embezzlement of fund for his own benefit. Thereafter, the employee was dismissed from his service and all his financial benefits including gratuity were forfeited. A separate criminal proceeding was also initiated against the employee.

Being aggrieved, the employee challenged the order of dismissal by way of filing a writ petition before the Hon’ble Single Judge, but it was dismissed. Finding no other alternative, the aggrieved employee approached the Writ Court challenging the order of the Single Judge as well as order of dismissal. The Writ Court observed that the employee himself has admitted the charges during the domestic enquiry and the enquiry officer has passed a detailed enquiry report. Even though the employee was acquitted in the criminal cases later, but the domestic enquiry was done independently and has nothing to do with the acquittal of the employee in the criminal case.

According to Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, which reads as

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;

(6) Notwithstanding anything contained in sub-section (1),

(a) the gratuity of an employee, whose services have been terminated for any act, willful 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;

(b) the gratuity payable to an employee shall be wholly forfeit

(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or

(ii) if the services of such employee 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 management has the right to forfeit the gratuity of an employee if his service is terminated on the ground of misconduct involving moral turpitude.

In this instant case, the employee was dismissed from service after he was found guilty of embezzlement of fund after conducting a domestic enquiry. His gratuity and other monetary benefit were forfeited. It is the settled position of the law and have been decided by the Supreme Court of India in several cases that the management can forfeit gratuity when it has suffered financially for a wilful and/ or negligent act of the employee resulting in financial loss of the company. Such harsh punishment is required to be implemented on the employee in order to maintain discipline.

The term ‘misconduct’ has vast meaning. First there can be a technical misconduct which cannot be related to indiscipline. Secondly, misconducts which lead to direct financial losses of the company and thirdly, misconduct like riotous behaviour, violence against management etc. which does not directly create financial loss to the company, but surely amounts to grave misconducts.

In spite of vehement argument put forward by the labour law advocate of the employee/ petitioner, Hon’ble High Court Himachal Pradesh held that the employee has himself admitted the charges during the domestic enquiry and no separate order is required to forfeit the gratuity. The Court held that the ordered passed by the Hon’ble Single Judge was a reasoned one and hence dismissed the appeal.

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