UNION BANK OF INDIA AND OTHERS versus C.G. AJAY BABU AND ANOTHER on 14 August 2018

[2018] 9 S.C.R. 995

UNION BANK OF INDIA AND OTHERS

v.

C.G. AJAY BABU AND ANOTHER

(Civil Appeal No. 8251 of 2018)

AUGUST 14, 2018

[KURIAN JOSEPH AND SANJAY KISHAN KAUL, JJ.]

Payment of Gratuity Act, 1972: s.4(5) and (6) – Forfeiture ofgratuity is not automatic on dismissal from service.

Payment of Gratuity Act, 1972: s.4 sub-sections 5 and 6 –Forfeiture of gratuity – Bipartite settlement prevailing in the appellantbank – Respondent, an employee of appellant-bank – Disciplinaryproceedings – Dismissal from service – Order of forfeiture of gratuityon account of proved misconduct involving moral turpitude – HighCourt held that respondent was entitled to gratuity as there was nofinancial loss caused to bank and that as per bipartite settlement,forfeiture of gratuity is permissible only in case misconduct leadingto dismissal has caused financial loss to the bank and only to thatextent – Held: It was not the case of the appellant-bank that themisconduct of respondent caused any financial loss to the bankand, therefore, forfeiture, taking recourse to sub-section (6) of s. 4was wrongly resorted to by the appellant-bank – Respondent-employee is entitled to the gratuity.

Payment of Gratuity Act, 1972: s.4(6)(a) and (b) – It is notthe conduct of a person involving moral turpitude that is requiredfor forfeiture of gratuity but the conduct or the act should constitutean offence involving moral turpitude and convicted accordingly bya court of competent jurisdiction – It is not for the employer todecide whether an offence has been committed – It is for the court– In the instant case, there is no conviction of respondent formisconduct which according to bank is an offence involving moralturpitude – Therefore, there is no justification for the forfeiture ofgratuity on the ground that the misconduct proved against himamounted to acts involving moral turpitude.

Payment of Gratuity Act, 1972: The Act must prevail over theRules on Payment of Gratuity framed by the employer.

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996SUPREME COURT REPORTS

ADismissing the appeal, the CourtHELD: 1. The bipartite settlement provides for forfeitureonly if there is a loss caused on account of misconduct leading todismissal, is also not in dispute. There is no case for the Bankthat the misconduct of the respondent-employee has caused anyBfinancial loss to the Bank, and therefore, forfeiture, takingrecourse to sub-Section (6) of Section 4 of the Act, cannot beresorted to. Thus, the respondent-employee is entitled to theprotection of the bipartite settlement. [Para 15] [1002-E-F]

2. Sub-Clause (a) and sub-Clause (b) of sub-Section (6) ofCSection 4 of the Act operate in different fields and in differentcircumstances. Under sub-Clause (a) of sub-Section (6) of Section4 of the Act , the forfeiture is to the extent of damage or losscaused on account of the misconduct of the employee whereasunder sub-Clause (b), forfeiture is permissible either wholly orpartially in totally different circumstances. Sub-Clause (b)Doperates either when the termination is on account of- (i) riotousor (ii) disorderly or (iii) any other act of violence on the part ofthe employee, and under Sub-Clause (ii) of sub-Section (6)(b)when the termination is on account any act which constitutes anoffence involving moral turpitude committed during the courseEof employment. ‘Offence’ is defined, under The General ClauseAct, 1897, to mean “any act or omission made punishable by anylaw for the time being in force”. [Paras 16, 17] [1003-B-D]

3. It is not the conduct of a person involving moral turpitudethat is required for forfeiture of gratuity but the conduct or theFact should constitute an offence involving moral turpitude. Tobe an offence, the act should be made punishable under law. Thatis absolutely in the realm of criminal law. It is not for the Bank todecide whether an offence has been committed. It is for the court.Apart from the disciplinary proceedings initiated by the appellant-Bank, the Bank has not set the criminal law in motion either byGregistering an FIR or by filing a criminal complaint so as toestablish that the misconduct leading to dismissal is an offenceinvolving moral turpitude. Under sub-Section (6)(b)(ii) of the Act,forfeiture of gratuity is permissible only if the termination of anemployee is for any misconduct which constitutes an offenceHinvolving moral turpitude, and convicted accordingly by a court of competent jurisdiction. In the present case, there is noconviction of the respondent for the misconduct which accordingto the Bank is an offence involving moral turpitude. Therequirement of the statute is not the proof of misconduct of actsinvolving moral turpitude but the acts should constitute an offenceinvolving moral turpitude and such offence should be dulyestablished in a court of law. [Paras 18, 20] [1003-E-G; 1004-G-H]

4. The Act must prevail over the Rules on Payment ofGratuity framed by the employer, therefore, the appellant cannottake recourse to its own Rules, ignoring the Act, for denyinggratuity. [Para 21] [1005-A]

Beed District Central Coop. Bank Ltd. v. State ofMaharashtra and others (2006) 8 SCC 514 : [2006] 6Suppl. SCR 895 ; Y. K. Singla v. Punjab National Bankand others (2013) 3 SCC 472 : [ 2012] 13 SCR 1189;Jaswant Singh Gill v. Bharat Coking Coal Limited andothers (2007) 1 SCC 663 : [2006] 8 Suppl. SCR 1064– relied on.

Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8251of 2018.

From the Judgment and Order dated 28.10.2016 of the High Courtof Kerala at Ernakulam in Writ Appeal No. 1795 of 2016 in WP (C) No.28002/2004.

O. P. Gaggar, Aditya Gaggar, Advs. for the Appellants.

K. Parameshwar, M. V. Mukundh, P. K. Madhu, Advs. for theRespondents.

The judgment of the Court was delivered by KURIAN, J. 1. Leave granted.

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A2.Whether forfeiture of gratuity, under The Payment of GratuityAct, 1972 (hereinafter referred to as ‘the Act’), is automatic on dismissalfrom service, is the issue for consideration in this case.

3. The respondent was an employee of the appellant-Bank. Whileserving as a Branch Manager, disciplinary proceedings were initiatedBagainst him on the following charges:

“a) Failure to take all steps to ensure and protect the interestof the Bank.

b) Failure to discharge his duties with utmost devotion, diligence,honesty and integrity.C

c) Doing acts unbecoming of an Officer Employee.”

4. On the charges being duly established, the respondent wasdismissed from service on 03.06.2004. The order of dismissal has attainedfinality.

D5.In the meanwhile, the respondent was issued a show-causenotice as to why the gratuity should not be forfeited on account of provedmisconduct involving moral turpitude. His explanation was rejected andthe gratuity was forfeited by order dated 20.04.2004. The order readsas follows:

E“We refer to the show cause notice no. CO:IRD:654 dated30.01.2004, seeking your explanation as to why the gratuitypayable to you should not be forfeited on account provedmisconduct against you and the explanation dated 26.02.2004submitted by you thereto.

FThe misconduct proved against you amounts to acts involvingmoral turpitude. In this regards, the explanation submitted byyou in terms of your above reference reply is not satisfactoryand therefore not acceptable to the bank.

Therefore, in accordance of the provisions of section 4, subsectionG6(b)(ii) of the Gratuity Act, 1972 and clause 3 to Schedule “A”of the Banks Gratuity Rules, the Bank has decided to forfeit anamountof Rs. 1,77,900/- from the Gratuity amount payable toyou.” (Emphasis supplied)

6. The dismissal and forfeiture were the subject matters ofHchallenge before the High Court leading to the impugned judgment dated 08.01.2016 of the learned Single Judge. The Court did not interfere withthe dismissal; however, it was held that the respondent was entitled togratuity as there was no financial loss caused to the Bank. It was alsoheld that as per the bipartite settlement, forfeiture of gratuity is permissibleonly in case the misconduct leading to the dismissal has caused financialloss to the Bank and only to that extent.

7. While dismissing the intra-Court appeal, the Division Benchof the High Court took the view that Section 4(6)(a) and (b) have to beread together and only if there is any loss to the Bank on account of themisconduct, 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 therespondent-employee.

9. Section 4 of the Act, to the extent relevant, reads as follows:

“4 Payment of gratuity.—(1) Gratuity shall be payable to anemployee on the termination of his employment after he hasrendered 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 fiveyears shall not be necessary where the termination of theemployment of any employee is due to death or disablement:

Provided further that in the case of death of the employee,gratuity payable to him shall be paid to his nominee or, if nonomination has been made, to his heirs, and where any suchnominees or heirs is a minor, the share of such minor, shall bedeposited with the controlling authority who shall invest the samefor the benefit of such minor in such bank or other financialinstitution, as may be prescribed, until such minor attains majority.

Explanation .— For the purposes of this section, disablementmeans such disablement as incapacitates an employee for thework which he was capable of performing before the accidentor disease resulting in such disablement.

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(5) Nothing in this section shall affect the right of an employeeto receive better terms of gratuity under any award or agreementor contract with the employer.

-—(6) Notwithstanding anything contained in subsection (1), B

(a) the gratuity of an employee, whose services have beenterminated for any act, willful omission or negligence causingany damage or loss to, or destruction of, property belonging tothe employer shall be forfeited to the extent of the damage orloss so caused; C

(b) the gratuity payable to an employeemay be wholly or—partially forfeited

(i) if the services of such employee have been terminated forhis riotous or disorderly conduct or any other act of violenceon his part, or D

(ii) if the services of such employee have been terminated forany act which constitutes an offence involving moral turpitude,provided that such offence is committed by him in the courseof his employment.” (Emphasis supplied)

E10. The subtle distinction between sub-Section (5) and sub-Section(6) is that the former is a non-obstante clause of the entire Sectionwhereas 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 underSection 4 of the Act. Thus, notwithstanding anything contained underSection 4 of the Act, an employee is entitled to receive better terms ofFgratuity under any award or agreement or contract with the employer.

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11. In the case of the appellant-Bank, as noted by the learnedSingle Judge, there is a bipartite settlement dated 19.08.1966 prevailingin the Bank and the clause dealing with the forfeiture of gratuity readsas follows:

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“12.2 There will be no forfeiture of gratuity for dismissal onaccount of misconduct except in cases where such misconductcauses financial loss to the bank and in that case to that extent”only.

(Emphasis supplied)

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12. Learned Counsel for the appellant-Bank submits that sub-Section (5) of Section 4, “while providing for better terms of gratuityunder any award or agreement or contract”, deals only with the quantumof the gratuity and not with the entitlement under any award or agreementor contract as such. We are afraid, this submission cannot be appreciated.The statute provides for better terms of gratuity under any award oragreement or contract which means all terms of the contract. The choiceis between the award or agreement or contract and the statute, but notpartially of either.

13. In Beed District Central Coop. Bank Ltd.v. State ofMaharashtra and others1, it has been held that the expression ‘terms’as appearing under sub-Section (5) of Section 4 of the Act must ordinarilymean all terms to the contract and that the employee is not entitled tobest terms of both the statute and the contract. Paragraph-14 reads asfollows:

“14. Applying the “golden rule of interpretation of statute”, to usit appears that the question should be considered from the pointof view of the nature of the scheme as also the fact that theparties agreed to the terms thereof. When better terms areoffered, a workman takes it as a part of the package. He mayvolunteer therefor, he may not. Sub-section (5) of Section 4 ofthe 1972 Act provides for a right in favour of the workman.Such a right may be exercised by the workman concerned. Heneed not necessarily do it. It is the right of individual workmanand not all the workmen. When the expression “terms” has beenused, ordinarily it must mean “all the terms of the contract”.While interpreting even a beneficent statute, like, the Paymentof Gratuity Act, we are of the opinion that either contract has tobe given effect to or the statute. The provisions of the Actenvisage for one scheme. It could not be segregated. Sub-section(5) of Section 4 of the 1972 Act does not contemplate that theworkman would be at liberty to opt for better terms of the contract,while keeping the option open in respect of a part of the statute.While reserving his right to opt for the beneficent provisions ofthe statute or the agreement, he has to opt for either of them andnot the best of the terms of the statute as well as those of the 1 (2006) 8 SCC 514

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[2018] 9 S.C.R.

Acontract. He cannot have both. If such an interpretation is given,the spirit of the Act shall be lost…..”

14. In Y.K. Singlav. Punjab National Bank and others2, theposition has been reiterated holding that the employee has to make achoice between the two for drawing the benefit of gratuity and the choiceBhas 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 shallendeavour to determine the present controversy. First andforemost, we have concluded on the basis of Section 4 of theCGratuity Act that an employee has the right to make a choice ofbeing governed by some alternative provision/instrument otherthan the Gratuity Act, for drawing the benefit of gratuity. If anemployee makes such a choice, he is provided with a statutoryprotection, namely, that the employee concerned would be entitledto receive better terms of gratuity under the said provision/Dinstrument, in comparison to his entitlement under the GratuityAct. This protection has been provided through Section 4(5) ofthe Gratuity Act.”

15. That there is a bipartite settlement in the appellant-Bank isnot in dispute. That the settlement provides for forfeiture only if there isEa loss caused on account of misconduct leading to dismissal, is also notin dispute. There is no case for the Bank that the misconduct of therespondent-employee has caused any financial loss to the Bank, andtherefore, forfeiture, taking recourse to sub-Section (6) of Section 4 ofthe Act, cannot be resorted to. Thus, we are in respectful agreementFwith the view taken by the High Court that the respondent-employee isentitled to the protection of the bipartite settlement.

16. Under sub-Section (6)(a), also the gratuity can be forfeited toonly to the extent of damage or loss caused to the Bank. In case, thetermination of the employee is for any act or wilful omission or negligenceGcausing any damage or loss to the employer or destruction of propertybelonging to the employer, the loss can be recovered from the gratuityby way of forfeiture. Whereas under sub-Clause (b) of sub-Section (6),the forfeiture of gratuity, either wholly or partially, is permissible undertwo situations– (i) in case the termination of an employee is on account H2 (2013) 3 SCC 472

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 involvingmoral turpitude and the offence is committed by the employee in thecourse of his employment. Thus, sub-Clause (a) and sub-Clause (b) ofsub-Section (6) of Section 4 of the Act operate in different fields and indifferent circumstances. Under sub-Clause (a), the forfeiture is to theextent of damage or loss caused on account of the misconduct of theemployee whereas under sub-Clause (b), forfeiture is permissible eitherwholly 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 ison account any act which constitutes an offence involving moral turpitudecommitted during the course of employment.

17. ‘Offence’ is defined, under The General Clause Act, 1897, tomean “any act or omission made punishable by any law for the timebeing in force”.

18. Though the learned Counsel for the appellant-Bank hascontended that the conduct of the respondent-employee, which leads tothe framing of charges in the departmental proceedings involves moralturpitude, we are afraid the contention cannot be appreciated. It is notthe conduct of a person involving moral turpitude that is required forforfeiture of gratuity but the conduct or the act should constitute anoffence involving moral turpitude. To be an offence, the act should bemade punishable under law. That is absolutely in the realm of criminallaw. It is not for the Bank to decide whether an offence has beencommitted. It is for the court. Apart from the disciplinary proceedingsinitiated by the appellant-Bank, the Bank has not set the criminal law inmotion either by registering an FIR or by filing a criminal complaint so asto establish that the misconduct leading to dismissal is an offence involvingmoral turpitude. Under sub-Section (6)(b)(ii) of the Act, forfeiture ofgratuity is permissible only if the termination of an employee is for anymisconduct which constitutes an offence involving moral turpitude, andconvicted accordingly by a court of competent jurisdiction.

19. In Jaswant Singh Gillv. Bharat Coking Coal Limitedand others3, it has been held by this Court that forfeiture of gratuityeither wholly or partially is permissible under sub-Section (6)(b)(ii) only3 (2007) 1 SCC 663

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Ain the event that the termination is on account of riotous or disorderlyconduct or any other act of violence or on account of an act constitutingan offence involving moral turpitude when he is convicted. To quoteparagraph-13:

“13. The Act provides for a close-knit scheme providing forBpayment of gratuity. It is a complete code containing detailedprovisions covering the essential provisions of a scheme for agratuity. It not only creates a right to payment of gratuity butalso lays down the principles for quantification thereof as alsothe conditions on which he may be denied therefrom. As noticedhereinbefore, sub-section (6) of Section 4 of the Act contains aCnon obstante clause vis-à-vis sub-section (1) thereof. As byreason thereof, an accrued or vested right is sought to be takenaway, the conditions laid down thereunder must be fulfilled. Theprovisions contained therein must, therefore, be scrupulouslyobserved. Clause (a) of sub-section (6) of Section 4 of the ActDspeaks 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 ofdamage or loss caused. The disciplinary authority has notquantified the loss or damage. It was not found that the damagesor loss caused to Respondent 1 was more than the amount ofEgratuity payable to the appellant. Clause (b) of sub-section (6)of Section 4 of the Act also provides for forfeiture of the wholeamount of gratuity or part in the event his services had beenterminated for his riotous or disorderly conduct or any other actof violence on his part or if he has been convicted for an offenceFinvolving moral turpitude. Conditions laid down therein are alsonot satisfied.”

20. In the present case, there is no conviction of the respondentfor the misconduct which according to the Bank is an offence involvingmoral turpitude. Hence, there is no justification for the forfeiture of gratuityGon the ground stated in the order dated 20.04.2004 that the “misconductproved against you amounts to acts involving moral turpitude”. At therisk of redundancy, we may state that the requirement of the statute isnot the proof of misconduct of acts involving moral turpitude but the actsshould constitute an offence involving moral turpitude and such offenceshould be duly established in a court of law.H

UNION BANK OF INDIA AND OTHERS v. C.G. AJAY BABUAND ANOTHER [KURIAN, J.]

UNION BANK OF INDIA AND OTHERS v. C.G. AJAY BABUAND ANOTHER [KURIAN, J.]

21. That the Act must prevail over the Rules on Payment ofGratuity framed by the employer is also a settled position as perJaswantSingh Gill(supra). Therefore, the appellant cannot take recourse to itsown Rules, ignoring the Act, for denying gratuity.

22. To sum-up, forfeiture of gratuity is not automatic on dismissalfrom service; it is subject to sub-Sections (5) and (6) of Section 4 of ThePayment of Gratuity Act, 1972.

23. Thus, though for different reasons as well, we find no merit inthe appeal and it is accordingly dismissed. No costs.

Devika Gujral Appeal dismissed.

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