Introduction: The case of Union Bank Of India Vs CG Ajay Babu (2018)” is referred to as Civil Appeal No. 8251 OF 2018, which arises from S.L.P. (Civil) No. 3852/2017 delves into the complexities surrounding gratuity forfeiture in the context of employment termination due to misconduct. This analysis explores the legal dimensions, factual background, and the pivotal judgment that unfolded in this case.
Subject:
Gratuity is a post-employment benefit that an employee receives. This decision determined the conditions under which gratuity can be forfeited if an employee is terminated due to misconduct, and the extent to which it can be forfeited.
Facts of The Case:
The respondent, C.G. Ajay Babu, held the position of Branch Manager at the appellant, Union Bank of India. He was terminated from his employment on 03.06.2004 due to substantiated misconduct involving immoral behavior.
Subsequently, he received a show-cause notice requesting an explanation as to why the gratuity owed to him should not be revoked. The respondent’s explanation was dismissed, and the bank confiscated a sum of Rs. 1,77,900/- that was owed to the respondent as gratuity. This action was taken in accordance with Section 4(6) subclause (b)(ii) of the Gratuity Act, 1972 and clause 3 in Schedule “A” of the Banks Gratuity Rules.
The respondent contested the bank’s order in the High Court. Both the Single Judge and the Division Bench determined that according to the bipartite settlement, the forfeiture of gratuity is permissible solely in cases where the bank has incurred financial losses as a result of the employee’s misbehavior, and only to the amount of those losses. Dissatisfied with this, the appellant sought recourse from the Supreme Court.
The primary argument put up by the appellant’s knowledgeable legal representative was that Section 4 subsection (5) of the 1972 Act specifically addresses the amount of gratuity that must be paid, rather than determining whether an employee is eligible for payment in the event of termination due to misbehavior.
Issues:
Is the forfeiture of gratuity automatic under the 1972 Act when an individual is dismissed from service due to moral turpitude?
Statutory Regulations:
According to Section 4 subsection(6) subclause(b)(ii) of the Gratuity Act, 1972, if an employee is terminated, their gratuity will be taken away to the degree of the harm or loss caused to the employer.
According to Section 4 subsection (5) of the 1972 Act, an employee has the right to receive improved conditions for receiving a gratuity if it is specified in any award, agreement, or contract with the employer.
Analysis:
Prior to rendering a verdict, the esteemed Court thoroughly examined Section 4 of the 1972 Act after hearing arguments from both parties. Subsection (5) is considered to have a superior influence over all the other sub-Sections within Section 4. Therefore, an employee has the right to receive more favorable conditions of gratuity as stipulated in any award, agreement, or contract with the employer.
The Court upheld the award issued by the High Court and dismissed the argument put out by the appellant bank. The respondent-employee is deemed eligible for the safeguard provided by the bipartite settlement.
Regarding the expression of appreciation, the Court determined that the bank’s internal proceedings were inadequate as it is not within the bank’s jurisdiction to determine the commission of an offense.
Essentially, the statement asserts that the culpability of the defendant must be established in a legal tribunal by a capable adjudicator, as explicitly outlined in Section 4 subsection (6)(b)(ii) and upheld in the case of Jaswant Singh Gill V. Bharat Coking Coal Limited.
The Court ruled that the appellant bank’s decision to withhold gratuity was unjustified. According to the statute, the essential need is not the demonstration of employee wrongdoing, but rather the demonstration of an offense involving moral depravity and a valid conviction by a court of law.
The Court further noted that the bank issued this order in accordance with its internally established regulations regarding gratuity payment. Nevertheless, it is established in the Jaswant Singh Gill case that legislative acts have precedence over such rules. Therefore, the appellant bank is not permitted to rely on its own regulations while disregarding the Act. Given these considerations, the appeal was rejected and no expenses were levied.
Judgement:
The appellant-Bank’s legal representative argued that the actions of the respondent-employee, which resulted in the formulation of charges in the internal processes, demonstrate moral depravity. However, the court disagrees with this argument and finds it unconvincing. Forfeiture of gratuity does not need the conduct of a person to involve moral turpitude, but rather the conduct or act must create an offense involving moral turpitude. In order for an act to be considered an offense, it must be subject to legal punishment. That falls squarely within the domain of criminal law. The Bank does not have the authority to determine if an offense has been committed. This is intended for the court. In addition to the disciplinary actions launched by the appellant-Bank, no action has been taken by the Bank to invoke criminal law, such as registering a FIR or filing a criminal complaint, to prove that the wrongdoing leading to dismissal constitutes a morally reprehensible offense. According to sub-Section (6)(b)(ii) of the Act, an employee’s gratuity can only be forfeited if they are terminated for wrongdoing that is considered a morally reprehensible offense and have been convicted by a court with the authority to do so.
Conclusion:
This ruling definitively established that an employer can relinquish the gratuity equal to the amount of financial harm incurred as a result of the employee’s wrongdoing. If an employee is found guilty of a moral turpitude offense by a criminal court, their gratuity may be forfeited. According to the Payment of Gratuity Act, 1972, the forfeiture of gratuity is not automatic and depends on the conditions specified in Sub-Sections (5) and (6) of Section 4.
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