Forfeiture of Gratuity: Is criminal conviction necessary? Examining the case of Western Coal Fields Ltd. v Manohar Govinda Fulzele

Partner: Apeksha Mattoo, Counsel: Rina Goyal, Associate: Prachi Kulkarni

In the recent case of Western Coal Fields Ltd. v Manohar Govinda Fulzele,¹ the Supreme Court ruled that an employer can forfeit the gratuity payable under the Payment of Gratuity Act, 1972 (Gratuity Act) of an employee who has been found guilty of misconduct, without requiring a criminal conviction for the misconduct.

Western Coal Fields Ltd. (WCFL) and the Maharashtra State Road Transport Corporation (MSRTC) filed an appeal against judgments that held that forfeiture of gratuity payable by an employer was not permissible in the absence of a criminal conviction. WCFL and MSRTC had forfeited the gratuity payable to their employees on finding them guilty of misconduct, without initiating any criminal proceedings against the said employees.

In both cases, the misconduct of the employees was neither proved in court nor was there any criminal conviction in relation to the acts of misconduct. In the case of WCFL, the employee was found to have secured his employment with WCFL by submitting a fraudulent birth certificate at the time of his appointment. WCFL consequently terminated the employment of the said employee and forfeited the gratuity payable to the employee on the ground of misconduct involving moral turpitude. The services of bus conductors, employees of MSRTC, were terminated on account of embezzlement of fares collected from passengers.

In 2018, the Supreme Court in Union Bank of India and Ors. v C.G. Ajay Babu (Ajay Babu),² while looking at the provisions under the Gratuity Act relating to the forfeiture of gratuity, had held that “the requirement of the statute is not the proof of misconduct of acts involving moral turpitude but the act should constitute an offence involving moral turpitude and such offence should be duly established in a Court of Law”. Based on the precedent set in this case and others, lower courts had held that WCFL and MSRTC had incorrectly forfeited the payment of gratuity, given that the misconduct of the respective employees was not proved in any court.

In order to adjudicate this matter appropriately, the Supreme Court analysed its earlier decisions in Ajay Babu, Jaswant Singh Gill v Bharat Coking Coal Ltd.,³ and Devendra Kumar v State of Uttaranchal,⁴ among others. The Supreme Court also reviewed and interpreted Section 4(6) the Gratuity Act which prescribes the circumstances under which the gratuity payable to an employee can be forfeited.

The key question deliberated upon by the Supreme Court was whether an employer could forfeit an employee’s gratuity for misconduct involving moral turpitude, as determined by a departmental inquiry, without a criminal conviction. The Supreme Court clarified that Section 4(6) of the Gratuity Act did not necessitate the requirement to initiate criminal proceedings. It held that forfeiture of gratuity of an employee terminated for misconduct which would normally constitute an offence involving moral turpitude is permissible. While holding that criminal proceedings or conviction were not necessary, the Court emphasised that the employee must be accorded fair representation in the departmental inquiry. The quantum of forfeiture would in turn depend on the severity of the misconduct.

In the case of WCFL, it was held that the appointment of the employee was invalid since it was based on the submission of fabricated documents and suppression of the actual date of birth, and “there was no question of the terminated employee seeking fruits of his employment by way of gratuity”. Therefore, the Court upheld the forfeiture of the entire gratuity of the employee of WCFL. In the case of the MSRTC bus conductors, the Supreme Court noted that the act alleged and proved was of misappropriation of meagre amounts. Consequently, the Court took a sympathetic approach and limited the quantum of the forfeiture at 25% of the total gratuity payable to the employees and ordered MSRTC to release the balance amount to the respective employees.  

This judgment is significant as it now clarifies the legal position regarding the employer’s ability to forfeit the gratuity of an employee in cases of misconduct involving moral turpitude without having to wait for a criminal conviction, if such misconduct is proved in a departmental inquiry.

[1] 2025 SCC Online SC 345

[2] AIR 2018 SUPREME COURT 3792

[3] AIRONLINE 2006 SC 412

[4] AIR 2013 SUPREME COURT 3325

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