On February 17, 2025, the Supreme Court, in a ruling by Justices Sudhanshu Dhulia and K. Vinod Chandran, held that an employer can deny gratuity if an employee is dismissed for serious misconduct, even without a criminal conviction. The case involved Western Coal Fields Ltd. v. Manohar Govinda Fulzele, where the employee used a fake birth certificate to secure the job. The Court ruled that such an appointment was illegal and did not entitle the employee to gratuity. This blog will discuss the Supreme Court’s ruling on gratuity forfeiture, covering the case details, legal reasoning, key takeaways, and its impact on employment laws in India.
In the case of Western Coal Fields Ltd. v. Manohar Govinda Fulzele, the Supreme Court addressed the forfeiture of gratuity under the Payment of Gratuity Act, 1972, in instances of employee misconduct.
Case Background of gratuity forfeiture
Manohar Govinda Fulzele was employed by Western Coal Fields Ltd., a Public Sector Undertaking (PSU). During his tenure, it was discovered that he had secured his position by submitting a fraudulent date of birth certificate. Specifically, Fulzele claimed to be born in 1960, while his actual birth year was 1953. This misrepresentation effectively extended his eligibility for employment by seven years. Upon uncovering this deceit, the company initiated disciplinary proceedings, which ended in his termination and the decision to forfeit his gratuity.
Fulzele contested the forfeiture, asserting that gratuity is a statutory right under the Payment of Gratuity Act, 1972, and argued that it could not be withheld without a formal criminal conviction for his alleged misconduct.
Legal Provisions Involved in gratuity
The central legal question revolved around the interpretation of Section 4(6) of the Payment of Gratuity Act, 1972, which outlines conditions under which gratuity can be forfeited:
- Section 4(6)(a): Allows forfeiture of gratuity to the extent of damage or loss caused to the employer due to the employee’s wilful omission or negligence.
- Section 4(6)(b): Permits full or partial forfeiture of gratuity if the employee is terminated for:
- (i) Riotous or disorderly conduct or any act of violence.
- (ii) Any act which constitutes an offense involving moral turpitude, provided such offense is committed in the course of employment.
The dispute centred on whether a criminal conviction is a prerequisite for forfeiture under Section 4(6)(b)(ii), or if an employer can independently determine that an employee’s act constitutes an offense involving moral turpitude, thereby justifying forfeiture without a formal conviction.
This case highlights the complexities surrounding the forfeiture of gratuity in situations involving employee misconduct and the interpretation of statutory provisions governing such forfeitures.
In the case of Western Coal Fields Ltd. v. Manohar Govinda Fulzele, the Supreme Court of India addressed whether an employer could forfeit an employee’s gratuity under Section 4(6) of the Payment of Gratuity Act, 1972, when the employee is terminated for misconduct involving moral ground, without a criminal conviction.
Supreme Court’s Analysis on gratuity forfeiture
A Bench comprising Justice Sudhanshu Dhulia and Justice K. Vinod Chandran held that a criminal conviction is not necessary for an employer to take away an employee’s gratuity. The Court emphasized that if the misconduct proven against the employee is serious and dishonest, the employer has the right to cancel the gratuity. The judgment stated:
“In the present case, it has been proved that the petitioner suppressed his actual date of birth. The failure of the employer to initiate a criminal proceeding on the fraud employed by way of the fabricated/forged certificate produced for the purpose of employment does not militate against the forfeiture. Obviously, as coming out from the provision, no conviction in a criminal proceeding is necessitated if the misconduct alleged and proved constitutes an offense involving moral turpitude.”
The Court further clarified that the standard of proof in disciplinary proceedings differs from that in criminal trials. While criminal cases require strong proof beyond a reasonable doubt, disciplinary proceedings are decided based on what is more likely to be true. Therefore, an employer can judge whether an employee’s actions are seriously dishonest based on internal inquiries, without waiting for a criminal conviction.
Implications of the Judgment
In a significant ruling, the Supreme Court of India has clarified that employers can deny gratuity payments to employees dismissed for serious misconduct, even if there has not been a criminal conviction. This decision stems from the case of Western Coal Fields Ltd. v. Manohar Govinda Fulzele, where the employee secured his job using a fake birth certificate. The Court determined that such fraudulent actions justify the forfeiture of gratuity, emphasizing that a criminal conviction is not necessary for an employer to take this step. This ruling empowers employers to act decisively against employees who engage in serious wrongdoing, ensuring the integrity of their organizations. This ruling has significant implications for employment law in India:
Key Takeaways:
- Employer’s Authority: Employers can now withhold gratuity if an employee is dismissed for serious misconduct, without needing a criminal conviction.
- Disciplinary Proceedings: The judgment highlights the importance of strong internal disciplinary processes, allowing employers to rely on their own findings when deciding on gratuity matters.
- Employee Conduct: Employees should be aware that engaging in serious misconduct can lead to the loss of benefits like gratuity, even if they are not criminally convicted.
This decision underscores the Court’s commitment to upholding ethical standards in the workplace and provides clarity on the rights of employers in handling cases of employee misconduct.
Laws on Gratuity and Severance Pay in Different Countries
United States – Employment Contracts & Company Policies
- No national law mandates gratuity or severance pay.
- Severance is usually part of employment agreements or company policies.
- If included in a contract, employers can deny severance for misconduct, fraud, or breach of company rules.
United Kingdom – Employment Rights Act, 1996
- Employees with at least two years of service are entitled to redundancy pay.
- Forfeiture Conditions:
- Employees dismissed for gross misconduct (e.g., theft, fraud, workplace violence) lose redundancy and notice pay.
- Employers must follow a fair disciplinary process before termination.
Australia – Fair Work Act, 2009
- Defines severance pay and termination conditions.
- Serious misconduct (e.g., theft, fraud, serious breaches of company policy) leads to immediate dismissal without benefits.
- Employers must document misconduct before denying severance payments.
Canada – Provincial Employment Standards Acts
- Severance pay is regulated at the provincial level (e.g., Ontario’s Employment Standards Act, 2000).
- Employees terminated for just cause (e.g., dishonesty, workplace violence, gross negligence) lose severance benefits.
- Employers must conduct thorough investigations before withholding severance.
Key Takeaways:
- Employer’s Rights: Employers in most countries can deny gratuity or severance if an employee is terminated for serious misconduct.
- Legal Processes: Some countries require a fair disciplinary process before forfeiting benefits.
- Employee Awareness: Employees must be aware of company policies and laws governing severance and gratuity.
Each country has different laws, but the general principle remains gratuity and severance are not automatic if misconduct is involved.
Final Thoughts
The Supreme Court’s ruling clarifies that gratuity can be forfeited for serious misconduct without a criminal conviction. This reinforces workplace integrity and ensures employers can act decisively while employees remain aware of their rights and responsibilities. Globally, different countries have varying laws on gratuity and severance pay, but a common principle remains in which employees who engage in dishonesty or serious wrongful acts risk losing their end-of-service benefits. This highlights the importance of maintaining workplace integrity and ensuring both employers and employees understand their rights and responsibilities under labor laws.
