*Supreme Court Ruling on Gratuity Forfeiture: Key Takeaways and Implications for Employers and Employees* In a landmark ruling on February 17, 2025, the Supreme Court of India has clarified that an employer can forfeit an employee’s gratuity under the Payment of Gratuity Act, 1972, without requiring a criminal conviction. This decision overturns a 2018 precedent, which mandated that forfeiture based on “moral turpitude” required proof in a court of law. Now, a disciplinary committee’s finding is sufficient for employers to deny gratuity payments. *1. Supreme Court’s Key Rulings on Gratuity Forfeiture* The Supreme Court has ruled that: 1. Forfeiture of Gratuity Can Be Done Without a Court Conviction • Employers no longer need a court ruling to establish ‘moral turpitude’ before forfeiting gratuity. • Internal disciplinary inquiries proving misconduct are sufficient. 2. Employer’s Discretion in Determining ‘Moral Turpitude’ • Employers can decide whether an act of misconduct qualifies as an offence involving moral turpitude. • Examples: Fraud, falsification of records, and dishonest acts within employment. 3. Principles of Natural Justice Must Be Followed • Employers must issue a notice to the employee before forfeiture. • The employee must be given an opportunity to defend themselves before forfeiture is finalized. 4. Forfeiture Can Be Partial or Complete • The amount of gratuity forfeited will depend on the gravity of the misconduct. • The court advised a sympathetic approach, and in this case, ordered only 25% forfeiture. *2. Case Background and Supreme Court’s Legal Analysis* Facts of the Case • The appellant falsified his date of birth when applying for a job at a Public Sector Undertaking (PSU). • After 22 years of service, an internal disciplinary committee found him guilty of fraud. • His employment was terminated, and gratuity forfeited due to moral turpitude. • No criminal case was filed against him. Legal Question Considered • Can gratuity be forfeited for moral turpitude without a criminal conviction? The Supreme Court ruled YES—a disciplinary committee’s findings are enough. 3. *Overruling the 2018 Supreme Court Judgment* The 2018 Supreme Court ruling (C.G. Ajay Babu case) set a precedent that employers must prove moral turpitude in a court of law before forfeiting gratuity. The latest ruling discards this requirement, stating: • No statutory provision in the Payment of Gratuity Act, 1972, mandates a criminal conviction. • The 2018 decision was based on a bank’s internal bipartite settlement, not the Gratuity Act. • The requirement of a criminal conviction was merely an obiter (non-binding legal remark). Thus, the 2025 Supreme Court judgment overrules the 2018 decision and establishes a new precedent. *4. Legal Provisions for Gratuity Forfeiture* According to Section 4(6) of the Payment of Gratuity Act, 1972, gratuity can be forfeited if: 1. Wilful omission or negligence causes financial loss to the employer. 2. Termination due to disorderly or violent conduct. 3. Termination due to an offence involving moral turpitude, provided it was committed in the course of employment. This case specifically addressed point 3 and ruled that a conviction is not required for forfeiture. 5. Implications for Employers What Employers Can Do • Employers can forfeit gratuity for moral turpitude without waiting for a criminal case. • They must conduct an internal disciplinary process before forfeiture. • They must provide a hearing and notice to the affected employee. • They have the discretion to decide the forfeiture amount (partial or full). What Employers Cannot Do • Arbitrarily forfeit gratuity without a proper disciplinary process. • Deny the employee a chance to respond before forfeiture. • Use this ruling to justify unrelated dismissals without due process. 6. Implications for Employees What This Means for Employees • Employees can lose their gratuity if dismissed for moral turpitude. • They will not be protected by the 2018 ruling that required a criminal conviction. • They must be given notice and a chance to respond before gratuity is forfeited. • They can challenge the forfeiture in court if due process is not followed. *How Employees Can Challenge Forfeiture* If gratuity is forfeited unfairly: • The employee can challenge the employer’s decision in labour courts. • They can argue that natural justice was not followed. • They can demand a review of the forfeiture amount based on the severity of the misconduct. 7. Expert Opinions on the Supreme Court Ruling Legal Experts’ Views 1. Kaustuv Chunder, Fox Mandal & Associates LLP: • “This judgment clarifies that conviction in a criminal case is not required for forfeiting gratuity.” • “The ruling allows employers to act swiftly in cases of proven misconduct.” 2. Sowmya Kumar, Cyril Amarchand Mangaldas: • “This ruling removes the additional burden on employers of proving moral turpitude in a criminal court.” • “It ensures speedy resolution of gratuity disputes.” 3. Padmanabhan Ananth, Counselence: • “Employers must still adhere to the principles of natural justice before forfeiting gratuity.” • “The judgment protects employers from unnecessary litigation delays.” 4. Jaideep Singh Khattar, The Fort Circle: • “This ruling strengthens the employer’s hand but raises concerns about potential misuse.” • “Employees must be given a fair hearing before gratuity forfeiture.” 8. Conclusion: A New Precedent for Gratuity Forfeiture This 2025 Supreme Court judgment marks a significant shift in gratuity law. It gives employers the authority to forfeit gratuity for moral turpitude without requiring a criminal conviction, provided they follow proper procedures. Key Takeaways ✔ Gratuity can be forfeited without a court conviction if an employee is dismissed for moral turpitude. ✔ Employers must conduct an internal disciplinary process before forfeiture. ✔ Employees must be given notice and a chance to respond before forfeiture is finalized. ✔ Forfeiture can be partial or complete, based on the severity of misconduct. ✔ Employees can challenge unfair forfeiture through labour courts. This ruling empowers employers to act against fraudulent or unethical employees while also safeguarding employees’ rights through due process.