The Supreme Court of India has issued a landmark ruling on February 17, 2025, stating that an employee’s gratuity can be forfeited on the grounds of moral turpitude, even in the absence of a criminal conviction. This ruling expands the interpretation of the Payment of Gratuity Act, 1972, allowing employers to withhold gratuity from employees dismissed for unethical or fraudulent actions.Previously, in a 2018 Supreme Court ruling in the Union of India vs. Ajay Babu case, the court had stated that employers must prove misconduct under moral turpitude before denying gratuity payments. However, with the latest judgment, the Supreme Court has now clarified that an employer does not need a court verdict to forfeit gratuity if the dismissal is based on fraud or similar misconduct.The case in question involved a Public Sector Undertaking (PSU) employee who misrepresented his date of birth to secure employment. Although born in 1953, he falsified his birth records to 1960, ensuring his job appointment. He remained employed with the PSU for 22 years before his deception was discovered, leading to his termination and the denial of his gratuity benefits.
 

Supreme Court’s Rationale for Gratuity Forfeiture

The Supreme Court upheld the employer’s decision, stating that the employee’s act of falsifying documents amounted to moral turpitude and justified the denial of gratuity. The court ruled that a criminal conviction is not required for gratuity forfeiture if the misconduct is serious enough to constitute an ethical or moral violation.
 

In its judgment, the court 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 & proved constitutes an offense involving moral turpitude."
This ruling strengthens employer authority by granting them the ability to forfeit gratuity in cases where an employee has engaged in fraudulent or unethical practices.
 

Employees’ Right to Representation in Gratuity Disputes

While ruling in favor of employer rights, the Supreme Court also underscored the importance of due process in gratuity forfeiture cases. The judgment mandates that employees must be given an opportunity to defend themselves before their gratuity is denied."Necessarily, there should be a notice issued to the terminated employee, who should be allowed to represent both on the question of the nature of the misconduct, whether it constitutes an offense involving moral turpitude, and the extent to which such forfeiture can be made."This ensures that employees receive a fair hearing and can challenge their employer’s decision before final forfeiture is imposed.
 

Implications of the Supreme Court Ruling

The ruling has significant implications for both employers and employees in India. Key takeaways from the judgment include:

• Greater employer authority: Companies, particularly in the public sector, can now withhold gratuity for employees terminated due to misconduct involving moral turpitude.
• No need for criminal conviction: Employers are no longer required to wait for a court ruling to deny gratuity in cases of fraudulent conduct.
• Employees’ right to defend: While gratuity can be forfeited, employers must issue a formal notice and provide the dismissed employee with an opportunity to present their case.
• Impact on government and private sector employees: Public and private sector organizations may revise their employment policies to incorporate gratuity forfeiture provisions in cases of serious ethical misconduct.

With this ruling, the Supreme Court has reinforced the principle that gratuity is not an absolute right but a benefit that can be withheld in cases of serious ethical violations. The decision is expected to influence future employment law disputes and redefine the boundaries of employer-employee rights under the Payment of Gratuity Act, 1972.