UNION BANK OF INDIA AND OTHERSversusC.G. AJAY BABU AND ANOTHER

                          [2018] 9 S.C.R. 995                               995


             UNION BANK OF INDIA AND OTHERS                                 A
                                   v.
                C.G. AJAY BABU AND ANOTHER
                   (Civil Appeal No. 8251 of 2018)
                          AUGUST 14, 2018                                   B
   [KURIAN JOSEPH AND SANJAY KISHAN KAUL, JJ.]
      Payment of Gratuity Act, 1972: s.4(5) and (6) – Forfeiture of
gratuity is not automatic on dismissal from service.
       Payment of Gratuity Act, 1972: s.4 sub-sections 5 and 6 –            C
Forfeiture of gratuity – Bipartite settlement prevailing in the appellant
bank – Respondent, an employee of appellant-bank – Disciplinary
proceedings – Dismissal from service – Order of forfeiture of gratuity
on account of proved misconduct involving moral turpitude – High
Court held that respondent was entitled to gratuity as there was no
                                                                            D
financial loss caused to bank and that as per bipartite settlement,
forfeiture of gratuity is permissible only in case misconduct leading
to dismissal has caused financial loss to the bank and only to that
extent – Held: It was not the case of the appellant-bank that the
misconduct of respondent caused any financial loss to the bank
and, therefore, forfeiture, taking recourse to sub-section (6) of s. 4      E
was wrongly resorted to by the appellant-bank – Respondent-
employee is entitled to the gratuity.
       Payment of Gratuity Act, 1972: s.4(6)(a) and (b) – It is not
the conduct of a person involving moral turpitude that is required
for forfeiture of gratuity but the conduct or the act should constitute     F
an offence involving moral turpitude and convicted accordingly by
a court of competent jurisdiction – It is not for the employer to
decide whether an offence has been committed – It is for the court
– In the instant case, there is no conviction of respondent for
misconduct which according to bank is an offence involving moral
turpitude – Therefore, there is no justification for the forfeiture of      G
gratuity on the ground that the misconduct proved against him
amounted to acts involving moral turpitude.
      Payment of Gratuity Act, 1972: The Act must prevail over the
Rules on Payment of Gratuity framed by the employer.
                                                                            H
                                  995
996            SUPREME COURT REPORTS                      [2018] 9 S.C.R.


A           Dismissing the appeal, the Court
            HELD: 1. The bipartite settlement provides for forfeiture
      only if there is a loss caused on account of misconduct leading to
      dismissal, is also not in dispute. There is no case for the Bank
      that the misconduct of the respondent-employee has caused any
B     financial loss to the Bank, and therefore, forfeiture, taking
      recourse to sub-Section (6) of Section 4 of the Act, cannot be
      resorted to. Thus, the respondent-employee is entitled to the
      protection of the bipartite settlement. [Para 15] [1002-E-F]
             2. Sub-Clause (a) and sub-Clause (b) of sub-Section (6) of
C     Section 4 of the Act operate in different fields and in different
      circumstances. Under sub-Clause (a) of sub-Section (6) of Section
      4 of the Act , the forfeiture is to the extent of damage or loss
      caused on account of the misconduct of the employee whereas
      under sub-Clause (b), forfeiture is permissible either wholly or
      partially in totally different circumstances. Sub-Clause (b)
D     operates either when the termination is on account of- (i) riotous
      or (ii) disorderly or (iii) any other act of violence on the part of
      the employee, and under Sub-Clause (ii) of sub-Section (6)(b)
      when the termination is on account any act which constitutes an
      offence involving moral turpitude committed during the course
E     of employment. ‘Offence’ is defined, under The General Clause
      Act, 1897, to mean “any act or omission made punishable by any
      law for the time being in force”. [Paras 16, 17] [1003-B-D]
             3. It is not the conduct of a person involving moral turpitude
      that is required for forfeiture of gratuity but the conduct or the
F     act should constitute an offence involving moral turpitude. To
      be an offence, the act should be made punishable under law. That
      is absolutely in the realm of criminal law. It is not for the Bank to
      decide whether an offence has been committed. It is for the court.
      Apart from the disciplinary proceedings initiated by the appellant-
      Bank, the Bank has not set the criminal law in motion either by
G     registering an FIR or by filing a criminal complaint so as to
      establish that the misconduct leading to dismissal is an offence
      involving moral turpitude. Under sub-Section (6)(b)(ii) of the Act,
      forfeiture of gratuity is permissible only if the termination of an
      employee is for any misconduct which constitutes an offence
H     involving moral turpitude, and convicted accordingly by a court
 UNION BANK OF INDIA AND OTHERS v. C.G. AJAY BABU                      997
                 AND ANOTHER

of competent jurisdiction. In the present case, there is no            A
conviction of the respondent for the misconduct which according
to the Bank is an offence involving moral turpitude. The
requirement of the statute is not the proof of misconduct of acts
involving moral turpitude but the acts should constitute an offence
involving moral turpitude and such offence should be duly
                                                                       B
established in a court of law. [Paras 18, 20] [1003-E-G; 1004-G-
H]
      4. The Act must prevail over the Rules on Payment of
Gratuity framed by the employer, therefore, the appellant cannot
take recourse to its own Rules, ignoring the Act, for denying
gratuity. [Para 21] [1005-A]                                           C

      Beed District Central Coop. Bank Ltd. v. State of
      Maharashtra and others (2006) 8 SCC 514 : [2006] 6
      Suppl. SCR 895 ; Y. K. Singla v. Punjab National Bank
      and others (2013) 3 SCC 472 : [ 2012] 13 SCR 1189;
      Jaswant Singh Gill v. Bharat Coking Coal Limited and             D
      others (2007) 1 SCC 663 : [2006] 8 Suppl. SCR 1064
      – relied on.
                       Case Law Reference
[2006] 6 Suppl. SCR 895                relied on        Para 13        E
[2012] 13 SCR 1189                     relied on        Para 14
[2006] 8 Suppl. SCR 1064               relied on        Para 19
      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8251
of 2018.
                                                                       F
      From the Judgment and Order dated 28.10.2016 of the High Court
of Kerala at Ernakulam in Writ Appeal No. 1795 of 2016 in WP (C) No.
28002/2004.
      O. P. Gaggar, Aditya Gaggar, Advs. for the Appellants.
     K. Parameshwar, M. V. Mukundh, P. K. Madhu, Advs. for the         G
Respondents.
      The judgment of the Court was delivered by
      KURIAN, J. 1. Leave granted.
                                                                       H
998            SUPREME COURT REPORTS                            [2018] 9 S.C.R.


A           2. Whether forfeiture of gratuity, under The Payment of Gratuity
      Act, 1972 (hereinafter referred to as ‘the Act’), is automatic on dismissal
      from service, is the issue for consideration in this case.
            3. The respondent was an employee of the appellant-Bank. While
      serving as a Branch Manager, disciplinary proceedings were initiated
B     against him on the following charges:
                “a) Failure to take all steps to ensure and protect the interest
                of the Bank.
                b) Failure to discharge his duties with utmost devotion, diligence,
                honesty and integrity.
C
                c) Doing acts unbecoming of an Officer Employee.”
              4. On the charges being duly established, the respondent was
      dismissed from service on 03.06.2004. The order of dismissal has attained
      finality.
D            5. In the meanwhile, the respondent was issued a show-cause
      notice as to why the gratuity should not be forfeited on account of proved
      misconduct involving moral turpitude. His explanation was rejected and
      the gratuity was forfeited by order dated 20.04.2004. The order reads
      as follows:
E             “We refer to the show cause notice no. CO:IRD:654 dated
              30.01.2004, seeking your explanation as to why the gratuity
              payable to you should not be forfeited on account proved
              misconduct against you and the explanation dated 26.02.2004
              submitted by you thereto.
F             The misconduct proved against you amounts to acts involving
              moral turpitude. In this regards, the explanation submitted by
              you in terms of your above reference reply is not satisfactory
              and therefore not acceptable to the bank.
              Therefore, in accordance of the provisions of section 4, subsection
G             6(b)(ii) of the Gratuity Act, 1972 and clause 3 to Schedule “A”
              of the Banks Gratuity Rules, the Bank has decided to forfeit an
              amount of Rs. 1,77,900/- from the Gratuity amount payable to
              you.”                               (Emphasis supplied)
            6. The dismissal and forfeiture were the subject matters of
H     challenge before the High Court leading to the impugned judgment dated
 UNION BANK OF INDIA AND OTHERS v. C.G. AJAY BABU                                  999
            AND ANOTHER [KURIAN, J.]

08.01.2016 of the learned Single Judge. The Court did not interfere with           A
the dismissal; however, it was held that the respondent was entitled to
gratuity as there was no financial loss caused to the Bank. It was also
held that as per the bipartite settlement, forfeiture of gratuity is permissible
only in case the misconduct leading to the dismissal has caused financial
loss to the Bank and only to that extent.
                                                                                   B
       7. While dismissing the intra-Court appeal, the Division Bench
of the High Court took the view that Section 4(6)(a) and (b) have to be
read together and only if there is any loss to the Bank on account of the
misconduct, then alone, the forfeiture is permissible to the extent of loss.
Thus, aggrieved, the appellant is before this Court.
                                                                                   C
      8. Heard the learned Counsel appearing for the Bank and the
respondent-employee.
       9. Section 4 of the Act, to the extent relevant, reads as follows:
        “4 Payment of gratuity.—(1) Gratuity shall be payable to an
        employee on the termination of his employment after he has                 D
        rendered continuous service for not less than five years,—
          (a) on his superannuation, or
          (b) on his retirement or resignation, or
          (c) on his death or disablement due to accident or disease:              E
          Provided that the completion of continuous service of five
        years shall not be necessary where the termination of the
        employment of any employee is due to death or disablement:
           Provided further that in the case of death of the employee,
        gratuity payable to him shall be paid to his nominee or, if no             F
        nomination has been made, to his heirs, and where any such
        nominees or heirs is a minor, the share of such minor, shall be
        deposited with the controlling authority who shall invest the same
        for the benefit of such minor in such bank or other financial
        institution, as may be prescribed, until such minor attains majority.      G
           Explanation .— For the purposes of this section, disablement
        means such disablement as incapacitates an employee for the
        work which he was capable of performing before the accident
        or disease resulting in such disablement.
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1000            SUPREME COURT REPORTS                          [2018] 9 S.C.R.


 A            xxx               xxx                      xxx              xxx
              (5) Nothing in this section shall affect the right of an employee
              to receive better terms of gratuity under any award or agreement
              or contract with the employer.
              (6) Notwithstanding anything contained in sub-section (1),—
 B
                (a) the gratuity of an employee, whose services have been
                terminated for any act, willful omission or negligence causing
                any damage or loss to, or destruction of, property belonging to
                the employer shall be forfeited to the extent of the damage or
                loss so caused;
 C
                (b) the gratuity payable to an employee may be wholly or
                partially forfeited—
                (i) if the services of such employee have been terminated for
                his riotous or disorderly conduct or any other act of violence
 D              on his part, or
                (ii) if the services of such employee have been terminated for
                any act which constitutes an offence involving moral turpitude,
                provided that such offence is committed by him in the course
                of his employment.”            (Emphasis supplied)
 E            10. The subtle distinction between sub-Section (5) and sub-Section
       (6) is that the former is a non-obstante clause of the entire Section
       whereas the latter is only in respect of sub-Section (1). In other words,
       sub-Section (5) has an overriding effect on all other sub-Sections under
       Section 4 of the Act. Thus, notwithstanding anything contained under
       Section 4 of the Act, an employee is entitled to receive better terms of
 F
       gratuity under any award or agreement or contract with the employer.
              11. In the case of the appellant-Bank, as noted by the learned
       Single Judge, there is a bipartite settlement dated 19.08.1966 prevailing
       in the Bank and the clause dealing with the forfeiture of gratuity reads
       as follows:
 G
              “12.2 There will be no forfeiture of gratuity for dismissal on
              account of misconduct except in cases where such misconduct
              causes financial loss to the bank and in that case to that extent
              only.”

 H                                                         (Emphasis supplied)
    UNION BANK OF INDIA AND OTHERS v. C.G. AJAY BABU                              1001
               AND ANOTHER [KURIAN, J.]

       12. Learned Counsel for the appellant-Bank submits that sub-               A
Section (5) of Section 4, “while providing for better terms of gratuity
under any award or agreement or contract”, deals only with the quantum
of the gratuity and not with the entitlement under any award or agreement
or contract as such. We are afraid, this submission cannot be appreciated.
The statute provides for better terms of gratuity under any award or
                                                                                  B
agreement or contract which means all terms of the contract. The choice
is between the award or agreement or contract and the statute, but not
partially of either.
       13. In Beed District Central Coop. Bank Ltd. v. State of
Maharashtra and others1, it has been held that the expression ‘terms’
as appearing under sub-Section (5) of Section 4 of the Act must ordinarily        C
mean all terms to the contract and that the employee is not entitled to
best terms of both the statute and the contract. Paragraph-14 reads as
follows:
           “14. Applying the “golden rule of interpretation of statute”, to us
           it appears that the question should be considered from the point       D
           of view of the nature of the scheme as also the fact that the
           parties agreed to the terms thereof. When better terms are
           offered, a workman takes it as a part of the package. He may
           volunteer therefor, he may not. Sub-section (5) of Section 4 of
           the 1972 Act provides for a right in favour of the workman.            E
           Such a right may be exercised by the workman concerned. He
           need not necessarily do it. It is the right of individual workman
           and not all the workmen. When the expression “terms” has been
           used, ordinarily it must mean “all the terms of the contract”.
           While interpreting even a beneficent statute, like, the Payment
           of Gratuity Act, we are of the opinion that either contract has to     F
           be given effect to or the statute. The provisions of the Act
           envisage for one scheme. It could not be segregated. Sub-section
           (5) of Section 4 of the 1972 Act does not contemplate that the
           workman would be at liberty to opt for better terms of the contract,
           while keeping the option open in respect of a part of the statute.     G
           While reserving his right to opt for the beneficent provisions of
           the statute or the agreement, he has to opt for either of them and
           not the best of the terms of the statute as well as those of the
1
    (2006) 8 SCC 514
                                                                                  H
1002               SUPREME COURT REPORTS                          [2018] 9 S.C.R.


 A                contract. He cannot have both. If such an interpretation is given,
                  the spirit of the Act shall be lost…..”
              14. In Y.K. Singla v. Punjab National Bank and others2, the
       position has been reiterated holding that the employee has to make a
       choice between the two for drawing the benefit of gratuity and the choice
 B     has a statutory protection under sub-Section (5) of Section 4 of the Act.
       To quote paragraph-23:
                     “23. Based on the conclusions drawn hereinabove, we shall
                  endeavour to determine the present controversy. First and
                  foremost, we have concluded on the basis of Section 4 of the
 C                Gratuity Act that an employee has the right to make a choice of
                  being governed by some alternative provision/instrument other
                  than the Gratuity Act, for drawing the benefit of gratuity. If an
                  employee makes such a choice, he is provided with a statutory
                  protection, namely, that the employee concerned would be entitled
                  to receive better terms of gratuity under the said provision/
 D                instrument, in comparison to his entitlement under the Gratuity
                  Act. This protection has been provided through Section 4(5) of
                  the Gratuity Act.”
              15. That there is a bipartite settlement in the appellant-Bank is
       not in dispute. That the settlement provides for forfeiture only if there is
 E     a loss caused on account of misconduct leading to dismissal, is also not
       in dispute. There is no case for the Bank that the misconduct of the
       respondent-employee has caused any financial loss to the Bank, and
       therefore, forfeiture, taking recourse to sub-Section (6) of Section 4 of
       the Act, cannot be resorted to. Thus, we are in respectful agreement
 F     with the view taken by the High Court that the respondent-employee is
       entitled to the protection of the bipartite settlement.
              16. Under sub-Section (6)(a), also the gratuity can be forfeited to
       only to the extent of damage or loss caused to the Bank. In case, the
       termination of the employee is for any act or wilful omission or negligence
 G     causing any damage or loss to the employer or destruction of property
       belonging to the employer, the loss can be recovered from the gratuity
       by way of forfeiture. Whereas under sub-Clause (b) of sub-Section (6),
       the forfeiture of gratuity, either wholly or partially, is permissible under
       two situations– (i) in case the termination of an employee is on account
       2
 H         (2013) 3 SCC 472
    UNION BANK OF INDIA AND OTHERS v. C.G. AJAY BABU                            1003
               AND ANOTHER [KURIAN, J.]

of riotous or disorderly conduct or any other act of violence on his part,      A
(ii) if the termination is for any act which constitutes an offence involving
moral turpitude and the offence is committed by the employee in the
course of his employment. Thus, sub-Clause (a) and sub-Clause (b) of
sub-Section (6) of Section 4 of the Act operate in different fields and in
different circumstances. Under sub-Clause (a), the forfeiture is to the
                                                                                B
extent of damage or loss caused on account of the misconduct of the
employee whereas under sub-Clause (b), forfeiture is permissible either
wholly or partially in totally different circumstances. Sub-Clause (b)
operates either when the termination is on account of- (i) riotous or (ii)
disorderly or (iii) any other act of violence on the part of the employee,
and under Sub-Clause (ii) of sub-Section (6)(b) when the termination is         C
on account any act which constitutes an offence involving moral turpitude
committed during the course of employment.
      17. ‘Offence’ is defined, under The General Clause Act, 1897, to
mean “any act or omission made punishable by any law for the time
being in force”.                                                                D
       18. Though the learned Counsel for the appellant-Bank has
contended that the conduct of the respondent-employee, which leads to
the framing of charges in the departmental proceedings involves moral
turpitude, we are afraid the contention cannot be appreciated. It is not
the conduct of a person involving moral turpitude that is required for          E
forfeiture of gratuity but the conduct or the act should constitute an
offence involving moral turpitude. To be an offence, the act should be
made punishable under law. That is absolutely in the realm of criminal
law. It is not for the Bank to decide whether an offence has been
committed. It is for the court. Apart from the disciplinary proceedings
initiated by the appellant-Bank, the Bank has not set the criminal law in       F
motion either by registering an FIR or by filing a criminal complaint so as
to establish that the misconduct leading to dismissal is an offence involving
moral turpitude. Under sub-Section (6)(b)(ii) of the Act, forfeiture of
gratuity is permissible only if the termination of an employee is for any
misconduct which constitutes an offence involving moral turpitude, and          G
convicted accordingly by a court of competent jurisdiction.
       19. In Jaswant Singh Gill v. Bharat Coking Coal Limited
and others3, it has been held by this Court that forfeiture of gratuity
either wholly or partially is permissible under sub-Section (6)(b)(ii) only
3
    (2007) 1 SCC 663                                                            H
1004             SUPREME COURT REPORTS                              [2018] 9 S.C.R.


 A     in the event that the termination is on account of riotous or disorderly
       conduct or any other act of violence or on account of an act constituting
       an offence involving moral turpitude when he is convicted. To quote
       paragraph-13:
               “13. The Act provides for a close-knit scheme providing for
 B             payment of gratuity. It is a complete code containing detailed
               provisions covering the essential provisions of a scheme for a
               gratuity. It not only creates a right to payment of gratuity but
               also lays down the principles for quantification thereof as also
               the conditions on which he may be denied therefrom. As noticed
               hereinbefore, sub-section (6) of Section 4 of the Act contains a
 C             non obstante clause vis-à-vis sub-section (1) thereof. As by
               reason thereof, an accrued or vested right is sought to be taken
               away, the conditions laid down thereunder must be fulfilled. The
               provisions contained therein must, therefore, be scrupulously
               observed. Clause (a) of sub-section (6) of Section 4 of the Act
 D             speaks of termination of service of an employee for any act,
               wilful omission or negligence causing any damage. However,
               the amount liable to be forfeited would be only to the extent of
               damage or loss caused. The disciplinary authority has not
               quantified the loss or damage. It was not found that the damages
               or loss caused to Respondent 1 was more than the amount of
 E             gratuity payable to the appellant. Clause (b) of sub-section (6)
               of Section 4 of the Act also provides for forfeiture of the whole
               amount of gratuity or part in the event his services had been
               terminated for his riotous or disorderly conduct or any other act
               of violence on his part or if he has been convicted for an offence
 F             involving moral turpitude. Conditions laid down therein are also
               not satisfied.”
              20. In the present case, there is no conviction of the respondent
       for the misconduct which according to the Bank is an offence involving
       moral turpitude. Hence, there is no justification for the forfeiture of gratuity
 G     on the ground stated in the order dated 20.04.2004 that the “misconduct
       proved against you amounts to acts involving moral turpitude”. At the
       risk of redundancy, we may state that the requirement of the statute is
       not the proof of misconduct of acts involving moral turpitude but the acts
       should constitute an offence involving moral turpitude and such offence
       should be duly established in a court of law.
 H
  UNION BANK OF INDIA AND OTHERS v. C.G. AJAY BABU                              1005
             AND ANOTHER [KURIAN, J.]

      21. That the Act must prevail over the Rules on Payment of                A
Gratuity framed by the employer is also a settled position as per Jaswant
Singh Gill (supra). Therefore, the appellant cannot take recourse to its
own Rules, ignoring the Act, for denying gratuity.
      22. To sum-up, forfeiture of gratuity is not automatic on dismissal
from service; it is subject to sub-Sections (5) and (6) of Section 4 of The     B
Payment of Gratuity Act, 1972.
      23. Thus, though for different reasons as well, we find no merit in
the appeal and it is accordingly dismissed. No costs.
Devika Gujral                                               Appeal dismissed.
                                                                                C




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