Supreme Court Ruling: Employers Can Forfeit Gratuity for Moral Turpitude Without Criminal Conviction

Supreme Court Ruling: Employers Can Forfeit Gratuity for Moral Turpitude Without Criminal Conviction

In a landmark judgment delivered on February 17, 2025, the Supreme Court of India has altered the longstanding legal framework surrounding the forfeiture of gratuity under the Payment of Gratuity Act, 1972. The ruling, which impacts both employees and employers, states that a criminal conviction is not necessary to forfeit gratuity when an employee’s termination is based on misconduct involving “moral turpitude.”

This ruling overturns the precedent set by the 2018 Union of India vs. Ajay Babu case, which had required a criminal conviction before employers could withhold gratuity payments. Legal experts see this decision as a significant shift in employment law, especially regarding the interpretation of moral turpitude in employment-related matters.

What is Moral Turpitude?

“Moral turpitude” refers to acts that are considered immoral, unethical, or inherently wrong. In employment law, such acts can include fraud, dishonesty, and other misconduct that undermines the trust between an employer and an employee. This term has frequently been invoked in cases related to the forfeiture of employee benefits, such as gratuity.

The 2018 Precedent and Its Overturning

Previously, the 2018 Supreme Court judgment in Union of India vs. Ajay Babu had set a crucial precedent: employers could only forfeit gratuity if the employee was convicted in a criminal court for committing an act of moral turpitude. This ruling ensured that the forfeiture of gratuity was tied to formal criminal proceedings, providing greater protection to employees against arbitrary dismissal.

However, the February 2025 decision has overturned this requirement. The Supreme Court has now ruled that an employer can forfeit gratuity based on internal disciplinary proceedings where the employee’s misconduct involves moral turpitude—without the need for a court conviction.

Key Details of the Case:

The case at hand involved a public sector employee who had been terminated after it was revealed that he had provided a fraudulent date of birth at the time of his job application. Although his actions were considered fraudulent and constituted moral turpitude, no criminal proceedings were initiated against him. The employer, however, decided to forfeit his gratuity based on the misconduct.

The employee challenged the forfeiture in court, citing the 2018 ruling that required a criminal conviction. The Supreme Court, however, rejected this argument, stating that the provisions of the Payment of Gratuity Act, 1972 did not mandate such a conviction.

Key Findings in the 2025 Judgment:

1. No Need for Criminal Conviction: The Court clarified that the Payment of Gratuity Act does not require a criminal conviction for the forfeiture of gratuity. It noted that the law focuses on whether the employee’s misconduct falls under the category of an offense involving moral turpitude.
2. Discretion of the Employer: The judgment empowers employers to decide if an employee’s misconduct constitutes moral turpitude, following their internal disciplinary processes. However, the Court emphasized that employers must adhere to the principles of natural justice. Employees should be given an opportunity to defend themselves before any decision regarding the forfeiture of gratuity is made.
3. Sympathetic Approach to Gratuity Forfeiture: While the Court allowed gratuity forfeiture in cases of moral turpitude, it also stressed that employers should adopt a sympathetic approach when determining the extent of the forfeiture. In the case at hand, the Supreme Court ruled that only 25% of the employee’s gratuity should be forfeited, directing that 75% be paid out.
4. Precedent Set in Previous Case: The ruling drew reference from the Jaswant Singh Gill vs. Bharat Coking Coal Ltd (2006) case, where gratuity was forfeited due to moral turpitude without the need for a criminal conviction.

Implications for Employers and Employees

The 2025 Supreme Court decision has significant implications for both employees and employers:

• For Employers: The ruling provides greater flexibility, allowing them to act more swiftly in forfeiting gratuity for employees dismissed due to misconduct involving moral turpitude. However, it also puts the onus on employers to ensure they follow fair procedures and provide employees with the opportunity to defend themselves.
• For Employees: The judgment may appear to weaken the protections previously available, as employees can now lose gratuity benefits based on internal proceedings alone. It also means that employees facing such forfeiture might find it harder to challenge these decisions in court if no criminal proceedings are involved.

Legal Expert Insights on the Ruling

Legal professionals have shared their views on the ruling, emphasizing its potential to reshape employment disputes:

• Kaustuv Chunder, Senior Partner at Fox Mandal & Associates LLP, stated that the ruling makes it clear that a criminal conviction is no longer required for forfeiting gratuity under the Act. However, the Court’s emphasis on a “sympathetic approach” to forfeiture ensures that employers can’t act arbitrarily.
• Sowmya Kumar, Partner at Cyril Amarchand Mangaldas, noted that the decision strengthens the principle that internal investigations and decisions based on moral turpitude are sufficient grounds for forfeiture, without the need for a criminal conviction.

Conclusion

The 2025 Supreme Court ruling marks a pivotal moment in employment law, particularly concerning the forfeiture of gratuity under the Payment of Gratuity Act, 1972. Employers now have the authority to forfeit gratuity without waiting for criminal proceedings, but they must do so in accordance with principles of fairness and natural justice. This judgment has far-reaching consequences for workers, especially those who may find their gratuity withheld due to misconduct involving moral turpitude.