Source: Delhi High Court  

Why in News? 

A Division Bench of the Delhi High Court recently ruled that a criminal conviction is necessary to establish "moral turpitude" for the forfeiture of gratuity under the Payment of Gratuity Act, 1972. This decision upheld a Single Judge's ruling regarding an employee of Punjab National Bank, states a case that without such a conviction, the Bank's forfeiture of gratuity was unjustified. 

• Justice Suresh Kumar Kait and Justice Girish Kathpalia held in the matter of Punjab National Bank v. Niraj Gupta & Anr. 

What was the Background of Punjab National Bank v. Niraj Gupta & Anr. Case? 

• Mr. Niraj Gupta (Respondent) was working as Deputy General Manager with Punjab National Bank (PNB) (Appellant) and was on deputation as MD and CEO of Punjab National Bank International Ltd. (PNBIL) in 2015. 
• On 13^th August, 2015, a complaint of sexual harassment was lodged against Respondent by Ms. Neeta Teggi, a customer service associate assigned as his secretary at PNBIL. 
• Following the complaint, PNBIL conducted a preliminary investigation in London, UK. 
• On 19^th September 2015, a decision was made to recall and expel Respondent to India. 
• Respondent was placed under suspension by the Executive Director of PNB on 24^th September, 2015. 
• PNB constituted an Internal Complaint Committee (ICC) on 28th September, 2015, in accordance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. 
• The ICC submitted its findings on 19th October, 2015, holding Respondent guilty of sexual harassment allegations. 
• A charge sheet was issued against Respondent by PNB on 7th November, 2015, alleging that his actions were unbecoming of a bank officer and constituted misconduct. 
• Based on the Enquiry Officer's report dated 19th March, 2016, the Disciplinary Authority imposed the punishment of "Dismissal which shall ordinarily be a disqualification for future employment" on 30th March 2016. 
• Respondent appealed against the dismissal order, but it was rejected by the appellate authority on 28^th June 2016. 
• Respondents then filed a review petition against the appellate authority's decision. 
• During the pendency of the review petition, PNB issued a Show Cause Notice on 23^rd December 2016, asking Respondent to explain why his gratuity should not be forfeited due to acts amounting to moral turpitude. 
•  Unsatisfactory by Respondent’s reply, PNB ordered the forfeiture of his gratuity on 15th February, 2017. 
• Respondent's review petition was rejected by the Reviewing Authority of PNB on 6^th February, 2017. 
• Respondent filed a writ petition before the Delhi High Court challenging the punishment imposed by the Disciplinary Authority. 
• During the pendency of the writ petition, Respondent applied to the Controlling Authority, Delhi, seeking payment of his gratuity. 
• The Controlling Authority ordered PNB to pay Respondent gratuity amounting to Rs. 10 Lakhs with interest on 15th January 2021. 
• PNB appealed against this order but deposited Rs. 15 Lakhs with the Appellate Authority. 
• The Appellate Authority dismissed PNB's appeal on 7^th April 2022, upholding the Controlling Authority's order. 
• Subsequently, the Regional Labour Commissioner (Central) ordered the release of the deposited gratuity to Mr. Gupta on 26th April 2022. 
• PNB then filed a writ petition before the Delhi High Court, seeking to quash the order releasing the gratuity to Respondent. 

What were the Court’s Observations? 

• The Division Bench upheld the Single Judge's decision regarding the forfeiture of gratuity under the Payment of Gratuity Act, 1972. 
• The court observed that Regulation 4(j) of Punjab National Bank Officer Employees' (Discipline & Appeal) Regulations, 1977 does not mandate that termination of an employee automatically results in forfeiture of gratuity. 
• For invoking Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972 to forfeit gratuity, two conditions must be satisfied: 
  • The terminated employee must be convicted for an offence punishable by law. 
  • The said offence must involve moral turpitude. 
• The court observed that under Section 4(6) of the Act, gratuity can be denied only if the employee's dismissal is due to an act, willful omission, or negligence that causes damage, loss, or destruction of the employer's property. 
• The Division Bench stated that a criminal conviction is necessary to establish moral turpitude for gratuity forfeiture under the Payment of Gratuity Act, 1972. 
• The court observed that in the present case, no FIR was registered against the respondent, and the allegations were never proved before a court of law. 
  • Given these circumstances, the Division Bench found no infirmity in the Single Judge's order and held that no interference was required by the court. 
• The court concluded that the Respondent is liable to receive gratuity, dismissing the Bank's appeal against the Single Judge's order.

Payment of Gratuity Act, 1972 

About: 

• The Payment of Gratuity Act, 1972 is a legislation that provides for the payment of gratuity to employees in factories, mines, oilfields, plantations, ports, railway companies, shops, and other establishments.  
• The Act establishes the rules for eligibility, calculation, and payment of gratuity, which is a form of retirement benefit paid by employers to their employees for rendering continuous service for five years or more.  

Legal Provision: 

• Continuous Service Definition (section 2A):  
  • An employee is in continuous service if they have uninterrupted service, including interruptions due to sickness, accident, leave, absence from duty without leave, lay-off, strike, or lock-out. 
  • For non-seasonal establishments, an employee is deemed to be in continuous service for one year if they have worked for at least 190 days (for underground mine workers or establishments working less than 6 days a week) or 240 days (in any other case) in the preceding 12 calendar months. 
  • For a six-month period, the requirement is 95 days and 120 days respectively. 
  • Days counted include lay-off days, earned leave, absence due to temporary disablement from work accidents, and maternity leave (up to a specified period). 
• Payment of Gratuity (Section 4):  
  • Gratuity is payable after 5 years of continuous service upon superannuation, retirement, resignation, death, or disablement. 
  • The 5-year requirement is waived in case of death or disablement. 
  • Gratuity is calculated at 15 days' wages for each completed year of service (or part thereof exceeding 6 months). 
  • For seasonal establishment employees, it's calculated at 7 days' wages for each season. 
  • The maximum gratuity payable is subject to notification by the Central Government. 
• Forfeiture of Gratuity (Section 4(6)):  
  • Gratuity can be forfeited for damaging an employer's property, terminated for riotous or disorderly conduct, or for offenses involving moral turpitude committed during employment. 
• Nomination (Section 6):  
  • Employees must nominate after one year of service. 
  • If the employee has a family, the nomination must be in favor of family members. 
• Determination and Recovery of Gratuity (Section 7 and 8):  
  • The employer must determine and pay gratuity within 30 days from when it becomes payable. 
  • Interest is payable for delayed payments. 
  • Disputes regarding gratuity can be referred to the controlling authority. 
• Penalties (Section 9):  
  • Making false statements to avoid gratuity payments is punishable with imprisonment of up to 6 months and/or fine up to 10,000 rupees. 
  • Employers contravening the Act can face imprisonment between 3 months to 1 year and/or fine between 10,000 to 20,000 rupees. 
  • Non-payment of gratuity carries a minimum imprisonment of 6 months, extendable to 2 years. 
• Protection of Gratuity (Section13):  
  • Gratuity payments are not attachable in execution of any court decree or order of civil, revenue or criminal court. 

What is Section 4 of the Payment of Gratuity Act, 1972? 

• Eligibility for Gratuity (Section 4(1)): 
  • Gratuity is payable to an employee upon termination of employment after at least five years of continuous service. 
  • The five-year requirement is waived if termination is due to death or disablement. 
• Conditions for Gratuity Payment: 
  • Gratuity is payable on: 
    • Superannuation 
    • Retirement or resignation 
    • Death or disablement due to accident or disease 
• Payment in Case of Death: 
  • If the employee dies, gratuity is paid to their nominee or heirs. 
  • If the nominee or heir is a minor, their share is deposited with the controlling authority. 
  • The controlling authority invests this amount for the minor's benefit until they reach majority. 
• Definition of Disablement: 
  • Disablement means incapacitation that prevents an employee from performing work they could do before the accident or disease causing the disablement. 
• Calculation of Gratuity (Section 4(2)): 
  • For each completed year of service (or part exceeding 6 months), gratuity is paid at 15 days' wages. 
  • Wages are based on the last drawn rate. 
• Special Provisions for Piece-Rated Employees: 
  • For piece-rated workers, daily wages are computed based on the average total wages of the last three months. 
  • Overtime wages are not considered in this calculation. 
• Provisions for Seasonal Employees: 
  • For seasonal establishment employees not employed year-round, gratuity is paid at 7 days' wages per season. 
• Calculation for Monthly-Rated Employees: 
  • For monthly-rated employees, 15 days' wages are calculated by dividing the monthly wage by 26 and multiplying the result by 15. 
• Maximum Gratuity Amount (Section4(3)): 
  • The maximum gratuity payable is subject to notification by the Central Government. 
• Gratuity for Employees on Reduced Wages Post-Disablement (Section4(4): 
  • For employees working on reduced wages after disablement, pre-disablement wages are used for that period's gratuity calculation. 
  • The post-disablement period uses the reduced wages for calculation. 
• Forfeiture of Gratuity (Section 4(6)): 
  • Gratuity can be forfeited to the extent of damage or loss caused by the employee's willful act, omission, or negligence. 
  • Gratuity may be wholly or partially forfeited if employment is terminated due to: 
    • Riotous or disorderly conduct or any act of violence. 
    • Any offense involving moral turpitude committed during employment.