Gratuity payment is considered sacrosanct under Indian employment laws. As a statutory benefit rooted in the principles of social welfare and employee protection, gratuity serves as a recognition of an employee's long and continuous service to an establishment. Save for a few narrowly prescribed exceptions, an eligible employee's right to gratuity cannot be denied.

That said, the right to gratuity is not entirely absolute. The law recognises certain limited circumstances in which an employer may forfeit an employee's gratuity, either wholly or to the extent of the loss caused.

Situations of forfeiture of Gratuity

Section 53(6) of the Code on Social Security, 2020 (SS Code), like Section 4(6) of the Payment of Gratuity Act, 1972 (PGA), contemplates two categories of forfeiture. The first concerns damage or loss to the employer's property. Where an employee is terminated for an act, wilful omission or negligence causing damage, loss or destruction of the employer's property, gratuity may be forfeited to the extent of the loss caused. The second permits forfeiture for serious misconduct, wholly or partially, where the termination is for riotous or disorderly conduct or an act of violence, or for an act constituting an offence involving moral turpitude committed in the course of employment.

Employers sometimes treat the termination itself as a sufficient basis for withholding gratuity, and that approach carries real risk. Courts and gratuity authorities have repeatedly held that the employer must establish the statutory basis for forfeiture rather than rely on the fact of dismissal following disciplinary proceedings.

The position becomes more significant in cases involving moral turpitude. The expression “moral turpitude” is not defined in the PGA or the SS Code. The Supreme Court, in Pawan Kumar and Others v. State of Haryana, (1996) 4 SCC 17, observed that “moral turpitude” is an expression used in legal and societal parlance to describe conduct that is inherently base, vile or depraved, or which demonstrates such depravity.

The question of whether a criminal conviction is necessary before gratuity can be forfeited under the moral-turpitude provision has, however, undergone an important development.

In Union Bank of India v. C.G. Ajay Babu, AIR 2018 SC 3792, the Supreme Court had held that, for forfeiture under Section 4(6)(b)(ii) of the PGA, an offence involving moral turpitude was required to be established through a criminal conviction. This approach subsequently came under consideration in Western Coal Fields Ltd. v. Manohar Govinda Fulzele, 2025 INSC 233.

Decision of Western Coal Fields

In Western Coal Fields, the Supreme Court held that a criminal conviction is not a prerequisite for forfeiture of gratuity on the ground of moral turpitude. Instead, the relevant disciplinary or appointing authority must determine whether the misconduct, in normal circumstances, would constitute an offence involving moral turpitude. The Court also recognised that the authority exercising the power of forfeiture has discretion as to whether the forfeiture should extend to the whole or only a part of the gratuity, depending upon the gravity of the misconduct.

The decision is significant because it changes the practical approach to gratuity forfeiture in cases where the alleged misconduct may also amount to a criminal offence. However, the decision should not be understood as permitting an employer to forfeit gratuity merely because allegations have been made against an employee or because criminal proceedings have been initiated.

Recent decisions after Western Coal Fields

In Maharashtra State Road Transport Corporation through its Divisional Controller v. Ratnakar Vishwanath Vispute, W.P. No. 3596 of 2024, the Bombay High Court considered the effect of Western Coal Fields and emphasised the requirement for a notice to the terminated employee. The Court referred to the Supreme Court’s observation that the authority must determine whether the misconduct could, in normal circumstances, constitute an offence involving moral turpitude and must also exercise its discretion regarding the extent of forfeiture, having regard to the gravity of the misconduct.

The Delhi High Court adopted a similar approach in Jagdish Chandra Bhardwaj v. Canara Bank & Ors., W.P.(C) No. 1400 of 2022. The Court observed that, even after Western Coal Fields, the employer was required to take an informed decision on whether the employee’s gratuity was liable to be forfeited on the ground that the misconduct constituted an offence involving moral turpitude. That decision had to be preceded by notice to the employee, giving an opportunity to respond both on the nature of the misconduct and on the quantum of forfeiture.

The Calcutta High Court’s decision in Xpro India Limited v. The State of West Bengal & Ors., decided on 28 August 2025, provides a further illustration of the limits of the forfeiture power. The Court observed that looking for another employment opportunity, even with a rival company, does not in itself constitute moral turpitude, as such conduct is not inherently contrary to honesty, modesty or good morals.

Principles emerging from Judicial Precedents

Conviction is not the test; proof of misconduct is

The position after Western Coal Fields turns on the distinction between the absence of a criminal conviction and the absence of proof of the underlying misconduct. The first does not necessarily prevent forfeiture. The second may. Registration of an FIR, for instance, is not a finding that the employee has committed an offence involving moral turpitude, and so does not by itself amount to proof of misconduct.

Flexibility exercised through a reasoned process

Employers may now deal with misconduct involving moral turpitude without waiting for criminal proceedings to conclude, provided the power is exercised through a reasoned and fair process. The disciplinary or appointing authority should determine whether the established misconduct could ordinarily constitute an offence involving moral turpitude, and then consider separately whether complete or partial forfeiture is warranted by its gravity. The advantage of the decision is that forfeiture rests on the preponderance of probabilities rather than proof beyond reasonable doubt, the standard required for a conviction.

Drafting of charges and forfeiture notices

Notice matters because two questions arise: whether the misconduct falls within the statutory category, and the extent of forfeiture that should follow. The employee must have a meaningful opportunity to address both. Where the employer intends to rely on the statutory provisions, the disciplinary record should establish the factual misconduct and, where relevant, the loss caused. A forfeiture decision that introduces a fresh allegation or rests merely on the fact of termination breaks the link the statute requires, so the decision should show the connection between the misconduct established and the ground of forfeiture invoked.

Key Takeaways

Gratuity forfeiture is not an automatic consequence of dismissal. Before withholding gratuity, the employer should identify the statutory provision invoked, ensure the misconduct is properly established, give the employee an opportunity to respond, and record a reasoned decision on both applicability and extent. Western Coal Fields widened the circumstances in which forfeiture may be considered without a conviction, but the later decisions make clear this is no licence to forfeit on an FIR, an allegation or a general finding of indiscipline. A well founded misconduct finding, a specific statutory basis and a genuine opportunity of representation are what allow a forfeiture decision to withstand scrutiny before the gratuity authorities and the courts.