Supreme Court has ruled that an employer cannot automatically hold back gratuity of a dismissed employee and it should follow the rules set in Section 4 of the Payment of Gratuity Act. Moreover, gratuity can be forfeited only to the extent the employee has caused financial loss to the employer. The court stated so in its judgment, Union Bank of India vs CG Ajay Baby, while dismissing the appeal of the public sector bank. The employee was dismissed after an enquiry but his gratuity was withheld alleging that his conduct involved ‘moral turpitude’.
The court stated that if there was such an offence it was not for the bank to decide it but for a criminal court. Forfeiture is allowed only if a criminal court has convicted the employee for moral turpitude and he was dismissed on that count. In this case, the bank did not file a criminal case against the employee and there was no conviction either. Merely stating that the charges involved moral turpitude should not do. The court further ruled that the Payment of Gratuity Act shall take precedence over any rule set by the bank.