High Court Upholds Employee Rights Under Payment of Gratuity Act, 1972: Forfeiture Challenged Over Procedural Lapses and Natural Justice

W.P.(C) No. 20160 of 2019: The issue arose under the Payment of Gratuity Act, 1972, concerning the forfeiture of gratuity payable to a retired employee (Opposite Party No. 3), who had been accused of significant financial misconduct during his tenure. The employee, who retired on November 30, 2016, faced disciplinary proceedings initiated just prior to his superannuation. These proceedings, conducted under NSIC’s Conduct and Appeal Rules, 1968, culminated in his dismissal and the forfeiture of his gratuity and other retirement benefits. The NSIC justified its actions by arguing that the employee’s alleged misconduct, involving financial irregularities amounting to ₹173.50 crores, was grave enough to warrant forfeiture under Section 4(6) of the Payment of Gratuity Act. This provision permits the forfeiture of gratuity for acts of misconduct, wilful negligence, or offenses involving moral turpitude. The NSIC also invoked its organizational rules, which allow for the continuation of disciplinary proceedings post-retirement, treating the employee as if he were still in service. The disciplinary inquiry concluded with findings against the retired employee, which NSIC used as grounds to deny his gratuity. The retired employee challenged this forfeiture before the Controlling Authority under the Gratuity Act, arguing that the forfeiture violated statutory provisions and principles of natural justice. He emphasized that no conviction for moral turpitude had been established and contended that the lack of a specific notice regarding forfeiture under the Gratuity Act invalidated the employer’s actions. The Controlling Authority ruled in his favour, directing NSIC to pay ₹10 lakhs in gratuity along with 10% simple interest from December 1, 2016. The Appellate Authority subsequently upheld this decision. NSIC filed the current writ petition to challenge these orders. In its judgment, the High Court scrutinized the interplay between the Payment of Gratuity Act and NSIC’s internal rules, emphasizing the Act’s precedence. The court highlighted procedural lapses in NSIC’s actions, including the absence of specific notice for forfeiture and failure to quantify the alleged financial loss as mandated by the Act. It also observed that post-retirement penalties must comply strictly with statutory provisions, especially since gratuity is a statutory right. The court rejected NSIC’s argument that the employee’s dismissal justified forfeiture, noting that no criminal conviction or concrete evidence of loss had been presented. Citing precedents, including Supreme Court rulings, the court reiterated that forfeiture requires adherence to both procedural fairness and substantive legal requirements. Ultimately, the court upheld the Appellate Authority’s decision, directing NSIC to pay the gratuity amount with interest. The judgment reinforced the principles of natural justice, statutory compliance, and fairness in handling post-retirement disputes. It serves as a reminder that statutory provisions like the Payment of Gratuity Act cannot be overridden by organizational rules, ensuring protection for employees even in cases of alleged misconduct.