Gratuity cannot be forfeited without a proper show cause notice and the proof of loss to employer – Bombay High Court

Nanubhai Nichabhai Desai vs The Dy.General Manager, Uco Bank & … on 11 April, 2017

Bench: S.C. Gupte

        sg                                                                                                                      

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

CIVIL APPELLATE JURISDICTION

WRIT PETITION NO.2749 OF 2004

Nanubhai Nichhabhai Desai …Petitioner

vs

The Deputy General Manager,
UCO Bank and Others …Respondents
…..

Mr. Sameer Vaidya, for the Petitioner.

Ms. Rita Joshi, a/w. Mr. Swapnil Kamble, for Respondent No.1.
……

CORAM : S.C. GUPTE, J.

DATED: 11 APRIL, 2017 (JUDGEMENT):

  1. The writ petition challenges an order passed by the Appellate Authority under Payment of Gratuity Act, 1972 (“Act”) in an appeal under Section 7(7) of the Act.
  2. The Petitioner worked as a clerk with UCO Bank (“Bank”), represented by Respondent No.1 herein, for over 31 years. His services were terminated by way of compulsory retirement with effect from 5 October 1996, after finding him guilty of financial irregularities in a disciplinary enquiry held against him. In pursuance of this termination order, the Bank forfeited his gratuity. On his application, the Controlling Authority directed the Bank to pay gratuity in the sum of Rs.1,89,966/- with simple interest at the rate of 10% p.a. This order was reversed by the Appellate Authority on the Bank’s appeal. Hence this petition.

    sg

  3. The Controlling Authority ordered payment of gratuity on the grounds that the Bank had not issued any show cause notice to the Petitioner before forfeiting his gratuity; that the Bank had failed to prove the extent of damage or loss caused to it by the Petitioner; that the Bank did not file any criminal case or civil suit against the Petitioner; and that the Act being a measure for extending social justice to employees, the Bank was, in the facts of the case, not entitled to forfeit the gratuity payable to the Petitioner. The Appellate Authority, on the other hand, found that the Bank had proved its loss to the extent of Rs.8,64,668/- due to the Petitioner’s misconduct; that it was immaterial whether or not any criminal case or civil suit was filed by the employer Bank for the forfeiture provision under Section 4(6) to operate; and that the order of the Controlling Authority was not in accordance with Section 7(4) of the Act.

  4. Learned Counsel for the Petitioner makes the following submissions :
    (a) No opportunity was afforded to the Petitioner to show cause against the proposed forfeiture of his gratuity;
    (b) There was no wilful omission or negligence causing any damage or loss to the property belonging to the Bank on the part of the Petitioner;

(c) The alleged acts of the Petitioner constitute, at the worst, a mere irregularity and not an illegality which can be termed as ‘misconduct’;
(d) In any event, the extent of damage or loss within the meaning of Section 4(6)(i) (b) of the Act is not proved; and
(e) The charge-sheet given to the Petitioner did not speak of any act involving ‘moral turpitude’ and no penal action was initiated by the Bank on any such count.
5. The petition broadly involves two questions. The first is, whether or not the Bank was bound to issue a separate show-cause notice to the Petitioner in the present case for forfeiture of his gratuity, since there was already an inquiry held into his misconduct (which led to the forfeiture) with notice, and an opportunity was afforded to him to show cause. Secondly, what needs to be considered is whether or not the alleged acts of the Petitioner amount to either (i) wilful omission or negligence causing loss or damage to the Bank to the extent of the gratuity payable to him or (ii) an offence involving moral turpitude. If so, the Bank is certainly entitled to forfeit the Petitioner’s gratuity, for there is hardly any doubt that these acts were performed by the Petitioner in the course of his employment.
6. Sub-section (1) of Section 4 of the Act provides for the entitlement of an employee to payment of gratuity as provided thereunder. Section 4(6), which provides for an exception, is as follows:
Pg 3 of 11 sg wp2749-04.doc “4(6) Notwithstanding anything contained in sub-section (1),-
(a) the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused.
(b) the gratuity payable to an employee may be wholly or partially forfeited –
(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part; or
(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.”
Rule 10 of the UCO Bank Employees Gratuity Fund Rules, which also deals with forfeiture of gratuity, provides as follows:
“10.(a) The gratuity of an employee to all employee shall be wholly forfeited if the services of an employee have been terminated on account of any misconduct resulting in financial loss or damage to the Bank, the gratuity payable to the employee shall be forfeited to the extent of the damage or loss so caused.
(b) The gratuity payable to an employee shall be wholly forfeited if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude provided that, such offence is committed by him in the course of his employment.”
7. Forfeiture of gratuity is a serious consequence and any order providing for such forfeiture can only be termed as a quasi judicial order. Such order, it goes without saying, must be passed after following Pg 4 of 11 sg wp2749-04.doc principles of natural justice which call for an impartial and fair inquiry after giving adequate notice and affording sufficient opportunity to show cause to the delinquent employee. The High Court of Gujarat, in Laxman Popatbhai Solanki vs. State of Gujarat 1, the M.P. High Court in Permali Wallance Ltd. vs. State of M.P.2 and Madras High Court in the case of Management of Bharat Motors N.R. Pvt. Ltd. vs. Presiding Officer, Labour Court, Tirunelveli3 have held that even if a dismissal or other disciplinary order is found to be justified, before forfeiture of gratuity an adequate opportunity must still be given to the delinquent employee and principles of natural justice have to be duly complied with. This, however, does not mean that in every case, the employer must give a separate notice even after a duly conducted inquiry and finding against the delinquent employee concerning his conduct or acts of commission or omission for the purpose of service related disciplinary action. Otherwise, the principles of natural justice may be stripped of their essential content, leaving instead a mere oppressive dogma. It is important to remember in this behalf the following eloquent words of the Supreme Court in Board of Mining Examination vs. Ramjee4 :
“………….. Natural justice is no unruly horse, no lurking land mine, nor a judicial cure-all. If fairness is shown by the decision-
maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditions by the facts and circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. We can neither be finical or fanatical but should be 1 1976 II LLJ 208 2 1996 (72) FLR 748 3 1998 I LLJ 907 4 AIR 1977 SC 965 Pg 5 of 11 sg wp2749-04.doc flexible yet firm in this jurisdiction. No man shall be hit below the belt – that is the conscience of the matter.”
There is no dispute that in the case of an employee dismissed from services within the meaning of Section 4(6) of the Act read with Rule 10
(a) or (b) of UCO Bank Employees Gratuity Fund Rules, the employer Bank is entitled to forfeit the amount of gratuity payable to the former to the extent of the damage or loss caused by him on account of a mis- conduct, or wholly, as the case may be, if the alleged act constitutes an offence involving moral turpitude. What we have to see is, whether the misconduct for which services were terminated falls, or rather, is proved to be, within clauses (a) or (b) of Section 4(6), which are pari materia with clauses (a) and (b), respectively, of Rule 10. If the misconduct is proved to be falling within either of the clauses in the domestic enquiry, though such inquiry be held for a disciplinary action concerning the service of the employee, there is no reason why a separate notice to show cause against such misconduct may be necessary before forfeiting his gratuity. After all, the action of forfeiture simply follows such proven misconduct. If, on the other hand, the misconduct found in the enquiry, though it may warrant a punishment of dismissal or compulsory retirement, does not qualify as a misconduct within these clauses, there is a clear case for giving a separate notice to the Petitioner, if the Bank proposes to forfeit his gratuity on the basis of such misconduct.
8. Let us now analyse the misconduct purportedly committed by the Petitioner and see if it amounts to any wilful omission or negligence causing damage or loss (clause a) or constitutes any offence involving moral turpitude (clause b). The charge sheet given to the Pg 6 of 11 sg wp2749-04.doc Petitioner alleged the following acts of commission and omission on his part :
(i) The Petitioner authorised the opening of current accounts under his signature in respect of three parties, i.e. (1) Messers Shreeji Aroma Private Limited on 11-8-1992, (2) Messers Fish King and Company on 24-12-1992, and (3) Sai Enterprises on 6-2-1993, and immediately thereafter effected purchases of cheques, particulars whereof are mentioned in the statement of allegations forming part of the charge-sheet, beyond his powers and without any sanction or approval from higher authorities, and did not inform the latter about the transactions. He passed debit vouchers for the subject bills under his sole signature, which was beyond his powers. He further failed to follow the procedure laid down while forwarding instruments under bill purchase transactions, by allowing the payees/ beneficiaries to handle the delivery of the instruments to payee banks, against the interest of the Bank.
(ii) The Petitioner fraudulently debited the bills realized at Branches Account and allowed the credits without any supporting advice or formal letter of authority/pay order from the drawee bank in this respect. He thereby flouted the rules and procedure of the Bank and was solely instrumental in passing the connected vouchers under his own signatures.
(iii) When the instrument sent for collection was returned unpaid by the drawee bank, the Petitioner, with an intention to Pg 7 of 11 sg wp2749-04.doc accommodate the beneficiary, resorted to unauthorized transfer of funds from third party account, without any authorization or express instructions by passing internal debit vouchers under his signature to adjust the outstanding BRB Account entry which was earlier fraudulently passed.
(iv) The Petitioner knowingly and deliberately tried to create an impression that the unauthorized transactions entered into by him were fully secured with a view to suppress his wrong actions by falsely marking lien in FDR register and ledger, whereas in fact there were no corresponding instruments in the Bank’s custody, thus violating the Bank’s rules and procedures regarding creation of security.
(v) By the aforesaid acts of commission, the Petitioner exposed the Bank to serious risk of loss inasmuch as he with an ulterior motive to accommodate and benefit the parties, viz. Shreeji Aroma Private Limited, Messers Fish King and Company, and Messers Sai Enterprises, flouted the rules and procedures of the Bank, unauthorizedly exceeding his delegated powers whilst effecting bill purchase transactions.
9. In his inquiry report, the disciplinary authority found as follows :
(i) The Petitioner’s plea that he followed the practice adopted by his seniors was not acceptable since he was a junior officer not having such authority. In fact, he should have Pg 8 of 11 sg wp2749-04.doc obtained prior written permission from his higher authorities for undertaking and effecting such transactions;
(ii) The Petitioner had not taken any steps to ensure and protect the interest of the Bank or discharged his duties with utmost integrity, honesty, devotion and diligence and indulged in acts which show ulterior motive. His acts were unbecoming of a bank officer. He misused his official position by not exercising his best judgment which led to violation of the Bank’s rules and regulations and acted in a way detrimental to the interest of the Bank. He acted in a way which leads to conclude that he lacks devotion for duty.
10. In short, what the disciplinary authority found was that the Petitioner exceeded his authority and failed to exercise care expected of him, thereby acting to the detriment of the Bank. This may certainly entail a disciplinary action such as compulsory retirement, but there is nothing to suggest that this conduct constituted an offence involving moral turpitude. There is no such charge and neither was proved before the disciplinary authority. There is no case of (i) any dishonest misappropriation or conversion to his own use of any movable property or (ii) dishonest use or disposition of any property, or (iii) deception, or fraudulent or dishonest inducement to deliver any property. There is, in fact, no finding that the Petitioner did anything with the intention of causing any wrongful gain or loss to anyone or with intent to defraud. If that be so, his alleged act, which is said to be proved in the inquiry, does not constitute any offence involving moral turpitude so as to come within Pg 9 of 11 sg wp2749-04.doc clause (b)(ii) of Section 4(6) of the Act or sub-rule (b) of Rule 10 of the Bank’s Gratuity Fund Rules.
11. The alleged misconduct of the Petitioner may amount to a wilful act of commission or omission or negligence coming within clause
(a) of Section 4(6) or sub-rule (a) of Rule 10, but then the question is, has it actually caused any damage or loss to, or destruction of, property belonging to the Bank. There is no finding in this behalf in the disciplinary inquiry held by the Bank against the Petitioner. The charge itself did not specify any particular amount of loss or damage caused to the Bank as a result of the Petitioner’s acts of commission or omission. The charge and statement of allegations in support thereof mention merely about ‘exposure of the Bank to serious risk of loss’ and ‘jeopardising Bank’s interest’, and not specific damage or loss to the Bank quantified in monetary terms. There is nothing to suggest that the Bank was out of pocket in any particular sum or could not recover any particular amount from the parties who were given wrong credits in respect of third party cheques or any claims were made against the Bank by the third party payees. In the absence of any such case urged, there is, naturally, no finding to that effect on the part of the disciplinary authority against the Petitioner.
12. On these facts, it is quite clear that there is no proven case against the Petitioner of any offence involving moral turpitude within the meaning of clause (b) or any particular damage or loss to the Bank as a result of any act or omission on his part under clause (a) of Section 4(6) or Rule 10. The consequences are two-fold. One, the action is in Pg 10 of 11 sg wp2749-04.doc breach of Section 4 of the Act and Rule 10 of the Gratuity Rules of the Bank, and two, there is in any event a clear breach of principles of natural justice, for even if there be any such case, it is not put to, or proved against, him after a due inquiry in the disciplinary proceedings. If the Bank has any such case against the Petitioner, it must, in that case, give a separate notice to the Petitioner and follow principles of natural justice before taking any action under Section 4(1) of the Act or Rule 10 of the Bank’s Gratuity Rules.
13. Looked at either way, the impugned order of the Appellate Authority cannot be sustained. The Controlling Authority was clearly right in observing that there was no show cause notice to the Petitioner before forfeiting his gratuity and that the Bank had failed to prove the extent of damage or loss caused to it by the Petitioner. The Appellate Authority’s observation that the Bank had proved its loan to the extent of Rs.8,64,668/- due to the Petitioner’s misconduct is contrary to the record and based on no evidence. The Appellate Authority was clearly in error in holding that the order of the Controlling Authority was not in accordance with Section 7(4) of the Act.
14. The petition is, accordingly, allowed and Rule made absolute by setting aside the impugned order of the Appellate Authority passed on 16 February 2004 and restoring the order dated 28 July 2003 passed by the Controlling Authority.
(S.C. GUPTE, J.) Pg 11 of 11

https://indiankanoon.org/doc/176287267/

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