MP High Court Orders Release Of Gratuity To Widow Of Bank Employee Terminated For Misappropriating Money, Says No Forfeiture Sans Conviction

The Madhya Pradesh High Court, on Monday (October 6), ordered the release of gratuity to the widow of a bank employee who was terminated for misappropriating ₹1 lakh from the branch cash chest, noting that since there was no criminal prosecution, the bank cannot forfeit gratuity. 

Per the facts of the case, the employee had filed a departmental appeal post-termination, which was dismissed. Shortly thereafter, the employee passed away, and his widow applied for the release of gratuity.

However, the bank rejected the claim, submitting that it was not payable in cases of dismissal under Section 4(6)(b) of the Payment of Gratuity Act, 1972 (Act of 1972), read with Clause 72(e) of the Service Regulations (Regulations) of the Bank.

For context, Section 4(6) of the Payment of Gratuity Act states that an employer could forfeit an employee's gratuity to the extent of damage suffered by the former under specific circumstances, including termination of services for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property. Subsection (b) specifies that the gratuity could be forfeited partially or in whole if the services were terminated for riotous or disorderly conduct or any act of violence or any act that constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.

Additionally, proviso to Section 72 of the Service Regulations states that no gratuity could be forfeited by any employee who was dismissed for misconduct except in cases of financial losses suffered by the employer that too only to the extent of the loss suffered. 

The widow approached the High Court, contending that gratuity could only be forfeited to the extent of loss suffered by the bank, but since the misappropriated amount was returned, no loss was suffered. 

The counsel for the bank, citing Section 4(1) read with Section 4(6)(b)(ii) of the Gratuity Act, claimed that gratuity could still be forfeited in part or in whole because the act of the employee involved moral turpitude, which was committed by him during the course of employment.

The court observed that the executive instructions/regulations framed by the bank would not prevail over the Payment of Gratuity Act, 1972, because the Act under which the regulations have been framed - the Regional Rural Bank Act, 1976, does not contain any contradictory or repugnant provisions. 

Relying on the case of Union Bank of India v. C.G. Ajay Babu, the bench reiterated that that there could be no presumption of criminal offence involving moral turpitude once the employee has been dealt with under the service regulations without subjecting him any criminal prosecution, and in such circumstance Section 4(6)(b)(ii) cannot be invoked to forfeit gratuity.

Therefore, in view of the above, the bench of Justice Vivek Jain ordered; 

"In view of the above since there was no criminal prosecution of the employee, therefore the bank cannot invoke Section 4(6) of the Act to deny payment of gratuity and it could have at the most forfeited the gratuity to the extent of loss caused to the bank. However, it is not disputed between the parties that the alleged defalcation amount had been refunded back by the employee to the bank and therefore, there cannot even be any recovery from gratuity payable to the deceased husband of the petitioner". 

Since the defalcated amount was refunded to the bank, the court directed the bank to calculate and pay the gratuity to the widow within 60 days with 6% interest per annum to be calculated from the date of the death of the employee till the actual payment. 

Case Title: Babita Mor v Central Madhya Pradesh Gramin Bank (WP 21393 of 2021)

Citation: 2025 LiveLaw (MP) 214

For Petitioner: Advocate Ashish Trivedi 

For Bank: Advocate Vikram Johri 

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