Forfeiture of Gratuity Is Impermissible Unless Financial Loss Is Quantified During Disciplinary Proceedings and Proved via Preponderance of Probabilities.

The Private Respondent (Respondent No. 3), a Chief Manager at Union Bank of India, was dismissed from service on 22.01.2019 following a disciplinary enquiry regarding loan irregularities at the Agra branch.

The Respondent No. 3 applied for gratuity in December 2021.

Nearly four years after his dismissal, on 21.11.2022, the Bank issued a notice to forfeit his gratuity, alleging a financial loss of Rs. 1,453.01 lakhs.

The Bank claimed that under Regulation 3 of the Union Bank of India (Employees) Gratuity Fund Rules, it had the final authority to forfeit gratuity to the extent of financial loss.

Both the Controlling Authority and the Appellate Authority ruled in favor of the employee, holding that the loss was not quantified during the disciplinary proceedings and the forfeiture notice was an afterthought.

1. Whether the Bank can forfeit an employee's gratuity under Section 4(6) of the Payment of Gratuity Act, 1972, without quantifying the alleged financial loss during the disciplinary enquiry or in the dismissal order.

2. Whether the Bank’s internal regulations regarding gratuity forfeiture can override the statutory provisions of the Payment of Gratuity Act, 1972, in the absence of an exemption under Section 5.

Section 4(6)(a) of the Payment of Gratuity Act, 1972, which permits forfeiture of gratuity only to the extent of damage or loss caused by an employee’s negligence or willful omission.

Section 14 of the Act, which mandates that the Act has an overriding effect over any other inconsistent enactments or instruments.

Section 5 regarding the necessity of government notification for exemption from the Act.

UCO Bank & Ors. vs Nityananda Paul, which established that loss must be quantified in the chargesheet/enquiry to justify forfeiture.

The Court observed that while the Bank alleged a massive financial loss, this amount was never quantified in the original show-cause notice, the articles of charges, or the 400-page enquiry report.

The Bank only attempted to quantify and forfeit the loss four years later, after the employee had already approached the Controlling Authority; the Court deemed this a "malafide afterthought" and an abuse of process.

Furthermore, because the Bank had not obtained an exemption under Section 5 of the Act, its internal Gratuity Fund Rules remained subordinate to the Payment of Gratuity Act per Section 14.

The Court reasoned that an employee cannot be subjected to a "second enquiry" or a belated forfeiture proceeding to fix liability for loss that was not established during the primary disciplinary process.

The Court upheld the orders of the lower authorities insofar as they directed the payment of gratuity to Respondent No. 3. However, it set aside the authorities' observations regarding the validity of the enquiry proceedings themselves, as those were beyond their jurisdiction. The Bank was ordered to release the deposited gratuity amount plus interest to the respondent within 30 days, and the writ application was dismissed.