Forfeiture of gratuity requires proved misconduct, lawful termination, and prior opportunity of hearing.

The petitioner, an employer/proprietor, challenged the order dated 13 July 2026 of the Appellate Authority and Assistant Labour Commissioner, which affirmed the Controlling Authority’s order dated 6 February 2026 directing payment of gratuity to respondent no. 3, his former employee.

The employee had served since 2005 and, according to the employer, was caught on 30 October 2019 throwing new spare parts into a dustbin with the intention of subsequently selling them.

No formal order of termination, disciplinary proceeding, police complaint, or criminal proceeding was produced.

Having rendered more than fourteen years of service, the employee initiated proceedings for gratuity. The Controlling Authority directed payment of gratuity with interest from 30 November 2019, and the Appellate Authority affirmed that decision.

The gratuity amount was secured by the employer during the writ proceedings.

The Court applied the Payment of Gratuity Act, 1972, under which gratuity becomes payable upon termination of employment after completion of at least five years of continuous service.

Under Section 4(6), gratuity may be forfeited to the extent of damage or loss caused by an employee’s act, wilful omission, or negligence; it may also be wholly or partly forfeited where termination is for riotous or disorderly conduct, violence, or an offence involving moral turpitude committed in the course of employment.

Such forfeiture requires proof of the relevant misconduct and observance of procedural fairness, including notice and an opportunity of hearing to the employee.

The Court distinguished Deputy Commissioner, KVS v. J. Hussain, (2013) 10 SCC 106, which concerns limited judicial review of punishment that is irrational or outrageous.

The Court distinguished Western Coal Fields Ltd. v. Manohar Govinda Fulzele, 2025 SCC OnLine SC 345, where forfeiture followed dismissal after misconduct had been established in departmental proceedings.

Article 226 review remains limited, and interference is unwarranted where competent authorities have reached a lawful and considered conclusion.

The Court held that the employee’s handwritten admission, even if accepted, did not by itself establish an offence involving moral turpitude warranting forfeiture of gratuity.

The employer produced no formal termination order, disciplinary proceeding, finding of misconduct, police complaint, or criminal proceeding, and there was no documentary proof supporting the claim that the employee deliberately abandoned employment.

The employer could not rely on the absence of a formal termination order as an excuse for avoiding statutory gratuity liability.

Since the employee’s service from 2005 was undisputed, he had completed substantially more than the statutory minimum period and was presumptively entitled to gratuity.

The Court further found that the employee had not been given notice or an opportunity to defend the allegation before the employer sought to deny or forfeit gratuity.

The authorities had conducted a hearing and reached concurrent findings in favour of the employee.

Because those findings were neither contrary to law nor unsupported by the record, the restricted scope of judicial review under Article 226 did not permit interference.

The precedents relied upon by the employer were inapplicable because they involved either review of a punishment or misconduct established through departmental proceedings, neither of which existed here.

The writ petition was dismissed, with no order as to costs.

The connected application, IA No. CAN/1/2026, was disposed of.

The Controlling Authority was directed to release the gratuity amount secured by the employer to respondent no. 3 upon completion of the necessary formalities at the earliest.