Mere conviction by an internal committee is not enough to withhold gratuity

Introduction

As per the statutory scheme of the Payment of Gratuity Act (Act), an employee’s gratuity can be withheld only in two scenarios, when the services of the employee are terminated (a) for riotous and disorderly conduct OR (b) for any act which constitutes an offence involving moral turpitude when such an offence is committed by such person.

Interestingly, under Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH) there is a statutory requirement of constituting an internal committee (IC) to address the grievances of women facing sexual harassment at workplace. The IC is empowered to conduct an inquiry upon a complaint and hold an employee guilty of sexual harassment.

The question arises as to how does the statutory scheme of the Act, POSH and criminal machinery under the applicable Indian laws interplay procedurally, and at what point of time the gratuity of an employee can be withheld.

Statutory scheme of POSH

POSH provides for a statutory framework to internally address the grievances of sexual harassment and extend support to the aggrieved woman. The relevant sections are listed below:

• Filing of complaint – Section 9

The Statutory scheme of POSH mandates that an aggrieved woman can file a complaint with the IC under section 9 of POSH within 3 months from the date of the incident.

• Inquiry of the Internal Committee – Section 11

The IC must inquire in the matter as per the service rules of the employer and complete the inquiry within 90 days. During the inquiry, the IC enjoys power of a civil court and can order summons, enforce attendance, discovery etc.,

• Inquiry Report – Section 13

Within 10 days of the completion of the inquiry, the IC must draft and present a report with the findings in respect of the inquiry conducted. The report must be made available to the parties and the employer.

If the allegations are proved, the report must recommend to the employer OR the District officer as the case maybe to take action for sexual harassment as a misconduct as per the service rules of the employer. The employer must act upon the recommendation within a period of 60 days from the date of its receipt.

If the allegations are not proved, the report shall recommend to the employer and the District Officer that no action is required to be taken in the matter.

• Remedy of Appeal available to the aggrieved woman – Section 18

Within a period of 90 days of the recommendations made in the report, an appeal can be preferred to the court with requisite jurisdiction or tribunal as per the service rules. However, the provision of appeal is only available for the aggrieved woman, that is, available only in the case of the allegation not being proved against the employer or on account of non-implementation of the recommendation.

Note – No provision for appeal available for the accused, if proven guilty.

• Duties of employer – Section 19

The employer is responsible to provide assistance to the woman if she so chooses to file a complaint in relation to the offence under the Indian Penal Code (45 of 1860) or any other law for the time being in force.

• Cognizance of offence by courts – Section 27

No court shall take cognizance of an offence under this Act unless a complaint is made OR an FIR is lodged by the aggrieved woman or by any person authorized by the IC to make such a complaint for and on request of the aggrieved woman.

Statutory scheme of the Act 

As per the Payment of Gratuity Act, gratuity of an employee cannot be forfeited unless essentials of section 4 (6)(b) are made out. It must be noted that the statutory framework of the Act provides for a mechanism in case the payment of gratuity is disputed. The relevant portions of the statutory framework of the Act are provided below:

• Forfeiture of Gratuity – Section 4(6)(b)(ii)

Section 4(6)(b) provides for the forfeiture of gratuity of an employee upon termination of the services of the employee. The provision enumerates two situations in which forfeiture may be permissible that is when the services of the employee are terminated (i) for riotous or disorderly conduct or any other act of violence on his part OR (ii) for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.

• Determination of the amount of gratuity – Section 7 

What is a dispute? – Section 7 (4)(a)

As per section 7(4)(a), a ‘dispute’ includes dispute in relation to an employee for payment of gratuity OR dispute in relation to whether an employee is entitled to receive the gratuity or not. The section mandates that in case of a dispute, an employer shall deposit gratuity payable to the employee with the controlling authority (as defined in the Act).

• Application to the Controlling Authority – Section 7 (4)(b)

In case of a dispute, the employer, employee or any other person raising the dispute shall make an application to the controlling authority for deciding the dispute

• Provision for inquiry by the Controlling Authority – Section 7 (4)(c)

The controlling authority, after due inquiry and giving the parties to the dispute reasonable opportunity of being heard direct the employer to pay the gratuity OR to reduce the deposited gratuity to the extent as may be adjudicated.

• Controlling Authority to have same powers as a civil court – Section 7 (5)

The controlling authority while conducting the inquiry shall have the same powers as vested in a court, while trying a suit, under the code of civil procedure, in respect of (a) enforcing the attendance of any person or examining him on oath, (b) requiring the discovery and production of documents, (c) receiving evidence on affidavits & (d) issuing commissions for the examination of witnesses.

• Inquiry as a judicial proceeding under IPC – Section 7 (6)

Any inquiry under this section shall be a judicial proceeding for taking evidence and to ensure uninterrupted conduct of the inquiry (only within the meaning of Sections 193 and 228, and for the purpose of Section 196, of the Indian Penal Code, 1860).

• Appeal provision against the inquiry – Section 7 (7)

Within sixty days, any person aggrieved by an order under sub-section (4) may from the date of receipt of the order, prefer an appeal to the appropriate government or such other appellate authority.

• Appellate Authority powers – Section 7 (8)

The appropriate government OR the Appellate authority may, after giving the parties to the appeal a reasonable opportunity of being heard, confirm, modify or reverse the decision of the controlling authority.

Rulings of Indian Courts on the matter

The Delhi High court recently decided on the issue of forfeiture of gratuity. The High Court re-affirmed the decision of Appellate Authority and Controlling Authority formed under the Act. The Court directed the employer bank, Punjab National Bank to pay the gratuity of the then Deputy General Manager of Punjab National Bank held guilty of misconduct of sexual harassment by the internal committee under the POSH Act.

Facts

The respondent was Deputy General Manager in the Petitioner Bank (PNB). Respondent faced sexual harassment allegations by his colleague in PNB. Upon inquiry by the Internal Committee of PNB under POSH, the respondent was found guilty of the sexual harassment allegations. The Disciplinary body of PNB imposed his dismissal which ordinarily shall be a disqualification of the future employment under the service rules of PNB. Later PNB issued a show cause notice to respondent for forfeiture of gratuity for acts amounting to moral turpitude under section 4 (6)(b)(ii) of the Act. After being refused any remedy on forfeiture of gratuity by the internal authorities of PNB as per its service rules, the respondent moved application before the controlling authority seeking payment of gratuity. The controlling authority ruled against PNB and directed the payment of gratuity. PNB moved to the appellate authority in appeal to the ruling of the controlling authority which was dismissed. PNB filed an appeal in the single bench of the Delhi High Court that ruled in favor of respondent and directed the payment of gratuity, aggrieved by the same PNB made an appeal to the division bench in the present case. The Appeal filed by PNB was also dismissed and directions were passed to pay the Gratuity amount due and payable to the Respondent.

Single bench ruling

The single bench ruled in favor of the Employee and against PNB, upholding the order of controlling authority in interpreting section 4 (6)(b)(ii) of the Act. It was concluded that gratuity can be forfeited only if the employee is guilty of conduct that constitutes an offence involving moral turpitude resulting in a conviction by a Competent Court under the applicable law. The court concurred with the controlling authority in underlining a distinction between a misconduct that involves moral turpitude and an offence that involves moral turpitude. An internal committee under POSH is not the competent jurisdiction to hold a person guilty of an offence under IPC, now BNS. It was emphasized that only a court of competent jurisdiction can hold a person guilty of offence. Reliance was placed on Apex court reasoning of ‘Union Bank of India and Others Vs CG Ajay Babu’ that for an offence the act should be made punishable under law, within the realm of criminal law, as adjudicated by the court of competent jurisdiction and not by an internal committee of the employer. The proof of such misconduct as decided by an internal committee of the employer is not enough to forfeit the gratuity, the same must be based on the order passed by a competent court holding the Employee guilty of offences.

It was observed that in the present case, the criminal machinery has not been set in motion either by the employer i.e., PNB or by the aggrieved woman. As per the service rules of the PNB, the employee is dismissed from employment that entails implications of disqualification for future employment. It was noted that service rules do not mandate that termination of an employee facing allegations would amount to forfeiture of the gratuity of the accused employee.  The court observed that while the show cause notice issued by PNB after the dismissal order was challenged by the respondent before the controlling authority, however, neither a First Information Report (FIR) nor a criminal complaint was filed by the aggrieved woman on the offence committed by the Respondent. Hence, the jurisdiction of a competent criminal court was not invoked.

In absence of any action to invoke the criminal machinery by the aggrieved woman resulting into conviction of the offence involving moral turpitude, the gratuity of an employee cannot be withheld. Therefore, PNB was directed to make the payment of the gratuity due and payable to the Respondent/Employee.

Division bench ruling

The division bench seconded the single bench ruling. It observed that following the conviction by the internal committee of PNB, the employee has already been dismissed from his employment as per the service rules of PNB. For forfeiture of gratuity of an employee under Section 4(6)(b)(ii) of the Act, PNB or the aggrieved woman must invoke the jurisdiction of a competent criminal court that shall result in conviction of an offence involving moral turpitude for the forfeiture of gratuity. Hence, the appeal was dismissed.

Our thoughts

The fields of POSH and Payment of Gratuity Act operate in two different arenas in relation to the allegations of sexual harassment on an employee. While POSH facilitates a mechanism to internally adjudicate the charges and put in place service rules on the same. The objective is to provide the aggrieved woman a forum of aid by the employer in getting heard and, subsequently invoking the criminal machinery, if she wishes to do so. However, the Payment of Gratuity Act provides for a statutory mechanism to safeguard the gratuity due and payable to an employee by providing a hierarchy of adjudicating authorities. The objective is to provide for proper redressal mechanism in case of any dispute on payment of gratuity. Under the Act, only on the basis of criminal conviction OR riotous behaviour the gratuity can be forfeited. Otherwise, the gratuity of an employee is immune to conviction made by an internal committee of the employer unless the aggrieved woman invokes criminal jurisdiction culminating in conviction by a Competent Court. It can be concluded that mere conviction by the internal committee is not enough to withhold gratuity of an employee unless the matter has been tried by the Competent Court and the employee has been convicted by the said Competent Court.

The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident, or any other cause