Case Note & Summary
The matter before the High Court of Judicature at Bombay, Civil Appellate Jurisdiction, arose from four writ petitions filed by former employees of the respondent company. The respondent was engaged in manufacturing machinery, equipment, and accessories primarily for pharmaceutical industries. The petitioners were employed in managerial and executive roles, including senior manager production planning and control, manager purchase department, manager production department, and senior executive purchase department. The employer alleged that the petitioners floated a partnership firm named M/s. Meck Kraft Industries in the names of their wives, which had no manufacturing facilities. It was alleged that through this firm, the petitioners procured goods manufactured by M/s. Samurai Engineering and sold them to the employer at 200% to 300% cost, causing huge financial loss. The petitioners tendered resignations on various dates in September and October 2018. The employer issued communications accusing them of acting against company interests, directed them to proceed on leave, and later issued show cause notices dated 5 November 2018 alleging losses of Rs.50 lakhs and proposing forfeiture of gratuity. By orders dated 14 November 2018, their services were terminated and gratuity forfeited. An FIR was also lodged on 20 September 2018 at Rabale MIDC Police Station. The petitioners did not challenge the terminations but filed applications before the Controlling Authority under the Payment of Gratuity Act, 1972 seeking gratuity. The Controlling Authority allowed the applications on 18 April 2022 and directed payment of gratuity amounts ranging from Rs.2,06,630 to Rs.3,79,817 with interest at 10% per annum from the dates of resignation. The employer appealed, and the Appellate Authority by judgment and order dated 24 March 2023 allowed the appeals and set aside the Controlling Authority's orders, holding that the petitioners were not entitled to gratuity. The petitioners then filed the present writ petitions challenging the Appellate Authority's decision. The core legal issues were whether the petitioners were entitled to gratuity despite allegations of misconduct, whether forfeiture was justified under Section 4(6)(a) or Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, and whether the employer established loss. The petitioners argued that no enquiry was held, they had resigned, the police filed a closure report finding the dispute civil in nature, no conviction was recorded, and loss was not established; they contended that gratuity was a fundamental right. The employer argued that loss was admitted in cross-examination and that the case fell under Section 4(6)(a), not Section 4(6)(b)(ii). The court noted that the petitioners did not dispute the formation of the firm by their wives or the procurement of parts through it, and that the firm had no manufacturing facility. The court recorded that petitioner Prabhat Kumar Singh admitted in cross-examination that parts were purchased from M/s. Samurai Engineering and sold at exorbitant prices, with an invoice showing purchase at Rs.3,600 and sale at Rs.6,900, and that such fraudulent transactions continued since 2017. The provided judgment excerpt ends before the final operative decision of the court.
Headnote
A) Payment of Gratuity - Forfeiture of Gratuity - Sections 4(6)(a) and 4(6)(b)(ii), Payment of Gratuity Act, 1972 - The dispute concerned whether employees who allegedly misused procurement positions to cause loss via a fictitious partnership firm of their wives could forfeit gratuity; the Controlling Authority applied Section 4(6)(b)(ii) but the employer contended that Section 4(6)(a) governed the case; the employer argued loss was admitted, while the petitioners argued absence of conviction and police closure report precluded forfeiture - Court noted rival contentions and recorded that the matter involved determining whether loss was established under the correct statutory provision (Paras 1, 5, 10-11).
B) Evidence - Admission in Cross-Examination - Effect of Admissions on Forfeiture - Payment of Gratuity Act, 1972, Section 4(6) - Petitioner Prabhat Kumar Singh admitted in cross-examination that requirements of the employer were purchased from M/s. Samurai Engineering and sold at exorbitant prices; a tax invoice showed purchase of an item at Rs.3,600 and its supply to the employer at Rs.6,900; he also stated that fraudulent transactions continued since 2017 - Court noted this admission and observed that the firm lacked manufacturing facility and sourced goods from M/s. Samurai Engineering (Paras 12-13).
Issue of Consideration
Whether Petitioners, who have pocketed commission by floating fictitious firm in the names of their wives while procuring spare parts at exorbitant rates, are entitled to gratuity after termination of their services; Whether forfeiture of gratuity is justified under Section 4(6)(a) or 4(6)(b)(ii) of the Payment of Gratuity Act, 1972
Final Decision
Not mentioned in the provided text; the judgment excerpt ends before the court's final holding and operative order.
Law Points
- Legal points not extracted
- Forfeiture of gratuity under Section 4(6) of Payment of Gratuity Act
- 1972 requires proof of loss caused by employee's misconduct
- loss must be established
- not presumed
- police closure report does not amount to finding of no loss
- admission in cross-examination can establish loss
- employer may prove loss before Controlling Authority
Case Details
2025 LawText (BOM) (04) 132
Writ Petition No. 8487 of 2023 with Writ Petition No. 10018 of 2023, Writ Petition No. 10131 of 2023, Writ Petition No. 10231 of 2023
Citation not available, 2025:BHC-AS:15176
Tarun Kumar Sinha, Vijay P. Vaidya, Mahendra Agvekar, Shraddha Chavan
Prabhat Kumar Singh, Shrikant B. Chinchkar, Nilesh Afre, Anil Sahadeo Kadam
Accu Pack Engineering Pvt. Ltd.
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Nature of Litigation
Writ petitions challenging the Appellate Authority's orders setting aside gratuity awards under the Payment of Gratuity Act, 1972
Remedy Sought
Petitioners sought quashing of the Appellate Authority's orders dated 24 March 2023 and restoration of the Controlling Authority's orders dated 18 April 2022 directing payment of gratuity with 10% per annum interest
Filing Reason
The Appellate Authority allowed the employer's appeals and held that the petitioners were not entitled to gratuity, reversing the Controlling Authority's decision to grant gratuity, prompting the petitioners to file writ petitions
Previous Decisions
Controlling Authority, by order dated 18 April 2022, allowed the applications and directed payment of gratuity with 10% per annum interest. The Appellate Authority, by judgment and order dated 24 March 2023, allowed the employer's appeals and set aside the Controlling Authority's orders, holding that the petitioners were not entitled to gratuity. The present writ petitions challenge the Appellate Authority's decision.
Issues
Whether the petitioners are entitled to gratuity despite allegations of pocketing commission through a fictitious partnership firm of wives while procuring spare parts at exorbitant rates
Whether forfeiture of gratuity under the Payment of Gratuity Act, 1972 is governed by Section 4(6)(a) or Section 4(6)(b)(ii)
Whether the employer established loss caused by the petitioners' misconduct before the Controlling Authority and whether admissions in cross-examination are sufficient to prove such loss
Whether the police closure report and absence of conviction preclude forfeiture of gratuity
Submissions/Arguments
Petitioners argued that no enquiry was held, they had resigned and therefore no termination enquiry was necessary, only criminal proceedings were initiated and police filed a closure report finding the dispute civil in nature, no conviction was recorded, loss was not established in any proceedings, the employer cannot unilaterally conclude loss, the claim of Rs.50 lakh loss was baseless, the police investigation showed the firm received Rs.11,90,244 and Rs.3,01,400 was still due, goods supplied were not defective, and gratuity is a fundamental right that cannot be denied.
Respondent argued that loss was expressly admitted in evidence by the petitioners, it was permissible for the employer to prove actual losses before the Controlling Authority, the Appellate Authority rightly considered the admissions, the petitioners defrauded the employer by forming a fictitious partnership in the names of their wives to secure commission, they misused their purchase and procurement positions causing wrongful gain to themselves and wrongful loss to the employer, and the case was governed by Section 4(6)(a) of the Payment of Gratuity Act, 1972, not Section 4(6)(b)(ii) as erroneously applied by the Controlling Authority.
Ratio Decidendi
Ratio not explicitly mentioned
Judgment Excerpts
1) The issue involved in the present Petitions is whether Petitioners, who have pocketed commission by floating fictitious firm in the names of their wives while procuring spare parts at exorbitant rates, are entitled to gratuity after termination of their services?
12) Petitioners do not seriously dispute the position that partnership firm by name M/s. Meck Kraft Industries was formed by their wives as partners. They also do not dispute the position that some of the parts required for manufacturing process by the Respondent-Company were procured through the said Firm- M/s. Meck Kraft Industries. It is also not a disputed position that the Firm-M/s. Meck Kraft Industries did not have its own manufacturing facility.
12) He has admitted that “ It is correct to say that whatsoever requirements of opponent M/s. Make Craft Industry purchase spare part from M/s. Samurai Engineering and exorbitant prize of the said spare part sale to the opponent company . Now I am shown the copy of tax invoice filed below Exh.C-5, serial no.3, page no.11. The purchase item viz.F12, 11 Forming Dying from Samurai Engineering purchased by M/s. Make Craft Industries of Rs.3,600/- and it was supplied to the opponent company under the invoice of M/s. Make Craft Industries of Rs.6,900/-. It is correct to say that said Fraudulent transactions continue since 2017. ”
Procedural History
Petitioners resigned on various dates between 17 September 2018 and 3 October 2018. Employer issued communication dated 11 October 2018 accusing misconduct and directing leave; letters dated 5 November 2018 alleged losses of Rs.50 lakhs and sought cause why gratuity should not be forfeited; orders dated 14 November 2018 terminated services and forfeited gratuity. FIR was lodged on 20 September 2018 at Rabale MIDC Police Station. Petitioners did not challenge terminations but filed gratuity applications before the Controlling Authority. Police filed final report on 23 November 2019 recommending closure as civil dispute. The Controlling Authority allowed the applications on 18 April 2022 and directed payment with 10% per annum interest. The employer appealed on 19 April 2022. The Appellate Authority allowed the appeals and set aside the Controlling Authority's orders on 24 March 2023. Petitioners filed the present writ petitions challenging the Appellate Authority's orders. The High Court reserved judgment on 20 March 2025 and pronounced judgment on 2 April 2025.
Acts & Sections
- Payment of Gratuity Act, 1972: 4(6)(a), 4(6)(b)(ii)
