Gratuity Forfeiture Valid for Gross Negligence Causing ₹35 Cr Loss | HC

Case Details: Institution of Engineers (India) vs. Union of India - [2026] 185 taxmann.com 89 (HC-Calcutta)

Judiciary and Counsel Details

• Shampa Dutt (Paul), J.
• Soumya Majumder, Ld. Sr. Adv, Indranil Munshi, Ms Anuska Sarkel & Ms Ahona Guha Majumder for the Petitioner.
• K.J. Yusuf, Sudip Kumar Maity, Shiv Mangal Singh, Siddhartha Bhattacharjee, Subit Majumder, Sugata Shankar Roy, Arijit Chakraborty, Debsoumya Basak & Ms Swati Kumari Singh for the Respondent.

Facts of the Case

In the instant case, the respondent no. 6 was the Director (Finance) of the petitioner-employer. A large-scale financial fraud of about Rs. 35 crores occurred in 2019–2020.

A police complaint and FIR were lodged, a departmental enquiry was instituted, the respondent no. 6 was suspended, a charge sheet was served alleging gross irregularities and negligence in banking transactions, and the respondent no. 6 was dismissed from the service for major misdemeanours in 2021.

Respondent no. 6 filed Form N before the controlling authority, claiming gratuity. The Controlling authority, by order in 2023, held that the employer’s action to forfeit/withhold the gratuity did not align with the Act and Rules, recorded a violation of Rule 8 of the Payment of Gratuity (Central) Rules, 1972, for want of intimation/permission and want of opportunity, and directed payment of gratuity to the respondent no. 6.

On petitioner’s appeal, the appellate authority in 2025 noted that the investigation appeared to show loss to the organisation due to the respondent’s negligence/intention, but on technical grounds found that no intimation was sent to the controlling authority and no notice in Form-M was issued specifying reasons for non-admissibility, and therefore held gratuity payable in terms of Act; it upheld controlling authority’s order and directed payment of gratuity with interest already deposited with the controlling authority.

Following the appellate order, the controlling authority issued a notice in 2025, calling upon the petitioner to show cause within 15 days, failing which, the gratuity, with interest, would be released to the respondent no. 6.

It was noted that though technical formalities under the Act had prima facie not been complied with, the petitioner had invoked Section 4(6)(a) of the Payment of Gratuity Act, 1972 and had done same in accordance with law, having duly proved that severe prejudice had been caused to the petitioner, due to gross negligence of the respondent no. 6, causing damages and loss of Rs. 35 crores (quantified), by way of a disciplinary proceeding conducted in accordance with law by following principles of natural justice and thus called for no interference in judicial review.

High Court Held

The High Court held that the filing of Form-M had been left out by an institute having suffered huge loss, which was a curable defect, and the same was to be completed by the petitioner forthwith.

Thus, the order of the controlling authority, the order of the appellate authority, and the notice being not in accordance with the law, were to be set aside.

List of Cases Referred to

• WESTERN COAL FIELDS Ltd. v. Manohar Govinda Fulzele [2025] 2 taxmann.com 2235/185 FLR 90 (SC) (para 28)
• State of Jammu and Kashmir v. Farid Ahmad Tak (2019) 7 SCC 278 (para 30)
• KARAM PAL etc. v. UNION OF INDIA and others 1985 taxmann.com 1471/[1985] 50 FLR 414 (SC) (para 30)
• Union Bank of India v. C.G. Ajay Babu (2018) 9 SCC 529 (para 31)
• D.V. Kapoor v. Union of India (1990) 4 SCC 314 (para 31)
• Khem Chand v. Union of India 1957 SCC OnLine SC 6 (para 31)
• State of Rajasthan v. Heem Singh [Civil Appeal No. 3340 of 2020, dated 29-10-2020] (para 39).