Can An Employer Deny Gratuity Just Because Pension Is Paid?

1. If an employer is already paying pension, can they ever refuse to pay gratuity? In what exact situation, if any, would that be legally allowed?

First of all, let us understand that gratuity and pension are two separate matters as far as the private sector is concerned, and they are neither interlinked nor corroborative with each other.

A gratuity payment stands alone on the basis of the payment of gratuity act, 1972 for private sector employees and the gratuity act mandates that gratuity payment is compulsorily to be paid to employees who have been in continuous services for about 5 years irrespective of whether they are receiving pension or any other legal payments or dues.

"A gratuity payment can be denied to an employee only in cases of moral turpitude and only for this reason, the employer can forfeit the gratuity without waiting for any court order or court conviction. This denial on these grounds by the employer has the support of the Supreme Court, which on 17th February 2025 provided the employers with the authority to deny gratuity on such dismissals," said Pratik Vaidya, Managing Director and Chief Vision Officer, Karma Management Global Consulting Solutions Pvt. Ltd.

To further substantiate the point, even the Madras High Court has reinforced that gratuity is a statutory right and cannot be denied just because the employee is receiving pension unless a specific Government exemption applies or the employer has obtained a formal exemption under the Payment of Gratuity Act, 1972.

In the earlier 2018 Supreme Court judgement, in the case of Union of India versus Ajay Babu, the verdict given at that time also was that the employer had to prove the dismissal under the reason of moral turpitude in a court of law and now as per the latest Supreme Court judgement, the old judgement of 2018 is rendered unnecessary as the latest judgement says that the employer can proceed with the forfeiture of gratuity without waiting for a court to decide in the case of moral turpitude.

"The most underlying point in the case of Supreme Court's latest judgement of 17th February 2025 is that the Act provides for such forfeiture in cases where the delinquent employee is terminated for a misconduct that constitutes an offence involving moral turpitude and moral turpitude can be anything, for example, it now comes to light that the candidate had done falsification of his records or qualifications or produced false certificates or submitted false evidences of his experience certificates or lied on his actual date of birth or gave false statement in his declaration at the time of joining and so on," commented Pratik Vaidya.

2. For employees who were denied gratuity in the past because they were receiving a pension, what can they do now? Can they still claim it?

Gratuity Can Be Forfeited If:

1. Employee damages the employer's property (to the extent of loss)
2. Riotous or violent behaviour
3. Conviction for an offence involving moral turpitude committed during employment

Employers must give a written explanation for the forfeiture. The employee can contest the decision legally.

"However, the latest ruling of the Supreme Court now clarifies that employees can claim gratuity without the need for a criminal conviction if the employee was dismissed for moral turpitude for anything immoral, unjust or unethical, as it is left to the internal disciplinary committee's decision to justify forfeiture subject to the employer issuing a notice to the employee before forfeiting gratuity with a view to giving an opportunity for the employee to defend against this act of forfeiture and the reasons thereto," stated Pratik Vaidya.

The Supreme Court of India recently addressed a long-running dispute concerning the entitlement to pensionary benefits for the deceased employee, Ashok Kumar Dabas, a former conductor with the Delhi Transport Corporation (DTC). Dabas was selected and appointed to the Corporation in 1985 and had accepted a new pension scheme introduced in 1992.

He subsequently resigned from his job on August 7, 2014 citing family circumstances. The Corporation accepted his resignation on September 19, 2014. Crucially, Dabas later sought to withdraw his resignation via a letter dated April 13, 2015, but the Corporation declined this request. When Dabas requested his full retirement benefits, including pension, the DTC informed him that he was only entitled to the provident fund, as resignation led to the forfeiture of other benefits.

The apex court upheld the denial of pension benefits to the legal heirs of Dabas. The Court found that the service conditions were governed by the Central Civil Services (Pension) Rules, 1972 (1972 Rules). The judges cited Rule 26(1) of the 1972 Rules, which clearly states that resignation from a service or post entails the forfeiture of past service, unless the resignation is allowed to be withdrawn in the public interest.

Despite the argument that Dabas had completed more than 20 years of service, which would usually qualify him for a pension if he had voluntarily retired, the Court stressed that there is a strict distinction between 'resignation' and 'voluntary retirement'. Since Dabas had resigned, and his request to withdraw was declined, his past service stood forfeited, leading to the inescapable conclusion that he was not entitled to any pension. Consequently, the claim for family pension was also denied.

"The Central Civil Services (Pension) Rules 1972 govern the pension benefits for Central Government employees appointed before January 1, 2004. These rules apply to government servants appointed on or before December 31, 2003 including civilian government servants in the Defence services," said Pratik Vaidya.

In N. Manoharan v. The Administrative Officer & Anr. (2026 LiveLaw (SC) 137), the Supreme Court of India delivered a significant ruling clarifying the scope of the Payment of Gratuity Act, 1972 (PG Act) vis-à-vis Central Government employees governed by the Central Civil Services (Pension) Rules, 1972 (CCS Rules).

The Issues Before the Supreme Court was whether Central Government employees governed by the CCS (Pension) Rules, 1972, can claim gratuity under the Payment of Gratuity Act in addition to or in substitution of gratuity under the CCS Rules.

Judgment:

As per Pratik Vaidya, the Supreme Court conclusively held that:

• Employees of the Heavy Water Plant, Tuticorin, are Central Government employees.
• They are governed by the Central Civil Services (Pension) Rules, 1972, which provide for gratuity.
• By virtue of Section 2(e) of the Payment of Gratuity Act, 1972, such employees are excluded from the ambit of the PG Act.
• They are not entitled to claim gratuity or any differential amount under the PG Act.
• The appeal was accordingly dismissed.