Employment Law Newsletter – Forfeiture of Gratuity and Bonus on POSH Grounds: Understanding ‘Moral Turpitude’ and ‘Conviction’ Under the Labour Codes

Introduction

The intersection of the Prevention of Sexual Harassment (POSH) Act, 2013, and labour laws regarding statutory benefits (Gratuity and Bonus) has been a subject of continuous judicial scrutiny. For years, the prevailing legal defence for employees was that a mere finding of guilt by an Internal Complaints Committee (ICC) was not a “conviction” and thus could not justify the forfeiture of statutory dues. However, recent Supreme Court judgments in 2025 have fundamentally altered this landscape for Gratuity, while the position for Statutory Bonus remains distinct and nuanced under the Code on Wages, 2019. This article breaks down the latest legal position, specifically referencing the landmark Western Coal Fields Ltd. judgment and the relevant Labour Codes.

Forfeiture of Gratuity: The “Moral Turpitude” Shift

The core question regarding gratuity has always been whether an employer can forfeit it based solely on a POSH enquiry report without a criminal court conviction.

Pre-Landmark Judgment Position: Before 2025, employees were significantly protected by the precedent set in Union Bank of India v. C.G. Ajay Babu (2018)1. In this era, the judiciary held that “moral turpitude” was a strictly criminal concept. Therefore, even if an employee was fired for sexual harassment based on an IC report, their gratuity could not be touched unless the employer went the extra mile to file a police case and secure a conviction in a Criminal Court. Practically, this meant forfeiture was rare, as employers often avoided long criminal trials.

Post-Landmark Judgment Position (2025): This safety net was removed by the Supreme Court in Western Coal Fields Ltd. v. Manohar Govinda Fulzele (2025)2. The Court explicitly overturned the previous requirement, ruling that a criminal conviction is not a prerequisite for forfeiture. Today, if a departmental or POSH inquiry is conducted fairly and in accordance with natural justice, and the misconduct is proven to constitute “moral turpitude,” the employer can forfeit gratuity immediately.

Since sexual harassment is legally recognized as “moral turpitude,” an IC finding is now sufficient grounds for forfeiture under Section 53 of the Code on Social Security, 2020, without any need for a criminal trial.

Forfeiture of Statutory Bonus: The “Conviction” Loophole

The situation for Statutory Bonus is different. Under the old Payment of Bonus Act, 1965, bonus could only be disqualified for fraud, riotous/violent behaviour, or theft. Employers often struggled to fit non-violent sexual harassment under “riotous behaviour.”

The Code on Wages, 2019, introduced a major change in Section 29, explicitly adding a new ground for disqualification: “Conviction for sexual harassment.” However, this wording can possibly create an interpretative conflict. In legal terminology, “Conviction” typically means a verdict of guilt pronounced by a Criminal Court, not a finding by an internal disciplinary body like an IC. Therefore, an employee may argue that an IC report is merely a “finding” and not a judicial “conviction” unless the employee is prosecuted and convicted by a Magistrate.

Conclusion

If you are contesting a forfeiture, the legal strategy depends entirely on which benefit has been withheld. For Gratuity, the 2025 Supreme Court ruling along with the new provisions under Section 53 of the Code on Social Security, 2020, allows employers to forfeit gratuity based on a fair internal POSH inquiry outcome.

However, for Statutory Bonus, while section 29, explicitly adds “Conviction for sexual harassment” as a new ground for disqualification, the interpretation of the term “conviction” may revolve around criminal procedure versus “finding” by an internal disciplinary body created under Civil law. Consequently, the sustainability of a forfeiture will turn not on the misconduct alone, but on whether the statutory preconditions for disqualification have been strictly satisfied.