Respected all,
We have Long Term Settlement with Union for giving Loan in which we have clause of recovery of any outstanding amount at the time of seperation against Gratuity payable to the person.
Is it legal?? what can be the consequencies??
Do give your valuable inputs to this.

From India, Ahmadabad

Dear Mahajan, As per my knowledge it is legal we can deduct outstanding amount from gratuity. Regard’s Shaikh
From India, Bhubaneswar
sunil Sadar

IT IS LEGAL. GET form V ( under Payment of gratuity Act,1972) filled in by employee at the time of giving loan. also obtain a request letter from employee that in case of failure to pay back loan due to any unforeseen circumstances in future, the balance amount may be deducted from gratuity payable to him. We have this practice succesfully working in our organisation since last 25 years. We have alsoa very strong union and this is a common caluse in all our agreements from yearstogether.
From India, Nagpur

Dear Sameer,
Irrespective of whether or not entered in to any agreement with the management, any outstanding amount or overpaid amount can be recovered from the amount of gratuity. On the other hand, no outstanding or overpaid amount can be recovered from Pension or Provident Fund, except that only the overpaid pension amount is recoverable from the monthly pension due to any employee.
There is no rule that prohibits any outstanding amount from recovery from gratuity, being a statutory benefit.

PS Dhingra
Chief Executive Officer
Dhingra Group of Management & Vigilance Consultants
New Delhi

From India, Delhi
Dear sam,
Lets us take situations and try to find out answer to your query:
Amount outstanding is very high, person is not in good books of management, and has left organization without full & final settelment. He does not seem to be willing to settle amount
Answer:In such situation you can definetly recover amount from his gratuity & settle remaining amount.
Situation 2:
Amount outstanding is considerably high, person is still willing to settle amount, but do not have funds.
Process his gratuty, subject to payble by cheque. Once you get his gratuity cheque, you can ask employee to come to office, take a PDC (Post Dated Cheque) from that employee against gratuity payment, and settle amount.
Situation 2 is more practicle, and do not create bad impression about company, but again, it is risky.
Just incase if the cheque given is not realised, company stands all rights to file case.
Anjali Kishor Limaye

From India, Mumbai
Vasant Nair

In view of the fact recovery of outstanding amounts can be recovered from Gratuity at the time of separation has been incorporated in your long term agreement with the employees, you could go ahead and implement the same.
However, it would be prudent to have separate written individual undertaking with the concerned individuals at the time of disbursal of loans etc.. to take care of such eventualities.
Vasant Nair

From India, Mumbai
Kritarth Consulting

Gratuity becomes payable only when the service rendered in satisfactory. Otherwise it is not payable.
In this case when the concerned employee has defaulted on his obligations to pay back, no gratuity should be payable in the first instance.
If there is no earning under the heading "Gratuity" , where is the question of any recovery.
Thanks & Best Wishes
Harsh Kumar Sharan (XLRI Alumnus)
Director & Head - Executive Coaching & Training
Kritarth Consulting Private Limited
New Delhi

From India, Delhi
sunil Sadar

Not repayng the loan doesnot amount to unsatisfactory service and further as per gratuity act, unsatisfactory service is not the criteria.
The gratuity can be forfeited only in case of 1) riotous, violent or disorderly behaviour (2) moral turpitude. However, both the misconducts are required to be proved by conducting domestic enquiry otherwise even if you know that these misconduct were done by employee, even if there are many witnesses, one cannot even think of touching the gratuity amount of the employee.

From India, Nagpur

there is clear provision under Payment of Gratuity Act here i would like to mention section 13 of the Act which provide protection to Gratuity. this section enumerate the principal that the gratuity of an employee can not be attached for under any decree by court or any kind of payment even for the recovery of laon provided to the employees.

it has been held in case titled as Yada Laxmi V/s A.P State Corporation Bank, LLR 2006 (108) that amount of gratuity is not liable to be adjusted towards any amount drawn by the employee as personal loan or housing loan.

it has been held by Delhi High Court in case titled as Taxmaco Ltd V/s Roshan Singh 2001 LLR 890(Delhi) in view of the direct and to categoric judgement of Supreme Court of India the Payment of Gratuity Act is a welfare peace of legislation and the amount of payment of gratuity can not be withheld of an employee for on even non vacation of company qarter.

Withhold or Adjustment of Gratuity is not permissiable under any circumstance other then those mentioned in section 4(6) of the Act held by Kerla High court in case titled as K.C Methew V/s Plantation Corporation Kerla LLR 2001(123) ker.

Hope above clear all doubt of the member who wrongly gave opinion without considering the provison of law.

for more can further write.



Gratuity cannot be adjusted against any amount. The actual amount of gratuity payable shall be paid to the employee by means of cheque. In case any loan is payable by the employee it shall be collected by means of a seperate cheque or cash from the employee while giving the gratuity cheque to the employee. This is required to safeguard the Management from unwanted litigation in the event of the employee or his legal heirs filing gratuity claim before the Gratuity Authority at a later period.
I fully agree with what Mr. essykkr

From India, Selam
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