Industrial Relations And Labour Laws
Management Consultancy
Sr. Manager (p&a)
Dy Manager Hr

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Dear Team
need some advice we have done full and final settlement of one of our employee but after FFS we came to know there is some damage done by him and it is resulting huge cost impact to rectify the same. now we only have his gratuity settlement to be done so can we recover said damage cost from his gratuity ?
Need some opinion from experts
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Recovery towards damage should be subject to a domestic inquiry, where the damage and the cost impact has to be proved. If challenged , based on the damage, the cost impact has to be ascertained / decided / based on the adjudicated evidence before the Controlling Authority under Payment of Gratuity Act. If not a workmen under ID Act, you have to file an FIR and appropriate court has to decide the cost to be recovered / based on the adjudicated evidence / and orders, from the Gratuity authority. If the claim is made, the entire Gratuity has to be deposited before the controlling authority, subject to adjudication by the appropriate authorities.
As per Section 4(6) of Payment of Gratuity Act 1972 the recovery of any loss from gratuity is possible in the following circumstances:
1. The services of the employee has to be terminated, so it cannot be retirement or resignation
2. Termination of service has to be for omission or negligence resulting in damage or loss to or destruction of property belonging to the employer. For a valid termination on these allegations it is necessary to hold inquiry in which these charges are proved. Better to do it in the inquiry itself
3. The extent of damage or loss caused has to be proved by adducing positive evidence.
4. After termination of service, employee has to be issued a show cause notice seeking his explanation as to why the loss of the company shall not be recovered from the gratuity.
5. Based on the explanation of the delinquent employee a reasoned order considering the explanation of the employee has to be issued.
Subject to the above procedure, gratuity can be recovered to the extent of loss. The relevant provision of law is given below:
4(6) (a) the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused;
Dear Friend,
At this junture you can not hold the gratuity of the workman, whatever the reason may be. The opinion provided by of Mr. KK & Mr Alexander is valid as per the set rules for payment of gratuity. Any contravention in payment may prosecute you for the willful violation.
Provisions for forfeiture of gratuity under section 4(6) are applicable only to employees who are terminated finding them guilty of some gross misconduct like moral turpitude and causing damage to company property by violent act. That means the termination is made after the misconduct has happened and an enquiry has been conducted in to the incident and there is sufficient grounds to believe that the employee has done the misconduct. In the present case, the employee has left the company and based on the recommendations from different departments that he could be relieved and his full and final settlement could be done, the management has issued him relieving order (I presume so ) and F&F has been done. Now it is not possible for the employer to send a show cause notice and ask him to appear for a domestic enquiry etc. Therefore, I do not think that practically it is possible to have an enquiry conducted now.
A reading of the verdict of the Apex Court in D V Kapoor Vs Union of India (AIR 1923, 1990), will lead you to a conclusion that you cannot forfeit or withhold the gratuity of an employee who has retired or left the service. You could have found out the misconduct before he is relieved and you could have conducted an enquiry in to the incident. Moreoer, in order to forfiet the gratuity the misconduct should be such which are very serious and should have caused material loss to the company.
In Dhanalakshmi Bank Vs V Ramachandran(2012-IV/LLJ235(Kar) the employee dismissed for a misconduct involving moral turpitude was allowed gratuity just because the order dismissing him from service did not speak anything about forfeiture of gratuity! In Dena Bank V. Manjulaben M. Thakor and another’ (2012 LLR 648) it was held that you have no right to forfeit gratuity unless you had not initiated any penal action with a view to forfeiting the gratuity amount.
In ‘State Bank of Travancore V. Assistant Labor Commissioner (Central) (2012-IV-LLJ-580 (Ker) the employee dismissed was allowed gratuity even at the higher rate as applicable to other employees as per their Long Term Settlement just because there was no speaking order disallowing gratuity at the time of dismissing the employee. See that is the power of section 4(6) of Payment of Gratuity Act. You cannot forfeit gratuity without giving the employee an opportunity of being heard and without giving notice of such forfeiture.
But, still I advise you that you can approach the Appropriate Authority, the Labour Officer, and explain the situation and deposit the amount of gratuity payable and then entrust the labour Officer to take a call on the issue.
There is a provision under clause 4 6 i, ii and iii, it is the duty of the organisation to inform about the same and ask for his explanation too before do so. Moreover, I go with the views of Mr. Madhu T.K
Dear Colleague,
I would like to inform you that please make habit of receiving NOC (Prepare a format as per the company's requirements) from respective head of department of every employees at the time of leaving of the company. Even this habit will help HR to loop in the loose everybody.
Even it is cumbersome to handle these kind of issues after the full & final settlement.
Apart from this I agreed all the replies as mentioned here above.
No right to hold the gratuity payment, but you can ask the employee to pay the same as a warn. If he still ignores to pay you have to issues the gratuity payment and a recovery letter warning that if not received the amount within specific time we may have to terminate your services and that may reflect on BG checking.
If that is a huge amount and you want to get that back, you can offer him a job and recovery on his joining - only Idea.
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