I am writing to seek clarification regarding a matter involving the adjustment of an outstanding loan amount owed by an employee at my establishment, which has recently been permanently closed. As we prepare to settle all terminal benefits, including gratuity, bonus, notice pay, and retrenchment compensation, I would like to know whether it is permissible to adjust the outstanding loan against these terminal benefits.
The Controlling Authority has indicated that adjustments against gratuity are not allowed. However, I would appreciate any guidance or advice on this matter, including any legal citations or precedents that support the possibility of such adjustments. The alternative of pursuing a civil case for the recovery of the outstanding loan is not ideal due to the associated costs and time commitment, especially as I plan to relocate from the city.
Thank you for your assistance. I look forward to your insights on this issue.
From India, Bhopal
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4The Controlling Authority has indicated that adjustments against gratuity are not allowed. However, I would appreciate any guidance or advice on this matter, including any legal citations or precedents that support the possibility of such adjustments. The alternative of pursuing a civil case for the recovery of the outstanding loan is not ideal due to the associated costs and time commitment, especially as I plan to relocate from the city.
Thank you for your assistance. I look forward to your insights on this issue.
From India, Bhopal
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Adjustment of Gratuity Against Company Losses
Gratuity amount can be forfeited or adjusted against the loss incurred by the company as per Section 4(6) of the Payment of Gratuity Act. This can only be done after conducting an inquiry and quantifying the loss to the company.
From India, Kannur
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Gratuity amount can be forfeited or adjusted against the loss incurred by the company as per Section 4(6) of the Payment of Gratuity Act. This can only be done after conducting an inquiry and quantifying the loss to the company.
From India, Kannur
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Gratuity Deductions and Employee Termination
Gratuity can be deducted against damages, loss, or destruction of property belonging to the employer only if the employee is terminated for any act, willful omission, or negligence causing such losses. Due procedure shall be completed before doing that.
In your case, it is the closure of the establishment, not the termination of the employee for any action mentioned above.
From India, Thiruvananthapuram
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Gratuity can be deducted against damages, loss, or destruction of property belonging to the employer only if the employee is terminated for any act, willful omission, or negligence causing such losses. Due procedure shall be completed before doing that.
In your case, it is the closure of the establishment, not the termination of the employee for any action mentioned above.
From India, Thiruvananthapuram
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The version of the Controlling Authority is correct. You can adjust the outstanding amount from the other payables, excluding the gratuity. Otherwise, ask the employee to issue a check in favor of the company to settle the outstanding balance.
From India, Mumbai
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From India, Mumbai
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(Fact Checked)-Your response is accurate. Adjusting the outstanding loan with other benefits excluding gratuity can be considered. Always consult local labor laws for clarity. (1 Acknowledge point)
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Adjustment of Gratuity Against Outstanding Loan
Forfeiture does not mean adjustment, and you can adjust the gratuity against the outstanding loan subject to the provisions of the loan agreement. In a judgment decided by the Allahabad HC, an employee took a loan from the petitioner bank by executing a loan agreement that included a clause allowing the loan amount to be adjusted against the gratuity amount. He was discharged from services due to disciplinary proceedings, and his gratuity was adjusted against the loan amount. He claimed gratuity by filing an application before the controlling authority, which was allowed. An appeal against the order of the controlling authority was dismissed. The bank filed a writ before the Allahabad HC. It was held that the amount of gratuity had been adjusted towards the housing loan. It was neither forfeited nor withheld. The adjustment can be made against the loan if the loan agreement so provides, and it is not barred by the provisions of Section 4(6) of the Payment of Gratuity Act, 1972.
State Bank of Bikaner & Jaipur Vs Appellate Authority & Others, 2013 LLR 637
Regards, Dr. Kamlesh Agrawal Mumbai
From India, Delhi
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Forfeiture does not mean adjustment, and you can adjust the gratuity against the outstanding loan subject to the provisions of the loan agreement. In a judgment decided by the Allahabad HC, an employee took a loan from the petitioner bank by executing a loan agreement that included a clause allowing the loan amount to be adjusted against the gratuity amount. He was discharged from services due to disciplinary proceedings, and his gratuity was adjusted against the loan amount. He claimed gratuity by filing an application before the controlling authority, which was allowed. An appeal against the order of the controlling authority was dismissed. The bank filed a writ before the Allahabad HC. It was held that the amount of gratuity had been adjusted towards the housing loan. It was neither forfeited nor withheld. The adjustment can be made against the loan if the loan agreement so provides, and it is not barred by the provisions of Section 4(6) of the Payment of Gratuity Act, 1972.
State Bank of Bikaner & Jaipur Vs Appellate Authority & Others, 2013 LLR 637
Regards, Dr. Kamlesh Agrawal Mumbai
From India, Delhi
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(Fact Checked)-You're right! Adjustment of gratuity against a loan can be done if the loan agreement allows, as per the case you mentioned, State Bank of Bikaner & Jaipur Vs Appellate Authority & Others, 2013 LLR 637. Excellent reference! (1 Acknowledge point)
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NIRAJ J. SHAH
This sounds more logical also. If gratuity is not allowed to be adjusted against outstanding loan, then the employer has to approach Civil Court for claiming remaining loan amount and it will be lengthy and costly affair. I think amendment is required to allow adjustment of loan amount against gratuity.
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The reply of the authority is right. You cannot deduct the loan amount from the gratuity or PF, but you can adjust it against the bonus and other dues, including salary due to the employee and retrenchment compensation.
If the loan amount is large (details not provided), then salary, bonus, and other dues will not be adequate. Since you cannot adjust against gratuity, ask the employee to pay off the amount when they receive the gratuity (or before). If they refuse, you have no option but to file a civil suit for recovery.
From India, Mumbai
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If the loan amount is large (details not provided), then salary, bonus, and other dues will not be adequate. Since you cannot adjust against gratuity, ask the employee to pay off the amount when they receive the gratuity (or before). If they refuse, you have no option but to file a civil suit for recovery.
From India, Mumbai
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I agree with your insight. Only difficulty is after all adjustment when the balance amount is say Rs.25,000/=, the employer is left with no other alternative but to forgo the amount than to file Civil suit which is again costlier and lengthy. He has to attend the Court, step into witness box, etc. So, majority would like to waive off the amount than to claim it through Court procedure.
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I would like to cite a practical step taken in such a situation despite the legal provision stated above.
The employer issues a letter listing the payment of various dues to the employee along with the amount recoverable from him. The employee replies back asking the employer to deduct the recoveries from the gratuity payable. The employee gives a pre-receipt indicating that he has received the gratuity amount in full. The employer remits the balance amount to the employee.
This process was adopted, and luckily, nobody challenged the action.
From India, Mumbai
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The employer issues a letter listing the payment of various dues to the employee along with the amount recoverable from him. The employee replies back asking the employer to deduct the recoveries from the gratuity payable. The employee gives a pre-receipt indicating that he has received the gratuity amount in full. The employer remits the balance amount to the employee.
This process was adopted, and luckily, nobody challenged the action.
From India, Mumbai
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Perfect action suggested by you, but now a days employees are smart. First they collect whatever employer is paying and then raise dispute and claim the amount along with interest and cost.
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Gratuity Act-Teachers-Ma dhya Pradesh.docx
Payment of Gratuity Act, 1972 & The Rules.ppt
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(Fact Checked)-Your information is accurate. Deductions for damage or loss due to employee's wilful acts or negligence are allowed, but in this case, it's not applicable. Well done! (1 Acknowledge point)