Can a Bank Demand Loan Repayment from a Deceased Employee's Family Using PF and Gratuity?

Legal Heirs and Loan Repayment

Dear Experts, One employee, Mr. X, died in December 2009 after 12 years of continuous service. Prior to his death, he had availed a loan of Rs. 1.5 lakh from Bank B in 2008. Due to his death, his wife and two children (son - 8 years, daughter - 6 years) could not pay the EMIs for the loan. Can Bank B compel the legal heirs to clear the debt (by adjusting PF and Gratuity Amount) towards Bank B? If yes, how?

Regards

Dear Prashant B Ingawale,

First, clarify whether he was an employee of Bank B and if the PF Trust is in operation at the bank.

If so, you can make a request to the legal heirs to repay the arrear amount from the PF accumulation.

Please note - you are not supposed to adjust the amount on your own.

If the PF operations are with EPFO, you have no right to ask the EPFO authorities to adjust the amount to the outstanding amount.

Gratuity Forfeiture Conditions

In the gratuity case, you can forfeit the amount on the following grounds only:

- (a) The gratuity of an employee, whose services have been terminated for any act, willful 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.

- (b) The gratuity payable to an employee [may be wholly or partially forfeited]—

- (i) If the services of such an employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or

- (ii) If the services of such an employee have been terminated for any act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.

Legally speaking, this amount cannot be adjusted from PF and Gratuity. Moreover, as these amounts are the terminal benefits/final benefit to legal heirs, who have lost their breadwinner, sympathetic consideration is required here. This can be written off if possible.

Regards,
S. Sethupathy
Excellent HR Services,
Erode.

The deceased was not an employee of the bank; he was an employee of one of the engineering companies.

Thank you.

Dear Prashant, Is there any undertaking letter given by the company to the bank while in the process of sanctioning the loan? Then let his employer deduct—if possible—from other components of F & F like leave encashment, arrear bonus, prorated LTA, etc., but not from gratuity for this adjustment. That too with the consent of the legal heirs.

Regards, S. Sethupathy.

The employer has given an undertaking, but the amount of the Full & Final settlement is less than the outstanding loan amount.

Protection of Provident Fund (PF) from Debt Settlement

PF is sacrosanct and cannot be used in settling any debt of the employee, whether alive or deceased.

Provident Fund and Gratuity Attachment

Provident fund, as long as it is held by PF authorities, is not liable for attachment. However, once it is credited to an employee's account after the settlement of his account, it could be attached as an ordinary deposit of the employee. It will lose the status of PROVIDENT FUND, and the amount could be attached by any court.

Similar is the case of GRATUITY. As long as it is held by the employer, it could not be attached. However, once it is credited to the employee's account, it could be attached as an ordinary deposit.

Regards,
P.N. Pathak. [Phone Number Removed For Privacy Reasons].

Dear Sri_Legal, With reference to your answer about gratuity being attachable, please recheck the provision of Sec. 60(g) and confirm if you still hold your view that gratuity can be attached under Sec. 60 (or not).

I totally agree with Mr. Dhingra. Neither PF nor gratuity can be attached for loan repayment.

Regards,
Kamal

Provident Fund and Gratuity Exemption

Provident Fund and Gratuity are exempted from attachment as per Section 60 of the Civil Procedure Code. Therefore, they cannot be attached under any circumstances.

In the present case, the banker can recover the loan amount from the assets of the deceased, if any. Legal heirs are not personally liable to pay the due amount to the bank.

Regards,
N. Lokanadha Babu, Manager-HR

Exemption of Provident Fund and Gratuity from Attachment

Provident Fund and Gratuity are exempted from attachment as per Section 60 of the Civil Procedure Code. Therefore, they cannot be attached under any circumstances.

In the present case, the bank can recover the loan from the assets of the deceased, if any. Legal heirs are not personally liable for the debts of the deceased.

Regards,
N. LOKANADHA BABU, MANAGER-HR