How to Legally Handle Employee Misconduct and Recover Misappropriated Funds?

During the internal check, we found that one of our employees, who is the Branch Incharge, has misappropriated money received from our customers for payment by not depositing it in the bank and misused it for his personal use. During the investigation, he confessed and provided a written statement about the misuse of company money.

Guidance Required for Employee Misconduct

Now, kindly guide me on the following:

1. Can we terminate him immediately without any show cause/charge sheet for the misuse of company funds? Is it legal? If not, please suggest the necessary actions to be taken.

2. Can the misused money be recovered from his Gratuity Payable and his salary payable for this month? The misused money exceeds his gratuity payable, and he is unable to return it.

3. Do we need to obtain his written consent for the recovery of the amount from his gratuity?

An immediate reply would be most helpful to take action.

Regards,
erv

Termination Procedure for Misappropriation of Funds

You cannot terminate the employee without conducting an enquiry and proving that he is guilty, even though he has admitted his guilt. Therefore, frame a detailed charge sheet with the amount misappropriated and conduct an enquiry by appointing an independent person as the Enquiry Officer, and then proceed according to the reports only.

Gratuity and Legal Considerations

Gratuity cannot be withheld for an offence like this. As per Section 4(6)(a) of the Payment of Gratuity Act, gratuity can be forfeited to the extent of the loss caused to the company by willful and negligent acts or omissions of the employee. That means there should be proof that there was misappropriation of funds and by that act (which is obviously a willful act only), the bank/company has incurred a loss or damage. A thorough enquiry is a must in this case. If you simply take his statement that he had misappropriated the money, and the same could be recovered from his gratuity, and you release him, then you may face trouble. He can lodge a complaint that he has not received his gratuity, and if a dispute arises where he denies the charges of misappropriation of money and claims that what he had given in writing was false and he was forced to write it, you would have no other choice but to pay the gratuity or even reinstate him on the grounds that the procedure was not followed. Therefore, it is always better to follow the proper procedure. Until then, you can hold the gratuity, but not in your hands, but by depositing the gratuity amount with the Labour Authorities, who are the appropriate authorities under the Payment of Gratuity Act.

Regards,
Madhu.T.K

Lodging a Police Complaint for Fraud

You should consider lodging a police complaint for fraud. It will strengthen your position when you take action against him. However, be aware that our police are often corrupt and may not act without financial incentive.

Handling Fraud, Misappropriation, and Moral Turpitude

In cases of fraud, misappropriation, and moral turpitude, you can offset the gratuity against the amount of fraud. Suspend him immediately (or orally ask him not to come to work). If the Factories Act or Shop and Establishment Act apply (referring to standing orders), initiate an inquiry immediately. Remember, during suspension, he receives 50% of his salary. Expedite the investigation. Statements from customers, etc., will be beneficial.

Gratuity and Legal Considerations

Madhu is right to be cautious, but you do not have to pay the gratuity or deposit it with the authorities. If he complains, you need to provide all details of the circumstances to explain why it is not payable. I doubt he will risk pursuing that route.

Regards,

Legal Procedure for Recovering Misappropriated Funds

Mr. Madhu has correctly laid down the procedure. You cannot recover the amount misappropriated from the gratuity payable to the employee unless the misconduct is proved in a domestic inquiry. This is the legal requirement. The Gratuity Act does not entitle you to withhold gratuity on mere allegations of misappropriation since gratuity is no longer a bounty to be given by an employer. If the employee complains to the Controlling Authority, you will be liable to pay gratuity with interest for the period it was wrongly withheld by you.

Regards,
B. Saikumar
Mumbai