Supervisor Caught Stealing: Is a Domestic Inquiry Needed Before Termination?

Inquiry and Compensation in Case of Supervisor Theft

I need your valuable opinion and guidance on the following. In a manufacturing company, one of the supervisors has been stealing valuable materials continuously every day for the past 1.5 years. One fine morning, it was discovered from the camera footage and Management Information System (MIS) data. The concerned supervisor also admitted to the theft and provided a written confession. His gross salary is over 30 thousand, with a basic salary of less than 10. He has been suspended pending an inquiry. He has agreed to compensate from his gratuity and annual bonus, which amounts to around 1.5 L.

Is a Domestic Inquiry Required?

In this case, is a domestic inquiry required to terminate his services? Is it legally permissible to adjust the gratuity and annual bonus as per his written request without conducting an inquiry?

Regards, Anbu Loganathan HR Associate

Inquiry Process for Theft and Domestic Culpability

You need to order two types of inquiries. One is to investigate the theft, and the other is a domestic inquiry to establish the culpability of the accused. The latter is the logical sequence of the first.

You need to order an inquiry to investigate the theft case as your company needs to investigate procedural flaws. Once the stores issue the material to production, why was reconciliation not done to check whether the material issued was used in production or not? The issue of excess material beyond production went unnoticed for 1.5 years! Therefore, you need to investigate whether more than just the production supervisor was involved. Secondly, the theft is also a result of lax security.

Once the main inquiry is completed, based on the findings and recommendations, you may order the domestic inquiry. Admission of guilt by the accused is no substitute for the domestic inquiry itself. Follow the regular process. The statement provided by the supervisor owning responsibility for swindling the company's material can be used in the domestic inquiry.

Your last question is, "Will it be legally right to adjust the gratuity and annual bonus on his request in writing without conducting an inquiry?" I do not think it is advisable to do so; nevertheless, legal experts will give a reply to your query.

Thanks,
Dinesh Divekar

1. Whether a domestic inquiry is required for terminating his services? Yes, it is required.

2. Will it be legally right to adjust the gratuity and annual bonus on his request in writing without conducting an inquiry?

Gratuity can be forfeited as per the Gratuity Act, but an inquiry is essential.

Regards,
Nethaji

Dear Friend,

Besides the correct advice given above, a bonus can be adjusted against recovery.

Warm Regards,

Bharat Gera
HR Consultant

Dear Anbu Loganathan, you have mentioned that the delinquent is a supervisor drawing wages of approximately Rs. 30,000/-. Assuming he is performing supervisory duties (like allocating work, granting leave, requisitioning materials or store items, conducting performance evaluations of certain employees, etc.), he will not be considered a workman and hence cannot claim the protection granted to an industrial workman. Given this, since the query indicates that he was suspended and he has admitted guilt without any conditions attached to the admission, there is no need for an inquiry; you can proceed to punish him as proposed.

Regarding adjustment from bonus and gratuity

There is no issue in adjusting the bonus as per Section 9 of the Act. The provision states:

(9) Disqualification for bonus.- Notwithstanding anything contained in this Act, an employee shall be disqualified from receiving a bonus under this Act if he is dismissed from service for--

(a) fraud; or
(b) riotous or violent behavior while on the premises of the establishment; or
(c) theft, misappropriation, or sabotage of any property of the establishment.

As for gratuity, recovery is possible under Section 4(6) of the Payment of Gratuity Act 1972, which reads as follows:

(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 caused.

Therefore, legally, you can take the proposed action. I hope the above clarifies.

Regards, KK!HR

I agree with the statement by KK!HR, which states that the supervisor cannot claim the protection granted to an industrial workman, but I wish to differ with him further. Here, I will not advise that there is no need to go for an inquiry and straight away punish the supervisor as proposed. He can challenge the termination and seek relief in civil/labor court as deemed fit by him and his lawyer. Without a proper inquiry into alleged charges, if you pass a termination order, it shall be a denial of natural justice. On what grounds will you justify the denial of a bonus and forfeiture of gratuity?

Principles of Natural Justice

To my understanding, principles of natural justice are part and parcel of civilized society and form the very basis of labor laws in India. That is why Indian employment laws provide for conducting inquiries when the employer observes that an employee has committed misconduct. Though the supervisor is not subjected to certain labor laws in India, you cannot deny the principles of natural justice—the right of being heard.

Seeking a Balanced Solution

You need to look for the most reasonable and balanced solution. You can explore the option of sitting with the supervisor and persuading him to quit/resign without any heartburn and financial and legal burden on any party.

I agree with Korgaonkar Sir that the better option is to hold an inquiry. However, in the private sector, there is some amount of risk-taking, and the Civil Court does not have the powers vested in the Labour Court. It can provide the relief of a declaration that the termination is wrongful due to the violation of the principles of natural justice and grant compensation for the illegality committed. This relief is not as beneficial as what is possible in the Labour Court, where reinstatement with back wages and consequential benefits are possible. A categorical admission of guilt would be severely detrimental for the delinquent.

Thank you, Mr. Korgaonkar, for inviting me to participate in this discussion. Though there is no such thing as a domestic enquiry in the process of disciplinary action taken by the employer against his erring employee elsewhere in the world, it has become an integral part of disciplinary proceedings in the realm of employment in India. Even though under contract law, pure and simple, an employee may be liable to dismissal without anything more, courts will set aside the order of dismissal and direct reinstatement of the employee when the dismissal is not preceded by a fair and proper enquiry affording all reasonable opportunities to the delinquent to defend himself. Thus, in India, the conduct of a domestic enquiry presided over by an independent enquiry officer into the charges of misconduct against an employee before the disciplinary authority inflicts any punishment, including dismissal, has acquired judicial recognition as an inevitable phase of judicious dispensation of the Principles of Natural Justice.

At the same time, dispensing with the enquiry by the employer before awarding punishment is also recognized by the Judiciary under certain circumstances. If a workman against whom disciplinary proceedings are instituted admits his guilt, there is no necessity for the employer to hold any enquiry. This position is clear from the following decisions:

Central Bank of India v. Karunamoi Banerjee [1967 (2) LLJ 739 SC], The Associated Cement Co. Ltd v. Abdul Gaffar [1980 LIC 683], Hindustan Aeronautics Ltd v. B. Gulab Singh [1986 (2) LLJ 95], State Bank of India v. Kannabiran [1986 (1) LLN 462], TN Handloom Weavers Co-op Society Ltd v. Dy Commissioner of Labor (Appeals) [1998 (92) FJR 179].

But the admission of guilt by the delinquent workman must be in clear terms and should not be vague, for the Supreme Court had already held categorically in Jagdish Prasad v. State of Madhya Pradesh [1961 SC 1070] that in the absence of a clear or unambiguous admission of guilt, dispensing with the conducting of an enquiry would constitute serious infirmities in the order inflicting punishment. In this regard, it would be useful to go through the following legal position explained by the Andhra Pradesh High Court in K. Venkateswaralu v. Nagarjuna Grameena Bank and another [1995 (2) LLJ 492]:

1. In the face of an unconditional and unqualified confession of guilt by the delinquent employee, there can be no argument that the procedure of the enquiry should have been followed notwithstanding such admission or confession.

2. If misconduct is admitted, then this is the antithesis to the violation of the principles of natural justice or victimization.

3. If the workman admits the charges in his reply to the charge-memo or before the enquiry officer, there is no obligation on the part of the employer to hold an enquiry or lead evidence on merits, for it would be an empty formality.

4. In the case of a confession by the employee prior to the charge, it should be in his handwriting to rule out the possibility of coercion or inducement.

5. Since the enquiry in disciplinary proceedings commences with the issuance of a charge-memo and ends with the final orders, the admission of guilt by the delinquent in his reply/explanation to the charge memo should be considered as an admission in the course of the enquiry and not in pre-enquiry.

The decision is with the management of the poster.

Dear Mr. Anbu,

In Anil Kumar Haldar v Saraswathi Press Ltd, the Calicut HC held that Gratuity can be adjusted against dues when the employee has given unconditional consent.

Regards,

N. Nataraajhan
Sakthi Management Services
Hp: +91 94835 17402
E-mail: natraj@sakthimanagement.com

Thank you, all friends,

We have started a domestic inquiry, and during the inquiry, we came to understand that his co-staff (both higher and lower level) are also availing the benefits accrued in this transaction. Will it be possible to pull all the staff? As a company, we don't have any evidence except the supervisor's voice during the inquiry. How should we proceed in this case?

Regards,
Anbu Loganathan
HR Associate & Consultant
Ph: 9962231344
Email: anbu1955hrservices@gmail.com

Handling Supervisor Theft Allegations

Please ask the Supervisor to provide the complaint against the individuals who allegedly shared in the loot separately in writing. It is quite possible that without the connivance and support of colleagues, the Supervisor may not have committed the theft for such a long duration and to such an extent. There is a possibility that the Supervisor may refuse to provide the complaint in writing. However, depending on the Supervisor's deposition in the inquiry, you may need to request an explanation from all the individuals mentioned by the Supervisor. Please ensure transparency and proceed with caution.

Regards,
N. Nataraajhan
Sakthi Management Services
(Hp: [Phone Number Removed For Privacy-Reasons])

Importance of Conducting a Full Inquiry

Apart from the fact that natural justice demands a full inquiry, the issue of culpability of other employees also comes into focus. The supervisor should be questioned, and the names of others involved can be identified. They can also be included to give their statements. If a fair and open inquiry is conducted, the chance of subsequent legal challenges, if any, can be minimized. A confession by itself can be repudiated later on if the supervisor opts for a legal challenge. It is essential that an impartial inquiry be conducted, observing the principles of natural justice.