Can We Legally Withhold Gratuity and F&F from an Employee Involved in Fraud?

An employee was involved in fraudulent activity, and we have filed an FIR against them. Management has decided not to pay the F&F and gratuity. Is it possible to withhold the gratuity and F&F, or will it create any legal issues?

Dear Venkatesh, Please refer to section 4(6) of the Payment of Gratuity Act, 1972. Registration of an FIR by the police against an employee alleged to have committed an act of fraud against the organization simply cannot be a reason for withholding his statutory gratuity. It should be consequent on the employee's dismissal order after conviction by the court or as a result of a domestic enquiry simultaneously and independently conducted in this regard by the employer.

First of all, the retirement of the employee, particularly when the alleged misconduct is fraud, must be subject to action as per rules, depending on the outcome of the disciplinary action. You can withhold gratuity until the decision of the departmental inquiry by issuing a specific order to that effect, subject to the provision that if the employee is exonerated of the charges, he shall be paid gratuity along with interest as notified (10% simple interest).

To my knowledge, the Payment of Gratuity Act does not provide for withholding gratuity. The provisions of Section 4(6) of the Payment of Gratuity Act only deal with forfeiture, not withholding gratuity. This could be invoked only on the strength of an order of termination of the employee consequent to his conviction in a criminal case or the findings in a Departmental Proceedings.

In my above posting, "Payment of Gratuity Act does provide for withholding gratuity" should be read as "Payment of Gratuity Act does not provide for withholding gratuity." The lapse is regretted.