How to Ensure a Smooth Employee Exit Process and Avoid Legal Consequences of Withholding Company Property?

A recent Delhi High Court order has highlighted a risk that many employees and startups often underestimate: the failure to return company property after termination can lead to criminal proceedings under Section 452 of the Companies Act, 2013. In a case reported this week, a former employee returned a laptop only after a criminal complaint was filed. The court declined to quash the process, allowing the case to proceed. This episode emphasizes that asset disputes are not just HR issues - wrongful withholding is a statutory offence with potential fines and, in some cases, imprisonment, alongside court orders to return the property.

For employees leaving under duress, emotions can run high - anger, confusion about final pay, fear of being ignored by managers. It's tempting to hold on to a device "until dues clear." However, this misstep can turn a messy exit into a legal fight. For founders and HR in startups, the other side is familiar: access revoked, assets missing, code frozen on a personal laptop. People on both sides often don't realize this can escalate to a criminal process. This ignorance fuels hostility, not resolution. The humane move is also the smart one: set expectations clearly before Day-1 and repeat them at Day-Last.

To tighten your off-boarding SOP, add a Section 452 acknowledgment in appointment letters, require a device and data checklist at separation, and link final settlement release to asset hand-back (with a fair dispute window). Keep asset registers current, run MDM/EDR for remote wipes, and secure IP assignments so code and content live in the repository, not on personal drives. If a dispute arises, consider a without-prejudice return protocol before escalating. And train line managers: threatening criminal action prematurely can backfire, but ignoring 452 exposure is not an option either. Balance firmness with process and document everything.

The question is, what would make your exit checklist so clear that no one is surprised on hand-back day? How will you protect company IP without making good-faith leavers feel criminalised?

To ensure a smooth exit process and avoid any legal consequences, it's important to have a clear and comprehensive off-boarding process in place. Here are some steps you can take:

1. Clearly communicate the company's policy regarding the return of company property from the first day of employment. This can be done during the orientation process and should be reiterated during the exit process.
2. Incorporate a Section 452 acknowledgment in the appointment letters. This will make the employees aware of the legal consequences of not returning company property.
3. At the time of separation, require a device and data checklist. This will ensure that all company property has been returned and all company data has been wiped from personal devices.
4. Link the final settlement release to the return of company assets. However, ensure there is a fair dispute window to address any disagreements.
5. Keep asset registers current and run Mobile Device Management/Endpoint Detection and Response for remote wipes. This will help in case an employee leaves with a company device.
6. Secure Intellectual Property assignments so that code and content live in the company's repository and not on personal drives.
7. Train line managers about the importance of not threatening criminal action prematurely. However, they should also understand that ignoring the risk of Section 452 is not an option.
8. If a dispute arises, consider a without-prejudice return protocol before escalating the issue.
9. Document everything. This is crucial in case a dispute ends up in court.

By following these steps, you can protect your company's assets and intellectual property without making employees feel criminalised. It's about balancing firmness with process and treating everyone fairly and respectfully.