Employer Can Deduct Penal Rent From Gratuity Of Employees Who Refuse To Vacate Company Quarters: Calcutta High Court
The Calcutta High Court has held that an employer is entitled to deduct penal rent and other dues from the gratuity of a retired employee who continues to occupy company accommodation unlawfully.
Setting aside concurrent orders passed by the Controlling and Appellate Authorities under the Payment of Gratuity Act, Justice Shampa Dutt (Paul) observed that permitting such conduct would encourage others to illegally retain official quarters, ultimately depriving serving employees of essential housing facilities.
The case arose from a petition filed by Eastern Coalfields Limited (ECL) challenging directions to release gratuity amounting to ₹18,99,752 to a former employee who had superannuated on 30 June 2022 but continued to occupy the company quarter allotted to her. Despite repeated notices, the employee did not vacate the premises, prompting ECL to withhold gratuity in terms of Coal India's Office Memorandum dated 11 November 2021 and corresponding ECL orders that mandate clearance of government dues before release of retiral benefits.
The Court noted that the employee was inducted as a licensee and that her occupation of Quarter No. NHA-A/10, Sarkar Para, after retirement was wholly unauthorised. Referring to Supreme Court judgments including SAIL v. Raghbendra Singh (2020) and ONGC v. V.U. Warrier (2005), the Bench reiterated that rent and penal charges for post-retirement retention of quarters are “natural consequences” and may be adjusted against gratuity. It further relied on the Government of India's Office Memorandum dated 20 October 2023, which clarifies that government dues include rent, arrears of licence fee, penal rent and unpaid water and electricity charges.
Finding that both authorities under the Gratuity Act had failed to consider binding judicial precedents and applicable policy, the Court set aside their orders dated 5 August 2024 and 25 November 2025. It directed that the deposited gratuity amount be returned to ECL, with liberty to deduct rent and penal rent from the payable gratuity until the quarter is vacated. The Court also clarified that upon vacation of the premises, ECL must compute all dues and release any remaining balance to the employee within 15 days.
Case: Eastern Coalfields Limited & Anr. Vs. Union of India & Ors.
Case No: WPA 6050 of 2026