Gratuity Cannot Be Forfeited For Employee Who Was Dismissed For Allegedly Misappropriating Funds Without Proper Proceedings: Karnataka HC

The Karnataka High Court has held that in case no proceedings have been initiated against a delinquent employee for recovery of the alleged losses caused to the public institution due to their misappropriation, the question of the employer retaining the gratuity amount of the dismissed employee and forfeiting the same, would not arise.

Justice Suraj Govindaraj held thus while dismissing the petition filed by Central Warehousing Corporation, which had challenged the order of the Controlling Authority. The authority while allowing the application filed by G C Bhat had directed the corporation to pay him a gratuity amount of Rs.7,88,165 with 10% interest from 12.12.2013, till the date of actual payment.

The primary contention of the corporation was that the dismissal of respondent No.1 was necessitated on account of serious charges of misappropriation, causing a loss of the sum of Rs.1,71,68,033 to the corporation. Thus it was entitled to withhold the gratuity amount and adjust the amounts towards the losses which have been caused to it.

It was added that by order of respondent No.2, a premium is being provided to the illegal actions on the part of respondent No.1. The ground of belated filing of application after seven years of dismissal was also raised by the corporation.

Findings:

The bench on going through the records noted no action was taken for recovery, but the amounts due to respondent No.1 were considered to be forfeited and that is the reason why the amounts were not paid to respondent No.1.

Court emphasised that “Whenever any employee was to be dismissed on account of misappropriation or causing losses to the employer, it is always available for the employer to initiate proceedings for recovery of the losses, which have been caused to the employer as also the amount misappropriated from the employer. Suspension from service and later on dismissal from service, would not in any manner restitute the losses caused to the employer.”

The bench said “Dismissal is only a punishment meted out by the employer after following the necessary procedure as against the delinquent employee. It was for the employer to have initiated proceedings for recovery of the losses, which had been caused and during those proceedings, to forfeit and or adjust the monies due to the delinquent employee after holding necessary proceedings by providing an opportunity to the delinquent employee to contest those proceedings.”

It noted that in the present case, there is delinquency of the other officers in not seeking recovery of the aforesaid losses, which have occurred to the employer.

The court held “The Corporation could not without initiating proceedings for recovery, retain the gratuity amount, without such proceedings being initiated, the contention of the employer that losses have been caused will only remain a contention and is not one which has been adjudicated upon and orders passed.”

It added “No proceedings having been initiated against respondent No.1 for recovery of the alleged losses. The question of the employer retaining the gratuity amount and forfeiting the same, would not arise.”

Further, it said that the time fixed for payment of the gratuity amount by the petitioner to respondent No.1 was extended until 31.01.2025.

The court also suggested the management of the petitioner look into these aspects and initiate action for recovery of losses and or misappropriated amounts at least in future against the employee, who has been dismissed on those charges.

Appearance: Senior Advocate Gurudas Kannur for Advocates S.S. Niranjan, B.S Karthikeyan, Ramya N Hiriyur for Petitioner.

Citation No: 2025 LiveLaw (Kar) 19.

Case Title: Central Warehousing Corporation AND G C Bhat & ANR

Case No: WRIT PETITION NO.102635 OF 2024

Click Here To Read/Download Order