Gratuity Can Be Forfeited If Employee Terminated For Causing Damage To Employer's Property, Forfeiture Not To Exceed Extent Of Loss: Delhi HC

The Delhi High Court has observed that any employer can forfeit the gratuity of an employee if the employee is terminated for any act or omission or negligence causing any damage or loss to the property belonging to the employer.

Justice Pratibha M Singh however added that such forfeiture can only be to the extent of the damage or loss caused, and not beyond that.

The Court was dealing with two petitions pertaining to disputes between employee and Union Bank of India. In one of the petitions, a chargesheet was issued against the employee alleging that loans were issued by him accommodating certain parties which caused losses to the Bank.

In another matter, chargesheet was issued against the employee alleging that he was involved in lending loans in blatant violation of lending norms without completing the requisite formalities, sanctioning higher amounts of loans to borrowers whose earlier loans were either NPA or overdue, which allegedly caused losses to the Bank.

Thus, the two aspects to be considered in the cases by Court was, First, whether forfeiture of gratuity is permissible and, if so, in what manner is it to be effected and Secondly, whether long delay in approaching to Controlling Authority can result in rejection of the claim for gratuity.

The Court noted that sec. 4 of Payment of Gratuity Act prescribes that gratuity would be payable to every employee on termination of his employment if the employee has rendered continuous service for not less than five years upon superannuation, retirement or resignation or due to death or disablement due to accident or disease. 

It also noted sec. 4(6)(a) of the Act which provides that the gratuity of an employee, whose services may have been terminated for the reasons as specified therein, can be forfeited to the extent of damage or loss so caused.

Accordingly, the Court observed:

"Thus, any employer can forfeit the gratuity of an employee if the employee is terminated for any act or omission or negligence causing any damage or loss to the property belonging to the employer. The forfeiture can only be to the extent of the damage or loss caused, and not beyond that."

The Court therefore said that in both the petitions, the case of the Bank was that both the employees caused loss to the Bank and hence the gratuity can be forfeited. However, it noted that the case of the employees was that there were three pre-conditions which are imposed by law on the employer that need to be satisfied before gratuity of an employee can be forfeited viz., proper notice of forfeiture has to be issued to the employee, the said notice has to contain the quantification of loss stated to be caused by the wilful omission or negligence of the employee and an opportunity to be heard to be given to the employee.

"In the present two petitions, it is worth noting that ld. Counsel for the Bank, during the course of hearing submitted that the Bank is not pressing the ground of forfeiture of gratuity of the employees on account of offence involving moral turpitude. Thus, insofar as the procedure to be followed for forfeiture is concerned, even if this Court does not take into consideration the judgment in Jaswant Singh Gill (supra), a mere reading of the provisions itself shows that the forfeiture can be only to the extent of the damage or loss so caused," the Court said.

Thus, the Court was of the view that the Bank would not be entitled to forfeit the entire gratuity amount without quantifying the extent of the damage or loss. It said that the said amount is not a 'quantified amount' under the provision and that it would have to be determined after giving the employee an opportunity as to whether the damage or loss was caused and whether the same has been correctly attributed to the correct employee or not.

Noting the two subjective conditions laid down under sec. 4(6)(a) of the Act, the Court said:

"If both these conditions are not satisfied, the forfeiture would not be in accordance with law. It is nigh possible that the employee could argue that he was not responsible solely for taking the decision that is attributed to him. There may have to be apportionment of damage or loss. The damage or loss has to be connected with the act, omission or negligence of the employee. The entire damage or loss cannot be attributed to one employee. There cannot be duplication of forfeiture if more than one employee was involved. In view of these subjective conditions, a notice to the employee and a hearing would be required."

The Court rejected the stand of the Bank that no prejudice was caused to the employees due to non-issuance of notice and denial of opportunity of being heard. The Court said that payment of gratuity is the normal rule under law and forfeiture is the exception.

It also said that in both the cases, the employees were kept in dark as to the forfeiture of their gratuity and that neither proper notice was issued nor was any hearing afforded on the aspect of forfeiture to the employees.

"In a banking system, there may be various factual situations which may have resulted in termination of the employee. The misconduct alleged may be at an individual level or at the level of the team, for example, for sanctioning of a loan, only one employee of a bank may not be fully responsible. As per Section 4(6)(a) of the Act, the omission or negligence has to exist and forfeiture can be only to the extent of damage or loss caused to the employer," the Court observed.

The Court was therefore of the opinion that forfeiture of gratuity by the Bank under sec. 4(6)(a) of the Act was clearly not justifiable. However, in the peculiar facts and circumstances of the cases, considering the delay in filing the claim of Employee No.1 and the factual background leading to the forfeiture in the case of Employee No.2, the Court held that interest would not be liable to be paid by the Bank for the period from the date of termination till the date of application filed by each of the employees before the Controlling Authority.

Accordingly, the Court ordered the following in the two petitions:

- In W.P.(C) 4486/2021, amount of Rs. 6,54,802/- is already deposited with the Appellate Authority vide Demand Draft No. 400459 drawn on Union Bank of India, Connaught Place Branch, New Delhi. The Appellate Authority is directed to release the amount payable in terms of the present judgement along with interest accrued, if any, to the Employee No.1. The Balance amount is directed to be refunded to the Bank within four weeks. If the amount is falling short, then the Bank shall pay the remaining amount to the Employee No.1 by 15th April 2022.

- In W.P.(C) 4604/2021, the Controlling Authority vide order dated 23rd January 2019 had directed to the Bank to pay Rs. 10,00,000/- along with simple interest @10% per annum with effect from 13th March 2013 to the date of actual payment. However, the Bank is stated to have deposited only an amount of Rs. 10,00,000/- with the Appellate Authority vide Demand Draft No. 4000368 drawn on Union Bank of India, Connaught Place Branch, New Delhi. The Appellate Authority is directed to release the said amount along with interest accrued, computed in terms of the present judgment in favour of Employee No.2 within two weeks. If there is any balance still left to be paid, the Bank will pay the same by 15th April, 2022. If there is any excess amount, the same shall be refunded to the Bank.

The pleas were accordingly disposed of.

Case Title: UNION BANK OF INDIA & ANR. v. SH D.C. CHATURVEDI & ANR. and other connected matter

Citation: 2022 LiveLaw (Del) 241

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