Under labour law in India, can an employer forfeit Bonus payable under The Payment of Bonus Act, 1965?

The Payment of Bonus Act provides for payment of Minimum Bonus and Maximum Bonus. However, the employer also has right to forfeit the Bonus under circumstances.

Section 9 of the Payment of Bonus Act, 1965 states that notwithstanding anything contained in the Act;

“An employee shall be disqualified from receiving bonus under this Act, if he is dismissed from his service for-

(a) Fraud; or

(b) Riotous or violent behaviour while on the premises of the establishment; or

(c) Theft, misappropriation or sabotage of any property of the establishment.”

Section 18 of the Act states;

“Where in any accounting year, an employee is found guilty of misconduct causing financial loss to the employer, then, it shall, be lawful for the employer to deduct the amount of loss from the amount of bonus payable by him to the employee under this Act in respect of that accounting year only and the employee shall be entitled to receive the balance, if any.”

In view of the provisions mentioned hereinabove if an employee has been dismissed from his services for commission of misconduct mentioned in the section, he shall not be entitled to Bonus as his Bonus can be forfeited.

Reference can be made to judgement of Hon’ble Karnataka High Court in Himalaya Drug Company, Makali V/s II Additional Labour Court, Bangalore, W.P. No. 14507 of 1985.