Whether Gratuity law in India allows forfeiture of Gratuity without passing specific order for the same

Section 4(6) (a) of the Gratuity Act in India states that the amount of Gratuity payable to an employee can be forfeited by the employer if such employee’s services have been terminated for any act, willful omission or negligence, causing damage or loss or destruction to property belonging to the employer, to the extent of the damage or loss so caused.

Section 4(6) (b) of the Gratuity Act states that Gratuity payable to an employee may be wholly or partially forfeited – if the employee’s services have been terminated due to riotous behaviour, disorderly conduct or any act of violence, or for any act of moral turpitude – provided such offence has been committed in the course of his employment.

Therefore it is clear from the above provisions that Gratuity may be withheld by the employer in the event the employee has been terminated for losses caused to the employer by the concerned employee’s indiscretions in the course of his employment.

According to a recent decision by Madras High Court, dated 23 November 2011, in Special Officer, Suthamalli Primary Agriculture Co-op Bank Limited V/s Joint Commissioner of Labour & Ors., 2012 has held as under;

“The Courts have consistently emphasised that order of forfeiture will have to be specifically passed by an employer. It cannot be presumed or pleaded for the first time before the authority that it was a case of forfeiture. In essence, an order of forfeiture must be simultaneously passed along with the order of termination. It cannot be raised as a ground for the first time before the first respondent…”

Further, “only on the account of amounts are due from an employee and in the absence of any legal right, the petitioner cannot withhold gratuity. Even in case of satisfying any civil Court decree, the Gratuity was not liable for attachment as evidenced from Section 13 of the Payment of Gratuity of Act…”

Further, “For the purpose of depriving the employee from receiving gratuity, a valid order must be passed by the employer. Under Section 4(6), if any order is passed and contingency for payment of gratuity under Section 4(1) arises, it is necessary that the employer will have to pay gratuity. It is not as if the employer has no remedy in recovering the amount from the employee. They can always file a civil suit claiming the amount misappropriated by him. There is no legal bar in recovering the amount in case the petitioner proves that there was actual embezzlement. But, having allowed the employee to retire, the petitioner was bound to pay gratuity.”

Therefore it is important that an employer pass a specific order for forfeiture of gratuity of the employee. According to the above case law, an employer must simultaneously pass an order of forfeiture alongside an order of termination with respect to the employee. Without a specific order for forfeiture of Gratuity, forfeiture cannot be made under Gratuity law in India.