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.
The Court noted that sec. 4 of the 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.
“In the present two petitions, it is worth noting that ld. Counsel for the Bank, during the course of the 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.
“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 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 observation was made when the Court was handling two petitions related to disputes between employee and the Union Bank of India. As per one petition, the employee had been accused of issuing loans by accommodating certain parties. In the other petition, the employee was accused of issuing loans without completing the set formalities, in violation of the Bank’s procedures. The employee had also allegedly issued high loan amounts to people whose earlier loans were either overdue or were non-performing assets. In both cases, the Bank had incurred losses.
The employer has to issue a proper notice of forfeiture to the employee. This notice has to clearly quantify the loss caused due to the conscious “omission or negligence” of the employee and the employee should be given a chance to speak and be heard.
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.
