Karnataka High Court: Gratuity Cannot Be Withheld Without Recovery Proceedings Against Dismissed Employee

The Karnataka High Court has ruled that an employer cannot withhold or forfeit the gratuity of a dismissed employee without initiating recovery proceedings for alleged losses caused by the employee’s actions.
The judgment was delivered by Justice Suraj Govindaraj while dismissing a petition filed by the Central Warehousing Corporation. The corporation had challenged an order from the Controlling Authority directing it to pay gratuity of ₹7,88,165 along with 10% interest from December 12, 2013, to G.C. Bhat, a former employee.
Corporation’s Arguments
The corporation argued that G.C. Bhat was dismissed due to serious charges of misappropriation, which allegedly caused a loss of ₹1.71 crore. It claimed the gratuity amount was withheld to adjust against these losses. The corporation also contended that the employee’s application for gratuity was filed seven years after his dismissal, which they argued was a significant delay.
Court’s Observations
Justice Govindaraj, after reviewing the case, noted that the corporation had not initiated any recovery proceedings against the employee. Instead, it unilaterally decided to withhold and forfeit the gratuity amount.
The court emphasized that dismissal from service is a disciplinary action and does not automatically allow an employer to recover losses or misappropriated amounts. Recovery proceedings must be initiated, during which the employee is given an opportunity to contest the claims.
“Suspension or dismissal from service does not restitute the losses caused to the employer. It is the employer’s responsibility to initiate recovery proceedings for adjudication of the losses and misappropriated amounts,” the court stated.
Court’s Ruling
The court held that without initiating recovery proceedings, the corporation’s claim of losses remains unsubstantiated. Therefore, withholding the gratuity amount is unjustified.
It further extended the deadline for the corporation to pay the gratuity amount to G.C. Bhat until January 31, 2025.
Future Directions for Employers
The court advised the management to ensure that in future cases of dismissal due to misappropriation or losses, recovery proceedings are promptly initiated. This would provide a legal basis for any adjustments or forfeitures of dues.
Representation
Senior Advocate Gurudas Kannur, along with advocates S.S. Niranjan, B.S. Karthikeyan, and Ramya N. Hiriyur, appeared for the petitioner.