Karnataka HC Upholds Refund Of ₹4.11 Lakh Gratuity Deducted For Retiree’s Mother’s Loans, Says His Letter Was No Undertaking

In brief

The question

Whether the petitioner Bank could deduct the outstanding loan amount from respondent No. 4’s gratuity.

The court held

The Court answered the issues against the petitioner and dismissed the writ petition, leaving undisturbed the orders directing payment of Rs. 4,11,798 with interest at 10% per annum from 16 March 2020.

It also directed

It clarified that dismissal would not prevent the Bank from recovering any outstanding loan amount in accordance with law, if permissible.

01Facts

Respondent No. 4, an employee of the petitioner Bank, retired on 30 June 2019. His mother had obtained loans from an affiliated Primary Co-operative Agriculture and Rural Development Bank, and the petitioner claimed that respondent No. 4 had stood surety for them.

pp. 3–6

At retirement, the petitioner adjusted Rs. 4,11,798 from his gratuity and Rs. 4,23,154 from his leave encashment towards the outstanding loans.

pp. 3–6

Respondent No. 4 sought refund of the gratuity deduction, contending that he had not guaranteed the loans and had not authorised a deduction from gratuity.

pp. 3–6

The Controlling Authority directed the petitioner to pay Rs. 4,11,798 with interest at 10% per annum from 16 March 2020; the Appellate Authority confirmed that order. The Bank challenged both orders by writ petition.

pp. 3–6

02Issues

i.Whether the petitioner Bank could deduct the outstanding loan amount from respondent No. 4’s gratuity.

pp. 8–10

ii.Whether respondent No. 4’s letter dated 28 June 2019 constituted an undertaking authorising deduction of the loan amount from his gratuity.

pp. 6–7, 10

03Law Applied

The Court considered Sections 4(5) and 4(6) of the Payment of Gratuity Act, 1972. Section 4(5) preserves an employee’s right to better terms of gratuity under an award, agreement or contract; Section 4(6) permits forfeiture of gratuity only in specified circumstances, including damage or loss caused to the employer, or termination for specified misconduct.

pp. 9–10

The Court stated that gratuity could be forfeited only in accordance with these provisions and could not be deducted in the circumstances before it absent an undertaking by the employee.

pp. 9–10

Provisions in the judgment · 1

Societies Registration Act, 1860 Section 4

04Reasoning

The Court found that respondent No. 4 was an employee entitled to gratuity and that the deduction related to loans taken by his mother. It held that the deduction did not fall within the statutory grounds for forfeiture under Section 4(6).

pp. 8–11

Further, the letter at Annexure-D was not an undertaking to deduct the loan from gratuity; it was merely a request to withhold the amount and release the remainder. The Court therefore found no error or illegality in the authorities’ orders directing repayment of the gratuity deduction.

pp. 8–11