Employer Cannot Withhold Gratuity Without Initiating Recovery Proceedings For Alleged Misappropriation: Karnataka High Court

The Court dismissed a petition filed by the Central Warehousing Corporation (CWC), which had challenged the order passed by the Controlling Authority in favor of the dismissed employee.

Factual Background

The Controlling Authority had directed CWC to pay Bhat a gratuity of Rs. 7,88,165, along with 10% interest from December 12, 2013, until the actual payment is made. The corporation, however, argued that Bhat’s dismissal was due to serious charges of misappropriation, which allegedly caused a loss of Rs. 1,71,68,033 to the organization. Based on these claims, the corporation sought to withhold Bhat’s gratuity, intending to adjust it against the alleged financial losses.

Additionally, the corporation raised the issue of a delayed application for gratuity, pointing out that Bhat’s claim had been filed seven years after his dismissal. The corporation also contended that the decision of the Controlling Authority to grant the gratuity amount to Bhat was inappropriate, as it essentially rewarded illegal actions by allowing him to receive gratuity despite the alleged misconduct.

A Bench of Justice Suraj Govindaraj observed that no formal proceedings had been initiated by CWC to recover the alleged losses. The Court emphasized, “Whenever any employee was to be dismissed on account of misappropriation or causing losses to the employer, it is always available for the employer to initiate proceedings for recovery of the losses, which have been caused to the employer as also the amount misappropriated from the employer. Suspension from service and later on dismissal from service, would not in any manner restitute the losses caused to the employer.”

The Bench added, “Dismissal is only a punishment meted out by the employer after following the necessary procedure as against the delinquent employee. It was for the employer to have initiated proceedings for recovery of the losses, which had been caused and during those proceedings, to forfeit and or adjust the monies due to the delinquent employee after holding necessary proceedings by providing an opportunity to the delinquent employee to contest those proceedings.”

Reasoning

The Court further explained that the employer is obligated to follow due process in such cases, which includes initiating recovery proceedings. During these proceedings, the employer may also seek to withhold or adjust any amounts owed to the employee, such as gratuity. However, in the absence of such proceedings, any claims of financial loss remain unverified and cannot justify withholding the employee’s gratuity.

The Court also noted the lapse on the part of the corporation for failing to initiate recovery proceedings against Bhat or any other officers involved in the alleged misappropriation. The Court said, “The Corporation could not without initiating proceedings for recovery, retain the gratuity amount, without such proceedings being initiated, the contention of the employer that losses have been caused will only remain a contention and is not one which has been adjudicated upon and orders passed.”

As a result, the High Court upheld the Controlling Authority’s decision, directing the corporation to pay Bhat the gratuity amount along with interest, with a deadline for payment set until January 31, 2025.

The Court also advised CWC to take corrective measures in the future by ensuring that proper legal proceedings are initiated for the recovery of any losses or misappropriated amounts in cases of employee misconduct that result in financial harm to the organization.

Cause Title: Central Warehousing Corporation v. G.C. Bhat & Anr., [2025:KHC-D:409]

Appearance:

Petitioner: Senior Advocate Gurudas Kannur with Advocates S.S. Niranjan, B.S. Karthikeyan, and Ramya N. Hiriyur

Click here to read/download Order