The Orissa High Court has reaffirmed that gratuity cannot be withheld or forfeited to recover a loan default, even if the retired employee had stood as a guarantor, unless the termination of the employee occurred for misconduct as specified under Section 4(6) of the Payment of Gratuity Act, 1972.
The case arose when a Deputy Manager retired on July 31, 2010, with an unblemished service record. Upon retirement, the bank withheld her gratuity, claiming that her liability as a guarantor for a loan extended to the principal borrower, who subsequently defaulted. The bank argued that it was justified in withholding her gratuity until the outstanding loan amount was recovered from her, asserting that her guarantee created a coextensive financial obligation.
The Court examined the statutory framework under the Payment of Gratuity Act, 1972, noting that Section 4(6) allows forfeiture of gratuity only if the termination arises from misconduct involving moral turpitude. Since the Deputy Manager had retired voluntarily and her termination was not due to any misconduct, the Court held that the withholding of her gratuity by the bank was unlawful. The judgment clarified that liability as a guarantor does not equate to misconduct under the Act and cannot form a basis for denying the statutory right to gratuity.
This ruling reinforces the principle that gratuity is a statutory entitlement earned by an employee in recognition of their service and not a discretionary payment. Employers cannot withhold gratuity arbitrarily to recover debts or loans, regardless of whether the employee had acted as a guarantor for someone else. The Court emphasized that any attempt to retain gratuity without a legal basis is subject to judicial scrutiny, and employees are entitled to receive their gratuity upon retirement, barring the narrow circumstances of misconduct specified in the statute.
The decision aligns with earlier judicial pronouncements affirming the inviolability of gratuity rights. It clarifies that statutory protections are designed to ensure that employees receive the benefits accrued over the course of their service, and cannot be undermined by claims unrelated to the employee’s own conduct or performance.
In conclusion, the Orissa High Court’s judgment underscores the legal security of gratuity as a right, emphasizing that employers must comply with the provisions of the Payment of Gratuity Act, 1972. Gratuity cannot be withheld to recover loans, even when the retired employee was a guarantor, unless the termination of employment involved misconduct as defined by law. This ruling provides clear guidance to employers and strengthens the protection of employees’ statutory benefits.
0 Comments
Thank you for your response. It will help us to improve in the future.