Calcutta High Court Rules Company Can Recover Proven Financial Loss from Employee’s Gratuity

The Calcutta High Court has ruled that a company can recover proven financial losses caused by an employee from their gratuity, even after retirement, if such recovery is permitted under the organisation’s service rules.
The case involved a former chairman and managing director (CMD) of MSTC against whom disciplinary proceedings were initiated before his retirement. The company accused him of negligence that allegedly resulted in a financial loss of ₹10 lakh. Following the disciplinary action, MSTC withheld his gratuity and later ordered that the pecuniary loss be recovered from the gratuity amount.
Challenging the decision, the employee argued that gratuity is a statutory right under the Payment of Gratuity Act, 1972, and cannot be withheld or reduced arbitrarily. He claimed the disciplinary action was based on old allegations, that the punishment was disproportionate, and that other officers involved in the same decision were not penalised. He also contended that the loss had not been properly determined under Section 4(6) of the Gratuity Act.
Initially, the statutory authorities and a Single Judge of the High Court ruled in the employee’s favour, directing MSTC to release the gratuity along with interest. The company, however, appealed the decision, maintaining that the Gratuity Act does not apply to senior managerial personnel such as a CMD. MSTC relied on its Conduct, Discipline and Appeals (CDA) Rules, which allow gratuity to be withheld or adjusted to recover financial losses caused by an employee’s misconduct or negligence.
The Division Bench, comprising Justice Lanusungkum Jamir and Justice Rai Chattopadhyay, upheld the company’s position. The Court observed that MSTC’s CDA rules confer an independent right on the employer to recover proven losses from gratuity, even beyond the strict framework of the Gratuity Act. It further noted that since the disciplinary proceedings had already attained finality, they could not be reopened.
Setting aside the orders of the Appellate Authority and the Single Judge, the Court upheld the Controlling Authority’s decision to deny gratuity. The Bench clarified that gratuity is not an absolute right and can be withheld or reduced if the applicable service rules permit recovery of losses arising from negligence or misconduct.
The ruling also reaffirmed that disciplinary proceedings can continue even after an employee’s retirement and that gratuity may be withheld or adjusted where financial loss to the employer is established.
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