Karnataka HC Rules: Employers Cannot Withhold Gratuity Without Legal Proceedings

In a landmark ruling, the Karnataka High Court has held that employers cannot withhold the gratuity of a dismissed employee without initiating legal recovery proceedings. The court dismissed a petition by the Central Warehousing Corporation (CWC) and ordered it to settle the gratuity dues of a fraud-accused former employee by January 31.

Case Background:
•    G.C. Bhat, an employee of CWC, was dismissed on December 12, 2013, for misappropriation of funds and misconduct.
•    After seven years, Bhat approached authorities, demanding ₹14 lakh in gratuity dues.
•    On September 11, 2023, the authorities ordered CWC to pay ₹7.9 lakh with 10% interest from the date of dismissal under the Payment of Gratuity Act.

Employer's Argument & HC's Response:
•    CWC challenged the directive, arguing that Bhat had caused a loss of ₹1.7 crore and that gratuity should be adjusted against this amount.
•    However, the court rejected the argument, stating that CWC failed to initiate formal legal recovery proceedings against Bhat.
•    Justice Suraj Govindaraj ruled that without proper legal action, the claim of financial loss remains a mere allegation and cannot justify withholding gratuity.

Officials Criticized for Negligence:
•    The court also reprimanded CWC officials, stating that their failure to take timely legal action against the employee amounted to negligence.
•    It observed that appropriate action should be taken against the responsible officers for abdicating their duty to recover losses.

Final Verdict:
The High Court ruled that CWC must settle the gratuity payment by January 31, 2024. The judgment reinforces that employers must follow due process and cannot arbitrarily withhold employee benefits.