An Employee’s Gratuity Can Be Forfeited Only Upon Following The Due Process Of Law

The appellant employee challenged the withholding of gratuity and leave encashment by the employer before the Chattisgarh High Court. One of his contentions was that the departmental enquiry concluded against him only indicated that he was dismissed from service as a punishment. The punishment order did not state that the petitioner had caused financial loss to the employer.

The court held that the Payment of Gratuity Act, 1972 provides a mechanism, and basis on which gratuity may be denied to an employee. Settled judicial precedents provide that, due process prescribed under the Act such as issuing show cause notice to the employee, following principles of natural justice and determining the extent of damages or loss caused to the employer must be followed before forfeiting an employee’s gratuity.

In view of the above, the court held that the respondent’s decision of refusing the release of the petitioner’s gratuity is arbitrary and directed the employer to release the gratuity forthwith. Regarding the leave encashment, the court held that the inaction of the employer in releasing leave encashment is without any legal foundation and directed the employer to release the leave encashment of the employee.