Karnataka High Court rules that bank employees’ gratuity cannot be applied to their outstanding loans

An appeal has been filed against a ruling in the Karnataka High Court that the bank cannot adjust the gratuity amount payable to a bank employee with the outstanding balance of the employee’s loan.

Thus, a challenge from the Canara Bank challenging the decision of the Appellate Authority to overturn the Controlling Authority’s authorization for the adjustment of gratuity toward the employee’s loans was dismissed by a single-judge court presided over by Justice Suraj Govindaraj.

“Home loan is governed by the agreement of loan. It is for the Bank to act in terms of the said agreement and exercise all rights under the said agreement as against the debtor. The Bank could not have adjusted the same from and out of gratuity amount, which are protected under Section 7 of The Payment of Gratuity Act, 1972.” said The bench.

Case details

Srimantha D., the respondent’s husband, began working for the petitioner-Bank in 1975 as a peon until being promoted to clerk in 1987. Srimantha had a housing loan during his tenure of duty, which he was periodically repaying. Discipline procedures were started in 2005 under the pretext that he had engaged in egregious misbehavior. In 2006, the disciplinary authority issued a punishment of forced retirement.

Srimantha’s request for the release of the gratuity money was turned down. He, therefore, asked the Controlling Authority for permission to pay the aforementioned sums. The bank argued that there were obligations to be met regarding the staff welfare fund as well as the obligations related to the home loan. No money is owed because these dues must be subtracted from and added to the gratuity amount. The authority approved of the same. On appeal, however, the decision was overturned, and the bank was ordered to pay a gratuity sum plus interest.


“The protection to gratuity is granted in order to safeguard the financial security of a person at the time of his retirement,” said the bench, referring to Section 7 of the Payment of Gratuity Act, 1972.

In addition, the court noted that gratuities are treated differently under both the Payment of Gratuity Act and the Code of Civil Procedure, 1908. The gratuity amounts have been given special protection and special treatment insofar as it is made absolutely clear that no garnishee order can be passed nor can the gratuity amounts be attached.

“The Bank has unilaterally on the basis of an alleged authorization, determined the amount due on its own and recovered the same from the gratuity amount payable by it,” said the bench, noting that there is no demand made for repayment of Housing loan interest by the Bank on the employee and/or after his expiry on his legal heirs/legal representatives.

Rejecting the contention of the bank relying on Section 10 of the Act that interest ought not to be payable on the amount and that the employee could have made an application within a period of 90 days for release of the amount.

The bench said, “The compulsory retirement order was under challenge there is no scope for the employee to have made a claim for gratuity, it is only in the year 2017 that upon he attaining the age of superannuation, that application for release of gratuity amount has been filed and consequently, the proceedings before the Labour Court were also withdrawn. Therefore, I am of the considered opinion that there is no delay in filing the application for payment of gratuity amounts.”

“In terms of the proviso to sub clause (iii) of sub Rule (1) of Rule 10, the Authority is also authorised to condone the delay if any. There is neither restriction on the period which could be condoned nor there is an embargo imposed under the said Rules which would disentitle the applicant to receive any interest,” it added.

Accordingly, the court directed the bank to comply with the order of the appellate authority


Case No: WRIT PETITION NO. 11463 OF 2020

Citation: 2022 LiveLaw (kar) 414

Date of Order: 13TH DAY OF SEPTEMBER, 2022

Appearance: UDAYA SHANKAR RAI P., ADVOCATE for petitioner; GEETA R. SHINDE, ADVOCATE for respondent

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