When Gratuity can be Withheld? Supreme Court

Recently, the Supreme Court has ruled that employee’s gratuity money can be withheld to recover dues like overstaying in official accommodation.

The Bench held that there was no prohibition against recovering dues such as penal rent from an employee’s gratuity.

Hon’ble Court held that if an employee overstays in official accommodation, then dues can be adjusted against gratuity and dues payable.


In 2017, a Division Bench of the Apex Court ruled that gratuity of an employee cannot be confiscated and directed the authorities to only charge regular rent from the petitioner who had overstayed in his official residence. However, the decision was overturned by a three-judge Bench of the Apex Court.

Earlier the Jharkhand High Court refused to allow Steel Authority of India Ltd to recover penal rent from an employee, who didn’t clear his dues and overstayed in the official accommodation after his retirement in 2016. The Court relied on the 2017 order of the Apex Court and directed SAIL to release the gratuity of the employee. However, SAIL was allied to recover standard rent.

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The Court relied on a judgement of the Apex Court in 2005 where the Court upheld that rent can be recovered from an employee accused of overstaying in official accommodation.

The Court held that gratuity cannot be considered a bounty, but dues can be recovered from an employee’s gratuity without informing him.

Accordingly, the order passed by the Jharkhand High Court was set aside, but it did not interfere in monetary aspects of the High Court order.

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