Can outstanding personal loans be deducted against gratuity?

The amount of Gratuity payable to an employee is a protected amount, under the law. Section 13 of the Payment of Gratuity Act, 1972 says that no amount of Gratuity payable to an employee shall be attached in execution of any decree or order of any civil, revenue or criminal court.

In Punjab & Sind Bank V/s Regional Labour Commissioner (Central), Kendriya Sadan & Ors., 2008, an employee owed an amount of approximately Rs 6, 00,000/- to his employer-Bank at the time of his retirement. The said amount was borrowed by the employee from the Bank as a housing loan. At the time of taking the loan the employee had signed an undertaking with the Company that, during his retirement if there was any sum due from his side to the Bank, the latter would adjust the same against his Gratuity amount. However, when the Bank deducted the said sum in partial satisfaction of the outstanding loan, the employee filed an application before the Controlling Authority under the Payment of Gratuity Act, for directing the Bank to release the gratuity amount withheld by it. In this matter, the Hon’ble Punjab & Haryana High Court at Chandigarh held that even though Gratuity was a protected amount, under the present circumstances, the amount was not being attached by way of execution of any decree. The Bank merely adjusted the employee’s Gratuity amount towards the outstanding housing loan, as was given in writing by the employee at the time of taking the loan.

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