With the advent of the Covid-19 pandemic, many companies have adopted a Hybrid Working Model, an operating model and culture wherein employees have the flexibility to work from home or from the office, on certain days of a week or month. This flexibility has enabled organizations to more so retain the workforce.
To enable employees to work from home, companies have provided necessary permissions along with company assets such as high-end laptops containing confidential business information, desktops, monitors, modems, and laptop bags (“Assets”) to their employees, to ensure that they can work seamlessly without any hassles. Some companies have also gone beyond this and provided employees with ergonomic chairs, working table or desk, etc.
A majority of employees over the last couple of years have been onboarded and offboarded virtually . As part of these processes, the company sends and collects its assets through courier services to remote working locations and hence has less control over delivery and receipt of the said assets. When an employee decides to terminate his/her employment either by resignation or abandonment of service or is terminated by the company, it causes a huge challenge to the employers to recover the assets, especially when the employee refuses to hand over the assets back to the company and in several cases, inaccessible .
In such cases, companies must understand the laws governing the recovery of company assets and the mitigating measures that they can undertake to ensure employees return them in good working condition, upon the termination of their employment.
LAW GOVERNING RECOVERY OF COMPANY ASSETS
- Indian Contract Act, 1872: One of the fundamental laws that govern the relationship between an employer and employee is the Indian Contract Act, 1872 which also includes handing over and return of company assets through an employment contract/agreement. When the employment contract satisfies all conditions, such as offer, acceptance, legal relationship, lawful objects and consideration, competency of parties, competency, performance, etc., the same is said to be a valid contract .
- Section 452 of the Companies Act, 2013: This provision states that if an employee wrongfully withholds the company’s property, he/she shall on a complaint of the company be punished with a fine. The fine can be a minimum of Rs. 1,00,000/- (Rupees One Lakh only) or may extend up to Rs. 5,00,000/- (Rupees Five Lakhs only). However, this provision is not applicable if the court is of the view that the company has failed to the employee towards the following:
– Provident fund
– Pension fund
– Gratuity fund
– Any other fund for the welfare fund
– Compensation or liability for the same under the Workmen’s Compensation Act, 1923 in respect of death or disablement.
In the case of Amogh Surendra Dalvi vs M/s. West Coast Ventures , the Honourable High Court of Karnataka dismissed a petition filed to quash the proceedings initiated against the petitioner under Section 452 of the Companies Act, 2013. The court observed that the bank statement showed an amount deducted from the company’s account and the petitioner was still working as the director during that period. In the said case, the petitioner had purchased a car from the company’s funds and was not ready to return the same post his resignation.
- Section 405 & 406 of the Indian Penal Code, 1860: As per this penal code, an employee commits an act of criminal breach when he
– Dishonestly misappropriates the entrusted asset/property of the employer
– Converts to own use of that property
– Uses, or disposes of such property in violation of any legal contract, express or implied (i.e., employment contract)
Such an act is punishable with imprisonment for a term that may extend to three years, a fine, or both .
In Shivnarayan Laxminarayan Joshi and Ors., the Honourable Apex court held that a director was clearly in the position of a trustee and is a trustee of the assets which have come into his hand on which he had dominion and control. The High Court has given a clear finding to this effect on page 33 of the judgment, where the court has observed as follows:
“The property being an actionable claim against Rekhchand Gopaldas, accused No. 1 as the Managing Director was entrusted with complete dominion over the right to recover the same under the said articles and as such, he was capable of committing dishonest misappropriation or conversion of that actionable claim. The finding of the learned trial Judge on the point of entrustment, therefore, has to be upheld, and we confirm the same”.
- Section 7 of the Payment of Wages Act, 1936: As per the said provision , an employer can deduct up to 50% of the wage payable to an employee when he fails to return the company assets on grounds of damage or loss of goods expressly entrusted to the employed person for custody. However, the said provision applies to employees whose gross salary is below ₹24,000/-. In case of employees whose gross salary is above the said limit, the company can deduct the full amount.
The Honourable High Court of Karnataka in the case of Spun Silk Mills vs Parthasarathy and Ors (wherein our Chairman, Mr. B.C Prabhakar, had appeared for the employer) held that the employee’s request to the management to grant advances for hire-purchase of TV sets and agreeing to deductions from his monthly salary as valid, as the same being recovery of advances as per Section 7(2)(f) of the Payment of Wages, Act 1936.
- Section 18 of the proposed Codes on Wages, 2019: As per the said provision  an employer can deduct up to 50% of the wage payable across all its employees upon their failure to return the company assets.
Though an employee on termination of employment is morally and legally bound to return the company assets, an employer must take necessary steps to mitigate any risks in this regard. One of the best ways is to take precautionary measures at the very inception of the employment and see to it that that employee is bound to return the assets before he leaves the organisation. Further, the employer can also educate the stakeholders including employees of the organization, on the measures to prevent and consequences of failing to return company properties. Despite the preventive measures, if an employee fails to return the properties, the company may finally proceed to initiate necessary civil and criminal action against the employee as per the above-stated provisions towards the recovery of its assets or compensation in lieu of the same.
-K.G. Devaiah, Advocate & Principal Associate
-Jahnvi Bijlani, Advocate & Junior Associate
 AIR 1980 SC 439