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Section 36: Deduction of certain amounts from bonus payable

The Code on Wages, 2019 (Act No. 29 of 2019) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter IV: Payment of Bonus
Competent Labour Forum
Act No. 29 of 2019
Section 35 All 67 Sections of Code on Wages, 2019 Section 37

Legal Commentary & Landmark Judgments: Section 36

Section 36 authorizes an employer to deduct financial loss caused to the establishment by an employee due to fraud, theft, or sabotage from the bonus payable to that employee in respect of that accounting year, with the balance bonus (if any) remaining payable.

  • Authorized Recovery of Financial Loss from Bonus: Empowers employers to deduct quantifiable financial loss caused by employee misconduct from the bonus amount payable for the accounting year.
  • Strict Enumeration of Qualifying Misconduct: Confines deduction strictly to financial loss caused by: (a) fraud, (b) theft, or (c) sabotage of any property of the establishment.
  • Distinction from Total Disqualification under Section 27: Unlike Section 27 (which requires dismissal from service and results in total forfeiture of bonus), Section 36 applies where the employee has not been dismissed or where financial loss is specifically adjusted against bonus.
Key Landmark Precedents:
  • Workmen of Sudder Office v. Management of Sudder Office (1971) 2 LLJ 620 (SC): The Supreme Court held that deductions from bonus for loss caused by misconduct must be substantiated by precise evidence of actual financial loss and individual culpability established through domestic inquiry.
  • Caltex (India) Ltd. v. Their Workmen (1960) 2 LLJ 12 (SC): The Supreme Court held that an employer cannot arbitrarily confiscate earned bonus under the guise of unliquidated damages without objective accounting and inquiry findings.
Courtroom Practice & Strategic Litigation Guidance:

To make a lawful deduction under Section 36, the employer must conduct a domestic inquiry establishing the employee's culpability for fraud, theft, or sabotage and obtain an auditor-certified quantification of the actual loss. The employer cannot deduct speculative losses or deduct an amount greater than the proven loss. Any bonus balance remaining after loss deduction must be promptly paid to the employee.

Section 35 All 67 Sections of Code on Wages, 2019 Section 37