Friday, November 6, 2009

Can Salary be deposited & then withdrawn by company?

Amount once credit in the account of employee cannot be withdrawn without permission of said employee. If by mistake or due to error of employer such thing happen then also law do not permit employer to take arbitrary action. In contract Act there is specific provision to deal with this sort of situation. Section 72 of Indian contract Act states that payments or delivery made under mistake or coercion must be made good or be returned. In Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi it was made clear that money paid under mistake is recoverable whether the mistake is of fact or of law but by lawful way.

Some of my friends will ask why we should not recover amount directly from the account of employee. When we can? Yes, you can recover amount from account of employee if you have good term with bank but it can create legal issues for employer and bank. To have bird eye view of issue we have to understand few points:

1. There are three parties in this case. i.e Employer, Employee and Bank.
2. What was the mistake due to which wrong amount credit to employee account and by whom this mistake was done?
3. Is there any clause in agreement which stipulate that employer or bank can recover amount back from the account of employee. If amount credit by mistake.

Employer and employee are having master and servant relationship. Same time Bank and employee are having customer (consumer) relationship. So we have to take into consideration not only employment law but customer, contract and banking law also.

If mistake was on the part of banker than he can recover amount back from the customer (employee) because in standard contract there is always clause, which give right to banker to recover back amount which is credit by mistake. But I am not sure whether there is any clause in contract (salary account agreement) which gives right to employer to recover back amount from employee. If there is no such clause then employer legally cannot recover back amount from account of employee whether it credit by mistake or not.

If we assume there is some sort of agreement like this then also how can bank recover back amount on recommendation of employer because mistake was on the part employer not on part of bank. So on this ground bank cannot recover amount from customer account.

Now coming to nature of mistake first, If mistake is like in place of crediting Rs 1000 to employee account employer had credit Rs 1200 then employer can adjust excess amount with next month salary (if possible). Second, if employee left the organisation after taking salary and his notice pay is due then amount which employee had taken is salary and notice pay is compensation. They are legally two different things so employer should recover notice pay in full and final settlement as per rules.

In a regular course employer can deposit amount into employee account but cannot withdraw the same. It can be withdrawn only when it mistakenly credited by bank. So insist of recovering amount from account of employee with help of bank. Employer should recover money directly from employee by proper and legal way to avoid any legal hassle.

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