Delhi High Court on Employee Misconduct: Withholding Company Assets Can Lead to Criminal Action

Introduction

A recent Delhi High Court decision underscores a key rule for employers and employees: company property must be returned promptly when employment ends. In October 2025, the court refused to quash a notice under Section 452 of the Companies Act, 2013, after a former managing director returned a laptop and other assets only following a criminal complaint.

The court held that retaining company property after termination can trigger criminal consequences, as Section 452 imposes strict liability once possession becomes unlawful. (Source: The Economic Times)

This ruling matters beyond the narrow facts of the case. It highlights the legal exposure that follows when employees, including senior officers, delay or refuse to hand over assets that belong to the company.

Below, I explain the background in plain terms, the legal principle the court relied on, the implications for employers and employees, and practical steps every HR team should adopt to reduce risk.

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Background and Timeline in Brief

The dispute arose after the company removed the employee from the post of managing director by board resolution. The company sent an email asking for immediate handover of company articles, equipment, and records.

When the items were not returned, the company filed a complaint under Section 452 on April 26, 2016. The employee later returned some items, including a laptop, but only after criminal proceedings were set in motion.

The Delhi High Court refused to quash the notice, noting that the summons was not challenged in a timely manner and that the prima facie case under Section 452 was made out. (Source: The Economic Times)

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What Section 452 Says and Why It Matters

Section 452 of the Companies Act, 2013 penalizes an officer or employee of a company who wrongfully withholds company property, including cash, documents, and other assets.

The court emphasized that Section 452 does not require proof that the company entrusted the asset for a particular purpose. Rather, it operates as a form of strict liability: once possession becomes unlawful, retention itself can give rise to criminal liability.

The Delhi High Court specifically rejected the argument that continuing in a different corporate role (for example, as a director) automatically authorizes continued possession of items issued in another capacity, such as managing director. (Source: The Economic Times)

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Key Legal Points the Judgment Highlights

Possession Becomes Unlawful on Termination

For assets provided because someone was the managing director, that authority ends on removal from that post, and the duty to hand over follows. (Source: The Economic Times)

Section 452 Imposes Liability for Wrongful Withholding

Liability may arise even if there is no evidence of entrustment in the manner required for other offences like criminal breach of trust. In short, intent is not a precondition for a prima facie case under Section 452. (Source: Live Law)

Delay in Challenging Procedural Orders Can Be Fatal

The court noted the petitioner could have challenged a summoning order earlier but chose not to, and that procedural delay limited her options. (Source: The Economic Times)

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What This Means for Employers

The ruling gives companies a clear legal basis to act if former employees retain company assets beyond termination. Employers should view this as confirmation that prompt recovery efforts are reasonable and that criminal remedies are available when civil steps fail.

But the decision also underlines the need to follow methodical, documented processes, for three reasons:

Evidence

If a company moves to a criminal complaint, courts will look at whether it issued timely notices and tried reasonable non-criminal remedies.

Proportionality

Courts will examine particulars, for example, whether the notice clearly described what should be handed over, and whether the employer accepted returned items later. (Source: The Economic Times)

Documentation

Good record keeping reduces the chance that a court will view an employer as initiating disproportionate or procedurally flawed action.

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Practical Checklist for Employers, HR and Legal Teams

Handover Policy

Publish a standard exit checklist that lists devices, access credentials, keys, documents, badges, credit cards, and any proprietary data. Require signatures on handover receipts.

Asset Tagging and Tracking

Register serial numbers, asset tags, and login IDs in a central inventory so exact items and access rights can be identified.

Written Notice

When employment ends, send a clear written notice asking for the immediate return of specific items, and keep proof of delivery. Email is fine, but keep read receipts and logs. (Source: The Economic Times)

Acceptance Records

When items are returned, issue a written receipt and record the condition of the asset. This commonly avoids disputes later.

Escalation Ladder

Set an internal escalation path, for example: HR contact, IT lock/disable accounts, demand letter from legal, civil recovery, and as last resort criminal complaint.

Preserve Logs

Retain access logs, asset assignment records, correspondence, and any communications that show the timeline of requests and responses. This is critical in subsequent legal proceedings.

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What This Means for Employees and Executives

Employees should avoid treating company devices or documents as bargaining chips, even if they believe there is an unresolved dispute with the employer. The court made clear that retaining property can expose the former holder to criminal process.

Executives and directors, who often have broad access to systems and records, are not exempt from this basic obligation.

Practical Advice for Employees

• Return company assets promptly on cessation of employment, even if other disputes exist.
• If you believe the employer is acting unfairly, document your reasons, but still follow the handover procedure and preserve copies where permitted.
• Get a written acknowledgement when you hand over items, and retain proof of delivery. This protects you from later claims. (Source: The Economic Times)

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When Criminal Remedies May Be Appropriate and When They May Not

Criminal remedies, such as a complaint under Section 452, are typically invoked where assets are withheld and informal or civil steps fail. The court’s judgment indicates that, once notice has been given and possession remains, a prima facie case can exist.

That does not mean every retention will lead to a conviction, because the court emphasized the need for a trial on the merits before punishment is imposed.

Employers should therefore use criminal steps selectively, and only after careful documentation and proportionate escalation. (Source: Live Law)

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Final Takeaways

This Delhi High Court decision is a timely reminder that property and access control are central to corporate governance and that the law can treat withholding of company assets seriously.

For employers, the message is to tighten exit processes, keep careful records, and communicate clearly.

For employees, the message is simple: return company property promptly, and secure written acknowledgements when you do so.