In CIVIL APPEAL NO.7115 OF 2010-SC- Excess payment of allowances not recoverable if same was not paid on account of fraud of employee or if such payment was made by employer on basis of erroneous interpretation of rule/order: SC Justices S. Abdul Nazeer & Vikram Nath [02-05-2022]

Read Judgment: THOMAS DANIEL Vs. STATE OF KERALA AND ORS

Mansimran Kaur

New Delhi, May 04, 2022: In a case where excess payment was made to the appellant-employee on account of a mistake in interpreting Kerala Service Rules, the Supreme Court has opined that an attempt to recover the said increments after passage of ten years of employee’s retirement is unjustified.

While considering a case of recovery of excess increments granted to the employee during the course of his service, the Division Bench of Justice S. Abdul Nazeer and Justice Vikram Nath affirmed, “This Court in a catena of decisions has consistently held that if the excess amount was not paid on account of any misrepresentation or fraud of the employee or if such excess payment was made by the employer by applying a wrong principle for calculating the pay/allowance or on the basis of a particular interpretation of rule/order which is subsequently found to be erroneous, such excess payment of emoluments or allowances are not recoverable. This relief against the recovery is granted not because of any right of the employees but in equity, exercising judicial discretion to provide relief to the employees from the hardship that will be caused if the recovery is ordered.”

The present appeal raised an issue as to whether increments granted to the appellant-employee, while he was in service, can be recovered from him after his retirement on the ground that the said increments were granted on the account of error. 

Facts in brief were that in the year 1996, the appellant joined the services as a High School Assistant/ Teacher at Craven High School, Kollam, which is an aided school. During his tenure, he availed leave without allowance starting from October 20, 1972 to  March 31, 1973 and again from  July 2, 1973 to  March 28, 1974, for pursuing post-graduation i.e., M.Sc. (Chemistry) Course. Thereafter on June 1, 1989, the appellant was promoted as headmaster of the school and he was granted senior grade promotion and his pay scale was revised accordingly.

Thereafter a notice was issued to the appellant that the period of leave obtained by the appellant for undergoing higher education should not be included while determining his total qualifying service. Meanwhile, the appellant had retired from service on  March 31, 1999 and since then he was neither paid pensionary benefits nor death cum retirement gratuity (D.C.R.G.). The appellant filed various representations but he received no response. 

Eventually on May 25, 2000, the appellant challenged the proposal to initiate recovery proceedings against him by way of filing a complaint before the Public Redressal Complaint Cell, Chief Minister of Kerala, for recovering the increments granted to the appellant during the year 1989 and 1991. Consequently, the  respondent, State of Kerala, rejected the said complaint by an order dated June 26, 2000 stating that the post- graduation was not useful as per Rule 91- A Part I of the Kerala Service Rules in any manner to the public service, therefore leave without allowance couldnot be counted for service  benefits.  

Amid all this, the appellant filed an application under Rule 116, Part III of the Kerala Service Rules, Accordingly the third respondent, Deputy Director Education, Kollam on October 6, 2000 sanctioned the release of 90% of the D.C.R.G. amount after withholding 10% of the said amount and subsequently on January 15,2001 the amount was released to the appellant.

Being aggrieved by the same, the appellant instituted the writ petition before the High Court.  However during the pendency of the writ petition, the remaining amount of D.C.R.G. was also released to the appellant.  The  single judge Bench of Kerala High Court dismissed the writ petition by observing that the mistake committed by the department concerned while granting the service benefits could be rectified subsequently by way of proposed recovery to be effected from appellant’s D.C.R.G. amount.  Thereafter, the appellant filed the writ appeal before the High Court.  The Division Bench of the High Court through its impugned order dated March 2, 2009 dismissed the appeal by affirming the order of the single- Judge. 

The Court after  hearing the submissions from both the sides observed if in a given case, it is proved that an employee had knowledge that the payment received was in excess of what was due or wrongly paid, or in cases where error is detected or corrected within a short time of wrong payment, the matter being in the realm of judicial discretion, the courts may on the facts and circumstances of any particular case order for recovery of amount paid in excess.

It was further opined that in a catena of  decisions it was pronounced that if the excess amount was not paid on account of any misrepresentation or fraud of the employee or if such excess payment was made by the employer by applying a wrong principle for computing the pay/ allowance or on the basis of particular interpretation of rule/ order which was subsequently found to be erroneous, then such excess payment of emoluments or allowances are not recoverable. 

Reliance was placed on the judgment of this Court in State of Punjab and Others v. Rafiq Masih wherein it was held that if the effect of the recovery from the employee concerned would be, more unfair, more wrongful, more improper, and more unwarranted, than the corresponding right of the employer to recover the amount, then it would be iniquitous and arbitrary, to effect the recovery. 

Further  reliance was placed on judgment of the Top Court in Syed Abdul Qadir and Others v. State of Bihar and Others,  wherein it was held that the appellants cannot be held responsible in such a situation and recovery of the excess payment should not be ordered, especially when the employee has subsequently retired. The court observed that in general parlance, recovery is prohibited by courts where there exists no misrepresentation or fraud on the part of the employee and when the excess payment has been made by applying a wrong interpretation/ understanding of a Rule or Order. In Col. B.J. Akkara (Retd.) v. Government of India and Others, conditions were set out wherein the recovery of payment can be made by the employer. 

Thus, in the light of the above observations, the Court opined that in the present case it was not contended that on account of the misrepresentation or fraud played by the appellant, the excess amounts had been paid. The Bench noted the fact that appellant had retired on March 31,1999 and the case of the respondents was that excess payment was made due to a mistake in interpreting Kerala Service Rules which was subsequently pointed out by the Accountant General.

Holding that such attempt to recover the said increments after passage of ten years of employee’s retirement was unjustified, the Bench allowed the appeal and the impugned judgments and orders were set aside and quashed.