Supreme Court Restrains Recovery of Increments Post-Retirement: Thomas Daniel vs. State of Kerala (2 May 2022)

Date of the Judgment: 2 May 2022

Citation: (2022) INSC 447

Judges: S. Abdul Nazeer, J. and Vikram Nath, J.

Can a government employer recover increments granted to an employee almost a decade after their retirement, simply because of an alleged error in the initial grant? The Supreme Court of India addressed this critical question in a recent service law case. The core issue revolved around the legality of recovering increments paid to an employee, Mr. Thomas Daniel, after his retirement, based on an audit objection raised years later. The bench, comprising Justices S. Abdul Nazeer and Vikram Nath, delivered the judgment, with Justice S. Abdul Nazeer authoring the opinion.

Case Background

Mr. Thomas Daniel began his career as a High School Assistant/Teacher at Craven High School, Kollam, in 1966. During his service, he took leave without allowance from October 20, 1972, to March 31, 1973, and again from July 2, 1973, to March 28, 1974, to pursue a Master’s degree in Chemistry. On June 1, 1989, he was promoted to Headmaster and received a senior grade promotion with a revised pay scale.

In 1997, the Accountant General of Kerala issued an audit report objecting to the inclusion of Mr. Daniel’s leave period for higher education in his total qualifying service. Consequently, the District Educational Officer, Kollam, served a notice to Mr. Daniel on October 9, 1997, proposing to recover the pay and increments he had received. Mr. Daniel retired on March 31, 1999, without receiving his pensionary benefits or death-cum-retirement gratuity (DCRG). He made several representations, but received no response.

On May 25, 2000, Mr. Daniel filed a complaint with the Public Redressal Complaint Cell, Chief Minister of Kerala, challenging the recovery proposal. The State of Kerala rejected his complaint on June 26, 2000, stating that his M.Sc. (Chemistry) degree was not beneficial to public service under Rule 91A Part I of the Kerala Service Rules. However, on October 6, 2000, the Deputy Director Education, Kollam, sanctioned 90% of his DCRG, withholding 10%, which was released to him on January 15, 2001.

Timeline

Course of Proceedings

Mr. Daniel filed a writ petition before the High Court challenging the recovery proposal. During the pendency of the writ petition, the remaining amount of DCRG was released to him. The State of Kerala argued that the leave period for post-graduation could not be counted for increments, justifying the recovery demand. The Single Judge of the High Court upheld the State’s reasoning and dismissed the writ petition on January 5, 2006, stating that the department could rectify its mistake by recovering the excess amount from Mr. Daniel’s DCRG. Mr. Daniel then filed a writ appeal, which was also dismissed by the Division Bench of the High Court on March 2, 2009.

Legal Framework

The case primarily revolves around the interpretation and application of the Kerala Service Rules, specifically Rule 91A Part I, which deals with the counting of leave periods for service benefits. According to the State of Kerala, leave without allowance for pursuing a Master’s degree in Chemistry was not considered beneficial to public service and thus could not be included in the calculation of qualifying service for increments. The State relied on this interpretation to justify the recovery of increments granted to Mr. Daniel.

The relevant provision, as interpreted by the State, is Rule 91A Part I of the Kerala Service Rules, which states that leave without allowance can only be counted for service benefits if the higher education is beneficial to the public service. The State argued that since Mr. Daniel’s M.Sc. (Chemistry) was not directly related to his teaching duties, the leave period should not be included for calculating increments.

Arguments

Appellant’s Arguments (Mr. Thomas Daniel):

• The excess payment was not due to any misrepresentation or fraud on his part.
• The excess payment resulted from a mistake in interpreting the Kerala Service Rules by the employer.
• He had retired on March 31, 1999, and had to undergo bypass surgery and was in debt.
• The DCRG benefit was released after repeated requests.

Respondent’s Arguments (State of Kerala):

• The period of leave without allowance for post-graduation cannot be counted for granting increments.
• The demand for recovery was justified because the leave period was not beneficial to public service as per Rule 91A Part I of the Kerala Service Rules.
• The mistake made by the department in granting service benefits can be rectified by recovering the amount from Mr. Daniel’s DCRG.

Issues Framed by the Supreme Court

The main issue before the Supreme Court was:

1. Whether increments granted to the appellant, while he was in service, can be recovered from him almost 10 years after his retirement on the ground that the said increments were granted on account of an error?

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on several precedents to support its decision:

Judgment

How each authority was viewed by the Court?

✓ Sahib Ram v. State of Haryana and Others [1995 Supp (1) SCC 187]*: The Court followed this case to emphasize that recovery should not be made when the excess payment resulted from the employer’s mistake, not the employee’s misrepresentation.

✓ Col. B.J. Akkara (Retd.) v. Government of India and Others [(2006) 11 SCC 709]*: The Court relied on this case to reiterate the principle that recovery of excess payment should be restrained if the excess payment was not due to misrepresentation or fraud by the employee and was a result of the employer’s wrong interpretation of rules.

✓ Syed Abdul Qadir and Others v. State of Bihar and Others [(2009) 3 SCC 475]*: The Court cited this case to support that recovery of excess payments should not be ordered, especially when the employee has retired, and the excess payment was due to a mistake in interpreting the rules.

✓ State of Punjab and Others v. Rafiq Masih (White Washer) and Others [(2015) 4 SCC 334]*: The Court referred to this case to highlight the situations where recovery is impermissible, especially from retired employees, or those about to retire, and when the excess payment was made long ago.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principles of equity and fairness. The Court emphasized that the excess payment was not due to any misrepresentation or fraud by the employee, Mr. Thomas Daniel. Instead, it was a result of the employer’s mistake in interpreting the Kerala Service Rules. The Court also considered the hardship that would be caused to Mr. Daniel if the recovery was allowed, especially since he had retired and was facing financial difficulties. The Court reiterated that recovery of excess payment should not be ordered if the employee is not at fault and that such recoveries are often inequitable, especially when the employee has retired. The court also considered the fact that the recovery was being attempted almost 10 years after his retirement.

The Court considered various factors, including the absence of misrepresentation by the employee, the employer’s error, and the time elapsed since the initial payment. The court held that the recovery attempt was unjustified.

The court quoted from State of Punjab and Others v. Rafiq Masih (White Washer) and Others [(2015) 4 SCC 334]:

“As between two parties, if a determination is rendered in favour of the party, which is the weaker of the two, without any serious detriment to the other (which is truly a welfare State), the issue resolved would be in consonance with the concept of justice, which is assured to the citizens of India, even in the Preamble of the Constitution of India.”

The court also stated:

“It is not possible to postulate all situations of hardship which would govern employees on the issue of recovery, where payments have mistakenly been made by the employer, in excess of their entitlement.”

Further, the court observed:

“Having regard to the above, we are of the view that an attempt to recover the said increments after passage of ten years of his retirement is unjustified.”

Key Takeaways

• Recovery of excess payments made to employees due to the employer’s mistake is generally not permissible, especially if the employee did not misrepresent or commit fraud.
• Retired employees are often protected from recovery of excess payments, particularly when the recovery is sought after a long period.
• Courts may exercise discretion to prevent recovery if it would cause undue hardship to the employee.

Directions

The Supreme Court set aside the judgment of the Division Bench and the Single Judge of the High Court, as well as the order passed by the Public Redressal Complaint Cell of the Chief Minister of Kerala and the recovery notice dated October 9, 1997. The Court ordered that there would be no order as to costs.

Development of Law

The ratio decidendi of this case is that recovery of excess payments made to an employee due to the employer’s mistake in interpreting rules is not permissible, especially after the employee’s retirement and when there is no misrepresentation or fraud by the employee. This judgment reinforces the existing legal position that protects employees from the consequences of employer errors, particularly after retirement. This case clarifies that the principle of equity and fairness should be considered when dealing with recovery of excess payments.

Conclusion

The Supreme Court’s judgment in Thomas Daniel vs. State of Kerala provides significant relief to retired employees facing recovery of excess payments due to employer errors. The Court reinforced the principle that employees should not be penalized for mistakes made by their employers, particularly when they have not engaged in any misrepresentation or fraud. The decision highlights the importance of equity and fairness in service law matters and provides a clear precedent against the recovery of excess payments after a considerable period, especially post-retirement.