Supreme Court settles the issue of annual increment eligibility for employees retiring on the next day: KPTCL vs. C.P. Mundinamani (2023)

Introduction

Date of the Judgment: April 11, 2023

Citation: 2023 INSC 317

Judges: M.R. Shah, J. and C.T. Ravikumar, J.

Can an employee be denied their annual increment, earned for a year of service, simply because they retire the day after the increment is due? The Supreme Court of India recently addressed this crucial question in a service law matter, focusing on the interpretation of service regulations concerning annual increments. The core issue revolved around whether the timing of an increment’s accrual should override an employee’s right to it, particularly when retirement occurs immediately after the increment is earned. The bench comprised Justices M.R. Shah and C.T. Ravikumar, who delivered the judgment.

Case Background

The case involves employees of the Karnataka Power Transmission Corporation Limited (KPTCL) who retired on attaining the age of superannuation. These employees had completed one year of service, entitling them to an annual increment, on the day preceding their retirement. However, KPTCL denied them this increment, citing Regulation 40(1) of the Karnataka Electricity Board Employees Service Regulations, 1997. This regulation states that an increment accrues from the day following the day it is earned. KPTCL argued that since the employees were not in service on the day the increment accrued, they were not eligible for it. The employees challenged this decision, leading to the present appeal before the Supreme Court.

Timeline:

Course of Proceedings

The employees initially filed writ petitions before the High Court of Karnataka, challenging KPTCL’s decision to deny their annual increment. A learned Single Judge dismissed these petitions. However, on appeal, a Division Bench of the High Court overturned the Single Judge’s decision, relying on a judgment of the Andhra Pradesh High Court in Union of India and Ors. Vs. R. Malakondaiah and ors. and other similar decisions. The Division Bench directed KPTCL to grant the annual increment to the employees, observing that they had earned the increment for their service prior to retirement. KPTCL then appealed to the Supreme Court against this decision of the Division Bench.

Legal Framework

The core of this case revolves around Regulation 40(1) of the Karnataka Electricity Board Employees Service Regulations, 1997, which governs the accrual of annual increments. The regulation states:

“40(1) An increment accrues from the day following that on which it is earned. An increment that has accrued shall ordinarily be drawn as a matter of course unless it is withheld. An increment may be withheld from an employee by the competent authority, if his conduct has not been good, or his work has not been satisfactory. In ordering the withholding of an increment, the withholding authority shall state the period for which it is withheld, and whether the postponement shall have the effect of postponing future increments.”

This regulation specifies that an increment is not effective on the day it is earned but rather on the day following. The dispute arises from the interpretation of the word “accrues” and whether an employee must be in service on the day the increment accrues to be eligible for it.

Arguments

Appellants’ (KPTCL) Arguments:

• The appellants argued that Regulation 40(1) of the Karnataka Electricity Board Employees Service Regulations, 1997 clearly states that an increment accrues from the day following that on which it is earned. Therefore, the employees must be in service on the day the increment accrues to be eligible for it.
• They contended that the annual increment is an incentive for good service, and since the employees were not in service on the day the increment accrued due to their retirement, they were not entitled to it.
• The appellants relied on the definition of “increment” and “accrue” from the Law Lexicon, arguing that “increment” means an increase in quantity or value, and “accrue” means to come into existence as an enforceable claim or right. They argued that the right to the increment arises on the day following the day it is earned, and therefore, the employee must be in service on that day.
• The appellants pointed out that the Andhra Pradesh High Court decision relied upon by the Division Bench of the Karnataka High Court had been overruled by a Full Bench of the same High Court in the case of Principal Accountant-General, Andhra Pradesh and Anr. Vs. C. Subba Rao.
• They cited divergent views from various High Courts, including the Madras High Court, the Delhi High Court, the Allahabad High Court, the Madhya Pradesh High Court, and the Gujarat High Court, which have taken a contrary view than the view taken by the Full Bench of the Andhra Pradesh High Court, the Kerala High Court and the Himachal Pradesh High Court.

Respondents’ (Employees) Arguments:

• The respondents argued that they had earned the annual increment for rendering one year of service prior to their retirement and should not be denied this benefit simply because they retired on the next day.
• They relied on the decision of the Madras High Court in the case of P. Ayyamperumal Vs. The Registrar and Ors. and other similar decisions of the Gujarat High Court, the Delhi High Court, the Allahabad High Court, the Madhya Pradesh High Court and the Orissa High Court.
• The respondents contended that the increment is earned for the service rendered and cannot be denied on a technicality of the date of accrual.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether an employee who has earned the annual increment is entitled to the same despite the fact that he has retired on the very next day of earning the increment?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Cases:

Legal Provisions:

• Regulation 40(1) of the Karnataka Electricity Board Employees Service Regulations, 1997: This regulation was central to the dispute, defining when an increment accrues.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Full Bench decision of the Andhra Pradesh High Court in Principal Accountant-General, Andhra Pradesh and Anr. Vs. C. Subba Rao was not approved by the Supreme Court.
• The decisions of the Madras High Court in P. Ayyamperumal Vs. The Registrar and Ors., the Delhi High Court in Gopal Singh Vs. Union of India and Ors., the Allahabad High Court in Nand Vijay Singh and Ors. Vs. Union of India and Ors., the Madhya Pradesh High Court in Yogendra Singh Bhadauria and Ors. Vs. State of Madhya Pradesh, the Orissa High Court in Arun Kumar Biswal Vs. State of Odisha and Anr., and the Gujarat High Court in State of Gujarat Vs. Takhatsinh Udesinh Songara were approved and followed by the Supreme Court.
• The decisions of the Kerala High Court in Union of India Vs. Pavithran and the Himachal Pradesh High Court in Hari Prakash Vs. State of Himachal Pradesh & Ors. were not approved by the Supreme Court.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle of fairness and the understanding that an annual increment is earned for the service rendered over the past year. The Court emphasized that denying the increment on a technical interpretation of the word “accrues” would be arbitrary and unjust. The Court was also swayed by the fact that the employees had completed their service with good conduct and efficiency, which is the basis for granting the increment. The Court’s reasoning was also influenced by the need to avoid interpretations that would lead to unreasonable outcomes, ensuring that the rights of government servants are protected.

Fact:Law Ratio:

The Court’s reasoning was primarily driven by legal interpretations and principles, with a focus on ensuring fairness and avoiding arbitrary outcomes.

Logical Reasoning:

The Court considered the alternative interpretation suggested by the appellants, which was based on a literal reading of Regulation 40(1). However, it rejected this interpretation because it would lead to an arbitrary and unreasonable outcome, denying employees a benefit they had earned. The Court emphasized that the purpose of the increment is to reward employees for their service and good conduct, and this purpose should not be defeated by a technicality.

The Supreme Court held that the employees were entitled to the annual increment earned on the last day of their service, even though they retired the following day. The Court reasoned that the increment is earned for the services rendered during the past year and should not be denied due to a technicality of the date of accrual. The Court emphasized that the word “accrue” should be interpreted liberally to mean “payable on the succeeding day.”

The majority opinion was delivered by Justices M.R. Shah and C.T. Ravikumar, and there were no dissenting opinions.

The Supreme Court quoted the Delhi High Court’s observation in Gopal Singh (supra):

“Annual increment though is attached to the post & becomes payable on a day following which it is earned but the day on which increment accrues or becomes payable is not conclusive or determinative. In the statutory scheme governing progressive appointment increment becomes due for the services rendered over a year by the government servant subject to his good behaviour. The pay of a central government servant rises, by periodical increments, from a minimum to the maximum in the prescribed scale. The entitlement to receive increment therefore crystallises when the government servant completes requisite length of service with good conduct and becomes payable on the succeeding day.”

The Supreme Court also quoted the Allahabad High Court’s observation in Nand Vijay Singh (supra):

“Law is settled that where entitlement to receive a benefit crystallises in law its denial would be arbitrary unless it is for a valid reason. The only reason for denying benefit of increment, culled out from the scheme is that the central government servant is not holding the post on the day when the increment becomes payable. This cannot be a valid ground for denying increment since the day following the date on which increment is earned only serves the purpose of ensuring completion of a year’s service with good conduct and no other purpose can be culled out for it.”

The Supreme Court further observed:

“Any interpretation which would lead to arbitrariness and/or unreasonableness should be avoided. If the interpretation as suggested on behalf of the appellants and the view taken by the Full Bench of the Andhra Pradesh High Court is accepted, in that case it would tantamount to denying a government servant the annual increment which he has earned for the services he has rendered over a year subject to his good behaviour.”

Key Takeaways

• Employees who complete one year of service with good conduct are entitled to their annual increment, even if they retire the next day.
• The term “accrues” in service regulations should be interpreted liberally to mean “payable on the succeeding day,” ensuring that employees are not denied their rightful benefits due to technicalities.
• Denying an increment earned for past service based solely on the employee not being in service on the day it becomes payable is arbitrary and unreasonable.
• This judgment sets a precedent for how service regulations should be interpreted, prioritizing fairness and the rights of employees over strict, literal interpretations.

Directions

The Supreme Court directed the appellants (KPTCL) to grant one annual increment to the respondent employees, which they had earned on the last day of their service for rendering services preceding one year from the date of retirement with good behavior and efficiently.

Specific Amendments Analysis

There was no discussion of any specific amendment in the judgment.

Development of Law

The ratio decidendi of this case is that an employee who has completed one year of service with good conduct and efficiency is entitled to the annual increment earned for that service, even if they retire on the day following the completion of that year. The Supreme Court has clarified that the word “accrues” in service regulations should be interpreted liberally to mean “payable on the succeeding day,” ensuring that employees are not denied their rightful benefits due to technicalities. This decision clarifies the position of law on the issue and settles the divergent views of various High Courts.

Conclusion

In conclusion, the Supreme Court dismissed the appeal filed by KPTCL, affirming the High Court’s decision to grant the annual increment to the retiring employees. The Court held that an employee who has earned the annual increment for rendering one year of service with good conduct and efficiency is entitled to the same, even if they retire on the very next day. This judgment emphasizes the importance of fairness and the rights of employees, ensuring that they are not denied their rightful benefits due to a technical interpretation of service regulations.