Retired Employee Entitled To Interest On Delayed Retirement Benefits After Exoneration In Departmental Inquiry: Bombay HC
Bombay High Court: A Division Bench of Justices Ravindra V. Ghuge and Ashwin D. Bhobe ruled in favor of a retired Municipal Corporation employee, directing payment of interest on delayed retirement benefits. The court held that when retirement benefits are withheld due to pending inquiry and the employee is subsequently exonerated, interest becomes payable from the date following...
Bombay High Court: A Division Bench of Justices Ravindra V. Ghuge and Ashwin D. Bhobe ruled in favor of a retired Municipal Corporation employee, directing payment of interest on delayed retirement benefits. The court held that when retirement benefits are withheld due to pending inquiry and the employee is subsequently exonerated, interest becomes payable from the date following retirement. It clarified that the doctrine of restitution applies in such cases.
Background
Narayan Pundalik Pathade joined the Municipal Corporation of Greater Mumbai (MCGM) as a clerk. In 2012, he was promoted to Municipal Secretary, and was slated to retire in 2017. However, just before his retirement, MCGM initiated a departmental inquiry; they alleged irregularities in the recruitment process for clerks conducted in 2013. Nevertheless, Pathade retired on May 31, 2017, upon reaching the age of superannuation.
Due to the pending inquiry, his retirement benefits were withheld, though he received his provident fund and provisional pension. Aggrieved by the inquiry, Pathade approached the National Commission for Scheduled Castes in November 2018. The Commission recommended setting aside the inquiry and the immediate payment of his pending dues.
The MCGM questioned the Commission's jurisdiction before the High Court but eventually exonerated Pathade, stating that none of the four charges against him had been proved. Following this, his retirement benefits were released between November and December 2019. Gratuity and commutation of pension were paid on November 22, 2019, while earned leave, half-pay leave, LTA, and ex-gratia payments were made on December 18, 2019.
Through representations in May and September 2020, Pathade requested interest on the delayed payment of his retirement benefits. However, MCGM did not respond. Aggrieved, he filed a writ petition against MCGM.
Arguments
Mr. C.K. Bhangoji, representing Pathade, argued that retirement benefits became due and payable on the date immediately following retirement once Pathade was exonerated. He relied on Rule 55A(7) of the MCGM Pension Rules, 1953, stating that Pathade was entitled to interest on delayed payment. He submitted that the appropriate interest rate should be 18%.
Mr. Shivprasad D. Barade, representing MCGM, countered that no interest was payable as all retirement benefits were paid within three months of Pathade's exoneration. He cited Rule 55A(1) of the Pension Rules and argued that the interest-free period of three months should be computed from the date of exoneration, not retirement. He contended that Rules 55A(1) and 55A(7) should be read harmoniously, and since payments were made within the stipulated period after exoneration, no interest was due.
Court's Reasoning
The court examined the provisions of Rules 55A(1) and 55A(7) of the MCGM Pension Rules. It found that Rule 55A(1) addresses situations where gratuity payment is authorized after three months from its due date, while Rule 55A(7) specifically deals with cases where payment is withheld due to pending inquiries.
The court rejected MCGM's argument for harmonious construction of the two rules, as it found no ambiguity in their provisions. It stated that without any such ambiguity, harmonious interpretation would not be required.
Further, the court observed that Rule 55A(7) clearly stipulates that upon exoneration in a departmental inquiry, payment "will be deemed to have become due and payable on the date immediately following the date of retirement". Based on this provision, the court determined that Pathade's gratuity and other benefits became due on June 1, 2017, making him entitled to interest on the delayed payments.
The court ruled that pensionary benefits are welfare provisions of a compensatory nature, and interest is not a penalty or punishment; instead, it is the “normal accretion on capital". It noted that Pathade was legitimately deprived of his money from his retirement date, and thus, was owed interest.
Further, the court rejected MCGM's argument and observed that allowing a three-month interest-free period after exoneration would permit employers to retain employees' dues for years – simply because of a pending inquiry. This, the court noted, would defeat the doctrine of restitution.
Lastly, the court cited State of Kerala v. Padmanabhan Nair (1984 INSC 238) and D.D. Tewari v. Uttar Harayana Bijli (Supreme Court, Civil Appeal No. 7113 of 2014) to hold that delayed retirement benefits must be compensated with interest. It observed that "when a person is deprived of the use of his money to which he is legitimately entitled, he has a right to be compensated for the deprivation which may be called interest or compensation".
Thus, the court allowed the writ petition. It granted interest and directed payment at 10% per annum. Further, MCGM was directed to complete this payment within four weeks.
Case Title: Narayan Pundalik Pathade v. Municipal Corporation of Greater Mumbai Through Its Commissioner
Citation: 2025 LiveLaw (Bom) 111
Counsel for the Petitioner: Mr. C.K. Bhangoji with Ms. Lata Bhangoji
Counsel for the Respondents: Mr. Shivprasad D. Barade, AGP
