Decision To Reduce Pay Scale Can't Be Applied Retrospectively: Supreme Court Quashes Recovery Steps Against Retired Govt Servant

Brief facts

The Bihar Government appointed the appellant as a Supply Inspector in 1966. After serving 15 years, he received his first time-bound promotion as Marketing Officer on April 1, 1981. Upon completion 25 years of service, he was promoted to Assistant District Supply Officer (ADSO) on March 10, 1991 and he superannuated from this post on January 31, 2001.

On February 8, 1999, the Bihar Government revised the pay scale for Marketing Officers from Rs. 1640-2900 to Rs.5500-9000 and for ADSO from Rs. 2000-3800 to Rs.6500-10500 to be effective from January 1, 1996.

Paragraph 11 of the February 9 resolution stated: “The State Government have decided to abolish the existing facilities of Time Bound Promotions and Selection Grades, discussed in paras 10 and 12 of F.D. Resolution No.6021 dated 18th December, 1989 and they shall cease to be applicable with effect from 1st January, 1996 and thereafter in the existing pay scales. If any such promotion, however, is due under the Rules before 1st January, 1996, it shall be given and the payment of arrears in the existing scale shall be made only upto 31st December, 1995 after which the promotion would be deemed to have been automatically terminated.”

Therefore the appellant's pay scale was revised to Rs. 6500-10500.

After retirement, the last pay drawn by the appellant was Rs. 10500 with admissible emoluments. As per the Bihar Pension Rules, 1950, his pension was calculated at 50 percent of the average emoluments and was quantified at Rs. 5247 per month. However, on January 28, 2003, the Accountant General of the Bihar Government raised object to the March 10, 1991 promotion granted to the appellant. He alleged that the promotion would be ineffective from January 1, 1996 by the government's resolution dated February 8, 1991. Therefore, it was claimed that the pay scale has to be revised and reduced to match that of the Marketing Officer.

On April 15, 2009, the appellant received a letter from the Bihar Government directing to recover from him Rs. 63,765. It was stated in the letter: “With reference to the above-mentioned subject it is submitted that after receiving the enquiry report from the enquiry officer of the departmental enquiry done against you and the analysis of the department, it has been decided that a sum of Rs.63,765/- has been paid to you in excess due to mistake in fixation of pay which is recoverable from you. Kindly make it clear whether you will pay the said amount in one go or in instalments…”

The appellant claims that he made several representations to the Bihar government protesting against the reduction of his pension and the proposed recovery. He stated that since the authorities did not respond, he filed a petition before Patna High Court, which order dated July 20, 2009 directed the government to consider his representation. On September 4, 2009, the appellant filed another representing stating that the February 8 resolution has been misinterpreted to deny the benefit because the same could not be interpreted as causing prejudice to him when he had been given a time-bound promotion much before December 31, 1995.

On October 8, 2009, the Secretary, the Food and Consumer Protection Department, Government of Bihar, rejected the appellant's representation stating that the promotion given to the appellant would automatically come to an end after December 31, 1995.

The appellant filed a civil writ before Patna High Court which was dismissed on February 23, 2010. Aggrieved, the filed a review petition, which was rejected on March 23, 2011. Against this, he filed two Letters Patent Appeals which were rejected by the division bench of the High Court.

What did the Supreme Court say?

On promotion

The court held: “The appellant could not have been put to a disadvantage and his pay scale could not have been reduced prospectively by virtue of the said Resolution.”

It reasoned: “The Resolution dated 19th January, 1991 placed on record as Annexure P-1 indicates that the next promotional channel from the post of the Lower Senior Grade(Marketing Officer) was to the post of Upper Senior Grade(Upper Marketing Officer)...the appellant having been duly promoted to the post of Upper Senior Grade(Upper Marketing Officer) w.e.f. 10th March, 1991 was entitled to and was rightly given the pay scale of the promotional post.”

It said that paragraph 11 was misinterpreted as it specifically protected the promotions granted to employees prior to December 31, 1995.

The added: “Only those employees who were not promoted by the cut off date, i.e., 31st December, 1995 would get a notional promotion and consequent rise in pay scale which would come to an end w.e.f. 31st December, 1995.”

The court found that even when the resolution did not exist, the appellant could not have been subjected to eight after his retirement “because there was no illegality in conferment of the revised pay scale to the appellant which was an action taken by the State Government as per the applicable rules and regulations”.

Retrospective departmental inquiry

The court stated: “The order dated 15th April, 2009 whereby it was communicated to the appellant that it had been decided to recover a sum of Rs.63,765/- paid in excess due to mistake in fixation of pay, also indicates that a departmental inquiry was conducted against the appellant which had led to the impugned action.”

In this regard, it held: “Without prejudice to the above findings, we are of the view that no departmental action could have been initiated by the State against the appellant after eight years following his superannuation because the employer employee relationship had come to an end after the appellant's superannuation.”

The court remarked: “We firmly believe that any decision taken by the State Government to reduce an employee's pay scale and recover the excess amount cannot be applied retrospectively and that too after a long time gap.”

It relied on Syed Abdul Qadir and Others v. State of Bihar and Others(2009), in which the court held that if unauthorised payment has been made to the employee, it could be recovered within short period of time. However, if it has been made for a long duration of time, it would be iniquitous to make any recovery.

The court also cited ITC Limited v. State of Uttar Pradesh and Others(2011), in which the Supreme Court held: “We may give an example from service jurisprudence, where a principle of equity is frequently invoked to give relief to an employee in somewhat similar circumstances. Where the pay or other emoluments due to an employee is determined and paid by the employer, and subsequently the employer finds, (usually on audit verification) that on account of wrong understanding of the applicable rules by the officers implementing the rules, excess payment is made, courts have recognised the need to give limited relief in regard to recovery of past excess payments, to reduce hardship to the innocent employees, who benefited from such wrong interpretation.”

Further, in another case in State of Punjab and Others v. Rafiq Masih (White Washer) and Others (2015), the court held: “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. Be that as it may, based on the decisions referred to hereinabove, we may, as a ready reference, summarise the following few situations, wherein recoveries by the employers, would be impermissible in law…(iii) Recovery from the employees, when the excess payment has been made for a period in excess of five years, before the order of recovery is issued...v) In any other case, where the court arrives at the conclusion, that recovery if made from the employee, would be iniquitous or harsh or arbitrary to such an extent, as would far outweigh the equitable balance of the employer's right to recover.”

Departmental inquiry without serving notice

The court found that the April 15 order issued against the appellant seeking to recover Rs. 63, 765 was “manifestly not preceded by any show cause notice and was thus, passed in gross violation of the principles of natural justice.”

Therefore, the court concluded: “The Government Resolution dated 8th February, 1999 to be specific, the highlighted portion supra is amenable to the interpretation that it protects the status and pay of those employees who had received their time bound promotions prior to 31st December, 1995. As a consequence, the Secretary concerned, while rejecting the representation clearly misinterpreted and misapplied the said Resolution to the detriment of the appellant.”

It found that the same error was committed by the single judge and division bench of the high court.

Further, the court added: “In addition thereto, we are of the view that any step of reduction in the pay scale and recovery from a Government employee would tantamount to a punitive action because the same has drastic civil as well as evil consequences.”

Case details: Jagdish Prasad Singh v. State of Bihar & Ors, Civil Appeal No. 1635 of 2013

Citation : 2024 LiveLaw (SC) 564