Govt Employees Can't Be Denied Annual Increment Merely Because They Retired The Next Day Of Earning It : Supreme Court

In a significant judgment, the Supreme Court has held that government employees cannot be denied the annual increment merely because they are to retire on the very next day of earning the increment.

A bench comprising Justices MR Shah and CT Ravikumar was deciding the issue "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?" in an appeal filed by the Karnataka Power Transmission Corporation Ltd.

In this case, the KPTCL denied annual increment to employees on the ground that they have retired the next day. Relying on Regulation 40(1) of the Karnataka Electricity Board Employees Service Regulations, 1997, which state that an increment accrues from the day following that on which it is earned, the appellant argued that on the day when the increment actually accrued to the employees, they were not in service. After the High Court rejected this argument, KPTCL approached the Supreme Court.

Senior Advocate Huzefa Ahmadi, appearing for the appellant, argued that increment is in the form of an "incentive" to encourage the employee to perform well the next year and if the employee is no longer in service, there is no purpose in giving the increment. This argument was rejected by the Court by holding that increment is a benefit earned by the employees on account of their service in the preceding year and the same can be denied only as a penalty after a duly held disciplinary enquiry.

"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. In the present case the word “accrue” should be understood liberally and would mean payable on the succeeding day. Any contrary view would lead to arbitrariness and unreasonableness and denying a government servant legitimate one annual increment though he is entitled to for rendering the services over a year with good behaviour and efficiently and therefore, such a narrow interpretation should be avoided", the bench observed.

The bench categorically rejected the argument of the appellant that increment is a form of "incentive" and asked an employee who earns the increment three days before the due retirement date also should not be getting it if the appellant's argument is to be accepted.

Divergent views of High Courts

The bench noted that different High Courts have expressed divergent views on the issue. High Courts of Gujarat, Delhi, Allahabad, Madhya Pradesh and Orissa have decided in favour of the employees whereas the High Courts of Kerala, Andhra Pradesh and Himachal Pradesh have taken a contrary view.

Endorsing the view which favours the employees, the bench said : "A government servant is granted the annual increment on the basis of his good conduct while rendering one year service. Increments are given annually to officers with good conduct unless such increments are withheld as a measure of punishment or linked with efficiency. Therefore, the increment is earned for rendering service with good conduct in a year/specified period. Therefore, the moment a government servant has rendered service for a specified period with good conduct, in a time scale, he is entitled to the annual increment"

"Merely because, the government servant has retired on the very next day, how can he be denied the annual increment which he has earned and/or is entitled to for rendering the service with good conduct and efficiently in the preceding one year", the bench wondered.

The entitlement to the benefit of annual increment is due to the service already rendered.

Increment can be withheld only as a punishment

Denying the increment to the employee will amount to punishing an employee. The increment can be withheld only by way of punishment or he has not performed the duty efficiently.

The bench observed that if the interpretation as suggested on behalf of the appellants is accepted, 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.

Advocate Mallikarjun S. Mylar appeared on behalf of the employees.

Case Title : The Director (Admn and HR) KPTCL & Others vs CP Mundinamani and others

Citation : 2023 LiveLaw (SC) 296

Service Law -Government employees cannot be denied the annual increment merely because they are to retire on the very next day of earning the increment-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- Increment is not an "incentive" to perform well the next year- The entitlement to the benefit of annual increment is due to the service already rendered- Para 6.7

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