Supreme Court says excess payment made to employees by error can’t be recovered

THE Supreme Court on Monday reiterated that excess payments made to employees cannot be recovered after their retirement on the ground that the said increments were granted owing to an error, in the case of Thomas Daniel versus State of Kerala & Ors.

A division bench of Justices S. Abdul Nazeer and Vikram Nath pronounced the judgment while hearing an appeal filed by a teacher challenging the recovery proceedings initiated by the State against him as well as orders of the Kerala High Court.

The main question in the case was whether increments granted to the appellant while he was in service could be recovered almost ten years after his retirement on the ground that the said increments were granted on account of an error.

The appellant, a teacher, was asked by the District Educational Officer, Kollam to return pay and subsequent increments granted to him after his retirement in 1999. Daniel challenged the proposal to initiate recovery proceedings against him by way of filing a complaint before the Public Redressal Complaint Cell, Chief Minister of Kerala in May 2000, for recovering the increments granted to him during the years 1989 and 1991. When his complaint was rejected by the Kerala government in June 2000, he moved to the Kerala High Court seeking a remedy.

When the matter reached the high court, a single judge bench upheld the dismissal of his complaint by the Kerala government, observed in an order in 2006 that the mistake committed by the department concerned while granting the service benefits can be rectified by recovering the same amount from the employee's Death-Cum-Retirement Gratuity amount. The appellant filed a writ appeal against this order, but this decision was affirmed by the Division Bench of the high court as well in 2009.

These decisions prompted the appellant to file an appeal before the Supreme Court.

Before the Supreme Court, the appellant contended that the excess payment made to him was not on account of any misrepresentation or fraud on his part, but due to a mistake in interpreting the Kerala Service Rules.

It was further submitted that the appellant had retired on March 31, 1999 as he had to undergo bypass surgery. This caused a huge setback for him financially. Owing to this, the D.C.R.G. benefit was released in his favour.

This being the case, he prayed to set aside all orders against him.

Countering the appellant's claims, the counsel appearing for the respondent – State of Kerala – supported the high court's stand.

What the Supreme Court held 

Relying on a plethora of judicial decisions, the Supreme Court said that if there is no misrepresentation or fraud on the part of the employee or, if a wrong principle of interpretation of the law is applied, then such excess amounts cannot be recovered. In this regard, the court said,

"…if the excess amount was not paid on account of any misrepresentation or fraud of the employee or if such excess payment was made by the employer by applying a wrong principle for calculating the pay/allowance or on the basis of a particular interpretation of rule/order which is subsequently found to be erroneous, such excess payment of emoluments or allowances are not recoverable."

Explaining this, the court further added that the relief against the recovery is granted not because of any employees' right but in equity, by exercising judicial discretion to provide relief to employees from the hardship that will be caused if the recovery is ordered.

With this, the court also pointed out that in any given case, if it is proved that an employee knew that the payment received was wrongly paid, or that an error is detected or corrected within a short time of wrong payment, then the matter would be in the realm of judicial discretion. Based on the facts and circumstances of each case, the courts may order for recovery of the amount paid in excess, the Supreme Court held.

Coming to the facts of the present case, the Supreme Court noted that the respondents had not contended any account of the misrepresentation or fraud played by the appellant with regard to the excess amounts that were paid.

The appellant retired in 1999. The case of the respondents was that excess payment was made due to a mistake in interpreting Kerala Service Rules, which was subsequently pointed out by the Accountant General, the court highlighted.

Therefore, it held:

"…we are of the view that an attempt to recover the said increments after passage of ten years of his retirement is unjustified."

With these observations, the court allowed the appeal, and set aside the orders passed by the single judge and the division bench of the Kerala High Court, the order passed by the Public Redressal Complaint Cell of the Chief Minister of Kerala, and the recovery notice against the appellant.

Click here to view the Supreme Court's full judgment.