news Wednesday, February 25, 2015 - 05:30

S. Ajith | December 23, 2014 | 12.35 pm IST

Recovery, by employers after 5 years of payments granted mistakenly to employees of lower rung service in the absence of fraud or misrepresentation, would be "iniquitous" and "arbitrary" and therefore "impermissible in law", the Supreme Court has held.

A Bench of the Apex Court comprising of J.S. Khehar and Arun Mishra, JJ., in State of Punjab and others v. Rafiq Masih (White Washer) etc decided on 18.12.2014, has held that recovery of excess amount paid to Class-III and Class-IV employees due to employer's mistake is not permissible in law, saying that such recovery would be iniquitous and arbitrary and therefore would breach the mandate contained in Article 14 of the Constitution and it would also cause extremely harsh consequences to them who are totally dependent on their wages to run their family. 

The Court was considering a batch of cases in all of which, the private respondents who were employees belonging to Class-III and IV grade, were beneficiaries of a mistake committed by the employer, and on account of the said unintentional mistake, employees were in receipt of monetary benefits, beyond their due. In all the cases before the Bench, the excess amounts received by the private employees was not on account of any misrepresentation made or any fraud committed by them, but purely on account of the wrongful determination of the emoluments due and released to them by their employer. 

The Bench raised the following question for determination : “Whether all the private respondents, against whom an order of recovery (of the excess amount) has been made, should be exempted in law, from the reimbursement of the same to the employer?"

Proceeding to lay down the parameters of fact situations, wherein employees, who are beneficiaries of wrongful monetary gains at the hands of the employer, may not be compelled to refund the same in the light of the peculiar facts of the case, Court said “the instant benefit cannot extend to an employee merely on account of the fact, that he was not an accessory to the mistake committed by the employer; or merely because the employee did not furnish any factually incorrect information, on the basis whereof the employer committed the mistake of paying the employee more than what was rightfully due to him; or for that matter, merely because the excessive payment was made to the employee, in absence of any fraud or misrepresentation at the behest of the employee.”

The Apex Court ruled that orders passed by the employer seeking recovery of monetary benefits wrongly extended to employees, can only be interfered with, in cases where such recovery would result in a hardship of a nature, which would far outweigh, the equitable balance of the employer's right to recover.

“In other words, interference would be called for, only in such cases where, it would be iniquitous to recover the payment made”, said the Bench.   

Writing the judgment for the Bench, Justice J.S. Khehar said, “The right to recover being pursued by the employer, will have to be compared, with the effect of the recovery on the concerned employee. If the effect of the recovery from the concerned employee would be, more unfair, more wrongful, more improper, and more unwarranted, than the corresponding right of the employer to recover the amount, then it would be iniquitous and arbitrary, to effect the recovery. In such a situation, the employee's right would outbalance, and therefore eclipse, the right of the employer to recover….An action of the State, ordering a recovery from an employee, would be in order, so long as it is not rendered iniquitous to the extent, that the action of recovery would be more unfair, more wrongful, more improper, and more unwarranted, than the corresponding right of the employer, to recover the amount.”

The Court however said that if the mistake of wrongful payment to employee is detected within five years, it would be open to the employer to recover the same. 

“ It is apparent, that a government employee is primarily dependent on his wages, and if a deduction is to be made from his/her wages, it should not be a deduction which would make it difficult for the employee to provide for the needs of his family. Besides food, clothing and shelter, an employee has to cater, not only to the education needs of those dependent upon him, but also their medical requirements, and a variety of sundry expenses. Based on the above consideration, we are of the view, that if the mistake of making a wrongful payment is detected within five years, it would be open to the employer to recover the same. However, if the payment is made for a period in excess of five years, even though it would be open to the employer to correct the mistake, it would be extremely iniquitous and arbitrary to seek a refund of the payments mistakenly made to the employee."

The Apex Court said employees of lower rung service spend their entire earning in the upkeep and welfare of their family, and if such excess payment is allowed to be recovered from them, it would cause them far more hardship, than the reciprocal gains to the employer. 

"We are therefore satisfied in concluding, that such recovery from employees belonging to the lower rungs (i.e., Class-III and Class-IV - sometimes denoted as Group 'C' and Group 'D') of service, should not be subjected to the ordeal of any recovery, even though they were beneficiaries of receiving higher emoluments, than were due to them. Such recovery would be iniquitous and arbitrary and therefore would also breach the mandate contained in Article 14 of the Constitution," Justice Khehar, who wrote the judgment said. 

The Bench passed the judgment on appeals filed by the Punjab government challenging the judgment of the Punjab and Haryana High court order restraining it from recovering the excess amount paid by mistake to numerous employees over the years. 

The Court summarized the following few situations, wherein recoveries by the employers, would be impermissible in law:
“(i) Recovery from employees belonging to Class-III and Class-IV service (or Group 'C' and Group 'D' service).
(ii) Recovery from retired employees, or employees who are due to retire within one year, of the order of recovery.
(iii) Recovery from employees, when the excess payment has been made for a period in excess of five years, before the order of recovery is issued.
(iv) Recovery in cases where an employee has wrongfully been required to discharge duties of a higher post, and has been paid accordingly, even though he should have rightfully been required to work against an inferior post.(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.”

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