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2025 DAILYLAW 3964 (HP)

Bihari Lal v. State of Himachal Pradesh

2025-12-24

Ranjan Sharma

body2025
JUDGMENT : Ranjan Sharma, Judge Petitioner, Bihari Lal, having served as Rigman [Class-III] and retired as Driller had filed an Original Application No. 2276 of 2018 before Learned State Administrative Tribunal; and upon abolition of the Tribunal, the matter came to be transferred to this Court, as CWPOA No. 4320 of 2020, seeking the following reliefs: - (i) That the impugned action of the respondents by illegally taking FDR of Rs.1,50,000/- in lieu of release of retiral benefit of the applicant may be declared as null and void; (ii) That the respondents may kindly be directed to release the FDR of Rs.1,50,000/- in lieu of release of retiral benefit of the applicant which has wrongly and illegally been taken by the respondent along with interest. FACTUAL MATRIX: 2. Case as set up by Learned Counsel is that petitioner was appointed as Rigman [Class-III] and upon joining service on 08.05.1981 though permanent headquarter of the petitioner was fixed in Geology Wing of Industries Department at Shimla but the Respondents posted/deployed the petitioner at various places for carrying out geological operations and ancillary work from time to time. Petitioner was lastly deployed at Karla in Tehsil Sundernagar, District Mandi in March 2005 and he was promoted as Driller (Class-II) in the year 2015 and he served as such till his superannuation on 31.03.2016. During his tenure as Karla his work conduct and performance had been satisfactory throughout. On superannuation, the petitioner was entitled for the release of entire retiral benefits inaccordance with the applicable Services Rules but, surprisingly, the Respondent-Department had withheld and retained an amount of Rs.1,50,000/- [Rs. One Lakh Fifty Thousand] in the form of FDR on 08.08.2016 from Leave Encashment of the petitioner without complying with the principles of natural justice and without authority of law. It is in this backdrop, that the grievance of the petitioner is that the action of the State Authorities in withholding an amount of Rs 1, 50,000/- [Rs One Lac Fifty-Thousand only] from the retiral benefits {Leave Encashment} of the petitioner in violation of the principles of natural justice and by acting contrary to the statutory rules was highly unfair, unjust, illegal, arbitrary and unconstitutional. STAND OF STATE AUTHORITIES IN REPLY: 3. Pursuant to the issuance of notice on 03.05.2018, the Respondents have filed the Reply- Affidavit dated 31.05.2018 of Director of Industries, Himachal Pradesh, Shimla. 3(i). STAND OF STATE AUTHORITIES IN REPLY: 3. Pursuant to the issuance of notice on 03.05.2018, the Respondents have filed the Reply- Affidavit dated 31.05.2018 of Director of Industries, Himachal Pradesh, Shimla. 3(i). Perusal of the Reply-Affidavit indicates that petitioner was appointed as Rigman [Class-III, Non Gazetted] in the year 1981 in Respondent-Department and permanent headquarter of the petitioner was fixed at Geological Wing at Shimla on 08.05.1981 but the petitioner was deployed at various places. Reply Affidavit indicates that while the petitioner was posted at Karla in Tehsil Sundernagar, he retired from service on attaining the age of superannuation on 31.03.2016. Reply indicates that an audit/test check of the accounts of office of the State Geologist, Geology Wing, Department of Industries, Shimla was conducted for the period upto 11/2015 by the Audit Party of Accountant General, Himachal Pradesh, Shimla and the said audit party detected over payment of allowances beyond 180 days amounting to Rs.23.45 lakh to various incumbents, including the petitioner by treating incumbents on tour and based on audit report, the Respondent-Department withheld an amount of Rs1,50,000/- from the Leave Encashment by retaining the said amount in form of FDR on 08.08.2016. 3(ii). Reply-Affidavit further states that as per Supplementary Rules 73 and the Decision No 1 [Annexure R-1], an employee who is posted away from permanent headquarter to another place is entitled for “Daily allowance” for period upto 180 days and beyond 180 days no such daily dearness allowance was admissible. However, after expiry of 180 days such a deployed employee, who was posted away from permanent headquarter “A” to another place “B” was either to transferred back to his permanent headquarter “A” or his headquarter was to be fixed at place work “B” after 180 days. Reply-Affidavit further states that on expiry of 180 days though Daily Allowance was discontinued but other allowances i.e. Capital Allowance, Compensatory Allowance, House Rent Allowance etc. were inadvertently continued to be paid to the petitioner and others at the rates prevalent in permanent headquarter at Shimla whereas beyond expiry of 180 days, the necessary transfer orders were to be issued by posting the petitioner at new headquarter “B” at Karla, Sundernagar in District Mandi or like places so as to give them allowances i.e. Capital Allowance, Compensatory Allowance, House Rent Allowance etc. at the rates prevalent at new headquarter station “B”. at the rates prevalent at new headquarter station “B”. In view of the audit objection-note, State Authorities have affected the recovery from various employees including petitioner. 3(iii). Reply-Affidavit indicates that even though recovery was pointed out by the Audit yet, the Respondent-Department had sent a communication on 19.03.2016 [Annexure R-2] to the Accountant General Himachal Pradesh for waiving off recovery. In this backdrop, the State Authorities have half-heartedly opposed the claim, with the prayer to dismiss the writ petition. NO REBUTTAL BY PETITIONER: 4. Since the State Authorities have sent a communication dated 19.03.2016 (Annexure R-2) for waiving off the recovery as detected by the Accountant General and in these circumstances, no rejoinder was filed as the claim of petitioner was not seriously opposed by the State Authorities. 5. Heard, Mr. Amrick Singh, Advocate, for the petitioner and Mr. Seema Sharma, Deputy Advocate General for the respondents and gone through the records. ANALYSIS: 6. Taking into account the entirety of facts and circumstances and the material on record, this Court is of the considered view, that the action of the State Authorities in withholding an amount of Rs 1,50,000/- from retiral benefits [Leave Encashment] and by retaining this amount in the form of FDR on 08.08.2016 [Annexure R-3], cannot sustain, for the following reasons:- DEPRIVATION OF RETIRAL BENEFITS BEING LEGAL ENTITLEMENT CONSTITUTE PROPERTY WITHOUT AUTHORITY OF LAW-IMPERMISSIBLE: 6(i). Indisputably the petitioner was appointed as Rigman [Class-III Non-Gazetted] in Respondent- Department in 1981 and his permanent headquarter was fixed in Geological Wing of the Respondent- Department at Shimla. During his incumbency in the Respondent-Department, the petitioner was made to work and undertake Geological and other ancillary work at different places. In March, 2005, the petitioner was deployed to work at Karla, in Tehsil Sundernagar in District Mandi and the petitioner worked as Rigman [Class-III] till his promotion as a Driller [Class-II Gazetted] in the year 2015. While serving as a Driller the petitioner retired from service on attaining the age of superannuation on 31.03.2016. Upon superannuation, an employee acquires a right to receive the retiral benefits of Pension, Gratuity and Leave Encashment by way of legal entitlements inaccordance with the Statutory Rules i.e. CCS (Pension) Rules 1972 and the CCS (Leave) Rules as applicable to the employees of the Respondent State. Upon superannuation, an employee acquires a right to receive the retiral benefits of Pension, Gratuity and Leave Encashment by way of legal entitlements inaccordance with the Statutory Rules i.e. CCS (Pension) Rules 1972 and the CCS (Leave) Rules as applicable to the employees of the Respondent State. These accrued legal entitlements of retiral benefits were liable to be withheld or withdrawn and even recovery could be affected (wholly or in part), in case, any disciplinary proceedings or judicial proceedings were pending against an employee on date of retirement. In case, neither any disciplinary proceedings nor judicial proceedings were pending against an employee on the date of superannuation, the action of an employer in withholding retiral benefits (wholly or in part)was liable to be interdicted by a Court. The retiral benefits accruing from statutory rules are not bounties, payable at the sweet will of an employer but the retiral benefits constitute the property of a person, under Article 300-A of the Constitution of India and the same cannot be permitted to be either withheld or withdrawn and even no recovery could be affected (either wholly or in part) without authority of law. In the instant case, once neither any departmental proceedings nor criminal proceedings were pending against the petitioner on the date of retirement on 31.03.2016 then, the action of the State Authorities in withholding an amount of Rs 1,50,000/- from the retiral benefits [Leave Encashment] of petitioner, being without authority of law, cannot sustain and therefore, such an action is interdicted by this Court. WITHHOLDING ACCRUED RETIRAL BENEFITS FLOWING FROM STATUTORY RULES- IMERMISSIBLE: 6(ii). So far as the right of an employee for pension is concerned, the same accrues to a retiree in accordance with the CCS (Pension) Rules, 1972. The amount of retiral benefits due on retirement, by way of legal entitlement can be withheld or withdrawn or recovery could be affected, only in case any of the eventualities prescribed under Rule 9 of the CCS (Pension) Rules existed, meaning thereby, that in case, any pecuniary loss was caused to the government, for which departmental or judicial proceedings were initiated and the pensioner was found guilty of grave misconduct or negligence during the period of service, including service rendered upon reemployment. In absence of any departmental or judicial proceedings pending against the petitioner on the date of retirement; and in absence of any pecuniary loss having been caused due to misconduct or negligence of a pensioner ; and in absence of any finding of grave misconduct or negligence having been recorded in either the departmental or criminal proceedings, therefore, in absence of any of these legal compliances, the any action of the State Authorities in with holding any of the accrued legal entitlement(s) of retiral benefits cannot sustain and the same is interdicted by this Court. WITHHOLDING OF RETIRAL BENEFITS FROM LEAVE ENCASHMENT IN ABSENCE OF LEGAL COMPLIANCES- IMPERMISSIBLE: 6(iii). Petitioner has set up a case in Para 6A (v) and Para 6B(c) of the writ petition that the State Authorities-Respondents have withheld an amount of Rs.1,50,000/- from Leave Encashment of the petitioner. Even in the Reply-Affidavit, the State Authorities have admitted that recovery has been affected from the Leave Encashment of the petitioner by remitting the recoverable amount in FDR on 08.08.2016. For appreciating the controversy, it is necessary to have a recap of Rule 39 of the CCS (Leave) Rules, as applicable to the employees of the Respondent State, including the petitioner, reads as under:- 39. Leave/Cash payment in lieu of leave beyond the date of retirement, compulsory retirement or quitting of service ; (1) No leave shall be granted to a Government servant beyond- (a) the date of his retirement, or (b) the date of his final cessation of duties, or (c) the date on which he retires by giving notice to Government or he is retired by Government by giving him notice or pay and allowances in lieu of such notice, in accordance with the terms and conditions of his service, or (d) the date of his resignation from service. (2)(a) Where a Government servant retires on attaining the normal age prescribed for retirement under the terms and conditions governing his service, the authority competent to grant leave shall, suo motu, issue an order granting cash equivalent of leave salary for both earned leave and half pay leave, if any, at the credit of the Government servant on the date of his retirement subject to a maximum of 300 days; (b) ….Not Relevant…. (c). ….Not Relevant…. (c). ….Not Relevant…. (3) The authority competent to grant leave may withhold whole or part of cash equivalent of earned leave in the case of a Government servant who retires from service on attaining the age of retirement while under suspension or while disciplinary or criminal proceedings are pending against him, if in the view of such authority there is a possibility of some money becoming recoverable from him on conclusion of the proceedings against him. On conclusion of the proceedings, he will become eligible to the amount so withheld after adjustment of Government dues, if any. (4) …. Not Relevant…. (5) …. Not Relevant…. (6) …. Not Relevant…. Perusal of Rule 39 (3) of the CCS (Leave) Rules, mandates that Leave Encashment upto 300 days of unutilized earned leave becomes payable to an employee suo motu on retirement. Rule 39 mandates that the benefit of Leave Encashment accruing from statutory rule could only be withheld, in case, an employee retires while under suspension or in case departmental proceedings or criminal proceedings were pending on date of retirement. In the instant case, the petitioner retired from service on 31.03.2016 and on the date of retirement, once he was neither under suspension nor any departmental or criminal proceedings were pending, in which any amount was recoverable from the petitioner therefore, in absence of the pendency of any departmental proceedings or criminal proceedings on the date of retirement on 31.03.2016, then, in such an eventuality, the action of the State Authorities in affecting recovery of Rs 1,50,000/- on account of alleged over payment of allowances from the Leave Encashment of petitioner by remitting the amount sought to be recovered, in FDR on 08.08.2016 has resulted in withholding and recovering the accrued right and legal entitlement, by acting in total disregard and violation of the Rule 39 of the CCS (Leave) Rules does not stand the test of judicial scrutiny. Petitioner cannot be made to suffer prejudice and put to a disadvantageous position, and moreover when, none of the legal compliances and prerequisites are satisfied so as to attract Rule 39 of the said Rules, in facts of instant case. Accordingly, the recovery affected from the Leave Encashment of petitioner being, without any authority of law cannot sustain and therefore, the said recovery is quashed and set-aside. RECOVERY OF AMOUNT ERRONEOUSLY RELEASED DUE TO MIS-CONSTRUCTION MIS-INTERPRETATION OF RULE OR ORDER-IMPERMISSIBLE: 6(iv). Accordingly, the recovery affected from the Leave Encashment of petitioner being, without any authority of law cannot sustain and therefore, the said recovery is quashed and set-aside. RECOVERY OF AMOUNT ERRONEOUSLY RELEASED DUE TO MIS-CONSTRUCTION MIS-INTERPRETATION OF RULE OR ORDER-IMPERMISSIBLE: 6(iv). The mistake committed by Department or its officers in releasing benefits of pay and allowances due to wrong construction or wrong calculation of a rule or order [when on facts of instant case, the plea of wrong construction or wrong calculation is borne out, as discussed above], the excess amount was irrecoverable in terms of the mandate of the Hon’ble Supreme Court Sahib Ram versus State of Haryana, 1995 Supp (1) SCC 18, in the following terms:- “5. Admittedly the appellant does not possess the required educational qualifications. Under the circumstances the appellant would not be entitled to the relaxation. The Principal erred in granting him the relaxation. Since the date of relaxation, the appellant had been paid his salary on the revised scale. However, it is not on account of any misrepresentation made by the appellant that the benefit of the higher pay scale was given to him but by wrong construction made by the Principal for which the appellant cannot be held to be at fault. Under the circumstances the amount paid till date may not be recovered from the appellant. The principle of equal pay for equal work would not apply to the scales prescribed by the University Grants Commission. The appeal is allowed partly without any order as to costs.” 6(iv-a). In a like situation, the excess amount granted to an employee due to mistake and wrong interpretation of prevailing norms, was held irrecoverable, by the Hon’ble Supreme Court in Syed Abdul Qadir versus State of Bihar, (2009) 3 SCC 475 , in the following terms: 59. Undoubtedly, the excess amount that has been paid to the appellant teachers was not because of any misrepresentation or fraud on their part and the appellants also had no knowledge that the amount that was being paid to them was more than what they were entitled to. It would not be out of place to mention here that the Finance Department had, in its counter- affidavit, admitted that it was a bonafide mistake on their part. It would not be out of place to mention here that the Finance Department had, in its counter- affidavit, admitted that it was a bonafide mistake on their part. The excess payment made was the result of wrong interpretation of the Rule that was applicable to them, for which the appellants cannot be held responsible. Rather, the whole confusion was because of inaction, negligence and carelessness of the officials concerned of the Government of Bihar. Learned counsel appearing on behalf of the appellant teachers submitted that majority of the beneficiaries have either retired or are on the verge of it. Keeping in view the peculiar facts and circumstances of the case at hand and to avoid any hardship to the appellant teachers, we are of the view that no recovery of the amount that has been paid in excess to the appellant teachers should be made.” DELAYED RECOVERY FROM CLASS-III EMPLOYEE IMPERMISSIBLE: 6(iv-b). Perusal of the Audit Report conducted by the Accountant General indicates that alleged recovery relates to incumbency of the petitioner as Assistant Driller-Rigman [Class III] from 1.3.2005 to 31.02.2013 [at page 27 of paper book] and at the relevant time, the petitioner was Class-III Employee and even alleged excess payment was made for a period of more than 5 years. In these circumstances, the action of the State Authorities in withholding an amount of Rs 1,50,000/- from the Leave Encashment of the petitioner, who was Class III Employee and when, such excess amount was granted/released for a period of more than 5 years {from 2005 to 2013} and delayed recovery affected on 8.08.2016, after the petitioner stood retired from service on retirement on 31.03.2016 is also harsh, iniquitous and unsustainable, in view of the mandate of the Supreme Court in State of Punjab and Others versus Rafiq Masih, (2015) 4 SCC 334 , in the following terms:- 18. (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. (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.” RECOVERY OF EXCESS AMOUNT INABSENCE OF ANY MISREPRESENTATION OR FRAUD IMPERMISSIBLE: 6(iv-c). In absence of any misrepresentation or fraud by an employee, the recovery of excess payment visiting an employee with civil consequences was deprecated and set-aside by the Hon’ble Supreme Court in Thomas Daniel versus State of Kerala and others, 2022 SCC OnLine SC 535, in the following terms: (9) This Court in a catena of decisions has consistently held that 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. This relief against the recovery is granted not because of any right of the employees but in equity, exercising judicial discretion to provide relief to the employees from the hardship that will be caused if the recovery is ordered. This Court has further held that if in a given case, it is proved that an employee had knowledge that the payment received was in excess of what was due or wrongly paid, or in cases where error is detected or corrected within a short time of wrong payment, the matter being in the realm of judicial discretion, the courts may on the facts and circumstances of any particular case order for recovery of amount paid in excess. RECOVERY DUE TO MISCONSTRUCTION OR MISREADING OF RULES VISITING EMPLOYEE WITH CIVIL CONSEQUENCES IS PUNITIVE: 6(iv-d). RECOVERY DUE TO MISCONSTRUCTION OR MISREADING OF RULES VISITING EMPLOYEE WITH CIVIL CONSEQUENCES IS PUNITIVE: 6(iv-d). While quashing the recovery from an employee where, an amount was inadvertently released on account of misconstruction of Rules or misreading of Rules by the State Authorities, the Hon’ble Supreme Court in Jagdish Prasad Singh versus State of Bihar and others, 2024 SCC OnLine SC 1909, has held in the following terms: 22. Similarly, this Court in ITC Limited v. State of Uttar Pradesh and Others2, held as under: “108. 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.” (emphasis supplied) 25. 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. 26. The learned Single Judge as well as the Division Bench of the High Court of Patna also seem to have fallen in the same error. 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. Thus, no such action could have been taken against the appellant, more particularly, because he had been promoted as an ADSO, while drawing the pay scale of Rs.6500-10500 applicable to the post, way back on 10th March, 1991 and had also superannuated eight years ago before the recovery notice dated 15th April, 2009 was issued. Thus, no such action could have been taken against the appellant, more particularly, because he had been promoted as an ADSO, while drawing the pay scale of Rs.6500-10500 applicable to the post, way back on 10th March, 1991 and had also superannuated eight years ago before the recovery notice dated 15th April, 2009 was issued. The impugned action directing reduction of pay scale and recovery of the excess amount is grossly arbitrary and illegal and also suffers from the vice of non-adherence to the principles of natural justice and hence, the same cannot be sustained. 6(iv-e). While dealing with the issue as to whether the excess amount given to an employee on account of an erroneous interpretation of the recommendation(s), was deprecated and the excess amount was held as irrecoverable by the Hon’ble Supreme Court in Civil Appeal No. 4989 of 2025 [Arising out of SLP(C) No. 5918 of 2024, Jogeswar Sahoo and others vs The District Judge, Cuttak and others, in the following terms: 9. This Court has consistently taken the view that if the excess amount was not paid on account of any misrepresentation or fraud on the part 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 payments of emoluments or allowances are not recoverable. It is held that such relief against the recovery is not because of any right of the employee but in equity, exercising judicial discretion to provide relief to the employee from the hardship that will be caused if the recovery is ordered. 11. In Col. B.J. Akkara (Retd.) v. Government of India this Court considered an identical question as under: “27. The last question to be considered is whether relief should be granted against the recovery of the excess payments made on account of the wrong interpretation / understanding of the circular dated 7-6-1999. 11. In Col. B.J. Akkara (Retd.) v. Government of India this Court considered an identical question as under: “27. The last question to be considered is whether relief should be granted against the recovery of the excess payments made on account of the wrong interpretation / understanding of the circular dated 7-6-1999. This Court has consistently granted relief against recovery of excess wrong payment of emoluments/allowances from an employee, if the following conditions are fulfilled (vide Sahib Ram v. State of Haryana [1995 Supp (1) SCC 18 : 1995 SCC (L&S) 248], Shyam Babu Verma v. Union of India [ (1994) 2 SCC 521 : 1994 SCC (L&S) 683 : (1994) 27 ATC 121], Union of India v. M. Bhaskar [ (1996) 4 SCC 416 : 1996 SCC(L&S) 967] and V. Gangaram v. Regional Jt. Director [ (1997) 6 SCC 139 : 1997 SCC (L&S) 1652]): (a) The excess payment was not made on account of any misrepresentation or fraud on the part of the employee. (b) 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. 28. Such relief, restraining back recovery of excess payment, is granted by courts not because of any right in the employees, but in equity, in exercise of judicial discretion to relieve the employees from the hardship that will be caused if recovery is implemented. A government servant, particularly one in the lower rungs of service would spend whatever emoluments he receives for the upkeep of his family. If he receives an excess payment for a long period, he would spend it, genuinely believing that he is entitled to it. As any subsequent action to recover the excess payment will cause undue hardship to him, relief is granted in that behalf. But where the employee had knowledge that the payment received was in excess of what was due or wrongly paid, or where the error is detected or corrected within a short time of wrong payment, courts will not grant relief against recovery. The matter being in the realm of judicial discretion, courts may on the facts and circumstances of any particular case refuse to grant such relief against recovery. 29. The matter being in the realm of judicial discretion, courts may on the facts and circumstances of any particular case refuse to grant such relief against recovery. 29. On the same principle, pensioners can also seek a direction that wrong payments should not be recovered, as pensioners are in a more disadvantageous position when compared to in-service employees. Any attempt to recover excess wrong payment would cause undue hardship to them. The petitioners are not guilty of any misrepresentation or fraud in regard to the excess payment. NPA was added to minimum pay, for purposes of stepping up, due to a wrong understanding by the implementing departments. We are therefore of the view that the respondents shall not recover any excess payments made towards pension in pursuance of the circular dated 7-6-1999 till the issue of the clarificatory circular dated 11-9-2001. Insofar as any excess payment made after the circular dated 11-9-2001, obviously the Union of India will be entitled to recover the excess as the validity of the said circular has been upheld and as pensioners have been put on notice in regard to the wrong calculations earlier made.” RECOVERY FROM RETIREE IMPERMISSIBLE: 6(iv-f). While negating the action of an employer where the retiral benefits earned and accrued in terms of statutory rules cannot be withhold on account of the recovery due for failure to vacate government accommodation, the recovery was quashed by the Hon’ble Supreme Court, in Panchayat and Rural Development Department and Others vs Santosh Kumar Shrivastava, 2025 SCC OnLine SC 2042, in the following terms:- 3. The facts lie in a narrow compass. The respondent was recruited into the services of the State in the year 1980. During his service, he was posted at various positions. In the year 2009, the State brought in the M.P. Revision of Pay Rules, 2009 according to which his pay stood revised by order dated 14th December 2011. He superannuated from service on 30th June 2013. However, neither was his pension sanctioned nor was the payment of retiral dues made. The appellant passed an amendment order dated 23rd January 2014 which quashed the order dated 14th December 2011 through which the pay revision was undertaken and, his salary was relegated to the lower scale. He superannuated from service on 30th June 2013. However, neither was his pension sanctioned nor was the payment of retiral dues made. The appellant passed an amendment order dated 23rd January 2014 which quashed the order dated 14th December 2011 through which the pay revision was undertaken and, his salary was relegated to the lower scale. Such action was challenged by way of Writ Petition No. 5201 of 2014 by the Respondent, the effect of which was that the refixation of salary by the latter order was withdrawn by order dated 23rd July 2014. Consequently, the said writ petition was withdrawn. The dispute over retiral dues did not end there. 5. Having withdrawn his earlier Writ Petition in view of intervening developments, the writ petition which gave rise to the present proceedings came to be filed. The learned Single Judge allowed the writ petition observing that the entire amount of pension and gratuity could not have been withheld on account of there being an order for recovery. It was held that since the amounts were not paid to him forthwith on his retirement, the appellants could not have charged him for illegal occupation of his government residential premises. Support for such a view was drawn from HK Saxena (Dr.) v. Dr. Harisingh Gour Vishwavidyalaya and Anr. The recovery of the amount was thus held illegal, and the appellants were also directed to pay 6% interest on the total amount to be refunded to the respondent as also 6% interest on the amount of pension and gratuity paid to him from the date of superannuation till payment. The same was directed to be done within a period of three months. 6. On appeal, the learned Division Bench observed that no error could be found in the order of the learned Single Judge and accordingly, the writ appeal was dismissed. 11. In essence, what the Appellants did before the High Court was to blame the Respondent for the delay in him receiving benefits rightly owed to him. We cannot accept this position. Pension and other retiral dues are benefits that have been earned by an employee due to the service rendered to the institution paying the pension/other retirement benefits. The grant of a residence corresponds to the position held at the time by such employee. The width of these two aspects is separate and distinct. We cannot accept this position. Pension and other retiral dues are benefits that have been earned by an employee due to the service rendered to the institution paying the pension/other retirement benefits. The grant of a residence corresponds to the position held at the time by such employee. The width of these two aspects is separate and distinct. Pension and retirement benefits accrue from a much wider base as the culmination of all efforts, across employment whereas the latter is only for a limited time, till such a person is holding that position. The latter cannot obstruct or defeat the former. The Appellant cannot be allowed to withhold a duly accrued right on this count. 12. Since the delay is entirely on part of the Appellant, and no reasonable explanation acceptable to law is forthcoming except for the attempt to hold back pensionary benefits as a sword on the Respondent’s head for not having vacated his government allotted accommodation, in the facts of this case we see no error in the order of the learned single Judge awarding interest to the Respondent. Based on the mandate of law in the case of Sahib Singh, Syed Abdul Qadir, Rafiq Masih, Thomas Daniel, Jagdish Prasad Singh, Jogeswar Sahoo and Santosh Kumar Shrivastava [supra] and the Statutory Rules, this Court has no hesitation to hold that the pension, gratuity and leave encashment of the petitioner are legal entitlements, which are earned by an employee for unblemished service rendered to an Institution. The retiral benefits being the legal entitlements accrue from Statutory Rules conferring payability and release of benefits on superannuation. The rule making authority was conscious enough to prescribe the eventualities where the employer could withhold, withdraw or affect recovery from retiral benefits pension or gratuity or both [wholly or in part], in case, the departmental proceedings or criminal proceedings were pending on date of retirement. Even in case of Leave Encashment, the employer could recover from a retiree only if an employee was under suspension or in case any disciplinary proceedings or criminal proceedings were pending, in which there was possibility of an amount becoming recoverable from an employee. In instant case, the petitioner joined service in 1981. Even in case of Leave Encashment, the employer could recover from a retiree only if an employee was under suspension or in case any disciplinary proceedings or criminal proceedings were pending, in which there was possibility of an amount becoming recoverable from an employee. In instant case, the petitioner joined service in 1981. He retired from service on 31.3.2016 and on the date of retirement, the retiral benefits including Leave Encashment in lieu of unutilized earned leave upto 300 days accrued to him suo-motu, as of right, by virtue of Rule 39 of the CCS (Leave) Rules. The State Authorities cannot be permitted to withhold an amount of Rs.1,50,000/-from the retiral benefits [i.e. Leave Encashment] by remitting such amount in FDR on 08.08.2016 Annexure R-3 without any authority of law. So far as Leave Encashment is concerned, the same could only be withheld or any recovery could be affected in case, the petitioner retired during suspension or in case any departmental proceedings or judicial proceedings were pending against the petitioner on the date of retirement. No such eventuality has been pointed out in the Reply-Affidavit by the State Authorities. It is not the case of the State Authorities that petitioner had resorted to any mis-representation or fraud in any manner. Conversely, even the Reply-Affidavit supports the case of the petitioner that though his permanent headquarter was at Shimla since his appointment in 1981 yet he was posted/deployed at various places, and lastly he was deployed at Karla in Tehsil Sundernagar, District Mandi, for carrying on drilling work in respondent department and during his deployment at Karla, the petitioner was entitled for the Daily Allowance upto 180 days and Other Allowances i.e. Capital Allowance, Compensatory Allowance and House Rent Allowance at the rates of headquarter at Shimla but after the expiry of 180 days, Respondents were bound to either revert back the petitioner to his permanent headquarter at Shimla or to issue orders posting-fixing his headquarter at Shimla at the place of deployment [at Karla]. Reply states that after the expiry of 180 days though Daily Allowance was discontinued but the State Authorities have erroneously and inadvertently released other allowances i.e. Capital Allowance, Compensatory Allowance, House Rent Allowance etc. Reply states that after the expiry of 180 days though Daily Allowance was discontinued but the State Authorities have erroneously and inadvertently released other allowances i.e. Capital Allowance, Compensatory Allowance, House Rent Allowance etc. to the petitioner and others at Shimla rates, and this inadvertent release of allowances resulted in excess payment from 01.03.2005 to 31.12.2015, amounting to Rs.1,42,500/-, as pointed in Audit Report [at Page 27 of Paper Book]. In view of this position, once erroneous-inadvertent release of allowances were solely attributable to the respondents-department, therefore the petitioner cannot be saddled with liability of recovery, when, the petitioner had no role in fixing the pay and/or disbursal of aforesaid allowances, which were subsequently found to have been erroneously released to the petitioner. Permitting recovery shall amount to giving leverage to the State Authorities -Respondents for their inaction(s) or negligency or inadvertent errors. Moreover, petitioner cannot be put to a disadvantageous position so as to result in hardships by affecting recovery from Leave Encashment by giving a complete go-bye to Statutory Rules [Rule 39(3) of the CCS (Leave) Rules 1972. Even misconstruction or misreading or mis-interpretation of the State Authorities in erroneously applying the Rules or norms and the inaction and negligence of the State Authorities in releasing the allowances to the petitioner and other similar employees cannot be the basis for withholding and affecting recovery from the Leave Encashment of the petitioner by acting in total disregard and violation of the Rule 39 of the CCS (Leave) Rules. Petitioner can neither be made to suffer prejudice nor put to a disadvantageous position, when, none of the legal compliances and prerequisites are satisfied as stipulated in Rule 39 of the CCS (Leave) Rules, as reproduced above. Accordingly, the recovery affected from the Leave Encashment of petitioner by giving a compete go-bye to Statutory Rule cannot stand the test of judicial scrutiny and State action being without any authority of law, cannot sustain and recovery so affected is quashed and set-aside. AUDIT REPORT CANNOT BE MADE BASIS FOR AFFECTING RECOVERY FROM AN EMPLOYEE- PENSIONER: 7. Accordingly, the recovery affected from the Leave Encashment of petitioner by giving a compete go-bye to Statutory Rule cannot stand the test of judicial scrutiny and State action being without any authority of law, cannot sustain and recovery so affected is quashed and set-aside. AUDIT REPORT CANNOT BE MADE BASIS FOR AFFECTING RECOVERY FROM AN EMPLOYEE- PENSIONER: 7. While dealing with the issue as to whether recovery could be affected from an employee or pensioner on the basis of audit conducted or the audit report when the person was not associated during the audit coupled with the fact that the audit observation and audit reports were never supplied to aforesaid employee or a retiree by the State Authorities has been answered by the Hon’ble Supreme Court in ITC Limited Versus State of Uttar Pradesh and Others, (2011) 7 SCC 493 , in the following terms: “108. 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 recognized 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.” State Authorities cannot affect recovery on the basis of a mere audit conducted either by the State Authorities or by the Accountant General cannot be made the basis for affecting recovery, without supplying the aforesaid audit report and without giving an opportunity to the petitioner to rebut the audit observation and without calling for an explanation from the petitioner and without affording a personal hearing before passing the adversial order, visiting the petitioner with civil consequences. State Authorities could not rely on the audit observation or audit report behind the back of the petitioner. Action of the State Authorities in placing reliance on undisclosed audit observations and audit report defeats the foundational and core principle of natural justice vitiating the decision-making process. State Authorities could not rely on the audit observation or audit report behind the back of the petitioner. Action of the State Authorities in placing reliance on undisclosed audit observations and audit report defeats the foundational and core principle of natural justice vitiating the decision-making process. This infraction cannot be permitted to be made the basis for putting the petitioner to a disadvantageous position, when, the erroneous or inadvertent disbursement of allowances [Capital Allowance, City Compensatory Allowance and House Rent Allowance etc at Shimla rates etc.] was solely attributable to the State Authorities, in which the petitioner had no role in disbursal of alleged excess amount, which was subsequently found to have been erroneously/inadvertently disbursed. In these circumstances, Impugned Recovery of leave encashment affected from the petitioner by remitting the erroneously released allowances, by remitting the said amount in FDR [Annexure R-3], and that too after the superannuation of the petitioner cannot sustain and the same is quashed and set-aside. STATE AUTHORITIES HAVE RECOMMENDED WAIVING OFF RECOVERIES: 8. Even communication dated 19.03.2016 [Annexure R-2] indicates that the State Authorities have admitted that the overpayment of allowances were inadvertently released and the Accountant General was requested for waiving off the recovery as pointed out by the Audit Party. Since the State Authorities have admitted that benefits were erroneously or inadvertently released and same should be waived off therefore, petitioner cannot be fastened with inadvertent or erroneous inaction or negligence of the State Authorities. Saddling the petitioner with liability of recovery certainly results in undue hardship to the petitioner, who stood retired on 31.03.2016. In the above backdrop, the amount of Rs 1,50,000/- recovered from the Leave Encashment, by remitting the said amount in FDR on 08.08.2006 [Annexure R-3], cannot sustain and therefore, the State action is quashed and set- aside. RECOVERY IS GROSS VIOLATION OF NATURAL JUSTICE: 9. Material on record indicates that the petitioner retired from service on 31.03.2016 and Para 4 of Reply-Affidavit indicates that the State Authorities-Respondents have recovered the excess amount of allowances of Rs 1,42,500/-, which were released inadvertently from the Leave Encashment, by remitting such amount in FDR on 08.08.2016 [Annexure R-3]. RECOVERY IS GROSS VIOLATION OF NATURAL JUSTICE: 9. Material on record indicates that the petitioner retired from service on 31.03.2016 and Para 4 of Reply-Affidavit indicates that the State Authorities-Respondents have recovered the excess amount of allowances of Rs 1,42,500/-, which were released inadvertently from the Leave Encashment, by remitting such amount in FDR on 08.08.2016 [Annexure R-3]. Once the petitioner stood retired from service, then, the action of the State Authorities in withholding of retiral benefits on 08.08.2016 [Annexure R-3] without issuing a prior notice and without affording a personal hearing cannot be permitted to be resorted to by the State Authorities. Action of the State Authorities in withholding part amount of Leave Encashment of Rs 1,50,000/-, Annexure R-3 in FDR on 08.08.2016 after six months of retirement cannot sustain in law. State Authorities are bound to act within the parameters of law. Nothing has been placed on record in Reply-Affidavit nor pointed out during course of hearing, that the State Authorities had placed the petitioner under suspension or any departmental proceedings or criminal proceedings were pending against the petitioner on date of superannuation on 31.03.2016, as conceptualized in Rule 39 (3) of the CCS (Leave) Rules, in which any amount was recoverable. Since none of the eventualities as spelt out Rule 39(3) existed therefore, the recovery so affected in violation of the Statutory Rules cannot be permitted to operate against the petitioner. Action of the State Authorities in withholding part amount of Leave Encashment of Rs 1,50,000/- so as to recover the allowances released erroneously and inadvertently to the petitioner and others, solely due to the inaction or negligence of the State Authorities shall amount to giving leverage and legalizing the State action and the same amounts to penalizing the petitioner for the inaction and negligence of the State Authorities, so as to result in prejudice and by putting the petitioner, a retiree to a disadvantageous position, by relying on undisclosed material (audit report) behind the back of the petitioner and in violation of the principles of natural justice, without giving prior notice and without giving a personal hearing to the petitioner. Thus, action of the State Authorities in remitting alleged recoverable amount in FDR on 08.08.2016 [Annexure R-3] despite having retired from service on 31.03.2016 and that too by resorting to the delayed recovery beyond 5 years, (since 2005 onwards) and that too from a Class-III retiree is iniquitous, harsh and arbitrary and the same cannot sustain and the same is accordingly quashed and set-aside. 10. No other issue was erupted/raised. DIRECTIONS: 11. In view of above discussion and for the reason recorded hereinabove, the instant petition is allowed, in the following terms:- (i) Action of the State Authorities in withholding or recovering an amount of Rs 1,50000/- {Rs One Lakh Fifty Thousand] from Leave Encashment by remitting said amount in FDR on 08.08.2016 [Annexure R-3] is quashed and set-aside; (ii) Action of the State Authorities in withholding and in affecting recovery from Leave Encashment in violation of Rule 39 (3) of the CCS (Leave) Rules and without authority of Law, is quashed and set-aside; (iii) State Authorities shall release the withheld-recovered amount, lying in FDR dated 08.08.2016 [Annexure R-3] along with all Statutory Interest, to the petitioner within four weeks from the date of receipt of certified/downloaded copy of this judgement; (iv) Non release of withheld amount as in FDR [Annexure R-3] within four weeks shall entitle the petitioner for penal interest @ 7% per annum after expiry of four weeks as in (iii) till realization; (v) Parties to bear respective costs. In aforesaid terms, the instant petition and all pending application(s), if any, shall stand disposed of accordingly.