Bank cannot adjust terminal benefits toward loan repayment without specific statutory authority or proof of pecuniary loss.

The Respondent, an employee of the Appellant-Bank (formerly State Bank of Travancore), availed a Housing Loan, Vehicle Loan, and Educational Loan during his service.

The Housing Loan terms allowed a lien on his Provident Fund (PF) balance.

In 2017, disciplinary proceedings concerning unauthorized absence and housing loan lapses resulted in a "Censure" penalty under Regulation 67(a) of the SBT Regulations.

The Censure Order directed that outstanding loan amounts be adjusted against the Respondent’s terminal benefits upon retirement.

Following the Respondent's superannuation on 30.11.2017, the Bank marked liens on and appropriated his PF, gratuity, and pension commutation amounts to close the loan accounts.

The Respondent challenged this appropriation in a Writ Petition. The learned Single Judge set aside the recovery, leading to the present Letters Patent Appeal.

1. Whether the Disciplinary Authority has the power under Regulation 67 of the SBT Regulations to direct the appropriation of terminal benefits toward loan repayment as part of a "Censure" penalty.

2. Whether the Bank's contractual right to mark a lien on PF balances extends to the right to prematurely close loan accounts via appropriation of gratuity and pension.

Regulation 67 of the State Bank of Travancore Officers’ Service Regulations, 1979, which exhaustively lists minor and major penalties, restricting financial recovery (Regulation 67(d)) only to instances where "pecuniary loss" is caused to the Bank by negligence or breach of orders.

The doctrine that statutory retiral benefits like pension and gratuity cannot be withheld or appropriated without specific authority of law, as established in Hira Lal v. State of Bihar, (2020) 4 SCC 346.

The Court reasoned that Regulation 67 is exhaustive; it does not authorize a Disciplinary Authority to direct the liquidation of outstanding loans through terminal benefits while imposing a "Censure".

Since no "pecuniary loss" was specifically found by the Inquiry Officer, the recovery could not be justified under the guise of a disciplinary penalty.

Regarding the contractual claim, the Court observed that while the loan agreements mentioned a lien on PF, they did not grant the Bank the authority to prematurely close fixed-tenure loans simply because the employee retired.

Furthermore, there was no legal or contractual basis to mark a lien on the Respondent's gratuity or pension account, as these constitute protected retiral benefits rather than mere bounties.

The classification of the Educational Loan as an NPA did not grant the Bank an extra-legal right to bypass standard recovery procedures by seizing terminal dues.

The Court dismissed the appeal and affirmed the Single Judge's finding that the direction in the Censure Order regarding loan recovery was unsustainable; however, the Bank remains at liberty to pursue other legal remedies for debt recovery as permitted by law.