Employees who undertake to refund excess payments are bound by that undertaking.

The appellants, Lecturers/Assistant Professors, received financial benefits following the grant of Academic Grade Pay in or about October 2009. The benefits were withdrawn and amounts recovered in January 2010 after the respondents found that the appellants lacked the required years of service. The appellants had given undertakings permitting recovery if their pay fixation was found erroneous.

The Single Judge allowed their writ petitions, but the Division Bench reversed that decision. The appellants appealed to the Supreme Court.

1. Whether the respondents could withdraw and recover financial benefits mistakenly paid to the appellants, where the appellants had not misrepresented facts or committed fraud.

2. Whether the appellants’ undertakings and the circumstances of the case permitted recovery notwithstanding the principles in Rafiq Masih.

Section 72 of the Indian Contract Act, 1872 requires a person who receives money by mistake to repay it; the Court observed that the reasoning in Chandi Prasad Uniyal v. State of Uttarakhand draws inspiration from this provision.

Chandi Prasad Uniyal establishes that recovery of excess public money does not depend on proof of fraud or misrepresentation, subject to exceptions for extreme hardship.

State of Punjab v. Rafiq Masih (White Washer) identified categories in which recovery would be impermissible, including cases where recovery would be iniquitous, harsh or arbitrary.

Under High Court of Punjab & Haryana v. Jagdev Singh, an employee who gives an undertaking to refund excess payment is bound by it.

The Court found that the benefits had been granted by mistake and promptly withdrawn when the error was detected; the appellants’ undertakings expressly permitted recovery in that event. It therefore considered Jagdev Singh applicable and held that the undertakings supported recovery.

The appellants had not pleaded or established that recovery would cause exceptional hardship, and the Court rejected that contention on the record before it.

The later Government instruction against recovery did not assist them because recovery had already occurred before their writ petitions were instituted.

The Court accordingly found no basis to interfere with the Division Bench’s decision.

The parties were directed to bear their own costs.