Employer cannot retrospectively deduct pension from pay fixed at minimum scale without express contractual authority.

The Petitioners, retired Colonel and Wing Commander respectively, were recruited by Engineering Projects (India) Ltd. (EPIL), a Central Public Sector Enterprise (CPSE), through an open selection process. Their pay was fixed at the minimum of the applicable IDA pay scales without any pay protection or credit for past military service.

Years after their confirmation and service, EPIL issued communications dated May 27, 2019, and June 12, 2019, seeking to refix their pay by deducting their military pension from their salary and withholding current pay for non-compliance.

EPIL relied on a Department of Public Enterprises (DPE) Office Memorandum (O.M.) dated December 14, 2012, to justify this "pay minus pension" deduction.

While the petitions were pending, both Petitioners resigned from EPIL.

1. Whether the writ petitions are liable to be declined on preliminary grounds of non-joinder of EPIL or availability of internal remedies.

2. Whether the Respondents were justified in deducting defence pension from the Petitioners' salary fixed at the minimum entry-level scale without pay protection under the DPE O.M. dated December 14, 2012.

3. Whether the Respondents could legally reopen pay fixation and effect retrospective recovery after years of service in the absence of fraud or misrepresentation.

The Court primarily applied the principles of equity and administrative fairness in the recovery of excess payments as established in State of Punjab v. Rafiq Masih and Thomas Daniel v. State of Kerala, which prohibit recovery when the employee is not at fault for a mistaken interpretation of rules by the employer.

The Court also referenced Chandi Prasad Uniyal v. State of Uttarakhand regarding the recovery of public money and constitutional principles that pension is a vested right and not a bounty (D.S. Nakara v. Union of India; Deokinandan Prasad v. State of Bihar).

The administrative framework was governed by Paragraphs 6 and 9 of the DPE Office Memorandum dated December 14, 2012, which relates to pay fixation of re-employed pensioners in CPSEs.

The Court rejected the Respondents' mechanical interpretation of the DPE O.M., noting that "pay minus pension" is a fixation principle intended to prevent "double benefit" when an employee receives pay protection or higher-stage fixation based on past service.

Since the Petitioners were treated as fresh recruits at the bare minimum of the scale with no credit for military service, deducting pension would result in an "anomalous" and "arbitrary" reduction of salary to nominal amounts (as low as ₹410/month), which is irreconcilable with senior executive posts.

Applying Rafiq Masih, the Court held that even if an error existed, retrospective recovery after 3–5 years of confirmed service—where no fraud or misrepresentation by the Petitioners occurred—is legally impermissible and bears the vice of arbitrariness.

The Court found that EPIL cannot retrospectively apply the adverse parts of a policy (pension deduction) while having denied the beneficial parts (pay protection) at the threshold.

The Court allowed the writ petitions and quashed the impugned communications dated May 27, 2019, and June 12, 2019. The Respondents were directed to compute the Petitioners' terminal dues, leave encashment, and gratuity without any pension deduction and release the same within twelve weeks, failing which 8% per annum interest would apply.