Exonerated employees are entitled to 7% interest on withheld retiral benefits from retirement.

The appellant-employee was due to retire on 30 September 2011. Two days before retirement, a charge-sheet was issued against him, and disciplinary proceedings were initiated.

The Inquiry Officer submitted a report dated 11 November 2011 finding that the charges were not proved. However, on 20 July 2012, the Disciplinary Authority disagreed with the report and issued a show-cause notice.

On 13 January 2014, a recovery of ₹38 lakh was imposed as punishment.

The employee’s departmental appeal was allowed on 23 October 2020, and the punishment was set aside.

In the pending writ proceedings, the employee sought payment of his retiral benefits, 6th Pay Commission arrears, and interest. The Single Judge awarded interest at 6% per annum from 25 October 2020, but denied interest from the date of superannuation.

Whether the appellant was entitled to interest on withheld retiral benefits and 6th Pay Commission arrears from the date of his retirement, rather than from 25 October 2020.

Whether the rate of interest awarded by the Single Judge required modification.

Retiral benefits lawfully due to a retired employee cannot be withheld indefinitely, particularly where the disciplinary proceedings ultimately result in exoneration.

Where such benefits are wrongfully or unjustifiably withheld, the employee is entitled to compensatory interest for the period of deprivation.

The Court noted that the disciplinary proceedings were initiated only two days before the appellant’s scheduled retirement and continued for nearly nine years.

Although the proceedings resulted initially in a recovery order, that order was ultimately set aside by the Appellate Authority, thereby establishing that the appellant had been exonerated of the alleged wrongdoing.

Since the appellant was otherwise entitled to his retiral benefits on the date of retirement, their continued withholding deprived him of funds necessary for his subsistence after retirement.

The Court therefore held that interest could not be confined to the date on which the departmental appeal was allowed or the writ proceedings were effectively resolved; it had to run from the date on which the benefits became due, namely 30 September 2011.

Exercising its discretion, the Court increased the applicable rate from 6% to 7% per annum.

The Court modified the Single Judge’s order and directed the respondent-employer to pay interest at 7% per annum on the appellant’s retiral benefits from 30 September 2011 until the date of actual payment.

The interest was directed to be calculated and paid within two months from receipt of a copy of the judgment.

The connected Civil Application for stay was disposed of as having become infructuous.