Recovery of excess pay from retired Class III employees, absent fraud, is impermissible.

The petitioner, initially appointed as an Assistant Teacher on 7 April 1984, retired from service on 31 October 2023 as a Class-III employee. Following his retirement, Respondent No. 4 recovered ₹3,60,647 from his retiral benefits, comprising ₹3,05,187 towards alleged excess payment and ₹55,460 as interest.

The petitioner alleged that the recovery was made without a show-cause notice or opportunity of hearing and that he was compelled to furnish an undertaking consenting to the recovery. He contended that the excess payment resulted from the department’s action and that he had neither committed fraud nor made any misrepresentation.

The State opposed the petition but did not dispute the applicability of the principles laid down in State of Punjab v. Rafiq Masih and M.P. Power Transmission Co. Ltd. v. Lalita Rathore.

Whether recovery of alleged excess payments from the retiral benefits of a retired Class-III employee, in the absence of fraud or misrepresentation, is legally permissible.

Whether the recovery could be effected without prior notice and an opportunity of hearing, and whether the recovered amount was required to be refunded with interest.

The Court applied the principles of natural justice, particularly that an order having civil consequences cannot ordinarily be passed without giving the affected person notice and an opportunity of hearing, relying on Shrawan Kumar Jha v. State of Bihar, AIR 1991 SC 310.

It principally relied on State of Punjab v. Rafiq Masih (Whitewasher), (2015) 4 SCC 334, which holds that recovery of excess payments is impermissible, inter alia, from Class-III and Class-IV employees, retired employees or employees nearing retirement, and where recovery would be harsh, arbitrary or inequitable, particularly in the absence of fraud or misrepresentation.

The Court also followed M.P. Power Transmission Co. Ltd. v. Lalita Rathore, W.A. No. 2772 of 2025, which held that an employee should not be penalised for an employer’s erroneous pay fixation or administrative lapse where the employee had not misrepresented or suppressed facts; it upheld refund with 6% interest as equitable relief.

The Court found that the petitioner was admittedly a retired Class-III employee and that the recovery was made after his retirement from his retiral benefits.

There was no allegation or proof that the petitioner had obtained the excess payment through fraud, misrepresentation or suppression of facts. Applying Rafiq Masih, the Court held that recovery from a Class-III employee and retired employee, in such circumstances, falls within the categories of recoveries impermissible in law.

The absence of a prior opportunity of hearing further rendered the recovery procedurally defective, while the withholding of retiral dues and procurement of an undertaking did not cure the illegality.

The Court therefore treated the recovery as ex facie unjust, improper and inequitable.

The respondents were further directed to pay interest at 6% per annum on the recovered amount from the date of recovery until actual payment.