1. Recovery of excess allowances from retiral benefits of a retired employee without pending proceedings. (Para 1 , 2 )
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2025 Supreme(HP) 1811
IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA
Ranjan Sharma, J.
Bihari Lal - Appellant
Versus
State of Himachal Pradesh and another - Respondent
CWPOA No. 4320 of 2020
Decided On : 24-12-2025
Advocates:
Advocate Appeared:
For the Appellant :Mr. Amrick Singh, Advocate
For the Respondents:Mr. Seema Sharma, Deputy Advocate General
Advocate Appeared:
For the Appellant :Mr. Amrick Singh, Advocate
For the Respondents:Mr. Seema Sharma, Deputy Advocate General
Recovery of excess payments from a retired Class-III employee due to the employer's misinterpretation of rules, absent fraud or pending disciplinary proceedings, is impermissible as retiral benefits are property under Article 300-A and protected by statutory rules.
Headnote:(A) Constitution of India - Article 300-A - CCS (Leave) Rules - Rule 39(3) - CCS (Pension) Rules, 1972 - Rule 9 - Retiral benefits - Recovery from pensionary benefits - Withholding of leave encashment - Amount withheld in form of Fixed Deposit Receipt (FDR) - Retiral benefits are not bounties but constitute "property" and cannot be withdrawn without authority of law - Leave encashment can be withheld only if the employee retires while under suspension or while disciplinary or criminal proceedings are pending - In absence of such proceedings, recovery from leave encashment is impermissible. (Paras 6(i), 6(ii), 6(iii))
(B) Recovery of excess payment - Class-III employee - Recovery from retired employees or where payment was made for a period exceeding five years is iniquitous and harsh - Excess payment resulting from misinterpretation, wrong construction, or clerical error by the employer, without any fraud or misrepresentation by the employee, is irrecoverable. (Paras 6(iv), 6(iv-a), 6(iv-b), 6(iv-c))
(C) Principles of Natural Justice - Recovery cannot be affected on the basis of a mere audit report without supplying the report to the employee and providing an opportunity for a hearing - Action based on undisclosed audit reports violates the foundational principles of natural justice. (Paras 7, 9)
Facts of the case:
An employee who retired as a driller had an amount of Rs. 1,50,000/- withheld from his leave encashment and placed in a Fixed Deposit Receipt (FDR) upon superannuation. The employer claimed this was to recover excess allowances paid due to an audit objection regarding the incorrect application of allowance rates for a deployment area over several years. No disciplinary or criminal proceedings were pending against the employee at the time of retirement.
Findings of Court:
The action of withholding retiral benefits without the existence of the prerequisites under Rule 39(3) of the CCS (Leave) Rules is illegal. The recovery was based on a clerical error of the department, not fraud by the employee, and it targeted a Class-III retiree for payments made over a period of more than five years.
Issues: Whether the authorities could legally withhold and recover an amount from the leave encashment of a retired employee based on an audit report detecting overpayment of allowances caused by the department's own misinterpretation of rules, in the absence of any fraud or pending disciplinary proceedings.
Ratio Decidendi: Retiral benefits are statutory legal entitlements and "property" under Article 300-A of the Constitution. Under Rule 39(3) of the CCS (Leave) Rules, leave encashment can only be withheld if the retiree was under suspension or facing disciplinary/criminal proceedings. Recovery from Class-III or retired employees for errors made by the employer over five years is impermissible if no misrepresentation occurred. Recovery based on an audit report without notice or hearing violates natural justice.
Result: Petition allowed; recovery quashed and set-aside; withheld amount to be released with statutory interest.
Legal Category Hierarchy
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constitutional law
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right to property
- article 300-a
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right to property
- administrative law
- service law
- practice and procedure
Table of Contents
2. Petitioner: recovery without authority of law. State: audit detected overpayment, recovery made as per rules. (Para 3 , 4 )
3. Retiral benefits are property under Article 300-A; recovery impermissible without pending proceedings or misrepresentation. (Para 5 , 6 , 7 , 8 , 9 )
4. Petition allowed; recovery quashed; directions to release withheld amount with interest. (Para 10 , 11 )
5. Can an audit report alone justify recovery from an employee?
No. Recovery based only on undisclosed audit observations, without notice or hearing, violates natural justice and is unsustainable. (Para 7 )
JUDGMENT :
Ranjan Sharma, Judge
Petitioner, Bihari Lal, having served as Rigman [Class-III] and retired as Driller had filed an Original Application No. 2276 of 2018 before Learned State Administrative Tribunal; and upon abolition of the Tribunal, the matter came to be transferred to this Court, as CWPOA No. 4320 of 2020, seeking the following reliefs: -
(i) That the impugned action of the respondents by illegally taking FDR of Rs.1,50,000/- in lieu of release of retiral benefit of the applicant may be declared as null and void;
(ii) That the respondents may kindly be directed to release the FDR of Rs.1,50,000/- in lieu of release of retiral benefit of the applicant which has wrongly and illegally been taken by the respondent along with interest.
FACTUAL MATRIX:
2. Case as set up by Learned Counsel is that petitioner was appointed as Rigman [Class-III] and upon joining service on 08.05.1981 though permanent headquarter of the petitioner was fixed in Geology Wing of Industries Department at Shimla but the Respondents posted/deployed the petitioner at various places for carrying out geological operations and ancillary work from time to time. Petitioner was lastly deployed at Karla in Tehsil Sundernagar, District Mandi in March 2005 and he was promoted as Driller (Class-II) in the year 2015 and he served as such till his superannuation on 31.03.2016. During his tenure as Karla his work conduct and performance had been satisfactory throughout. On superannuation, the petitioner was entitled for the release of entire retiral benefits inaccordance with the applicable Services Rules but, surprisingly, the Respondent-Department had withheld and retained an amount of Rs.1,50,000/- [Rs. One Lakh Fifty Thousand] in the form of FDR on 08.08.2016 from Leave Encashment of the petitioner without complying with the principles of natural justice and without authority of law. It is in this backdrop, that the grievance of the petitioner is that the action of the State Authorities in withholding an amount of Rs 1, 50,000/- [Rs One Lac Fifty-Thousand only] from the retiral benefits {Leave Encashment} of the petitioner in violation of the principles of natural justice and by acting contrary to the statutory rules was highly unfair, unjust, illegal, arbitrary and unconstitutional.
STAND OF STATE AUTHORITIES IN REPLY:
3. Pursuant to the issuance of notice on 03.05.2018, the Respondents have filed the Reply- Affidavit dated 31.05.2018 of Director of Industries, Himachal Pradesh, Shimla.
3(i). Perusal of the Reply-Affidavit indicates that petitioner was appointed as Rigman [Class-III, Non Gazetted] in the year 1981 in Respondent-Department and permanent headquarter of the petitioner was fixed at Geological Wing at Shimla on 08.05.1981 but the petitioner was deployed at various places. Reply Affidavit indicates that while the petitioner was posted at Karla in Tehsil Sundernagar, he retired from service on attaining the age of superannuation on 31.03.2016. Reply indicates that an audit/test check of the accounts of office of the State Geologist, Geology Wing, Department of Industries, Shimla was conducted for the period upto 11/2015 by the Audit Party of Accountant General, Himachal Pradesh, Shimla and the said audit party detected over payment of allowances beyond 180 days amounting to Rs.23.45 lakh to various incumbents, including the petitioner by treating incumbents on tour and based on audit report, the Respondent-Department withheld an amount of Rs1,50,000/- from the Leave Encashment by retaining the said amount in form of FDR on 08.08.2016.
3(ii). Reply-Affidavit further states that as per Supplementary Rules 73 and the Decision No 1 [Annexure R-1], an employee who is posted away from permanent headquarter to another place is entitled for “Daily allowance” for period upto 180 days and beyond 180 days no such daily dearness allowance was admissible. However, after expiry of 180 days such a deployed employee, who was posted away from permanent headquarter “A”
