Executive Circulars Cannot Override Statutory Service Rules for Recovering Losses from Employees: Kerala High Court - 2025-08-22

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Kerala High Court Upholds Primacy of Service Rules Over Executive Circulars in Employee Disciplinary Matters

Ernakulam: In a significant ruling reinforcing employee rights, a Division Bench of the Kerala High Court has affirmed that the Kerala State Beverages (M&M) Corporation Ltd. (KSBC) cannot use internal circulars to bypass statutory service rules when recovering losses from its employees. The Bench, comprising Justice Sushrut Arvind Dharmadhikari and Justice Syam Kumar V.M., dismissed a series of appeals filed by the state-run corporation, upholding a Single Judge's order that quashed the impugned circulars.

Background of the Dispute

The case originated from a complaint in August 2018 concerning an alleged stock shortage amounting to ₹53,21,973/- across various KSBC outlets. The Corporation initiated recovery proceedings against several employees, including P.C. Satheesh Kumar, an Abkari Worker, based on circulars issued by its Managing Director.

The affected employees challenged these actions in a series of writ petitions. They argued that their employment is governed by the statutory "Kerala State Beverages (M&M) Corporation Limited Employees Service Rules, 1986." These rules lay down a detailed procedure for handling misconduct, which includes conducting a proper inquiry and providing an opportunity for appeal. The employees contended that the circulars, being mere executive instructions, could not legally override these established statutory rules.

A learned Single Judge had previously ruled in favor of the employees, setting aside the circulars and declaring that any recovery of losses must be conducted strictly in accordance with the Service Rules. The KSBC challenged this decision, leading to the present appeals.

Arguments Before the Division Bench

The KSBC, as the appellant, argued that the Service Rules were not applicable to matters concerning the fixation of liability for stock shortages in its retail outlets, which it described as a "purely commercial" function. The Corporation maintained that the circulars were a necessary tool to recover losses caused by malpractices and that the Single Judge had erred in granting supremacy to the Service Rules.

Conversely, counsel for the employees (respondents) reiterated the established legal principle that executive circulars cannot supersede statutory rules. They argued that the Corporation's attempt to recover losses without a formal inquiry was arbitrary and a violation of the due process guaranteed under the Service Rules.

Court's Reasoning and Final Decision

The Division Bench decisively settled the issue by referencing a cornerstone of administrative law. The court's final order stated:

"It is a settled legal position that executive orders or official memorandums issued without an express provision under any statute would not have statutory flavor. Such circulars impugned would not override the Service Rules framed under a Statute."

Finding no error in the Single Judge's reasoning, the Bench concluded that the Corporation's reliance on its internal circulars for recovery proceedings was impermissible. The judgment effectively mandates that KSBC must adhere to the formal disciplinary procedures outlined in its own Service Rules before imposing any financial liability on its employees for alleged losses.

The court dismissed all writ appeals filed by the Corporation, solidifying the legal protection afforded to employees under statutory service regulations against arbitrary executive actions.