Registrar Coop. Societies Haryana & Ors vs Israil Khan & Ors

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3668 OF 2007

Registrar, Co-operative Societies ... Appellant(s) Haryana

Vs.

Israil Khan & Ors. ... Respondent(s)

WITH

Civil Appeal Nos.3669, 3670, 3671, 3675, 3676 and 3677/2007

O R D E R

R.V.RAVEENDRAN, J.

These appeals raise a common issue relating to

recovery of unauthorised emoluments paid to employees of

co-operative societies. For convenience, we will refer

to the facts in Civil Appeal No.3668/2007.

2. The respondents are employees of Ferozepur Jhirka

Co-operative Credit & Service Society Limited, a primary 2

co-operative society in the State of Haryana. The service

conditions of employees of such societies were governed

by the Primary Co-operative Credit & Service Society

Staff Service Rules, 1992 (for short `the Rules'). The

said Rules classified the Societies according to their

business turnover and prescribed the corresponding

staffing pattern. Rule 9 of the said Rules provided that

all categories of employees were entitled to a

consolidated salary with annual increments as provided

therein. The same post carried different consolidated pay

depending upon the size/turnover of the Society. The

Registrar of co-operative societies, and not the Managing

Committees of the primary co-operative societies, was

empowered to effect revisions in pay.

3. Respondents and other employees of the said society

submitted representations for regular pay scales, instead

of consolidated pay. The Managing Committee of the said

society passed a resolution extending the benefit of

regular pay scale to the respondents with retrospective

effect from 1.1.1996. As a consequence, instead of a

consolidated salary of Rs.1200/- and Rs. 800/-

respectively to which they were entitled, the first

respondent and second respondent were paid salary at the

rate of Rs.3050/- and Rs.2550/- per month. As no funds 3

were sanctioned or available to pay the arrears on the

basis of such higher pay, the Managing Committee diverted

the funds made available by the State Government (through

the controlling Bank) for disbursement of loans to

farmers, to pay arrears of Rs.47891/- to first Respondent

and Rs.42300/- to second respondent on 27.2.1999. When

this came to the notice of the office of the Registrar of

Co-operative Societies, the Deputy Registrar of Co-

operative Societies, Gurgaon made an order dated 2.4.2002

rescinding the resolution dated 1.3.1999 of the Managing

Committee, in exercise of powers conferred under Section

27 of the Haryana Co-operative Societies Act (for short

`the Act') and directed the employer Society to recover

back the excess payment made to the employees. The

Society gave effect to the said direction by passing a

resolution dated 22.3.2002 directing recovery of the

excess payments from the respondents. Feeling aggrieved,

the employees filed the appeals before the Registrar, Co-

operative Societies, Haryana. The Registrar by a detailed

order rejected the said appeals by order dated 22.8.2002.

4. The employees challenged the said order before the

High Court. The High Court disposed of the said writ

petition by the impugned order dated 20.1.2004 wherein it

held that the resolution of the Managing Committee 4

extending the benefit of regular scale of pay and payment

of arrears was illegal. However, the High Court was not

inclined to direct recovery of the excess amount

illegally paid by extending the benefit of regular pay

scales. The said judgment is challenged in this appeal.

The connected appeals relate to similar payments to

employees of other primary co-operative societies and

involve the same issue.

5. The appellants contend that the resolutions of the

Managing Committees directing payment of salary by

extending the benefit of regular pay scales was in

violation of the Rules and that such resolutions were a

result of the collusion between the concerned employees

and the respective Managing Committees and therefore the

employees are liable to refund the same. They further

contend that the High Court, having held that the

employees were not entitled to the said benefit,

committed an error in refusing to direct refund thereof.

On the other hand, the respondents contended that having

regard to the decisions of this Court in Sahib Ram v.

State of Haryana [1995 Supp(1) SCC 18] and Shyam Babu

Verma v. Union of India [1994(2) SCC 521], any excess

payment to employees, should not be recovered from them. 5

6. There is no `principle' that any excess payment to

employees should not be recovered back by the employer.

This Court, in certain cases has merely used its judicial

discretion to refuse recovery of excess wrong payments of

emoluments/allowances from employees on the ground of

hardship, where the following conditions were fulfilled:

"(a) The excess payment was not made on account of any misrepresentation or fraud on the part of the employee.

(b) Such excess payment was made by the employer by applying a wrong principle for calculating the pay/allowance or on the basis of a particular interpretation of rule/order, which is subsequently found to be erroneous."

In Col (Retd.) B.J. Akkara v. Govt of India [2006 (11)

SCC 709] this Court explained the reason for extending

such concession thus:

"Such relief, restraining recovery back of excess payment is granted by courts not because of any right in the employees, but in equity, in exercise of judicial discretion, to relieve the employees, from the hardship that will be caused if recovery is implemented. A Government servant, particularly one in the lower rungs of service would spend whatever emoluments he received for the upkeep of his family. If he receives an excess payment for a long period, he would spend it genuinely believing that he is entitled to it. As any subsequent action to recover the excess payment will cause undue hardship to him, relief is granted in that behalf. But where the employee had knowledge that the payment received was in excess of what was due or wrongly paid, or where the error is detected or corrected within a short time of wrong payment, Courts will not grant relief against recovery. The matter being in the realm of judicial discretion, courts may on the facts and circumstances of any particular case refuse to grant such relief against recovery."

(emphasis supplied) 6

What is important is recovery of excess payments from

employees is refused only where the excess payment is

made by the employer by applying a wrong method or

principle for calculating the pay/allowance, or on a

particular interpretation of the applicable rules which

is subsequently found to be erroneous. But where the

excess payment is made as a result of any

misrepresentation, fraud or collusion, courts will not

use their discretion to deny the right to recover the

excess payment.

7. In these cases, the Rules specifically provided that

the employees should be paid a consolidated salary.

Therefore without amendment to the Rules, the Managing

Committees could not have passed a resolution for giving

the benefit of regular pay scales that too with

retrospective effect to the employees. Further, the

Societies did not have the funds to make such payments

and illegally diverted the funds made available for

disbursal of loans to farmers, for the purpose of making

such excess payment to the employees. When the resolution

extending such benefit was passed and the amounts

earmarked for loans for farmers was diverted for making

payment to the employees, the Managing Committee as well

as the employees were aware that the resolution and 7

consequential payment was contrary of the Rules. There

was no question of any wrong calculation or erroneous

understanding of the legal position. Most of the

employees who received similar relief have refunded or

have agreed for refund the excess payment. Making any

exception in the case of respondents would also lead to

discrimination.

8. Therefore, the appeals are allowed, the impugned

orders of the High Court holding that the illegal

payments to the respondents need not be refunded to them

are set aside. However, having regard to the hardship put

forth by the employees, the appellants are directed to

calculate and recover the excess payment in twenty four

monthly installments.

.........................................................J [R. V. Raveendran]

......................................................J [P. Sathasivam] New Delhi;

October 8, 2009