The Supreme Court in State of Punjab vs Rafiq Masih (White Washer) AIR 2015 SC 696 addressed issues regarding recovery of wages when paid in excess to employees by the employer. In this case, the Respondent-employees were given an excess monetary benefit than they were entitled due to the oversight made by the employer while determining payments; thus making the respondents beneficiaries to an unintentional mistake committed by the employer.  The question to be answered by the court was that whether these employees should be exempted in law from the reimbursement of the same to the employer.

The Supreme Court therefore has laid down the parameters to be considered while recovering such excess payments made to an employee. The court held it would be ‘iniquitous, arbitrary and harsh’ to recover excess payments in the following circumstances and conditions:-

1. Lower cadre employees (i.e., class-iii and class-iv –sometimes denoted as group ‘c’ and group ‘d’) of service:  These groups should not be subjected to the ordeal of any such recovery and it would also a breach of the mandate contained in Article 14 of the Constitution of India,
2. Retired employees: This also extends to employees who are close to retiring. Though stating an exception the court said an acceptable period during which the recovery is one year from the date of superannuation.
3. In a case where an employee has been wrongfully permitted to work for higher post, though he should have been in an inferior post.
4. The court also observed that if the wrongful excess payment is detected within five years, it would be open for the employer to recover the same and if not detected within the five years then, it would be arbitrary to do so.

With reference to the above case it is to be noted that the employees in were not guilty of furnishing any incorrect information or misrepresentation or fraud, due which the excess payments were made.

The order for recovery by the employer according to the Court can only be interfered with cases where such recovery would result in a hardship of a nature and which would far outweigh the equitable balance of the employer’s right to recover. The Bench held that such recovery would be impermissible in law.

The SC held that;

“The logic of the action in the instant situation, is iniquitous, or arbitrary, or violative of article 14 of the constitution of india, because it would be almost impossible for an employee to bear the financial burden, of a refund of payment received wrongfully for a long span of time. It is apparent, that a government employee is primarily dependent on his wages, and if a deduction is to be made from his/her wages, it should not be a deduction which would make it difficult for the employee to provide for the needs of his family. Besides food, clothing and shelter, an employee has to cater, not only to the education needs of those dependent upon him, but also their medical requirements, and a variety of sundry expenses.”

The court further justified its stand saying,

“the right to recover being pursued by the employer, will have to be compared, with the effect of the recovery on the concerned employee. If the effect of the recovery from the concerned employee would be, more unfair, more wrongful, more improper, and more unwarranted, than the corresponding right of the employer to recover the amount, then it would be iniquitous and arbitrary, to effect the recovery. In such a situation, the employee’s right would outbalance, and therefore eclipse, the right of the employer to recover.”

by Partha Pati (Partner) and Mallika Hiremath (Associate) of Abhay Nevagi and Associates, Pune