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                                                           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

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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

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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

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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.

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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)

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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

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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           impu gned

orders   of   the    High      Court    holding            that             the            i llegal

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