Six years after receiving salary arrears, retired employees were told to repay the entire amount – until this Supreme Court ruling changed everything

Six years after five employees received salary arrears, they were asked to pay them back to their department. However, the Supreme Court ruled in their favour, striking down the demand. This is a case of the Odisha District judiciary department. Wondering why the demand was made and what made the apex court strike it down? Here are the details:The Supreme Court has provided relief to five retired staff members from Odisha’s judiciary department who had received excess salary arrears by mistake. The court’s verdict said that such surplus payments cannot be reclaimed from employees if they were not involved in any fraudulent activities or misrepresentation leading to the incorrect payment.

Demand for repayment of salary arrears: What’s the case about?

According to an ET report, the case involves five former employees who worked as Grade-I stenographers and Personal Assistants in the district judiciary department of Cuttack, Odisha. Following their retrospective promotion to various stenographer grades (I, II, and III), they received monetary benefits in 2017. The amounts credited to their accounts were Rs 26,034, Rs 40,713, Rs 26,539, Rs 24,683, and Rs 21,485 respectively, the report said.These monetary benefits, which include salary arrears, were granted based on the interpretation of the Shetty Commission’s report, which determined their eligibility for higher pay scales and promotions. The employees received these benefits in 2017 and subsequently retired from service in 2020.Three years post-retirement and six years after receiving financial benefits, the Odisha District judiciary department in Cuttack issued a recovery order for the disbursed amount. The department concluded that the application of the Shetty Commission’s recommendations had been incorrectly interpreted, necessitating the return of the arrears.The Cuttack Judiciary department issued directives on September 8 and 12 of 2023, instructing five retired staff members to return the excess salary arrears they had received.The retired employees, who were not given an opportunity to present their case, filed a writ petition in the Odisha High Court. The court dismissed their petition through a judgment order dated November 9, 2023, according to the ET report.Subsequently, these retired employees appealed to the Supreme Court, where they received a ruling in their favour on April 4, 2025.

What were the arguments of the two counsels?

The counsel for the employees presented their case in the Supreme Court, arguing that the financial benefits were received without any fraudulent actions or misrepresentation on their part. The counsel contended that attempting to recover funds three years post-retirement was both unlawful and arbitrary. It was highlighted that the Odisha High Court had overlooked established legal precedents set by the Supreme Court, which deemed such recoveries from retired low-wage workers as legally invalid.The Cuttack judiciary department’s representative countered in the Supreme Court by asserting that the retired staff were not eligible for the received financial benefits. They noted that both the District Judge of Cuttack and the High Court of Orissa had confirmed this through administrative channels, thus validating the recovery process.The department’s counsel further explained that the financial benefits linked to retrospective promotion came with specific conditions. These included an agreement to refund any excess payments, supported by written undertakings from the employees. Based on these agreements, the counsel argued that the employees were not in a position to contest the recovery of incorrectly disbursed payments.

Judgment (2025 INSC 449): Supreme Court’s ruling explained

According to the ET report, in the judgment (2025 INSC 449) of April 4, 2025, Justices PS Narasimha and Prashant Kumar Mishra clarified that their deliberation did not concern the validity of retrospective promotion and financial benefits granted to the retired employees on May 10, 2017.The primary focus was on determining whether it was appropriate to recover amounts given to the appellants during their service period after retirement, particularly without providing them an opportunity for a hearing.The Supreme Court referenced several established precedents, including “Sahib Ram vs. State of Haryana (1995) Supp (1) SCC 18, Shyam Babu Verma vs. Union of India (1994) 2 SCC 521, Union of India vs. M. Bhaskar (1996) 4 SCC 416 and V. Gangaram vs. Regional Jt. Director (1997) 6 SCC 139″ and the recent “Thomas Daniel vs. State of Kerala & Ors. (2022) SCC online SC 536”.The Court reaffirmed its consistent position that excess payments cannot be recovered if they resulted from employer errors in calculation or interpretation of rules, rather than employee fraud or misrepresentation. This applies to overpayment of both emoluments and allowances.The apex court clarified that providing relief against recovery stems from judicial discretion and equity considerations, rather than an employee’s inherent rights. This discretionary power aims to shield employees from undue hardship that might arise from recovery orders.Regarding the case at hand, the court noted that the retired staff members were employed as stenographers during the period when the disputed ‘illegal payment’ was disbursed to them.The court observed that records did not indicate any fraudulent activity or misrepresentation by the employees. Additionally, the court pointed out the significant time gap between the payment made in 2017 and the recovery order issued in 2023, with the employees having retired in 2020 during this interval.The apex court noted that it was undisputed that the retired staff members were not given any chance to present their case before the recovery directive was issued.ET quoted the Supreme Court judgment as saying: “The appellants (retired employees) having superannuated (retired) on a ministerial post of Stenographer were admittedly not holding any gazetted post as such applying the principle enunciated by this Court in the above quoted judgment, the recovery is found unsustainable.”Decision: “For the aforestated, we are of the considered view that the appeal deserves to be allowed. Accordingly, we allow the appeal and set aside the order of the High Court, and in consequence, the orders dated September 12, 2023 and September 8, 2023 by which the appellants were directed to deposit the excess drawn arrears are set aside.”

What does the ruling mean for employees?

A partner at Khaitan & Co, Vaibhav Bhardwaj, explained to ET that the Supreme Court has reinforced the established legal stance regarding the retrieval of surplus salary or payments from employees when there is no evidence of deception or false representation. “The Supreme Court set aside the recovery orders, holding that it would be inequitable and unjust to compel recovery in such circumstances. The Court observed that employees, particularly those in the lower rungs of service, typically expend their earnings in the ordinary course of life and are unlikely to retain funds received years earlier. Therefore, recovery after a long delay, especially post-retirement, would cause undue hardship,” Vaibhav Bhardwaj told ET.Bhardwaj added, “The judgment, grounded in equitable principles, emphasises that the decision to recover must balance the hardship to be inflicted on the employee against the employer’s right to reclaim the excess sum paid. It further clarifies that recovery from retired employees, employees who received the excess payment more than five years prior to the order of recovery, or those who served bona fide in a higher post after being wrongly promoted, is impermissible in law. This ruling is significant as it reinforces the protection of employees, particularly retired persons, against retrospective and inequitable administrative actions, thereby strengthening the principle of fairness in employment.”