J&K Grameen Bank Cannot Withhold Superannuation Benefits Without Quantifying Loss, Rules Division Bench

The J&K and Ladakh High Court upheld a pay-reduction penalty against a bank officer who admitted exceeding his lending authority, but set aside the withholding of his superannuation benefits, holding that forfeiture requires prior quantification of loss and an opportunity of hearing.

A Division Bench of the High Court of Jammu & Kashmir and Ladakh at Jammu, comprising Justice Sindhu Sharma and Justice Rajesh Sekhri, on 18 August 2026 allowed an intra-court appeal filed by J&K Grameen Bank and set aside a Single Judge order that had quashed all disciplinary penalties against a former Senior Manager. The Division Bench restored the appellate authority’s direction reducing the officer’s pay to the first stage of Officer Scale-I, but struck down the additional direction withholding his superannuation benefits until full loan recovery, finding that neither the competent authority nor the appellate authority had quantified the loss caused to the Bank before ordering that forfeiture.

The Dispute Before the High Court

Rachhpal Singh joined J&K Grameen Bank in 1982 as a Cashier-cum-Clerk and rose to Scale-I Officer. He was posted as Senior Manager of the Simbal Morh Branch, which at the time of his posting held deposits of Rs. 23 crores against advances of Rs. 5.47 crores and was running at a loss of Rs. 10.47 crores.

On 16 April 2021, the Bank served him with a charge-sheet alleging that he had extended undue favour and sanctioned loans to selected borrowers by misusing his official position, in violation of the Bank’s operational guidelines and norms, and had exceeded the powers delegated to him, thereby exposing the Bank’s funds to risk.

Singh contested the charges in a detailed reply dated 8 June 2021, pointing out that by the time he left the branch, advances had grown from Rs. 5.47 crores to Rs. 19.92 crores, total business rose from Rs. 28.90 crores to Rs. 54 crores, NPA fell from 12.37% to 3.51%, and the branch moved from a loss of Rs. 10.47 crores to a profit of Rs. 34.40 lakhs. He also submitted that most irregularities had been rectified on account of routine mistakes and heavy workload.

The Bank appointed an Inquiry Officer, who in a report dated 3 February 2022 found that except for one charge under Article 3 (partially proved), the remaining charges were proved. The competent authority, by order dated 23 May 2022, reduced Singh to the lowest stage in the pay scale of Officer Scale-II and directed that his superannuation benefits be released on the reduced pay. On appeal, the Board of Directors, vide order dated 2 November 2022, modified the penalty: the pay reduction was softened to the lowest stage of Officer Scale-I (Rs. 48,170 per month), but the appellate authority added that superannuation benefits would be released only after smooth recovery or adjustment of all loan accounts mentioned in the charge-sheet, the withheld amount to be kept as an FDR under lien to the Chairman of the Bank, and any remaining financial loss to be recovered from his monthly pension or family pension.

Singh challenged both orders before the Single Judge in WP(C) No. 930/2023. The Single Judge allowed the writ petition by judgment dated 15 May 2025, quashing both orders on the grounds that the Bank had suffered no financial loss, Singh had derived no pecuniary gain, and most irregularities had been rectified. The Single Judge held the punishment disproportionate to the misconduct. The Bank then filed LPA No. 136/2025.

The Legal Issue

Two questions arose before the Division Bench. First, whether the Single Judge was correct in quashing the penalty orders by holding that the absence of financial loss and absence of malicious intent rendered the punishment disproportionate. Second, and separately, whether the appellate authority’s direction to withhold superannuation benefits pending loan recovery was permissible in the absence of quantification of the loss caused to the Bank.

How the Bench Reasoned on Misconduct and Judicial Review

Justice Sekhri, writing the judgment, opened the analysis with the submission of Mr. R.K. Jain, Senior Advocate for the Bank, that the Single Judge had failed to appreciate the true scope of judicial review in disciplinary matters. The Bank placed reliance on Disciplinary Authority-Cum-Regional Manager v. Nikunja Bihari Patnaik, 1996(3) Supreme 710, for the proposition that a bank official acting beyond delegated authority commits misconduct regardless of whether the Bank earned a profit or suffered a loss.

The Division Bench accepted this position without hesitation. It drew on a line of Supreme Court decisions to hold that in the banking sector, the very act of exceeding one’s delegated authority constitutes a gross breach of discipline, and the absence of actual financial loss or presence of profit does not absolve the employee. The Court extracted the relevant passage from Nikunja Bihari Patnaik: “Acting beyond one’s authority is by itself a breach of discipline and a breach of Regulation 3.”

The Bench also cited Chairman & Managing Director, United Commercial Bank & Ors. v. P.C. Kakkar, 2003 AIR (SC) 1571, holding that a bank employee guilty of financial irregularities with public money does not deserve leniency, and Divisional Controller, KSRTC (NWKRTC) v. A.T. Mane, 2004 AIR (SC) 4761, for the principle that it is not the amount of money involved but the loss of confidence that is the prime factor in determining punishment.

On judicial review, the Bench relied on State Bank of India & Ors. v. Ramesh Dinkar Punde, 2006(7) SCC 212, reaffirming that a High Court exercising judicial review cannot re-appreciate evidence considered by the Inquiry Officer, the Disciplinary Authority, and the Appellate Authority. Where an inquiry was held consistent with the rules and principles of natural justice, the quantum of punishment falls within the exclusive domain of the competent authority. Similarly, Damoh Panna Sagar Rural Regional Bank v. Munna Lal Jain, 2005 AIR (SC) 584, was cited for the rule that a court can interfere with quantum of punishment imposed on a bank employee only if it is shockingly disproportionate, and to reach that conclusion, sufficient reasons must be recorded by a speaking order.

Applying these standards, the Division Bench found that the Single Judge had treated the writ court as a court of appeal rather than a court of review. Singh had admitted his misconduct during the disciplinary inquiry. The record showed that he had been charge-sheeted and penalised twice previously during his service career for acts of omission and commission. Of the loans he sanctioned, the Bank had been compelled to settle 24 accounts under the OTS scheme; 10 accounts were declared non-performing assets; recovery in 14 remaining accounts was stuck and likely to be declared NPA. The mens rea argument advanced by Mr. Abhimanyu Sharma for Singh, relying on Inspector Prem Chand v. Govt. of N.C.T. of Delhi & Ors., 2007(4) SCC 566, was rejected on the ground that in departmental proceedings the presence of mens rea is not a prerequisite to prove misconduct. An unauthorised act committed with good intentions remains a violation of service rules.

The Bench concluded that the Single Judge had erred in quashing the penalty orders and that the misconduct on the part of Singh was “unpardonable,” given his admitted conduct and prior disciplinary history.

Withholding Superannuation Benefits: Where the Bank Overreached

Having restored the penalty, the Division Bench turned to the second limb of the appellate authority’s order: the direction to withhold all superannuation benefits until full recovery of the loan accounts, with the withheld amounts kept as an FDR under lien to the Chairman of the Bank, and any residual loss to be deducted from Singh’s monthly pension and family pension.

Singh’s counsel relied on Jyotirmay Ray v. The Field General Manager, Punjab National Bank & Ors., 2023 A4 SCR 2346, T.B. Mohanan v. Canara Bank & Ors. (WP No. 16934/2021, decided 9 September 2022), and UCO Bank & Ors. v. Anju Mathur, 2013 SCC (Online) 5014, for the settled proposition that forfeiture of gratuity, provident fund, and pensionary benefits in the absence of quantification of loss and an opportunity of hearing is not permissible in law.

The Division Bench agreed. It held that forfeiture of superannuation benefits can only be directed to the extent of the damage or loss caused, and whenever such forfeiture is ordered, there must be quantification of the loss and an opportunity of hearing must be given to the employee. In the present case, neither the competent authority nor the appellate authority had quantified the loss caused to the Bank before issuing the direction to withhold superannuation benefits. The withholding order therefore could not stand. The Bench added that the Bank was not without remedy: it retained the ability to recover loan amounts by filing recovery suits against the borrowers.

Order

The Division Bench allowed LPA No. 136/2025 and set aside the Single Judge’s judgment dated 15 May 2025. The appellate authority’s order reducing Singh to the lowest stage (first stage, Rs. 48,170 per month) of the pay scale of Officer Scale-I was upheld. The portion of the appellate authority’s order withholding his superannuation benefits pending loan recovery was set aside. The Bank was directed to immediately release Singh’s superannuation benefits, while remaining at liberty to recover the loan amounts through appropriate legal remedy.