“The law, perhaps, has not developed on correct lines”: the Court turns a critical eye on its own rule against recovering overpaid salary
Justices Dipankar Datta and Sheel Nagu dismiss eight appeals by engineering college teachers whose Academic Grade Pay was withdrawn — and hold on the way that two of the three decisions the celebrated five-category framework rests on were Article 142 relief, not binding precedent.
Every service lawyer in the country knows paragraph 18 of State of Punjab v. Rafiq Masih (White Washer): the five situations in which an employer cannot recover money it overpaid by mistake. It is cited daily, and High Courts quash recovery orders on its strength every week. On 23 September 2026 a Division Bench of Justice Dipankar Datta and Justice Sheel Nagu dismissed eight appeals by teachers at a National Institute of Technology whose Academic Grade Pay had been granted and then withdrawn — and used the occasion to trace where that paragraph came from. Two of the decisions underpinning it, the Bench held, were exercises of the power to do complete justice under Article 142, which “do not have the efficacy of a binding precedent”; a third, which did lay down law, was not applied. The conclusion is put as mildly as such a thing can be: “the law, perhaps, has not developed on correct lines”.
Granted in October 2009, withdrawn in January 2010
The appellants were Lecturers and Assistant Professors. Financial benefits following the grant of Academic Grade Pay were extended to them on or about October 2009, and withdrawn in January 2010 on the ground that they had not put in the requisite years of service.
A Single Judge of the Kerala High Court allowed their writ petition, along with two others, on 26 November 2014. On the institute's appeals, a Division Bench reversed that on 13 November 2015. Leave to appeal was granted by the Supreme Court on 22 August 2016, and the appeals were decided ten years later. “We are now called upon to decide which of the two views — that of the Single Judge or the Division Bench — is correct.”
The Bench framed the question in one sentence, and it is the question on which a great deal of service litigation turns: “whether financial benefits which were extended to a class of teachers voluntarily by the respondents and without any misrepresentation or fraud or fault at the end of such teachers could be withdrawn.”
Counsel for the appellants relied on Rafiq Masih (White Washer), (2015) 4 SCC 334, and Thomas Daniel v. State of Kerala, 2022 INSC 498, contending that the case fell within clause (v) of paragraph 18 of the former — the residual category where recovery would be so iniquitous, harsh or arbitrary as to outweigh the employer's right to recover.
One line in the judgment tells you how the Bench saw the merits: “Respondents are not called upon to answer.” The institute was never asked to argue.
The five categories, and where they came from
Paragraph 18 of Rafiq Masih (White Washer) is set out in full. Recovery is impermissible from Class III and Class IV (Group C and Group D) employees; from retired employees or those due to retire within a year of the recovery order; where the excess payment was made for a period in excess of five years before the order; where an employee was wrongfully required to discharge the duties of a higher post and paid accordingly; and, in any other case, where the court concludes that recovery would be iniquitous, harsh or arbitrary to an extent far outweighing the equitable balance of the employer's right.
That decision, the Bench observed, “has a prior history and, therefore, cannot be seen in isolation”. The history is then laid out, and it is the substance of the judgment.
In Chandi Prasad Uniyal v. State of Uttarakhand, (2012) 8 SCC 417, a coordinate Bench had held, after going through the authorities, that this Court had not laid down any principle that an amount paid on wrong fixation of pay can be recovered only where there was misrepresentation or fraud by the recipient. Its reasoning is quoted at length and is worth reading in the original register: the Court was “concerned with the excess payment of public money which is often described as ‘taxpayers' money’ which belongs neither to the officers who have effected overpayment nor to the recipients”; it failed to see why the concept of fraud or misrepresentation was being brought in at all, when the question to be asked is simply whether excess money has been paid, “may be due to a bona fide mistake”. Overpayment by government officers may arise from negligence, carelessness, collusion or favouritism; sometimes the mistake is mutual. “Any amount paid/received without the authority of law can always be recovered barring few exceptions of extreme hardships but not as a matter of right, in such situations law implies an obligation on the payee to repay the money, otherwise it would amount to unjust enrichment.”
That sat awkwardly with two earlier decisions, Shyam Babu Verma v. Union of India, (1994) 2 SCC 521, and Sahib Ram v. State of Haryana, 1995 Supp (1) SCC 18. In Rakesh Kumar v. State of Haryana, (2014) 8 SCC 892, a coordinate Bench noticed “an apparent difference of views” and referred the controversy to a Bench of three Judges.
Article 142 is not Article 141
The reference was answered by a three-Judge Bench in State of Punjab v. Rafiq Masih, (2014) 8 SCC 883 — a different decision from the White Washer case of the following year, and the distinction matters.
That Bench held there was no conflict, and explained why in terms of jurisdiction rather than doctrine. In Sahib Ram and Shyam Babu, “directions were issued in exercise of the powers of this Court under Article 142 of the Constitution”, whereas in Chandi Prasad Uniyal the Court, acting under Article 136, “in laying down the law had dismissed the petition of the employee”. Article 136 vests a plenary appellate jurisdiction; Article 142 “is a step ahead”, being the power to pass such a decree or order as is necessary for doing complete justice in a cause.
From that passage the present Bench drew the inference that gives the judgment its force. “What logically follows … is that Chandi Prasad Uniyal was held to have declared the law in exercise of this Court's jurisdiction under Article 136 of the Constitution, which we understand would be binding on all courts under Article 141; whereas Sahib Ram and Shyam Babu were held to be decisions where this Court had invoked powers under Article 142 thereof.”
And then the difficulty. Despite the line of decisions following Sahib Ram and Shyam Babu having been characterised by the three-Judge Bench as Article 142 exercises — which, “according to us, do not have the efficacy of a binding precedent” — the coordinate Bench in Rafiq Masih (White Washer) “did not apply the law laid down in Chandi Prasad Uniyal and preferred to abide by the course of action adopted in Sahib Ram, Shyam Babu and Syed Abdul Qadir”. Thomas Daniel, for its part, considers neither Chandi Prasad Uniyal nor the three-Judge Rafiq Masih.
The provision nobody cited
There is a further observation, and it is the kind of point that only emerges when a judge goes back to first principles.
“Curiously, not a single precedent has remarked on the applicability of Section 72 of the Contract Act, 1872” — the provision under which a person to whom money has been paid, or anything delivered, by mistake or under coercion must repay or return it. Without referring to it, the Bench notes, the ratio of Chandi Prasad Uniyal “draws inspiration from it”. An entire body of case law on recovering money paid by mistake has been built without anyone invoking the statutory rule on money paid by mistake.
The Bench was careful about the limits of what it was doing. “It is farthest from our mind to cast any shadow of doubt on either of the two decisions of the coordinate Benches in Rafiq Masih (White Washer) and Thomas Daniel.” The discussion was “necessitated only for the purpose of highlighting that the law, perhaps, has not developed on correct lines”. No reference was made to a larger Bench; the observation is left on the record for another day.
Decided on an undertaking instead
Having said all that, the Bench held it was not required to be guided by either of those two decisions, “in view of the stark factual distinction”, and took its guidance from High Court of Punjab & Haryana v. Jagdev Singh, (2016) 14 SCC 267.
Jagdev Singh considered the same paragraph 18 and held that proposition (ii) cannot apply where the officer to whom the payment was made “was clearly placed on notice that any payment found to have been made in excess would be required to be refunded” and had furnished an undertaking while opting for the revised pay scale. “He is bound by the undertaking.”
That was this case. Before the Division Bench of the High Court the institute had produced an exhibit containing an undertaking by the appellants conveying their willingness to permit recovery should the pay fixation be found erroneous. The High Court accepted that the authorities had merely corrected a mistake in accordance with the appellants' entitlement under the rules, noting also that the appellants had not been required to perform any additional duties on account of their placement, that they had given the undertaking expressing willingness for re-fixation and refund as and when a mistake was detected, and that they approached the court only in 2012, long after the re-fixation and recovery were effected in early 2010. Fairness, the High Court said, would have required notice before re-fixation and de-designation — but with the reasons now known and the contentions already pleaded, issuing notice would be “an empty formality”.
The Supreme Court agreed. A mistake was committed in extending the benefits and was immediately withdrawn on detection; given the undertakings, the recovery “did not warrant interference by the Single Judge in exercise of writ jurisdiction and the Division Bench appears to be right in its interdiction”.
What would have worked
The appellants placed much emphasis on a March 2013 letter from the Director (T) in the Ministry of Human Resource Development to the Directors of all the National Institutes of Technology, sub-paragraph (iv) of whose last paragraph said that benefits already given would not be recovered from academic staff, as directed by the Court and per the NIT Council's decision. The recovery here had already been effected before that.
The Bench then did something useful for future litigants: it described the case that would have succeeded. Where recovery of money from the recipient would not cause hardship, the position is as stated. “However, for instance, if it is pleaded and proved to the satisfaction of the writ court that entirety of the excess payment received by the employee has since been spent towards medical treatment and that the employee concerned would face immense hardship in returning such excess payment … in a deserving case the Court would be justified in quashing the notice seeking recovery or refund.” That remains subject to the employee satisfying the court that the excess was not received through any misrepresentation or fraud on his part. “Since no such case exists here, the contention is rejected.”
And a last observation that quietly disposes of the appeal: “Significantly, the appellants have not contended before us that they were, as of right, entitled to the financial benefits flowing from the grant of Academic Grade Pay and that the same was erroneously withdrawn.” Nobody argued the money was theirs. The argument was only that, having been given it, they should be allowed to keep it.
Why this matters right now
The timing is instructive. Three weeks after this judgment was delivered, a Division Bench of the Delhi High Court reversed the recovery of Rs 25.75 lakh from a retired University of Delhi teacher and ordered his pension recomputed with interest, resting squarely on Rafiq Masih — which it invoked three ways over. That is the ordinary, and entirely orthodox, use of paragraph 18. It happens in every High Court in the country.
Nothing in this judgment makes that wrong. The five categories stand, and a retired employee facing recovery still has them. But an employee who signed an undertaking has considerably less than they may think, because Jagdev Singh takes the second category away from them; and anyone arguing the residual fifth category now has to reckon with a Bench of the same Court having observed that the authorities from which the whole framework grew were, two of three, orders doing complete justice in particular cases rather than declarations of law. The practical advice that follows is the one the Bench itself spelled out: plead and prove the hardship, with specifics, and show the money is gone and that you did nothing to mislead anyone into paying it.
Order
The appeals were held to be without merit and dismissed. Connected applications stand closed, and the parties bear their own costs.
What survives beyond the eight appellants is the critique. Paragraph 18 of Rafiq Masih (White Washer) is not disturbed and remains available to be cited; but a Bench of this Court has now put on record that two of the decisions it grew from were relief rather than law, that the decision which was law went unapplied, and that the statutory provision governing money paid by mistake has never been mentioned in the line at all. Those are the ingredients of a reference, whenever someone chooses to make one.