Notional Interest Counts: Delhi High Court Validates Objective Income Estimation for Ex‑Gratia Relief under Bank Schemes

Introduction

This judgment addresses a recurring question in service law concerning benefits to the families of deceased employees of public sector banks: when assessing eligibility for ex‑gratia payment (in lieu of compassionate appointment), can a bank count notional interest on terminal benefits and existing investments as part of the family’s “monthly income” even if no actual interest has yet accrued?

The petitioner, the widow of a Daftari employed with the Bank of Maharashtra who died in harness on 17 December 2014, initially sought compassionate appointment (applied on 16 April 2015). After rejection, she sought ex‑gratia payment under the Bank’s policy dated 10 October 2007, framed pursuant to the Indian Banks’ Association (IBA) scheme. The Bank declined ex‑gratia on the ground that the family’s monthly income, computed by including (i) pension and (ii) notional interest on the net corpus of terminal benefits and existing investments, exceeded 60% of the deceased employee’s last drawn gross salary (net of tax) — the policy threshold.

Challenging this decision under Article 226, the petitioner argued that (a) notional interest could not be factored unless actual interest was earned; and (b) families who expend terminal benefits for legitimate obligations (education, marriage, etc.) should not be penalized. She relied on decisions of the Punjab & Haryana High Court and the Himachal Pradesh High Court that had rejected the inclusion of notional interest for such assessments.

Summary of the Judgment

Petition dismissed. The Court upheld the Bank’s computation method under its 10.10.2007 policy, which expressly includes notional interest on the net corpus of terminal benefits and existing investments while assessing family income.
Strict construction of schemes. Ex‑gratia schemes are analogous to compassionate appointment policies and must be implemented strictly according to their terms; they are concessions, not entitlements.
Immediate, objective, uniform assessment. Because ex‑gratia aims to provide relief in the immediate aftermath of death, it is impracticable to insist on actual interest accrual. A notional estimate based on the Bank’s maximum term deposit rate at the relevant time is permissible and preferable for objectivity and uniformity.
Contrary High Court decisions disagreed with. The Court respectfully declined to follow Santosh Devi (P&H), Gayatri (P&H), and Meena Devi (HP) to the extent they exclude notional interest.
No challenge to policy itself. The petitioner did not assail the validity of the policy terms; hence, the Court applied the policy as written.
No costs. The writ was dismissed without any order as to costs.

Detailed Analysis

1) The Policy Framework and Factual Matrix

The Bank’s 10.10.2007 ex‑gratia policy (aligned to the IBA scheme) applies where compassionate appointment is not provided. Its key features relevant here are:

Objective: Provide relief to families to tide over the sudden crisis from the employee’s death (aligned with the Supreme Court’s understanding in Umesh Kumar Nagpal v. State of Haryana).
Eligibility: Family must be in indigent or penurious circumstances; request ordinarily to be made within 6 months from death.
Income threshold: Ex‑gratia may be granted if the family’s “monthly income from all sources” is less than 60% of the deceased’s last drawn gross salary (net of taxes).
Computation method: The policy prescribes a structured computation, including:
- Determine “Net Corpus” of terminal benefits: Provident Fund, Gratuity, Leave Encashment, etc., minus outstanding liabilities (e.g., staff loans with prior approval).
- Add existing investments (e.g., LIC, NSCs, deposits) and movable/immovable property.
- Compute monthly family income by adding:
  - Monthly interest at the Bank’s maximum term deposit rate on the Net Corpus of terminal benefits (notional);
  - Monthly income from existing investments and properties;
  - Pension/family pension and other recurring income.
Quantum: Where eligible, ex‑gratia equals 60% of last drawn gross salary (net of tax) for each month of remaining service (up to superannuation), subject to cadre-wise ceilings.
Discretionary relief: Ex‑gratia “is not an entitlement” and may be granted at the Bank’s sole discretion in deserving and eligible cases.

Undisputed facts (no rejoinder was filed):

Last drawn gross salary (net of tax) of the deceased: Rs. 32,582 (60% = Rs. 19,549).
Remaining service at death: 17 months.
Total terminal benefits: Rs. 19,94,119; liabilities: Rs. 2,24,314; net corpus: Rs. 17,69,805.
Existing investments: Rs. 3,65,435.
Computed monthly income:
- Notional interest on net corpus at 9.77% p.a.: Rs. 14,109/month;
- Notional income from investments at 9.77% p.a.: Rs. 2,975/month;
- Full monthly pension (pre‑commutation): Rs. 11,405;
- Total: Rs. 28,789/month, which exceeds Rs. 19,549 (60% threshold).

2) Precedents and Their Influence

The Court situates ex‑gratia schemes within the jurisprudence on compassionate appointment, relying principally on two recent Supreme Court decisions:

Tinku v. State of Haryana (2024 SCC OnLine SC 3292)
- Reaffirmed that compassionate appointment aims to provide immediate succour to families in distress upon the death or incapacitation of the breadwinner.
- Emphasized the need for temporal proximity in making claims; it is not a vested right.
CANARA BANK v. AJITHKUMAR G.K. (2025 SCC OnLine SC 290)
- Collected and distilled principles governing compassionate appointment. Notable for this case:
  - Such schemes are an exception to the equality norm in public employment and must be strictly construed.
  - Indigence is the first precondition; terminal benefits and family resources may and should be considered to assess penury.
  - Income slabs promote objectivity and uniformity, minimizing arbitrariness.
  - Relief is intended to address immediate crisis; belated claims undermine the object.
  - It is not a hereditary right; courts should avoid sympathetic departures from policy.
Umesh Kumar Nagpal v. State of Haryana (1994) 4 SCC 138
- Foundational case highlighting the limited, exceptional nature of compassionate appointment and its focus on relieving sudden financial distress.

By contrast, the petitioner relied on High Court decisions that had rejected the inclusion of notional interest:

Santosh Devi v. Oriental Bank of Commerce (2009 SCC OnLine P&H 4695), affirmed on appeal (2014 SCC OnLine P&H 7766):
- Held that notional interest should not be added unless actually accrued.
Gayatri v. Punjab and Sind Bank (2020 SCC OnLine P&H 163):
- Noted the scheme in that case did not expressly provide for notional interest; nonetheless echoed Santosh Devi’s reasoning.
Meena Devi v. Central Bank of India (2016 SCC OnLine HP 1476):
- Followed Santosh Devi to similar effect.

The Delhi High Court respectfully disagreed with these High Court decisions for reasons grounded in the scheme’s text and Supreme Court guidance on strict adherence, objectivity, and assessment of penury.

3) The Court’s Legal Reasoning

Ex‑gratia is analogous to compassionate appointment and must be strictly applied. The scheme is a concession crafted to address immediate indigence, not a vested right or entitlement. Courts must apply such policies as written (Tinku; Canara Bank).
The policy expressly includes notional interest on terminal benefits and investments. The Bank’s 2007 policy mandates: compute monthly income by adding monthly interest at the Bank’s maximum term deposit rate on the “Net Corpus” of terminal benefits, plus income from investments, properties, and pensions. The petitioner did not challenge the validity of these terms; therefore, the Court applied them.
Objective, uniform assessment at the relevant time requires notional estimation. Because ex‑gratia aims at immediate relief and applications must be made promptly (within six months under the policy), actual interest history would often be unavailable. Insisting on actual accrual would be impracticable and would delay relief, contrary to the scheme’s purpose.
Notional method avoids subjective and inequitable outcomes.
- If only actual earnings are counted, families that prudently conserve and invest may be disqualified (because they do earn interest), while families that immediately spend the corpus may qualify (because they do not earn interest), creating a perverse incentive.
- Distinguishing between “legitimate” and “profligate” expenditures is fraught with subjectivity and inconsistent judgments.
Terminal benefits and other resources are relevant to the penury assessment. Supreme Court guidance (as collected in Canara Bank) makes clear that authorities may consider family pension, terminal benefits, investments, and other family resources to determine indigence (e.g., Kunti Tiwary; Somvir Singh).
Temporal context matters. The writ petition was filed seven years after the Bank’s rejection. Relief intended for immediate crisis should not be revisited years later based on subsequent use or depletion of funds; doing so would defeat the underlying purpose and convert the scheme into a long-tail benefit.
Contrary High Court views not followed. To the extent Santosh Devi, Gayatri, and Meena Devi reject notional interest, the Delhi High Court declined to follow them, emphasizing the superiority of an objective, policy-anchored, and Supreme Court-consistent approach.

4) The Numbers Applied to This Case

Applying the policy’s formula at the time of death:

60% of last drawn gross salary (net of tax): 60% of Rs. 32,582 = Rs. 19,549.
Monthly family income:
- Notional interest on net corpus (Rs. 17,69,805 at 9.77% p.a.): Rs. 14,109/month;
- Notional income on investments (Rs. 3,65,435 at 9.77% p.a.): Rs. 2,975/month;
- Full monthly pension (pre‑commutation): Rs. 11,405;
- Total: Rs. 28,789/month.
Outcome: Because Rs. 28,789 exceeds the Rs. 19,549 threshold, the family was ineligible for ex‑gratia under the policy.

5) Doctrinal Placement and Impact

Doctrinal contribution. The judgment consolidates three important strands:

Analogy and strictness: Ex‑gratia schemes in banking are to be treated like compassionate appointment schemes—strictly construed, limited to immediate indigence, and implemented per policy text.
Objectivity: Income-slab thresholds and notional-interest computations are permissible tools to inject uniformity and reduce arbitrariness in penury assessments.
Terminal benefits ecosystem: Courts recognize that PF, gratuity, leave encashment, family pension, and existing investments form part of the objective financial capacity assessment.

Practical impact.

For banks: This judgment validates computation models that include notional interest on terminal benefits and investments where the policy expressly provides for it. HR and legal teams should ensure that:
- Policies clearly articulate the components of “monthly income,” including notional interest at a specified benchmark (e.g., maximum term deposit rate) and the relevant date (typically the date of death).
- Decisions are taken expeditiously, documented well, and based on disclosed assets and liabilities.
- Pension is considered in its full monthly form (pre‑commutation) to prevent manipulation through commutation.
For dependents: The decision signals that:
- Ex‑gratia is a discretionary, need-based relief, not a right.
- Terminal benefits and investments will be treated as the foundation of the family’s capacity, regardless of how they are later spent.
- Applications should be timely and complete; any challenge must target either an erroneous computation or, if warranted, the validity of the policy itself (a higher bar).
For courts: The decision prefers objective, uniform metrics over case-by-case, post hoc, expenditure-centric inquiries. It also sets up a divergence from P&H and HP decisions, potentially inviting authoritative reconciliation by the Supreme Court.

Complex Concepts Simplified

Compassionate appointment: A narrow exception to regular recruitment rules, allowing appointment of a dependent of a deceased/medically invalidated employee to alleviate immediate financial hardship. It is not a hereditary right and is strictly policy-bound.
Ex‑gratia payment: A discretionary, need-based monetary relief given in lieu of compassionate appointment to help the family tide over immediate crisis.
Penury/indigence test: The family’s overall financial condition is assessed—considering pension, terminal benefits, investments, property, and other income—to determine if it faces genuine financial distress.
Terminal benefits: Sums payable upon an employee’s death/retirement: Provident Fund (PF), gratuity, leave encashment, etc.
Notional interest: An estimated monthly income derived by applying the Bank’s benchmark interest rate to a lump-sum corpus (e.g., PF+gratuity) for the purpose of uniform assessment, regardless of actual investment activity.
Income slab/threshold: A policy limit (here, 60% of last drawn gross salary net of tax). Families with monthly income above this threshold are presumed not to be in penury for the scheme’s purposes.
Article 226 writ jurisdiction: High Court’s power to judicially review administrative action for legality, procedural fairness, and reasonableness, not to re-write policy.

Key Distinctions and Unresolved Questions

Where the policy text lacks a notional-interest clause: In Gayatri, the P&H High Court emphasized the absence of such a clause to forbid notional additions. The present decision turns on a policy that expressly includes notional interest, and the Court’s rationale also independently supports the utility of notional estimates. However, a future challenge in a jurisdiction where the policy is silent may still be litigated until clarified by the Supreme Court or by policy amendment.
Delay and laches: Although the Court did not dismiss on delay, it stressed that ex‑gratia/compassionate frameworks are meant for immediate relief. Substantial delay in approaching courts may count against relief or shape the manner of evaluation.
Scope for challenging policy validity: The petitioner did not mount a constitutional or administrative law challenge to the policy’s criteria. The Court therefore applied it as drafted. A different case may test the policy’s reasonableness, but the Supreme Court’s approval of objective criteria and income slabs suggests such a challenge would face a high threshold.

Practical Checklist for Stakeholders

For Banks assessing ex‑gratia claims:

Ascertain last drawn gross salary (net of tax) and compute 60% threshold as on date of death.
Compile terminal benefits (PF, gratuity, leave encashment) and deduct approved liabilities to arrive at Net Corpus.
Identify investments, movable/immovable properties, and family pension/other recurring incomes.
Apply the Bank’s maximum term deposit rate prevailing at the date of death to compute notional monthly interest on:
- Net Corpus of terminal benefits; and
- Existing investments (if policy so provides).
Add monthly pension (pre‑commutation) and other incomes to derive total monthly income.
Compare with the 60% threshold and record a speaking order reflecting the policy matrix and financial particulars.
Ensure compliance with timelines (e.g., six-month application window) and cadre-wise ceilings for quantum if eligible.

For Dependents preparing applications:

File within the stipulated time; attach complete disclosures of terminal benefits, liabilities, investments, properties, and income sources.
Understand that notional interest and pension will likely be included; budget expectations accordingly.
If disputing the computation, focus on factual inaccuracies (e.g., wrong interest rate/date, misclassified liabilities/investments) or misapplication of policy, rather than expenditure choices after receipt of funds.

Conclusion

The Delhi High Court’s ruling establishes a clear and administrable principle for ex‑gratia claims under bank schemes that mirror compassionate appointment frameworks: when the policy text so provides, notional interest on terminal benefits and investments is a legitimate and necessary component of the family income calculation. This approach aligns with Supreme Court jurisprudence emphasizing immediacy, objectivity, strict adherence to scheme terms, and assessment of penury based on all available resources. It rejects subjective, post hoc assessments tied to actual accruals or expenditure patterns, promoting uniformity and fairness across cases.

Key takeaways:

Ex‑gratia benefits are discretionary and strictly policy-governed; they are not rights.
Eligibility turns on an objective, immediate assessment of indigence, factoring terminal benefits, pension, and notional income from investable resources when the policy prescribes it.
Contrary High Court views excluding notional interest are not followed; the decision strengthens a uniform, benchmark-based methodology.
The judgment encourages comprehensive, timely, and consistent decision-making by banks and realistic expectations by claimants.

Note: This commentary synthesizes and analyzes the Court’s reasoning as contained in the judgment of 26 September 2025 in W.P.(C) 9252/2025 (Delhi High Court). It is intended for informational and academic purposes and is not legal advice.