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Citation Codes
Neutral Citations
009 INSC 1172
Equivalent Citations
citation codes
Case Number
Disposition
Advocates
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Acts
  • Section 5, Subsection 2 of the 1983 Income Tax Act
  • Article 309 of the Constitution
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Cites
Cited by
Citation Codes
Neutral Citations
009 INSC 1172
Equivalent Citations
citation codes
Case Number
Disposition
Advocates
Judges
Acts
  • Section 5, Subsection 2 of the 1983 Income Tax Act
  • Article 309 of the Constitution
Smart Summary

Factual and Procedural Background

The dispute concerns the rate of Non-Practising Allowance (NPA) payable to medical officers recruited under the Madhya Pradesh Employees' State Insurance Service (Gazetted) Recruitment Rules, 1981. Although Schedule I to the Rules stated that NPA would be “@ 25% of pay,” appointment letters issued by the State fixed NPA as a lump-sum roughly equal to 25 % of the minimum pay in the scale. Consequently, increments or scale revisions did not lead to corresponding increases in NPA.

After repeated representations failed, the respondent doctors approached the Madhya Pradesh Administrative Tribunal in 1998 and later, seeking calculation of NPA as 25 % of their basic pay at all times. The Tribunal allowed their applications and the High Court dismissed the State’s writ petitions. Pending appeal, the State complied with the Tribunal’s order but reserved the right to recover any excess if it succeeded before the Supreme Court. In 2003 the State amended the Rules retrospectively (with effect from 14-10-1982) to replace the 25 % formula with “such rates as may be fixed by the State Government from time to time.” The State then filed the present appeals by special leave.

Legal Issues Presented

  1. Whether the rates of NPA specified in appointment letters or executive orders can prevail over the 25 % formula contained in the statutory Rules.
  2. Whether the retrospective amendment of 20-5-2003 can lawfully take away the benefit that had accrued to the respondents under the unamended Rules.
  3. Assuming entitlement to the higher NPA, whether arrears can be claimed for the entire period since appointment or must be limited to three years prior to filing before the Tribunal.

Arguments of the Parties

Appellant (State of Madhya Pradesh)

  • Schedule I merely mentions “25 % of pay” without defining “pay”; it may refer only to the initial stage in the scale, justifying fixation of a constant lump-sum NPA.
  • Executive orders periodically revised this lump-sum and such revisions are a recognised administrative practice, obviating formal amendment of the Rules each time.
  • The employees accepted the lump-sum for years; their belated claims are barred by limitation and laches.

Respondents (Medical Officers)

  • The Rules are explicit: NPA is 25 % of basic pay, forming part of the pay scale; any deviation in appointment letters is ultra vires.
  • On every increment or scale revision, NPA must automatically rise to remain one-fourth of pay.
  • Their claim is a continuing wrong; limitation does not bar prospective correction, though arrears may be subject to practical limits.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
K. Dayanandalal v. State of Kerala (1996) 9 SCC 728 Statutory rules prevail over executive orders. Supported holding that appointment letters/executive instructions cannot override the Recruitment Rules.
T.N. Housing Board v. N. Balasubramaniun (2004) 6 SCC 85 Same principle as above. Reinforced primacy of Rules under Art. 309 over contrary administrative directions.
State of Karnataka v. KGSD Canteen Employees’ Welfare Assn. (2006) 1 SCC 567 Same principle as above. Cited to negate the State’s reliance on executive orders.
Punjab National Bank v. Astamija Dash (2008) 14 SCC 370 Same principle as above. Further authority for the conclusion on Question (i).
N.C. Singhal v. Armed Forces Medical Services (1972) 4 SCC 765 Accrued rights cannot be taken away by retrospective rule-making. Used to hold that benefits earned under the unamended Rules remained protected up to 20-5-2003.
K.C. Arora v. State of Haryana (1984) 3 SCC 281 Same principle as above. Same application.
T.R. Kapur v. State of Haryana 1986 Supp SCC 584 Same principle as above. Same application.
M.R. Gupta v. Union of India (1995) 5 SCC 628 Salary fixation errors constitute a continuing wrong; arrears ordinarily limited to three years. Formed basis for restricting arrears to three years prior to filing before the Tribunal.
Union of India v. Tarsem Singh (2008) 8 SCC 648 Clarified doctrine of continuing wrong and limitation for service-related monetary claims. Applied identical reasoning on limitation for arrears.

Court's Reasoning and Analysis

Question (i): Schedule I expressly states “NPA @ 25 % of pay.” The Court held that “pay” means the basic pay actually drawn at any stage, not merely the minimum. NPA is therefore part of the pay structure and must rise with increments or revisions. Under settled law, executive instructions or appointment terms contrary to statutory rules are void; hence the lump-sum formula cannot override the Rules.

Question (ii): Although Article 309 permits retrospective rule-making, such amendments cannot divest employees of benefits that had already accrued. Relying on Singhal, Arora and Kapur, the Court ruled that respondents’ right to NPA at 25 % subsisted until 20-5-2003, the date of amendment; thereafter the amended Rules govern.

Question (iii): Applying Gupta and Tarsem Singh, the Court treated under-payment of NPA as a continuing wrong: entitlement to correct payment is not time-barred, but recovery of arrears is limited. Consequential monetary relief was therefore confined to salary that became due within three years preceding each respondent’s application to the Tribunal.

Holding and Implications

Holding: The appeals are ALLOWED IN PART. Respondents are entitled to NPA at 25 % of basic pay up to 20-5-2003; from that date the amended Rules apply. Arrears are restricted to three years prior to filing before the Tribunal, and any excess already paid for earlier periods may be recovered in 24 monthly instalments.

Implications: The judgment enforces the supremacy of statutory service rules over executive deviations, safeguards accrued financial benefits against retrospective curtailment, and clarifies the extent of arrears recoverable in continuing-wrong salary disputes. No new doctrine is created, but existing principles on conflict of norms, retrospective amendments, and limitation are reaffirmed.

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    State Of Madhya Pradesh And Others v. Yogendra Shrivastava .

    R.V Raveendran, J.— Delay condoned and leave granted in the SLPs. The question involved in these appeals filed by the State of Madhya Pradesh, relates to the quantum of non-practising allowance (“NPA”, for short) payable to certain categories of medical officers belonging to the State Insurance Service.

    2. The Madhya Pradesh Employees' State Insurance Service (Gazetted) Recruitment Rules, 1981 (in short “the Rules”) framed by the State Government came into force in the year 1982. Rule 5 of the Rules provides that classification of the service, the scales of pay attached thereto and the number of posts included in the service shall be in accordance with the provisions contained in Schedule I thereto. The scales of pay and NPA payable to different categories of medical officers, other than the Director of the Service, are extracted below from Schedule I to the Rules:

    “Sl. No. Name of the posts included in the service Scale of pay 2 3 4 5 Dy. Director Superintendent, ESI Hospital Specialist, ESI Hospital Supervisory Insurance Medical Officer Rs. 680-40-800-50-1000-EB-50-1150 + NPA @ 25% of pay 6 Insurance Medical Officer (Class I) Rs. 500-30-680-40-800-EB-50-1150 + NPA @ 25% of pay 7 Insurance Medical Officer/Assistant Surgeon Rs. 425-25-500-30-680-EB-40-800-50-900 + Rs. 100 pm as ESI Special Allowance + NPA @ 25% of pay”

    Non-practising allowance is paid to medical officers when private practice by medical officers was prohibited and abolished.

    3. Even though the Rules specified that the aforesaid categories of medical officers were entitled to NPA linked to their pay (that is 25% of the basic pay), the letters of appointment issued to them specified that the NPA payable to them would be a fixed lump sum approximately equal to 25% of the initial (minimum) pay in the pay scale applicable to them (as contrasted from a variable linked to the quantum of their pay provided under the Rules). As a result, whenever there were increases in their pay on account of annual increments, NPA was not correspondingly increased so as to maintain it at 25% of basic pay, but continued to be paid at the fixed lump sum rate.

    4. The State Government was however revising the fixed lump sum NPA, whenever there were revisions in the pay scales, by issuing executive orders. The respondents in these appeals as also several other medical officers brought this anomaly to the notice of the Department and requested that the NPA should be paid to them at 25% of the pay in accordance with the Rules, as was done in the case of medical officers working in the Public Health and Medical Education Departments.

    5. As their request was not acceded to, the respondents approached the Madhya Pradesh Administrative Tribunal seeking a direction for payment of NPA in accordance with the Rules. They contended that whenever there was an increase in their basic pay, either on account of annual increments in the pay scale or on account of revision of the pay scales, there should be corresponding automatic increase in the NPA in terms of the Rules which required payment of “NPA @ 25% of the pay”. The Tribunal accepted the contention and allowed their applications and directed the appellant to calculate and pay NPA at the rate of 25% of the pay from the respective dates of their joining service.

    6. The State Government filed writ petitions challenging the orders of the Tribunal. The High Court dismissed those petitions, upholding the orders of the Tribunal. The said orders of the High Court are under challenge in these appeals by special leave.

    7. It should be noted here that as there was no stay, the State Government instructed the Director of the Employees' State Insurance Service, to give effect to the orders of the Tribunal affirmed by the High Court and pay the respondents NPA @ 25% of their salary from the respective dates of their appointment, subject to the final decision of this Court, with a condition that if the matters were decided in favour of the appellants, recovery of the excess payment would be made.

    8. The appellant State also amended the Madhya Pradesh Employees' State Insurance Service (Gazetted) Recruitment Rules, 1981 (by Notification dated 20-5-2003) and substituted the words “NPA at such rates as may be fixed by the State Government from time to time by orders issued in this behalf” in place of the words “NPA @ 25% of pay” wherever they occurred in the Rules, with retrospective effect from 14-10-1982.

    9. In this background, on the contentions raised by the parties, the following three questions arise for our consideration:

    (i) Whether the rates of NPA specified in the letters of appointment and the orders of the Department, can prevail over the provisions relating to NPA in the Rules?
    (ii) Whether the retrospective amendment of the Rules by Notification dated 20-5-2003, can deny the benefit which had accrued under the unamended Rules?
    (iii) Even if the respondents are held to be entitled to higher NPA as contended by them and as found by the Tribunal and the High Court, whether the financial benefit could be extended to them beyond three years prior to filing of the original applications before the Tribunal?

    Re: Question (i)

    10. The appellants contend that the Rules do not contain any specific provision for payment of non-practising allowance. They point out that Schedule I to the Rules merely refers to “plus NPA @ 25% of the pay” in the column relating to the pay scale, without defining the term “pay”. It is submitted that when the term “pay” is not defined, it can refer to the minimum or initial pay in the pay scale, or to each stage in the pay scale commencing from the initial pay and ending with the maximum pay in the pay scale.

    11. It is contended that the State Government had proceeded on the basis that “25% of the pay” referred to the “25% of initial pay” and had fixed the NPA keeping the said figure in view, by means of executive orders. It is submitted that fixing of a lump sum as NPA, approximately equal to 25% of the initial pay in the applicable pay scale, by executive orders issued by the Government from time to time, was therefore in consonance with the Rules. Alternatively, it was contended that incidental matters relating to number of posts, pay scales and NPA referred to the Schedule to the Rules, were subject to periodical revision/changes and it was common practice to make such revisions/changes, by executive orders instead of adopting the process of amending the Rules every time, and that such executive orders were binding on the employees and were never challenged.

    12. The Rules made under Article 309 of the Constitution clearly provided that the employees concerned (medical officers) were entitled to NPA @ 25% of pay, in addition to the pay in the pay scale. In fact, it formed part of the pay scale. Consequently, whatever was the basic pay, 25% thereof had to be paid as NPA. Whenever the benefit of increments in the pay scale, or revision in pay scale were extended, NPA also got correspondingly increased so that NPA always remained as one-fourth of the basic pay. This is the interpretation that has been put forth by the Tribunal and upheld by the High Court and we find no reason to interfere with the same.

    13. The contention that the executive orders issued from time to time or the appointment letters issued in accordance with such executive orders will prevail over the Rules cannot be accepted. When there is conflict between the statutory rules and the executive orders, the statutory rules will prevail (see K. Dayanandalal v. State of Kerala (1996) 9 SCC 728, T.N Housing Board v. N. Balasubramaniun (2004) 6 SCC 85, State of Karnataka v. KGSD Canteen Employees' Welfare Assn. (2006) 1 SCC 567 and Punjab National Bank v. Astamija Dash (2008) 14 SCC 370). Executive orders cannot be made or given effect in violation of what is mandated by the Rules. If appointment letters provide for payment of NPA which is not in consonance with the Rules, they can be corrected or set right by the tribunals/courts.

    Re: Question (ii)

    14. The Rules were retrospectively amended on 20-5-2003 substituting the words “NPA at such rates as may be fixed by the State Government from time to time by orders issued in this behalf” in place of “NPA @ 25% of pay” in the Rules. It was contended that as the Rules were amended in the year 2003 with retrospective effect from 14-10-1982, it should be deemed that the NPA payable was as notified by the Government from time to time and not “25% of the pay”.

    15. It is no doubt true that Rules made under Article 309 can be made so as to operate with retrospective effect. But it is well settled that rights and benefits which have already been earned or acquired under the existing Rules cannot be taken away by amending the Rules with retrospective effect. (See N.C Singhal v. Armed Forces Medical Services (1972) 4 SCC 765; K.C Arora v. State of Haryana (1984) 3 SCC 281 and T.R Kapur v. State of Haryana 1986 Supp SCC 584, (1987) 2 ATC 595.) Therefore, it has to be held that while the amendment, even if it is to be considered as otherwise valid, cannot affect the rights and benefits which had accrued to the employees under the unamended rules. The right to NPA @ 25% of the pay having accrued to the respondents under the unamended Rules, it follows that respondent employees will be entitled to non-practising allowance @ 25% of their pay up to 20-5-2003.

    Re: Question (iii)

    16. The Tribunal directed payment of the difference in NPA to the respondents from their respective dates of appointment. The respondents were appointed from 1982 onwards. The respondents had approached the Tribunal long after their appointment, that is, in 1998 or thereafter.

    17. The appellants contended that the claims were therefore barred by limitation. It was pointed out that the respondents were paid NPA at a fixed rate as stipulated in the appointment orders and NPA was increased only when it was revised by the government orders from time to time; that the respondents accepted such NPA without protest; and that therefore, they cannot, after periods varying from 5 to 15 years, challenge the fixation of NPA or contend that they are entitled to NPA at a higher rate, that is, 25% of their pay.

    18. We cannot agree. Where the issue relates to payment or fixation of salary or any allowance, the challenge is not barred by limitation or the doctrine of laches, as the denial of benefit occurs every month when the salary is paid, thereby giving rise to a fresh cause of action, based on continuing wrong. Though the lesser payment may be a consequence of the error that was committed at the time of appointment, the claim for a higher allowance in accordance with the Rules (prospectively from the date of application) cannot be rejected merely because it arises from a wrong fixation made several years prior to the claim for correct payment. But in respect of grant of consequential relief of recovery of arrears for the past period, the principle relating to recurring and successive wrongs would apply. Therefore the consequential relief of payment of arrears will have to be restricted to a period of three years prior to the date of the original application. (See M.R Gupta v. Union of India (1995) 5 SCC 628, (1995) 31 ATC 186 and Union of India v. Tarsem Singh (2008) 8 SCC 648.)

    Conclusion

    19. The appeals are allowed in part as follows:

    (i) We uphold the decision of the Tribunal, affirmed by the High Court that the respondents are entitled to 25% of their pay, as NPA.
    (ii) The respondents will be entitled to NPA @ “25% of pay” only up to 20-5-2003. Thereafter, the amended Rules will apply.
    (iii) Insofar as arrears are concerned, the respondents are entitled to recover the difference in NPA only in regard to the salary which accrued due during the three years prior to the date of filing of the original applications by the respondents before the Tribunal and not from the date of their appointments.
    (iv) As a consequence, if the appellants, in pursuance of the orders of the Tribunal/High Court, had paid the difference in NPA, for any period beyond three years before the date of the respective original applications, they will be at liberty to recover the same from the respective respondents in twenty-four monthly instalments.

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    State Of Madhya Pradesh And Others v. Yogendra Shrivastava .
    (Oct 7, 2009)