Holding

Pension and gratuity are enforceable rights, and the State is liable to pay interest at the market rate for delay, but the Court will not enhance the interest rate beyond the 6% awarded because the respondent acquiesced to that rate.

Summary

The respondent, a retired government employee, received his pension and gratuity more than two years after retirement, prompting a suit for liquidated damages in the form of interest. The District Court awarded interest at 6% per annum, which the High Court affirmed, and the respondent did not cross‑appeal the rate. The Supreme Court held that pension and gratuity are enforceable property rights, and any culpable delay in their payment attracts penal interest at the prevailing market rate, making the State vicariously liable for the Treasury Officer’s neglect. However, because the respondent acquiesced to the 6% rate by not objecting in the High Court, the Court declined to enhance the interest to the 12% claimed. The Court also noted that the Treasury Officer’s duty under Rule 186 of the Treasury Code to issue the Last Pay Certificate was breached, but the officer was not a party to the suit, so liability rests with the State. Consequently, the Special Leave Petition was dismissed.

Issues considered

Whether pension and gratuity constitute enforceable property rights that attract interest for delayed payment.
Whether the State Government is vicariously liable for the Treasury Officer’s failure to issue the Last Pay Certificate under Rule 186.
Whether the Supreme Court can enhance the interest rate beyond that awarded when the respondent acquiesced to a lower rate.
What rate of penal interest is appropriate for delay in payment of pension and gratuity.

Legislation cited

Treasury Codes. Rule 186

Subjects

pensiongratuityinterestliquidated damagesdelayTreasury OfficerRule 186vicarious liabilityservice law

Judgment

476
•.-

A STATE OF KERALA AND ORS.
•
v.

M. PADMANABHAN NAIR

17th December, 1984
B
[V.D. TULZAPURKAR AND V. BALAKRISHNA ERADI, JJ.j

Se1vice Law-Liquidated damages by way of penal interest for delay in
payment of pension and gratuity due-State Government is vicariously liable to
pay interest at the current market rate till actual payment for the culpable
c neglect of the Treasury Officer to discharge his duty fJ/ issuing the Last Pay
Certificate under Rule 186 of the TreaJury Code-Supreme Cf!Urt cannot Inter-
fere and grant enhanced rate of Interest in the absence of a cross objection
against lower rate of interest allowed by the trial Court thtlll claimed and there·
by acquiesing in the decre'!.

The respondent retired from the ·service of the appellant ~tate on
D 19.S.1973. His pension and gratuity were ultimately paid to hin1 on
14.8.75 i.e. after a delay t'f more than twO years and three months. A suit
for the recovery of interest at the rate of 12% per annum by way' of
Jiquidated damages for the delayed paymeut was decreed by the District
f
Court allowing interest at 6% only. In appeal by the State (there being no
cross appeal) the High Court confirmed the decree. Hence the spa ciaI leave
petition.
E
Dismissing the petition; the Court,

HELD : 1: 1 Pension and gratuity are no longer any bounty to be
distributed by the government to .its employees on their retirement but have
become under the decisions of the Supreme Court, valuable rights and
F property in their hands and any culpable delay in settlement and disburse-
ment thereof must b~ visite<J with the penalty of payment of interest at the
current market rate till actual payment. [477C-D]

1.2 In the instant case 1 though the respondent claimed 12% interest
and unfortunately Disirict Court aliowed only 6% per annum, since the
respondent acquiesced in his claim being decreed at 6% by not preferring ·'
G any cross objections in the High Court, it would be improper for the
Supreme Court to enhance the rate to 12% per annum. [ 478C-D]

1.3 Under Rule 186 of the Treasury Code a duty is cast on the
Treasury Officer to grant to every retiring Government servant the last pay
certificate which, in this case bad bec.1 de!ay!!d by the concerned officer for
•H wbitb neither any justification or explanatioQ had been given. The claim
KBRALA v. M.P. NAIR (Tulzapurkar, J.) 477

for interest is therefore, in order and the State Government has rightly been A
saddled with a liability for the culp:i.ble neglect in the discharge of his duty
by the District Treasury Officer who delayed the issuance of the LPC.
(478A-B, D]
CIVIL APPBLLATE JURBDICTION : Special Leave Petition Civil
No. 9425 of 1984.

From the Judgment and Order dated 1.11 .83 of the Kerala B
High Court in A.S. No. 10 of 1979.

P.K. Pillai for the petitioners.
The Order of the Court was delivered by
c

f. TuLZAPURKAR, J. Pension and gratuity are no longer any
bounty to be distributed by the Govenment to its employees on
their retirement but have become, under the decisions of this Court,
valuable rights and property in their hands and any culpable delay
in settlement and disbursement thereof must be visited with the
penalty of payment of interest at the current market rate till actual D
payment.
Usually the delay occurs by reason of non-production of the

-
L.P.C. (Last Pay Certificate) and the N.L.C. (No Liability Certi-
ficate) from the concerned Departments but both these docu-
ments pertain to matters, records whereof would be with the E
concerned Government Departments. Since the date of retirement
of every Government servant is very much known in advance we
fail to appreciate why lhe process of collecting the requisite infor-
mation and issuance of these two documents should not be
completed atleast a week before the date of retirement so that the
payment of gratuity amount could be made to the Government F
servant on the date he retires or on the followmg day and pension
at the expiry of the following month. The necoss,ty for prompt
payment of the retirement dues to a Government servant immediately
after his retirement cannot be over-emphasised and it would not be
• unreasonable to diriect that the liability to pay penal interest on t ese
dues at the current market rate should commence at the expiry of G
two months from the date of retirement.

The instant case is a glaring instance of snch culpable delay
in the settlement of pension and grotuity claims due to the respon-
dent who retired on 19.5.1913. His pension and gratuity were
ultimately paid to him on 14.8.1975, i.e., more than two years and
3 montlls after his retirement and hence after serving lawyer's notice H
478 SPREME COURT REPORTS [1985] 2 S.C.R,

A he filed a suit mainly to recover interest by. way of!iquidated
damages for delayed payment. The appellants put the blame on the
respondent for delayed payment on the ground that he had not
produced the requisite L.P.C. (last pay certificate) from tl1e Treasury
Office under Rule 186 of the Treasury Code. But on a plain reading
of Rule 186, the Hi~h Court held-and in our view rightly-that a
B duty was cast ou tho Treasury Officer to grant to every retirin•
Government servant the last pay certificate which in this case had
been delayed by the concerned officer for which neither any justi·
ft.cation nor explanation had been given. The daim for interest was,
therefore, rightly, decreed in respondent's favour.

Unfortunately such claim for interest that was allowed in
c respondent's favour by the District Court and confirmed by the
High Court was at the rate of 6 per cent per annum though interest
at 12 per cent had; been claimed by the respondent in his suit.
However, sirice the respondent acquiesced in his claim being decreed
at 6 per cent by not preferring any cross objections in the High
Court it could not be proper for us to enhance the rate to 12 per
cent per annum which we were otherwise inclined to grant. ·
D
We are also of the view that the State Government is being
rightly saddled with a liability for the culpable neglect in the
discharge of his duty by the District Treasury Officer who delayed
the issuance of the L.P.C. but since the concerned officer had not
been impleaded as a·party defendant to the suit the Court is unable·
to hold him liable for the decretal amount. It will, however, be for
E
the State Government to consider whether the erring official should
or should not be directed to compensate the Government the loss
sustained by it by his culpable lapses. Such action if taken would
help generate in the officials of the State Government a sense of
duty towards the Government under whom they serve as also a sense
F of accountability to members of the public,

S.R. Petition dismissed,