Banks Can’t Override Pay Fixation of Ex-Servicemen fixed by Govt

The Supreme Court has clarified that the pay fixation of re-employed ex-servicemen is governed exclusively by the 2014 Central Government guidelines, and banks cannot override them through their own circulars. The Court further held that reducing an employee’s salary without granting a chance to be heard violates the principles of natural justice, making such administrative action legally invalid.

Case Background

The appellants, retired personnel of the Indian Navy, were re-employed by Punjab National Bank (PNB) between 2015 and 2017 as Single Window Operators. Their salaries were initially fixed at higher levels – four received ₹40,710 and one received ₹34,160.

In 2018, however, the Indian Banks’ Association (IBA) issued a clarification that capped the maximum basic pay for re-employed ex-servicemen at ₹31,540. Acting on this, PNB issued a circular and reduced the appellants’ pay in July 2018. The bank justified the decision by stating that the earlier fixation was an error and that their combined pay and pension exceeded the minimum pay of a General Manager.

High Court Proceedings

The affected ex-servicemen challenged this reduction before the Kerala High Court. A Single Judge ruled in their favor in April 2019, quashing the bank’s order and directing repayment of arrears. However, in February 2020, a Division Bench overturned this judgment, agreeing with the bank that the reduction was necessary. Dissatisfied, the ex-servicemen approached the Supreme Court through a Special Leave Petition.

Supreme Court’s Observations

The Supreme Court analyzed the 2014 government guidelines, which carry statutory force. It found that the IBA’s clarification and PNB’s circular could not override these guidelines. By ignoring the 2014 rules, the bank’s decision to reduce salaries was fundamentally flawed.

The Court also emphasized that reducing salary has serious financial consequences. Such an action cannot be taken without giving the employees a chance to present their case. Since PNB failed to provide this opportunity, the move was deemed a violation of natural justice.

The Supreme Court set aside the Kerala High Court Division Bench’s ruling and restored the relief granted by the Single Judge. The bank’s re-fixation orders were quashed, and PNB was directed to re-fix the appellants’ pay strictly in accordance with the 2014 guidelines, ensuring protection of last drawn pay plus dearness allowance.

Additionally, all recoveries made due to the illegal pay reduction were ordered to be refunded. The Court also mandated that any future pay cuts must be preceded by a proper hearing. Both parties were directed to bear their own costs.

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