Introduction:
In Bharat Chandra Mallick v. Branch Manager, State Bank of India (W.P.(C) No. 19648 of 2025; 2025 LiveLaw (Ori) 139), the Orissa High Court, in a landmark judgment delivered by Dr. Justice Sanjeeb Kumar Panigrahi, held that a bank has no legal authority to unilaterally debit or deduct money from the pension account of a retired employee merely because such employee stood as a guarantor in a loan that was not repaid. The case arose when the State Bank of India deducted ₹5,00,000 from the joint account of a retired government employee and his wife—who had defaulted on loans for transport and car purchases—without prior notice or consent. The petitioner approached the Court seeking refund of the amount, arguing that the deduction was arbitrary, unlawful, and violated his right to livelihood and property. The judgment, rich in constitutional reasoning, underscores that pension is a protected right under Article 300A and cannot be deprived without legal authority or procedural fairness.
Arguments of the Petitioner:
The petitioner, represented by Advocate Braja Mohan Sarangi, argued that the bank’s act of debiting ₹5,00,000 from his joint account with his wife was arbitrary, illegal, and violative of fundamental and constitutional protections. He contended that the unilateral deduction of pension money—without prior notice or opportunity to be heard—amounted to a blatant breach of the principles of natural justice. The petitioner maintained that his pension constituted his sole source of livelihood, earned after decades of public service, and was protected under Article 300A of the Constitution, which guarantees that no person shall be deprived of his property except by authority of law.
The petitioner further submitted that even if he stood as a guarantor for his wife’s loans, such liability did not authorize the bank to directly appropriate or seize his pension funds. He relied on Section 60(1)(g) of the Code of Civil Procedure, 1908, which explicitly exempts stipends, gratuities, and pensions from attachment in execution of decrees. According to the petitioner, if law prohibits direct attachment of pension funds, the same cannot be indirectly achieved through unilateral debits by the bank. The petitioner also invoked the ratio laid down in Radhey Shyam Gupta v. Punjab National Bank (2008) and State of Jharkhand v. Jitendra Kumar Srivastava (2013), where the Supreme Court recognized pension as a property right and ruled that it cannot be withheld or reduced except by authority of law.
In addition, the petitioner argued that the recovery of the alleged loan amount was not pursued through lawful means such as civil recovery proceedings or the Debt Recovery Tribunal (DRT), but instead through an arbitrary internal adjustment. He asserted that as per banking norms, any recovery from joint accounts must be preceded by consent or judicial authorization. The petitioner pointed out that the loans in question were already classified as Non-Performing Assets (NPA), and that the bank could have invoked statutory remedies under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act or filed a civil suit, but could not act as “judge and executioner” in its own cause.
He also highlighted that no notice was issued to him, depriving him of the opportunity to explain his position. The petitioner could have presented that the loan accounts were allegedly settled under a credit guarantee scheme or proposed an alternate mode of repayment, had he been given an opportunity to respond. Instead, the bank’s arbitrary debit caused him severe financial distress, especially as his pension was his only means of sustenance.
Arguments of the Respondent Bank:
The State Bank of India, represented by Advocate Manoj Kumar Mohapatra-1, defended its action, arguing that it was compelled to recover the defaulted loan amount as public money was at stake. The bank contended that the petitioner had voluntarily executed a guarantee agreement, thereby assuming the liability to repay the loan in the event of default by the principal borrower—his wife. As the loan accounts had become NPAs and despite several notices and reminders neither the borrower nor the guarantor had made any effort to repay, the bank claimed it was entitled to recover its dues from the guarantor’s account.
The bank maintained that as per the terms of the loan and guarantee agreements, it possessed the right to adjust or set off the outstanding dues from any account maintained by the borrower or guarantor with the bank. The respondent submitted that the joint account from which the amount was deducted was held by both the borrower and the guarantor, thus authorizing the bank to appropriate the funds in partial discharge of the outstanding debt. It was argued that such action was within the bank’s contractual rights, especially when the public exchequer was involved.
However, the bank did not dispute that no separate notice was issued before making the deduction, contending that repeated verbal and written reminders had already been given to both the borrower and the guarantor to clear the dues. The bank further justified its action by claiming that it was in good faith, as recovery through litigation would have caused delay and loss to public funds. It therefore urged the Court to view the deduction as a legitimate exercise of its recovery rights and to dismiss the petition.
Court’s Judgment:
Justice Sanjeeb Kumar Panigrahi, after hearing both sides, delivered a detailed and reasoned judgment that reaffirmed the inviolability of pension funds and the primacy of natural justice in financial recoveries. The Court began by observing that the bank’s action of unilaterally debiting the pension account of a retired employee “fails basic norms of natural justice.” It held that pension accounts occupy a distinct and protected category in law, as pensions represent a continuing entitlement that sustains the dignity and livelihood of retired employees.
The Court noted that even though the petitioner had stood as a guarantor, this did not authorize the bank to unilaterally seize funds from his account. Referring to Radhey Shyam Gupta v. Punjab National Bank (2008), the Court reiterated that pensionary benefits cannot be subjected to any attachment or recovery proceedings, directly or indirectly, as such protection is absolute under Section 60(1)(g) CPC. The Court emphasized that what is prohibited by law from being attached cannot be indirectly achieved through internal adjustments or self-help mechanisms by banks.
Justice Panigrahi further invoked the principles laid down by the Supreme Court in State of Jharkhand v. Jitendra Kumar Srivastava (2013), where it was categorically held that pension is not a matter of generosity or charity but a constitutionally protected right. Pension, the Court observed, forms part of the right to life with dignity guaranteed under Article 21 of the Constitution, and also qualifies as “property” under Article 300A. Therefore, any deprivation of pension without authority of law constitutes a violation of constitutional rights.
The Court took particular exception to the procedural irregularity of the bank’s action, observing that “a unilateral debit from a customer’s account, especially when it consists of pension money, is an extreme step.” The petitioner, the Court held, was entitled to at least a notice or demand and an opportunity to explain why the deduction should not be made. The Court emphasized that even if a bank claims contractual rights, those rights must yield to procedural fairness and constitutional safeguards. Arbitrary recovery without notice, the Court held, amounts to an abuse of power and denial of due process.
The judgment further clarified that the existence of a joint account does not automatically confer upon the bank the right to appropriate funds belonging to one account holder to discharge the debt of another. Unless both holders are co-debtors or unless express authorization is provided, such unilateral recovery is impermissible. The Court reasoned that in the instant case, the petitioner’s status as guarantor did not equate to that of co-borrower, and thus, his pension funds could not be treated as an asset for direct adjustment.
Justice Panigrahi’s reasoning reflected a constitutional and humanitarian approach. He underscored that the right to pension is intimately linked with the right to livelihood, especially for retired government employees who depend on it for survival. He remarked that when banks resort to coercive recoveries from pension accounts, they not only breach statutory protections but also strike at the very core of human dignity protected under Article 21.
Balancing the equities, the Court acknowledged the bank’s right to recover public money but stressed that such recovery must be through lawful means, such as initiating appropriate proceedings before competent authorities or tribunals, and not through unilateral acts. The Court stated, “The petitioner was entitled to at least a notice or demand, and an opportunity to be heard on why the sum was being taken. He could have, for instance, pointed out his contention that the loans had been settled under a credit guarantee scheme, or offered an alternate repayment plan. By bypassing any dialogue or process, the Bank’s action was arbitrary.”
Accordingly, the Court held the unilateral debit of ₹5,00,000/- from the petitioner’s account as illegal, arbitrary, and unsustainable in law. It directed the bank to refund the said amount to the petitioner within four weeks from the date of judgment. However, the Court clarified that the bank was free to recover the outstanding dues through lawful means—either by approaching appropriate forums or initiating proper recovery proceedings in accordance with law.
Justice Panigrahi concluded by reiterating that the sanctity of pension funds cannot be compromised, even in the face of contractual liabilities. The judgment stands as a stern reminder to financial institutions that procedural fairness and constitutional protections must guide their actions, especially when dealing with vulnerable sections such as pensioners.