Natural Justice | Denial of Inquiry Report in Departmental Proceedings Vitiates Penalty; Bombay HC Quashes Compulsory Retirement : Bombay HC (Aurangabad Bench)

The Bombay High Court has reaffirmed that denial of access to the Inquiry Officer’s report in departmental proceedings constitutes a fundamental breach of natural justice, rendering any penalty void. This judgment establishes that even in private sector banking institutions, the right to examine findings before final punishment is non-negotiable under constitutional and regulatory safeguards.

Background & Facts

The Dispute

The petitioner, Mr. Suhas Bandopant Damdhere, a former Assistant Manager with Maharashtra Gramin Bank, was subjected to departmental proceedings alleging financial irregularities in loan disburseals under the Mahatma Jyotirao Phule Shetkari Karjmukti Yojana, 2019 (MJPSKY) at Hatta Branch, and sanctioning of unrecoverable loans worth Rs.49.78 lakh at Wagholi Branch while serving as Branch Manager. The bank initiated disciplinary action culminating in his compulsory retirement.

Key Facts

• The petitioner joined the bank as an Assistant Manager (Probationary Officer) and was confirmed in service in 2017 after probation
• He was posted at multiple branches including Hatta and Wagholi between 2019 and 2021
• On 10.11.2021, he was placed under suspension pending inquiry
• A chargesheet was issued on 15.11.2021 detailing two major charges: (i) improper recommendation of debt waivers under MJPSKY, and (ii) sanctioning of non-performing loans
• The petitioner submitted detailed written explanations denying all allegations
• Between December 2021 and December 2022, the petitioner made repeated written requests for access to inspection reports, investigation records, loan files, and other documents forming the basis of charges
• On 01.12.2021, he specifically requested particulars regarding the alleged Rs.49.78 lakh loss and the documents supporting it; no response was received
• On 18.11.2022, he filed a formal complaint with the Bank’s Chairman alleging procedural bias and non-disclosure
• On 14.12.2022, he applied for substitution of the Inquiry Officer, which was rejected
• He approached the Central Vigilance Commission on 20.12.2022 with similar grievances
• The Inquiry Officer submitted his report on 25.06.2023 without providing a copy to the petitioner
• The Disciplinary Authority issued a show-cause notice on 10.07.2023 proposing compulsory retirement
• The petitioner requested time to file a reply to the Inquiry Officer’s report; this request was ignored
• The Disciplinary Authority passed the order of compulsory retirement on 28.07.2023
• The appellate authority (Board of Directors) dismissed the appeal on 24.11.2023
• The petitioner was not paid subsistence allowance during suspension despite Regulation 46 of the Service Regulations mandating it
• The petitioner received terminal benefits including NPS balance after retirement but did not waive his right to challenge the penalty

Procedural History

• 10.11.2021: Suspension order issued
• 15.11.2021: Chargesheet served
• 01.12.2021: First formal request for documents
• 14.12.2022: Application for substitution of Inquiry Officer rejected
• 18.11.2022: Complaint to Chairman regarding procedural irregularities
• 20.12.2022: Complaint filed with Central Vigilance Commission
• 25.06.2023: Inquiry Officer’s report submitted to Disciplinary Authority
• 10.07.2023: Show-cause notice proposing compulsory retirement
• 15.07.2023: Petitioner requested time to reply to Inquiry Officer’s report; no response
• 28.07.2023: Disciplinary Authority imposed compulsory retirement
• 10.08.2023: Appeal filed before Board of Directors
• 24.11.2023: Appeal dismissed
• 15.01.2025: Writ Petition No.561 of 2025 filed before Bombay High Court, Aurangabad Bench
• 16.06.2026: Judgment reserved
• 22.06.2026: Judgment pronounced

Relief Sought

The petitioner sought:

• Quashing of the compulsory retirement order dated 28.07.2023 and its confirmation on 24.11.2023
• Reinstatement in service with full back wages from 28.07.2023
• Quashing of the suspension order dated 10.11.2021
• Payment of subsistence allowance from 10.11.2021 to 28.07.2023
• Payment of back wages from 28.07.2023 till reinstatement with 12% interest
• Credit of all NPS contributions, leave balances, and salary increments from 10.11.2021
• Reinstatement in Scale II officer cadre under PwBD category
• Compensation for mental agony and defamation

The Legal Issue

The central question was whether the denial of the Inquiry Officer’s report to a delinquent employee before the disciplinary authority imposes penalty violates the principles of natural justice, and whether failure to provide access to material documents relied upon in the charges constitutes a fatal flaw in departmental proceedings.

Arguments Presented

For the Petitioner

The petitioner relied on Managing Director, E.C.I.L., Hyderabad v. B. Karunakar (II) to argue that the Inquiry Officer’s report is an integral part of the evidence against the employee and must be furnished before the disciplinary authority makes its final determination. He contended that Regulation 39 of the Maharashtra Gramin Bank Service Regulations, 2010, mandates a reasonable opportunity to defend, which includes access to all material relied upon. He further cited Moni Shankar v. Union of India to assert that departmental proceedings are quasi-judicial and governed by mandatory natural justice norms. He emphasized that the bank’s refusal to provide documents - forcing him to seek them via RTI - demonstrated bad faith and procedural bias. He argued that non-payment of subsistence allowance under Regulation 46 further prejudiced his ability to mount a defense.

For the Respondent

The respondents contended that the disciplinary proceedings were conducted in accordance with service rules and that the charges were serious enough to warrant termination. They argued that the petitioner had received a chargesheet and an opportunity to submit a written explanation, which satisfied procedural requirements. They relied on State of Punjab v. Krishna Nivas and Union of India v. Gunashekharan to assert that receipt of terminal benefits implied acceptance of the penalty. They claimed the documents sought were internal bank records exempt from disclosure and that the Inquiry Officer’s report was merely advisory.

The Court's Analysis

The Court undertook a detailed examination of Managing Director, E.C.I.L., Hyderabad v. B. Karunakar (II), a Constitution Bench judgment, and held that the principles laid down therein apply universally to all employers - government or private - wherever a departmental inquiry is mandated. The Court emphasized that the Inquiry Officer’s report is not merely an advisory document but forms a critical part of the material considered by the disciplinary authority.

"The findings recorded by the Inquiry Officer do constitute an important material before the disciplinary authority which is likely to influence its conclusions. If the Inquiry Officer were only to record the evidence and forward the same to the disciplinary authority, that would not constitute any additional material before the disciplinary authority of which the delinquent employee has no knowledge. However, when the Inquiry Officer goes further and records his findings... such findings are an additional material unknown to the employee but are taken into consideration by the disciplinary authority while arriving at its conclusion."

The Court observed that the disciplinary authority in this case proceeded to impose compulsory retirement without ever allowing the petitioner to examine or rebut the Inquiry Officer’s findings. This denial was not merely procedural - it was substantive, as it deprived the petitioner of the opportunity to challenge potentially flawed, unsupported, or biased conclusions.

The Court further held that Regulation 39 of the Service Regulations, which requires a reasonable opportunity to defend, cannot be satisfied merely by serving a chargesheet and accepting a written reply. The opportunity must extend to the stage where the disciplinary authority considers the Inquiry Officer’s report. The Court rejected the respondent’s argument that the report was merely advisory, stating: "The stage subsequent to the inquiry report - furnishing the report, issuing notice of proposed penalty, and considering the employee’s reply - is an integral part of the decision-making process."

The Court also noted the bank’s failure to pay subsistence allowance under Regulation 46, which compounded the prejudice by financially crippling the petitioner’s ability to engage counsel or gather evidence. The Court drew an adverse inference from the respondents’ failure to produce any record demonstrating that documents were ever disclosed or objections were considered.

The Court dismissed the argument that receipt of terminal benefits amounted to waiver of rights, citing State of Punjab v. Dhanjeetsingh Sandhu: "No illegal penalty can be validated by acceptance of benefits. The right to challenge an unlawful order remains intact."

The Verdict

The writ petition was allowed. The Court quashed the suspension order dated 10.11.2021, the disciplinary order dated 28.07.2023, and the appellate order dated 24.11.2023. The petitioner was directed to be reinstated in service with full back wages from 28.07.2023, with all salary increments, NPS contributions, and leave balances credited from 10.11.2021. The Bank was directed to pay subsistence allowance for the period of suspension from 10.11.2021 to 28.07.2023. All terminal benefits already paid were not to be recovered. The Bank was ordered to reinstate the petitioner in the Scale II officer cadre. Compliance was mandated within three months from the date of judgment. There was no order as to costs.

What This Means For Similar Cases

Inquiry Report Disclosure Is Mandatory, Not Discretionary

• Practitioners must now argue that any disciplinary proceeding where an Inquiry Officer submits a report must include mandatory disclosure of that report to the employee before final penalty
• This applies even if service rules are silent or prohibit disclosure
• Failure to furnish the report vitiates the entire proceeding regardless of the nature of punishment
• The burden is on the employer to prove disclosure occurred; silence invites adverse inference

Subsistence Allowance Is Not a Privilege but a Right

• Non-payment of subsistence allowance during suspension is a violation of service regulations and undermines the right to a fair hearing
• Financial hardship caused by non-payment can be cited as aggravating factor in natural justice violations
• Employers must ensure timely payment; delays or denials may be grounds for quashing penalties

Terminal Benefits Do Not Waive Legal Rights

• Receipt of NPS, gratuity, or other terminal benefits does not constitute acceptance of an illegal penalty
• Employees retain the right to challenge the legality of disciplinary orders even after receiving such benefits
• Courts will not permit employers to use payment of dues as leverage to silence legitimate challenges