Delhi High Court
Federation Of Retired Lic Class I ... vs Uoi & Ors. on 27 April, 2017
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 184/2007
% Reserved on : 21st February, 2017
Pronounced on: 27th April, 2017
FEDERATION OF RETIRED LIC CLASS I OFFICER..... Petitioner
Through Mr. Rakesh Khanna, Sr. Advocate with
Mr. Rajiv K. Garg, Mr.Ashish Garg, Ms. Mahima
Rathi & Mr. S. Bushra Kazim, Advocates.
versus
UOI & ORS. ..... Respondents
Through Mr. Dayan Krishnan, Sr. Advocate with
Mr. Ashok Panigrahi, Mr. Surajit Bhaduri &
Ms.Aakashi Lodha, Advocates for LIC.
Ms. Abha Malhotra, Mr. Sanjay Kumar Yadav &
Mr. Tanuj Chopra, Advocates for UOI.
+ W.P.(C) 9440/2016
LIFE INSURANCE CORPORATION OF INDIA ..... Petitioner
Through Mr. Dayan Krishnan, Sr. Advocate with
Mr. Ashok Panigrahi, Mr. Surajit Bhaduri &
Ms.Aakashi Lodha, Advocates for LIC.
versus
KRISHNA MURARI LAL ASTHANA & ORS. ..... Respondents
Through Nemo.
+ W.P.(C) 9442/2016
LIFE INSURANCE CORPORATION OF INDIA &ORS.. Petitioners
Through Mr. Dayan Krishnan, Sr. Advocate with
Mr. Ashok Panigrahi, Mr. Surajit Bhaduri &
Ms.Aakashi Lodha, Advocates for LIC.
versus
WP(C)184/2007 & Connected matters Page 1 of 90
KRISHNA MURARI LAL ASTHANA & ANR. ..... Respondents
Through Nemo.
+ W.P.(C) 9441/2016
KRISHNA MURARI LAL ASTHANA & ORS. ..... Petitioners
Through Nemo.
versus
LIFE INSURANCE CORPORATION OF INDIA & ANR.
..... Respondents
Through Mr. Dayan Krishnan, Sr. Advocate with
Mr. Ashok Panigrahi, Mr. Surajit Bhaduri &
Ms.Aakashi Lodha, Advocates for LIC.
+ W.P.(C) 5903/2016
ALL INDIA RETIRED INSURANCE EMPLOYEES FEDERATION
..... Petitioner
Through Mr. Nidesh Gupta, Sr. Advocate with
Mr.R.K. Singh, Mr. B.N. Dubey & Ms. Vriti
Gujral, Advocates.
versus
LIFE INSURANCE CORPORATION OF INDIA & ANR.
..... Respondents
Through Mr. Dayan Krishnan, Sr. Advocate with
Mr. Ashok Panigrahi, Mr. Surajit Bhaduri &
Ms.Aakashi Lodha, Advocates for LIC.
Mr. Bhagvan Swarup Shukla, CGSC &
Mr.Shambhu Chaturvedi, Advocate for UOI.
+ W.P.(C) 5868/2016
ALL INDIA INSURANCE PENSIONERS ASSOCIATION AND
ORS. ..... Petitioners
Through Mr. Som Dutt Sharma, Advocate.
versus
WP(C)184/2007 & Connected matters Page 2 of 90
UNION OF INDIA AND ORS. ..... Respondents
Through Mr. Dev P. Bhardwaj, CGSC &
Mr.Surender Kumar, Advocate for UOI.
Mr. Dayan Krishnan, Sr. Advocate with Mr. Ashok
Panigrahi, Mr. Surajit Bhaduri & Ms. Aakashi
Lodha, Advocates for LIC.
+ W.P.(C) 4894/2016
RETIRED LIC CLASS I OFFICERS ASSOCIATION HYDERABAD
..... Petitioner
Through Mr. Nidesh Gupta, Sr. Advocate with
Mr.Ashish Tiwari, Mr. Samar Agrawal & Mr. S.
Murthy, Advocates.
versus
LIFE INSURANCE CORPORATION OF INDIA AND ANR.
..... Respondents
Through Mr. Dayan Krishnan, Sr. Advocate with
Mr. Ashok Panigrahi, Mr. Surajit Bhaduri &
Ms.Aakashi Lodha, Advocates for LIC.
Mr. Vivek Goyal, CGSC & Ms. Vanya Khanna,
Advocate for UOI.
+ W.P.(C) 3984/2016
KRISHNA MURARI LAL ASTHANA ..... Petitioner
Through Mr. Kumar Gaurav & Mr. P. Dayal,
Advocates.
versus
UNION OF INDIA AND ORS. ..... Respondents
Through Mr. Ripu Daman Bhardwaj, CGSC,
Mr.T.P. Singh & Ms. Abha Malhotra, Advocates
for UOI.
Mr. Dayan Krishnan, Sr. Advocate with Mr. Ashok
Panigrahi, Mr. Surajit Bhaduri & Ms. Aakashi
Lodha, Advocates for LIC.
+ W.P.(C) 3983/2016
WP(C)184/2007 & Connected matters Page 3 of 90
MADAN LAL GANDHI AND ORS. ..... Petitioners
Through Mr. Jay Savla & Mr. Bharat Aggarwal,
Advocates.
versus
UNION OF INDIA AND ORS. ..... Respondents
Through Mr. Ripu Daman Bhardwaj, CGSC,
Mr.T.P. Singh & Ms. Abha Malhotra, Advocates
for UOI.
Mr. Dayan Krishnan, Sr. Advocate with Mr. Ashok
Panigrahi, Mr. Surajit Bhaduri & Ms. Aakashi
Lodha, Advocates for LIC.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE CHANDER SHEKHAR
SANJIV KHANNA, J.
This common judgment would dispose of the aforestated writ petitions
and Civil Appeals / Letters Patent Appeals.
2. Writ Petition (C) No.184/2007, Federation of Retired LIC Class -I
Officers and Ors. Vs. Union of India and Ors. was earlier disposed of
by a short order dated 30th January, 2013 relying upon the decision of a
Single Judge of the Jaipur Bench of the Rajasthan High Court, affirmed
by the Division Bench in Civil Special Appeal (W)No.493-494/2010,
Life Insurance Corporation Vs. Kishan Murari Lal Asthana and Anr.
The decision of the Division Bench of the Rajasthan High Court, order
of this court dated 30th January, 2013 and decision of the Punjab &
Haryana High Court dated 9th November, 2012 in Madan Lal Gandhi
& Others v. Union of India & Others, CWP 16346/2010 (again relying
upon the decision of the Rajasthan High Court), were made subject
matter of challenge before the Supreme Court in Civil Appeal Nos. 8959
to 8962/2013, 6995/2013, 9223/2013 and 9409-10/2013.
3. The Supreme Court after referring to the Life Insurance Corporation
Act, 1956 (for short, ‗the LIC Act'), vide judgment and order dated 31st
March, 2016, held that the Board Resolution dated 24th November, 2001
to amend the LIC of India (Employees) Pension Rules, 1955 (Pension
Rules for short), for upgrading the basic pension to All India Consumer
Price Index of 1740 point and 100 per cent dearness allowance
neutralization thereon in respect of retirees prior to 1 st August, 1997 was
non est and would not confer any legal right. On perusal of Section 48 of
the LIC Act, it was clear as crystal that conferment of benefit, either
pensionary or anything ancilliary thereto, has to be conferred by the
Pension Rules, and as prescribed the Rule has to be tabled before
Parliament. In absence of a rule, no benefit could be granted on the basis
of the resolution.
4. Having held so, the Supreme Court noticed the second facet of the
controversy relating to challenge to the legality of paragraph 3(A) of
Appendix-IV restrictively applicable to employees, who had retired on
or after 1st day of August, 1997 and not to the employees who had
retired earlier in point of time, and the following order was passed:
―21. It is urged by Mr. Gupta that once the employees
are covered under Para 3A, being retirees after the cut-off
date, the benefit cannot remain static but has to change with
the pay revisions regard being had to the price index, for
otherwise the provision does not spring to life and,
eventually, paves the path of arbitrariness. He has heavily
relied on paragraphs 34, 35 and 39 of Kallakkurichi Taluk
Retired Officials Association, Tamil Nadu and others v.
State of Tamil Nadu apart from other paragraphs. We may
hasten to add that we have referred to this aspect in extenso
as Mr. Gupta would submit that nonconferment of the
benefit of the dearness relief keeping in view the subsequent
pay revisions of the similarly situated employees leads to
disastrous effect and in a way allows room for absurdity.
Learned senior counsel has given an example to highlight as
to how the absurd situation can creep in. It is urged by him
that if an Executive Director stood retired sometime in 1997,
he would get approximately Rs.7,000/- towards pension,
whereas a person working in Class III, if he retires
subsequently would get approximately double of the said
amount.
22.We have already stated that the High Court of Delhi has
really not adverted to as regards the constitutional validity of
Para 3A of the Appendix. As far as the other delineations or
deliberations are concerned, the High Court of Punjab &
Haryana at Chandigarh has also not independently dealt with
the controversy, but followed the decision rendered by the
Rajasthan High Court. We have already adverted to the
reasoning of the High Court of Rajasthan inasmuch as it has
referred to the scheme of the Act, recorded the concession of
the counsel for the Union of India and proceeded to apply
the inherent principle enshrined in Article 14 of the
Constitution, though constitutional validity was not
challenged. Be it stated, there are two categories of
employees, namely, the employees who have retired prior to
the cut-off date i.e. 1st August, 1997, as a consequence of
which they are not getting the benefit of dearness relief, and
the employees who have retired after the said date but are
not extended the benefit of dearness relief despite
subsequent pay revisions. Needless to say, the quantum of
pension is affected.
23.Regard being had to the piquant situation, we are inclined
to set aside the orders passed by the High Courts of
Rajasthan, Delhi and Punjab & Haryana at Chandigarh and
transfer the writ petitions from the High Courts of Rajasthan
and Punjab & Haryana to the High Court of Delhi, which
will decide the constitutional validity of Para 3A of the
Appendix to the Rules, as argued by Mr. Panchu, learned
senior counsel appearing for the respondents, and also deal
with the cases of the persons, who have retired after the cut-
off date, consider the contentions raised by Mr. Gupta,
learned senior counsel and the other contentions to be raised.
However, we may clarify that we have not expressed any
opinion on the merits of the case, except that the resolution
could not become operative unless it was conferred the
status of a rule as provided under Section 48 of the Act.‖
5. It was also directed that the cases pending before the Rajasthan High
Court and the Punjab & Haryana High Court would be decided by the
Delhi High Court. In paragraph 29 of the said order the following
direction were issued.
―29. As we are transferring the cases to Delhi High
Court, the Registry of the High Courts of Punjab &
Haryana and Rajasthan shall send the papers to the High
Court of Delhi within three weeks hence. The learned
Chief Justice of the High Court of Delhi is requested to
constitute a Bench within four weeks from today. We
grant liberty to the writ petitioners to file requisite
amendments, if so advised. Counter affidavit to the same
shall be filed by the contesting parties within three weeks
from the date of filing the amendments. The High Court
is requested to dispose of the writ petitions by the end of
August, 2016. We ingeminate that we have not expressed
any opinion with regard to any of the aspects of the
matter, except what we have finally concluded, namely,
that the resolution could not have been given effect to
without framing a rule by the Central Government. Till
the matter is decided by the High Court of Delhi, no other
High Court shall proceed with the similar matters, as it is
desirable that a singular judgment is passed so that the
validity of the same can be adjudged.‖
6. The Supreme Court by an interim order dated 7th May, 2015 had directed
that the Life Insurance Corporation (Corporation for short) shall release
20% of the amount in favour of the retired employees within six weeks,
subject to final result. The controversy had arisen whether or not the
Corporation had paid the said amount as the retired employees had
contested the Corporation's claim. The Supreme Court, vide judgment
and order dated 31st March, 2016, directed that the Corporation shall
pay 40% as per paragraph 3(A) of Appendix IV to each of the retired
employees and would file an affidavit to the said effect before the High
Court. The amount already deposited by the Corporation before the
Supreme Court was allowed to be withdrawn to be paid to the retired
employees. Directions were also issued that the High court would
decide the controversy, viz. whether or not the payment had been made
to the employees, in terms of the directions given by the Supreme Court.
7. The aforesaid issue was decided by the Division Bench of the High
Court on 11th November, 2016 accepting the contention of the
Corporation that they had complied with the directions given by the
Supreme Court in the order, observing that paragraph 3(A) of Appendix-
IV dealt only with dearness relief payable on the basic pay and not
computation of the basic pension. The Supreme Court had not directed
enhancement or increase of basic pension by 40%.
8. In view of the aforesaid discussion, the issue which survives for
consideration and has to be answered, relates to the validity of Rule 3(A)
which is restricted to employees who have retired or died on or after 1st
day of August, 1997. This, as noticed below, is not the primary issue.
The core issue is the prayer of the retired employees/ associations that all
retirees prior to 1st August, 1997 should be given full neutralization and
upgradation of basic pension with effect from 1st August, 1997, ensuring
uniform pension for all retired employees, irrespective of the date of
retirement and emoluments drawn at the time of retirement. In other
words, the retired employees seek enforcement of the precept of ―One
Rank One Pension‖, by judicial verdict contrary to the Rule position.
9. The Corporation, i.e. Life Insurance Corporation of India, is established
under Section 3 of the LIC Act. As per Section 48 power to determine
terms and conditions of service of employees of the Corporation are
vested with the Central Government. Section 6 mandates that the
Corporation shall carry on Life Insurance business and shall so exercise
its powers as to secure that the Life Insurance Business is developed to
the best advantage of the community. Sub-section 3 to Section 6 states
that in the discharge of any of its functions, the Corporation shall act so
far as may be on business principles. Section 24 states that the
Corporation shall have its own fund and all receipts of the Corporation
shall be credited thereto and all payments of the Corporation shall be
made therefrom. Section 26 provides that the Corporation shall, once at
least in every two years cause an investigation to be made by actuaries
into the financial conditions of the business of the Corporation,
including a valuation of the liabilities of the Corporation, and submit
report of the actuaries to the Central Government. Section 28 of the Act
makes it mandatory for the Corporation to reserve or allocate 95% or
more of the surplus, as the Central Government may approve, to the life
insurance policy holders. After meeting the liabilities of the Corporation
that may arise under Section 9, the remainder shall be paid to the Central
Government or utilized for such purposes and in such manner as
directed. In this manner, 95% or more surplus is allocated/transferred for
being paid as bonus etc. to the policy holders.
10. Consequent upon discussions held with the employees' Unions, in
exercise of power vested under section 48 of the Act, the Central
Government had notified the Pension Rules i.e. LIC of India
(Employees) Pension Rules 1995 vide gazette notification dated 28th
June, 1995. The Pension Rules framed, it is apparent, were based upon
consensus and understanding between the Corporation, the Central
Government and the Employees' Unions.
11. Earlier the employees of the Corporation were covered under the
Compulsory Contributory Provident Fund as per Employees Provident
Fund and Miscellaneous Provisions Act, 1952. The Scheme required
opening of an account for the employees by the employer with an
obligation of the employer, i.e. the Corporation, to make an equal
contribution to that made by the employee in his account till he retires.
On retirement the entire contributory provident fund amount was paid to
the employees as retirement benefit. Thus on the retirement of the
employee, the Corporation was not under obligation to contribute or pay
any further amount to the said fund of the employee.
12. For the sake of convenience, we would like to reproduce Rules 3 and 4
of the Pension Rules in entirety.
3. Application - These rules shall apply to employees
who,- (1) (a) were in the service of the Corporation on or
after the 1st day of January, 1986 but had retired before
the 1st day of November, 1993; and
(b) exercise an option in writing within one hundred and
twenty days from the notified date to become member of
the Fund; and
(c) refund within sixty days after the expiry of the said
period of one hundred and twenty days specified in
clause(b), the entire amount of the Corporation's
contribution to the Provident Fund including interest
accrued thereon together with a further simple interest at
the rate of six per cent per annum on the said amount
from the date of settlement of the Provident Fund account
till the date of refund of the aforesaid amount to the
Corporation; or
(2) (a) have retired on or after the 1st day of November,
1993 but before the notified date; and
(b) exercise an option in writing within one hundred and
twenty days from the notified date to become member of
the Fund; and
(c) refund within sixty days after the expiry of the said
period of one hundred and twenty days specified in
clause (b), the entire amount of the Corporation's
contribution to the Provident Fund and interest accrued
thereon together with a further simple interest at the rate
of twelve per cent per annum on the said amount from the
date of settlement of the Provident Fund account till the
date of refund of the aforesaid amount to the Corporation;
or
(3) (a) are in the service of the Corporation before the
notified date and continue to be in the service of the
Corporation on or after the notified date; and
(b) exercise an option in writing within one hundred and
twenty days from the notified date to become member of
the Fund; and
(c) authorise the trust of the Provident Fund to transfer
the entire contribution of the Corporation to their
Provident Fund alongwith the interest accrued thereon to
the credit of the Fund constituted for the purpose under
rule 5; or
(4) join the service of the Corporation on or after the
notified date; and
(5) were in the service of the Corporation during any time
on or after the 1st day of November, 1993 and had died
after retirement but before the notified date, their family
shall be entitled for the amount of pension payable to
them from the date on which they would have been
entitled to pension under these rules had they been alive
till the date on which they died, if the family of the
deceased-
(a) exercise an option in writing within one hundred and
twenty days from the notified date to become member of
the Fund; and
(b) refund within sixty days after the expiry of the said
period of one hundred and twenty days specified in
clause (a) above, the entire amount of the Corporation's
contribution to the Provident Fund and interest accrued
thereon together with a further simple interest at the rate
of twelve per cent per annum from the date of settlement
of the Provident Fund account till the date of refund of
the aforesaid amount to the Corporation ; or
(6) joined the service of the Corporation on or after the
1st day of November, 1993 but who have died while in
the service of the Corporation before the notified date,
their family shall be entitled to the family pension under
these rules;
Provided that the family of such a deceased employee
refunds within one hundred and eighty days from the
notified date the entire amount of the Corporation's
contribution to the Provident Fund, if any, and interest
accrued thereon together with further simple interest at
the rate of twelve per cent per annum from the date of
settlement of the Provident Fund account till the date of
refund of the aforesaid amount to the Corporation;
Provided further that the family of such a deceased
employee shall apply in writing for grant of family
pension; or
(7) were in the service of the Corporation during any time
on or after the 1st day of January, 1986 and had died
while in service on or before the 31st day of October,
1993 or had retired on or before the 31st day of October,
1993 but died before the notified date in which case their
family shall be entitled to the family pension under these
rules, if the family of the deceased, -
(a) exercises an option in writing within one hundred and
twenty days from the notified date to become member of
the Fund; and
(b) refund within sixty days after the expiry of the said
period of one hundred and twenty days specified in
clause (a) above, the entire amount of the Corporation's
contribution to the Provident Fund and interest accrued
thereon together with a further simple interest at the rate
of six per cent per annum from the date of settlement of
the Provident Fund account till the date of refund of the
aforesaid amount to the Corporation; or
(8) joined the service of the Corporation on or before the
31st day of October, 1993 and who died while in service
on or after the 1st day of November, 1993, but before the
notified date in which case their families shall be entitled
to family pension under these rules if the family of the
deceased employee-
(a) exercises an option in writing within one hundred and
twenty days from the notified date to become a member
of the Fund; and
(b) refund within sixty days from the date of expiry of the
said period of one hundred and twenty days specified in
clause (a) above, the entire amount of the Corporation's
contribution to the Provident Fund, including interest
accrued thereon, together with a further simple interest at
the rate of twelve per cent per annum from the date of
settlement of the Provident Fund account of the employee
till the date of refund of the aforesaid amount to the
Corporation.
4. Option to subscribe to the Provident Fund - (1)
Notwithstanding anything contained in sub-rule (4) of
rule 3, an employee who joins the service of the
Corporation on or after the notified date at the age of
thirty-five years or more, may, within a period of ninety
days from the date of his appointment, elect to forego his
right to pension, whereupon these rules shall not apply to
him.
(2) The option referred to in sub-rule (1) and in rule 3,
once exercised, shall be final.‖
13. Rule 3 of the Pension Rules postulate and classify the employees into
four categories, namely, (i) those who had retired on or after 1st day of
January, 1986 and before 1st day of November, 1993, (2) those who had
retired on or after 1st day of November, 1993 but before the notified date,
i.e. 28th June, 1995 (3) those who are in service of the Corporation
before the notified date and continue to be in service and (4) lastly those
who joined the service of the Corporation on or after the notified date.
In respect of the 1st three categories, option was given to the retired or in
service employee to give in writing within the time specified whether
they want to become members of the Pension Scheme. Retired
employees, on exercising the option, had to refund the entire amount of
the Corporation's contribution to the provident fund with simple interest
@ 6% per annum in the case of employees who had retired before 1st
November, 1993 and 12% per annum by others, who had retired on or
after 1st November, 1993 and before the notified date, from the date of
the settlement of provident fund account till the date of refund.
14. On the question of computation of pension, we would like to reproduce
clauses (d), (o) and (p) of Rule 2, which is the interpretation provision
as originally enacted, and Rule 35, which read as under:
2. Definitions - In these rules, unless the context
otherwise requires -
xxx
(d) ―average emoluments‖ means the average of the pay
drawn by an employee during the last ten months of his
service;
XXXX
(o) "pay‖ includes,-
(a) In relation to an employee who has retired or died on
or after the 1st day of January, 1986 but before the last
day of November, 1993.
(i) the basic pay including the stagnation increments if
any; and
(ii) all allowances counted for the purpose of making
contribution to the Provident Fund and for the payment
of dearness allowance; and
(b) In relation to an employee who retires or dies while
in service on or after the 1st day of November, 1993.
(i) the basic pay including the stagnation increments if
any; and
(ii) all allowances counted for the purpose of making
contribution to the Provident Fund and for the payment
of dearness allowance; and
(iii) fixed personal allowance not exceeding the last
increment in the scale of pay; and
(iv) dearness allowance calculated upto Index No.1148
in the All India Average Consumer Price Index for
Industrial workers in the series 1960=100.
XXXX
(p) ―pension‖ includes the basic pension and the
additional pension referred to in Chapter VI of these
rules;‖
XXXX
"35. Amount of Pension - (1) In respect of employees
who retired between the 1st day of January, 1986 but before
the 31st day of July, 1987, basic pension and additional
pension will be updated as per the formula given in
Appendix-III.
(2) In the case of an employee retiring in accordance with the
provisions of the Service Rules or of the Staff Regulations
after completing a qualifying service of not less than thirty
three years the amount of basic pension shall be calculated at
fifty per cent. of the average emoluments.
(3) (a) Additional pension shall be fifty per cent. of the
allowances drawn by an employee during the last ten months
of his service;
(b) no dearness relief shall be paid on the amount of
additional pension.
Explanation -- For the purpose of this sub-rule ―allowances‖
means allowances which are admissible to the extent
counted for the following purposes only, namely:-
(i) making contributions to the Provident Fund;
(ii) grant of house rent allowance;
(iii) payment of gratuity; and
(iv) re-fixation of salary on promotion.
(4) Pension as computed being the aggregate of sub-rules (2)
and (3) above shall be subject to the minimum pension as
specified in these rules.
(5) An employee who has commuted the admissible portion
of his pension as per the provisions of rule 41 of these rules
shall receive only the balance of pension, monthly.
(6) (a) In the case of an employee retiring before completing
a qualifying service of thirty-three years, but after
completing a qualifying service of ten years, the amount of
pension shall be proportionate to the amount of pension
admissible under sub-rules (2) and (3) and in no case the
amount of pension shall be less than the amount of minimum
pension specified in these rules.
(b) Notwithstanding anything contained in these rules, the
amount of invalid pension shall not be less than the ordinary
rate of family pension which would have been payable to his
family in the event of his death while in service.
(7) The amount of pension finally determined under this rule
shall be expressed in whole rupee and where the pension
contains a fraction of a rupee, it shall be rounded off to the
next higher rupee.‖
15. Clause (o) to Rule 2 defining the term pension was amended vide
Government notification dated 14th May, 1999, to read:-
(o) "pay‖ includes,-
(i) the basic pay including the stagnation increments if
any; and
(ii) all allowances counted for the purpose of making
contribution to the Provident Fund and for the payment
of dearness allowance; and
(iii) fixed personal allowance not exceeding the last
increment in the scale of pay; if any, and
(iv) in a case covered by the proviso to clause (j) or
where the salary and other conditions have been fixed
with the approval of the Central Govt., the dearness
allowance calculated upto Index No.1148 in the All
India Average Consumer Price Index for Industrial
workers in the series 1960=100 applied on the basic pay
drawn by him in the scale of pay notified by the Central
Govt., for the post.
Provided that for the purpose of calculating average
emoluments, as defined under sub-clause (d) of rule 2,
in respect of employees whose ten months' period
before retirement falls partly under pre-revised pay
scales and partly under the revised pay scales, the pay
for the period for which they have drawn pay as per
pre-revised scales may be updated by including the
dearness allowance actually drawn by them or the
dearness allowance upto the AICPI to which the revised
basic pay is pegged, whichever is less.
Clause (j) to Rule 2 which defines the expression ―employee‖ referred
to in clause (iv) of clause (o) reads:-
―(j) ―employee‖ means any person employed in the
service of the Corporation on full-time work on
permanent basis and who opts and is governed by these
rules but does not include an employee retired before
the commencement of these rules and who is drawing
pension from the Pension Fund of the Oriental
Government Security Life Assurance Company
Limited in accordance with sub-regulation (2) of
regulation 76 of the Life Insurance Corporation of
India (Staff) Regulations, 1960, made under the Act;‖
16. Rule 38 which relates to determination of the period of ten months for
average emoluments, reads:-
―38. Determination of the period of ten months for
average emoluments -
(1) The period of the preceding ten months for the
purpose of average emoluments shall be reckoned from
the date of retirement.
(2) In the case of voluntary retirement the period of the
preceding ten months for the purpose of average
emoluments shall be reckoned from the date on which the
employee voluntarily retires.
(3) In the case of dismissal or removal or compulsory
retirement or termination of service the period of the
preceding ten months for the purpose of average
emoluments shall be reckoned from the date on which the
employee is dismissed or removed or compulsorily
retired or terminated by the Corporation.
(4) If during the last ten months of the service an
employee had been absent from duty on extraordinary
leave on loss of pay or had been under suspension and the
period whereof does not count as service, the aforesaid
period of extraordinary leave or suspension shall not be
taken into account in the calculation of the average
emoluments and an equal period before the ten months
shall be included.‖
17. Rule 37 relates to dearness relief and reads as under:
"Dearness Relief - (1) Dearness relief shall be granted
on basic pension or family pension or invalid pension or
on compassionate allowance in accordance with the rates
specified in appendix IV.
(2) Dearness relief shall be allowed on full basic pension
even after commutation.‖
18. Appendix IV referred to in Rules 37 is as under:
"Dearness relief on basic pension shall be as under:
(1) In the case of employees who retired on or after the
1st day of January, 1986, but before the 1st day of
November, 1993, dearness relief shall be payable for
every rise or be recoverable for every fall, as that case
may be of every 4 points over 600 points in the quarterly
average of the All India Average Consumer Price Index,
for Industrial Workers in the series 1960 = 100. Such
increase or decrease in dearness relief for every said four
points shall be calculated in the manner given below:
Scale of basic The rate of dearness
pension per month relief as a percentage of
basic pension
(i) upto Rs.1250/- 0.67 per cent
(ii) Rs.1251/- to 0.67 per cent of Rs.1250
Rs.2,000/- plus 0.55 per cent of basic
pension in excess of
Rs.1250/-
(iii) Rs.2001/- to 0.67 per cent of Rs.1250/-
Rs.2130/- plus 0.55 per cent of the
difference between
Rs.2000/- and Rs.1250/-
plus 0.33 per cent of basic
pension in excess of
Rs.2000/-
(iv) aboveRs.2130/- 0.67 per cent of Rs.1250/-
plus 0.55 per cent of the
difference between
Rs.2000/- and Rs.1250/-
plus 0.33 per cent of the
difference between
Rs.2130/- and Rs.2000/-
plus 0.17 per cent of basic
pension in excess of
Rs.2130/-
(2) In the case of employees who retire on or after the
1st day of November, 1993, dearness relief shall be
payable for every rise or be recoverable for every fall, as
the case may be, of every 4 points over 1148 points in the
quarterly average of the All India Average Consumer
Price Index for Industrial Workers in the series 1960 =
100. Such increase or decrease in dearness relief for
every said four points shall be calculated in the manner
given below:
Scale of basic The rate of dearness relief
pension per month as a percentage of basic
pension
(i) upto Rs.2400/- 0.35 per cent
(ii) Rs.2401 to 0.35 per cent of Rs.2,400/-
plus 0.29 per cent of basic
Rs.3850/- pension in excess of
Rs.2,400/-
(iii) Rs.3,851 to 0.35 per cent of Rs.2,400/-
plus 0.29 per cent of the
Rs.4,100/- difference between Rs.3,850
and Rs.2,400/- plus 0.17 per
8 cent of basic pension in
excess of Rs.3,850/-
(iv) above Rs.4,100/- 0.35 per cent of Rs.2,400/-
plus 0.29 per cent of the
difference between Rs.3,850
and Rs.2,400/- plus 0.17 per
cent of the difference
between Rs.4,100/- and
Rs.3,850/- plus 0.09 per cent
of basic pension in excess of
Rs.4,100/-
(3) Notwithstanding anything contained in Para (1)
and Para (2), in respect of employees belonging to Class-
III and Class-IV, who have retired on or after the 1st day
of August, 1992 and in respect of Officers belonging to
Class-I and Class-II, retired on or after 1st day of April,
1993, dearness relief shall be payable or be recoverable
as may be determined from time to time.
3(A) In case of employees who have retired or died on or
after the 1st day of August 1997, the dearness relief shall
be payable for every rise or to be recoverable for every
fall, as the case may be, of every 4 points over 1740
points in the quarterly Average Consumer Price Index for
Industrial Workers in the series of 1960 = 100 Such
increase or decrease in dearness relief for every said 4
points shall be at the rate of 0.23 per cent of the Basic
Pension;
3(B) In case of any wage revision in future the rate of
dearness relief payable to an employee shall be
determined by the Corporation corresponding to the
index to which the case is linked.
(The Corporation has determined that in case of
employees who have retired or died on or after the 1st
day of August 2002, the dearness relief shall be payable
for every rise or to be recoverable for every fall, as the
case may be, of every 4 points over 2328 points in the
quarterly Average Consumer Price Index for Industrial
Workers in the series of 1960 = 100 Such increase or
decrease in dearness relief for every said 4 points shall
be at the rate of 0.18 per cent of the Basic Pension).
(4) Dearness relief shall be payable for the half year
commencing from the 1st day of February and ending
with 31st day of July on the quarterly average of the
index figures published for the months of October,
November and December of the previous year and for the
half year commencing from the 1st day of August and
ending with the 31st day of January on the quarterly
average of the index figures published for the months of
April, May and June of the same year.
(5) In the case of family pension, invalid pension and
compassionate allowance, dearness relief shall be payable
in accordance with the rates mentioned above.
(6) Dearness relief will be allowed on full basic pension
even after commutation.
(7) Dearness relief is not payable on additional pension.‖
19. There is also stipulation with regard to minimum pension in Rule 36,
which is as under:
"36. Minimum pension - The amount of minimum
pension shall be,-
(a) rupees three hundred and seventy five per month in
respect of an employee, belonging to ClassIII or Class-
IV, who had retired or died before 1st August,1992 and
in respect of employee belonging to Class-I or Class-II,
who had retired or died before 1st day of April, 1993.
(b) rupees seven hundred and twenty per month in respect
of an employee belonging to Class-III or Class-IV, who
had retired or died on or after 1st August, 1992, and in
respect of an employee belonging to Class-I or Class-II,
who had retired or died on or after 1st April, 1993.
(c) rupees 1,100/- per month in respect of employees
belonging to Class-I, Class-II, Class-III and Class-IV,
who have retired or died on or after the first day of
August, 1997;
(d) in case of any wage revision in future the amount of
minimum pension payable to an employee shall be
determined by the Corporation corresponding to the
index to which the scale is linked‖
20. Lastly, we will refer to the provisions relating to the pension fund.
Rules 5, 7, 11 and 13 relating to the Pension Fund are as under:
―5. Constitution of the Fund - (1) The Corporation shall
constitute a Fund to be called the Life Insurance Corporation
of India (Employees) Pension Fund under an irrevocable
trust within a period of one hundred and twenty days from
the notified date.
(2) The Fund shall have for its sole purpose the provision of
the payment of pension or family pension in accordance with
these rules to the employee or his family.
(3) The Corporation shall be a contributor to the Fund and
shall ensure that sufficient sums are placed in it to enable the
trustees to make due payments to beneficiaries under these
rules.
XXXXX
7. Composition of the Fund -
The Fund shall consist of the following, namely:-
For the purpose of this rule ―pay‖ includes -
(i) the basic pay,
(ii) allowances other than dearness allowance which count
for the purposes of making contribution to the
Provident Fund and payment of dearness allowance,
(iii) dearness allowance payable on the basic pay and the
allowances specified in clause (ii) above, upto Index
Number 1148 in the quarterly average of the All India
Consumer Price Index for Industrial Workers in the
series 1960=100; and
(iv) allowances to the extent they count for Provident
Fund, house rent allowance, gratuity and for refixation
of salary on promotion:
Provided that the Corporation shall not make any
contribution to the account of the Provident Fund of the
employee ;
Explanation 2 : On and from the date of publication of Life
Insurance Corporation of India (Employees) Pension
(Amendment) Rules, 1997, ―pay‖ includes -
(i) the basic pay,
(ii) allowances other than dearness allowance which count
for the purposes of making contribution to the
Provident Fund and also payment of dearness
allowance,
(iii) allowances to the extent they count for Contribution to
the Provident Fund, house rent allowance, gratuity and
for refixation of salary on promotion:
Provided that the Corporation shall not make any
contribution to the account of the Provident Fund of the
employee ;
(b) the accumulated contributions of the Corporation to the
Provident Fund and interest accrued thereon upto the date of
such transfer in respect of the employees;
(c) the amount consisting of contributions of the Corporation
along with interest refunded by the employees who had
retired before the date of publication of these rules but who
opt for pension in accordance with the provisions contained
in these rules;
(d) the investment in annuities or securities purchased out of
the moneys of the Fund and interest thereon;
(e) amount of any capital gains arising from the capital
assets of the Fund;
(f) the additional annual contribution made by the
Corporation in accordance with the provisions contained in
rule 11 of these rules;
(g) any income from investments of the amounts credited to
the Fund;
(h) the amount consisting of contribution of the Corporation
along with interest refunded by the family of the deceased
employee.
XXXXX
11. Actuarial investigation of the Fund - The Corporation
shall cause an investigation to be made by an Actuary into
the financial condition of the Fund every financial year, on
the 31st day of March, and make such additional annual
contributions to the Fund as may be required to secure
payment of the benefits under these rules:
Provided that the Corporation shall cause an investigation to
be made by an Actuary into the financial condition of the
Fund, as on the 31st of day of March immediately following
the financial year in which the Fund is constituted.
XXXXX
13. Payments out of the Fund - The payment of benefits by
the trust shall be administered as follows, namely:-
(a) the trust shall purchase immediate annuities from the
Corporation in respect of each employee or his family, as
the case may be, at the time he or his family becomes
eligible for the benefits under these rules;
(b) the trust shall, subject to the availability of additional
sums in the Fund, to be provided by the Corporation as
required under rule 5 (3) purchase additional annuities as
and when it becomes necessary to revise upwards the
benefits payable in accordance with these rules;
(c) the trust shall, in the event of the benefits payable
under these rules being revised downwards for any
reason whatsoever, credit the benefits received from the
Corporation under the annuities purchased as exceed the
benefits payable under these rules, to the Fund.‖
21. Rule 35 relates to computation of pension. For employees who had
retired after 1st January, 1986 but before 31st July, 1987 the basic
pension and additional pension is computed as per the formula given in
Appendix-III. This formula per se is not challenged and therefore need
not be examined.
22. Under sub-Rule (2) to 35, for an employee retiring in accordance with
the Service Rules or Staff Regulations having qualifying service of not
less than 33 years, the basic pension is calculated at 50% of his average
emoluments. Under clause (a) of sub-Rule (3) additional pension shall
be 50% of the allowances drawn by the employee during the last 10
months of service. Clause (b) to sub-Rule (3) stipulates that no dearness
relief is to be paid on the additional pension. The explanation defines the
term ―allowances‖ which are admissible for computing additional
pension.
23. Sub-Rule (4) states that pension shall be the aggregate of basic pension
and additional pension and shall be subject to the minimum pension
specified in the Rules.
24. Sub-Rules (6) relates to employees who have completed 10 years
qualifying service and have retired before completing 33 years of
qualifying service. In such cases, the amount of pension is proportionate
to the amount of pension admissible, being the sum-total of basic
pension and additional pension.
25. Rule 37 states that dearness relief shall be granted on basic pension,
family pension, invalid pension, or compassionate allowance in
accordance with the rates specified in Appendix-IV.
26. As per the Pension Rules, the pension consists of two parts; basic
pension and additional pension. The basic pension is computed on
average emoluments as defined in Clause (d) to Rule 2, which is basic
pay including stagnation increments, if any, and admissible allowances
as specified, drawn by an employee during the last 10 months of service.
Thus, the basic pension is fixed on the date of retirement. This amount
does not vary and remains static, notwithstanding subsequent revision of
pay applicable to in-service employees and not to retired employees. To
off-set and negate the impact of inflation and loss of purchasing power,
the Pension Rules provide for payment of dearness relief.
27. Similarly, additional pension, added to basic pension, remains static and
constant. Additional pension is 50% of the ―allowances‖ drawn during
the last 10 months of service. No dearness relief is payable on additional
pension. Noticeably, ―allowances‖ counted for payments to Provident
Fund, are reckoned for both basic pension and additional pension.
28. Amendment to clause (o) to Rule 2 of the Pension Rules with effect
from 14th May, 1999, would not make any difference. Substituted clause
(iv) would apply to those retirees, who were in service as on 1st
November, 1993 when the dearness allowance benefit calculated up to
Index No.1148 of All India Average Consumer Price Index for Industrial
Workers was applied on the basic pay drawn by him. This is clear from
the proviso to clause (iv).
29. Before we refer to Appendix-IV, it would be relevant to first notice an
important and significant fact. As per convention, every five years the
employees of the Corporation are granted pay revision. Such pay or
wage revision had taken place in with effect from 1992, 1997 and
thereafter in 2002, 2007 and 2012. At the time of wage revision, the
dearness allowance payable to the in-service employees gets merged and
factored in the revised or replacement pay scale. On an average, the pay
revisions have been at the rate of 15% above the last basic pay and
dearness allowance.
30. Appendix-IV divides and classifies retired employees into 4 categories.
Paragraph 1 relates to employees, who had retired between 1st January,
1986 and 1st November, 1993. Dearness relief is payable at the
percentage of basic pension specified in the table for every 4 points over
600 points in the quarterly average of the All India Average Consumer
Price Index for Industrial Workers- 1960 Series (AICPI-IW, for short).
For basic pension upto Rs. 1250, dearness relief percentage or
equalization is 0.67%, for basic pension between Rs. 1251 and 2000
dearness relief percentage or equalization is 0.55% in excess of Rs.
1250, the dearness relief percentage or equalization between Rs. 2001
and 2130 is 0.33% and above Rs. 2130 is 0.17%.
31. For employees who have retired between 1st November, 1993 and 31st
July, 1997 the dearness relief payable is for every 4 points over 1148
points in the quarterly average of the AICPI-IW. 1148 points was the
Price Index as on 1st November, 1993 and is therefore the relevant figure
for computing dearness relief. The date 1st November, 1993 is also
relevant for it refers to the date on which the Pension Rules were
deemed to have come into force. The equalization table given in
paragraph 2 stipulates that for basic pension amount upto Rs. 2400, the
percentage of dearness relief would be 0.35% and between Rs. 2401-
3850 will be 0.29% of basic pension, between Rs. 3851 and 4100 the
percentage of dearness relief would be 0.17% of basic pension and
above Rs. 4100 would be 0.09% of basic pension.
32. Paragraph 3(A) relates to employees who have retired or died after 1 st
August, 1997 but before 31st July, 2002. In this case dearness relief is
payable for every 4 points over 1740 points in the quarterly average of
the AICPI-IW at the rate of 0.23% of basic pension. The date 1st August,
1997 has rationale and was fixed, as coinciding with the pay revision of
in-service employees.
33. Paragraph 3(B) states that for any wage revision in future, dearness relief
payable shall be determined by the Corporation corresponding to the
index to which the case is linked. For employees who have retired or
died after 1st August, 2002 dearness relief is payable for every 4 point
rise over 2328 points in the quarterly average of the AICPI-IW at the
rate 0.18% of basic pay. The dearness relief for employees retiring
between 01.08.2007 to 31.07.2012 and 01.08.2012 to 31.07.2017 has
been reduced to 0.15% and 0.10%, respectively.
34. Thus dearness relief payable on basic pension for the employees retiring
between 01.01.1982 to 31.07.2017 is as under:-
Pensioner retired between Rate of Dearness Relief
01.01.1986 to 31.10.1993 0.67% to 0.17% (tapering formula)
01.11.1993 to 31.07.1997 0.35 to 0.09% (tapering formula)
01.08.1997 to 31.07.2002 0.23% (See Rule 3(A))
01.08.2002 to 31.07.2007 0.18%
01.08.2007 to 31.07.2012 0.15%
01.08.2012 to 31.07.2017 0.10%
35. The dearness relief payable therefore has reference to the basic pension.
The principle of dearness relief acknowledges that basic pension would
remain static and not account for the future increase in salary of in-
service employees.
36. The Pension Rules, ex facie, seek to provide beneficial dearness relief to
retired employees depending upon their date of retirement, which has
reference to the basic pension. Higher percentage of dearness relief is
given to employees who had retired between 1 st January, 1986 and 31st
October, 1993 for their basic pension was lower. However, for amounts
above Rs. 2130/-, the dearness relief of 0.17% is less than dearness relief
in paragraph 3(A). Similarly, higher percentage of dearness relief is
prescribed for basic pension upto Rs. 3850/- for employees who had
retired between 1st November, 1993 and 31st July, 1997 in comparison to
the dearness relief of 0.23% applicable to employees who had retired
between 1st August, 1997 and 31st July, 2002. For amounts above Rs.
3850 and Rs. 4100 the equalization rate is 0.17% and 0.09%
respectively. Under paragraph 3(A), uniform rate of 0.23% of basic pay
for every 4 points over 1740 points in the quarterly average of the
AICPI-IW is applicable. The discord and variation in neutralization on
the pension amount above Rs. 2130 in paragraph 1 and pension amounts
above Rs. 3851 in paragraph 2, have been dealt with and examined
below
37. We shall, in the subsequent portion of the judgment, interpret the
Pension Rules relating to the fund, etc. while discussing and adjudicating
the contentions raised.
38. To avoid prolixity, we are not elucidating in detail the arguments raised
by the retired employees/associations and the Corporation, and would
only refer to the fundamental points raised by the retired
employees/associations and the response of the Corporation.
39. The primary and the core issue raised by the retired employees /
association is that dearness relief amount as per the Rules is not added or
merged with the basic pension and this results in non-revision of basic
pension. As a result, the pension amount being paid to the retirees prior
to 31st July, 1997 is restricted and remains at arbitrarily low levels
resulting in invidious discrimination. Resultantly, the same rank
officials retiring on different dates get different amount of pension. In
fact, a lower rank officer who retires later ends up getting a higher
pension solely because of the date of retirement. This defeats the very
object of giving pension and violates Article 14 of the Constitution.
Reliance is placed upon the meaning and concept of the term ‗pension',
as elucidated in Deokinandan Prasad Vs. State of Bihar & Ors. (1971)
2 SCC 330. D.S. Nakara & Ors. Vs. Union of India (1983) 1 SCC 305
and other cases. Similarity between the Pension Rules and the Central
Civil Service (Pension) Rules 1972 applicable to Central Government
Employees is projected to assert that Central Government employees,
pursuant to the decision of the Constitution Bench in D.S. Nakara
(supra), have been given upgradation of pension on acceptance of the
recommendations of the 5th, 6th and 7th Pay Commission Reports. It is
submitted that the Fund created under Rules 5 and 6 read with Rule 13
of the Pension Rules is not contributory or self-funded. The Corporation
has statutory obligation to ensure that adequate sums are made available
to the trustees of the Fund for payments due under the Pension Rules
including any shortfall resulting from upward revision. Reference is
specifically made to Rules 5 (3) and 13(b) of the Pension Rules.
Reference was also made to Rule 56, which is a residuary Rule and
stipulates that matters relating to pension and other benefits in respect of
which no express provision has been made shall be governed by
corresponding provisions contained in Central Civil Service (Pension)
Rules 1972 or the Central Civil Services (Commutation of Pension)
Rules 1981. It is asserted that the Managing Director and the Chairman
of the Corporation are being treated differently and pension is paid as
per Rule 55-B of the Pension Rules at par with the Central Government
Pensioners, whereas other retired employees have been left out and are
being discriminated in violation of equality enshrined in Article 14. The
financial implication as projected by the Corporation is disputed [This
argument has been examined in detail separately].
40. The Corporation has challenged and contested the said submissions,
inter alia stating that the pension in respect of employees is fund based
unlike the Central Government employees, who receive their pension
from Consolidated Fund of India. The Corporation contributes to the
Fund @ 10% of each month's pay of each employee. On the basis of
actuarial computation, the Corporation makes additional annual
contribution to the Fund, which are restricted to secure payment of
benefits under the Pension Rules. The Pension Rules provide for
calculation of pension which is computed with reference to the last
drawn pay under Rule 35 (2), read with Rules 2 (d) and (o). The
dearness relief is payable on the basic pension and increases and
decreases with the rise or fall of the quarterly average of the AICPI-IW.
The basic pension gets crystallized based upon pay drawn in the last 10
months. This amount does not change but the pensioner is entitled to the
benefit of dearness relief. The formula on dearness allowance is
prescribed in Appendix-IV, as provided in Rule 37. Dearness relief for
pensioners, who had retired before 1st November, 1993 / 1st August,
1997 is more beneficial vis-à-vis the dearness relief formula applicable
to the retirees on or after 1st August, 1997 / 1st August, 2002. Judgment
and ratio of D.S. Nakara (supra) is not applicable and the judgments of
the Constitution Bench of the Supreme Court in Krishena Kumar Vs.
Union of India & Ors. (1990) 4 SCC 207 and Indian Ex-Services
League Vs. Union of India (1991) 2 SCC 104, are apposite. Specific
reference is also made to K.L. Rathi Vs. Union of India (1997) 6 SCC 7
and State of West Bengal Vs. West Bengal Government Pensioners
Association (2002) 2 SCC 179. It is submitted that the retirees are given
dearness allowance, as per scaled/tapering formula prescribed under
Paragraphs 1 and 2 in Appendix-IV of the Pension Rules. The formula is
not arbitrary nor violates Article 14. The contentions based upon
financial implication, are challenged. [This aspect as indicated above
would be examined separately].
41. Before referring to D.S. Nakara's case we would first take on record the
meaning and concept of the word ―pension‖ in the Indian context. The
meaning, concept, and content of what is meant by the term ―pension‖
are rather difficult to define in a straitjacket. In developed countries,
pensions are mostly contributory in nature, non-contributory pensions
being restricted to invalidity payments in the nature of social security
measures rather than terminal service benefits. Item 17 of Article 366 of
the Constitution defines the expression ―pension‖ for the purpose of
Constitution as contributory or of any kind whatsoever, payable to or in
respect of any person, including retired pay, gratuity and any sum or
sums payable by way of return to subscription to a provident fund.
However, in service law, the expression ―pension‖ in India as defined
means a series of periodic payments, usually payable monthly for life,
for past services of himself or another. This concept involves
recognition of the principle that there is an obligation to help the person
who was in public employment and has reached the age of
superannuation or incapacitated from rendering further service. The
principle is that an employee should be paid compensation for the
gradual destruction of his wage earning capacity in the course of work.
The aim is to provide social security in old age.
42. In Pepsu Road Transport Corporation, Patiala Vs. Mangal Singh &
Ors., (2011) 11 SCC 702, the Supreme Court referred to the earlier case
law dealing with and explaining the expression ―pension‖ and also the
text book definitions of the said term, and had held as under:
"39. Pension is a periodic payment of an amount to the
employee, after his retirement from service by his
employer till his death. In some cases, it is also payable
to the dependants of the deceased employee as a family
pension. Pension is in a nature of right which an
employee has earned by rendering long service to the
employer. It is a deferred payment of compensation for
past service. It is dependable on the condition of
rendering of service by the employee for a certain fixed
period of time with decent behaviour. Like CPF, the
object of providing pensionary benefit under the Pension
Scheme is to provide social security to the employee and
his family after his retirement from the service. The
Government's/employer's obligation under the Pension
Scheme begins only when the employee retires and it
continues till the death of the employee.
40. In Deokinandan Prasad v. State of Bihar [(1971) 2
SCC 330] , this Court has held:
―31. ... pension is not a bounty payable on the sweet
will and pleasure of the Government and that, on the
other hand, the right to pension is a valuable right vesting
in a government servant.‖
43. In D.S. Nakara (supra), the subject matter of challenge was the office
memorandum dated 25th May, 1979 issued by the Ministry of Finance,
Government of India, propounding the modified formula for
computation of pension. The formula made applicable from 1st April,
1979 had liberalized the computation of pension on the following
accounts:-
(i) Application of slab system for calculation of pension;
(ii) Calculation of average emoluments over the preceding 10 months
instead of 36 months;
(iii) Benefit of qualifying service up to 33 years instead of 30 years; and
(iv) Raising the ceiling limit of pension of Rs.1500/- per month.
The liberalized formula was made applicable to Government
servants, who were in service on 31st March, 1979 or had retired after the
said date. The liberalized formula was not applicable to employees who
had retired earlier, and were to be paid pension on the basis of
computation and average emoluments of 36 months' salary preceding
the date of retirement. After exhaustive review of decisions explaining
Article 14 of the Constitution and referring to the concept and meaning
of the term ‗pension' it was held that there was no reason for choosing
1st April, 1979 as the cut-off date for application of the liberalized
formula. The cut-off date was struck down as invalid observing that
pensioners constitute one class. The Supreme Court however did note
that this was not a case of a contributory scheme or a pension fund from
which alone the pension was to be disbursed. Neither was it a case where
a new retiral benefit was awarded. It was a case of an upward revision of
an existing benefit. Argument of the Government regarding non
availability or paucity of funds was rejected, observing, that it would
make a marginal difference in the case of past pensioners, because the
emoluments were not revised.
44. The ratio In D.S. Nakara (supra) was explained appropriately by the
Constitutional Bench decision in Krishena Kumar (supra) wherein cut-
off date, to be covered by the provident fund scheme or pension scheme,
was challenged. D.S. Nakara's (supra) decision was distinguished. The
persons covered by the provident fund scheme and those covered by the
pension scheme did not form a homogeneous class. Therefore, basis for
applying Article 14 between the two distinct groups was not there. The
fixation of cut-off date, to provide an option to be covered under the
pension scheme, was based on rational differentiation. Thus, fixing a
cut-off date for grant of new service benefit would not tantamount to
violation of Article 14.
45. More pertinent, and issue specific, is the third Constitutional Bench
decision in the case of Indian Ex-Services League (supra). The
petitioners therein had relied on D.S. Nakara's case(supra) to allege
discrimination for the pensioners constitute a homogeneous class and no
distinction could be made between pensioners who had retired earlier or
after a particular date. The concept of pension in the Indian context, was
additionally relied. The contention asserted was that the retirees, who
held the same rank irrespective of the date of retirement must get the
same amount of pension. The Constitutional Bench held that in
D.S.Nakara (supra), the portion of the Memoranda by which the benefit
of the liberalized pension scheme was confined to persons retiring on or
after the specified date was struck down and the benefit was extended to
all retirees, irrespective of the date of retirement. The ratio related to the
mode of computation of pension and not revision of emoluments of
earlier retirees. In other words claim for ―One Rank One Pension‖
irrespective of date of retirement, was rejected in Indian Ex-Services
League (supra) by the Constitution Bench. D.S. Nakara's case (supra)
was distinguished on the ground that this decision related to computation
of pension applying a more liberalized formula under which ―average
emoluments‖ were determined with reference to 10 months' salary
instead of 36 months' salary coupled with slab system and raising the
ceiling limits for pension. The benefit, it was held, must be given to all
retirees uniformly, as the mode of computation of pension was
liberalized. The mode of computation would apply to all the retirees,
irrespective of the retirement date. The earlier retirees would not be
entitled to arrears prior to the specified date, but their pension would be
revised according to computation made in accordance with the
liberalized formula from the date it was applicable. If the pensioners are
and form one class, then computation of pension cannot be by applying
two different formulae, thereby inflicting unequal treatment solely based
upon date of retirement. In Indian Ex-Services League (supra), it was
held:-
"11. The conclusion of the Constitution Bench
in Nakara [(1983) 1 SCC 305 : 1983 SCC (L&S) 145 :
(1983) 2 SCR 165] was that the benefits of liberalisation
and the extent thereof given in accordance with the
liberalised pension scheme have to be given equally to all
retirees irrespective of their date of retirement and those
benefits cannot be confined only to the persons who
retired on or after the specified date because for the
purpose of grant of the benefits of liberalisation in
pension, all retirees constitute one class irrespective of
their date of retirement. In order to give effect to this
conclusion the only relief granted was to strike down that
portion of the Memoranda by which the benefit of the
liberalised pension scheme was confined only to persons
retiring on or after the specified date with the result that
the benefit was extended to all retirees, irrespective of
their date of retirement. Once this position emerging from
the decision in Nakara [(1983) 1 SCC 305 : 1983 SCC
(L&S) 145 : (1983) 2 SCR 165] is borne in mind, the
fallacy in the petitioners' contention in these writ
petitions becomes obvious and their claim based only
on Nakara [(1983) 1 SCC 305 : 1983 SCC (L&S) 145 :
(1983) 2 SCR 165] is untenable.
12. The liberalised pension scheme in the context of
which the decision was rendered in Nakara [(1983) 1
SCC 305 : 1983 SCC (L&S) 145 : (1983) 2 SCR 165]
provided for computation of pension according to a more
liberal formula under which ―average emoluments‖ were
determined with reference to the last ten months' salary
instead of 36 months' salary provided earlier yielding a
higher average, coupled with a slab system and raising
the ceiling limit for pension. This Court held that where
the mode of computation of pension is liberalised from a
specified date, its benefit must be given not merely to
retirees subsequent to that date but also to earlier existing
retirees irrespective of their date of retirement even
though the earlier retirees would not be entitled to any
arrears prior to the specified date on the basis of the
revised computation made according to the liberalised
formula. For the purpose of such a scheme all existing
retirees irrespective of the date of their retirement, were
held to constitute one class, any further division within
that class being impermissible. According to that
decision, the pension of all earlier retirees was to be
recomputed as on the specified date in accordance with
the liberalised formula of computation on the basis of the
average emoluments of each retiree payable on his date
of retirement. For this purpose there was no revision of
the emoluments of the earlier retirees under the scheme.
It was clearly stated that ‗if the pensioners form a class,
their computation cannot be by different formula
affording unequal treatment solely on the ground that
some retired earlier and some retired later'. This
according to us is the decision inNakara [(1983) 1 SCC
305 : 1983 SCC (L&S) 145 : (1983) 2 SCR 165] and no
more.
14.Nakara [(1983) 1 SCC 305 : 1983 SCC (L&S) 145 :
(1983) 2 SCR 165] decision came up for consideration
before another Constitution Bench recently inKrishena
Kumar v. Union of India [(1990) 4 SCC 207 : 1991 SCC
(L&S) 112] . The petitioners in that case were retired
Railway employees who were covered by or opted for the
Railway Contributory Provident Fund Scheme. It was
held that PF retirees and pension retirees constitute
different classes and it was never held in Nakara [(1983)
1 SCC 305 : 1983 SCC (L&S) 145 : (1983) 2 SCR 165]
that pension retirees and PF retirees formed a
homogeneous class, even though pension retirees alone
did constitute a homogeneous class within which any
further classification for the purpose of a liberalised
pension scheme was impermissible. It was pointed out
that in Nakara[(1983) 1 SCC 305 : 1983 SCC (L&S) 145
: (1983) 2 SCR 165] , it was never required to be decided
that all the retirees for all purposes formed one class and
no further classification was permissible. We have
referred to this decision merely to indicate that another
Constitution Bench of this Court also has
read Nakara [(1983) 1 SCC 305 : 1983 SCC (L&S) 145 :
(1983) 2 SCR 165] decision as one of limited application
and there is no scope for enlarging the ambit of that
decision to cover all claims made by the pension retirees
or a demand for an identical amount of pension to every
retiree from the same rank irrespective of the date of
retirement, even though the reckonable emoluments for
the purpose of computation of their pension be different.‖
46. Indian Ex-Services League (supra) case relates to Army personnel.
K.L. Rathi (supra) is a case relating to retired government employees.
Relying upon the decision in D.S. Nakara (supra) the plea was that on
revision of pay scales of in-service employees there should be revision
of pension for the retirees, for all the pensioners of the same rank were
entitled to the same pension irrespective of the date of retirement. The
contention was rejected observing that the basic pension is computed on
the average emoluments drawn during the last 10 months of service.
The said rule is applicable to all pensioners irrespective of the date of
retirement. This definition of emoluments in force at the time of
retirement of the employees did not undergo a change. The same
formula applies to the entire class of retirees, irrespective of the date of
retirement. D.S. Nakara (supra) case did not strike down the definition
of emoluments as prescribed in the pension rules or hold that the pension
was to be recalculated on the basis of revised pay. Benefit of the
liberalized formula based on the last 10 months' emoluments was
applied universally. This meant those who were drawing higher
emoluments as salary would get higher pension. In clear and categoric
terms, it was held that D.S. Nakara (supra) case does not lay down that
same amount of pension must be paid to all persons retiring from
Government service, irrespective of date of retirement. Reference was
made to other two Constitutional Bench decisions in Krishena Kumar
(supra) and Indian Ex-Services League (supra).
47. A lucid and clear pronouncement is to be found on the said subject in the
State of West Bengal (supra). This decision refers to the earlier
decisions and also judgment in the case of Union of India Vs. P.N.
Menon & Ors. (1994) 4 SCC 68, wherein vide Office Memorandum
dated 25.05.1979 a portion of the dearness allowance was to be treated
as pay in respect of the government servants, who had retired on or after
30th September, 1977. This was challenged as discriminatory to those
who had retired prior to 30th September, 1977. The challenge was
rejected because it was not arbitrary or discriminatory and therefore
violating Article 14. The decision to merge a part of dearness allowance
to the paid pay, it was observed, was taken in view of the
recommendation of the 3rd Pay Commission. Thus, the decision to fix
the cut-off date with the revision of pay was not arbitrary, as the cut-off
date on some reasonable or rational basis has to be fixed.
48. The State of West Bengal (supra) holds that merger of dearness
allowance into pay would amount to a new retirement benefit, whereas
D.S. Nakara's (supra) ratio and mandate was limited to upward revision
of an existing benefit. The challenge made by the retired employees had
failed to distinguish between the in force pension scheme and the revised
pay scale. When there is a revision of pay, it applies to existing
employees or in some cases even to retired employees, when given a
retrospective effect. However, this does not mean that the pension
should be revised on the basis of the new or upgraded emoluments.
Unless there is a change in emoluments as defined in the pension
scheme, the basic pension payable would continue to remain as per the
pay drawn by the employees immediately before his retirement. It was
held:-
"20. What is noticeable is that the definition of the word
―emoluments‖ in the 1971 Rules was not amended. As
such pension continued to be calculated on the basis of
emoluments as defined in the 1971 Rules, namely, the
last pay drawn immediately prior to retirement. The pay
of the pre-1986 pensioners was not revised. The Third
Pay Commission had given a reason for choosing 1-1-
1986, as the cut-off date. As held in Krishena
Kumar v. Union of India [(1990) 4 SCC 207 : 1991 SCC
(L&S) 112 : (1990) 14 ATC 846] and Union of
India v. P.N. Menon[(1994) 4 SCC 68 : 1994 SCC (L&S)
860 : (1994) 27 ATC 515] merely because a cut-off date
is fixed would not make the exercise invalid although
persons in the service immediately before the cut-off date
would be deprived of the benefit of the revised scales of
pay. It would depend upon the relevancy of the
consideration underlying the choice of such date. The
reason stated by the Third Pay Commission cannot be
said to be arbitrary or irrelevant.
21. Because the scales of pay had been revised from 1-1-
1986, the recomputation of pension for such employees
as had been granted the revised scales of necessity was
limited to the same cut-off date. All that the impugned
Memorandum No. 4056-F dated 25-4-1990 did was to
recompute the benefits in favour of post-1-1-1986 retirees
according to the existing formula as provided by
Memorandum No. 7530-F and No. 7531-F, both dated 6-
7-1988. The same formula continues to be applied to the
pre-1986 retirees. The difference between pre-1986
pensioners and the post-1986 pensioners is only on
account of the revision of pay scales and not on account
of failure of the State Government to equitably apply the
liberalised Pension Scheme formula. The quantum of the
emoluments formed no part of the formula for grant of
pension during 1986 to 1995.‖
49. We would now refer to some of the judgments of the retired employees
and their associations and see to what extent the ratio in Indian Ex
Services League (supra) and other decisions have been differed from or
distinguished and on what grounds and for what reasons.
50. We would begin by referring to K.J.S. Buttar Vs. Union of India &
Anr. 2011 (11) SCC 429. In the said case the appellant, who was an ex-
Captain in the Indian Army, in view of injury attributable to military
service was entitled to pension assessed on the degree of disability of
50%. However, vide the Circular and Notification dated 31st January,
2001 the degree of disability for the injury was raised to 75% w.e.f. 1st
January, 1996. The said letter had also stipulated grant of service
element of full 10 years of service instead of 2 years and revision of the
rates of disability pension w.e.f. 1st January, 1996. The Supreme Court
accepted the contention of the appellant, i.e. the retired employee, that
he would be entitled to revision as prayed and his disability should be
treated as 75% instead of 50%, observing that the letter dated 31st
January, 2001 would be applicable not only to those officers, who had
been invalidated out of service after 1st January, 1996, but also to those
who were invalidated earlier.
51. This case, we would observe, is again a case of enhancement of existing
pensionary benefits covered by the decision in the case of D.S. Nakara
(supra). It relates to calculation of the disability factor and not parity of
emoluments. By the letter/ instructions dated 31st January, 2001, it was
held that where disability was assessed between 50 and 75 percent the
same would be treated as 75%. As this instruction was made applicable
w.e.f. 1st January, 1996, it was held that the appellant would be entitled
to benefit of the said instructions from 1st January, 1996 and it did not
matter, and made no difference, whether the employee was invalidated
from service before or after 1st January, 1996.
52. In Kallakkurichi Taluk Retired Officials Tamil Nadu and Ors. Vs.
State of Tamil Nadu (2013) 2 SCC 772, the Supreme Court was dealing
with a case where retirees post 1st June, 1988 were drawing a lower
pension on account of the rule position relating to merger of fixed
percentage of dearness allowance with dearness pay for calculating
pension. In this context, the Supreme Court reversed the decision of the
Division Bench of the High Court and held that there was discrimination
as two different parameters for computation cannot be applied for the
purpose of adding component of dearness allowance as pay for
computing the emoluments. The purpose of adding the component of
―dearness pay‖ to wages for calculating pension was to offset the effect
of inflation and in this context it would be odd that the retirees prior to
1st June, 1986 should be given higher pension than those who retire
immediately post the said date. This objective had to be kept in mind
while deciding the controversy whether the Rule was arbitrary or
violative of Article 14. There was historical pattern and exemplar of
inclusion of ―dearness allowance‖ as ―dearness pay‖ for calculating
pension. The State, vide the Rules, had given effect to equation from
time to time. Whenever there was discrimination, on account of addition
of dearness allowance in pay in the computation of pension, by judicial
intervention parity was restored. Thus, where the rules or government
orders grant/require computation by adding ―dearness allowance‖ to
―dearness pay‖ in the fixed percentage, it must be applied to all
pensioners, and none should be discriminated. Having so observed, the
Supreme Court was conscious and had added the caveat that no
employee has the right to draw dearness allowance as dearness pay till
such time the State Government decides to grant and treat dearness
allowance as dearness pay. The (State) Government has the right to
choose whether or not dearness allowance should be treated as dearness
pay and in that context the Supreme Court had clarified:-
"37. The issue in hand needs to be examined from
another perspective as well. It must be clearly understood
that no employee has a right to draw ―dearness
allowance‖ as ―dearness pay‖ till such time as the State
Government decides to treat ―dearness allowance‖ as
―dearness pay‖. And therefore, the State Government has
the right to choose whether or not ―dearness allowance‖
should be treated as ―dearness pay‖. As such, it is open to
the State Government not to treat any part of ―dearness
allowance‖ as ―dearness pay‖. In case of financial
constraints, this would be the most appropriate course to
be adopted. Likewise, the State Government has the right
to choose how much of ―dearness allowance‖ should be
treated as ―dearness pay‖. As such, it is open to the State
Government to treat a fraction, or even the whole of
―dearness allowance‖ as ―dearness pay‖. Based on Rule
30 of the Pension Rules, it is clear that the component of
―dearness pay‖ would be added to emoluments of an
employee for calculating pension. In a situation where the
State Government has chosen, that a particular
component of ―dearness allowance‖ would be treated as
―dearness pay‖, it cannot discriminate between one set of
pensioners and another, while calculating the pension
payable to them (for the reasons expressed in the
preceding paragraphs). Of course, a valid classification
may justify such an action. In this case, the State
Government has not come out with any justification/basis
for the classification whereby one set of pensioners has
been distinguished from others for differential treatment.‖
53. This brings us to the decision of the Supreme Court in Union of India &
Anr. Vs. S.P.S. Vains & Ors. (2008) 9 SCC 125. Facts of this case are
rather peculiar, for upon the implementation of the 4th Pay Commission
Recommendation, Brigadiers in the highest bracket were getting higher
salary than the starting salary in the promotional rank of Major General.
Resultantly, the Brigadiers who were drawing more pay than the Major
Generals were receiving higher pension or family pension. Noticing that
the post of Brigadier was/is a feeder rank for promotional rank of Major
General, the Government on the recommendation of the 5 th Pay
Commission had corrected the unintended anomaly. To correct this
aberration, special instructions were issued that the initial pay at the rank
of Major General would be fixed at the stage next above the pay
notionally arrived at by increasing his pay, including rank pay of
Brigadier, by one increment in the revised scale at the relevant stage,
without retrospective effect. In this context reference was made to D.S.
Nakara (supra) and the argument of the retired employees, i.e. retired
Major Generals was accepted. We are in agreement with the counsel of
the Corporation that the ratio and mandate of this decision is confined to
the peculiar factual matrix of the said case. This decision does refer to
D.S. Nakara (supra) and states that there were several other judgments,
in which the principle expounded was followed. The judgment has not
quoted and referred to these decisions, which in the said factual context
were not required to be quoted. We do not think the aforesaid decision
propounds or exposits a ratio contrary to the ratio of the Constitutional
Bench in Krishena Kumar (supra) and Indian Ex-Services League
(supra) or the decision in K.L. Rathi (supra) and the State of West
Bengal (supra)
54. In A.N. Sachdeva (Dead) by Legal Representatives and Ors. Vs.
Maharishi Dayanand University, Rohtak and Anr., (2015) 10 SCC
117, the issue involved was different. The retired employees were being
denied the benefit of counting past service in Kurukshetra
University/Punjab University for computing qualifying service for
purpose of pension after they were absorbed and became employees of
the Maharishi Dayanand University, Rohtak. In this context, several
decisions were referred to and the issue was decided in favour of the
retired employees. This decision would not be of any help and
assistance to the retired employees/associations in the present
controversy.
55. Our attention was also drawn to B. Prabhakar Rao and Ors. Vs. State of
Andhra Pradesh and Ors., 1985 Supp SCC 432. This again was a
peculiar case relating to the State of Andhra Pradesh where first the age
of retirement was reduced to 55 years from 58 years and then restored to
58 years in spite of the fact that the Supreme Court had in an earlier
decision upheld the reduction of retirement age to 55 years. In this
context, D.S. Nakara's case (supra) was referred to observe and hold
that different treatment could not be accorded to those who had retired
before and after a specified date as the choice of date was arbitrary, for
classification was based upon fortuitous circumstance relating to the date
of retirement. Reference was made to the principle of reasonableness of
classification and its nexus with the object of the legislation. The
argument pertaining to the administrative chaos was rejected observing
that the person who had stirred-up the hornet's nest, i.e. the State
government, cannot complain of being stung.
56. Dhan Raj and Ors. Vs. State of J & K and Ors., (1998) 4 SCC 30 was a
case of Drivers of the State Government, who were seeking pensionary
benefits in terms of government order dated 3 rd October, 1986, though
they had retired prior to 9th June, 1981. The Supreme Court had noticed
that the Government had oscillated on the question of grant of
pensionary benefits. There was also a change in the status, as at one time
the State undertaking was a department of the State Government. On the
interpretation of the relevant orders, it was held that all retirees in the
said case including those who had retired prior to 9 th June, 1981, would
be entitled to pensionary benefits. Recording the said finding, the stand
of the State Government was rejected. In this context, reference was
made to the ratio in D.S. Nakara (supra) to hold that the restrictive
interpretation placed by the State Government for its own employees
was not correct.
57. Reliance was placed on the decision in State of Rajasthan and Anr. Vs.
Prem Raj, (1997) 10 SCC 317, which refers to D.S. Nakara, (supra)
Krishena Kumar (supra) and Indian Ex-Services League (supra) and it
was observed that for deciding the controversy in question in the said
case it was not necessary for the Supreme Court to further delve into the
question as to the extent to which the D.S. Nakara (supra) has been
followed or explained. Eluding to the decision in State of Rajasthan Vs.
Sevanivatra Karamchari Hitkari Samiti, (1995) 2 SCC 117, the Court
observed the D.S. Nakara (supra) has not been given a complete go by.
58. D.S. Nakara's case (supra) dealt with a situation where all Central
Government pensioners, regardless of the date of retirement, were held
to be entitled to computation of pension under the liberalized pension
formula with effect from 1st April, 1979.
59. The factual position at the time when D.S. Nakara (supra) was
pronounced should be recalled. The Central Government had earlier
extended benefit of minimum pension to existing pensioners, which was
mere Rs.25/- as on 1st January, 1964 and stood enhanced to Rs.160/- as
on 1st April, 1983. However, no details of the basis adopted for fixing
minimum pension are available. The First Pay Commission had
recommended merger of dearness allowance with the basic pay from
time to time. There were two such mergers of dearness allowance with
basic pay effective from 30th September, 1972 (index average 272) and
31st January, 1982 (index average 320) before the pronouncement in
D.S. Nakara (supra). This merger of dearness allowance was not carried
out with effect from the date when the particular index average was
reached, but from a subsequent date and was only made applicable to
those who retired after that date. The Supreme Court was certainly
conscious and aware that employees retiring from broadly comparable
posts at different times were receiving different amounts of pension.
These differences were due to the difference in emoluments drawn by
the retirees at the time of retirement and also on account of merger of
dearness allowance with basic pay or due to interim relief granted from
time to time. This was not struck down in the case of D.S. Nakara
(supra). In fact, it was never made the subject matter of challenge.
60. The aforestated decisions are not contradictory or laying down different
ratios. The principle enunciated in D.S. Nakara (supra) holds that
formula for payment or computation of pension when liberalised has to
be uniformly applied to all classes of pensioners except when
classification made is with reference to the cut-off date that can be
justified on a rational or a reasonable basis and does not lead to violation
of Article 14. Equality doctrine and Article 14 are not violated when the
basic pension of the retired employees is not enhanced when
emoluments of the in service employees are revised. D.S. Nakara's case
(supra) does not direct payment of equal amount of pension to all
pensioners regardless of the date of retirement. In D.S. Nakara's case
(supra), the Constitution Bench had observed:
―49. ...In our opinion, it would make a marginal
difference in the case of past pensioners because the
emoluments are not revised. The last revision of
emoluments was as per the recommendation of the Third
Pay Commission (Raghubar Dayal Commission). If the
emoluments remain the same, the computation of average
emoluments under amended Rule 34 may raise the average
emoluments, the period for averaging being reduced from
last 36 months to last 10 months. The slab will provide
slightly higher pension and if someone reaches the
maximum the old lower ceiling will not deny him what is
otherwise justly due on computation.‖
(emphasis supplied)
Thus, D.S. Nakara's case (supra) had held that the formula
computing pension by taking average of last ten months' emoluments
would be applied universally. It did not lay down that quantum of
emoluments drawn during the last ten months for each employee must
be taken as uniform. The emoluments have to be calculated according
to the pay scales applicable at the time of retirement.
In Indian Ex-Services League (supra) it was held:
―14. ... Nakara decision [(1983) 1 SCC 305 : 1983
SCC (L&S) 145] (is) one of limited application and
there is no scope for enlarging the ambit of that decision
to cover all claims made by the pension retirees or a
demand for an identical amount of pension to every
retiree from the same rank irrespective of the date of
retirement, even though the reckonable emoluments for
the purpose of computation of their pension be
different.‖
The Pension Rules do not postulate increase in pension payouts for
retired employees upon wage revision. The Pension Rules to offset the
adverse impact of inflation provide for dearness relief based upon price
index. This cannot be faulted and struck down as violating Article 14.
Thus, courts have recognized that amount of pension for retirees from
the same post can be different.
61. The Fourth Pay Commission Report in paragraph 10.10 (Part-II) had
observed that any attempt to equalize pension with reference to the
revised scales of pay would, in fact, amounts to retrospective application
of these scales of pay and had referred to the decision of the Supreme
Court in SLP 14179-80/1985, State Government Pensioners
Association and Ors. Vs. State of Andhra Pradesh while dealing with
the revision of death-cum-retirement gratuity already received by past
retirees in the following words:-
―Improvements in pay scales by the very nature of
things can be made prospectively so as to apply to only
those who are in the employment on the date of upward
revision. Those who were in employment say in 1950,
1960 or 1970, lived, spent and save, on the basis of the
then prevailing cost of living structure and pay-scale
structure, cannot invoke Article 14 in order to claim the
higher pay scale brought into force say, in 1980. If
upward pay revision cannot be made prospectively on
account of Article 14, perhaps no such revision would
ever be made.‖
The suggestion for treating the full dearness allowance/relief drawn
from time to time as emoluments was rejected by the Fourth Pay
Commission on the principle that it would result in uneven amounts of
pension, not only at different levels, but even employees drawing same
basic pay, depending upon the date of retirement. We have referred to
the Fourth Pay Commission report to highlight the divergent view
expressed and not to accept similarity and equivalence between the
Central Government pensioners and the Corporation pensioners. There
are marked and important differences, which we have highlighted
subsequently.
62. In the present case, challenge to the expression/date ―on or after the 1st
day of August, 1997‖ in paragraph 3(A) of Appendix IV of the Pension
Rules is futile and pointless. Deletion or striking out of the expression
"on or after the 1st day of August, 1997" would not result in the outcome
sought by the retired employees/associations. The prayer is for
revalorization of basic pension by merging dearness relief paid upto
index of 1740 points into basic pension or by notional increase in
emoluments. The prayer would require re-writing the Pension Rules
including the definition of "average emoluments" and Rule 35, 37 and
38 relating to computation of the amount of pension, dearness relief, and
re-calculation of average emoluments for the period of 10 months. In
case we accept the contention of the retired employees/associations,
whenever there is a revision in pay after a period of every 5 years, all
retired employees would be entitled to revalorization of basic pension on
the basis of enhanced pay scales, notwithstanding the fact that they have
retired prior to enhancement of pay scales. For reasons stated, this
challenge and submission predicated on Article 14 is to be rejected.
63. The next question relates to the adequacy of pension and violation of
Article 21. The question of adequacy of pension is rather difficult to
decide by a judicial verdict unless the amount or figure is shown as
grossly inadequate, unconscionable or an apparent case of arbitrariness
and irrationality resulting in violation of Article 14 can be deciphered
and is made out. As in the case of pay fixation, these are matters in the
executive domain and relate to policy. While deciding the question of
quantum of pension, multiple factors such as the age of retirement, the
length of service of the employee, financial condition of the employer,
concept of ―living wage‖ etc. have to be taken into consideration. Pay at
the time of retirement has been the factor under the pension rules for the
Central Government, State Governments as well as the Corporation.
Pension, more often, is calculated on the last pay drawn over the
prescribed period. (see paragraph 2.35 of the Fourth Central Pay
Commission's Report, Part-II relating to pension).
64. Article 39 (a) of the Constitution under the Directive Principles
stipulates that the State shall secure that the citizens have the right to
adequate means of livelihood. The Directive Principles though not
conferring a legal right require and remind the State of its duty and
obligation to provide means of adequate pension and other terminal
benefits. Article 43 of the Constitution refers to ―living wage‖. The
concept of "Universal Basic Income" and its recognition as a legal right
is under debate and consideration.
65. The question of adequacy or the amount of pension should also take into
account that a prudent person would make some personal savings for
social security as well as old age. One should take into consideration the
savings, which an employee makes for social security etc. so as to
approximate the income needed to maintain the standard of living
without being excessive. The benefit of service pension is confined to
about 1 / 2 % of the Indian population. Overwhelming masses, who are
either self-employed or those employed in the private sector, have to
provide for themselves and their families. They rely on savings for old
age and social security. We cannot ignore these facets and aspects when
the question and clamour for grant of additional or new pensionary
benefits is raised by the fortunate miniscule minority on the precept of
violation of the Right to Life under Article 21. It is not uncommon when
such claims are made, not to account for the assets, savings, and capital
created from the earnings/salary. These assets are excluded and not
adverted to, as they are meant for inheritance by the next generation.
66. Traditionally, pensions were non-alterable because the value of the
money was stable. However, in the Indian context, pensions normally
are revised or increased in line with the rise in the cost of living or
inflation. To what extent there would be adjustment would again depend
upon a number of factors. We do not think that a fixed criteria or
formula, which is applicable across the board or universally, can be
adopted and applied.
67. During the course of the hearing, and in the written submissions, counsel
for the retired employees/associations had drawn our attention to the
following tables:-
Period of 01.04.1993 01.08.1997 01.08.2002 01.08.2007 01.08.2012
Retirement to to to to to
31.07.1997 31.07.2002 31.07.2007 31.07.2012 31.01.2013
Post of
Retirement
Executive 20920 31938 36249 48308 55618
Director
Zonal 19704 28690 32873 43373 49918
Manager
Deputy 18623 25713 29622 38721 44548
Zonal
Manager
Divisional 17723 23209 26851 34609 39803
Manager
Assistant 17723 21991 25504 32615 37503
Divisional
Manager
Admin 16390 19942 22812 28628 32903
Officer
Assistant 15976 18968 21652 27116 31158
Admin
Officer
Higher 14513 15152 20323 21840 25070
Grade
Assistant
Assistant 12777 12174 17490 17487 20040
An illustration of a Zonal Manager retiring on 30.06.1997 and another
retiring on 31.08.2016 is given below:-
Cadre Date of Basic No of DR DR per Total Basic
Pension +
Retirement Pension Slabs for Slab DR Paid DR as in
the September
Period upto 2016
31/8/2016
Zonal 30/6/1997 6325 1278 15.0325 19212 25537
Manager
Zonal 31/8/2016 49918 388 49.918 19368 69286
Manager
‖
It was accordingly submitted with reference to the first table that an
employee who had retired from a higher post of Executive Director
between 1993 to 1997 would be getting pension, which is almost equal
to the pension payable to an Assistant, who had retired between 1 st
August, 2012 to 31st January, 2013. It is also highlighted that there is a
huge difference between the pension payable to an Assistant, who had
retired between 1st April, 1993 to 31st July, 1997 and 1st August, 2012
to 31st January, 2013. This variation, it was urged, violates Article 14
as well as Article 21 of the Constitution.
68. Violation of Article 21 is not made out with reference to the aforesaid
tables. Pensions between Rs.13000 to Rs.21,000 a month do not
violate Article 21 so as to affect the right to life. In the absence of
cogent data and figures, we would not hold that the pensions payable
are grossly inadequate so as to affect the right to life. The challenge is
not that the amount being paid as pension is meager and piteous, but
that the pension being paid is less than what is paid to others. The
argument would have to be tested under Article 14 and not under
Article 21 of the Constitution. Violation of Article 14 would not be
made out for the reasons set out above, as was decided by the
Constitution Bench in Indian Ex-Services League and Anr. (supra) ,
and K.L. Rathi (supra) and The State of West Bengal (supra). We are
bound by the said decisions, which interpret D.S. Nakara (supra) and
elucidate the ratio. The second table again would not carry the case for
the same reason. The table does not take into account the fact that a
Zonal Manager who retired on 31st June, 1997 or 31st August, 2016 is
entitled to fixation of pension on the basis of ―emoluments‖ as defined
in the Pension Rules.
69. There is another reason which weakens the retired employees' case,
though we accept this would not be a ground to decisively reject the
challenge relying on Article 14 of the Constitution. Employees, who
had retired before 1st November, 1993 had to exercise option in writing
to be covered under the Pension Rules within the period stipulated and
were also required to deposit the Corporation's contribution to the
Contributory Provident Fund with simple interest @ 6% per annum.
For employees who had retired on or after 1st November, 1993 or
before the notified date, i.e. 28th June, 1995, the option was required to
be exercised and Corporation's contribution to the Provident Fund was
to be refunded along with interest @ 12% per annum. The employees
already in service were also to exercise the option and authorize the
Trust of the Provident Fund to transfer the entire contribution of the
Corporation in their Provident Fund along with interest accrued to the
credit of the Fund constituted under the Pension Scheme.
70. The Pension Scheme was not compulsory but was optional, for the
retirees, who have made the present challenge.
71. The petitioners/unions were conscious and had the knowledge that
every 5 years there would be a revision of pay-scales and as per the
Pension Rules, the employees, who had retired prior to the revision,
would not get the benefit of the said upgraded or revised scales. The
pension would be computed with reference to the pay drawn or average
emoluments during the last 10 months. In order to off-set the
inflationary affect and fall in the value of money, the Pension Rules
had postulated dearness relief stipulated as per the scale or formula in
Appendix-IV. The purpose and object of Rule 37 read with Appendix-
IV is to grant dearness relief on account of inflation and rise in prices.
Dearness relief neutralized the inflationary effect to ensure that the
pension is adequate and fair.
72. We now proceed to examine the difference in neutralization by grant of
dearness relief and whether in this context Appendix IV violates
Article 14 and infringes Right to Equality. The Pension Rules notified
on 28th June, 1995 in Appendix-IV noted the difference in the pension
payable to prior and post 1st November, 1993 retirees. This is the date
on which the Pension Rules were deemed to have come into force.
The AICPI-IW index on 1st November, 1993 was 1148. This index
number became the basis for computing dearness relief in paragraph 2
of Appendix-IV. Paragraph 1 of Appendix-IV was applicable to
employees, who had retired before the 1st day of November, 1993 (and
after 1st January, 1986) in whose case the AICPI-IW Index of 600
points was applicable and made the basis for calculation of dearness
relief. Dearness relief payable under paragraph 1 in Appendix IV is as
under:-
―
Basic Pension Rate of Dearness Relief
First 1250 0.67% of Basic Pension
next 1251 to 2000 0.55% of Basic Pension
next 2001 to 2130 0.33% of Basic Pension
Above 2130 0.17% of Basic Pension
‖
Dearness Relief payable under paragraph 2 in Appendix IV is as under;-
―
Basic Pension Rate of Dearness Relief
First 2400 0.35% of Basic Pension
next 2401 to 3850 0.29% of Basic Pension
next 3851 to 4100 0.17% of Basic Pension
Above 4100 0.09% of Basic Pension
‖
73. Paragraph 3(A) in Appendix-IV regulates dearness relief for
employees who have retired or died on or after 1 st August, 1997. The
same is payable for every 4 points rise over 1740 points in the
quarterly AICPI-IW @ 0.23 percent of the basic pension.
74. As per paragraph 1 of Appendix-IV, the neutralization formula with
reference to pensioners between 1st January, 1986 and 1st November,
1993 for basic pension for first Rs. 1250 per month is 0.67%, for
pension in excess of Rs.1250 upto Rs. 2000 is 0.55% and for pension
in excess of Rs.2000 till Rs. 2130 is 0.33%. Thereafter it gets reduced
to 0.17% for the basic pension in excess of Rs.2130. For amounts upto
Rs.2130 the neutralization in paragraph 1 is higher than @ 0.23%
stipulated in paragraph 3(A). However, neutralization benefit of 0.17%
for payments in excess of Rs.2130 is lower than 0.23% in paragraph
3(A).
75. Similarly, the equalization of 0.23% of the basic pension for
employees, who had retired or died on or after 1 st August, 1997 till 31st
July, 2002 for every 4 points over 1740 in the quarterly average of the
AICPI-IW is higher than the neutralization provided in paragraph 2 for
pension amount between Rs.3851 to Rs.4100 and above Rs.4100.
Equalization in these amounts is between 0.17% and 0.09% of basic
pension.
76. This, in our opinion, would fall foul and violate the ratio in the D.S.
Nakara's case (supra). Pensioners prior to 31st July, 1997 face a greater
or harsher impact of inflation as their basic pension is lower.
Neutralization of rate of dearness relief in their cases cannot be lower
than that of the retirees post 31st July,1997. This unequal treatment in
computation to the detriment of pre 31st July, 1997 retirees results in
discrimination and thus violates Article 14 of the Constitution. Thus,
grant of higher equalization @ 0.23% of basic pension in paragraph
3(A), without extending this benefit to those in paragraphs 1 and 2 is
unreasonable and discriminatory violating Article 14. Retired
employees covered under paragraphs 1 and 2 are entitled to
neutralization at ratio/scale as applicable and given to employees
retiring post 31st July,1997. Equalization under paragraphs 1 and 2
should not be less or lower than the equalization provided in paragraph
3(A). This finding would be in consonance with the reasoning and the
ratio in D.S. Nakara (supra) as expounded and explained subsequently
in other decisions in Krishena Kumar & Ors., (supra), Indian Ex-
Services League, (supra), K.L. Rathi (supra), etc. The equalization or
neutralization criteria specified and fixed in paragraphs 1, 2, and 3(A)
relates to the matter of computation, and takes care of the effect of fall
of the value of money and inflation. This being a matter of
computation, it would be wrong and inequitable not to grant benefit of
higher scale equalization as stipulated in paragraph 3(A) wherever it is
more beneficial.
77. The consequence of the difference in equalization ratio is that the
retirees prior in point of time are getting the lower benefit of
equalization in percentage terms as compared to retirees, who were
getting a higher basic pension.
78. We are aware that in paragraphs 1 and 2, equalization criteria has been
fixed in a descending scale. There is higher equalization on the initial
amounts till Rs.2130 in paragraph 1 and Rs.3850 in paragraph 2. This
would not make any difference, for we are concerned with reference to
paragraphs 1 and 2 with cases of equalisation above the said figures,
which must correspond and meet the equalisation given to pensioners
under paragraph 3(A), who had retired subsequently after the 1st day of
August, 1997 and are in receipt of a higher basic pension.
79. For the identical reasons, the pensioners in paragraph 1 should not be
given dearness relief at a rate lower than the pensioners in paragraph 2.
The rate of dearness relief on amounts above Rs.2130/- till Rs.3850/-
fixed in paragraph 1 at 0.17% of basic pension shall be enhanced to the
rate of 0.29% as specified in clause (ii) of paragraph 2. However, for
pension in excess of Rs.2130/-, rate of 0.23% of basic pension as stated
in paragraph 3(A) would apply, with effect from the applicable date.
80. We are aware and conscious of the fact that paragraphs 1 and 2 form
part of the Pension Rules as originally enacted. We have, in our
reasons, indicated and referred to the option exercised by the retirees
covered by paragraphs 1 and 2. Nevertheless, we would not for this
reason refuse to grant relief to the pensioners in paragraph 1 in case we
find that the original rule itself is discriminatory and draws an artificial
distinction to the detriment of those drawing lower pension. Reference
to option exercised by the retirees is pertinent and relevant in the
context of the prayer for revalorization of pension on account of
increase in emoluments of in-service employees or uniform rate of
basic pension, albeit would not be a ground to deny relief for apparent
violation of Article 14 of the Constitution.
81. During the course of hearing, we had asked the Corporation to submit a
table explaining what would be the affect in case benefit of 0.23% is
given to the employees covered by paragraphs 1 and 2. Along with
written submissions, the Corporation has filed annexures. As per
Annexure A, an employee, who was entitled to basic pension of
Rs.5000 on retirement would be entitled to pension after giving benefit
of indexation in paragraph 1 of Rs.24,681.88 and in case percentage of
0.23% is computed on pension above Rs.2130, the pension would be
enhanced to Rs.27,634.95. Similarly, in case of an employee covered
under paragraph 2, who was given an initial basic pension of Rs.5,000,
his pension on indexation under paragraph 2 would be Rs.17,286.17,
whereas in case he is given benefit of indexation of 0.23% on the
pension amount of Rs.3851 and upwards, he would be entitled to
pension of Rs.19,489.50/- Thus, on indexation of 0.23% on the higher
amounts, the retirees covered under paragraphs 1 and 2 would get
greater/higher benefit. They would be entitled to the said benefit.
82. The aforesaid direction would largely benefit the retirees on the upper
end i.e. whose basic pension in case of paragraph 1 exceeds Rs.2130 or
in paragraph 2 when basic pension exceeds Rs.3850. This direction
would not help the retirees at the lower end where the basic pension
was/is less than Rs.2131 or Rs.3851. We would accept the said
position, but this would not deter us from passing the order on the
ground that the upper end pensioners covered by paragraphs 1 and 2
are entitled to and would get the said benefit.
83. There is another aspect on which we feel the retired
employees/associations should succeed. The retired
employees/associations on being asked could not point the lowest
pension being paid. Perhaps the retired employees at the lower end are
not adequately represented in the associations and do not have the
same "access". The Corporation was asked to specify the correct
position and state the lowest/minimum amount of pension being paid
under paragraphs 1 and 2. For the sake of convenience, we would like
to reproduce the chart filed by the Corporation, with reference to the
minimum pension prescribed under Rule 36 quoted above:-
―
CHART SHOWING PENSION PAYABLE IN LOWEST SCALE IN THE CADRE OF CLASS-IV
PENSION OF EMPLOYEES RETIRED ON OR AFTER
Minimum 1st 1st 1st 1st 1st 1st 1st
service
required to earn August August August August August August January
pension is 10
years as per
Rule 14 2012 2007 2002 1997 1992 1987 1986
Basic at the 15455 8175 5430 3670 2150 1090 575
10th stage in the
lowest scale
(sweeper) as
per wage
Basic Pension 1/2x 2342 1239 823 556 326 165 158
for such a
person is 15455x
proportionately
calculated =
Avg of last 10 10/33
months basic
divided by 2 x
Minimum 3010 1880 1480 1100 720 375 375
Basic Pension
as per rule 36
Hence Basic 3010 1880 1480 1100 720 375 375
Pension
Payable
DR as on 1168 2338 2619 1864.5 3221 3555 3211
1/8/2016
Total Pension 4178 4218 4099 2965 3941 3930 3586
payable if the
pensioner has
put up 10 years
if the person 25275 13330 8560 5595 3140 1575 875
retired after
putting in 33
years service as
a sweeper his
terminal Basic
i.e. Maximum
of sweeper
scale
Pension as per 25275/2 12638 6665 4280 2798 1570 788 754
Rule 35 Last 10
months avg
basic /2
DR as on 4903 8288 7573 7271 7023 7466 6456
1/8/2016
Total Pension 17541 14953 11853 10068 8593 8253 7210
payable if the
pensioner has
put up 33 years
‖
The aforesaid table indicates that a employee who had retired on 1st
August, 2012, at the lowest end would get a minimum pension of
Rs.4178 on 1st August, 2016 if he has put in 10 years of service or
Rs.17,541 if he has put in 33 years of service. On the same day, an
employee retiring on or before 1st January, 1986 would be entitled
would be entitled to a minimum pension inclusive of dearness relief of
Rs.3586 if he has put in 10 years of service and Rs.7210 inclusive of
dearness relief if he has put in 33 years of service. Minimum basic
pension is fixed under Rule 36 and has been revised as per the table
above from time to time, from Rs.375 to Rs.720 on 1 st August, 1992, to
Rs.1100 on 1st August, 1997, to Rs.1480 on 1st August, 2002, to
Rs.1880 on 1st August, 2007 and to Rs.3010 on 1st August, 2012. Rule
36 states that the amount of minimum pension shall be the amounts
specified above. Benefit of enhanced minimum pension on each
occasion is with reference to the date of retirement. Prior retirees have
not been extended benefit of the increased minimum pension. We do
not think that benefit of minimum pension can be restricted with
reference to the date of retirement. If it is so fixed and computed, it
will violate the principle of equality as expounded in D.S. Nakara,
Krishena Kumar, Indian Ex-Services League and K.l. Rathi (supra).
Minimum pension is a matter pertaining to liberalisation in
computation of pension, and not connected with emoluments. In D.S.
Nakara's case (supra), one of the benefits granted to the pre 1 st April,
1979 retirees was the benefit of removal of limit of Rs.1500 per month.
Secondly, the method of computation with reference to 36 months was
struck down, in favour of the period of 10 months for it was more
beneficial. On the same analogy and reasoning, we would hold that
whenever minimum pension is enhanced, the said benefit would accrue
and should be given to those who were drawing pension lower than the
stipulated figure. Minimum pension would, to some extent, have
reference to the amount required to be paid in order to simply sustain
oneself. Thus, Article 21 of the Constitution would be attracted. Effect
thereof would be that whenever there is an enhancement of minimum
pension, the pensioners drawing less than the minimum pension would
be entitled to the minimum pension so fixed. In other words, an
employee, who was drawing and entitled to minimum pension of
Rs.375 with effect from 1st August, 1986, would be entitled to
minimum pension of Rs.720 with effect from 1 st August, 1992,
minimum pension of Rs.1100 with effect from 1st August, 1997,
minimum pension of Rs.1480 with effect from 1st August, 2002,
minimum pension of Rs.1880 with effect from 1st August, 2007, and
minimum pension of Rs.3010 with effect from 1st August, 2012, if the
pension being drawn inclusive of dearness relief on the respective
dates was lower. Either/or principle, i.e. whichever is more beneficial,
will apply. Enhancement cannot obviously work to the detriment of
the post retirees.
84. With effect from the said dates on grant of the said benefit, the
pensioners would be entitled to dearness relief as specified and
applicable with effect from 1st August, 1992, 1st August, 1997, 1st
August, 2002, 1st August, 2007 and 1st August, 2012, respectively. This
would be fair and just and would be in consonance with the judgment
and ratio in D.S. Nakara (supra) as expounded and explained in
Krishena Kumar, and Indian Ex-Services League (supra).
85. The next issue that requires examination is whether there is any
intelligible difference between pension payment to the Central
Government employees and the retired Corporation employees or they
form one class. In order to decide this question we would refer to the
Pension Rules relating to creation of the pension fund for disbursement
of pension. In D.S. Nakara (supra) in paragraph 45, the Supreme
Court had stated that the liberalized scheme applicable to government
employees was a non-contributory scheme and that was not a case of
pension fund. The pension in the said case was a statutory liability of
the government under the rules. Thus, a distinction was drawn by the
Corporation between the said position, and pension payable under the
pension fund in the present case.
86. There is a basic difference between pension payable to retired
Corporation employees and the Central Government employees.
Pension to retired Central Government employees is paid on current
disbursement approach i.e. ―pay as you go‖ and not by the funded plan
approach. (The position has changed with effect from 01.01.2004 with
the introduction of the National Pension Scheme.) Under the ―pay as
you go‖ approach, the retired employee is paid pension as and when it
becomes due and the outlay being provided from the current operating
sources/income. It is treated as a part of current salary costs. Under
the funded approach, the employer estimates the amount of future
expenditure for pension and sets aside the necessary funds for it. The
funds can be contributory or non-contributory i.e. provided for by the
employer alone or both by the employer and the employee. In case of
a business enterprise, the "Fund" approach is preferred for obvious
reasons. It reflects the correct liability obligation existing on the said
date. It prevents overstatement of operational profits.
87. Noticing the adverse effect of the ballooning pension bill, the Central
Government has introduced the contributory National Pension Scheme
with effect from 01.01.2004. Notwithstanding this change, the
contributory National Pension Scheme was only introduced for
employees joining the Corporation in 2010. Equating Central
Government pensioners and Corporation pensioners as one single class
would have multiple unforeseen and unacceptable consequences.
88. In the present case, with reference to the Pension Rules in question, it
is noticeable that there is a pension fund which is created and has to be
maintained in terms of Rule 5. The composition of the Fund as per
Rule 7 consists of the contribution made by the Corporation @ 10%
per month of the pay of the employee. The expression ―pay‖ has been
defined. Investment in annuities or securities purchased out of money
of the Fund, along with interest earned thereupon, is added to corpus of
the Fund. Under Clause (f) of Rule 7, the Corporation is mandated to
provide an additional annual contribution in accordance with the
provisions contained in Rule 11. Rule 11 stipulates that the
Corporation shall cause an investigation to be made by an actuary into
the financial condition of the Fund every year as on 31st March of
every year. Thereupon, the additional annual contribution shall be
made to the Fund to secure payment of the benefits under these Rules.
89. Rule 13 dealing with payments out of the Fund, has been quoted in
paragraph 20 above. As per Rule 13, the Trust has to purchase
annuities from the Corporation in respect of each employee or his
family at the time he or his family becomes eligible for pension under
the Pension Rules i.e. at the time of retirement or death of an
employee. Clause (b) of Rule 13 states that the Trust shall, subject to
availability of additional sums in the Fund to be provided by the
Corporation, purchase additional annuities as and when it becomes
necessary to revise upwards the benefits payable in accordance with
the Rules. As per clause (c), in the event of the benefits payable under
these Rules being revised downwards, the annuities purchased under
these Rules would be deposited in the Fund. Thus, the Corporation has
an obligation and liability to provide for corpus and contribute towards
any shortfall.
90. As per the Corporation, they have been providing additional annual
contribution under Rule 7(f) read with Rule 11 to the following extent:-
―
Financial Year Contribution Additional Total
under Rule 7(a) Annual Contribution
(10% of the pay Contribution (Crores) (A) + (B)
of the employer) under Rule 7(f)
(Crores) r.w. Rule 11
(A) (Crores)
2013-14 272.77 4769.21* 5041.98
2014-15 340.37 4037.43** 4377.80
2015-16 1004.18# 3589.25*** 4593.43#
(1002.34) (4591.59)
* As per actuarial valuation report as on 31.03.2014.
** As per actuarial valuation report as on 31.03.2015.
*** As per actuarial valuation report as on 31.03.2016. ‖
91. The Pension Rules, for a good reason, do not follow the principle of
―pay as you go‖. It provides for additional funding on actuarial basis
every year. As per the Pension Rules annuities are purchased at the
time of retirement or death of an employee. These annuities have a
reference to the total amount, which would be payable to the retiree or
his family in future. The annuities are subject to actuarial evaluation
under Rule 11. Similarly amounts, if required, must be deposited in the
Fund on the basis of actuarial evaluation for the in service pension
optee employees. These additional funds have to be provided by the
Corporation to the Trust. Thus, the contention of the Corporation that
in case prayer made by the employees/associations is to be accepted
and the Court directs revision of basic pension whenever there is a
revision of pay-scales, influx of funds on actuarial valuation by the
Corporation would be required is correct. The inflow would not be
restricted to purchase of annuities for pensioners alone, and would
account for in service employees entitled to pension and would take
into consideration periodic increase in pay every five years. This may
and would lead to substantial financial obligation/liability and
necessary consequences. This would certainly have an adverse affect
on the profit and loss account and balance sheet of the Corporation.
92. Thus, while we accept the contention of the retired
employees/associations that the Corporation is to provide for funds in
case there is a shortfall and the Corporation cannot shy away from the
said liability, we would accept the contention of the Corporation and
the Union of India that revalorization of pension beyond the statutory
or constitutional mandate has to be commercially viable. In other
words, no employer can be expected to pay more than his capacity
unless there is a statutory obligation or constitutional rights are
violated. In the present context, in the absence of any statutory right,
we would observe that in case there is invidious discrimination that
violates Article 14, the Corporation would be liable. The challenge
predicated on Article 14 of the Constitution for reasons stated above
and thereafter has been accepted only in part.
93. We have already noticed and referred to Section 6 of the Act which
states that the Corporation shall carry on life insurance business.
Section 26 mandates that the Corporation shall, once at least in every
two years cause an investigation to be made by actuaries into the
financial condition of the life insurance business, including a valuation
of the liabilities and submit the report of the actuaries to the Central
Government. This valuation would include the pension liability. This is
also stipulated in Rule 11 read with Rule 5(3) and (13) of the Rules.
94. Actuarial valuations in the life insurance business are the corner stone
and edifice for a viable commercial venture. In the life insurance
business accounts cannot be maintained on current basis. As noticed
below, the law mandates and requires that accounts be maintained on
actuarial basis, keeping in mind and accounting for future projections.
The principles of actuarial valuation help determine and estimate the
financial liabilities on the basis of certain assumption with regard to
mortality rates, investment, trends, work force profile etc.
95. In A.K. Bindal & Anr. Vs. Union of India & Ors., (2003) 5 SCC 163,
on the question of economic viability and the difference between the
Central Government and a commercial enterprise, which is also a
State, it was held as under:-
"18. We are unable to accept the contention of Shri
Venkataramani that on account of non-revision of pay scales
of the petitioners in the year 1992, there has been any
violation of their fundamental rights guaranteed under
Article 21 of the Constitution. Article 21 provides that no
person shall be deprived of his life or personal liberty except
according to procedure established by law. The scope and
content of this article has been expanded by judicial
decisions. Right to life enshrined in this article means
something more than survival or animal existence. It would
include the right to live with human dignity. Payment of a
very small subsistence allowance to an employee under
suspension which would be wholly insufficient to sustain
his living, was held to be violative of Article 21 of the
Constitution in State of Maharashtra v. Chandrabhan
Tale [(1983) 3 SCC 387 : 1983 SCC (L&S) 391 : 1983 SCC
(Cri) 667 : AIR 1983 SC 803] . Similarly, unfair conditions
of labour in People's Union for Democratic Rights v. Union
of India[(1982) 3 SCC 235 : 1982 SCC (L&S) 275 : AIR
1982 SC 1473] . It has been held to embrace within its field
the right to livelihood by means which are not illegal,
immoral or opposed to public policy in Olga
Tellis v. Bombay Municipal Corpn.[(1985) 3 SCC 545 :
AIR 1986 SC 180] But to hold that mere non-revision of
pay scale would also amount to a violation of the
fundamental right guaranteed under Article 21 would be
stretching it too far and cannot be countenanced. Even under
the industrial law, the view is that the workmen should get a
minimum wage or a fair wage but not that their wages must
be revised and enhanced periodically. It is true that on
account of inflation there has been a general price rise but
by that fact alone it is not possible to draw an inference that
the salary currently being paid to them is wholly inadequate
to lead a life with human dignity. What should be the salary
structure to lead a ―life with human dignity‖ is a difficult
exercise and cannot be measured in absolute terms. It will
depend upon the nature of duty and responsibility of the
post, the requisite qualification and experience, working
condition and a host of other factors. The salary structure of
similarly placed persons working in other public sector
undertakings may also be relevant. The petitioners have not
placed any material on record to show that the salary which
is currently being paid to them is so low that they are not
able to maintain their living having regard to the post which
they are holding. The observations made in paras 276 and
277 in Delhi Transport Corpn. v. D.T.C. Mazdoor
Congress [1991 Supp (1) SCC 600 : 1991 SCC (L&S) 1213
: 1990 Supp (1) SCR 142] strongly relied upon by learned
counsel for the petitioners, should not be read out of its
context. In the said case the Court was called upon to
consider the constitutional validity of Regulation 9 of the
Delhi Road Transport Authority (Conditions of
Appointment and Service) Regulations, 1952, which gave
power to terminate the services of an employee after giving
one month's notice or pay in lieu thereof. The termination of
services of some of the employees on the ground that they
were inefficient in their work by giving one month's notice
was set aside by the High Court as in its opinion Regulation
9(b) gave absolute, unbridled and arbitrary powers to the
management to terminate the services of any permanent or
temporary employee and, therefore, the same was violative
of Article 14 of the Constitution. It was in this context that
the aforesaid observations were made by one Hon'ble Judge
in his separate opinion. The issue involved was not of
revision of pay scale but that of termination of services
which has an altogether different impact on an employee.
19. The contention that economic viability of the industrial
unit or the financial capacity of the employer cannot be
taken into consideration in the matter of revision of pay
scales of the employees, does not appeal to us. The question
of revision of wages of workmen was examined by a
Constitution Bench in Express Newspaper (P) Ltd. v. Union
of India [AIR 1958 SC 578] having regard to the provisions
of the Industrial Disputes Act and the Minimum Wages Act
and the following principles for fixation of rates of wages
were laid down: (AIR p. 605, para 73)
―(1) that in the fixation of rates of wages which include
within its compass the fixation of scales of wages also, the
capacity of the industry to pay is one of the essential
circumstances to be taken into consideration except in cases
of bare subsistence or minimum wage where the employer is
bound to pay the same irrespective of such capacity;
(2) that the capacity of the industry to pay is to be
considered on an industry-cum-region basis after taking a
fair cross-section of the industry; and
(3) that the proper measure for gauging the capacity of
the industry to pay should take into account the elasticity of
demand for the product, the possibility of tightening up the
organisation so that the industry could pay higher wages
without difficulty and the possibility of increase in the
efficiency of the lowest-paid workers resulting in increase in
production considered in conjunction with the elasticity of
demand for the product -- no doubt against the ultimate
background that the burden of the increased rate should not
be such as to drive the employer out of business.‖
(emphasis supplied)
20. The same question was again examined in Hindustan
Times Ltd. v. Workmen[AIR 1963 SC 1332] and the Court
recorded its conclusion in the following words in para 7 of
the Report: (AIR p. 1336)
―7. While industrial adjudication will be happy to fix a
wage structure which would give the workmen
generally a living wage, economic considerations make
that only dream for the future. That is why the
Industrial Tribunals in this country generally confine
their horizon to the target of fixing a fair wage. But
there again, the economic factors have to be carefully
considered. For these reasons, this Court has
repeatedly emphasised the need of considering the
problem on an industry-cum-region basis, and of giving
careful consideration to the ability of the industry to
pay.‖
(emphasis supplied)
21. It may be noticed that in these cases the Court was
considering the question of wage structure for workmen
who belong to an economically poor section of society and
providing them even a living wage was held to be a distant
dream on account of economic considerations and also the
capacity of the industry to pay.‖
We would, therefore, reject the argument advanced by the retired
employees or some of the associations that economic viability would
not be the relevant criteria.
96. On the question of financial impact, the retired employees/associations
have raised multifarious arguments which are to some extent even
contradictory. The Corporation's obligation to provide an upgraded
equal pension uniformly, it was submitted, is a constitutional right and,
therefore, it would not matter whether the Corporation incurs losses or
requires funding from the Central Government. Others have suggested
that in-service officers or retirees post 1997 getting higher pension
should forego their rights to ensure uniformity of pension. These
arguments would not justify issue of Court direction. The first
submission must be rejected as insubstantial and fallacious, for reasons
set out above and subsequently. The employees, both serving and
retired, would not agree with the suggestion given by some of the
retired employees/associations. These pensioners or in-service
employees are well entitled to claim their entitlement to pension under
the Pension Rules, which would give them a statutory right.
97. Difference must be also drawn between a legal right and corresponding
duty, and a moral obligation. This distinction is referred to in
Krishena Kumar (supra) in the following words:-
―31. The argument of Mr. Shanti Bhushan is that the State's
obligation towards pension retirees is the same as that
towards PF retirees. That may be morally so. But that was
not the ratio decidendi of Nakara. [(1983) 1 SCC 305 : 1983
SCC (L&S) 145 : (1983) 2 SCR 165] Legislation has not
said so. To say so legally would amount to legislation by
enlarging the circumference of the obligation and converting
a moral obligation into a legal obligation. It reminds us of
the distinction between law and morality and limits which
separate morals from legislation. Bentham in his Theory of
Legislation, Chapter XII, page 60 said:
―Morality in general is the art of directing the actions of
men in such a way as to produce the greatest possible sum
of good. Legislation ought to have precisely the same
object. But although these two arts, or rather sciences, have
the same end, they differ greatly in extent. All actions,
whether public or private, fall under the jurisdiction of
morals. It is a guide which leads the individual, as it were,
by the hand through all the details of his life, all his
relations with his fellows. Legislation cannot do this; and, if
it could, it ought not to exercise a continual interference and
dictation over the conduct of men. Morality commands each
individual to do all that is advantageous to the community,
his own personal advantage included. But there are many
acts useful to the community which legislation ought not to
command. There are also many injurious actions which it
ought not to forbid, although morality does so. In a word
legislation has the same centre with morals, but it has not
the same circumference.‖
98. On the question of financial implication, the Corporation submits that
on actuarial basis if the stand of the retired employees/associations is
accepted, the financial implication would be to the extent of Rs.32000
Crores. The Corporation filed an affidavit and an additional affidavit
to explain and affirm their stand and position. The aforesaid figure
consists of actuarial evaluation of the present obligation, i.e. present
pensioners as well as in service pension optees. The Pension Scheme,
itself, as well as Section 26 of the Act mandates actuarial valuation for
the Pension Scheme. This being the position, we cannot ignore the
financial impact and the corresponding payments that the Corporation
will have to provide immediately for even in-service employees. The
actuarial calculation will have to include the future pay rises. Indeed,
if we accept the contention of the retired employees/associations, they
alongwith other retirees and in service officers would be entitled to
increased revalorization of the basic pension after every five years
when the pay revision takes place. These are complex and intricate
calculations. The contention of the employees/associations that out of
Rs.32000 Crores, Rs.23583 Crores is the cost for upgradation of future
pensioners and hence is not an immediate liability and will become due
and payable at successive intervals and about Rs.8000 Crores is the
present liability, has to be rejected as in view of the nature of the
Corporation's business and the mandate in law that its accounts must
be maintained on actuarial basis. The retired employees/associations
have submitted that the entire cost of arrears towards the pensioners
from 1997 to 2017 would be about Rs.3163 Crores, which would be
one-fifth of the annual expenditure on salaries and other benefits for
the Financial Year 2015-16. Cost of future upgradation for the present
pensioners is Rs.5135 Crores. The figures fail to account for similar
benefit or equal treatment to which the in-service pension optees would
be entitled. These have to be factored and accounted. If we proceed on
the said basis and accept the said submission, the financial implication
for the Corporation will be much more for the present in-service
employees, who retire in future. They too would be entitled, on the
basis of parity and equality, to the same benefit and advantage on pay
increases every five years in future.
99. The retired employees/associations had submitted that the Pension
Fund as per the report for the Financial Year 2015-16 had a corpus of
about Rs.39000 Crores and the Fund also earns about 9% annual
interest on the investments it makes. This Fund can be used for the
present and the future pensions and not for any other purpose.
Referring to Financial Year 2013-14, it is submitted that fund then had
a Corpus of Rs.27000 Crores and had earned interest income of
Rs.2440 Crores, while the annual liability towards pension outgo was
merely Rs.839 Crores. This argument again fails to notice the
difference between purchase of immediate annuity on the retirement of
an employee or his death, which has been treated as an expenditure or
outgo. The deposit or increase in the fund cannot be computed on the
outgoings towards purchase of annuity. This is the reason why the
Corporation has been depositing substantial amounts towards
additional annual contribution in accordance with Rule 7(f) read with
Rule 11 of the Pension Rules. This contribution is based on actuarial
valuation to secure payment of the pensionary benefits under the
Pension Rules for both the in-service pension optees and retired
employees. As per the Corporation, the cost of Rs.23583 Crores is
recognised as a known liability and has to be funded immediately as
per Projected Unit Cost Method prescribed in Accounting Standard
AS-15. To highlight the aforesaid position, the Corporation has stated
as under:-
― LIC Employees Pension Fund (in Crs)
31/03/2013 31/03/2014 31/03/2015 31/03/16
Fund at 16,544 21,073 27,039 32,578
Beginning of
year
Investment 2,111 1,950 2,439 2,728
Income
Employers 269 273 340 1,004
Contributions
in lieu of PF
under Rule
7(a)
Additional 3,654 4,769 4,038 3,589
Contributions
under Rule
7(f) r.w. Rule
Benefits paid 1,515 1,026 1,278 973
Fund as at end 21,073 27,039 32,578 38,925
of year
‖
It is pointed out that the additional contribution under Rule 7 (f) for the
year ending 31st March, 2016 had come down for the contribution
under Rule 7(a) in the said year had increased substantially to Rs.1004
Crores from Rs.340 Crores. The additional annual contributions will
go up substantially in case the prayer of the retired
employees/associations is accepted.
100. The retired employees/associations had submitted that the present
pension outgo expenses constitute a negligible or small percentage of
the total premium income, i.e., it is within the range of 0.23 to 0.37%
for the years 2004-05 to 2015-16. Pension outgo was a small
proportion of the salary outgo and between 3.19 to 6.21% for the same
period. Similarly, the pension outgo ratio in relation to management
expenses was between 1.73 and 3.41% between Financial Years 2004-
05 and 2015-16. The Corporation contests the said submission and
submits that annual expenditure for providing pensionary benefits is
about 12% of the total expenses and around 30% of the expenses under
the Head Salary and Benefits to Employees. They have submitted the
following details:-
―
Expenses in Rs. 2012- 2013-14 2014-15 2014-16
Crores
Commission to 14768 16681.29 15092.1 15477.17
Agents (1)
Salary and other 11894.9 14705.11 14523.44 14659.34
Benefits (including
Pension contribution
by corporation (2)
Other expenses(3) 4812.75 9060.79 7869.25 8033.42
Total 31475.6 40447.19 37484.79 38169.93
Expenses(4)=(1+2+3)
Contribution to 3923 5042 4378 4593
Pension Fund (5)
% of Pension Exp to 12.46 12.47 11.67 12.03
Total Expenses item
no. (5)/item no. (4)%
% of Pension Exp to 32.98 34.29 29.67 31.33
Employees
Remuneration
‖
101. The error made by the retired employees/associations is they have not
computed or taken the figure of the pension outgo from the
Corporation to the Fund and have treated the annuities purchased as the
actual outgo. This is erroneous and fallacious. In the Financial Year
2015-16, the Corporation had transferred Rs.4593 Crores to the
Pension Fund. These were shown under the Head ‗Salary and Other
Benefits to the Employees', which were to the extent of Rs.14659
Crores. The payment to the fund by the Corporation represents the
Corporation's liability and outgo. Thus, for the Financial Year 2015-
16, the pension expenses were nearly 31.33% of the total remuneration
paid to employees, i.e., salary and other benefits. The proportion or
percentage was 34.28% in 2013-14 and 30.14% in 2014-15. As far as
Corporation is concerned, pension outgo either in form of payment
under Rule 7(a) or additional contribution in 7 (f) is a pension outgo.
This is the cost of pension to the Corporation.
102. There is another aspect, which must be referred to and taken into
account. Section 40B of the Insurance Act, 1938 read with Rule 17D
of the Insurance Rules, 1939 fixes and stipulate statutory limits on
management expenditure. The said percentage or figure cannot be
breached. For the Financial Year 2014-15, the ratio of actual expenses
allowable in terms of Rule 17D was 83.4%. There is very little
leverage available to the Corporation which has to also ensure that the
ratio is not breached now or in future because of the obligation and
liabilities. The ratio ensures fair returns to the policyholders and
restricts management expenses. It balances the two competing
objectives and rights. As per the figures mentioned in the affidavit
filed by the Corporation on 4th February, 2017, the Corporation has
surplus of Rs.36,060 Crores in the Financial Year 2014-15, which was
allocated in the form of bonus/payment to policyholders for Rs.34,257
Crores and Rs.1803 Crores to the Central Government. Setting aside
or contributing Rs. 32000 Crores on actuarial calculation would
certainly have a negative impact.
103. The pensioners/associations have submitted that the entire focus of the
Corporation appears to be to protect ―bonus‖ payable to the policy
holders and not the rights of the pensioners. The fact that payment of
higher pension would adversely impact the quantum of bonus to be
paid to the policy holders, it is submitted, is justified as at best it would
have miniscule impact. Bonus though declared yearly, is paid after 10-
15 years when payment under the policy is to be made. Some of the
pensioners/associations had even urged that pensionary benefits should
be left out of the management cost so as to not breach the stipulations
of Rule 17D. Still others had urged that arrears pertain to the period
1997 to 2017 and, therefore, need not be accounted for in one year for
the purpose of Rule 17D.
104. These arguments have to be noted and rejected, as farfetched,
unrealistic and unreasonable. The mandate of Rule 17D of the
Insurance Rules, 1939 must be adhered to, for breach of statutory
obligations would result in penalties and would also affect and impact
the financial viability of the Corporation. Bonus has to be paid to the
policy holders and in most cases is the actual benefit which the policy
holder earns over and above a premium paid by them. The suggestion
would not be commercially viable or sustainable for any life insurance
company, which does not offer a fixed return and pays bonus. The
component or quantum of bonus is determined and decided today. The
figure, and the amount appropriated on actuarial basis, takes into
account what would be payable on maturity.
105. Lastly, we will deal with the contention of the retired
employees/associations that the pension scheme is discriminatory as
the Corporation is extending benefit of periodical revalorization of
pension to Managing Director and Chairman under Rule 55B, who also
receive payment from the pension fund. As per Rule 55B,
notwithstanding anything contained in the pension rules, an employee
appointed as Managing Director under Section 20 of the Act, who was
in service on or after 1st January, 1996, the pensionary benefit shall be
calculated in accordance with the provisions of Central Civil Service
(Pension) Rules, 1972, Central Civil Services (Commutation of
Pension) Rules, 1981 and in accordance with the instructions issued by
the Central Government thereunder from time to time. The
explanation of the Corporation and the Union of India is that
appointments to the posts of Chairman and Managing Director are
made by the Central Government under Sections 4 and 20 of the Act.
These posts require approval of the Appointment Committee of the
Cabinet and draw pay as per the scale of pay applicable to the Central
Government employees. This was the position even prior to
introduction of the Pension Rules. Chairman and Managing Director of
the Corporation by notification dated 3 rd July, 1996, were made
eligible for pension, though their salary and dearness relief were
calculated on 608 index points whereas pension rules had provided for
calculation of dearness relief at 1148 index points. Thus, there was an
anomaly. The Central Government considered the issue and decided
that there should be uniformity of terms and conditions of appointment
approved by the Appointment Committee of the Cabinet in the
insurance industry including retirement package.
106. In view of the explanation given, we do not think that the contention of
the retired employees/associations should be accepted as a ground or
reason to apply the notifications issued by the Central Government
under the pension rules applicable to the Central Government
employees. We have already referred to the distinction between
pension payable under ―pay as you go‖ approach applicable to the
Central Government employees and ―actuarial and annuity‖ method
applicable to Corporation employees. Uniformity and parity has not
been maintained between the Central Government employees and the
Corporation employees.
107. In view of the aforesaid discussion, it is held as under:-
(i) Employees of the Corporation cannot be equated and claim
parity or equivalence in respect of method and ―content‖ of
pension with the Central Government employees.
(ii) Challenge of the retired employees/associations for
revalorization of basic pension or merger of dearness relief with
basic pension upon re-fixation of pay scale of in-service
employees relying upon Articles 14 and 21 of the Constitution is
rejected, except to the extent of entitlement to minimum pension
as enhanced/increased under the Pension Rules from time to
time; and rate of equalization stipulated in paragraph 1 is lower
than the rate in paragraph 2 and rates in paragraphs 1 and 2 are
lower than the rate in paragraph 3(A).
(iii) In other words:
a) Retired employees, who are in receipt of pension lower than
the minimum pension as enhanced from time to time, would
be entitled to benefit of the minimum pension irrespective of
the date of retirement. This direction would apply only when
it is beneficial to prior retirees. Where such benefit of
enhanced pension is granted, dearness relief would
commence and would be calculated thereafter as per the
applicable rate.
b) Retirees prior to 1st August, 1997 are entitled to dearness
relief at a rate not lower than 0.23% of basic pension. Rate of
dearness relief for pre 1st August, 1997 retirees cannot be
lower than the rate stipulated for pensioners who had retired
on or after 1st August, 1997 till 31st July, 2002.
c) Similarly, dearness relief @ 0.17% of basic pension in
paragraph 1 shall stand enhanced to 0.29% for amounts between
Rs.2130/- to Rs.3850/-, the rate stipulated in paragraph 2.
108. We would also clarify that payment made in terms of interim directions
issued by the Supreme Court would not be refunded or returned to the
Corporation. We have issued the said direction as the amount paid is
not substantial for the Corporation, whereas asking the retired
employees/pensioners to refund the amount would put them in a grave
financial difficulty.
109. In view of the aforesaid directions partly allowing the Writ Petitions,
the Corporation would have to re-work the pensions in several cases.
This would be a time-consuming exercise and errors or mistakes can be
made. It will be open to the Corporation to prescribe suitable
method/procedure which may involve the retired employees/pensioners
to submit their details, objections or even option. The said exercise
should be completed within 9 months from the date a copy of this order
is received. Arrears, if any, would be paid from the date when the first
Writ Petition was filed, to all retired employees/pensioners who would
be entitled to benefit of this judgment. Interest would not be payable
in case, payment is made within a period of one year from the date
copy of this order is received. In case there is delay beyond one year
interest @ 8% per annum, unless explained and justified in writing to
the retired employee, would be payable from the date of this judgment
till payment is actually made. The retired employee if aggrieved by
the written order would be entitled to challenge the order in accordance
with law.
110. The writ petitions are accordingly disposed of without any order as to
costs.
(SANJIV KHANNA)
JUDGE
(CHANDER SHEKHAR)
JUDGE
APRIL 27, 2017
SSN/VKR/NA
