Supreme Court clarifies ‘absorption’ under pension rules: Vinod Kanjibhai Bhagora vs. State of Gujarat (2024)

Date of the Judgment: 02 February 2024

Citation: 2024 INSC 100

Judges: Justice Vikram Nath and Justice Satish Chandra Sharma

Can prior service with the Central Government be counted towards pension benefits when an employee joins the State Government through a fresh recruitment process? The Supreme Court recently addressed this question in a case concerning a former Postal Assistant who later joined the Gujarat State Government. The core issue revolves around the interpretation of “absorption” under the Gujarat Civil Services (Pension) Rules, 2022. The Supreme Court held that prior service with the Central Government must be included as qualifying service for pension benefits, even if the employee joined the State Government through a fresh recruitment process, provided a No-Objection Certificate (NOC) was obtained from the Central Government, and the employee tendered a technical resignation to join the State Government.

Case Background

The appellant, Vinod Kanjibhai Bhagora, was initially employed as a Postal Assistant in the Gandhinagar Postal Division under the Central Government, starting on 12 August 1983. He served in this role until 16 July 1993.

During this time, the State Government of Gujarat issued an invitation for applications for the position of Senior Assistant in the Ministry of Health and Medical Services. The appellant obtained a No-Objection Certificate (NOC) from the Superintendent of Post Office, Gandhinagar Division, on 18 June 1993, and participated in the selection process.

Having been selected, the appellant tendered a technical resignation from his position as a Postal Assistant on 16 July 1993. He joined as a Senior Assistant in the State Government on 18 August 1993, and served until his superannuation, a period of 23 years. Upon retirement, the State Government only paid him terminal and pensionary benefits for the 23 years of service with them.

The appellant sought to include his prior service with the Central Government (1983-1993) in the calculation of his pension benefits, citing Rule 25 of the Gujarat Civil Services (Pension) Rules, 2022. The State Government rejected his request, stating he had tendered an unconditional resignation. Aggrieved by this decision, the appellant filed a writ petition before the High Court, which was also dismissed.

Timeline

Course of Proceedings

The High Court of Gujarat dismissed the appellant’s writ petition, stating that Rule 25 of the Pension Rules would not apply to his case. The High Court reasoned that Rule 25 pertains to employees who are absorbed by the State Government after serving with the Central Government and who have not completed the qualifying service with the State Government. The High Court held that since the appellant was paid pensionary benefits for the period he worked with the State Government, there was no reason to include the period he worked with the Central Government.

Aggrieved by the High Court’s decision, the appellant appealed to the Supreme Court.

Legal Framework

The core of this case revolves around Rule 25(ix) of the Gujarat Civil Services (Pension) Rules, 2022, which defines “qualifying service” for pension benefits. The rule states:

“Rule 25. Qualifying Service: Subject to the provisions of these rules, qualifying service of a Government employee, means and includes –
(ix) services rendered under Central Government/Central Government Autonomous bodies having pension scheme, by a Government employee who is absorbed in Government”

This rule allows for the inclusion of prior service under the Central Government, provided the employee was “absorbed” by the State Government, and the Central Government service had a pension scheme. The primary point of contention was the interpretation of the term “absorbed.”

Arguments

Appellant’s Arguments:

• The appellant argued that he had served as a Postal Assistant under the Central Government, which has a pension scheme, from 1983 to 1993.
• He contended that he was subsequently “absorbed” by the State Government when he joined as a Senior Assistant.
• The appellant submitted that under Rule 25(ix) of the Pension Rules, his terminal benefits/pensionary benefits should include his prior service with the Central Government, not just the period he served with the State Government.
• The appellant’s counsel emphasized that the appellant’s participation in the selection process was prefaced by an NOC from the Central Government, and he later tendered a technical resignation to join the State Government.

State of Gujarat’s Arguments:

• The State of Gujarat argued that the appellant was not entitled to the benefit of Rule 25(ix) because his appointment with the State Government was a result of fresh recruitment.
• The State contended that the appellant’s employment with the State Government came about from a fresh application for the post of Senior Assistant, and not through absorption.
• The State argued that the term “absorbed” should be narrowly interpreted to mean a direct transfer or merger of service, not a fresh appointment.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the appellant’s subsequent employment with the State Government could be construed to mean that the appellant had been ‘absorbed’ by the State Government, such that the appellant’s prior service with the Central Government would be considered as a part of ‘qualifying service’ in terms of Rule 25(ix) of the Pension Rules.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authority:

• Senior Divisional Manager, LIC v. Shree Lal Meena, (2019) 4 SCC 479: The Court cited this case to underscore that pension schemes are a part of delegated beneficial legislation and should be interpreted widely, as long as the interpretation does not contradict the express provisions of the Pension Rules.

The Court also considered the following legal provision:

• Rule 25(ix) of the Gujarat Civil Services (Pension) Rules, 2022: The Court examined the rule to determine whether the prior service of the Appellant with the Central Government could be included as qualifying service.

Judgment

How each authority was viewed by the Court?

• The Supreme Court relied on Senior Divisional Manager, LIC v. Shree Lal Meena, (2019) 4 SCC 479 to support its interpretation that pension rules should be interpreted widely to benefit employees.
• The Court interpreted Rule 25(ix) of the Gujarat Civil Services (Pension) Rules, 2022 in a manner that included the appellant’s prior service with the Central Government as qualifying service.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by a desire to interpret pension rules in a manner that benefits employees. The Court emphasized that pension is earned through service and is crucial for employees’ financial security in old age. The Court’s reasoning focused on the following points:

• Beneficial Interpretation: The Court stressed that pension schemes are beneficial legislation and should be interpreted widely to benefit employees.
• Implicit Absorption: The Court found that the appellant’s actions of obtaining an NOC from the Central Government and tendering a technical resignation to join the State Government implied an implicit “absorption” by the State Government.
• Fairness and Clarity: The Court underscored that the State Government, as a model employer, should uphold principles of fairness and clarity in its dealings with employees.

Logical Reasoning:

The Court rejected the State’s narrow interpretation of “absorption” because it was not supported by the express provisions of the Pension Rules. The Court also held that no convincing rationale was presented to adopt such a restrictive interpretation.

The Supreme Court stated, “It is well settled that pension scheme(s) floated by the State Government form a part of delegated beneficial legislation; and ought to be interpreted widely subject to such interpretation not running contrary to the express provisions of the Pension Rules.”

The Court further stated, “we find that the interpretation sought to be advanced by Ms. Ghildiyal is narrow and restrictive so as to limit the benefit of Rule 25(ix) of the Pension Rules only to such person(s) who may have explicitly been absorbed by the State Government as against persons such as the Appellant herein who has most certainly, implicitly been absorbed by the State Government…”

The Court concluded, “we find that the High Court erred in its interpretation of Rule 25(ix) of the Pension Rules; and consequently, unfairly deprived the Appellant from seeking inclusion of the period of service rendered to the Central Government as a part of ‘qualifying service’ under the Pension Rules.”

Key Takeaways

• Pension rules should be interpreted broadly to benefit employees.
• The term “absorption” can include situations where an employee joins a new government service after obtaining an NOC and tendering a technical resignation from their previous government job.
• Prior service with the Central Government can be included in the calculation of pension benefits, even if the employee joins the State Government through a fresh recruitment process, provided there is an implicit absorption.
• State Governments are expected to act as model employers, upholding principles of fairness and clarity in their dealings with employees.

Directions

The Supreme Court directed the State Government to:

1. Consider the appellant’s service with the Central Government as qualifying service.
2. Re-calculate the appellant’s terminal and pensionary benefits.
3. Transmit any arrears of such benefits to the appellant within six weeks from 02 February 2024.
4. The State Government is free to seek pro-rata reimbursement from the Central Government for the pensionary benefits paid for the period the appellant served with the Central Government.

Specific Amendments Analysis

This judgment does not discuss any specific amendments.

Development of Law

The ratio decidendi of this case is that the term “absorption” in pension rules should not be interpreted narrowly. Prior service with the Central Government can be included in the calculation of pension benefits, even if the employee joins the State Government through a fresh recruitment process, provided there is an implicit absorption, as evidenced by an NOC and technical resignation.

This judgment clarifies the interpretation of Rule 25(ix) of the Gujarat Civil Services (Pension) Rules, 2022, and sets a precedent for similar cases where employees move between Central and State government services. This is a change from the previous position where a narrow interpretation of the term “absorption” was adopted.

Conclusion

The Supreme Court allowed the appeal, setting aside the High Court’s order. The Court held that the appellant’s service with the Central Government should be included in the calculation of his pension benefits. The Court emphasized that pension rules should be interpreted broadly to benefit employees, and that the term “absorption” should not be given a restrictive meaning.