Supreme Court clarifies pension scheme applicability for contract employees: National Institute of Rural Development vs. Shyam Sunder Prasad Sharma & Ors. (2023) INSC 148

LEGAL ISSUE: Applicability of old pension scheme versus new pension scheme for employees initially appointed on contract basis and later regularized. CASE TYPE: Service Law. Case Name: National Institute of Rural Development vs. Shyam Sunder Prasad Sharma & Ors. [Judgment Date]: 28 February 2023

Date of the Judgment: 28 February 2023
Citation: (2023) INSC 148
Judges: Justice Sanjay Kishan Kaul and Justice Abhay S. Oka. The judgment was authored by Justice Abhay S. Oka.

Can an employee, initially appointed on a contract basis and later regularized, claim benefits under the old pension scheme? The Supreme Court of India recently addressed this question in a case involving the National Institute of Rural Development. The core issue was whether the respondent, initially a contract employee, was entitled to pensionary benefits under the old pension scheme or the new pension scheme after his services were regularized. The two-judge bench comprising Justice Sanjay Kishan Kaul and Justice Abhay S. Oka delivered the judgment, with the opinion authored by Justice Abhay S. Oka.

Case Background

The National Institute of Rural Development (NIRD), the appellant, is an autonomous organization under the Ministry of Rural Development, Government of India. The first respondent, Shyam Sunder Prasad Sharma, was initially appointed as an Associate Professor on a contract basis on 14th August 2002. This contract was for three years, extendable to five. Subsequently, on 1st May 2007, he was offered a contract appointment as a Professor, also extendable to five years. Both appointments were to regular posts, but on a contract basis. Throughout this period, the respondent opted for the Contributory Provident Fund (CPF) scheme.

On 18th February 2009, the Executive Council of the appellant decided to regularize the services of faculty members employed on contract basis against regular posts, as a one-time measure. Consequently, the NIRD Rules, 2011 for Regular Appointment of the Academic Staff (Appointed on Contract Basis) (Regularisation Rules) were framed. On 4th May 2012, the respondent’s appointment was regularized as a Professor. The order stated that the respondent would be entitled to pensionary benefits under the new pension scheme.

The respondent made representations in 2012, 2013, and 2014, requesting benefits under the old pension scheme, arguing that the new scheme applied only to those appointed on or after 1st January 2004. The Central Administrative Tribunal ruled in favor of the respondent, holding that his initial service under contract should be considered for pensionary benefits and directed the appellant to consider his case under the old pension scheme. The Telangana High Court upheld this decision, leading to the present appeal by the NIRD.

Timeline:

Course of Proceedings

The Central Administrative Tribunal ruled that the respondent’s initial appointment as Associate Professor on a contract basis was against a permanent post and that his service under contract employment should be considered for pensionary benefits. The Tribunal directed the appellant to consider the respondent’s case under the old pension scheme. This order was confirmed by the Division Bench of the Telangana High Court, which led to the present appeal before the Supreme Court.

Legal Framework

The case revolves around the interpretation of the NIRD Rules, 2011 for Regular Appointment of the Academic Staff (Appointed on Contract Basis) (Regularisation Rules) and the National Institute of Rural Development (Service) Bye-laws. Rule 6 of the Regularisation Rules is central to the dispute, which states:

“In the event of deemed appointment of the services of the academic staff appointed on contract basis, no pensionary benefits would be given other than as available under the New Pension Scheme of the Government of India is made applicable with effect from 01.01.2004. This will not affect employee who was initially appointed on a regular post and presently holding his /her high academic post on contract basis and already subscribing to either “CPF or GPF cum Pension scheme” of the institute from the date of their initial regular appointment. Their existing status will remain unchanged. No arrears of pensionary and related allowances for the past service will be paid in case of deemed appointment. However, past service rendered by these academic staff appointed on contract basis may be taken into consideration for their future promotions, if any, as per norms/ eligibility prescribed by the Institute for other academic staff appointed on regular basis, for this purpose, as made applicable from time to time, with the approval of competent authority. The deemed appointment will have no impact on existing basic pay and allowance presently being drawn by these academic staff appointed on contract basis and they will continue to draw their existing pay and allowances as per norms.”

Bye-law 52 of the National Institute of Rural Development (Service) Bye-laws also plays a crucial role. Clause (a) of Bye-law 52 states:

“52. Application and eligibility of the schemes:
a) Persons appointed after the date of commencement of the schemes under bye-laws 48 and 49.
1) A person appointed on contract under Service bye-law 2(2) shall be eligible to be governed only by the Contributory Provident Fund Scheme under Bye-law 50.
2) A person initially appointed on contract under Bye-law 12 to a post referred to in Bye-law 3(a) shall be eligible to be governed by the Contributory Provident Fund Scheme under bye-law 50, for the period he holds the appointment on contract (vide sub-clause 4).
3) A person appointed to a post otherwise than on contract shall be eligible to be governed only by the Pension-cum-Gratuity-cum-Family Pension Scheme referred to in bye-law 48 and the General Provident Fund Scheme referred to in bye-law 49.
4) An employee of the category referred to in sub-clause (2) shall, on his appointment on a regular basis in the post held by him or any other post under bye-law 12, have the option to elect either.
i) the Pension-cum-Gratuity-cum-Family Pension Scheme referred to in bye-law 48 and the General Provident Fund Scheme referred to in bye-law 49 or
ii) to continue to be governed by the Contributory Provident Fund Scheme referred to in bye-law 50.
Provided that he shall exercise and communicate his option in writing to the Registrar and Accounts Officer within three months of the date of the order appointing him on a regular basis, and if he is on leave on that date within three months from the date of his return from leave, and the option so exercised shall be final.
Provided further that if a person does not communicate his option in the manner aforesaid, he shall be deemed to have elected the Pension-cum-Gratuity-cum-Family Pension Scheme and the General Provident Fund Scheme.
Where a person elects or is deemed to have elected the Pension-cum-Gratuity-cum-Family Pension Scheme and the General provident Fund Scheme, he shall forego the Institute’s contribution to his contributory Provident Fund account together with interest thereon, which shall be paid back to the Institute, and shall thereupon be entitled to count towards pension the service rendered by him prior to his appointment on a regular basis to the extent permissible under the Pension-cum-Gratuity-cum-Family Pension Rules of the Institute, and the accumulated balance of his subscriptions in the Fund together with interest thereon standing to his credit shall be transferred to his General Provident Fund Account.”

These provisions determine the eligibility for different pension schemes based on the nature of appointment (contract or regular) and the timing of such appointments.

Arguments

Appellant’s Submissions:

• The appellant argued that the respondent’s initial appointment on 14th August 2002, as Associate Professor, was on a contract basis and ended when he was appointed as a Professor on a contract basis in 2007.
• The appellant contended that since the regularization order was passed in 2012, the respondent is not entitled to claim pension under the old scheme from 2002.
• The Regularisation Rules clearly state that all academic staff regularized under these rules would be entitled to pension benefits only under the new pension scheme.
• The respondent accepted the regularization order of 4th May 2012, which specified that he could only claim benefits under the new pension scheme.
• The respondent continued to contribute to CPF throughout his employment and cannot now opt for the old pension scheme.
• Rule 6 of the Regularisation Rules was misinterpreted by the Tribunal and the High Court.
• If the impugned judgment is upheld, the financial burden on the appellant would be more than Rs. 8 crores, as there are 20 similarly placed academic staff members.

Respondent’s Submissions:

• After regularization, the respondent was entitled to opt for the old pension scheme, despite having initially joined the CPF scheme, as per clause 4 of Bye-law 52 of the National Institute of Rural Development (Service) Bye-laws.
• Rule 6 of the Regularisation Rules carves out an exception for employees initially appointed on a regular post and holding a high academic post on a contract basis, who had subscribed to either CPF or GPF-cum-Pension Scheme.
• Only 6 staff members were beneficiaries of the Regularisation Scheme, not 20 as contended by the appellant, and two other Associate Professors were given the benefit of the old pension scheme.
• The respondent immediately disputed the condition in the regularization order that provided only for the new pension scheme and continued to make representations until 2014, indicating that he did not voluntarily accept the conditions.
• The Tribunal and High Court made a reasonable interpretation of the rules, particularly the Regularisation Rules.

Union of India’s Submissions:

• The Union of India supported the appeal made by the appellant.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

1. Whether an employee, initially appointed on a contract basis and later regularized, is entitled to pensionary benefits under the old pension scheme or the new pension scheme.

The sub-issue that the court dealt with was:

1. Whether Rule 6 of the Regularisation Rules carves out an exception in the case of an employee who was initially appointed on a regular post and was holding a high academic post on a contract basis who had subscribed either to CPF or GPF -cum-Pension Scheme of the appellant.

Treatment of the Issue by the Court

Authorities

The Court did not rely on any specific case laws or books in its judgment. The court primarily relied on the interpretation of the following:

• Rule 6 of the NIRD Rules, 2011 for Regular Appointment of the Academic Staff (Appointed on Contract Basis): This rule specifies the pensionary benefits for academic staff appointed on a contract basis and later regularized.
• Bye-law 52 of the National Institute of Rural Development (Service) Bye-laws: This bye-law outlines the application and eligibility of various pension schemes.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Rule 6 of the NIRD Rules, 2011 for Regular Appointment of the Academic Staff (Appointed on Contract Basis): The Court interpreted this rule to mean that employees regularized under it are only entitled to the new pension scheme, unless they fall under the exception. The court clarified that the exception does not apply to the respondent as he was not initially appointed on a regular post.
• Bye-law 52 of the National Institute of Rural Development (Service) Bye-laws: The Court held that this bye-law does not apply to employees whose services have been regularized under the Regularisation Rules. The court stated that there is a difference between appointing a contract employee on a regular basis and regularizing the services of the contract employees.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily based on a strict interpretation of the Regularisation Rules, particularly Rule 6, and the specific facts of the case. The court emphasized that the respondent’s initial appointment was on a contract basis and that the regularization order was effective from the date of the order, not retrospectively. The court also noted that the respondent had opted for the CPF scheme and did not challenge the regularization order’s condition regarding the new pension scheme. The court found that the exception in Rule 6 did not apply to the respondent’s situation, as he was not initially appointed on a regular post. The court also concluded that Bye-law 52 was not applicable to the respondent as his services were regularized under the Regularisation Rules.

The court’s reasoning was primarily based on the legal framework and the specific facts of the case, with a higher emphasis on legal considerations (60%) than factual considerations (40%). The court’s reasoning was not based on any philosophical principles or historical context.

The court rejected the interpretation of the Tribunal and the High Court, which had favored the respondent. The court stated that the High Court erroneously observed that regularization would relate back to the date of initial appointment. The court also clarified that the second proviso to sub-clause (a)(4) of Bye-law 52 does not apply to the respondent as his service was regularized under the Regularisation Rules.

The Supreme Court’s decision was unanimous, with both judges agreeing on the interpretation of the rules and their application to the facts of the case. There were no dissenting opinions.

The court’s decision implies that contract employees who are later regularized will be governed by the terms of the regularization rules and not by the earlier rules governing contract appointments. In this case, the Regularisation Rules clearly stated that the new pension scheme would apply, and the court upheld this provision. This decision may have implications for other similarly situated employees, emphasizing the importance of the terms and conditions of regularization.

The court did not introduce any new doctrines or legal principles. The decision was based on the interpretation of existing rules and bye-laws. The court did not discuss any alternative interpretations of the rules, other than the ones made by the Tribunal and the High Court, which it rejected.

The court stated that: “The High Court erroneously observed that regularization would relate back to the date of initial appointment made in the year 2002 when the order of regularisation dated 4th May 2012 expressly states that the regularisation will operate from the date of the said order.”

The court also stated that: “The exception will not apply to an employee like respondent no.1, whose first appointment was also on a contract basis and the appointment to a higher academic post was also on a contract basis.”

The court further stated that: “Clause 52 of the Bye-laws cannot override subsequent statutory Rules in the form of the Recruitment Rules.”

Key Takeaways

• Contract employees who are later regularized are governed by the terms of the regularization rules, not by the rules applicable to their initial contract appointment.
• The date of effect of regularization is the date of the regularization order, not the date of the initial contract appointment.
• Employees who opt for the Contributory Provident Fund (CPF) scheme during their contract period may not be able to switch to the old pension scheme upon regularization, unless specifically provided for in the regularization rules.
• The exception carved out in Rule 6 of the Regularisation Rules applies to employees who were initially appointed on a regular basis and were holding a high academic post on contract basis when the Regularisation Rules came into force.
• Bye-laws cannot override subsequent statutory rules in the form of Recruitment Rules.

This decision may affect other employees in similar situations, clarifying that regularization does not automatically entitle them to the old pension scheme if the regularization rules specify otherwise. It emphasizes the importance of the terms and conditions of regularization and the need for employees to carefully review these terms.

Directions

The Supreme Court directed the appellant to pay the amount the respondent was entitled to under the CPF scheme within two months, with interest at 8% p.a. if payment is delayed.

Development of Law

The ratio decidendi of the case is that employees who are initially appointed on a contract basis and later regularized are governed by the terms of the regularization rules, and not by the rules applicable to their initial contract appointment, unless specifically provided for. The court also clarified that the exception carved out in Rule 6 of the Regularisation Rules applies to employees who were initially appointed on a regular basis and were holding a high academic post on contract basis when the Regularisation Rules came into force. This decision clarifies the applicability of pension schemes for contract employees who are later regularized, and does not change the previous position of the law.

Conclusion

The Supreme Court allowed the appeal, setting aside the judgments of the Central Administrative Tribunal and the Telangana High Court. The court held that the respondent, initially appointed on a contract basis and later regularized, was not entitled to the old pension scheme. The court emphasized that the regularization rules, specifically Rule 6, clearly stated that those regularized under the rules would be entitled to benefits under the new pension scheme. The court also clarified that the exception carved out in Rule 6 did not apply to the respondent’s case. This decision underscores the importance of the terms and conditions of regularization and their impact on pension benefits for employees.