Supreme Court Clarifies State’s Pension Obligations to Autonomous Institutes: State of Bihar vs. Dr. Sachindra Narayan (2019)

Date of the Judgment: January 30, 2019

Citation: (2019) INSC 77

Judges: Dr. Dhananjaya Y. Chandrachud, J., Hemant Gupta, J.

Can a State Government be compelled to fund the pension liabilities of an autonomous institute? This was the central question before the Supreme Court in a recent case. The Court examined whether the State of Bihar was legally bound to provide financial assistance for pension payments to the employees of the Anugraha Narayan Sinha Institute of Social Studies, Patna, an autonomous body established by a State Act. The judgment was delivered by a two-judge bench comprising Justice Dr. Dhananjaya Y. Chandrachud and Justice Hemant Gupta, with Justice Hemant Gupta authoring the opinion.

Case Background

The Anugraha Narayan Sinha Institute of Social Studies, Patna (the Institute) was established under the Anugraha Narayan Sinha Institute of Social Studies Act, 1964 (the Act). The Institute is governed by a Board of Control, which includes nominees of the State Government, Vice-Chancellors of Universities, and representatives from various educational bodies. The Act mandates the State Government to contribute a sum of two lakh rupees annually for the maintenance of the Institute, with additional sums for special research, educational work, publications, buildings, and maintenance. The Institute’s Board is responsible for managing its finances and creating posts, with the State Government’s approval required for posts exceeding Rs. 1,000 per month in emoluments. In 1985, the Board resolved to implement a retirement benefit scheme, stating it would be funded from the Institute’s resources, without seeking additional grants from the government. However, the State Government had been providing funds towards pension for several years, which was later stopped.

Timeline

Course of Proceedings

The employees of the Institute filed a writ petition in the High Court of Judicature at Patna, seeking a direction to the State Government to pay their arrears and current pension, which had been stopped since January 2014. A single judge of the High Court dismissed the petition on 20.06.2017, holding that the 1985 resolution of the Board was inconsistent with the Act and Rules, and there was no legal obligation on the State to pay pension. However, a Division Bench of the High Court allowed an intra-court appeal on 13.03.2018, noting that the State Government had earmarked grants for pension in previous years. The Division Bench held that the State Government was estopped from denying its responsibility to provide pension and directed the State to provide financial assistance. The State of Bihar then appealed to the Supreme Court against this order.

Legal Framework

The case revolves around the interpretation of the Anugraha Narayan Sinha Institute of Social Studies Act, 1964. Key provisions include:

• Section 6: This section defines the functions of the Board, stating that it is the supreme governing body of the Institute and has the power to control and administer the property and funds of the Institute. It also empowers the Board to create posts and appoint officers, with the condition that posts with emoluments exceeding Rs. 1,000 per month require prior sanction from the State Government. “The Board shall be the supreme governing body of the Institute and shall exercise all the powers of the Institute.”
• Section 8: This section mandates the State Government to contribute two lakh rupees annually for the maintenance of the Institute. It also allows the State Government to contribute additional sums for special items of research, education, publication, buildings, and maintenance. “The State Government shall contribute to the institute a sum of two lakhs of rupees in each financial year for the maintenance of the institute.”
• Section 9: This section provides for the establishment of the Institute Fund, which includes all money contributed by the State Government, the Central Government, and other sources. It also states that the Fund shall be applied towards meeting the expenses of the Institute. “There shall be established a Fund to be called the Anugraha Narayan Sinha Institute Fund which shall be vested in the Institute to which shall be credited…”
• Section 10: This section deals with the budget of the Institute, requiring the Director to prepare a budget estimate of income and expenditure for the next financial year.
• Section 12: This section deals with the accounts and audit of the Institute.
• Section 16: This section empowers the Board to make rules not inconsistent with the provisions of the Act.
• Section 17: This section empowers the Board to make regulations consistent with the Act and the Rules framed thereunder.

Additionally, the Anugraha Narayan Sinha Institute of Social Studies, Rules 1966 and the Anugraha Narayan Sinha Institute of Social Studies, Patna Regulation, 1966, framed under the Act, were also considered. These rules and regulations provide for the administration of the Institute, including matters relating to pay, allowances, and service conditions of the employees.

Arguments

Arguments by the State of Bihar (Appellants):

• The State argued that the 1985 resolution of the Board explicitly stated that the retirement benefit scheme would be operated from the Institute’s own resources, without seeking additional grants from the State Government. Therefore, the financial burden of the pension scheme cannot be passed on to the State.
• The State contended that Section 8 of the Act only provides for a fixed annual contribution of two lakh rupees and additional sums for specific purposes like research, education, and infrastructure. It does not include recurring expenses like pension. The State’s contribution is only one of the sources of the Institute’s funds.
• The State argued that the Institute is an independent juristic entity under the State Statute, and the presence of State officials on the Board does not make it an extension of the State Government.
• The State further stated that while it had disbursed grants including amounts towards pension in the past, it was a mistake that was rectified from 2011-12. Such past disbursements do not create a legal right for the employees to claim pension from the State.
• The State submitted that it can grant funds under various heads, but such grants cannot be claimed as a matter of right.

Arguments by the Institute (Respondent No. 28):

• The Institute argued that the State Government had been releasing grants, including amounts towards pension, since the 1985 resolution.
• The Institute referred to various communications and the fact that the Chief Minister presided over a meeting where the poor financial condition of the Institute was discussed.
• The Institute contended that the contribution towards pension has created a legitimate expectation among its employees that they are entitled to pension at par with the employees of Patna University.

Arguments by the Employees (Respondent Nos. 1 to 27):

• The employees argued that the State Government was bound to disburse the amount necessary for payment of pension, as it had been doing since 1985.
• They contended that it is too late for the State to deny its responsibility for the pension amount.

Issues Framed by the Supreme Court

The Supreme Court considered the following key issue:

1. Whether the State Government is legally obligated to provide financial assistance for the payment of pension to the employees of the Anugraha Narayan Sinha Institute of Social Studies, Patna.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

[1] (1993) 3 SCC 499
[2] (2006) 8 SCC 381

Judgment

How each authority was viewed by the Court?

• The Court relied on Union of India & Ors. v. Hindustan Development Corporation & Ors. [1] to clarify that a legitimate expectation must be based on law, custom, or established procedure, not just a hope or moral obligation.
• The Court followed Ram Pravesh Singh and Others v. State of Bihar and Others [2] to reiterate that past actions do not necessarily create a right, and that there must be a legal obligation to create a legitimate expectation.
• The Court interpreted Section 6 of the Anugraha Narayan Sinha Institute of Social Studies Act, 1964 to emphasize that while the Board has the power to create posts, the State’s approval is needed for posts with emoluments over Rs. 1,000.
• The Court interpreted Section 8 of the Anugraha Narayan Sinha Institute of Social Studies Act, 1964 to mean that the State’s contribution is for specific purposes and does not include funding for pension liabilities.
• The Court interpreted Section 9 of the Anugraha Narayan Sinha Institute of Social Studies Act, 1964 to mean that the Institute’s funds are to be used for its expenses, including the retirement pension scheme, but this does not create an obligation on the State.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The explicit terms of the 1985 resolution of the Board, which stated that the retirement benefit scheme would be funded from the Institute’s own resources.
• The interpretation of Section 8 of the Act, which does not include the payment of pension as a mandatory obligation of the State Government.
• The understanding that the Institute is a separate juristic entity and not an extension of the State Government.
• The legal principle that a legitimate expectation must be based on law or established procedure, not merely on past practice or a hope.
• The Court emphasized that the State Government’s discretion in disbursing grants cannot be enforced by a writ of mandamus.

Fact:Law Ratio Analysis: The court’s decision was primarily influenced by legal considerations (70%), such as the interpretation of the Act and the legal principle of legitimate expectation, while factual aspects of the case (30%), such as past payments, played a lesser role in the decision-making process.

Key Takeaways

• Autonomous institutes cannot claim pension funding from the State Government unless there is a clear legal obligation.
• Past discretionary payments by the State do not create a legal right for the employees of such institutes to claim pension.
• The principle of legitimate expectation requires a legal basis and cannot be based on mere hope or past practice.
• State Governments have discretion in disbursing grants, and such discretion cannot be enforced by a writ of mandamus.
• The judgment highlights the importance of clear and explicit terms in resolutions and agreements concerning financial obligations.

Directions

The Supreme Court allowed the appeal and dismissed the Writ Petition filed by the employees. No specific directions were given.

Development of Law

The ratio decidendi of this case is that a State Government is not obligated to fund the pension liabilities of an autonomous institute unless there is a clear legal mandate or a binding agreement to that effect. The judgment clarifies that past discretionary payments do not create a legal right for the employees to claim pension. This decision reinforces the principle that legitimate expectation must have a legal basis and cannot be based on mere hope or past practice. This judgment does not change the previous position of law, but it clarifies the application of existing principles in the context of pension liabilities of autonomous institutes.

Conclusion

In conclusion, the Supreme Court held that the State of Bihar was not legally obligated to provide financial assistance for the pension payments of the employees of the Anugraha Narayan Sinha Institute of Social Studies, Patna. The Court emphasized that the 1985 resolution of the Board stated that the pension scheme would be funded by the Institute itself, and that Section 8 of the Act does not mandate the State to fund pension liabilities. The Court also clarified that past discretionary payments do not create a legal right and that legitimate expectation requires a legal basis. This judgment reinforces the principle that autonomous institutes cannot claim pension funding from the State unless there is a clear legal obligation.