Supreme Court Mandates Pension for SBI Employees with 15 Years Service Under VRS 2000 Scheme: Assistant General Manager, State Bank of India & Ors. vs. Radhey Shyam Pandey (2 March 2020)

Date of the Judgment: 2 March 2020
Citation: Where available, provide the case citation in the Indian Supreme Court (INSC) format.
Judges: Justice Arun Mishra, Justice M.R. Shah, and Justice B.R. Gavai
Can a public sector bank deny pension benefits to employees who opted for voluntary retirement after completing 15 years of service, as per a scheme approved by the government? The Supreme Court of India recently addressed this crucial question, ruling in favor of employees who were denied pension under the State Bank of India Voluntary Retirement Scheme (VRS) of 2000. The court held that employees who completed 15 years of service were indeed eligible for pension, as per the original intent of the scheme and its approval by the government. This judgment settles a long-standing dispute and clarifies the rights of employees who opted for VRS.

Case Background

The case revolves around the State Bank of India (SBI) Voluntary Retirement Scheme (VRS) introduced in 2000. The scheme was designed to reduce the bank’s workforce and bring in new skills. The Indian Banks Association (IBA), after consulting with the Government of India, proposed the scheme to various public sector banks, including SBI. The scheme aimed to provide benefits to employees who had completed 15 years of service, including ex-gratia, gratuity, provident fund, leave encashment, and pension.

The Central Board of Directors of SBI approved the scheme on 27th December 2000, based on a memorandum that included the IBA guidelines. The scheme was open from 15th January 2001 to 31st January 2001, with the effective date of retirement as 31st March 2001. However, a clarification was issued on 15th January 2001, stating that employees who had not completed 20 years of pensionable service were not eligible for pension, as per existing rules. This clarification led to disputes, with many employees who had completed 15 years of service being denied pension benefits.

Timeline

Course of Proceedings

Several employees challenged the denial of pension in various High Courts. The High Court of Allahabad ruled in favor of the employee, stating that the clarification was not part of the VRS scheme and the employee was entitled to pension. Similarly, the High Court of Calcutta also ruled in favor of the employee. The High Court of Punjab & Haryana also ruled in favour of the employee. These rulings were based on the interpretation of the VRS scheme and the SBI Pension Fund Rules. The matter was then referred to a larger bench of the Supreme Court due to conflicting opinions on the admissibility of pension under the VRS.

Legal Framework

The legal framework primarily involves the interpretation of the State Bank of India Voluntary Retirement Scheme (VRS) of 2000 and the State Bank of India Employees’ Pension Fund Rules. The key aspects are:

• The VRS scheme, as approved by the Central Board of SBI on 27th December 2000, was based on the guidelines issued by the IBA, which in turn was based on the approval of the Government of India.
• The scheme provided for benefits including ex-gratia, gratuity, provident fund, leave encashment, and pension. Clause 6(c) of the scheme stated that pension would be provided in terms of the SBI Employees’ Pension Fund Rules on the relevant date.
• The SBI Employees’ Pension Fund Rules, particularly Rule 22(i)(a), initially provided for pension eligibility after completing 20 years of service or 10 years of service with the attainment of 58 or 60 years of age.
• Rule 22(1)(c) of the Pension Rules was incorporated w.e.f 20.9.1986 when the bank decided to introduce VRS on completion of 20 years of service.
• The clarification issued on 15th January 2001, stated that employees who had not completed 20 years of pensionable service were not eligible for pension as per existing rules.

Arguments

Issues Framed by the Supreme Court

The main issues framed by the Supreme Court were:

1. Whether, under the scheme as approved and adopted by the Central Board of SBI, the pension is admissible to the employees on completion of 15 years of permanent service.
2. Whether employees have been denied the benefit of pension unfairly and arbitrarily, contrary to the essential terms of the scheme.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court ruled in favor of the employees, holding that they were indeed entitled to pension benefits upon completion of 15 years of service under the SBI VRS 2000 scheme. The court emphasized that the scheme, as approved by the Central Board of SBI, was based on the guidelines issued by IBA and the approval of the Government of India, which included the provision for pension on completion of 15 years of service.

The court observed that the clarification issued by the Deputy General Manager, stating that 20 years of service was required for pension, did not have the effect of modifying the original scheme. The court also held that the reference to pension as per rules was intended only for the purpose of calculating the proportionate pension.

The court also stated that the action of the bank was unfair, unreasonable, and violative of Articles 14, 16, and 21 of the Constitution of India. The court directed the bank to extend the benefits to all similar employees and pay the arrears within three months, failing which the amount would carry interest at the rate of 6% per annum.

Authorities Viewed by the Court:

What weighed in the mind of the Court?

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

• The original intent of the VRS 2000 scheme, which was to provide pension benefits to employees who had completed 15 years of service.
• The fact that the scheme was approved by the Government of India and the Central Board of SBI, and the clarification issued by the Deputy General Manager did not have the effect of modifying the original scheme.
• The need to protect employees from arbitrary and unfair actions by public sector banks.
• The principle that pension is a right and cannot be denied arbitrarily.
• The principle that contracts must be interpreted fairly and reasonably, and that the party responsible for formulating the terms of a contract bears the risk of lack of clarity.

“The very essence of the VRS was the admissibility of pension on completion of 15 years of service and other benefits.”

“The clarification did not have the effect of the amendment, modification, or cancellation of the VRS scheme as approved and adopted by Board.”

“Once the scheme was floated and approved, the bank being State within the purview of Article 12 of the Constitution of India, it would not be permissible for it to discriminate and act unfairly.”

Logical Reasoning

The court’s logical reasoning for the issue of pension admissibility can be represented as follows:

The court rejected the alternative interpretation that the existing pension rules requiring 20 years of service would apply, stating that the VRS scheme created a separate eligibility criterion, and the clarification issued by the bank did not modify the original intent of the scheme. The court also rejected theargument that the bank had the right to modify the scheme, stating that the clarification was not a formal amendment to the scheme approved by the Board.

Impact of the Judgment

The Supreme Court’s judgment in this case has had a significant impact on the rights of employees who opted for voluntary retirement under the SBI VRS 2000 scheme and similar schemes in other public sector banks. The key impacts include:

• Pension Rights: The judgment has clarified that employees who completed 15 years of service under the VRS 2000 scheme are entitled to pension benefits, as per the original intent of the scheme.
• Protection of Employees: The ruling has protected employees from arbitrary and unfair actions by public sector banks, ensuring that they receive the benefits they were promised under the scheme.
• Contractual Obligations: The judgment has reinforced the principle that contracts, including VRS schemes, must be interpreted fairly and reasonably, and that the party responsible for formulating the terms of a contract bears the risk of lack of clarity.
• Precedent for Future Cases: The ruling has set a precedent for future cases involving voluntary retirement schemes and pension benefits, highlighting the importance of adhering to the original terms of the scheme and protecting the rights of employees.
• Financial Implications: The judgment has resulted in financial implications for the State Bank of India, as it was directed to extend pension benefits to all eligible employees and pay arrears within three months, with interest on delayed payments.

The judgment has also highlighted the need for public sector banks to be transparent and fair in their dealings with employees, and to ensure that the terms of voluntary retirement schemes are clear and unambiguous.

Conclusion

The Supreme Court’s judgment in Assistant General Manager, State Bank of India & Ors. vs. Radhey Shyam Pandey is a landmark decision that has upheld the rights of employees who opted for voluntary retirement under the SBI VRS 2000 scheme. The court’s ruling has clarified the eligibility criteria for pension benefits under the scheme and has protected employees from arbitrary and unfair actions by public sector banks. The judgment has also reinforced the importance of contractual obligations and the need for transparency and fairness in dealings with employees.

This case serves as a significant precedent for future cases involving voluntary retirement schemes and pension benefits, and it highlights the importance of protecting the rights of employees, especially in the context of public sector employment. The ruling ensures that public sector banks will be held accountable for the promises made to their employees and that employees will receive the benefits they are entitled to.

The Supreme Court’s decision was not merely a legal interpretation but also a vindication of the rights of the employees who had been denied their due. The case underscores the importance of fairness, transparency, and adherence to the original terms of contracts, especially in the context of public sector employment.