Supreme Court Upholds Cut-off Date for Pension Scheme: Himachal Road Transport Corp. vs. Retired Employees Union (22 February 2021)

Date of the Judgment: 22 February 2021
Citation: Civil Appeal No.7230 of 2012
Judges: Ashok Bhushan, J., R. Subhash Reddy, J., M.R. Shah, J.

Can a cut-off date for a new pension scheme exclude employees who retired before that date, especially when they were already covered under a different retirement benefit scheme? The Supreme Court of India recently addressed this question in a case involving the Himachal Road Transport Corporation (HRTC). The court had to decide whether the HRTC was justified in setting a cut-off date for its new pension scheme, thereby excluding employees who had retired before that date and were already receiving benefits under the Contributory Provident Fund (CPF) scheme. The three-judge bench, consisting of Justices Ashok Bhushan, R. Subhash Reddy, and M.R. Shah, delivered the judgment.

Case Background

The Himachal Road Transport Corporation (HRTC) was established under the Road Transport Corporations Act, 1950. Initially, its employees were covered by the Contributory Provident Fund (CPF) scheme. In 1995, the HRTC introduced a pension scheme, adopting the Central Civil Service (Pension) Rules, 1972. This scheme was approved by the government on June 5, 1995, and officially notified on October 6, 1995.

The pension scheme allowed employees in service on or after June 5, 1995, to opt for the pension scheme or continue with the CPF. However, employees who had retired before June 5, 1995, were excluded from this option. The respondent-union, representing employees who retired before June 5, 1995, challenged this cut-off date, arguing that it was arbitrary and discriminatory. They sought to be included in the pension scheme, similar to those who retired after the cut-off date.

Timeline:

Course of Proceedings

The respondent-union initially filed an Original Application before the Himachal Pradesh Administrative Tribunal, challenging the cut-off date of June 5, 1995, for the pension scheme. The Tribunal dismissed the application, holding that the HRTC was entitled to fix a cut-off date and that such fixation was not discriminatory. The Tribunal noted that employees who retired before the cut-off date had already received benefits under the Contributory Provident Fund Scheme.

Aggrieved by the Tribunal’s decision, the respondent-union filed a Civil Writ Petition before the High Court of Himachal Pradesh at Shimla. The High Court allowed the writ petition, quashing the cut-off date. The High Court stated that the Corporation had not provided any valid reason for choosing the cut-off date of June 5, 1995. It directed that the pension scheme should also apply to the members of the respondent-union, subject to them depositing the amount received under the CPF scheme.

The HRTC then appealed to the Supreme Court against the High Court’s decision.

Legal Framework

The case is governed by the following legal framework:

• ✓ The Road Transport Corporations Act, 1950: This act governs the establishment and operation of road transport corporations like HRTC.
• ✓ Central Civil Service (Pension) Rules, 1972: These rules were adopted by HRTC for its pension scheme.

The core issue revolves around the interpretation and application of these rules in the context of a cut-off date for a new pension scheme.

Arguments

Appellant’s Arguments (Himachal Road Transport Corporation):

• ✓ The cut-off date of June 5, 1995, was not discriminatory.
• ✓ Employees who retired before June 5, 1995, and received benefits under the Contributory Provident Fund (CPF) scheme, form a separate class from those who were in service on or after that date.
• ✓ The Pension Scheme was approved by the Cabinet on June 5, 1995, justifying the cut-off date.
• ✓ It is within the employer’s right to extend benefits prospectively, and the scheme was rightly not extended to those who had already retired and availed CPF benefits.

Respondent’s Arguments (Himachal Road Transport Corporation Retired Employees Union):

• ✓ The cut-off date of June 5, 1995, for implementing the Pension Scheme was arbitrary and lacked justification.
• ✓ All employees of the Corporation form a single homogeneous class, and no distinction should have been made among them.
• ✓ The Pension Scheme was given retrospective effect from June 5, 1995, so there was no reason to exclude those who retired before that date.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the cut-off date of 05.06.1995, fixed by the Corporation for implementation of the Pension Scheme, is discriminatory and has no reasonable nexus with the object sought to be achieved.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

On Cut-off Dates and Discrimination:

• ✓ D.S. Nakara & Ors. v. Union of India [AIR 1983 SC 130 = (1983) 1 SCC 305] – Supreme Court of India: This case was distinguished by the court, stating it dealt with pensioners as a homogeneous class, unlike the present case which involves employees under CPF and a new pension scheme. The court noted that in *Nakara*, it was held that pensioners form a homogeneous class and a cut-off date for revised pensionary benefits is discriminatory. However, the court clarified that *Nakara* did not hold that pensioners and employees in service form one class.
• ✓ R.L Marwaha v. Union of India and others [1987(4) SCC 31] – Supreme Court of India: The court reiterated that a cut-off date must have a nexus with the object sought to be achieved.
• ✓ Union of India and another v. Deoki Nandan Aggarwal [1992 Supp. (1) SCC 323] – Supreme Court of India: This case related to the fixation of a cut-off date for a liberalized pension scheme.
• ✓ Subrata Sen and others v. Union of India and others [(2001)8 SCC 71] – Supreme Court of India: The court reiterated that all retired employees constitute one homogeneous class.
• ✓ State of Punjab v. Amar Nath Goyal [(2005)6 SCC 754] – Supreme Court of India: The court held that financial constraints are a valid ground for fixing a cut-off date. The court distinguished this case from *D.S. Nakara*, stating that *Nakara* was about a continuing benefit like pension, whereas this case involved a one-time benefit like gratuity.
• ✓ Govt. of Andhra Pradesh & others v. N. Subbarayudu & others [(2008)14, SCC 702] – Supreme Court of India: The court held that fixing a cut-off date is an executive function and should not be interfered with unless it leads to capricious results.
• ✓ Suchet Singh Yadav and others v. Union of India and others [(2019)11 SCC 520] – Supreme Court of India: The court held that pensioners form one class for pension purposes, and schemes classifying pensioners based on cut-off dates are impermissible unless founded on a rational principle.
• ✓ All Manipur Pensioners Association by its Secretary v. The State of Manipur and others [(2019)9 Scale, 282] – Supreme Court of India: The court held that fixing a cut-off date for revised pension benefits is arbitrary and violates Article 14 of the Constitution.
• ✓ State of Rajasthan and Another v. Amrit Lal Gandhi and others [(1997) 2 SCC 342] – Supreme Court of India: The court held that a cut-off date for a pension scheme was valid and not arbitrary, particularly when financial implications were a factor.

Legal Provisions:

• ✓ The Road Transport Corporations Act, 1950
• ✓ Central Civil Service (Pension) Rules, 1972
• ✓ Article 14 of the Constitution of India

Judgment

How each authority was viewed by the Court:

• ✓ D.S. Nakara & Ors. v. Union of India [AIR 1983 SC 130 = (1983) 1 SCC 305]* was distinguished, as it dealt with a homogeneous class of pensioners, unlike the present case where some employees were under CPF and others under a new pension scheme.
• ✓ State of Rajasthan and Another v. Amrit Lal Gandhi and others [(1997) 2 SCC 342]* was followed, as it held that a cut-off date for a pension scheme was valid, especially when financial implications were a factor.

The Supreme Court held that the High Court had erred in quashing the cut-off date. The Court noted that the employees who retired before 05.06.1995 were governed by the Contributory Provident Fund Scheme and had already received the benefits of that scheme. They formed a different class from those who were in service on or after 05.06.1995. The court emphasized that the cut-off date was not arbitrary but was based on the date the Cabinet approved the Pension Scheme.

What weighed in the mind of the Court?

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

• ✓ The distinction between employees covered under the Contributory Provident Fund (CPF) scheme and those eligible for the new pension scheme.
• ✓ The fact that the cut-off date was based on the date of Cabinet approval of the pension scheme.
• ✓ The principle that employers can introduce new benefits prospectively.
• ✓ The need to consider the financial implications of extending benefits retrospectively.

The court emphasized that the employees who retired before 05.06.1995 had already availed the benefits of the CPF scheme, and therefore, they could not claim the benefits of the new pension scheme as a matter of right. The court also noted that the cut-off date was not arbitrary but was based on the date the Cabinet approved the Pension Scheme.

Logical Reasoning

Key Takeaways

• ✓ A cut-off date for a new pension scheme is not necessarily discriminatory if it distinguishes between employees who were under a different retirement scheme (like CPF) and those who are eligible for the new scheme.
• ✓ Employers have the right to introduce new benefits prospectively, and such benefits need not be extended to those who have already retired and availed of different benefits.
• ✓ Financial implications are a valid consideration for fixing a cut-off date for a new scheme.
• ✓ The date of government or cabinet approval of a scheme can be a valid basis for setting a cut-off date.

Directions

No specific directions were issued by the Supreme Court. The judgment primarily set aside the High Court’s order and upheld the validity of the cut-off date.

Specific Amendments Analysis

No specific amendments were discussed in this judgment.

Development of Law

The ratio decidendi of this case is that a cut-off date for a new pension scheme is valid if it distinguishes between employees who were under a different retirement scheme (like CPF) and those who are eligible for the new scheme. The court clarified that the principle in D.S. Nakara & Ors. v. Union of India, which stated that pensioners form a homogeneous class, does not apply when comparing employees under a CPF scheme with those under a new pension scheme. This judgment reinforces the principle that employers can introduce new benefits prospectively, and such benefits need not be extended to those who have already retired and availed of different benefits.

Conclusion

The Supreme Court allowed the appeal filed by the Himachal Road Transport Corporation, setting aside the High Court’s judgment. The court upheld the validity of the cut-off date of June 5, 1995, for the implementation of the pension scheme, concluding that it was not discriminatory. The court clarified that employees who retired before this date and were covered by the Contributory Provident Fund scheme form a distinct class from those who were in service on or after this date and were eligible for the new pension scheme.