Supreme Court Upholds Denial of Pension to VSNL Employees with Less Than 10 Years of Service: P. Bandopadhya vs. Union of India (2019) INSC 216 (15 March 2019)

Introduction

Date of the Judgment: 15 March 2019

Citation: (2019) INSC 216

Judges: Uday Umesh Lalit, J., Indu Malhotra, J.

Can employees who were transferred from a government department to a public sector undertaking (PSU) claim pension benefits from the Central Government, even if they had not completed ten years of service at the time of their transfer? This was the core question before the Supreme Court in the case of P. Bandopadhya & Ors. vs. Union of India & Ors. The Court examined the interplay between government pension rules and the terms of absorption into a PSU, specifically focusing on employees of the Overseas Communications Service (OCS) who were transferred to Videsh Sanchar Nigam Limited (VSNL). The bench comprised Justices Uday Umesh Lalit and Indu Malhotra, with the judgment authored by Justice Indu Malhotra.

Case Background

The appellants were previously employed by the Overseas Communications Service (OCS), a department of the Government of India. On April 1, 1986, OCS was converted into a government company, Videsh Sanchar Nigam Limited (VSNL), now known as Tata Communications Limited. Initially, all OCS employees were transferred to VSNL on deputation from April 1, 1986, to January 1, 1990.

On July 5, 1989, the Department of Pension and Pension Welfare issued an Office Memorandum specifying the terms for pensionary benefits for employees transferred en masse from a government department to a Central Public Sector Undertaking. This memorandum allowed employees to choose between retaining government pension benefits or being governed by the PSU’s rules.

A notice dated December 11, 1989, issued by VSNL, offered OCS employees the option to be absorbed into VSNL or be transferred to the Surplus Staff Cell of the Central Government. The appellants opted for absorption into VSNL, effective January 2, 1990. Subsequently, a Staff Notice dated February 21, 1990, required employees to choose between retaining government pension benefits or opting for VSNL’s rules. The notice included a clarification that eligibility for government pension required a minimum of ten years of qualifying service.

The appellants chose to retain their pensionary benefits under the Central Government rules. However, VSNL later sought clarification from the Department of Telecommunications (DOT) regarding the eligibility of employees with less than 10 years of service. The DOT initially directed VSNL to settle the cases as per the Office Memorandum, but later clarified that pension would be settled as per the Office Memorandum. Ultimately, VSNL informed the appellants that they were not eligible for government pension but would receive benefits under Clause (c) of the Office Memorandum, which included a lump sum payment equivalent to their Provident Fund contribution with 6% interest.

Aggrieved, the appellants filed a writ petition before the Bombay High Court, seeking a declaration that their cases be governed by Clause (b) of the Office Memorandum, which pertains to pensionary benefits, rather than Clause (c).

Timeline

Course of Proceedings

The Bombay High Court initially dismissed the writ petition, citing a previous decision in *S.V. Vasaikar & Ors. v. Union of India & Ors.* However, the Supreme Court set aside this judgment and remanded the matter for fresh consideration. On remand, the Bombay High Court again dismissed the writ petition, holding that the appellants were not eligible for pensionary benefits under the Government of India since they had served for less than 10 years on the date of their absorption into VSNL. The High Court reasoned that only permanent government servants with more than 10 years of service had the option of receiving pensionary benefits after absorption into PSUs. The High Court also held that the matter was squarely covered by the earlier decision in *S.V. Vasaikar*.

Legal Framework

The case revolves around the interpretation of the Office Memorandum issued by the Department of Pension and Pension Welfare, Government of India, dated July 5, 1989, and its interplay with the Central Civil Services (Pension) Rules, 1972.

The Office Memorandum provided terms and conditions for pensionary benefits of employees transferred en masse from a government department to a Central Public Sector Undertaking or Autonomous Body. Clause (a) of the Office Memorandum granted an option to government servants to retain pensionary benefits under government rules or be governed by the rules of the PSU. Clause (b) stated that those who opt for government pension would receive it as per the Central Government rules in force at the time of retirement. Clause (c) specified that employees with less than 10 years of service who opt for PSU rules would receive an amount equal to their Provident Fund contribution with 6% interest.

Rule 37(1) of the Central Civil Services (Pension) Rules, 1972, states that a government servant absorbed into a corporation or government company is deemed to have retired from government service on the date of absorption. Rule 49(2) of the CCS (Pension) Rules, 1972, specifies that a government servant is entitled to receive a pension on retirement only after completing a qualifying service of 10 years.

Arguments

Submissions of the Appellants:

• The appellants argued that Clause (b) of the Office Memorandum should govern their case, as they had opted to avail pensionary benefits available under the Central Government as per Clause (a).
• They contended that the Office Memorandum should be interpreted based on its plain text, without being conditioned by the form attached to the Staff Notice dated February 21, 1990.
• The appellants argued that Clause (a) is the controlling provision, and Clause (c) does not dilute the provisions of Clause (a).
• They challenged the interpretation of the Office Memorandum given in *S.V. Vasaikar & Ors. v. Union of India & Ors.*, arguing that Clauses (c) and (d) only provide the mode of payment of retiral benefits for different categories of employees.

Submissions of the Respondents:

• The respondents argued that the issue was covered by the judgment in *S.V. Vasaikar & Ors. v. Union of India & Ors.*, which had attained finality.
• They submitted that the Office Memorandum categorizes employees into two classes: those with 10 years of qualifying service and those without. Only the first class is entitled to a government pension.
• The respondents contended that the appellants had less than 10 years of qualifying service and voluntarily opted for absorption into VSNL, resulting in the severance of their previous service with the Central Government.
• They argued that the Office Memorandum was in conformity with Rule 49 read with Rule 37 of the CCS (Pension) Rules, 1972, and should not be interpreted in isolation.
• The respondents argued that the requirement of 10 years of qualifying service under Rule 49 of the CCS (Pension) Rules, 1972, applies to Clause (a) of the Office Memorandum.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the Bombay High Court was justified in holding that the case of the Appellants was covered by the earlier decision in *S.V. Vasaikar & Ors. v. Union of India & Ors.* and whether they are entitled to receive pensionary benefits under the Central Government.

Treatment of the Issue by the Court

Authorities

Cases:

• *S.V. Vasaikar & Ors. v. Union of India & Ors.* [2003 (2) Mh.L.J. 691 : 2003 (4) Bom CR 79] – Bombay High Court: This case was relied upon by the High Court and the Supreme Court to hold that employees with less than 10 years of service are not entitled to pensionary benefits.
• *Union of India & Anr. v. Bashirbhai R. Khiliji*, (2007) 6 SCC 16 : AIR 2007 SC 1935 – Supreme Court of India: This case was cited in relation to the requirement of 10 years of qualifying service for pension.
• *Direct Recruit Class II Engineering Officers’ Association v. State of Maharashtra & Ors.*, (1990) 2 SCC 715 : AIR 1990 SC 1607 – Supreme Court of India: This case was cited for the principle of res judicata.
• *Daryao v. State of UP*, (1962) 1 SCR 574 : AIR 1961 SC 1457 – Supreme Court of India: This case was cited for the principle of res judicata.

Legal Provisions:

• Office Memorandum No. 4/18/87-P & P.W.(D) dated July 5, 1989 – Department of Pension and Pension Welfare: This memorandum specified the terms and conditions for pensionary benefits of employees transferred en masse.
• Rule 37(1) of the Central Civil Services (Pension) Rules, 1972: This rule states that a government servant absorbed into a corporation or government company is deemed to have retired from government service on the date of absorption.
• Rule 49(2) of the Central Civil Services (Pension) Rules, 1972: This rule specifies that a government servant is entitled to receive a pension on retirement only after completing a qualifying service of 10 years.
• Rule 3(q) of the Central Civil Services (Pension) Rules, 1972: This rule defines ‘qualifying service’ for the purpose of pensions and gratuities.

Judgment

How each authority was viewed by the Court?

• The court followed the decision in *S.V. Vasaikar & Ors. v. Union of India & Ors.* [2003 (2) Mh.L.J. 691 : 2003 (4) Bom CR 79]* and held that the matter was squarely covered by the said decision.
• The court cited *Union of India & Anr. v. Bashirbhai R. Khiliji*, (2007) 6 SCC 16 : AIR 2007 SC 1935* to emphasize the requirement of 10 years of qualifying service for pension.
• The court cited *Direct Recruit Class II Engineering Officers’ Association v. State of Maharashtra & Ors.*, (1990) 2 SCC 715 : AIR 1990 SC 1607* and *Daryao v. State of UP*, (1962) 1 SCR 574 : AIR 1961 SC 1457* to support the application of the principle of res judicata.
• The court interpreted the Office Memorandum No. 4/18/87-P & P.W.(D) dated July 5, 1989* and held that it should be read in conjunction with the CCS (Pension) Rules, 1972.
• The court applied Rule 37(1) of the Central Civil Services (Pension) Rules, 1972* to determine that the appellants were deemed to have retired from government service on the date of their absorption into VSNL.
• The court applied Rule 49(2) of the Central Civil Services (Pension) Rules, 1972* to determine that the appellants were not entitled to pension due to not having completed 10 years of qualifying service.

What weighed in the mind of the Court?

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

• Statutory Interpretation: The Court emphasized the importance of interpreting the Office Memorandum in conjunction with the Central Civil Services (Pension) Rules, 1972, particularly Rules 37 and 49. This approach ensured that the memorandum was not read in isolation but within the existing legal framework.
• Minimum Qualifying Service: The Court highlighted the requirement of a minimum of 10 years of qualifying service for pension eligibility under Rule 49(2) of the CCS (Pension) Rules, 1972. The appellants’ failure to meet this criterion was a significant factor in the decision.
• Deemed Retirement: The Court applied Rule 37(1) of the CCS (Pension) Rules, 1972, which states that government servants absorbed into a corporation are deemed to have retired from government service on the date of absorption. This deemed retirement meant that the appellants’ service with the Central Government was severed, making them ineligible for pension under government rules.
• Precedent: The Court placed significant reliance on the earlier decision of the Bombay High Court in *S.V. Vasaikar & Ors. v. Union of India & Ors.* The fact that this decision had attained finality and covered the same issue weighed heavily in the Court’s reasoning.
• Res Judicata: The Court also invoked the principle of res judicata, noting that the issue had been previously litigated and decided in *S.V. Vasaikar*, which was binding on the appellants.
• Option Exercise: The Court observed that the appellants had voluntarily exercised their option to be absorbed into VSNL, knowing that they had not completed 10 years of qualifying service. This conscious decision was considered a factor against their claim for government pension.

Logical Reasoning:

The court considered the alternative interpretation that Clause (b) of the Office Memorandum could be read independently of the CCS (Pension) Rules, 1972. However, the court rejected this interpretation, holding that the Office Memorandum must be read in conjunction with the existing legal framework. The court reasoned that the phrase “in accordance with the Central Government rules in force at that time” in Clause (b) clearly indicated that the eligibility for pension was subject to the CCS (Pension) Rules, 1972. The court also noted that the clarification provided with the Staff Notice explicitly stated that eligibility for government pension required a minimum of 10 years of qualifying service.

The court upheld the decision of the Bombay High Court, affirming that the appellants were not eligible for pensionary benefits under the Central Government. The court’s decision was based on a cumulative reading of the Office Memorandum, the CCS (Pension) Rules, 1972, and the principle of res judicata.

The court stated:

• “A conjoint reading of the statutory rules, i.e. Rule 37 with Rule 49 of the CCS (Pension) Rules, 1972, would make it abundantly clear that the Appellants were not entitled to pensionary benefits since admittedly they did not have the minimum qualifying service of 10 years, to make their service pensionable with the Central Government.”
• “The Division Bench has rightly held that Clause (b) of the Office Memorandum cannot be read in isolation, and is required to be read in conjunction with Clause (a). The entitlement to Pension under Clause (b) is qualified by the phrase “in accordance with the Central Government rules in force at that time”.”
• “The decision in S.V. Vasaikar & Ors. v. Union of India & Ors. [2003 (2) Mh. L.J. 691 : 2003 (4) Bom CR 79] was not challenged before the Supreme Court, and has since attained finality. Therefore, the relief sought by the Appellants before the High Court was barred by the principle of res judicata.”

Key Takeaways

• Employees transferred from a government department to a PSU are not automatically entitled to government pension benefits.
• Eligibility for government pension requires a minimum of 10 years of qualifying service as per the Central Civil Services (Pension) Rules, 1972.
• The Office Memorandum issued for en masse transfers must be interpreted in conjunction with the existing pension rules.
• Employees who opt for absorption into a PSU are deemed to have retired from government service, affecting their pension eligibility.
• The principle of res judicata applies to service matters, preventing re-litigation of settled issues.

Directions

The Supreme Court did not issue any specific directions other than upholding the judgment of the Bombay High Court and dismissing the appeal. The Court’s decision effectively means that the appellants will not receive pensionary benefits from the Central Government and will instead receive a lump sum payment equivalent to their Provident Fund contribution with 6% interest as per Clause (c) of the Office Memorandum.