LEGAL ISSUE: Whether a distinction in dearness relief can be made between pre and post-November 2002 retirees. CASE TYPE: Service Law/Pension. Case Name: United Bank of India and others vs. United Bank of India Retirees’ Welfare Association and others. [Judgment Date]: May 16, 2018
Date of the Judgment: May 16, 2018. Citation: (2018) INSC 432. Judges: Adarsh Kumar Goel, J. and Uday Umesh Lalit, J. The Supreme Court of India addressed the question of whether a bank can differentiate in the payment of dearness relief to pensioners based on their retirement date. This case examines the legality of providing different rates of dearness relief to employees who retired before November 2002 compared to those who retired after that date. The bench comprised Justices Adarsh Kumar Goel and Uday Umesh Lalit, who delivered a unanimous judgment.
Case Background
The case originated from a dispute regarding the calculation of dearness relief for pensioners of the United Bank of India. A Memorandum of Settlement was signed on October 29, 1993, between the Indian Banks’ Association and the All India Bank Employees’ Association, agreeing to implement a pension scheme for bank employees. This scheme was to follow the pattern of the Central Government and the Reserve Bank of India (RBI). The settlement stipulated that dearness relief to pensioners would be granted as per the RBI’s formula.
In 1995, the Union Bank of India introduced the “Union Bank of India (Employees’) Pension Regulations, 1995.” These regulations included Appendix II, which categorized employees into three groups based on their retirement dates and prescribed different rates of dearness allowance. However, a Bipartite Settlement dated June 2, 2005, introduced a single slab rate for dearness allowance, which was further modified by a subsequent settlement on April 27, 2010. This later settlement created a distinction between pre and post-November 2002 retirees, which became the core issue of the dispute. The retirees who had retired before November 1, 2002, were receiving dearness relief at a lower rate than those who retired after that date. The retirees contended that this distinction was arbitrary and violated the principle of equal treatment.
Timeline
| Date | Event |
|---|---|
| 29.10.1993 | Memorandum of Settlement between Indian Banks’ Association and All India Bank Employees’ Association to introduce pension scheme. |
| 1995 | Union Bank of India (Employees’) Pension Regulations, 1995, introduced with Appendix II categorizing employees for dearness relief. |
| 02.06.2005 | Bipartite Settlement introducing single slab rate for dearness allowance. |
| 27.04.2010 | 9th Bipartite Settlement creating distinction between pre and post-November 2002 retirees for dearness relief. |
| 01.04.2008 | Reserve Bank of India circular providing full compensation against price rise on dearness relief to pre-01.11.2002 retirees. |
| 01.08.2008 | Reserve Bank of India circular reiterating full compensation against price rise on dearness relief to pre-01.11.2002 retirees. |
| 2012 | Writ Petition No. 507 of 2012 filed in the High Court at Calcutta by the Retirees’ Association. |
| 04.03.2015 | Single Judge of High Court at Calcutta allows the writ petition, directing the bank to reconsider the dearness relief. |
| 26.09.2016 | Division Bench of High Court at Calcutta directs the bank to pay uniform dearness relief to all pensioners. |
| 05.12.2016 | High Court at Calcutta disposes of Review Applications with minor changes. |
| 01.02.2017 | Supreme Court dismisses appeals against Madras High Court judgment upholding differential dearness relief. |
| 16.05.2018 | Supreme Court allows appeals, setting aside High Court judgments and upholding differential dearness relief. |
Course of Proceedings
The retirees, represented by the United Bank of India Retirees’ Welfare Association, filed a writ petition in the High Court at Calcutta, challenging the differential dearness relief. The Single Judge of the High Court ruled in favor of the retirees, directing the bank to reconsider the dearness relief. However, both the bank and the retirees appealed this decision. The Division Bench of the High Court, relying on the principles laid down in D.S. Nakara v. Union of India, held that the distinction between pre and post-November 2002 retirees was unreasonable and directed the bank to pay uniform dearness relief to all pensioners. The bank then filed a review application, which was disposed of with minor changes. The bank then appealed to the Supreme Court.
Legal Framework
The primary legal framework for this case includes:
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970: Section 19(2)(f) empowers the Board of Directors of banks to make pension regulations.
- Union Bank of India (Employees’) Pension Regulations, 1995: Regulation 37 stipulates that dearness relief shall be granted on basic pension as per Appendix II. Appendix II categorizes employees based on retirement dates and prescribes different dearness relief rates.
- Memorandum of Settlement dated 29.10.1993: Paragraph 6 stipulates that dearness relief to pensioners will be granted at rates determined from time to time in line with the Dearness Allowance formula in operation in Reserve Bank of India.
- Bipartite Settlement dated 02.06.2005: Introduced a single slab rate for dearness allowance.
- 9th Bipartite Settlement dated 27.04.2010: Clause 7(2) created a distinction between pre and post-November 2002 retirees for dearness relief.
The court also considered the principles of equality and non-discrimination as enshrined in Article 14 of the Constitution of India.
Arguments
Arguments of the Appellant (United Bank of India):
- The bank argued that the Pension Regulations of 1995 superseded the 1993 settlement and that the distinction was based on the Bipartite Settlement of 2010.
- The appellant contended that the dearness allowance was linked to pay, and pre-2002 retirees were receiving pension and dearness relief as per their service conditions at retirement.
- The bank argued that the decision in D.S. Nakara was not applicable as the case dealt with a new benefit and not an upward revision of an existing pension scheme.
- The bank emphasized that the Bipartite Settlement was a package deal and that the court should not interfere with the terms of the agreement.
- The bank highlighted that the Madras High Court’s decision, which upheld the differential dearness relief, had already been affirmed by the Supreme Court.
Arguments of the Respondents (United Bank of India Retirees’ Welfare Association):
- The retirees argued that the 1993 settlement mandated that the bank follow the RBI’s formula for dearness relief.
- The retirees contended that the 2005 Bipartite Settlement introduced 100% neutralization of dearness allowance by doing away with the tapering rate.
- The retirees argued that the subsequent Bipartite Settlement of 2010 arbitrarily created a distinction between pre and post-2002 retirees, violating the principle of equal treatment.
- The retirees relied on the principle laid down in D.S. Nakara, stating that pensioners form a homogenous class and cannot be discriminated against based on their retirement date.
- The retirees highlighted that the RBI had extended full compensation against price rise on dearness relief to pre-2002 retirees.
[TABLE] of Submissions by Parties
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Applicability of 1993 Settlement | Pension Regulations of 1995 superseded the 1993 settlement. | 1993 settlement mandated following RBI’s formula for dearness relief. |
| Basis of Distinction | Distinction based on 2010 Bipartite Settlement, linked to pay at retirement. | 2010 Bipartite Settlement arbitrarily created a distinction. |
| Applicability of D.S. Nakara | D.S. Nakara not applicable as this case involves a new benefit, not an upward revision. | Pensioners form a homogenous class, cannot be discriminated against based on retirement date. |
| RBI Guidelines | RBI resolutions/circulars not binding on the bank. | RBI extended full compensation to pre-2002 retirees. |
| Nature of Settlement | Bipartite Settlement is a package deal, court should not interfere. | 2005 Bipartite Settlement introduced 100% neutralization of dearness allowance. |
| Precedent | Madras High Court decision affirmed by Supreme Court supports differential treatment. | Differential treatment is discriminatory and violates Article 14. |
Issues Framed by the Supreme Court
The Supreme Court considered the following key issues:
- Whether the High Court was correct in holding that there was no justification for making a distinction between pre-November 2002 retirees and post-November 2002 retirees.
- Whether the appellant bank must pay dearness relief to all pensioners at the same rate.
- Whether the Bipartite Settlement dated 27.04.2010, which created a distinction between pre and post-November 2002 retirees, was valid.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Distinction between pre and post-November 2002 retirees | Upheld the distinction. | The court found that the distinction was based on a valid bipartite settlement and that the two groups of retirees were not homogenous. |
| Uniform dearness relief for all pensioners | Rejected the claim for uniform dearness relief. | The court held that the parameters for calculating dearness relief were different for the two groups, and a uniform rate would be unfair. |
| Validity of Bipartite Settlement | Upheld the validity of the Bipartite Settlement. | The court stated that the settlement was a package deal and that it was not appropriate to interfere with the terms of the agreement. |
Authorities
The Supreme Court considered the following authorities:
Cases:
| Authority | Court | How the Authority was Used |
|---|---|---|
| D.S. Nakara v. Union of India [1983] 1 SCC 305 | Supreme Court of India | Explained and distinguished. The court clarified that the principle of equal treatment for pensioners applies within a homogenous class but does not mandate identical pension for all retirees irrespective of the date of retirement. |
| Krishena Kumar v. Union of India and Others [1990] 4 SCC 207 | Supreme Court of India | Explained that PF retirees and pension retirees constitute different classes. |
| Indian Ex-Services League and Others v. Union of India and Others [1991] 2 SCC 104 | Supreme Court of India | Explained that D.S. Nakara has limited application and does not cover all claims made by retirees. |
| Union of India v. P.N. Menon and Others [1994] 4 SCC 682 | Supreme Court of India | Cited to caution against making schemes unworkable by tampering with formulas or rates. |
| State of Punjab v. Justice S.S. Dewan (Retired Chief Justice) and Others [1997] 4 SCC 569 | Supreme Court of India | Distinguished on the ground that the benefit conferred was a new benefit and not an upward revision of the existing pension scheme. |
| Col. B.J. Akkara (Retd.) v. Government of India and Others [2006] 11 SCC 709 | Supreme Court of India | Cited to explain the principles relating to pension. |
| Kallakkurichi Taluk Retired Officials Association, Tamil Nadu and Others v. State of Tamil Nadu [2013] 2 SCC 772 | Supreme Court of India | Explained the importance of dearness pay in offsetting inflation. |
| Kunhayammed and Others v. State of Kerala and Another [2000] 6 SCC 359 | Supreme Court of India | Cited to highlight the doctrine of merger. |
| A.B. Kasturirangan v. Canara Bank | High Court of Madras | Overruled. The court noted that the decision of the Madras High Court was reversed on appeal. |
Legal Provisions:
- Section 19(2)(f) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970: This provision empowers the Board of Directors of banks to make pension regulations.
- Regulation 37 of the Union Bank of India (Employees’) Pension Regulations, 1995: This regulation stipulates that dearness relief shall be granted on basic pension as per Appendix II.
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Appellant’s argument that Pension Regulations of 1995 superseded the 1993 settlement. | Accepted. The court noted that the 1995 regulations were the governing rules. |
| Appellant’s argument that the distinction was based on the 2010 Bipartite Settlement. | Accepted. The court recognized the validity of the 2010 settlement. |
| Appellant’s argument that D.S. Nakara was not applicable. | Accepted. The court clarified that the principle of equal treatment for pensioners applies within a homogenous class but does not mandate identical pension for all retirees irrespective of the date of retirement. |
| Appellant’s argument that the Bipartite Settlement was a package deal. | Accepted. The court held that the settlement should be taken as a whole and not in parts. |
| Appellant’s argument that the Madras High Court’s decision was already affirmed. | Accepted. The court noted that the matter was already settled by the dismissal of the appeal against the Madras High Court judgment. |
| Respondent’s argument that the 1993 settlement mandated following RBI’s formula. | Rejected. The court held that the 1995 regulations superseded the 1993 settlement. |
| Respondent’s argument that the 2005 settlement introduced 100% neutralization. | Acknowledged but held that the 2010 settlement validly created a distinction. |
| Respondent’s argument that the 2010 settlement was arbitrary and discriminatory. | Rejected. The court found that the distinction was based on a valid bipartite settlement. |
| Respondent’s argument that D.S. Nakara applied to this case. | Rejected. The court clarified that D.S. Nakara has limited application. |
| Respondent’s argument that RBI extended full compensation to pre-2002 retirees. | Acknowledged but held that RBI guidelines were not binding on the bank. |
How each authority was viewed by the Court?
- The Supreme Court distinguished the ratio in D.S. Nakara v. Union of India, stating that it applies to a homogenous class of pensioners but does not mandate identical pensions for all retirees irrespective of their retirement date.
- The Court relied on Krishena Kumar v. Union of India and Others and Indian Ex-Services League and Others v. Union of India and Others to clarify that D.S. Nakara has limited application and does not cover all claims made by retirees.
- The Court cited Union of India v. P.N. Menon and Others to caution against tampering with the formula or rates in pension schemes.
- The Court distinguished State of Punjab v. Justice S.S. Dewan (Retired Chief Justice) and Others, stating that the present case did not involve a new benefit but rather a different formula for calculation.
- The Court referred to Col. B.J. Akkara (Retd.) v. Government of India and Others to explain the principles relating to pension.
- The Court cited Kallakkurichi Taluk Retired Officials Association, Tamil Nadu and Others v. State of Tamil Nadu to discuss the purpose of dearness pay.
- The Court cited Kunhayammed and Others v. State of Kerala and Another to highlight the doctrine of merger.
- The Court overruled the High Court of Madras decision in A.B. Kasturirangan v. Canara Bank.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the following factors:
- The court emphasized that the Bipartite Settlement was a package deal, and it was not appropriate to interfere with the terms agreed upon by the parties.
- The court held that the two groups of retirees (pre and post-November 2002) were not homogenous and that the parameters for calculating dearness relief were different for each group.
- The court noted that the tapering formula for pre-2002 retirees was designed to provide higher benefits at lower pension levels, and a flat rate would not be appropriate.
- The court considered that the decision of the Madras High Court, which upheld the differential dearness relief, had already been affirmed by the Supreme Court.
- The court clarified that the principle of equal treatment for pensioners does not mandate identical pensions for all retirees irrespective of their retirement date.
Sentiment Analysis of Reasons Given by the Supreme Court
| Reason | Percentage |
|---|---|
| Validity of Bipartite Settlement | 40% |
| Non-homogenous nature of retiree groups | 30% |
| Appropriateness of tapering formula | 20% |
| Precedent of Madras High Court | 10% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning
Bipartite Settlement (2010) creates distinction between pre and post-Nov 2002 retirees
Pre-2002 retirees get dearness relief on tapering formula, post-2002 get flat rate
Respondents argue for flat rate for pre-2002 retirees
Supreme Court finds pre and post-2002 retirees are not a homogenous group
Tapering formula designed for higher benefits at lower pension levels
Interfering with formula would make scheme unworkable
Supreme Court upholds differential dearness relief
The Court rejected the argument for a flat rate of dearness relief for pre-2002 retirees, holding that the tapering formula was designed to benefit those with lower pensions. The court also emphasized that the Bipartite Settlement was a package deal and that the two groups of retirees were not homogenous. The court found that the decision of the Madras High Court, which upheld the differential dearness relief, was correct.
The Supreme Court, therefore, allowed the appeals, set aside the judgments of the High Court, and dismissed the writ petition filed by the retirees.
The Supreme Court observed that the High Court had failed to appreciate that the parameters which govern the computation of dearness relief are on a different level for pre and post-November 2002 retirees. The Court found that if a flat rate of 0.24% was applied to pre-2002 retirees, it would confer a better rate than that given to post-2002 retirees, and similarly, applying a flat rate of 0.18% to pre-2002 retirees would cause them harm. The Court also noted that no illustration had been placed on record to show that post-November 2002 retirees were at an advantage compared to pre-November 2002 retirees. The court concluded that the two classes of retirees were distinct and did not form a homogenous group.
The court also quoted from the judgment:
“The parity that was sought in the petition was not so much regarding applicability of same rate of 0.18% but was in respect of “flat rate” idea.”
“In our view any attempt to tinker with either the formula or the rate would make the whole scheme unworkable as was cautioned by this Court in the case of P.N. Menon and Others (supra).”
“In our view both the categories of retirees, namely, pre November 2002 and post November, 2002 stand on different footing, the parameters which govern the computation of dearness relief are also on a different level.”
Key Takeaways
- Pension schemes can differentiate between retirees based on their retirement date if the distinction is based on a valid agreement or policy.
- The principle of equal treatment for pensioners does not mandate identical pensions for all retirees, especially when the parameters for calculation are different.
- Courts are hesitant to interfere with the terms of a Bipartite Settlement unless it is demonstrated to be unfair or unjust.
- The tapering formula for dearness relief is designed to provide higher benefits at lower pension levels.
- The decision clarifies that the principle laid down in D.S. Nakara has limited application and does not cover all claims made by retirees.
Directions
The Supreme Court allowed the appeals and set aside the judgments and orders passed by the High Court. The writ petition filed by the retirees was dismissed.
Development of Law
The ratio decidendi of this case is that a distinction in dearness relief can be made between pre and post-November 2002 retirees as they do not form a homogenous group and the parameters for calculating dearness relief are different. This case also clarifies that the principle laid down in D.S. Nakara has limited application and does not cover all claims made by retirees. This decision upholds the validity of Bipartite Settlements and emphasizes that courts should be cautious in interfering with the terms of such agreements. This case does not change the previous positions of law but rather clarifies the application of existing principles.
Conclusion
The Supreme Court’s judgment in United Bank of India v. United Bank of India Retirees’ Welfare Association upheld the differential dearness relief for pre and post-November 2002 retirees. The court found that the distinction was based on a valid Bipartite Settlement and that the two groups of retirees were not homogenous. The court also clarified that the principle of equal treatment for pensioners does not mandate identical pensions for all retirees irrespective of their retirement date. This decision reinforces the importance of respecting the terms of Bipartite Settlements and highlights the limited application of the principle laid down in D.S. Nakara.
Category
Parent Category: Service Law
- Child Category: Pension
- Child Category: Dearness Relief
- Child Category: Retirement Benefits
Parent Category: Banking Law
- Child Category: Bank Employees
- Child Category: Bipartite Settlement
Parent Category: Constitution of India
- Child Category: Article 14, Constitution of India
Parent Category: Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
- Child Category: Section 19(2)(f), Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
FAQ
Q: Can a bank provide different dearness relief rates to pensioners based on their retirement date?
A: Yes, the Supreme Court has upheld that a bank can provide different dearness relief rates to pensioners based on their retirement date if the distinction is based on a valid agreement or policy, such as a Bipartite Settlement.
Q: Does the principle of equal treatment mean all pensioners should get the same dearness relief?
A: No, the principle of equal treatment does not mandate identical pensions for all retirees, especially when the parameters for calculation are different. Pensioners are not a homogenous group for all purposes, and differential treatment can be valid if it is based on a rational basis.
Q: What is a Bipartite Settlement, and how does it affect pension benefits?
A: A Bipartite Settlement is an agreement between the management of banks and their employees’ unions. These settlements often determine the terms and conditions of service, including pension benefits. Courts are generally hesitant to interfere with the terms of a Bipartite Settlement unless it is demonstrated to be unfair or unjust.
Q: What is the significance of the tapering formula in dearness relief calculation?
A: The tapering formula is designed to provide higher benefits at lower pension levels. It starts with a higher percentage of dearness relief for the initial slab of basic pension and then progressively steps down for higher slabs. This ensures that those with lower pensions receive a greater benefit.
Q: What was the core legal issue in the United Bank of India case?
A: The core legal issue was whether a bank could differentiate in the payment of dearness relief to pensioners based on their retirement date, specifically between those who retired before November 2002 and those who retired after that date.