Supreme Court Upholds Pension Rights for Absorbed Employees: Rajasthan State Road Transport Corporation vs. Goverdhan Lal Soni (2020)

Introduction

Date of the Judgment: September 09, 2020

Citation: (2020) INSC 684

Judges: Ashok Bhushan, J. and K.M. Joseph, J.

When a state-owned company closes down, what happens to its employees’ retirement benefits when they are absorbed into another state-run entity? The Supreme Court of India recently addressed this question, focusing on whether employees who were previously under a Contributory Provident Fund (CPF) scheme are eligible for pension benefits when absorbed into an organization with a pension scheme. The Court examined the obligations of both the former and new employers regarding the transfer of funds and the employees’ eligibility for pension. The judgment was authored by Justice Ashok Bhushan.

Case Background

Goverdhan Lal Soni, the respondent, was initially employed as a Junior Assistant at Rajasthan State Agro Industries Corporation Limited on April 2, 1974. When the State Government closed this corporation, all employees were declared surplus. The government decided to absorb these surplus employees into other state corporations. A circular was issued on July 2, 1991, by the Bureau of Public Enterprises, Government of Rajasthan, outlining the guidelines for absorbing surplus employees, including provisions for their benefits.

On October 3, 1996, Goverdhan Lal Soni was absorbed by the Rajasthan State Road Transport Corporation (RSRTC). RSRTC issued a notification on February 12, 1997, allowing absorbed employees to choose between the CPF scheme and the General Provident Fund (GPF) and Pension Scheme. On March 22, 1997, Soni opted for the Pension Scheme under the Rajasthan State Road Transport Pension Regulations, 1989. Previously, at Rajasthan State Agro Industries Corporation Limited, he was under the CPF scheme, as the Pension Scheme was not applicable there.

On July 29, 1997, RSRTC, noting Soni’s pension option, directed the transfer of his Provident Fund account and family pension to the General Provident Fund and pension fund. However, on August 18, 1998, Rajasthan Agro Industries Corporation Limited stated that since the Pension Scheme was not applicable in their corporation, no capital value amount was due to RSRTC. They clarified that only the Provident Fund contributions were deposited with the Provident Fund Commissioner, which could be transferred. Subsequently, the Regional Provident Fund Commissioner transferred both the employee and employer contributions to RSRTC.

RSRTC issued another circular on February 9, 1999, stating that employees would only receive pension benefits upon receipt of the capital amount from Rajasthan State Agro Industries Corporation Limited. Despite the transfer of funds, Soni’s pension was not approved. He sent several reminders and was superannuated on June 30, 2012. Consequently, he filed a writ petition in the High Court of Rajasthan, seeking the benefits of the GPF and Pension Scheme and challenging the circular dated February 9, 1999.

A similar situation occurred with Mangla Ram Aanwala, who was also absorbed into RSRTC from Rajasthan State Agro Industries Corporation Limited and opted for the GPF and Pension Scheme. He too was denied pension benefits and filed a writ petition, which was decided in line with Soni’s case.

Timeline:

Course of Proceedings

The High Court of Rajasthan, in its single-judge bench, ruled in favor of the respondent, Goverdhan Lal Soni, on July 5, 2017. The court held that Soni, having opted for the Pension Scheme, was entitled to pension benefits, subject to the refund of the amount he had received under the CPF Scheme. The court relied on a previous judgment of the same High Court in the case of *Mahaveer Prasad Jain vs. Jaipur Vidhyut Vitran Nigam Ltd.*, which dealt with a similar issue of absorption and pension benefits.

The Rajasthan State Road Transport Corporation (RSRTC) appealed the single judge’s decision to the Division Bench of the High Court. However, the Division Bench dismissed the appeal on March 5, 2018, upholding the single judge’s decision. Similarly, in the case of Mangla Ram Aanwala, the single judge ruled in his favor on November 29, 2007, and the Division Bench dismissed the appeal on August 30, 2018. Aggrieved by these decisions, RSRTC filed appeals before the Supreme Court of India.

Legal Framework

The case is governed by several key legal provisions and circulars. The Rajasthan State Road Transport Corporation Employees’ Pension Regulations, 1989, framed under Section 45 of the Road Transport Corporation Act, 1950, outlines the rules for pension and gratuity benefits for RSRTC employees.

Regulation 3(l) of the 1989 Regulations defines “option” as a written consent by an existing regular employee for pension and gratuity benefits, along with the adoption of the General Provident Fund Regulations, 1989, or to continue under the existing CPF scheme. It states:

“3(l) “Option” means a written consent of the existing regular employee for pensionary and gratuity benefits alongwith the adoption of the General Provident Fund Regulations 1989 or to continue as member of the existing CPF scheme covered under the BPF Act, 1952 within a period of 90 days from the date of publication of RSRTC Pension Regulations. Any existing employee who does not exercise the option within specified period of 90 days shall be deemed to have exercised option in favour of the Pension & CPF Regulations.”

Regulation 43 of the same regulations deals with the transfer of funds to the pension fund by the Corporation, stating:

“43. TRANSFER TO PENSION FUND BY CORPORATION
The Corporation shall transfer the pension contributions @ 10% on the basic wages plus D.A. to the R.S.R.T.C. pension Fund latest by 10th of succeeding month. The employer’s share with interest except for those existing employees as on 01.04.1989, who have opted for continuing the C.P.F. benefits shall be transferred to the R.S.R.T.C. Pension Fund and the employee’s share with interest shall be transferred to the R.S.R.T.C. GPF Fund.”

Additionally, the Bureau of Public Enterprises, Government of Rajasthan, issued a circular on July 2, 1991, which provided guidelines for the absorption of surplus employees of State Public Enterprises. Clause 11(b) of this circular is particularly relevant:

“11. In case the surplus employees covered under CPF Scheme, on absorption:-
(b)In an enterprise having pension scheme, the balance in CPF Account of surplus employees would be transferred to absorbing enterprise for credit to the GPF Account of the employees and the Pension Fund in proportion of employees own subscription and organisation’s contribution respectively. The eligible period of service rendered in relieving enterprise would be considered as qualifying service under pension scheme of absorbing enterprise.”

Arguments

The appellant, Rajasthan State Road Transport Corporation (RSRTC), argued that the respondents were absorbed from Rajasthan State Agro Industries Corporation Limited, where a Pension Scheme was not applicable, and they were governed only by the Contributory Provident Fund (CPF) Scheme. RSRTC contended that the absorption was subject to the terms of the circular dated July 2, 1991, which required the former organization to transfer not only the CPF balance but also the Pension Fund in proportion to the employee’s and the organization’s contributions.

RSRTC further argued that since Rajasthan State Agro Industries Corporation Limited refused to transfer the capital value amount, the conditions under para 11(b) of the circular dated July 2, 1991, were not met. They also highlighted that the respondents had already received benefits under the CPF Scheme, including a gratuity of Rs.10 Lakhs and other benefits, and were also receiving pension from the Employees Provident Fund Organization. RSRTC also pointed out that the respondents had availed loans from the Corporation, which were possible only because they were members of the CPF Scheme.

The respondents, on the other hand, contended that the entire contribution was transferred by the Regional Provident Fund Commissioner to RSRTC, as evidenced by the certificate of account transfer. They argued that they had exercised their option for the Pension Scheme within the prescribed period and that their cases were covered by the judgment of the Rajasthan High Court in *Mahaveer Prasad Jain’s Case*. They also argued that the subsequent circular dated February 9, 1999, which required the transfer of capital amount, was not applicable to them since they were already covered by the 1991 circular and had exercised their option on March 22, 1997.

The respondents further submitted that both Rajasthan State Agro Industries Corporation Limited and RSRTC were arms of the government, and it was the state’s responsibility to ensure that they received their pension benefits. They also stated that the pension received under the CPF scheme was accepted as they had no other option.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the respondents, who were initially covered under the CPF Scheme in their previous employment, are entitled to pension benefits upon absorption into RSRTC, which has a pension scheme?
2. Whether the transfer of funds by the Regional Provident Fund Commissioner to RSRTC fulfills the requirements of Clause 11(b) of the circular dated July 2, 1991, for the purpose of granting pension benefits?
3. Whether RSRTC was justified in denying pension benefits to the respondents based on the non-transfer of a capital amount from the previous employer?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities in its judgment:

Judgment

The Supreme Court analyzed the submissions made by both parties and the relevant legal provisions. The court held that the transfer of funds by the Regional Provident Fund Commissioner to RSRTC was sufficient to fulfill the requirements for pension eligibility under Clause 11(b) of the circular dated July 2, 1991. The Court clarified that there was no requirement for the previous employer to transfer any additional capital amount.

The Court also noted that the respondents had exercised their option for the Pension Scheme within the prescribed time and were therefore entitled to the benefits. The Court emphasized that the circular dated February 9, 1999, which stipulated the transfer of a capital amount, was not applicable to the respondents as they were covered by the earlier circular of 1991.

The Supreme Court upheld the decisions of the High Court, directing RSRTC to grant pension benefits to the respondents, subject to the refund of the amounts received by them under the CPF scheme. The Court also directed that the pension received by the respondents under the CPF Scheme shall be allowed to be retained by them and the same shall not be deducted when the pension is computed and paid by the appellant to the respondents.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure that employees who were absorbed from one state public enterprise to another receive their due pension benefits. The Court emphasized that the transfer of funds by the Regional Provident Fund Commissioner was sufficient compliance with the relevant circulars and regulations. The Court also highlighted that the respondents had exercised their option for the pension scheme within the prescribed time, and therefore were entitled to the benefits.

The Court rejected RSRTC’s argument that a separate capital amount was required to be transferred by the previous employer, clarifying that the transfer of the employee’s and employer’s contributions was sufficient. The Court also noted that the circular dated February 9, 1999, was not applicable to the respondents as they were covered by the earlier circular of 1991.

The Court also took into account the fact that the respondents had accepted the pension under the CPF scheme as they had no other option, and that it was the state’s responsibility to ensure that the employees receive their pension benefits.

The Court’s reasoning was heavily influenced by legal considerations, such as the interpretation of the relevant regulations and circulars, and the application of established legal principles. The factual aspects of the case, such as the transfer of funds and the exercise of options, were also considered, but the legal framework played a more significant role in the decision.

Logical Reasoning

Key Takeaways

✓ Employees absorbed from one state public enterprise to another are entitled to pension benefits if they opt for the pension scheme in the absorbing enterprise.

✓ The transfer of funds by the Regional Provident Fund Commissioner, including both employee and employer contributions, is sufficient for pension eligibility.

✓ There is no requirement for the previous employer to transfer any additional capital amount for the employee to be eligible for pension benefits.

✓ The pension received by the respondents under the CPF Scheme shall be allowed to be retained by them and the same shall not be deducted when the pension is computed and paid by the appellant to the respondents.

This judgment clarifies the obligations of state public enterprises when absorbing employees from other state-run entities. It ensures that employees are not denied pension benefits due to technicalities or disputes between the enterprises. The decision sets a precedent that protects the pension rights of absorbed employees and promotes a more equitable system of employee benefits.

Directions

The Supreme Court directed the respondents to refund the amount received by them under the CPF scheme within two months. Upon such deposit, the Rajasthan State Road Transport Corporation was directed to calculate and pay the pension to the respondents. The Court also directed that the pension received by the respondents under the CPF Scheme shall be allowed to be retained by them and the same shall not be deducted when the pension is computed and paid by the appellant to the respondents.