Supreme Court Upholds Pension Rights of Bank Employees, Dismissing Retroactive Rule Change: Punjab State Cooperative Agricultural Development Bank Ltd. vs. The Registrar, Cooperative Societies and Others (2022) INSC 14

Date of the Judgment: 11 January 2022
Citation: (2022) INSC 14
Judges: Hon’ble Justices Ajay Rastogi and Abhay S. Oka
Can a cooperative bank retroactively withdraw a pension scheme, thereby denying its retired employees their entitled benefits? The Supreme Court of India addressed this critical question in a recent judgment, firmly ruling against such retroactive actions. This case highlights the importance of protecting the vested rights of employees, particularly concerning their pensions. The bench comprised Justices Ajay Rastogi and Abhay S. Oka, who delivered a unanimous verdict.

Case Background

The Punjab State Cooperative Agricultural Development Bank Ltd. (the Bank) is a cooperative society that provides long-term loans to farmers. Prior to 1989, the Bank’s employees were covered under the Employees Provident Fund and Miscellaneous Provisions Act, 1952. In 1989, the Bank introduced a pension scheme for its employees, effective from April 1, 1989, following recommendations from the Punjab Pay Commission. This scheme allowed employees to opt-in, with those not opting remaining under the 1952 Act. The Bank created a pension corpus fund and a trust for its management. Employees who opted for the pension scheme received their pensions until 2010, when the Bank, citing financial constraints, decided to discontinue the scheme. The Bank then amended the Punjab State Cooperative Agricultural Land Mortgage Banks Service (Common Cadre) Rules, 1978, deleting the provision for the pension scheme in 2014. This led to retired employees filing writ petitions in the High Court of Punjab and Haryana, challenging the Bank’s decision.

Timeline

Course of Proceedings

The retired employees initially filed writ petitions in the High Court of Punjab and Haryana, challenging the Bank’s decision to discontinue the pension scheme. A Single Judge of the High Court ruled in favor of the employees, stating that they were entitled to regular pension. The Bank then appealed to a Division Bench of the High Court. During the pendency of the appeal, the Bank amended the Rules, deleting the pension scheme. The Division Bench upheld the Single Judge’s decision, declaring that the amendment was prospective and could not take away the vested rights of the employees who had become members of the pension scheme. The Bank and some serving employees, who feared their pension rights would be affected in the future, then appealed to the Supreme Court.

Legal Framework

The case revolves around the interpretation of the Punjab State Cooperative Agricultural Land Mortgage Banks Service (Common Cadre) Rules, 1978, specifically Rule 15. Initially, Rule 15(i) provided for a provident fund under the Employees Provident Fund Act, 1952. Subsequently, Rule 15(ii) was added to introduce a pension scheme for employees, effective from April 1, 1989. This rule stated:

“15(ii) THE PENSION SCHEME FOR THE EMPLOYEES/OFFICES IN THE COMMON CADRE RULES OF THE PUNJAB STATE COOPERATIVE AGRICULTURAL DEVELOPMENT BANK W.E.F. 1.4.89.
1. Short title and commencement:
(i) The rules shall be called, the Punjab State Cooperative Agricultural Development Banks Employees Pension, Family Pension and General Provident Fund Rules.
(ii) These Rules shall come into force with effect from 1.4.89.
2. Application
(i) These rules shall apply to all the posts in the services specified in the Appendix ‘I’ of the Common Cadre Rules, provided that in case of the employees appointed by transfer from Government Departments, these rules shall only apply to the extent specified in their terms and conditions of deputation agreed upon with the Government Department concerned.
Provided further that nothing in these rules shall affect the application of any other law, statutory rules, bye-laws and regulations for time being in force.
Provided further that an employee who joins service on or after coming into force of these rules and such existing employees, who opt for these rules, shall be covered by these rules. All category of employees shall have to exercise this option in Form-A to these rules within three months from the date of notification of these rules.
(ii) The employees who do not opt for these rules shall be governed by the Employees Provident Fund Act and Rules.
3. Definition:
XXX XXX XXX XXX
(o) Pay: Pay means the pay as defined in Rule 2.44 of the Punjab Civil Services Rules Volume-I Part-I.
Note: Unless the contrary appears from the context or subject to term ‘pay’ defined in Rule 2.44 of the Punjab Civil Services, Volume-I, Part-I, does not include “Special Pay.””

Later, this Rule 15(ii) was deleted by an order dated 11th March, 2014. The Employees Provident Fund and Miscellaneous Provisions Act, 1952, and the Employees’ Pension Scheme, 1995, also play a role in the case, as the Bank’s employees were initially covered under the 1952 Act.

Arguments

Appellant Bank’s Arguments:

• The Bank argued that the pension scheme was subject to the approval of the competent authority, and since no such approval was granted, the retirees were only entitled to receive pension until the scheme was in operation (October 31, 2013).
• They contended that allowing the employees to get pension under the Bank’s scheme and also statutory pension under the Act 1952 would result in double pension, which is not permissible.
• The Bank submitted that while employees are entitled to a pension, the method of computation is not a vested right. They argued that the employees were paid under the Bank’s scheme until it was withdrawn, and thereafter, they are entitled to statutory pension under the Employees Pension Scheme, 1995.
• The Bank claimed that the pension scheme became financially unviable, and continuing it would lead to the Bank’s closure.
• They argued that the Regional Provident Fund Commissioner (RPFC) had initiated proceedings under Section 7A of the Act 1952, imposing liability on the Bank, and the Bank had deposited the demanded amounts.

Respondents’ (Retired Employees) Arguments:

• The respondents argued that they became members of the pension scheme after the amendment in the Rules 1978 and started receiving pensions from April 1, 1989. The Bank unilaterally stopped the pensions in 2010.
• They contended that deleting Rule 15(ii) retrospectively took away their vested rights and altered their service conditions, violating Articles 14 and 21 of the Constitution.
• The respondents submitted that the pension scheme under the Act 1952 was introduced in 1995 and is unrelated to the Bank’s scheme introduced in 1989. The Bank never sought exemption under Section 17(1C) of the Act 1952.
• They argued that the one-time settlement scheme was an interim measure and did not prejudice their legal rights.
• The respondents argued that they had foregone their Contributory Provident Fund to be part of the pension scheme.

Regional Provident Fund Commissioner’s (RPFC) Arguments:

• The RPFC stated that the Bank is covered under the Act 1952, which includes the Employees Provident Fund Scheme, 1952, and the Employees Pension Scheme, 1995.
• The RPFC clarified that the Bank did not seek exemption from the Employees Pension Scheme after November 16, 1995.
• They argued that the Bank’s pension scheme was supplementary, not a substitute for the statutory pension scheme, as it did not provide for dependents’ pension, nominees’ pension, children’s pension, or withdrawal benefits.

Serving Employees’ Arguments:

• The serving employees argued that their contributions to the pension scheme are being used to pay the retirees, jeopardizing their own future pension benefits.
• They contended that all employees should be treated equally, regardless of whether they are serving or retired, and one retiral scheme should be followed for all.

Innovativeness of the Argument: The retired employees’ argument that the Bank’s pension scheme, introduced in 1989, is distinct from the statutory pension scheme under the Act of 1952, introduced in 1995, was particularly innovative. This distinction helped establish that the Bank’s scheme was not a substitute for the statutory pension, thus protecting the retirees’ vested rights. The argument of the serving employees that their contribution is being used to pay the retirees was also innovative.

Issues Framed by the Supreme Court

The Supreme Court considered the following key issues:

1. What is the concept of vested or accrued rights of an employee?
2. Can vested or accrued rights be divested with retrospective effect by the rule-making authority?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court relied on the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court relied on Chairman, Railway Board and Others vs. C.R. Rangadhamaiah and Others [1997(6) SCC 623]* to establish that a rule which seeks to reverse from an anterior date a benefit which has been granted or availed of can be assailed as being violative of Articles 14 and 16 of the Constitution to the extent it operates retrospectively.
• The Supreme Court followed U.P. Raghavendra Acharya and Others vs. State of Karnataka and Others [2006(9) SCC 630]* to reiterate that the State could not have amended the statutory rules adversely affecting their pension with retrospective effect.
• The Supreme Court used Bank of Baroda and Another vs. G. Palani and Others [2018 SCC Online SC 3691]* to support the view that accrued rights cannot be taken away retrospectively and that such an action would be arbitrary.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the principle of protecting vested rights. The Court emphasized that once the employees had opted for the pension scheme and had begun receiving benefits, their right to that pension became a vested right. The Court also noted that the Bank had introduced the pension scheme after seeking permission from the Government of Punjab and the Registrar, Cooperative Societies, and therefore, they were presumed to be aware of the financial implications. The Court also took note of the fact that the Bank’s pension scheme was a separate scheme from the statutory scheme under the Act of 1952. The Court also took into account the socio-economic security of the employees in their old age, stating that pension is not a bounty but an assurance of periodical payment. The Court also noted that the Bank’s decision to withdraw the pension scheme was unilateral and without justification.

The Court considered alternative interpretations of the rules and the law, but ultimately rejected them, concluding that the Bank’s actions were in violation of the employees’ vested rights, and that financial difficulties could not justify the Bank’s actions. The Court also considered the fact that the Bank had introduced the scheme after seeking permission from the Government of Punjab and the Registrar, Cooperative Societies, and therefore, they were presumed to be aware of the financial implications. The Court also noted that the Bank’s pension scheme was a separate scheme from the statutory scheme under the Act of 1952. The Court also took into account the socio-economic security of the employees in their old age, stating that pension is not a bounty but an assurance of periodical payment. The Court also noted that the Bank’s decision to withdraw the pension scheme was unilateral and without justification.

The Court’s decision was clear: The amendment deleting the pension scheme was to be applied prospectively, and the retired employees were entitled to the pension under the scheme of which they were members. The Court also directed the Bank to pay the arrears of pension in installments and to continue paying the pension to the employees from January 2022.

The majority opinion was delivered by Justice Ajay Rastogi, with Justice Abhay S. Oka concurring. There were no dissenting opinions.

Key quotes from the judgment:

“It can, therefore, be said that a rule which operates in futuro so as to govern future rights of those already in service cannot be assailed on the ground of retroactivity as being violative of Articles 14 and 16 of the Constitution, but a rule which seeks to reverse from an anterior date a benefit which has been granted or availed of, e.g., promotion or pay scale, can be assailed as being violative of Articles 14 and 16 of the Constitution to the extent it operates retrospectively.”

“The exposition of the legal principles culled out is that an amendment having retrospective operation which has the effect of taking away the benefit already available to the employee under the existing rule indeed would divest the employee from his vested or accrued rights and that being so, it would be held to be violative of the rights guaranteed under Articles 14 and 16 of the Constitution.”

“In our view, non-availability of financial resources would not be a defence available to the appellant Bank in taking away the vested rights accrued to the employees that too when it is for their socio-economic security.”

Key Takeaways

• Vested rights, particularly concerning pensions, are protected under the Constitution and cannot be taken away retroactively.
• Financial difficulties cannot justify the withdrawal of a pension scheme that has been in operation for a significant period.
• Pension schemes, once implemented and availed by employees, create vested rights that must be honored.
• Employers must ensure that they have the financial resources to meet their obligations under pension schemes.

This judgment reinforces the principle that employees’ pension benefits are not mere privileges but are vested rights that cannot be taken away arbitrarily. It also highlights the importance of financial planning and responsibility on the part of employers when implementing such schemes. The decision has significant implications for future cases involving pension disputes and will likely serve as a precedent for the protection of employees’ rights.

Directions

The Supreme Court directed that:

• The appellant Bank is at liberty to pay arrears towards pension up to 31st December 2021 in 12 monthly installments by the end of December 2022.
• Those employees who accepted payment under one-time settlement, the amount paid to them is open for adjustment against arrears of their due pension.
• Each employee who is a member of the Bank Pension scheme must get pension from the month of January 2022 as admissible under the law.

Development of Law

The ratio decidendi of this case is that vested or accrued rights of employees, particularly regarding pension benefits, cannot be taken away by retrospective amendments to rules or regulations. This decision reinforces the principle that once a benefit has been granted and availed by employees, it becomes a vested right that is protected under the Constitution. This is not a change in the previous position of law, but a reaffirmation of the principles laid down in previous cases.

Conclusion

The Supreme Court’s judgment in Punjab State Cooperative Agricultural Development Bank Ltd. vs. The Registrar, Cooperative Societies and Others is a significant victory for retired employees. It reaffirms the principle that vested rights cannot be taken away retroactively, especially in matters of pension benefits. The Court’s decision underscores the importance of protecting the socio-economic security of employees and ensures that employers cannot arbitrarily withdraw pension schemes once they have been implemented and availed. The Court also provided clear directions for the payment of arrears and the continuation of pension payments, offering substantial relief to the affected employees. This judgment serves as a crucial precedent for future cases involving pension disputes and the protection of employee rights.

Category

• Service Law
  • Pension
  • Vested Rights
  • Retrospective Amendment
• Constitution of India
  • Article 14
  • Article 16
  • Article 21
• Employees Provident Fund and Miscellaneous Provisions Act, 1952
  • Section 7A, Employees Provident Fund and Miscellaneous Provisions Act, 1952
  • Section 14B, Employees Provident Fund and Miscellaneous Provisions Act, 1952
  • Section 7Q, Employees Provident Fund and Miscellaneous Provisions Act, 1952
• Punjab State Cooperative Agricultural Land Mortgage Banks Service (Common Cadre) Rules, 1978
  • Rule 15, Punjab State Cooperative Agricultural Land Mortgage Banks Service (Common Cadre) Rules, 1978

FAQ

Q: What is a vested right in the context of employment?

A: A vested right is a benefit or entitlement that an employee has earned and is legally entitled to, such as a pension after fulfilling certain conditions. Once a right is vested, it cannot be taken away retroactively.

Q: Can an employer change pension rules after an employee has retired?

A: No, an employer cannot change pension rules retroactively to the detriment of employees who have already retired. The Supreme Court has held that such changes violate the vested rights of the employees.

Q: What if an employer claims they cannot afford to continue a pension scheme?

A: Financial difficulties are not a valid justification for taking away the vested rights of employees. Employers are expected to manage their resources to fulfill their obligations under pension schemes.

Q: What is the difference between the Bank’s pension scheme and the statutory pension scheme?

A: The Bank’s pension scheme was introduced in 1989 and is a separate scheme from the statutory pension scheme under the Employees Provident Fund and Miscellaneous Provisions Act, 1952, which was introduced in 1995. The Bank’s scheme was supplementary and not a substitute for the statutory scheme.

Q: What should employees do if their pension benefits are reduced or withdrawn?

A: Employees should seek legal advice and may consider filing a writ petition in the High Court to protect their vested rights. This case demonstrates that the courts are willing to protect employees’ pension rights.