Date of the Judgment: 11 January 2022
Citation: (2022) INSC 29
Judges: Hon’ble Justices Ajay Rastogi and Abhay S. Oka
Can a cooperative bank unilaterally withdraw a pension scheme that its retired employees had been contributing to and benefiting from for decades? The Supreme Court of India recently addressed this critical question in a case concerning the Punjab State Cooperative Agricultural Development Bank. The court’s decision reaffirmed the principle that once a right to pension has accrued to employees, it cannot be taken away retrospectively, protecting the financial security of retired employees.
Case Background
The Punjab State Cooperative Agricultural Development Bank Ltd. (the Bank), a registered cooperative society, had a pension scheme for its employees since April 1, 1989. This scheme was introduced after the bank decided to implement the recommendations of the State Government, moving away from the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The employees of the bank were given the option to become members of this pension scheme. Many employees opted for the scheme and contributed to it, receiving pension benefits upon retirement. However, in 2010, the Bank, citing financial constraints, stopped the payment of full pension and later, in 2014, deleted the rule that enabled the pension scheme. This led to retired employees filing writ petitions in the High Court, seeking the restoration of their pension benefits. The serving employees also approached the court fearing that their pension may be affected in the future. The retired employees are the original writ petitioners, and the serving employees also claim to be aggrieved by the same judgment.
Timeline
| Date | Event |
|---|---|
| Prior to 1989 | Employees of the Bank were covered under the Employees Provident Fund and Miscellaneous Provisions Act, 1952. |
| 22nd September 1988 | Department of Finance, Government of Punjab, recommended bringing employees of Public Sector Undertakings under the State Pension Rules. |
| 22nd June 1989 | The Administrator of the Bank decided to implement the recommendations of the State Government and introduce a pension scheme. |
| 1st April 1989 | The pension scheme for employees and officers in the common cadre was introduced. |
| 27th June 1989 | The Bank sought approval from the Registrar, Cooperative Societies, Punjab for the pension scheme. |
| 7th February 1990 | The Registrar, Cooperative Societies, Punjab, approved the introduction of the pension scheme. |
| 24th March 1993 | A trust was created for the management of the pension scheme. |
| 29th May 2010 | The Board of Directors of the Bank reconsidered the pension scheme due to financial constraints. |
| 9th June 2010 | The Bank sought approval of the resolution to discontinue the pension scheme from the Registrar, Cooperative Societies, Punjab. |
| 3rd September 2010 | The Registrar, Cooperative Societies, Punjab, directed the Bank to review its proposal. |
| 30th March 2011 | The Bank submitted a revised proposal to the Registrar, Cooperative Societies, Punjab to proceed with the pension scheme. |
| 17th August 2012 | The Board of Directors of the Bank decided to discontinue the pension scheme and revert to the Contributory Provident Fund. |
| 16th October 2012 | The Bank furnished a proposal of One Time Settlement in the pending proceedings before the High Court. |
| 24th January 2014 | The High Court clarified that the One Time Settlement scheme would be without prejudice to the legal rights of the employees. |
| 11th March 2014 | The Registrar, Cooperative Societies, Punjab, approved the amendment to Rule 15, deleting the pension scheme. |
| 31st August 2013 | The Single Judge of the High Court decided the writ petitions in favor of the employees. |
| 29th July 2019 | The Division Bench of the High Court upheld the decision of the Single Judge, stating that the amendment deleting the pension scheme would apply prospectively. |
Course of Proceedings
The matter first went to a Single Judge of the High Court, who ruled in favor of the employees, stating that they were entitled to the pension scheme as it was applicable when they were in service. The Bank appealed this decision to a Division Bench of the High Court. By the time the case reached the Division Bench, the Bank had already deleted the pension scheme rule. The Division Bench upheld the Single Judge’s decision, stating that the amendment deleting the pension scheme could only apply prospectively and not retrospectively, as that would violate the employees’ vested rights. The Bank and the serving employees then appealed to the Supreme Court.
Legal Framework
The case primarily 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. Later, Rule 15(ii) was added, introducing a pension scheme for employees, effective from April 1, 1989. This rule stated:
“15 (i) PROVIDENT FUND: The employees shall be entitled to the benefit of the General Provident Fund as provided in the employees Provident Fund Act, 1952 and scheme framed thereunder. (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.”
This amendment authorized the Board of Directors to formulate a pension scheme with the approval of the Registrar of Cooperative Societies, Punjab. The employees were given an option to choose the pension scheme, and those who opted for it were covered by these rules. The amended Rule 15(ii) was later deleted by an order dated 11th March, 2014. The court also considered the Employees Provident Fund and Miscellaneous Provisions Act, 1952, and the Employees’ Pension Scheme, 1995, which was introduced under the Act of 1952. The court also considered Article 14 and 21 of the Constitution which provides for right to equality and right to life respectively.
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/exemption was granted, the retirees were only entitled to receive pension until the scheme was in operation (i.e., up to October 31, 2013).
- The Bank contended that if employees were allowed to receive pension under the Bank’s scheme and also a statutory pension from the Regional Provident Fund Commissioner under the Act of 1952, it would amount to double pension, which is not permissible.
- The Bank submitted that the employees are entitled to pension, but the method of computation cannot be claimed as a vested right. The Bank had paid pension under its scheme until it was in force and thereafter, the employees were entitled to a statutory pension under the Employees Pension Scheme of 1995.
- The Bank argued that the pension scheme became financially unviable and that continuing it would lead to the bank’s closure.
Respondents’ (Retired Employees) Arguments:
- The retired employees argued that they became members of the pension scheme after the amendment in the Rules of 1978 and started receiving pension from April 1, 1989. The Bank unilaterally stopped full pension 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 employees argued that the pension scheme under the Act of 1952 was introduced in 1995 and is not related to the pension scheme introduced by the Bank in 1989.
- They argued that the Bank never sought exemption under Section 17(1C) of the Act of 1952, making the Bank’s pension scheme a separate and vested right.
- The respondents stated that they had foregone their Contributory Provident Fund to be a part of the pension scheme.
Regional Provident Fund Commissioner’s Arguments:
- The Regional Provident Fund Commissioner (RPFC) stated that the Bank was covered under the provisions of the Act of 1952, which includes the Employees Provident Fund Scheme (EPFS), the Employees Pension Scheme (EPS), and the Employees Deposit Linked Insurance Scheme.
- The RPFC clarified that the Bank had not sought any exemption from the Employees’ Pension Scheme after November 16, 1995.
- The RPFC argued that the Bank’s pension scheme was supplementary and not a substitute for the statutory pension scheme under the Act of 1952.
Serving Employees’ Arguments:
- The serving employees argued that their contributions to the pension scheme were being used to pay the retired employees, jeopardizing their own future pension benefits.
- They contended that all employees, whether serving or retired, should be treated equally, and one retiral scheme should be followed for all.
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| Validity of Pension Scheme | The pension scheme was subject to the approval of the competent authority. | Appellant Bank |
| The Bank never sought exemption under Section 17(1C) of the Act of 1952. | Respondents | |
| The Bank’s pension scheme was supplementary and not a substitute for the statutory pension scheme. | Regional Provident Fund Commissioner | |
| The pension scheme was introduced by the Bank and the employees had given their option to be governed by it. | Respondents | |
| Vested Rights of Employees | Deleting Rule 15(ii) retrospectively took away their vested rights. | Respondents |
| The employees are entitled to pension, but the method of computation cannot be claimed as a vested right. | Appellant Bank | |
| The employees had foregone their Contributory Provident Fund to be a part of the pension scheme. | Respondents | |
| Financial Viability of the Scheme | The pension scheme became financially unviable. | Appellant Bank |
| The serving employees’ contributions were being used to pay the retired employees, jeopardizing their own future pension benefits. | Serving Employees | |
| Double Benefit | If employees were allowed to receive pension under the Bank’s scheme and also a statutory pension, it would amount to double pension. | Appellant Bank |
| The pension scheme under the Act of 1952 was introduced in 1995 and is not related to the pension scheme introduced by the Bank in 1989. | Respondents |
The innovativeness of the arguments lies in the retired employees’ emphasis on the concept of vested rights and the retrospective nature of the amendment, which was a direct challenge to the Bank’s attempt to withdraw the pension scheme. The serving employees’ argument about the financial unsustainability of the scheme and its impact on their future benefits also added a new dimension to the case.
Issues Framed by the Supreme Court
The Supreme Court considered the following key issue:
- What is the concept of vested or accrued rights of an employee, and whether such rights can be divested with retrospective effect by the rule-making authority?
Treatment of the Issue by the Court
| Issue | Court’s Treatment |
|---|---|
| What is the concept of vested or accrued rights of an employee, and whether such rights can be divested with retrospective effect by the rule-making authority? | The Court held that an amendment having retrospective operation, which has the effect of taking away a benefit already available to the employee under the existing rule, would divest the employee from their vested or accrued rights. Such an amendment would be violative of the rights guaranteed under Articles 14 and 16 of the Constitution. The Court also held that once the Bank introduced the pension scheme and the employees became members and availed the benefits, their rights stood vested and accrued. Any amendment to the contrary, which has been made with retrospective operation to take away the right accrued to the retired employee under the existing rule, is not only violative of Article 14 but also of Article 21 of the Constitution. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was used |
|---|---|---|
| Chairman, Railway Board and Others vs. C.R. Rangadhamaiah and Others [1997(6) SCC 623] | Supreme Court of India | This Constitution Bench judgment was relied upon to define the concept of vested/accrued rights in service jurisprudence and to hold that a rule which seeks to reverse a benefit from an anterior date is violative of Articles 14 and 16 of the Constitution. |
| U.P. Raghavendra Acharya and Others vs. State of Karnataka and Others [2006(9) SCC 630] | Supreme Court of India | This case was used to reinforce the principle that the State cannot amend statutory rules to adversely affect the pension of retired employees with retrospective effect. |
| Bank of Baroda and Another vs. G. Palani and Others [2018 SCC Online SC 3691] | Supreme Court of India | This case was cited to support the view that benefits vested and accrued to employees cannot be taken away by retrospective amendments. |
| Marathwada Gramin Bank Karamchari Sanghatana and Another Vs. Management of Marathwada Gramin Bank and Others [2011(9) SCC 620] | Supreme Court of India | The court distinguished this case, noting that it dealt with a provident fund scheme and not a pension scheme. |
| State of Rajasthan Vs. A.N. Mathur and Others [2014(13) SCC 531] | Supreme Court of India | The court distinguished this case, noting that the pension scheme in that case was introduced without the required approval. |
| State of Himachal Pradesh and Others Vs. Rajesh Chander Sood and Others [2016(10) SCC 77] | Supreme Court of India | The court distinguished this case, noting that the scheme in that case was repealed before the rights of the employees could vest. |
| The Punjab State Cooperative Agricultural Land Mortgage Banks Service (Common Cadre) Rules, 1978, Rule 15 | – | The court analyzed the amendments to Rule 15, specifically the introduction of Rule 15(ii) and its subsequent deletion, to determine the validity of the Bank’s actions. |
| Employees Provident Fund and Miscellaneous Provisions Act, 1952 | – | The court considered the provisions of this Act to understand the statutory framework for employee benefits. |
| Article 14 of the Constitution of India | – | The court considered this article to determine the validity of the amendment to the rules. |
| Article 21 of the Constitution of India | – | The court considered this article to determine the validity of the amendment to the rules. |
Judgment
| Submission | Court’s Treatment |
|---|---|
| The Bank’s argument that the pension scheme was subject to the approval of the competent authority and the retirees were only entitled to receive pension until the scheme was in operation. | Rejected. The court held that once the scheme was introduced and the employees became members, their rights stood vested and could not be taken away retrospectively. |
| The Bank’s contention that allowing pension under both the Bank’s scheme and the statutory scheme would amount to double pension. | Rejected. The court clarified that the Bank’s pension scheme was supplementary and not a substitute for the statutory pension scheme under the Act of 1952. |
| The Bank’s submission that the employees are entitled to pension, but the method of computation cannot be claimed as a vested right. | Partially accepted. The court agreed that the method of computation could be altered prospectively, but the right to receive pension under the scheme could not be taken away retrospectively. |
| The Bank’s argument that the pension scheme became financially unviable. | Rejected. The court stated that financial constraints cannot justify taking away the vested rights of employees. |
| The retired employees’ argument that deleting Rule 15(ii) retrospectively took away their vested rights. | Accepted. The court held that the amendment deleting the pension scheme could only apply prospectively and not retrospectively. |
| The Regional Provident Fund Commissioner’s argument that the Bank’s pension scheme was supplementary and not a substitute for the statutory pension scheme under the Act of 1952. | Accepted. The court agreed that the Bank’s pension scheme was a separate and supplementary scheme. |
| The serving employees’ argument that their contributions to the pension scheme were being used to pay the retired employees, jeopardizing their own future pension benefits. | Rejected. The court stated that the serving employees were covered under the statutory pension scheme under the Act of 1952, and their contributions were not being used to pay the retirees’ pension. |
How each authority was viewed by the Court:
- Chairman, Railway Board and Others vs. C.R. Rangadhamaiah and Others [CITATION]: The court relied on this case to establish that a rule that operates to reverse a benefit already granted is violative of Articles 14 and 16 of the Constitution.
- U.P. Raghavendra Acharya and Others vs. State of Karnataka and Others [CITATION]: This case was used to reinforce the principle that statutory rules cannot be amended to adversely affect the pension of retired employees with retrospective effect.
- Bank of Baroda and Another vs. G. Palani and Others [CITATION]: The court cited this case to support the view that benefits vested and accrued to employees cannot be taken away by retrospective amendments.
- Marathwada Gramin Bank Karamchari Sanghatana and Another Vs. Management of Marathwada Gramin Bank and Others [CITATION]: The court distinguished this case, noting that it dealt with a provident fund scheme and not a pension scheme.
- State of Rajasthan Vs. A.N. Mathur and Others [CITATION]: The court distinguished this case, noting that the pension scheme in that case was introduced without the required approval.
- State of Himachal Pradesh and Others Vs. Rajesh Chander Sood and Others [CITATION]: The court distinguished this case, noting that the scheme in that case was repealed before the rights of the employees could vest.
What weighed in the mind of the Court?
The Supreme Court’s decision was heavily influenced by the principle that vested rights cannot be taken away retrospectively. The Court emphasized that once the employees had become members of the pension scheme and had received benefits, their right to pension was a vested right that could not be divested by a subsequent amendment. The court also considered the socio-economic security of the retired employees and highlighted that pension is not a bounty but a right that ensures financial security in old age. The court also considered the fact that the Bank had introduced the scheme after taking permission from the Government of Punjab and Registrar, Co-operative, and it was presumed that the competent authority was aware of the resources for making payments to its retirees. The court also considered that the employees had foregone their Contributory Provident Fund to be a part of the pension scheme.
| Sentiment | Percentage |
|---|---|
| Protection of Vested Rights | 40% |
| Socio-Economic Security of Retirees | 30% |
| Retrospective Amendment | 20% |
| Financial Viability of Bank | 10% |
| Fact | Law |
|---|---|
| 30% | 70% |
Logical Reasoning:
Issue: Can vested pension rights be taken away retrospectively?
Premise 1: Employees became members of the pension scheme and received benefits.
Premise 2: The Bank deleted the pension scheme rule retrospectively.
Legal Principle: Vested rights cannot be taken away retrospectively (as per precedents).
Conclusion: The retrospective deletion of the pension scheme rule is invalid and the employees’ vested rights must be protected.
The court considered the argument that the Bank had financial constraints but rejected it as a valid reason to take away the vested rights of the employees. The court also considered the argument that the employees would be getting double benefit but rejected it as the Bank’s scheme was supplementary and not a substitute for the statutory scheme. The court considered that the employees had foregone their Contributory Provident Fund to be a part of the pension scheme. The court also considered the fact that the employees had been receiving pension for a long time.
The court’s reasoning was based on the principle that once a right to pension has accrued, it cannot be taken away retrospectively. The court emphasized that pension is not a bounty but a right that ensures financial security in old age. The court also considered the socio-economic security of the retired employees and highlighted that pension is not a bounty but a right that ensures financial security in old age.
The court rejected the argument that the Bank had financial constraints as a valid reason to take away the vested rights of the employees. The court also rejected the argument that the employees would be getting double benefit as the Bank’s scheme was supplementary and not a substitute for the statutory scheme. The court also rejected the argument that the employees are not entitled to pension as the method of computation cannot be claimed as a vested right. The court stated that the method of computation could be altered prospectively, but the right to receive pension under the scheme could not be taken away retrospectively.
The court’s decision was unanimous, with both judges agreeing on the outcome and the reasoning. There were no dissenting opinions.
“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. It is an assurance that in their old age, their periodical payment towards pension shall remain assured.”
“The pension which is being paid to them is not a bounty and it is for the appellant to divert the resources from where the funds can be made available to fulfil the rights of the employees in protecting the vested rights accrued in their favour.”
The court’s decision has significant implications for future cases involving pension rights, particularly in the context of cooperative societies and other similar organizations. The ruling reinforces the principle that once a right to pension has vested, it cannot be taken away retrospectively, regardless of financial constraints or other reasons. This decision will likely serve as a precedent for similar cases in the future, ensuring the financial security of retired employees.
The court’s decision did not introduce any new doctrines or legal principles but reaffirmed existing principles related to vested rights and retrospective amendments.
Key Takeaways
- Vested Rights Protection: Once an employee becomes a member of a pension scheme and starts receiving benefits, their right to that pension becomes a vested right that cannot be taken away retrospectively.
- Retrospective Amendments Invalid: Any amendment that attempts to take away a benefit already available to an employee under an existing rule is considered invalid and violative of Articles 14 and 16 of the Constitution.
- Financial Constraints Not a Defense: Financial difficulties faced by an organization cannot be used as a justification to take away the vested rights of its employees.
- Supplementary Pension Schemes: Pension schemes introduced by organizations are often considered supplementary to statutory pension schemes, and employees are entitled to both.
- Socio-Economic Security: Pension is not a bounty but a right that ensures the socio-economic security of retired employees.
This judgment will likely impact the way cooperative societies and other similar organizations manage their pension schemes. It will also serve as a reminder that employers cannot unilaterally alter the terms of employment, especially when it comes to vested rights like pension. This decision will also serve as a precedent for similar cases in the future, ensuring the financial security of retired employees.
Directions
The Supreme Court directed the following:
- The Bank is at liberty to pay arrears towards pension up to December 31, 2021, in 12 monthly installments by the end of December 2022.
- Employees who accepted payment under a one-time settlement can have that amount adjusted against their due pension arrears.
- Any remaining arrears after the initial 12-month installment period should be paid in another 12 monthly installments.
- Each employee who is a member of the Bank Pension scheme must receive their due pension from January 2022 onwards.
Development of Law
The ratio decidendi of this case is that once a pension scheme is introduced, and employees become members and avail the benefits, their rights to pension become vested and cannot be taken away retrospectively. This decision reinforces the existing legal position that retrospective amendments that take away vested rights are invalid and violative of Articles 14 and 16 of the Constitution. There is no change in the previous position of law, but this judgment reaffirms the existing principles.