Supreme Court Upholds VRS Terms: IFCI Pensioners Denied Enhanced Benefits (2019)

Date of the Judgment: 17 September 2019

Citation: (2019) INSC 885

Judges: Sanjay Kishan Kaul, J. and K.M. Joseph, J.

Can employees who voluntarily retire under a specific scheme claim enhanced pension benefits based on pay revisions implemented after their retirement? The Supreme Court of India addressed this question in a case involving the Industrial Finance Corporation of India Ltd. (IFCI) and its former employees. The core issue revolved around whether employees who opted for the 2008 Voluntary Retirement Scheme (VRS) were entitled to revised pension benefits based on subsequent pay scale revisions, despite the scheme’s explicit terms for final settlement. The two-judge bench of Justices Sanjay Kishan Kaul and K.M. Joseph delivered the judgment, with Justice Sanjay Kishan Kaul authoring the opinion.

Case Background

The Industrial Finance Corporation of India Ltd. (IFCI), initially established in 1948, transitioned into a company under the Indian Companies Act, 1956, in 1993. In 2008, IFCI introduced a Voluntary Retirement Scheme (VRS-2008) to reduce its workforce. Thirty-one employees availed of this scheme and were relieved from their duties on 25 February 2008, receiving all benefits as per the VRS-2008. The dispute arose when these employees claimed they were entitled to an enhanced pension based on subsequent retrospective pay scale revisions that were implemented after their retirement but were effective from a period when they were still employees of IFCI.

Timeline:

Course of Proceedings

The private respondents initially filed a writ petition before the Delhi High Court, seeking a revision of their pay scales and claiming similar benefits as retirees under the VRS-2001. The single judge dismissed the writ petition on 20 February 2017. Subsequently, the private respondents filed a Letters Patent Appeal, which was allowed by the Division Bench on 17 January 2019. The Division Bench drew comparisons with the 2001 scheme, the case of Ms. Sweety Bhalla, and the fact that the revised pay scales were applicable from 2007 when the respondents were still in service. The High Court held that since pension is a benefit for past services, any revision of pay scales should also apply to those who had taken VRS. The IFCI appealed to the Supreme Court against this order.

Legal Framework

The case revolves around the interpretation of the Industrial Finance Corporation of India Limited Pension Regulations, 1993, and the IFCI Staff Regulations, 1974, in conjunction with the VRS-2008. Key provisions include:

• Regulation 2(6) of the Industrial Finance Corporation of India Limited Pension Regulations, 1993: Defines ‘date of retirement’ to include the date of voluntary retirement.
• Regulation 2(11) of the Industrial Finance Corporation of India Limited Pension Regulations, 1993: Defines ‘retirement’ with reference to Regulation 33 of the IFCI Staff Regulations, 1974.
• Regulation 33(2) of the IFCI Staff Regulations, 1974: Allows employees who have completed 20 years of qualifying service to voluntarily retire by giving three months’ notice.
• Clause 8.7 of the VRS-2001: States that benefits under the scheme are in full and final settlement of all claims.
• Clarification dated 4.1.2001 for VRS-2001: Entitled officers opting for voluntary retirement to receive the benefit of revision in pay scales.
• Clause 7 of the VRS-2008: Specifies the benefits under the scheme, including pension as per the IFCI Pension Regulations.
• Clause 9.4 of the VRS-2008: States that the benefits are in full and final settlement of all claims.
• Clause 9.12 of the VRS-2008: Explicitly states that there will be no revision in the voluntary retirement amount due to pay revision or any other account in the future.
• Clause 3.4 of the VRS-2008: Defines “salary” as Basic Pay + Stagnation Increments + Special Pay + Post Scale Special Pay + Personal Pay + Additional Special Pay + Dearness Allowance, as on the date of relieving of employee.

Arguments

Submissions by the Appellant (IFCI):

• The appellant contended that the VRS-2008 was a complete package by itself, and no other voluntary retirement schemes or other rules and regulations could be used to interpret it.
• It was argued that the terms of the VRS-2008 were clear, and clauses 9.4 and 9.12 explicitly prohibited any further claims or revisions in the voluntary retirement amount due to pay revisions.
• The appellant distinguished the VRS-2001, which had a clarification allowing for future pay revisions, from the VRS-2008, which did not.
• The appellant argued that the benefit of revised pay scales was meant for serving employees and not those who had voluntarily retired.
• It was contended that the private respondents had received all benefits under the VRS-2008, including pension based on their last drawn salary.
• The appellant relied on the judgment in A.K. Bindal v. Union of India [(2003) 5 SCC 163], which stated that VRS is a ‘Golden Handshake’ and that employees who opt for it cannot claim further benefits.

Submissions by the Respondents (Former Employees):

• The respondents argued that pension is a benefit for past services and is a continuing cause. Therefore, any revision of pay scales affecting existing employees should also apply to them.
• They contended that the VRS-2001 was an open-ended scheme, and the same logic should apply to them.
• The respondents claimed that since the revised pay scales were made applicable from 2007, when they were still in service, they should be entitled to the enhanced pension.
• They sought parity with Ms. Sweety Bhalla, who was given the benefit of revised pay scales retrospectively.
• The respondents relied on the judgment in D.S. Nakara v. Union of India [(1983) 1 SCC 305], which stated that pension is a kind of retirement wage for past service and should be revised for all retirees when pay scales are revised.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court addressed the following issue:

1. Whether the private respondents, who availed of the VRS-2008, are entitled to an enhanced pension based on subsequent revisions of pay scales, which were given retrospective effect from a time period when the respondents were still employees of the IFCI.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court considered the following authorities:

Judgment

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

How each authority was viewed by the Court?

• A.K. Bindal v. Union of India [(2003) 5 SCC 163]*: The Court followed this judgment, emphasizing that VRS is a ‘Golden Handshake’ and employees cannot claim further benefits.
• D.S. Nakara v. Union of India [(1983) 1 SCC 305]*: The Court distinguished this judgment, stating that the principle of pension being a continuing right does not apply to those who have voluntarily retired.
• National Insurance Special Voluntary Retired/Retired Employees Association & Anr. v. United India Insurance Co. Ltd. & Anr [(2018) 18 SCC 186]*: The Court followed this judgment, stating that voluntary retirement schemes must be strictly adhered to.
• P.P. Vaidya & Ors. v. IFCI Ltd. &Ors. [SLP(C) No.16364/2014]*: The Court followed this judgment, reiterating that employees who opt for voluntary retirement cannot claim additional benefits.
• Bank of India v. K. Mohandas & Ors. [(2009) 4 SCALE 576]*: The Court distinguished this judgment, stating that the plea that certain aspects of the scheme were nebulous is without basis.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the explicit terms of the VRS-2008, which clearly stated that the benefits under the scheme were in full and final settlement of all claims. The Court emphasized that voluntary retirement schemes are a package deal, and employees who opt for such schemes cannot claim additional benefits beyond what is explicitly provided. The Court also highlighted the difference between retirees and those who voluntarily retire, stating that the principle of pension being a continuing right does not apply to the latter. The Court also noted that the revised pay scales were meant for serving employees and not for those who had opted for VRS. The Court also took into account the fact that the private respondents had already received all benefits under the VRS-2008, including pension based on their last drawn salary.

Logical Reasoning

Judgment

The Supreme Court held that the private respondents were not entitled to an enhanced pension based on subsequent revisions of pay scales. The Court emphasized that the VRS-2008 was a complete package, and its terms explicitly prohibited any further claims or revisions in the voluntary retirement amount due to pay revisions. The Court also stated that the benefit of revised pay scales was meant for serving employees and not those who had voluntarily retired. The Court set aside the impugned order of the Division Bench of the High Court.

The Court observed: “The benefits under VRS-2008 are many, in terms of the financial package. Pension is only one of the items of that package, while calculating the amounts as per clause 7.2 of the Scheme.”

The Court further stated: “There is no ambiguity left by the propounders of the Scheme while setting out the prohibitive clause against any further compensation, in clause 9.4, or while stating that no revision shall be made in the voluntary retirement amount on account of pay revision, as per clause 9.12.”

The Court also noted: “The very cut-off date for calculation of pension, for the private respondents, was the date of their termination of relationship, and the calculation of pension under the Pension Regulations also proceeds on the basis of the last ten (10) months’ salary prior to that date.”

Key Takeaways

• Voluntary Retirement Schemes are considered a complete package, and employees cannot claim benefits beyond what is explicitly provided in the scheme.
• Pay revisions implemented after an employee’s voluntary retirement generally do not apply to those who have opted for VRS.
• Pension benefits for VRS optees are calculated based on their last drawn salary at the time of their voluntary retirement.
• The principle that pension is a continuing right for past services does not apply to those who have voluntarily retired.
• The terms of the specific VRS are paramount, and employees are bound by the scheme’s provisions.

Directions

No specific directions were given by the Supreme Court in this case. The Court simply set aside the impugned order of the Division Bench of the High Court.

Development of Law

The ratio decidendi of this case is that employees who opt for a Voluntary Retirement Scheme (VRS) are bound by the terms of that specific scheme and cannot claim enhanced benefits based on subsequent pay revisions unless explicitly provided for in the scheme. This case reinforces the principle that VRS is a complete package and that employees cannot seek additional benefits by relying on other schemes or general principles of pension law. The Supreme Court clarified that the principle that pension is a continuing right for past services does not apply to those who have voluntarily retired, thus, distinguishing between regular retirees and those who opt for VRS.

Conclusion

The Supreme Court’s judgment in IFCI Ltd. vs. Sanjay Behari & Ors. reinforces the principle that Voluntary Retirement Schemes are a complete package, and employees who opt for such schemes are bound by their terms. The Court clarified that subsequent pay revisions do not automatically entitle VRS optees to enhanced pension benefits unless explicitly provided in the scheme. This decision provides clarity on the interpretation of VRS and its impact on pension benefits, emphasizing the importance of adhering to the specific terms of the scheme.