Case: Air India Employees Self Contributory Superannuation Pension Scheme Vs. Kuriakose V. Cherian and Ors

2. In or about 1994, Air India proposed creation of a Pension Scheme for its employees. The Scheme was based on actuarial reports. The employees had to contribute to the fund under the Scheme, Air India contributing a token sum of Rs.100/- per annum for all the employees put together. Broadly, Scheme was that all full time employees of Air India would become members of the Scheme and contribute a percentage of their salary to be deducted every month and credited to the fund under the Scheme. Each member had to contribute for a minimum period of 15 years and for those who did not have sufficient number of years of service from the date of the commencement of the Scheme upto their superannuation, an amount was calculated based on the total number of years in deficit and the member was required to make payment of the entire sum so calculated either in lump sum or to pay the said amount in monthly installment along with interest on the total sum due. On 12th August, 1996, a deed of trust for incorporating the Scheme was entered into between Air India and the trustees. The deed also contained rules known as Air India Employees Self-Contributing Pensionary Scheme Rules (hereinafter referred to as the Rules). Further, it postulated creation of a pension fund. A deed of variation of the trust was executed on 7th October, 1997 to amend certain provisions of the trust deed. The trust deed, inter alia, stipulates that the retiring employees would get pension equivalent to 40 per cent of the last pay drawn salary, consisting of basic pay, dearness allowances and personal pay, if any.3. To give effect to the aforesaid, an agreement was entered into with Life Insurance Corporation of India which issued a master policy stipulating various terms and conditions.4. Rules stipulate that a member or his beneficiary shall have no interest in the master policy taken out in respect of the members or any investment otherwise made by the trustees in accordance with the Rules or the Scheme but shall be entitled to receive superannuation benefits in accordance with the Rules and that the trustees shall always administer the Scheme for the benefit of the members and their beneficiaries in accordance with the provisions of the Rules.5. A staff notice dated 30th September, 1996 was issued reproducing therein salient features of the Scheme. It stipulated that the Scheme will take effect from 1st April, 1994. The main object of the Scheme is to provide to the members on retirement a fixed amount per month. The amount is to be calculated according to the Scheme on superannuation of an employee and annuity is required to be purchased from Life Insurance Corporation of India (LIC) so as to ensure payment by LIC of a fixed monthly sum to the retired employee and on his demise the payment of the annuity amount to his legal representatives. Besides the Scheme, the existing employees represented by their respective associations are the appellants before us. According to the appellants, the Scheme was defective inasmuch as large amounts were given to the retiring employees without having regard to the contributions made by them towards the Scheme and resultantly the old employees by making smaller contributions received disproportionately larger amount of benefits. No fund would have been available with the Scheme for giving pension to the employees retiring after 2005 despite they having contributed large amount to the fund under the Scheme, thus, requiring corrective action. Under these circumstances, the Scheme was amended with effect from 3rd April, 2002. The amendment requires the pensioners to make payment of additional contribution towards annuities purchased from LIC. The amendment provided that the amount of the pension shall be corresponding to the contribution made by the respective retired employees and not on the basis of 40 per cent of the last drawn salary of the employees. Corresponding amendments were also made in the Rules, inter alia, providing that the employees who have retired upto 31st October, 2001 shall contribute the amount so as to make up the difference between cost of annuity purchased for them from the pension fund from LIC and the total contribution made by them till date of retirement. Other consequential amendments were also made providing that the trustees shall notify LIC for retrieval of the shortfall in the contribution from the purchase price of the annuity paid to LIC in respect of such members and for appropriate reduction in the monthly amount payable to such employees. The amount so retrieved is required to be added to and form part of the corpus of the trust fund to be equally distributed amongst the contributing members. The validity of the aforesaid amendment of the Scheme was challenged by the retired employees in writ petition filed under Article 226 of the Constitution of India before the High Court mainly on the ground that rights in their favour crystallized on purchase of annuities at the time of their superannuation and the same cannot be subjected to any alteration or amendment. The contention urged before the High Court was that the trustees could only effect amendment to the Scheme for future benefits of existing employees and had no right to effect any amendment which adversely affects vested rights of the pensioners in regard to the pension payable to them as per the amended Scheme. The plea was that their pension as per the amended Scheme would be considerably reduced. It was contended that on retirement the ex-employees sever all their relations with the Scheme, which does not envisage making of any additional contribution, by members after superannuation. The LIC having accepted annuity and having made monthly payments to retired employees cannot refund to the trust any amount or reduce monthly payment to the detriment of the pensioners. These appeals have been filed by the Scheme, Air India, Cabin Crew Association, Ground Staff Association, Officers Association, and Employees Guild Association. Learned counsel for the appellants contend that out of 18,386 employees who were members of the Scheme from the year 1994 till date, 1852 employees retired leaving 16534 employees in service. They pointed out that though retirees were only about 10 per cent of the employees but had taken 60 per cent of the total contribution made by all the employees against their contribution of about 17.98 per cent. If this trend continues the corpus would get fully exhausted and the result would be that the employees who retire after the year 2005 will not get any benefit since by that time no amount will be left in the fund. It is contended that the annuities continue to remain the property of the scheme and as such trustees have a right to review the situation and amend the scheme. The contention is that the trustees have unrestricted power to amend or alter the Scheme even retrospectively. Further, it is urged that strictly speaking the amendment is not retrospective inasmuch as the revision of the pension is prospective. The amount of the pension would be reduced on non-fulfillment of the conditions by the retiring employees after the date of the amendment. The High Court by the impugned judgment held that the impugned amendment to the Trust Deed to the extent it applies in future is legal and valid but the amendment cannot apply to the employees who have retired before the date of amendment and such employees shall continue to receive pensionary benefits as before, namely, the benefits which existed at the time of amendment. For the aforesaid conclusion, the main ground which prevailed with the High Court is that the right to annuity in favour of retired employees crystallized on the date of superannuation and the same cannot be changed by amendment. The High Court held that annuitant has no connection with the quantum of the remaining trust fund; whether it increases or decreases and that on retirement of the employee, the quantum of corpus, which yields the annuity, is paid over to the LIC and physically leaves the trust fund. The retiree gets a life long annuity and on his demise his heirs get the designated corpus. Thus the designated corpus which leaves the trust on date of superannuation never returns. The trust is created because of the requirement of Income Tax Act and for the purpose of administrative convenience. Annuitants are in no way concerned with the financial health of the trust fund which originally purchased the annuities. They are not entitled to look to original trust for any assistance in case the interest rate of LIC falls and they cannot claim any additional benefit even if trust decides to increase the benefits for such existing employees.

Reasoning: We need not, however, examine, in the present case, the aforesaid question and the correctness of the view of the High Court on the aspect of maintainability of the writ petition since learned counsel challenging the correctness of the impugned judgment, have adopted a pragmatic and fair approach that this Court having heard the matter in detail, it would not serve either the interest of the retired employees or the employees in service or the Scheme, if the parties are relegated to litigation before other forums on this court reversing view of the High court on the question of maintainability of the writ petition. Under these circumstances, we leave open the question of maintainability of the writ to be decided in an appropriate case.6. Provided that no such alteration or variation shall be inconsistent with the main objects of the trusts herebymay also be noted that the appellants own case is that there was basic fallacy in the Scheme from its inception. The Scheme, as originally conceived was flawed, is the stand of the appellants in CA No.4267 of 2003. It is further their own stand that concept of granting annuities on a defined benefit basis in a self-contributory fund is inherently fallacious as in the self-contributory scheme the only consideration is the contributions made by the members and hence the benefit has to necessarily flow from their contributions and the interest accruedIt is the own case of the appellants that in addition to this inherent fallacy in the formation of the Scheme, the situation was aggravated by various factors noticed above. We would assume that there were several contributory factors as a result of which the fund position became quite bad. The factors included the non-receipt of huge funds in time from Air India, lack of proper investment by the trust resulting in loss of interest in addition to the fallacy in the scheme being gap between the contribution and the amount required for purchase of annuity to ensure return of specified amount to the retirees. It may be that the last of the aforesaid factor contributed most in the depleted financial position of the fund requiring the trustees to make the amendments in the scheme on 3rd April, 2002, but it has to be borne in mind that the original scheme was a Benefit Defined Scheme as opposed to a Contribution Defined Scheme. It has now been conceded on behalf of the appellants that there was no fraud in formulation or implementation of the scheme. Besides aforesaid factor, there were other factors, such as, considerable delay in Air India remitting arrears of pension contribution amounting to Rs.23 crores to the trust, non-payment of interest by Air India on late payments etc. The retirees received what was receivable by them according to the existing scheme on the date of retirement.That is the basic question in the present case. It matters little that the present case is of reverse position inasmuch as in the case of Sasadhar Chakravarty this Court was considering the case of a retired employee who was seeking right in the improvement whereas in the present case the question is about reducing the benefits or rights of the retired employees. The question is about applicability of the principle. Applying the principle in Sasadhar Chakravartys case to the present case, we have no doubt that after retirement retirees are not liable for any deficit in the fund which is sought to be made good by recovery from them which is the effect of retrospective amendment. Further, as already noted it was a benefit and rolling scheme as opposed to a contributory scheme.20. Neither clauses 32 and 33 or the Trust Deed nor Rule 14 has any applicability on question of retrospective operation of amendment to the retired employees. It has been admitted that the form of insurance annuity policy with LIC was adopted as a result of mandate of the statute. Having done that, the appellants are bound by the consequences flowing from purchase of annuity. In view of what we have said above there is neither any substance in the contention that contract was between LIC and the trustees nor is it of any consequence in view of our conclusion that the amount, on retirement of employees, leaves the fund for purchase of annuity and the rights of the retirees are crystallized on their retirement by purchase of annuity and thus no amount can be claimed from them by making applicable amendment dated 3rd April, 2002 with retrospective effect. Therefore, we find no substance in the second contention. The contention that there is no privity of contract between LIC and the retired employees as contract for purchase of annuities is between trust and LIC, has also no substance.On reference, the High Court upheld this view of the Revenue holding that contract of insurance with LIC was entered into by the father of the assessee and that the contracting parties were the father of the assessee and the LIC. This court reversing decision of the High Court held that the contract of insurance must be read as a whole; in substance it is a contract of life insurance with regard to the life of the assessee and that the main intention of the contract was the insurance on the life of the assessee and other clauses are merely ancillary or subordinate to the main purpose, under Section 2 (11) of the Insurance Act, the purchase of annuity amounts to purchase of an insurance policy. It would make no difference, in the present case, as to who made the payment. The LIC having accepted the annuity and having effected monthly payments can neither reduce the annuity amount nor refund it to the trust to the detriment of the retirees since the annuity has already crystallized and no change can be made in such annuity as stipulated by the impugned amendments. LIC has obligation to fulfill the promise given by it to the retirees, who are assured under the annuity scheme. In Commissioner of Wealth Tax, Punjab, J & K, Chandigarh, Patiala v. Yuvraj Amrinder Singh & Ors. [(1985) 4 SCC 608] , it was held that annuities dependent on human life constitute a species of contract of life insurance. In Life Insurance Corporation of India & Ors. v. Asha Goel (Smt.) & Anr. [(2001) 2 SCC 160] , interpreting scope of Section 45 of the Insurance Act, 1938, this Court laid down the parameters within which powers under Section 45 could be exercised to repudiate the claim under a contract of insurance.