UNION OF INDIA

P.N. MENON AND ORS.

MARCH 17, 1994

[AM. AHMADI AND N.P. SINGH, JJ.J

Constitution of India 195(}-Article, 14-Central Civil Services (Pension) Rules, 1972, Rule 33 read with Officer Memorandum No. F-19(4)- C E. V./79 dated May 25, 1979-Treating portion of deamess allowance as 'deamess pay' for computation of pension and gratuity-Fixation of September 30, 1977 as cut-off date-Held, not arbitmy.

Article 226--New scheme reg. retiral benefits-Cut off date-llldicial Review-Scope of-Explained.

Service Law-C.C.S. (Pension) Rules, 1972-Rule 33-Retiral benefits-Option given to employees retiring after September 30, 1977 but not later than April 30, 1979 to get pension and gratuity calculated by excluding dearness pay as indicated in 1nen1oranduni-He!d, option given was not an exercise to create a class within a class-Constitution of India, Article 14.

Scheme forencashment of earned leave-Family pension scheme made non-contributory-Fixation of cut-off dates for eligibility-Held, not arbitrary-Constitution of India, Article 14.

F Vide an Ofiice Memorandnm issued by the Government of India on May 25, 1979, in respect of government servants who retired on or after September 30, 1977 the amount of dearness allowance as indicated in para 2 of the said OM was to be treated as dearness pay for calculating pension and gratuity in terms of Rule 33 of the Central Civil Services (Pension) Rules, 1972. An option was given to those retiring on or after September G 30, 1977 but not later than April 30, 1979 of getting pension and gratuity calculated either by excluding the element of dearness pay or by including it. Likewise a cnt off date was fixed for the coming into force of the new scheme of encashment of a maximum of six months' earned leave. The Family Pension Scheme was made non-contributory with effect from Sep- H !ember 22, 1977. 44

U.0.1. 1. P.N. MENON 45

Tite writ petition of the respondents \\'ho retired from sen'ice before A September 30, 1977 contending that the benefit of the OM should have

been extended to all government servants irrespective of their date of superannuation was allowed by a single judge of the High Court on the basis of the judgment of the Supreme Court in D.S. Nakara and others v.

Union of India, (1983) 2 SCR 165. A Division Bench dismissed the appeal B of the Union of India.

In the appeal before this Court the Union of India contended that based on the recommendations of the Third Pay Commission, September 30, 1977 was fixed as a cut off date with reference to the average cost of living index at 272 which fell on that date. As regards the leave encashment C scheme and the Family Pension Scheme being made non-contributory, it was pointed out that since the Respondents were not in service on the date these schemes became operational they were not eligible for the same.

Allowing the appeal, this Court

HELD : 1.1. Fixing 30th September, 1977 as the cut-of date cannot be held to be arbitrary. The decision to merge a part of the dearness allowance with pay, when the price index level was at 272, appears to have been taken on the basis of the recommendation of the Third Pay Commision. As such it cannot be held that the cut off date has been selected in an arbitrary manner. (52-F-G)

D.S. Nakara and others v. Union of India, [1983) 2 SCR 165, distinguished.

F Action Conunittee South Eastern Raillvay Pensioners v. Union of India,

(1991) Supp. 2 SCC 544; KJishena Kumar v. Union of India, [1990) 4 SCC 207; Indian Ex-Services League v. Union of India, (1991) 1 SCR 158; State Government Pensioners' Association v. State of Andhra Pradesh, (1986) 3 SCR 383 and All India Reserve Bank Retired Officers Association v. Union of India, (1992) Supp. 1 SCC 664, referred to.

1.2. Any revised scheme in respect of post-retirement benefits, if implemented with a cut-off date, which can be helJ to be reasonable and rational in the light of Article 14 of the Constitution is valid. It shall not amount to 'picking out a date from the hat'. (50-E] H

D.R. Nim v. Union of India, AIR (1967) SC 1301, referred to.

2. The option given to employees to get their pension and gratuity by excluding the element of dearness pay as indicated in the aforesaid Office Memorandum or to get it included is not an exercise to create a class within class. (55-F)

3. Encashment of leave was a new scheme introduced which could not have been extended retrospectively to respondents, who had retired before the introduction of the said scheme. Same can be said even in respect of family pension scheme. The Respondents not being in service on C the said date, were not eligible for the said benefit and no question of refunding the amount which had already been contributed by them, did arise. (55-H; 56-A)

4. No scheme can be held to be foolproof, so as to cover and keep in view all persons who were at one time in active service. As such the concern D of the court should only be, while examining any such grievance, to see, as to whether a particular date for extending a particular benefit or scheme, has been fixed, on objective and. rational considerations. [53-B-C]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 517 of 1987 etc. etc.

From the Judgment and Order dated 29.4.86 of the Madras High Court in W.A. No. 489 of 1986.

N.N. Goswamy, Ms. K. Amareswari, Ms. Kitty Kumaramanglam, A.D.N. Rao, C.V.S. Rao, V.K. Verma, Wasim A Qadri and Ms. A F A yyangar for the Appellant.

A.K. Goel and Ms. Sheela Goel for the Petitioner in W.P. (C) No. 611/91.

K.M.K. Nair for the Respondent Nos.1-8/lntervenors; P & T, CGP G Assn. in CA 517/87.

R. Venkataramani, S.M. Garg, T.L. Roy for Respondent No. 9- 36/Intervenors in C.A. 517/87.

V. Krishnamurthy and S. Aravindh for the Respondent m SLP.

H 14427/88.

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Amlan Ghosh, and Ms. S. Ghosh, for the Respondent M.L. Jain, R. A Ananda Padmanabhan and Pramod Dayal for the Res. in SLP. No. 753/91.

M.N. Krishnamani, and Prabir Choudhary for the Respondent in SLP No. 1884/89.

The Judgment of the Court was delivered by

N.P. SINGH, J. The respondents, who are retired Government servants filed a writ application before the High Court, questioning the validity of Office Memorandum No. F-19(4)-E.V./79 dated 25th May, 1979, issued by the Government of India, treating a portion of the dearness allowance, as pay for the purpose of retirement benefits in respect of Government servants who retired on or after the 30th September, 1977. According to respondents, who retired from service before 30th September, 1977, the said benefits should have been extended to all retired Government servants, irrespective of their date of superannuation.

A learned Judge of the High Court allowed the said writ application on basis of the judgment of this Court in the case of D.S. Nakara and others

v. Union of India, AIR (1983) SC 130 [1983] 2 SCR 165, saying that the said Office Memorandum was discriminatory in nature. The Division Bench dismissed the appeal filed on behalf of the Union of India.

It may be mentioned that Government of India issued on 25th May, 1979 two Office Memorandums Nos. F-19(3)-E.V./79 and F.19(4)- E.V./79.

In the Office Memorandums Nos. F-19(3).E.V./79, the computation of pension was liberalised, but it was made applicable to the Government servants who were in service on March 31, 1979 and retired from service F on or after that date. It introduced a slab system for computation of pension. That Office Memorandum was the subject matter of controver.:iy in the aforesaid case of D.S. Nakara (supra). This Court held that the criteria,

0being in service and retiring subsequent to the specified date 11 for being eligible for liberalised pension in the aforesaid office Memorandum was violative of Article 14 of the Constitution, being arbitrary and dis- G criminatory in nature. It was pointed out that the Government servants, who retired prior to the specified date, and those who retired thereafter, formed one class. They having been classified in two separate groups for the purpose of the pensionary benefits, the classification was not founded on any intelligible differentia. The said classification had also no rational H

A nexus with the object sought to be achieved.

The Office Memorandum No. F-19(4)-E.V./79, with which we are concerned, states that the question of treatment of a portion of dearness allowance as pay had been under consideration of the Government of India and the President had been pleased to decide that "in respect of Government servants who retired on or after the 30th September, 1977, the amount of dearness allowance indicated in para 2 below, shall be treated as pay for the purposes and to the extent specified hereinafter." It further says that part of the dearness allowance, shall be treated 'dearness pay', in different pay ranges specified in the said Office Memorandum for the purpose of retirement benefits. Upto pay range of Rs. 300, 36% of the pay shall be deemed to be dearness pay. Similarly, in respect of pay range above Rs. 300 and upto Rs. 2157, 27% of the pay subject to a minimum of Rs. 108 and maximum of Rs. 243 shall be treated as amount of dearness pay. In respect of pay range above Rs. 2157 and upto Rs. 2399, the dearness D py shall be the amount by which the pay falls short of Rs. 2400. In the case of officers drawing pay above Rs. 2180 and retiring on or after 1st December, 1978, the amount of dearness pay to be treated for the purpose cif retirement benefits, has been specified in the said Office Memorandum.

In paragraph 3(1) of that Office Memorandum, it has been said that the

dearness pay shall count as emoluments for pension and gratuity in terms of Rule 33 of the Central Civil Services (Pension) Rules, 1972. But, in the case of persons who have already retired on or after 30th September, 1977/1st December, 1978, but within ten months of those dates, the ultimate average emoluments will be calculated according to the procedure prescribed. In the case of persons, who retired between 30th September, 1977 and 28th February, 1978, and on or after 1st December, 1978 but not later than 30th April, 1979, one-half of the dearness pay, appropriate to the pay equal to such average emoluments, shall be added to the average emoluments. In the case of persons, who retired after 28th February, 1978 and after 30th April, 1979, full dearness pay appropriate to the pay equal to such average emoluments, shall be added to the average emoluments. It G further provides that pension and gratuity of persons, who have already retired on or after 30th September, 1977, shall be recalculated on the basis aforesaid and arrears, if any, be paid subject to such adjustment as may be necessary. Paragraph 4 of the said Office Memorandum says that persons,

H who retired on or after 30th September, 1977 but not later than 30th April, 1979, will have an option to choose either of the two alternatives given in

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the said Office Memorandum :-

"(a) to have their pension and DCR Gratuity calculated on their pay excluding the element of Dearness Pay as indicated in para 2 above in accordancae with the rules in force on 30.9.1977, and get graded relief on pension to the full extent admissible from time to time;

(b) to have their pension and DCR Gratuity recalculated after taking into account the element of dearness pay. In such cases, the first four instalments of graded relief sanctioned upto the average index level 272 will not be admissible; these pensioners will be entitled only to the instalments of graded relief sanctioned beyond the average index level 272."

The aforesaid Office Memorandum introduced a scheme to treat a D portion of the dearness allowance as pay in respect of Government servants, who retired on or after 30th September, 1977. With reference to different pay ranges, amount of dearness pay has been fixed; that dearness pay is to be counted as emoluments for pension and gratuity in terms of Ruic 33 of the Central Civil Services (Pension) Rules, 1972. Thereafter, an option has been given to persons who have retired on or after 30th September, 1977 but not later than 30th April, 1979, to exercise an option out of the two alternatives, of getting pension and death-cum-retirement gratuity, calculated either by excluding the element of dearness pay or by including the element of dearness pay. It can be said that the Office Memorandum in question has evolved a concept of treating a portion of dearness allowance as pay in respect of officers in different pay ranges fixing different percentages of the amount of dearness pay for purpose of retirement benefits. The lower the pay range, the higher is the percentage of the dearness pay. Thereafter, such dearness pay is to be taken into consideration for fixation of pension and gratuity.

Now the question which is to be answered is as to wether even this Office memorandum suffers from the vice indicated in the aforesaid case

of D.S. Nakara (supra)? Is it discriminatory and arbitrary so as to be violative of Article 14 of the Constitution? Does it create classification among the equals? Can it be said that if the concept of treating a portion H

A of the dearness allowance as pay, was to be implemented for the purpose of retirement benefits, then it should have been applied to all the retired Government servants, irrespective of their dates of retirement?

Public service is bilateral in nature in the sense that a public servant is remunerated for the service he renders to the public. Such public servant shall get pension after retirement, is one of the integral part of his employ men!. That is why it has been repeatedly said by the courts that pension is not a charity. Every public servant becomes entitled, after retirement for pension under the relevant rules for the service he has rendered to public for years. Keeping in view the services rndered in the past and to ensure that they live and lead a dignified life even after superanuation, the Government has been revising the rates of pension or providing certain additional benefits from time to time. But the demand of retired personnel is that throughout they should be treated at par and as a class with persons who retire later.

Whenever the Government or an authority, which can be held to be a State within the meaning of Article 12 of the Constitution, frames a scheme for persons who have superannuated from service, due to many constraints, it is not always possible to extend the same benefits to one and

al~ irrespective of the dates of superannuation. As sucb any revised scheme in respect of post-retirement benefits, if implemented with a cut off date, which can be held to be reasonable and rational in the light of Article 14 of the Constitution, need not be held to be invalid. It shall not amount to 'picking out a date from the hat', as was said by this Court in the case of D.R Nim v. Union of India, AIR (1967) SC 1301, in connection with fixation of seniority. Whenever a revision takes place, a cut off date becomes imperative, because the benefit has to be allowed within the financial resources available with the Government.

A supplementary affidavit has been filed on behalf of the Union of India, stating that the Third Pay Commission in its report recommended :·

"We recommend that should the price level rise above the 12 monthly average of 272 (1960=100) Government should review the position and decide whether the dearness allowance scheme should be extended further or the pay scales themselves should be revised. 11

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It has been further stated that consequent upon the sharp rise in prices, A the employees started demanding the merger of dearness allowance with pay. After negotiation with the staff side, the Government agreed to the merger with pay of the dearness allowance at 272 level, at least for purposes of pension and other retirement benefits, and the aforesaid Office Memorandum was issued.

The concept of 'dearness pay' was evolved in respect of employees

in different pay ranges with different percentages of the dearness pay.

Thereafter the pension and gratuity were worked out and an option was given to persons, who retired on or after 30th September, 1977 but not later than 30th April, 1979, to choose either of the two alternatives - (i) to have C their pension and death-cum-retirement gratuity calculated on their pay excluding the element of dearness pay as indicated in paragraph 2 of the said Office Memorandum; or (ii) to have their pension and death-cumretirement gratuity recalculated after taking into account the element of dearness pay. If the stand of the respondents is to be accepted that this D scheme should have been made available, without there being a cut off date, to all including I hose who have retired even 20 to 25 years before the introduction of the scheme, then, according to us, the whole sche"me sh.all be unworkable, because it is linked with the payment of dearness allowance, which is based on the level of price index. Different institutions/departments have introduced the system of payment of dearness E allowance at different stages to mitigate the hardship of their employees with the rise in the prices of the essential articles as a result of the inflation.

On behalf of the Union of India, it has been stated that in the aforesaid Office Memorandum dated 25th May, 1.979, 30th September, p 1977 was fixed as the cut off date, with reference to the average cost of living index at 272, whicli fell on 30th September, 1977. It has been further stated that those who were entitled to the benefits of the said Office Memorandum, were given option either to opt for the revised formula or retain the existing formula. Some of the persons entitled to the new formula opted to retain their existing position, because in their ease the application G of the new formula would have resulted either in the reduction of the total pension or the increase which would have been only marginal. It has been said that under the Office Memorandum aforesaid, dearness allowance with reference to average price index level at 272 was treated as dearness pay for the purpose of pension for those who retired after 30th September, H

1977. It has also been pointed out that pensioners, who retired on or after 30th September, 1977 with the benefits of dearness pay, became entitled to less dearness relief, as compared to those who retired before 30th September, 1977 or retired after 30th September, 1977, but had opted not to get the benefit of the impugned Office Memorandum.

In respect of grievance regarding encashment of earned leave upto maximum encashment of six months' leave, which was made available, it was pointed out that it was a new facility allowed to sening Government servants and as such a date had to be fixed for its application. The date of its operation was fixed in consultation with the representatives of the Government servants. Respondents, who were not in service on the relevant date, cannot make any grievance of the scheme regarding encashment of earned leave to a maximum period of six months.

Regarding the family pension scheme, it has been pointed out, that the family pension scheme was introduced with effect from 1st January,

1964. Then the scheme was a contributory one and each Government servant to be entitled to family pension under the scheme, had to contribute two months' pay or Rs. 3600 (the maximum amount of Rs. 3600 was raised to Rs. 5000 with effect from 1.1.1973), whichever was less. However, with effect from 22nd September, 1977, the scheme was made non-contributory.

Thereafter, there was no obligation on the part of the Government servants to contribute any amount for being eligible for family pension. As the respondents were not .in the service on the said date, they were not eligible for the benefit aforesaid and the question of refunding the amount contributed by them under the old scheme, while they were in service, did not anse.

According to us. for the reasons disclosed on behalf of the appellant- Union of India for fixing 30th September, 1977 as the cut off date, which date was fixed when the price index level was 272, cannot be held to be arbitrary. The decision to merge a part of lhe dearness allowance with pay, G when the price index level was at 272, appears to have been taken on basis of the recommendation of the Third Pay Commission. As such it cannot be held that the cut off date has been selected in an arbitrary manner. Not only in matters of revising the pensionary benefits, but even in respect of revision of scales of pay, a cut off date on some rational or reasonable basis, H has to be fixed for extending the benefits. This can be illustrated. The

Government decides to revise the pay-scale of its employees and fixes the A 1st day of January of the next year for implementing the same or the 1st day of January ofthe last year. In either case, a big section of its employees are bound to miss the said revision of the scale of pay, having superannuated before that date. An employee, who has retired on 31st December of the year in question, will miss that pay-scale only by a day, which may affect his pensionary benefits throughout his life. No scheme can be held to be foolproof, so as to cover and keep in view all persons who were at one time in active service. As such the concern of the court should only be, while examining any such grievance, to see, as to whether a particular date for extending a particular benefit or scheme, has been fixed, on

objective and rational considerations.

In the case of Action Committee South Eastern Railway Pensioners v.

Union of India, [1991] Supp. 2 SCC 544, the concept of 'dearness pay' was examined, including the two options which had been framed, beyond average price index level at 272, fixing a cut off date. It was held that D merger of a part of the dearness allowance as dearness pay on average price index level at 272, with reference to diffe.rent pay ranges, was not arbitrary in any manner and the principle enunciated in the D.S. Nakara's case (supra) was not applicable.

A Constitution Bench in the case of Krishena Kumar v. Union of E India, (1990] 4 SCC 207, considered the grievance of retired Railway employees, saying that before 1957 the only scheme for post-retirement benefits in the Railways was the Provident Fund Scheme. This Scheme was replaced in the year 1957 by Pension Scheme. The employees, who entered Railway Service on or after April l, 1957, were automatically covered by F the Pension Scheme instead of Provident Fund Scheme. The employees, who were already in the service on April 1, 1957, were given an option either to retain the Provident Fund benefits or to switch over to the pensionary benefits, on the condition that the 1natching Railway contribution already made lo their Provident Fund Accounts, would revert to the Railways on the exercise of the option. On behalf of the petitioners, it was G pointed out before this Court that when two alternative benefits and been given, they were more or less equal. But the pension had thereafter been liberalised manifold to the benefit of the pension retirees. No similar benefit had been extended to those who retired opting for Provident Fund.

Had the petitioners kno\vn about lhe subsequent pensionary benefits, they H

A would have also opted for pension instead of Provident Fund. Grievance was also made about the cut off date, saying that it was violative of Article 14 of the Constitution. Dismissing the writ petition, this Court held that on principle of D.S. Nakara's case (supra), it cannot be held that Provident Fund retirees, who had opted for the same, were being discriminated

B because the pension retirees in course of time because of revision, were better placed. The contention thal a fresh option be given was also rejected, because after exercising the option the Provident Fund retirees formed a separate class from pension retirees.

Another Constitution Bench in the case of Indian Ex-Services League C v. Union of India, (1991] 1 SCR 158, had to consider the grievance of ex-servicemen, claiming on basis of the decision in D.S. Nakara's (supra) that all retirees, who held the same rank, irrespective of their date of retirement, must get the same amount of pension. A claim had also been made for grant of same death-cum-retirement gratuity to pre-1.4.1979 D retirees, as had been granted to post-1.4.1979 retirees; claim had also been made for merger of dearness allowance backwards. While negativing the claims aforesaid, it was pointed out that the conclusion of this Court in D.S. Nakara's case (supra), was in context of the benefits of liberalisation given in accordance with liberalised pension. scheme, which had to be given equally to all retirees, irrespective of their date of retirement and those E benefits could not be confined to only the persons who retired on or after the specified date. After referring to the Krishena Kumar's case (supra), it was said :·

' 1We have referred to this decision merely to indicate that another Constitution Bench of this Court also has read Nakara decision as one of limited application and there is no scope for enlarging the ambit of that decision to cover all claims made by the pension retirees or a demand for an identical amount of pension to every retiree from the same rank irrespective of the date of retirement, even though the reckonable emohiments for the purpose of computation of their pension be different.

Jn the case of State Gove1nn1ent Pensioner~/ Association v. State of Andhra Pradesh, I 1986] 3 SCR 383, the order in question provided that retirement gratuity may be l/3rd of the pay drawn at the time of the H rctiren1ent for every six monthJy service, sub_jcct to maximum of 20 months

pay limited to Rs. 30,000. This order was made effective from 1st April, A

1978. The petitioners, who were Government employees and had retired before 1st April, 1978, contended that the gratuity being a part and parcel of the pensionary benefits, they were also entitled to the same retrospectively. On behalf of the State, it was pointed out that the gratuity which had accrued to the petitioners prior to lst Ap:il, 1978, was calculated on the then existing rules and pay, and such petitioners formed a distinct class, for the purpose of payment of gratuity, from others who retired after 1st .A.pril1 1978, the Uate fro1n \vhich t!1e revised pension rul::; s were made applicable by the Government. This Court held that the upward revision of gratuity which took effect from a specified date i.e. 1st April, 1978 with prospective effect, was legal and not violative of Article 14; the principle of D.S. Nakara's case (supra) was not applicable.

In yet another case of All India Reserve Bank Retired Officers Association v. Union of India, AIR (1992) SC 767 = [1992] Suppl. 1 SCC 664, the Retired Officers Association of the Reserve Bank of India questioned the D validity of introduction of Pension Scheme in lieu of Contributory Provident Fund Scheme. The Bank employees, who retired prior to 1st January, 1986, had not been given benefit of the said Pension Scheme. ll was held that the said cut off date was neither arbitrary nor artificial or whimsical.

The scheme to merge a part of the dearness allowance for purpose of fixing the dearness pay, was evolved, and was linked with the average of cost of living index fixed at 272, which fell on 30th April, 1977. In this background, it cannot be said that the date, 30th September, 1977, was picked out in an arbitrary or irrational manner, without proper application of mind. The option given to employees, who retired on or after 30th September, 1977 but not later than 30th April, 1979, to exercise an option

to get their pension and" death-cum-retirement gratuity calculated by excluding the element of dcarnes' pay as indicated in the aforesaid Office

~Icn1orandun1 or tn gel it included in their pension and death-cum-retirement gratuity) \Vas not an exercise to create a class within class. The decision having a ne, us with the price index level at 272, which it reached G on 30th September, 1977, was just anJ valid. It has been rightly pointed out that respondents had never been in receipt of dearness pay and as such the Office memorandum in question could not have been applied to them.

Similarly, the encashment of leave was a new scheme introduced which could not have been extended retrospectively to respondents, who had H

A retired before the introduction of the said scheme. Same can be said even in respect of family pension scheme which was earlier contributory, but with effect from 22nd September, 1977 the scheme was made non-contributory. The respondents not being in service on the said date, were not eligible for the said benefit and no question of refunding the amount, which

B had already been contributed by them, did arise. According to us, the High Court was in error in applying the principle of D.S. Nakara (supra) in the facts and circumstances of the present case.

Accordingly, the appeal is allowed. The judgment of the High Court is set aside. In the the facts and circumstances of the case, there will be no C order as to costs.

S.M.

Appeal allowed.