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PETITIONER: V.M. GADRE (DEAD) BY LRS. & ORS.

       Vs.

RESPONDENT: M.G. DIWAN & OTHERS

DATE OF JUDGMENT:       15/03/1996

BENCH: AHMADI A.M. (CJ) BENCH: AHMADI A.M. (CJ) SINGH N.P. (J) BHARUCHA S.P. (J)

CITATION:  1996 AIR 1534            1996 SCC  (3) 454  JT 1996 (5)   246        1996 SCALE  (2)893

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Ahmadi,CJI      By this  petition  brought  under  Article  32  of  the Constitution of  India by  and on  behalf of the retired and in-service employees  of Life Insurance Corporation of India (’LIC’ for  short)  who  were  employees  of  the  erstwhile Oriental  Government   Security  Life   Assurance   Company, Limited, thereinafter called ’the Company’), certain reliefs in regard  to the  upward revision  of pension  and dearness allowance or  dearness  relief  payable  thereon  and  other reliefs related  thereto are  sought. The  brief facts which are relevant for our purpose are as follows:      The erstwhile  Company had  sometime in  the year  1908 established a  Pension Fund for the Oriental employees which on the  nationalization of life insurance business under the Life Insurance  Corporation Act,  1956  thereinafter  called ’the Act’)  has  been  renamed  Life  Insurance  Corporation (Oriental)  Pension   Fund.  Thus,   the  responsibility  of managing the  said Fund  was taken  over  by  the  LIC.  The Company had  framed rules  for  the  administration  of  the Pension Fund;  Rule 10  whereof  provided  for  addition  of interest to the said Fund to the extent it would work out to 5% of  the amount  of the  Pension Fund  at the close of the year. Rule  11 permitted  additions to  the Fund  by way  of subsidies. Rule 24 provided for minimum pension.      The petitioners  who are  erstwhile Oriental  employees and beneficiaries  under the  said  Fund  contend  that  the pension amount  admissible under  the said  scheme  is  very meagre and,  therefore, to  ameliorate the conditions of the old and  infirm pensioners  it is  necessary to  revise  the pension adequately,  consistently with Articles 38 and 39 of the Constitution.  The petitioners  contend  that  employees other than  Oriental employees  are paid  dearness relief on their pension  money while  the same benefit is not extended

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to pensioners governed under the Pension Fund.      The Oriental  employees is  a withering  class. At  the date of  the institution  of the petition they numbered 669, all of  whom barring  two or  three  had  retired,  say  the petitioners. Under  the Pension-plan  worked  out  for  such employees, every  employee  had  to  contribute  5%  of  the substantive monthly  salary and  the employer  had to make a matching grant  every six  months. So  also the employer was required to  pay interest  on the  monies contributed to the Fund so,  however, that  the total interest added at the end of each  year was  equivalent to 5% of the total Fund. After the Act,  the LIC  took over  the assets & properties of the erstwhile Company. By reason of Section 8(1) of the Act, the Pension Fund  came to  be vested  in  the  LIC.  The  latter created  a   trust  under  Section  8(3),  namely,  the  LIC (oriental) Pension  Fund which  is being  managed by the LIC under the Rules and Regulations made under the Act.      The Pension-Fund  established in 1908 underwent several changes and  before it  was  taken  over  by  the  LIC,  the erstwhile Company  had started  giving dearness allowance to the pensioners at varying rates from Rs.4 to Rs.8 per month. The increase  was granted  from the  general revenues of the Company and  not the  Pension Fund.  That is because Rule 11 permitted addition  to the  Fund by  way of subsidies by the Company from time to time. The said rule enabled the Company to contribute  to the  Pension-Fund. Accordingly, even after nationalization, the petitioners received dearness allowance upto about  1959, when  the same was merged with pension and the practice  of paying  dearness  allowance  or  relief  on pension was  discontinued. The  pension was  revised in 1980 and 1984  due to  availability of  funds in the Pension Fund but not  by  way  of  dearness  increase,  Efforts  to  seek increase in  pension  have  since  failed.  The  petitioners complain that  out of  the pension  paid to  them, 6.38%  is deducted every month to guarantee the payment of pension for ten years  to the pensioners or their legal representatives. Since the  cost of living was increasing by leaps and bounds the Oriental pensioners were finding it difficult to survive on their meagre pensions and hence they demanded increase in their pension amount by addition of dearness allowance as in the case  of State  and Central Government pensioners. Their plight was  even worse  because their  pensions had not been revised since 1954 and there was actually no increase in the dearness allowance  on pensions  since the  last 33 years or thereabouts. They,  therefore, approached  the Government to do away  with the  6.38% deduction  and enhance  the pension consistently with  the standard of living and other economic factors relevant  to the  same by giving dearness allowance. Reliefs in  regard to  certain other  matters  like  medical allowance, family pension, etc., have also been sought.      The  LIC   in  its  counter  contends  that  after  the insurance business  was nationalized  with effect  from  1st September, 1956,  under Section  7 of the Act all assets and liabilities of  existing insurers  carrying on  business  in life insurance  came to  be transferred to and vested in the LIC. Section  8 of  the Act  inter alia provided for dealing with provident,  superannuation and  other like  funds.  The existing Pension  Fund governing  the Oriental employees was thus taken  over by  the LIC and has since been managed like an independent  trust. This  being the  only pension  scheme operating within the fold of the LIC, it is managed strictly in accordance  with the  rules and regulations governing the same. The  entry to  the said Pension Fund was closed by the erstwhile Company  in 1947  and therefore  all employees who joined the  Company after  1947 were not contributors to the

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Pension Fund  but became  contributors to the Provident Fund Scheme, Thus,  members who  joined the  Fund did not receive any Provident  Fund benefits  and vice-versa.  It is further stated that  the Pension  Fund is  not akin  to the  Pension Schemes  governing  the  State  employees  and  the  Central employees because  it is  governed under  a different set of rules and  regulations and  has been  treated as a protected fund under  the provisions of the Act. On March 2, 1968, the said Pension  Fund  Rules  were  amended  to  secure,  among others, a guaranteed pension for 10 years instead of pension for life to those who were desirous of availing of the same. This was  to meet  with the  demands made  by  the  Oriental pensioners  for   improvement  in  the  Scheme.  Their  main grievance was  that there was no guarantee of pension and if they were  to die,  their legal representatives were granted only the  residue  of  their  contributions  It  is  further contended that  increase in  pension was  given from time to time, the  last such  increase being  of 1984. It is pointed out that  the Oriental pensioners received a much larger sum as pension than the amount received by their counterparts by way of  contribution to the Provident Fund  while the former contributed only 5% of the basic salary with contribution by the employer  to the  fund plus the deficit made good placed them on  a far  better footing than employees governed under the Provident  Fund Scheme.  To  illustrate  this,  a  short comparative chart  has been  set out  in paragraph 11 of the counter affidavit. The LIC further contends that the Pension Fund continued  by it  after its  constitution under the Act was in  the nature of a contractual obligation and had to be governed  strictly   in  accordance   with  the   rules  and regulations framed  for its  management. The LIC, therefore, cannot discriminate between those governed under the Pension Fund and  those governed  under the  Provident Fund  Scheme. Yet, however,  it has to the extent possible under the rules and regulations governing the pension Fund given grants from time to  time to  ensure that  the fund does not deplete. In fact, the  increase in  the pension  in the year 1984 was so generous that  it exceeded the demand for dearness allowance on pension.  The deficit made good by the Corporation has at times been  in excess of 5% contribution required to be made by it  under the  rules. Lastly,  it is said that this Court should not exercise its jurisdiction under Article 32 of the Constitution because  the very  same dispute was the subject matter of  Writ Petition No.5137 of 1976 filed under Article 226 of  the Constitution in the High Court of Bombay wherein the Court after considering the pros and cons of the demands made by Oriental employees rejected the same.      Rule Nisi  was issued on 8.11.1988. While issuing rule, this Court  made an  interim  order  after  hearing  learned counsel for  the parties  directing the LIC to pay a minimum amount of Rs.250/- as pension to the pensioners getting less than Rs.250/-.  This minimum  amount was subsequently raised to Rs.375/-  by an  order dated  7.5.1991. The  LIC contends that as  at present  under this  Court’s order  the Oriental pensioners covered  under the  Fund are  actually  receiving more than  the employees  covered under  the Provident  Fund Scheme; any  further increase  will  prompt  the  latter  to demand that  they too  be covered  under the said or similar pension scheme.  The LIC,  therefore, prays  that this Court should refrain  from hiking up the pension any further as it is likely to set in motion a chain reaction which will throw a huge  financial burden  on the  LIC. Thus, as the position presently stands,  the minimum  pension is  of Rs.375/- p.m. and the maximum pension is of Rs.1202.50/- p.m.      It is  pointed out  by the  LIC that  since the Fund is

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recognized under  the Income  Tax Act, 1962 and Rules framed thereunder,  all   its  investments   have  to  be  made  in accordance with  the provisions of the Act and the Rules, in particular Rule  67, and  hence it is obligatory on the part of the  LIC to  invest the Fund money in accordance with the said provisions.  In the  year 1986 the corpus available was Rs.1,95,22,000/- which yielded interest of Rs.16,73,600/- at the  rate   of  8.96%,   in  1987   the  annual  corpus  was Rs.1,88,26,000/- which  generated interest of Rs.17,34,400/- at the  rate of 9.70% and in the year 1988 the corpus was of Rs.1,83,76,000/- and  the income  by  way  of  interest  was Rs.18,92,500/- calculated  at 10.86%.  The above  are annual mean figures  which show  that every  year  the  corpus  was shrinking notwithstanding  the higher  interest  return.  In 1988 the  annual outgo  was Rs.31,54,000/-  as  against  the income of  Rs.18,92,500/-. This  is on  account of  the fact that Fund is a reducing one which is expected to dry up with the passing  away of  the last  surviving member. This is to show that the calculation based on 13% return is fallacious.      It is  further the case of the LIC that in order to pay a minimum pension of Rs.375/- p.m. it will require an amount of Rs.8,35,000/-  at the  initial stage  to be  followed  by further subventions  to maintain  the viability  of the Fund and if payment has to be made at that rate from 1.1.1986 the Fund will have to be augmented by a sum of Rs.26,00,000/- to meet  its  liability  upto  30.4.1991  and  with  the  added liability of dearness allowance or relief on pension for the said period  the additional  liability  will  be  a  further Rs.11,90,00,000/- a  financial burden  which  LIC  can  ill- afford to  meet. If  the reliefs  claimed  by  the  Oriental pensioners is  conceded  under  different  heads  the  total liability is  expected to  rise to Rs.24,20,86,642/-. Such a huge financial burden cannot be borne by the LIC yet the LIC has provided subvention to the tune of Rs.1,43,00,000/- from 1965 to  1985. The LIC’s contributions to the Fund thus work out to  be 22.5% as against the maximum 10% interest paid on Provident Fund  Deposits. The  Oriental pensioners  are thus better placed  and hence  the demand by the LIC employees to be brought on par with the Pension-Plan.      Several reliefs  have been  claimed in  paragraph 55 of the writ  petition. The  first two  reliefs need be noticed. The first is to step up the pension to a minimum of Rs.375/- p.m. and  the second  is to  grant dearness allowance/relief linked with  the cost index number in January and July every year  as   is  admissible   to  pensioners  of  the  Central Government or  the State  Bank of  India  with  effect  from 1.1.1973.  There   is  the  demand  for  refund  of  the  5% contribution recovered  from 1954  and  to  discontinue  the deduction made at the rate of 6.38% from the pension payable under the  scheme. Next  it is  prayed that a Family Pension Scheme and  Medical Reimbursement  Scheme be  introduced and the fixation  of the  pension amount be revised on the basis of the one calculated on the average pay of last ten months. It is  obvious from  the above  reliefs claimed in this case that the  pensioners desire  to give a complete go-by to the extant pension-plan  and replace it by a totally new scheme. These demands  made in  a petition  under Article  32 of the Constitution totally  overlook the  fact  the  Court  cannot substitute  a  totally  new  pension-plan  in  place  of  an existing one  as each  service and  each institution has its own service conditions and merely because in another service the  pension-plan   is  better  it  cannot  be  adopted  and substituted  in  a  different  service.  In  any  service  a pension-plan is  only one component of the basket of service conditions for  that service  and it  cannot  be  viewed  in

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isolation  and  where  comparison  is  permissible  all  the conditions have  to  be  compared  because  in  one  service weigthage may have been given to fixation of pension whereas in another  the benefit may have been given to house rent or maximum medical  expenses. This  becomes clear if we examine cases under  the Industrial  Disputes Act where questions of fixation of  service conditions on region-cum-industry basis are attempted.  While exercising  jurisdiction under Article 32 read with Article 142 it would not be permissible for the Court to substitute all the existing service conditions by a totally new set of service conditions. That would tantamount to re-writing the service conditions and consequentially the retrial benefits  as well for all those who had retired long back and  are in  receipt of pension under the extant rules. Realizing this  difficulty the  relief was  confined to  the first two  demands only  and that too in a modified form The learned counsel  for the  LIC submitted that if the Court on humanitarian grounds  proposes  a  reasonable  hike  in  the pensionary  benefit  without  raising  an  excessive  fiscal burden, it will have no objection to grant the same.      We must,  therefore, confine ourselves to the first two reliefs. Actually  the relief  for fixation  of the  minimum pension at  Rs.375/- p.m.  has in fact been satisfied by the interim order of this Court. Counsel for LIC did not contend for its  reduction. However,  counsel  for  the  petitioners contended for increase in the minimum in view of the passage of time since the filing of this petition. During the course of the  hearing of this petition at the behest of the Court, several  alternatives   were  worked  out  by  the  LIC  and presented to the Court. These may be reproduced as under:- <SLS> "Scheme A: ----------      The Pension  Fund will be dissolved      and the  corpus of the Fund will be      applied  for   issuing   individual      annuity policies to the pensioners.      On doing so all the pensioners will      be allowed  an increase  of 10%  in      pension  and  the  minimum  pension      will be  increased to  Rs.500/- per      month. The  pension presently being      paid and  few of  the pensioner are      as follows:-      Pension being paid             Annuity on revision      as per the Interim      Order dated 7.5.1991      ====================           ===================       (Rs.)                             (Rs.)       375                               500       444                               500       512                               563       605                               666       703                               773       806                               887       898                               988       933                              1026      1133                              1246      1202.50                           1323 Scheme B: --------           The  Pension   Fund  will   be      dissolved and  the  corpus  of  the      Fund will  be applied  for  issuing      individual annuity  policies to the

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    pensioners. Every pensioner will be      given a minimum annuity of Rs.500/-      per month Further, the pension will      be increased every year at 2.5& per      annum. The  pension presently being      paid and  the annuity  payable to a      few of  the pensioners for the next      10 years be as follows:- ____________________________________________________________ Pension being              Annuity payable on revision paid as per       ------------------------------------- the Interim       Aug 94   Aug  95   Aug 96   Aug 97  Aug 98 Order dt. 7.5.1991      ------------------------------------------------------- 375         500        513        526        539        552 444         500        513        526        539        552 512         525        538        551        565        579 605         620        636        652        668        685 703         721        739        757        776        795 806         826        847        868        890        912 898         920        943        967        991       1016 933         956        980       1005       1030       1056 1133       1161       1190       1220       1251       1282 1202.50    1233       1264       1296       1328       1361 ----------------------------------------------------------- Pension being             Annuity payable on revision paid as per     -------------------------------------------- the Interim     Aug 99   Aug 2000   Aug 01   Aug 02   Aug 03 Order dt. 7.5.1991 ------------------------------------------------------------ 375         566        580        595        610        625 444         566        580        595        610        625 512         593        608        623        639        655 605         702        720        738        756        775 703         815        835        856        877        899 806         935        958        982       1007       1032 898        1041       1067       1094       1121       1149 933        1082       1109       1137       1165       1194 1133       1314       1347       1381       1415       1450 1202.50    1395       1430       1466       1503       1541 Scheme C: ---------      If  the   corpus  of  the  Fund  on      dissolution of the Oriental Pension      Fund is taken to be Rs.2 crores and      if an  increase of 10% per annum in      the annuity  is to be provided, the      minimum pension  amount that  would      be possible  is Rs.  575/- p.m. and      the pension payment to a few of the      pensioners for  the  next  5  years      would be as follows: As the the Interim          Annuity Policies As Above                      --------------------------------------- Order dated   Aug’94  Aug’95  Aug’96  Aug’97  Aug’98  Aug’99 7.5.91 ------------------------------------------------------------ Rs. 375/-      575     633     696     766     843     927 Rs. 444/-      575     633     696     766     843     927 Rs. 512/-      575     633     696     766     843     927 Rs. 605/-      666     733     806     887     976    1076 Rs. 703/-      733     850     935    1029    1132    1245 Rs. 806/-      887     976    1074    1181    1299    1429

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Rs. 898/-      988    1087    1196    1316    1448    1593 Rs. 933/-     1026    1129    1242    1366    1503    1653 Rs. 1133/-    1246    1371    1508    1659    1825    2008 Rs. 1202.50/- 1323    1455    1601    1761    1937    2131 Individual Annuity  policies will  be issued  to provide for the payment as above."      We have  carefully considered  the three schemes worked out at  our behest.  It was  emphasized on behalf of the LIC that any  increase in  pension will  throw  a  corresponding financial burden  on the establishment. It was further urged that in  law the pensioners are not entitled to any increase but the  LIC has  always adopted  a humanitarian approach in such cases  and has,  therefore, even  in the  past  granted reasonable increases  in pension. Therefore, counsel for the LIC contended    that  increase,  if  any,  must  take  into consideration the financial burden that may fall on the LIC. However, counsel  for  the  pensioners  submitted  that  the pensioners having served the establishment faithfully during their service  can legitimately  expect a  reasonable sum by way of  pension which  would help  them to  survive in these days of  high inflation. The pensioners when they subscribed to the  pension-plan could not have imagined the fall in the rupee value  and could  not have visualized the high cost of living and,  therefore, where the establishment can bear the burden, the  court should  not deny  to  them  a  reasonable increase in pension.      Taking in  view the  above submissions  we are  of  the opinion that Scheme ’A’ gives only a marginal benefit to the pensioners at the levels below the minimum. Scheme ’B’ is an improved version of scheme ’A’ and offers an annual increase but having  regard to  the age  factor of the pensioners the progression in  regard to  annual increments  is rather slow and limited.  We are,  therefore, inclined  to accept Scheme ’C’ since  we are  accepting it as a one-time final measure. We find  that this  scheme is more beneficial and would also provide a  measure of  satisfaction in  view of  the  annual increments.      In the  result we  allow the  petition to the aforesaid limited extent  only. We  reject the  rest  of  the  reliefs prayed for.  We make  it clear  that we are accepting Scheme ’C’ in  full and  final settlement  of the claim made by the petitioners. No  further claim  will be  entertained.  Under Scheme ’C’  the petitioners  will  be  entitled  to  revised pension from  August, 1994.  Annual increase in pension will be allowed as per the said table of Scheme ’C’. If there are intermediary scales,  the pension  in regard to them will be fixed by  the LIC.  The difference  in pension  paid for the month of  August, 1994 and thereafter and that payable under Scheme ’C’  should be  worked out  within two  months and be paid to the pensioner or his legal representatives (if he or she is  no more)  within even time. Future pension should be paid as  per formula of Scheme ’C’, which will supersede all prior arrangements  in regard  to the  pension plan. We once again make  it clear  that this  revised Scheme ’C’ pension- plan is  in full  and final  settlement of all claims of the pensioners. The  petition shall stand so disposed of with no order as to costs.