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CASE NO.: Appeal (civil)  1289 of 2007

PETITIONER: Life Insurance Corporation of India and others

RESPONDENT: Retired L.I.C. Officers Association and others

DATE OF JUDGMENT: 12/02/2008

BENCH: S.B. SINHA & HARJIT SINGH BEDI

JUDGMENT: JUDGMENT

CIVIL APPEAL NO. 1289 OF 2007

S.B. SINHA, J.

1.      Jurisdiction of the Chairman of the Life Insurance Corporation of  India (Corporation) to issue instructions in terms of Regulation 51 of the  Life Insurance Corporation of India Class-I Officers (Revision of Terms and  Conditions of Service) Instructions, 1996 is in question in this appeal which  arises out of a judgment and order dated 29th September, 1995 passed by a  Division Bench of the Kerala High Court in Writ Appeal No. 32 of 2004.   2.      We may notice only the admitted facts herein.         Respondent No.1 is an Association of officers who have retired from  the services of the appellant-Corporation which is a statutory authority  constituted and incorporated under the Life Insurance Corporation Act,  1956.  During the period of 1st August, 1992 and 31st July, 1994 a revision of  scales of pay of the offices and employees of the Corporation took place.   Different cut off dates were fixed for grant of different nature of allowances  as also pay by the Chairman of the Corporation in purported exercise of his  power under Regulation 51 of the Regulations.  Whereas 1st April, 1993 was  the cut off date for revision of pay; 1st August, 1994 was fixed as the cut off  date for the purpose of payment of gratuity on the basis of revised pay.   However, so far as those employees who had retired prior to 1st August,  1994 are concerned, they were directed to be entitled to reduce gratuity  based on the reduced scale of pay with effect from 1st April, 1993 only.  The  arrears of pay were directed to be paid only w.e.f. 1st April, 1993.  

3.      Indisputably, whereas the Gujarat and Kerala High Court upheld the  validity of the instructions issued by the Chairman of the appellant- Corporation, the Karnakata High Court took a different view.   

4.      The claim of Respondent No.1 was allowed in part by a learned  Single Judge of the High Court by his order dated 8th July, 2003 holding :-

"A reading of Ext.P.3 (instructions issued by the  Chairman for supplementary of Revisionist in  respect of class I officers and claimed IV will  definitely go to show that it cannot operate as far  as the claims for gratuity is concerned.  It is  admitted that at least certain officers, represented  by the petitioner Association were deemed as  having revised salary from April, 1993 onwards.   In that view, at the time of retirement, they were

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deemed as getting a salary which alone could have  been taken notice of for computing gratuity, if  Regulation No.77 has any application.  It is  definite that the restriction in Ext. P.3 and  benevolence in Regulation No.77 could not have  co-existed because the Corporation is offering  gratuity at the rate less than the amount an  employee had notionally drawn at the time of their  respective retirement.  It is also pertinent to note  that when powers were conferred on the Chairman  under Regulation No.51(2), specific reference was  there about the incidents of DA and other  allowances.  There is no reference to any alteration  permissible in respect of gratuity.  It leads to the  position that the regulation did not permit the  Chairman to disturb criterian for gratuity payment  by exercise of powers under Regulation No.51  (2)."

       It was further held :-

"There was no power on the part of the Bank  Management in that case to disturb the settlement,  and the gratuity was to be paid on the basis of last  drawn pay.  Likewise, in the present case, it would  not have been permissible for the Chairman to  unsettle the benefits that had been spoken to by  Regulation No.77 while issuing Ext.P.3 order."

5.      A Division Bench of the said High Court on an intra court appeal  preferred by the appellants herein upheld the said findings. 6.      Mr. Patwalia, learned senior counsel appearing on behalf of the  appellants, in support of this appeal, submitted :- 1)       Pension and Gratuity having two different concepts, the High  Court committed a serious error in holding that the Chairman of  the Corporation had no jurisdiction to issue the instructions. ii)     Sub-regulation (2) of Regulation 51 being of wide amplitude,  the jurisdiction of the Chairman to fix cut off dates was not  only applicable in respect of pay and allowances covered by  Schedule II of the Regulations but also included "gratuity" as  envisaged under  Regulation 77, as the quantum thereof has a  direct nexus with the payment of salary.   iii)    An employer, subject to the applicability of the doctrine of  reasonableness and non-arbitrariness, can fix a cut off date for  the implementation of the revised pay and allowances.   iv)     The amount of gratuity payable has to be calculated upon the  permanent pay and once the gratuity has been paid, no further  amount is payable only because the salary has been revised.  7.      Mr. P.S. Narasimha, learned counsel appearing on behalf of the  respondents, on the other hand, contended that the power of the Chairman of  the Corporation to issue instructions being limited to Chapter IV of the  Regulations, it has no application in relation to the payment of gratuity as  provided for in Regulation 77 thereof. 8.      Appellant-Corporation in exercise of its powers conferred upon it by  clauses (b) and (bb) of sub-section (2) of Section 49 of the Life Insurance  Corporation Act, 1956, with the previous approval of the Central  Government, made Regulations known as "Life Insurance Corporation of  India (Staff) Regulations, 1960 (in short ’the Regulations’).  Chapter IV of  the said Regulations deal with  "Pay and Allowances".  Regulation 51  thereof reads as under :-

"Scales of Pay :

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51.(1)  The scales of pay, dearness allowance and  other allowances (wherever payable) applicable to  the employees of the Corporation in India shall be  as prescribed in Schedule II hereto. (1A)    The basic pay and other allowance  admissible from time to time to an employee  belonging to Class II shall be regulated in  accordance with the provisions contained in  Schedule III. (2)     Whereas the scales of pay, dearness  allowance or other allowances applicable to the  employees of the Corporation or any class of them  are revised in pursuance of any award, agreement  or settlement, or otherwise, the method of fixation  of pay in the new scales, the eligibility for the  benefit of revision, the date from which the  revision shall apply, and other matters connected  therewith or incidental thereto shall be regulated  by instructions issued by the Chairman in this  behalf."                                           (Emphasis supplied)  9.      Chapter VII of the said Regulations deals with Miscellaneous Matters.  Regulation 76 deals with Provident Fund.  Regulation 77 deals with  Gratuity.  Regulation 78 deals with Superannuation Fund. Regulation 79  deals with Travelling Allowance Rules.  There are other provisions also  dealing with some other benefits which are to be granted to the employees of  the Corporation.   

10.     Regulation 51 indisputably confers power upon the Chairman to fix a  date from which the revision in pay shall apply.  It applies to pay, dearness  allowance and other allowances applicable to the employees of the  Corporation.  The question, as would appear from the discussions made  hereinafter, is as to whether the expression "the date from which the  revisions shall apply, and other matters connected therewith or incidental  thereto", would also include the matter relating to payment of gratuity which  is otherwise covered by Regulation 77 thereof.   

11.     Although Mr. Patwalia has relied upon a large number of decisions of  this Court for the purpose of making a distinction between the terms  "pension" and "gratuity" as also the jurisdiction of the employer to fix a cut  off date, it may not be necessary to deal with all of them.  

12.     We may, however, note some precedents operating in the field.   Recently in H.E.C. Voluntary Retired Employees Welfare Society and  another  vs  Heavy Engineering Corporation Ltd. and others :  (2006) 3 SCC  708  this Court observed :-

"24.  In State of A.P. v. A.P. Pensioners Assn. this Court  categorically held that the financial implication is a  relevant criterion for the State Government to determine  as to what benefits can be granted pursuant to or in  furtherance of the recommendations of a Pay Revision  Committee. A’ fortiori while taking that factor into  account, an employer indisputably would also take into  consideration the number of employees to whom such  benefit can be extended."    

{See also U.P. Rahavendra Acharya and others vs.  State of Karnatka and  others [(2006) 9 SCC 630]} 13.     It is also interesting to notice a decision of this Court in State of  Andhra Pradesh and another   vs.  A.P. Pensioners’ Association and others :  (2005) 13 SCC 161 wherein it was opined :- "28. Computation of retirement gratuity payable to a

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government servant is, therefore, required to be done on  the basis of the formula laid down therein. A bare perusal  of the aforementioned Rule clearly shows that for the  purpose of computation either 1/4th of the emoluments  for each completed six-monthly period of service, or  3/16th of emoluments for each completed six-monthly  period of service, is to be taken into consideration. Such  emoluments necessarily were payable either immediately  before the date of retirement or the date of death. On 1-4- 1999, in view of the clear expressions contained in the  aforementioned GO No. 114, those employees who  retired between the period 1-7-1998 and 1-4-1999 would  have received the actual benefit calculated in terms of the  said Rule. The submission of Mr Lalit to the effect that  they became entitled to enhanced pay and, therefore, to  enhanced gratuity from 1-7-1998 is not wholly correct.  They became entitled thereto but only notionally for the  purpose of calculation of such recurring liability of the  State which became payable with effect from 1-4-1999.  The High Court has heavily relied upon the purported  legal fiction created in the said Rule to the effect that the  same would come into force with effect from 1-7-1998.  The legal fiction undoubtedly is to be construed in such a  manner so as to enable a person, for whose benefit such  legal fiction has been created, to obtain all consequences  flowing therefrom."  

It was further observed :- "30. The case at hand indeed poses a different problem.  Although like Gurupad Khandappa Magdum a notional  revision of pay was to be considered as if the same took  effect from 1-7-1998, but the Rules went further and  stated that the actual monetary benefit thereof shall be  given with effect from 1-4-1999. The Rules, therefore,  not only create a legal fiction but also provide the  limitations in operation thereof. If the effect of the legal  fiction is extended in the manner suggested by Mr Lalit,  clause (4) ( sic Rule   4) of the Rules will become otiose.  In other words, all the consequences ordinarily flowing  from a rule would be given effect to if the rule otherwise  does not limit the operation thereof. If the rule itself  provides a limitation on its operation, the consequences  flowing from the legal fiction have to be understood in  the light of the limitations prescribed. Thus, it is not  possible to construe the legal fiction as simply as  suggested by Mr Lalit."

[See also State of Tamil Nadu vs. Seshachalam : 2007 (11) SCALE 239].  14.     The Regulations are subordinate legislation.  Chairman of the  Corporation is a statutory authority.  Power to fix a cut off date has been  conferred upon him by way of statutory provision.  The same requires a  strict interpretation.  Chapter IV of Regulations envisages scales of pay.  It  also talks of dearness allowance and other allowances as envisaged under the  IInd Schedule thereof.  Clause (2) of the said Regulation, as indicated  hereinbefore, confers jurisdiction on the Chairman of the Corporation to  regulate the same as also other matters connected therewith or incidental  thereof by issuance of instructions.   

15.     It may be true, as was contended by Mr. Patwalia, that the cut off  dates were fixed upon holding negotiations with the Unions.   

       However, the jurisdiction of the Chairman to fix a cut off date is in  question in terms of sub-regulation (2) of Regulation 51.  Instructions have  been issued under the said provision alone.  Instructions not only cover the  scales of pay from a particular date but different dates have been fixed for

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different types of allowances.  We have noticed hereinbefore that whereas  dearness allowance  and some other allowances, as for instance ’house rent  allowance’ and ’city compensatory allowance’ are envisaged by IInd  Schedule appended to the said Regulations, the other allowances, and for  instance, the ’Provident Fund’ and ’Gratuity’ have nothing to do therewith.   Provident Fund and Gratuity are ordinarily governed by the Acts enacted by  the Parliament, subject to the conditions contained therein.

16.     Regulation 77 of the Regulations,  specifies the employees who would  be entitled to payment of gratuity.  Clause (2) of Regulation 77 provides for  the manner in which the amount of gratuity shall be payable.  Neither the  payment of Provident Fund nor the payment of Gratuity is thus covered by  the provisions contained in Chapter IV of the Regulations.   19.     Clause (1) of Regulation 51 postulates grant of pay, dearness  allowance and other allowances in the manner as prescribed in the IInd  Schedule.  The basic pay and other allowances to Class II employees are  regulated under the provisions contained in Schedule III thereof.  Revision  of pay, dearness allowance and other allowances applicable to the employees  of the Corporation stricto sensu are not covered by clause (2) of Regulation  51.  It merely states that when a revision takes place pursuant to or in  furtherance of any award, agreement or settlement or otherwise, the  Chairman of the Corporation will have the jurisdiction in regard to :-

a)      the method of fixation of pay in the new scales ; b)      the eligibility for the benefit of revision ; and c)      the date from which the revision shall apply.  

20.     Method of fixation, eligibility for the benefit of revision and the date  from which the revisions shall apply are thus, the only areas within which  the Chairman can exercise jurisdiction.  The effect of revision of pay scales  on other spheres and which are otherwise governed by another statute or  other provisions of the said Regulations would not come within the purview  thereof.   21.     The terminology used "and other matters connected therewith or  incidental thereto" must, therefore, be held to have a direct nexus with any  one of the aforementioned three elements.  The same has nothing to do with  the construction of any other provision of the Regulations.  The words  "incidental to" cannot be interpreted too broadly.  It cannot be read  independently of the main provision.  It cannot serve some other purpose  which is not covered by Regulation 51 of the Regulations.  It cannot be  permitted to encroach upon an area which is not within the jurisdiction of the  Chairman of the Corporation.   22.     It is one thing to say that the court while exercising its jurisdiction  would be entitled to exercise such incidental power for determination of the  principal issue but it is another thing to say that a statutory authority in such  matters would be held to have such power which is beyond the scope and  purport of the principal provisions.   

23      The word "Incidental" has been defined in Advanced Law Lexicon 3rd  (2005) Edition, Book 2 at 2275 to mean :-

"According to Stroud’s Judicial Dictionary, a thing is  said to be incidental to another when it appertains to the  principal thing.  According to the ordinary Dictionary  meaning, it signifies a subordinate action.  Hukumchand  Jute Mills Ltd.  vs. Labour Appellate Tribunal, AIR 1958  Cal. 68, 70. (Industrial Disputes Act (14 of 1917), S.  10(4)].

The word "incidental" does not imply any casual or  fortuitous connection.  In a legal sense as applied to  powers, it means a power which is subsidiary to that  which has been expressed, and of an instrumental nature  in relation thereto, which is both necessary and proper for  the carrying into execution of the main power which has

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been expressly conferred.  (Dunichand and Co.  vs.   Narain Das and Co. (1947) 17 Comp. Cas. 195 (FB)."       24.     Each word employed in a statute must take colour from the purport  and object for which it is used.  The principle of purposive interpretation,  therefore, should be taken recourse to.  

25.     Revision of scales of pay as also other allowances is technical in  nature.  When a benefit is extended to a group of employees the effect of  such benefit, if otherwise comes within the purview thereof must be held to  be applicable to other groups of employees also.  An employee is entitled to  gratuity.  It is not a bounty.  It is payable on successful tenure of service.   Regulation 77  provides as to how the amount of gratuity is to be calculated.   Regulation 51 provides for a rule of measurement.  Only because it  employed the word "permanent basic pay", the same will not itself lead to  the conclusion that once an employee has retired, he would not be entitled to  any revision of the amount of gratuity.  26.     The Chairman of the Corporation has himself given a retrospective  effect to revision in scales of pay.  Such a retrospective effect has also been  given so as to benefit a class of employees.  The employees, irrespective of  the fact whether they had superannuated or not, were given the benefit of  arrears of pay from 1st August, 1993.  By reason of grant of such benefit  both to serving employees as also the superannuated employees, both the  class of employees became entitled thereto as of right.  If by reason thereof,  even a retired employee, as on the date of retirement, became entitled to the  benefit of the revised scale of pay, the same for all intent and purpose must  be taken to be the permanent basic pay, apart from other allowances, if any,  which are required to be taken into consideration for the purpose of  computation of the amount of gratuity.  

27.     In Indian Bank and another  vs.  N. Venkatramani : 2007 (10) SCALE  475 : this Court gave effect to the beneficial provision in the light of the rule  of measurement, stating :-

"13.    It may be true that various provisions of the  Regulations as for example Regulations 16, 17, 19, 23,  etc. provided for qualifying service.  Regulation 18 is not  controlled by any of the said provisions.  It does not  brook any restrictive interpretation.  It only provides for a  rule of measurement.  An employee, as noticed  hereinbefore, was entitled to pension provided he has  completed the specified period of service.  How such a  period of service would be computed is a matter which is  governed by the statute.  It is one thing to say that a  statute provides for completion of fifteen years of  minimum service, but if a provision provides for  measurement of the period, the same cannot be lost sight  of.  Provision of the Regulations which are beneficial in  nature, in our opinion, should be construed liberally."

28.     Contention of Mr. Patwalia that the Chairman of the Corporation  having power even to fix the cut off dates for different purposes, the  jurisdiction exercised by him to do so for payment of gratuity, which has a  direct nexus with the revised pay of scale cannot be accepted.   Once he  fixes a cut off date for the purpose of giving effect to the agreement vis-‘-vis  the payment of arrears in terms thereof, he cannot exercise further  jurisdiction in respect of a matter which is not controlled by Chapter IV but  is controlled by other provisions of statutes and Parliament Acts governing  the field.  A delegatee must exercise its powers within the four-corners of  the statute.  The power of a sub-delegatee is more restricted.  A delegatee  cannot act in violation of a statute.  A sub-delegatee cannot exercise any  power which is not meant to be conferred upon him by reason of statutory  provisions.  It must conform not only to the provisions of the Regulations  and the Act but also other Parliamentary Acts.  [See Kurmanchal Inst. of

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Degree and Diploma and Ors.  vs. Chancellor, M.J.P. Rohilkhand Univ. and  Ors. (2007) 6 SCC 35, Kerala Samsthana Chethu Thozhilali Union  vs. State  of Kerala and Ors.   ( 2006 ) 4 SCC 327  Bombay Dyeing & Mfg. Co. Ltd.  vs. Bombay Environmental Action Group & Ors. (2006) 3 SCC 434,  State  of Kerala and Ors. vs. Unni and Anr (2007) 2 SCC 365, State of Orissa and  another  vs. M/s. Chakobhai Ghelabhai and Company : 1961 (1) SCR 719  and M/s. Shroff and Co.  vs.  Municipal Corporation of Greater Bombay and  another :  (1989) Supp. 1 SCC 347].   28.     We, however, do not intend to lay down the law that the expression  "incidental" or "connected" would be matters which are of a casual nature  only, but, we reiterate that the same must have something to do with the  nature of power granted to the authority concerned.  29.     Unfortunately before the Gujarat High Court and the Karanataka High  Court, both the counsels have missed in bringing to the Court’s notice this  aspect of the matter.  

30.     We, therefore, do not find any merit in this appeal which is  accordingly dismissed with costs.  Counsel’s fee assessed at Rs.25,000/-.