Holding

The upward revision of gratuity takes effect from the specified date with prospective effect; no arrears are payable and the prospective operation does not offend Article 14.

Summary

The State Government Pensioners' Association, representing former government employees who retired before 1 April 1978, challenged the Andhra Pradesh Government Order No. 88 (dated 26 March 1980) which revised the gratuity formula and made it effective from that date. They argued that gratuity is part of pensionary benefits and should be payable at the enhanced rate retrospectively. The State contended that gratuity is a distinct, one‑time payment and the revised formula applies only prospectively to those retiring on or after 1 April 1978. The High Court dismissed the petition, holding the revision to be prospective, and the Supreme Court affirmed this view, stating that the upward revision operates prospectively, no arrears are payable, and such prospective operation does not violate Article 14 of the Constitution. The Court further observed that making the scheme retrospective would require a clear legislative provision, which it could not supply.

Issues considered

Whether the gratuity revision under GO No. 88, effective from 1 April 1978, can be applied retrospectively to pensioners who retired before that date.
Whether prospective operation of the revised gratuity formula infringes Article 14 of the Constitution.
Whether the scheme is illegal or unconstitutional for not granting arrears to pre‑April 1978 retirees.

Legislation cited

Constitution of Indias. Article 14, s. Article 226

Subjects

gratuitypensionprospective legislationArticle 14retrospective effectgovernment orderconstitutional lawgovernment employees

Judgment

'
A

STATE GOVERNMENT PENSIONERS'
ASSOCIATION & OTHERS
v.
STATE OF ANDHRA PRADESH B
•,
--,! JULY 25, 1986

t [M.P. THAKKAR AND B.C. RAY, JJ.]

~-
~
Andhra Pradesh Revised Pension Rules, 1980-Part 11 and G. 0. c
No. 88 dated 26.3.80-Applicabi/ity of-Payment of gratuity at revised
rates to pensioners retired prior to 1.4. 78-Whether admissible.
The Government Order No. 88 dated 26th March, 1980 provided
~- that retirement gratuity may he 1/3rd of pay drawn at the time of
retirement for every 6 monthly service subject to maximum of 20 D
months pay limited to Rs .30,000. This order in so far as gratuity is
concerned is made effective from 1st April, 1978.
The petitioners, erstwhile Government employees who had re-
tired "before" April 1, 1978, filed petition under Article 226in the High
Court, contending that gratuity is a part and parcel of the pensionary
E
J.. benefits and the same cannot be looked separately from the other pen-
sionary reliefs and therefore, they are also entitled to the benefit of
gratuity retrospectively at the enhanced rate though they had retired
before April 1, 1978 and had been paid gratuity at the then prevailing
rate.

~
On behalf of the State the petition was contested and it was con- F
tended that gratuity is something different from the other pensionary
benefits like pension and family pension, which are continuing ones.
t The gratuity that accrued ·to the petitioners prior to 1.4.1978 was
calculated on the then existing Rules and paid, and the pensioners who
retired prior to 1.4.1978 form themselves into a distinct class for
purposes of the payment of benefit of gratuity from the others who G
retired after 1.4.1978, the date from which, the revised pension rules
are made applicable by the Government.

The High Court dismissed the petition holding that the upward
--\
.. revision of gratuity takes effect from the specified date (April I, 1978)
" with prospective effect. H
383
384 SUPREME COURT REPORTS [1986] 3 S.C.R.
Dismissing the Special Leave Petition of the Pensioners' Associa-
A tion this Court,
HELD: 1. The upward revi'iion of gratuity takes effect from the
specified date (April I, 1978) with 'prospective' effect. The High Court has
rightly understood and correctly awlied the principle propounded hy this
Court in Nakara's case, wherein it was held that no arrears are required to
B be paid because to that extent the scheme is prospective. [388B-C]
V.P. Gautama, L4S Retd. v. Union of India (S.L.J. 1984(1) 120), and
M. P. Tandon v. State of UP., [ 1984] Lab. I.C. 677, referred to.
D.S. Nakara v. Union of India, (A.I.R. 1983 SC 130), relied upon.
2. There is no illegality or unconstitutionality involved in provid-
c ing for prospective operation from the specified date. Even if that part
of the Notification which provides for enforcement with effect from the
specified date is struck down the provision can but have prospective
operation-not retrospective operation. In that event it will operate
only prospectively with effect from the date of issuance of the notifica-
D tion since it does not retrospectively apply to all those who had already
retired before the said date. [388C-E]
3. In order to make the mtification retrospective so that it applies
to all those who had retired after the commencement of the Constitution
on 26 January, 1950 and before the date of issuance of the notification
on 26 March 1980, the Court will have to re-write the Notification and
E introduce a provision to this effect saying in express terms that it shall
operate retrospectively. Merely striking down or effecing the alleged
offending portion whereby it is made effective from the specified date
will not do. And this, the Court ca1D1ot do. Besides, giving prospective
operation to such payments cannot by any stretch of imagination be
condemned as offending Article 14. [388D-F]
F
4. Those who were in employment say in 1950, 1960 or 1970,
lived, spent, and saved, on the basi'i.ofthe then prevailing cost of living
structure and pay-scale structure, cannot Invoke Article 14 in order to
claim the higher pay-scale brought into force say, in 1980. If upward
pay revision cannot be made prospectively on account of Article 14,
perhaps no such revision would ever be made. Similar is the case with
G
regard to gratuity which has already been paid to the petitioners on the
then prevailing basis as it obtained at the time of their respective dates
of retirement. And it was already paid to them on that footing. The
transaction is completed and closed. [388F-H; 389A]
CIVIL APPELLATE JURISDICTION: Special Leave Petition
H (Civil) Nos. 14179-80 of 1985
PENSIONERS' ASSOCIATION v. STATE [THAKKAR.J.] 385
'
From the Judgment and Order dated 11.7.1985 of the Andhra A
Pradesh High Court in Writ Appeal No. 1443 and 1467 of 1984.

T.U. Mehta and A. Subba Rao forthe Petitioners.

Dr. Y.S. Chitale, T.V.S.N. Chari and Miss Vrinda Grover for B
the Respondent.

The Judgment of the Court was delivered by

THAKKAR, J, Does that part of the provision which pro-
vides for payment of a larger amount of gratuity with prospective
effect from the specified date offend Article 14 of the Constitution of c
India? Whether gratuity must be paid on the stepped up basis, to all
those who have retired before the date of the upward revision, with
retrospective effect, even if the provision provides for prospective
operation, in order not to offend Article 14 of the Constitution of
India? A Division Bench of the High Court of Andhra Pradesh says
D
'no'. In our opinion it rightly says so. The petitioners, erstwhile
Government employees who had retired "before" April 1, 1978, inter
alia claimed and contended before the High Court that they were
entitled to the benefit to the Government order No. 88 dated 26 March,
1980 providing that:
E
"(b) Retirement gratuity may be 1/3rd of pay drawn at the
time of retirement for every 6 monthly service subject to
maximum of 20 months pay limited to Rs.30,000."

The said order in so far as gratuity is concerned is made effective from
!st April, 1978. Says the High Court:
F
"Therefore, we are now only concerned whether this G.O.
Ms. No. 88, dated 26-3-1980, should be made applicable
to the pensioners that retired prior to 1-4-1978 by revising
their gratuity payable to them. The learned Advocate-
General, contends, that gratuity is something different
G
from the other pensionary benefits like the pension and
the family pension, which are continuing ones. The
Gratuity that accrued to the petitioners prior to 1-4-1978
was calculated on the then existing Rules and paid. In that
way, the pensioners retired prior to 1-4-1978 will form
themselves into a distinct class for purposes of the pay- H
386 SUPREME COURT REPORTS [1986] 3 S.C.R.

A ment of benefit of gratuity from the others that retired
after 1-4-1978, from which date, the revised pension rules
are made to be applied by the Government. On the other
hand, it is the contention of the writ petitioners that
gratuity is a part and parcel of the pensionary benefits and
B the same cannot be looked separately from the other
pensionary reliefs. The learned counsel for the Writ
Petitioners, no doubt, cited two decisions (1) V.P.
Gautama, /AS Retd. v. Union of India (SU 1984 (1) 120)
(2) M.P. Tandon v. StateofU.P. (1984 LAB. J.C. 677),
where their Lordships that decided the above two cases,
held, that no distinction can be made in the pensionary
c benefits including death-cum-retirement gratuity benefit
between the pensioners that retired prior to the stipulated
date and after the stipulated date. In the decision D.S.
Nakara v. Union of India, (A.LR. 1983 S.C. 130), their
Lordships of the Supreme Court enunciated the principle
D as follows:
"With the expanding horizons of socioeconomic
justice, the Socialist Republic and Welfare State
which the country endeavours to set up and the fact
that the old man who retired when emoluments
were comparatively low are exposed to vegaries of
E continuously rising prices, the falling value of the
rupee consequent upon inflationary inputs, by intro-
ducing an arbitrary eligibility criteria, 'being in
service and retiring subsequent to the specified date'
for being eligible for the liberalised pension scheme
and thereby dividing a homogeneous class, the clas-
F sificallon being not based on any discernible rational
principle and being wholly unrelated to the objects
sought to be achieved by grant of liberalised pension
and the eligibility criteria devised being throughly
arbitrary, the eligibility for liberalised pension
scheme of "being in service on the specified date and
G retiring subsequent to that date" in the memoranda
Exs. P-1 and P-2. violated Art. 14 and is unconstitu-
tional and liable to be struck down."
After thus enunciating the principle, their Lordships have taken care
to observe as follows:
H "But we make it abundantly clear that arrears are not re-
PENSIONERS' ASSOCIATION v. STATE ITHAKKAR,J.] 387

quired to be made because to that extent the scheme is A
prospective."
in our opinion, the arrears relating to gratuity benefit com-
puted according to the Revised Pension Rules of 1980 may
not be paid to the pensioners that retired prior to 1-4-1978
because at the time of retirement, they are governed by the B
then existing Rules and their gratuity was calculated on
that basis. The same was paid. Since the revised scheme is
operative from the date mentioned in the scheme, i.e. 1-4-
1978, the continuing rights of the pensioners to receive
pension and family pension must also be revised according
to that scheme. But the same cannot be said with regard to
gratuity, which was accrued and drawn. The reason why
c
their Lordships of the Supreme Court in Nakara's case re-
fused to grant arrears to the pensioners that retired prior to
the stipulated date would ipso facto apply for refusing to
grant the revised gratuity, since that would amount to ask-
ing the State Government to pay arrears relating to gratuity D
after revising them according to the new scheme for those
that retired prior to 1-4-1978 and that would amount to
giving retrospective effect t(') the A.P. Revised Pension
Rules, 1980, which came in to 'effect from 29-10-1979 and in
the case of Part-II of those· Rules from 1-4-1978. The
•• scheme is prospective and not retrospective. E
Moreover, we must remember that when the State Govern-
ment appointed the Pay Revision Commissioner to review
the then existing scales of pay under G.O. Ms. No. 745,
General Administration (Sp!. A) Department, dated 3-11-
1978, the Pay Revision Commissioner was asked to take
F
into account, while making his recommendation, the
economic conditions in the State, the financial implications
of his recommendations, and the impact thereof on the
resources avilable for the plan and other essential non-plan
expenditure. Surely, the Pay Revision Commissioner,
when he made his recommendations to revise the pen-
G
sionary benefits, is not contemplating to make his recom-
mendations retrospective. Otherwise, he would have taken
financial implications of those recommendations and the
impact thereof on the resources available for plan and
other essential non-plan expenditure of the State. For this
reason· also, we cannot direct the State Government to re- H
388 SUPREME COURT REPORTS [1986] 3 S.C.R.

A vise the gratuity benefit, which was already paid to these
petitioners who retired prior to 1-4-1978. The Supreme
Court has clearly stated in Nakara's case that arrears
are not required to be paid because to that extent the
scheme is prospective. Similar is the case with regard to the
B case of gratuity that was accrued and paid prior to the
stipulated day mentioned ill the G.O. promulgating the
Revised Pension Rules of 1980."
We fully concur with the view of the High Court. The upward
revision of gratuity takes effect from the specified date (April 1, 1978)
with prospective effect. The High Court has rightly understood and
c correctly applied the principle propounded by this Court in Nakara's
case, AIR 1983 S.C. 130. There is no illegality or unconstitutionality
(from the platform of Article 14 of the Constitution of India) involved
in providing for prospective operation from the specified date. Even if
that part of the Notification which provides for enforcement with
effect from the specified date is struck down the provision can but
D have prospective operation-not retrospective operation. In that event
(if the specified date line is effaced), it will operate only prospectively
with effect from the date of issuance of the notification since it does
not retrospectively apply to all those who have already retired before
the said date. In order to make it retrospective so that it applies to all
those who retired after the commencement of the Constitution on 26
E January, 1950 and before the date of issuance of the notification on 26
March, 1980, the Court will have to re-write the notification and intro-
duce a provision to this effect saying in express terms that it shall
operate retrospectively. Merely striking down (or effacing) the alleged
offending portion whereby it is made effective from the specified date
will not do. And this, the Court cannot do. Besides, giving prospective
F operation to such payments cannot by any stretch of imagination be
condemned as offending Art 14. An illustration will make it clear.
Improvements in pay scales by the very nature of things can be made
prospectively so as to apply to only those who are in the employment
on the date of the upward revision. Those who were in employment
say in 1950, 1960 or 1970, lived, spent, and saved, on the basis of the
G then prevailing cost of living structure and pay-scale structure, cannot
invoke Art. 14 in order to claim the higher pay-scale brought into force
say, in 1980. If upward pay revision cannot be made prospectively on
account of Article 14, perhaps no such revision would ever be made.
Similar is the case with regard to gratuity which has already been paid ti
to the petitioners on the then prevailing basis as it obtained at the time -,
H of their respective dates of retirement. The amount got crystallized on
PENSIONERS' ASSOCIATION v. STATE ITHAKKAR.J.] 389

~ the date of retirement on the hasis of the salary drawn by him on the A
date of retirement. And it wa; already paid to them on that footing.
The transaction is completed and closed. There is no scope for up-
ward or doY<nward revision in the context of upward of downward
revision of the formula evolved later on in future unless the provision
in this behalf expressly so provides restrospectively (downward revi-
sion may not be legally premissible even). It would be futile to contend B

+ that no upward revision of gratuity amount can be made in harmony
with Article 14 unless it also provides for payment on the revised basis

... to all those who have already retired between the date of commence-
ment of the Constitution in 1950, and the date of upward revision.
There is therefore no escape from the conclusion that the High Court
was perfectly right in repelling the petitioners' plea in this behalf. For c
the sake of record we may mention that our attention was called to an
order of a Division Bench of the High Court of Gujarat LPA 280 of
)-- 1983 dated 8.9.83 per P.D. Desai Acting C.J., which does not discuss
the issues involved but is based on a concession said to have been made
by the Advocate General who appeared for the State. And also to a
decision of the Ailahabad High Court, (M.P. Tandon v. State of U.P., D
[1984] Lab. J.C. 677) and (Punjab & Haryana High Court (VP. Gautama
v. Union of lndia, A.LR. SLJ [1984] (I) 120:) In none ot these decisions
the relevant passage from D.S. Nakara v. Union of India, [1983) SC 130,
was considered. Nor was the aspect regarding prospective operation
.1. considered on principle. The High Court considered it shocking and
was carried away by the fact that an employee who retired even one E
day before the enforcement of the upward revision would not get the
benefit if the specified date of enforcement was not effaced by striking
down the relevant provision. But in all cases of prospective operation
~ it would be so. Just as one who files a suit even one day after the expiry
I
of limitation would lose his right to sue, one who retires even a day
prior to enforcement of the upward revision would not get the benefit. F
¥ This cannot be helped, there is nothing shocking in it unless-one can
say legislation can never be made prospective, and nothing turns on it.
These are the reasons which impelled us to dismiss the Special Leave
Petition on 18 July, 1986.
G

- '
A.P.J. Petition dismissed.