Holding

Regulation 22 is a valid, non‑penal eligibility provision that lawfully excludes resigned employees from pension benefits and does not contravene Article 14.

Summary

Sanwar Mal, a former Class‑IV employee of UCO Bank who resigned in 1988, sought to join the bank's Employees' Pension Scheme introduced in 1995 under a 1993 settlement. The bank refused, invoking Regulation 22 which disqualifies any employee who has resigned, been dismissed or removed from pension benefits. The employee filed suit for a declaration of entitlement; the trial court ruled in his favour, but the High Court set aside the decree. The Supreme Court examined the distinction between resignation and retirement, the self‑financing nature of the pension fund, and the purpose of Regulation 22. It held that the regulation is a valid eligibility criterion, not a penalty, and does not violate Article 14. Consequently, the employee who resigned is not entitled to the pension, and the appeals were allowed, setting aside the lower courts' orders.

Issues considered

Whether Regulation 22 of UCO Bank (Employees) Pension Regulations, 1995, which disqualifies resigned employees from pension benefits, is arbitrary, unreasonable and violative of Article 14 of the Constitution.
Whether a former employee who resigned after completing the qualifying service period is entitled to join the pension scheme introduced under the 1993 settlement.

Legislation cited

Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970s. 19(2)(t)
Constitution of Indias. Article 14
Industrial Disputes Act, 1947s. 18(1), s. 2(p)
Industrial Disputes (Central) Rules, 1957s. Rule 58

Subjects

pension schemeresignation vs retirementArticle 14eligibility criteriaself‑financing pension fundbanking regulationsindustrial dispute settlement

Judgment

I 126 SUPREME COURT REPORTS [2004] 2 S.C.R.

A HELD: 1.1. An employee can resign at any point of time but in the
case of retirement, he retires only after attaining the age of superannuation
-
or in the case of voluntary retirement on completion of qualifying service.
On resignation and retirement, there is severance of employment but in
service jurisprudence both the expressions are understood differently. The
Pension Scheme in question was a second Retiral Benefit Scheme which
B covered only the retirees, as the credit balance to their provident fund
account is larger as compared to employees who resigned from service.
Resignation brings about complete cessation of master and servant
relationship whereas voluntary retirement maintains the relationship for
the purpose of grant of retiral benefits in view of the past service.
C (1133-C-E] ---·
1.2. Acceptance of the resignation is dependent upon discretion of
the employer whereas retirement is completion of service in terms of
regulations/rules framed by the Bank. Resignation can be tendered
irrespective of the length of service whereas in the case of voluntary
D retirement, the employee has to complete qualifying service for retiral
. benefits. Further, there are different yardsticks and criteria for submitting
resignation vis-a-vis voluntary retirement and acceptance thereof. Since
the pension regulations disqualify an employee, who has resigned, from
claiming pension, the respondent cannot claim membership of the fund.
E Regulation 22 provides for disqualification of employees who have resigned
from service and for those who have been dismissed or removed from
service., Regulation 22 does not make an arbitrary and unreasonable
classific'ation repugnant to Article 14 of the Constitution of India by
·keeping out such class of employees. Regulation 22 is not in the nature of
penalty. It only disentitles an employee who has resigned from service from
F becoming a member of the Fund. The pension scheme only provides for a
second retiral benefit. The pension scheme only provides for an avenue
for investment to retirees. They are provided avenue to put in their savings
and as a term or condition which is more in the nature of an eligibility
criteria the scheme disentitles such category of employees out of it.
[1133-F-H; 1134-A-C)
G
Reserve Bank of India and Anr. v. Cecil Dennis Solomon and Anr.,
[2003] 10 Scale 449, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3192of1999.

H From the Judgment and Order dated 8.7.98 of the Punjab and Haryana
UCO BANK v. SANWAR MAL [KHARE, CJ.] 1127

- High Court in S.A. No. 1398 of 1997. A
WITH

C.A. Nos. 607 and 1506 of 2003.

A.K. Raina, R.D. Upadhyay for the appellants in C.A. No. 3192/99. B
---- Jagat Arora, Rajat Arora, Ms. Ritu Arora and Ms. Suruchi Agarwal for
the appellants in C.A. Nos. 607 and 1503/2003.

Raj Kumar Mahajan and Bhaskar Y. Kulkarni for the Respondent in
C.A. No. 3192/99. C
Bhargava V. Desai, Abhinav Vashisht, Ms. Rachi Vashisht, Ms. Priya,
Sanjeev Kr. Singh and Pradeep Kr. Malik for the Respondent in C.A. No.
607/2003.

Ramesh P. Bhatt and M.N. Shroff for the Respondent in C.A. No. D
1506/2003.

L. Nageswara Rao, Additional Solicitor General, Ms. V. Mohana, Ms.
Sushma Suri for Union of Irn;lia in C.A. Nos. 607 & 1506/2003.

The Judgment of the Court was delivered by E
· · V.N. KHARE, CJ. Since common question of law is involved in these
appeals, one at the instance of UCO Bank; second, Oriental Bank of
Commerce; and the third, Bank of India, we propose to decide them by a
common Judgment.
F
For the sake of convenience, we are noticing the facts asserted in Civil
Appeal No.3192of1999. The respondent- Sanwar Mal was appointed as a
Class-IV employee in UCO Bank on 29.12.1959 and was promoted to class-
III post in 1980. On 25.2.1988, he resigned after giving one month's notice.
He accepted his provident fund without protest. On 29.10.1993, a settlement
was arrived at under section 2(P) and section 18(1) of the Industrial Disputes G
Act; 1947 read with Rule 58 of the Industrial Disputes (Central) Rules, 1957
between Indian banks' Association (hereinafter referred to as "IBA")
representing the managements of banks on one hand and All India Bank
Employees' Association representing the workmen. Pursuant to the said
settlement, the IBA agreed to introduce pension scheme in banks in lieu of H
1128 SUPREME COURT REPORTS [2004] 2 S.C.R.

A employees' contribution to the provident fund. As a consequence of the said
settlement, UCO Bank (Employees') Pension Regulations, 1995 (hereinafter
--
referred to as "the said regulations" ) were framed by the bank under section
l 9(2)(t) of the Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970 after consultation with the Reserve Bank of India. The said
B regulations were published with the prior sanction of the Central Government.
The respondent herein opted for the pension scheme. However, since he had
resigned in 1988, the appellant-bank declined to accept his option for admitting
him as a member/beneficiary of the fund. Under such circumstances, he filed
a suit in civil court for a declaration that he was entitled to pension as
-
provided for under the regulations. He also prayed for mandatory injunction
C directing the appellant to make payment of arrears along with interest. The
suit was decreed and the first appeal filed against the trial court judgment as
also the second appeal filed by the appellant were dismissed. It is in this way
that the appellant is in appeal before us by way of special leave.

Before coming to the arguments advanced before us, we would like to
D examine briefly the memorandum of settlement dated 29.10.1993 as well as
the regulations. The recital to the said settlement shows that during negotiations
of service conditions of workmen, the IBA agreed to introduce the pension
· scheme in banks for the workmen in lieu of employers' contribution to the
provident fund. This was pursuant to the demand made by All India Bank
E ·Employees' Association representing the workmen, to introduce pension as
a second retrial benefit in lieu of employers' contribution to contributory
provident fund. As per the terms of the said settlement, the banks agreed to
introduce pension as second retrial benefit in lieu of contributory provident
fund w.e.f. 1.11.1993. Under the settlement, the pension schema was inter
a/ia made applicable to all retired employees who were in service of the bank
F on or after 31.12.1985 and who retired in or after l.l.1986 but before
l.11.1993. Provided that such employees opt for the pension scheme and
refund within six months from 1.11.1993 the banks contribution to the
provident fund. As a consequence of the said settlement, the appellant -
Bank framed UCO Bank (Employees) Pension Regulations, 1995 (hereinafter
G referred to as "the said Regulations") in exercise of power conferred by
section 19(2)(t) of the Banking Companies (Acquisition and transfer of
Undertakings) Act, 1970. The said regulations were framed after consultation
with the Reserve Bank of India and were published with the previous sanction
of the Central Government.

.H Now coming to the said regulations, it may be stated that regulations
UCO BANK v. SANWAR MAL [KHARE. CJ.] 1129
2(j) defines "contribution" to mean any sum credited by the bank on behalf A
of the employee to the Pension Fund. Under clause (k) of regulation (2), the
"date of retirement" has been defined to mean the last date of the month in
which an employee attains the age of superannuation or the date on which he
stood retired by the bank or the date on which the employee voluntarily
retires or the date on which the officer is deemed to have retired. Regulation B
2(q) defines the word "fund" to mean UCO Bank (Employees) Pension Fund
constituted under regulation 5. Regulation 2 (s) defines "pay" to include the
basic pay and all allowances counted for the purposes of contribution to the
provident fund and for payment of dearness allowance, in relation to an
employee who has either retired or died on or after 1.1.1986 but before
l.11.1993. Regulation 3 (1) inter alia states that the said regulations shall C
apply to employees who were in service of the bank on or after 1.1.1986 but
who retired prior to 1.11.1993 and who exercised option to join the pension
scheme within 120 days from, the notified date i.e. 29.9.1995. Suffice it to
state that the entire regulation 3 refers to retirees only and not to those who
have resigned or dismissed/removed form the bank. Regulation 5 deals with
the constitution of a pension fund. It states that the bank shall constitute a D
Fund under an irrevocable trust within the specified period to provide for
payment of pension/family pension in accordance with regulations. It further
provides that the bank shall be a contributor to the said fund to ensure that
the trustees make due payments to the beneficiaries under these regulations.
A bare reading of regulation 5 indicates that the fund will be managed by the E
trustees and the beneficiaries are the employees covered by the regulations.
R~gulation 6 inter a/ia states that on constitution of the said fund, the Provident
Fund Trust shall transfer to the pension fund the accumulated balance of the
contribution of the bank to the Provident Fund along with the interest accrued
thereon up to the date of transfer. Regulation 7 deals with composition of
the pension fund. It states that pension shall consist of the contribution by the F
bank at the rate of 10% per month of the pay of the employee; the accumulated
contributions of the bank to the Provident Fund along with interest accrued
up to the date of transfer; the amount consisting of contributions of the bank
along with interest refunded by the employees who retried before the notified
date but who opt for pension in accordance with the regulations; the investment G
in annuities/securities purchased out of the moneys of the Fund; annual
contribution by the bank and income from investments. Regulation 7, therefore,
indicates that the scheme is self-financing scheme to be run on the basis of
contributions from the employees and the bank. It further shows that it is a
funded scheme, which is not dependent upon budgetary support. Regulation
14 inter alia states inter a/ia that an employee who has rendered a minimum H
1130 SUPREME COURT REPORTS [2004] 2 S.C.R.

A of 10-years of service in the bank on the date of his retirement shall qualify ---.
for pension. Regulation 22 deals with forfeiture of service and it reads as
follows:-

"Forfeiture of service.- (1) Resignation or dismissal or removal or
termination of an employee from the service of the Bank shall entail
B forfeiture of his entire past se~ice and consequently shall not qualify
for pensionary benefits:

(2) An interruption in the service ofa Bank employee entails forfeiture
of his past service, except in the following cases, namely:-

c (a) authorized leave of absence;
(b) suspension, where it is immediately followed by reinstatement,
-
whether in the same or a different post, or where the bank
employee dies or is permitted to retire or is retired on attaining.
the age of compulsory retirement while under suspension;
D (c) transfer to non-qualifying service in an establishment under the
control of the Government or Bank if such transfer has been
ordered by a competent authority in the public interest;
(d) joining time while on transfer from one post to another.

(3) Notwithstanding anything contained in subordination (2), the
E
appointing authority may, by order, commute retrospectively the
periods of absence without leave as extraordinary leave.

(4) (a) In the absence of a specific indication to the contrary in the
service record, an interruption, between two spells of service rendered
by a bank employee shall be treated as automatically condoned and
F
the pre-interruption service treated as qualifying service;

(b) Nothing in clause (a) shall apply to interruption caused by
resignation, dismissal or removal from service or for participation
in a strike;
G Provided that before mak,ing an entry in the service record of
the Bank employee regarding forfeiture of the past service
because of his participation in strike, an opportunity of
representation may be given to such bank employees."

Chapter V refers to Classes of pension and it covers superannuation
H pension; pension on voluntary retirement; invalid pension compassionate
UCO BANK v. SANWAR MAL [KHARE. CJ.] 1131
allowance, pre-mature retirement pension and compulsory retirement pension. A
Regulation 34 which also falls within chapter V deals with payment of pension/
family pension in respect of employees who retired or died between 1.1.1986
to 31.10.1993. It states that such retirees shall be eligible for pension from
1.1 l.1993. Further, different formulas are laid down for computation of
pension having co-relationship with the classes of pension. Accordingly,
computation of pension on voluntary retirement is iiff..:rent from computation B

-- of pension in the case of invalid pension or pre-mature retirement pension or
compulsory retirement pension.

To sum up, the pension scheme embodied in the regulation is a self-
supporting scheme. It is a code by itself. The bank is a contributor to the C
pension fund. The bank ensures availability of funds with the trustees to
make due payments to the beneficiaries under the regulations. The beneficiaries
are employees covered by the regulation 3. It is in this light that one has to
construe regulation 22 quoted above. Regulation 22 deals with forfeiture of
service. Regulation 22( 1) states that resignation, dismissal, removal or
termination of an employee from the service of the bank shall entailforfeiture D
of his entir.e. past service and consequently shall not qualify for pensionary
benefits. In other wards, the pension scheme disqualifies such dismissed
employees and employees who have resigned from membership of the fund.
The reason is not far to seek. In a self financing scheme, a separate fund is
earmarked as the scheme is not based on budgetary support. It is essentially
based on adequate contributions from the members of the fund. It is for this E
reason that under regulation 11, every bank is required to cause an investigation
to be made by an actuary into the financial condition of the fund from time
to time and depending on the deficits, the bank is required to_ make annual
contributions to the fund. Regulation 12 deals with investment of the fund
where as regulation 13 deals with payment out of the fund. In the case of F
retirement, voluntary or on superannuation, there is a nexus between retirement
and retiral benefits under the provident fund rules. Retirement is allowed
· only on completion of qualifying service which not there in case of resignation.
When such a retiree of opt for self-financing pension scheme, he. brings in
accumulated contribution earned by him after completing qualifying number O
of years of service under provident fund rules where as a person who resigns
may not have adequate credit balance to his provident fund account (i.e.
banks contribution) and, therefore, the regulation 3 does not cover employees
who have resigned. Similarly, in the case of a dismissed employee, there may
be forfeiture of his retrial benefits and consequently the framers of the scheme
have kept out the retirees as well as dismissed employees vide regulation 22. H
1132 SUPREME COURT REPORTS (2004] 2 S.C.R.

A Further, the pension payable to the beneficiaries under the scheme would
depend on income accruing on investments and unless there is adequate '\
corpus, the scheme may not be workable and, therefore, clause 22 prescribes
a disqualification to dismissed employees and employees who have resigned.
Lastly, as stated above, the scheme contemplated pension as the second retiral
benefit in lieu of employers' contributioµ to contributory provident fund.
B Therefore, the said scheme was not a continuation of the earlier scheme of
provident fund. As a new scheme, it was entitled to keep out dismissed _....._
employees and employees who have resigned.

In the light of our above analysis of the scheme, we now proceed to
c deal with the arguments advanced by both the sides. It was inter alia urged
on behalf of the appellant bank that under regulation 22, category of employees
who have resigned from the service and who have been dismissed or removed
from the service are not entitled to pension, that the pension scheme constituted
a separate fund to be regulated on self-financing principles, that prior to the
introduction of the pension scheme, there was in existence a provident fund
D scheme and the present scheme conferred a second retiral benefit to certain
classes of employees who were entitled to become the members/beneficiaries
of the fund, that the membership of the fund was not dependent on the
qualifying service under the pension scheme, that looking to the financial
implications, the scheme framed mainly covered retirees because retirement
presupposed larger number of years of service, that in the case of resignation,
E
an employee can resign on the next day of his appointment whereas in the
case ofretirement, the employee is required to put in certain number of years
of service and consequently, the scheme was a separate code by itself, that
the High Court has committed manifest error in decreeing the suit of the
---
respondent inasmuch as it has not considered the relevant factors contemplated
F by the said scheme and that the pension scheme was introduced in terms of
the settlement dated 29.10.1993 between the IBA and All India Bank
Employees' Association, which settlement also categorically rules out
employees who have resigned or who have been dismissed/removed from the
service.

G Shri R.P. Bhatt, learned senior counsel appearing on behalf of the
respondent in Civil Appeal No. 1506 of2003 inter alia urged that regulation
22 to the extent it provides for forfeiture of service and disqualifying those
who have resigned for pensionary benefits is an arbitrary and unreasonable
classification and repugnant to Article 14 of the Constitution, that regulation ,.
22 was contrary to the objects of the pension scheme embodied in the
H
UCO BANK v. SANWAR MAL [KHARE, CJ.] 1133
regulations, that employees who have resigned after completing qualifying A
service contemplated by regulation 14 were entitled to opt for pension as
they were in a position to bring in their contribution of retiral benefits to their
credit for having worked for a minimum service of 10-years in the bank and
that the respondent had worked for more than 10-years after which he resigned
and, therefore, the fulfilled the qualifying service contemplated by regulation B
14 and consequently, he was entitled to the ben~fit Gf the pension scheme.

We find merit in these appeals. The words "resignation" and "retirement"
carry different meanings in common parlance. An employee can resign at
any point of time, even on the second day of his appointment but in the case
of retirement he retires only after attaining the age of superannuation or in C
the case of voluntary retirement on completion of qualifying service. The
effect of resignation and retirement to the extent that there is severance of
employment but in service jurisprudence both the expressions are understood
differently. Under the Regulations, the expressions "resignation" anq
"retirement" have been employed for different purpose and carry different
meanings. The pension scheme herein is based on actuarial calculation; it is D
a self-financing scheme, which does not depend upon budgetary support and
consequently it constitutes a complete code by itself. The scheme essentially
covers retirees as the credit balance to their provident fund account is larger
as compared to employees who resigned from service. Moreover, resignation
brings about complete cessation of master and servant relationship whereas E

- voluntary retirement maintains the relationship for the purposes of grant of
retiral benefits, in view of the past service. Similarly, acceptance of resignation
is dependent upon discretion of the employer whereas retirement is completion
of service in terms of regulations/rules framed by the bank. Resignation can
be tendered irrespective of the length of service whereas in the case of
voluntary retirement, the employee has to complete qualifying service for F
retiral benefits. Further, there are different yardsticks and criteria for submitting
resignation vis-a-vis voluntary retirement and acceptance thereof. Since the
pension regulations disqualify an employee, who has resigned, from claiming
pension the respondent cannot claim membership of the fund. In our view,
regulation 22 provides fo~ disqualification of employees who have resigned
from service and for those who have been dismissed or removed from service. G
Hence, we do not find any merit in the arguments advanced on behalf of the
respondent that regulation 22 makes an arbitrary and unreasonable
classification repugnant to Article 14 of the Constitution by keeping out such
class of employees. The view we have taken is supported by the judgment of
this Court in the case of Reserve Bank of India and Anr. v. Cecil Dennis H
1134 SUPREME COURT REPORTS [2004] 2 S.C.R.

A Solomon and Anr., reported in (2003) 10 Scale 449. Before concluding we
may state that clause 22 is not in the nature of penalty as alleged. It only
disentitles an employee who has resigned from service from becoming a
member of the Fund. Such employees have received their retiral benefits
earlier. The pension scheme, as stated above, only .provides for a second
B retiral benefit. Hence there is no question of penalty. being imposed on such
employees as alleged. The pension scheme only provides for an avenue for
investment to retirees. They are provided avenue to put in their savings and
as a term or condition which is more in the nature of an eligibility criteria
the scheme disentitles such category of employees out of it.

C For the aforestated reasons, these appeals are allowed and the impugned
judgments and orders are set aside. There shall be no order as to costs.

So far as Civil Appeal No.607 of 2003 is concerned, learned counsel
appearing on behalf of the appellant - bank states that whatever credit balance
to the provident fund account of the employee which was transferred to the
D pension fund shall be refunded to the respondent employee with accrued
interest, if any, if not already refunded.

B.S. Appeals allowed.