Holding

Fixing a cut‑off date based on rational criteria such as the price‑index level and the Third Pay Commission’s recommendation is not arbitrary, and the dearness‑pay scheme and related options are valid under Article 14.

Summary

The Union of India appealed against a High Court order that had upheld a writ petition filed by retired government servants (P.N. Menon and others) who argued that Office Memorandum No. F‑19(4)‑E.V./79 of 25 May 1979, which treated a portion of dearness allowance as "dearness pay" for pension and gratuity calculations, should have been applied to all retirees irrespective of their retirement date. The petitioners had retired before 30 September 1977, the cut‑off date fixed in the memorandum, and claimed the scheme was discriminatory under Article 14 of the Constitution. The Supreme Court held that the cut‑off date was based on the average cost‑of‑living index (level 272) and the Third Pay Commission’s recommendation, making it a rational classification and not arbitrary. The option given to retirees between 30 September 1977 and 30 April 1979 to choose inclusion or exclusion of dearness pay did not create a class within a class. The Court also held that newer schemes such as leave encashment and the non‑contributory family pension could not be applied retrospectively to those who had already retired. Consequently, the appeal was allowed and the High Court judgment set aside.

Issues considered

The validity of fixing 30 September 1977 as a cut‑off date for the dearness‑pay scheme under Article 14.
Whether the Office Memorandum creates an arbitrary or discriminatory classification among retirees.
Whether the option to include or exclude dearness pay creates a class within a class.
Whether the leave‑encashment and family‑pension schemes can be applied retrospectively to retirees who retired before the schemes were introduced.

Legislation cited

Central Civil Services (Pension) Rules, 1972s. Rule 33
Constitution of Indias. Article 12, s. Article 14, s. Article 226

Subjects

Article 14dearness allowancepensiongratuitycut‑off dateclassificationretirement benefitsCentral Civil Services (Pension) Rulesretrospective applicationpublic service law

Judgment

A UNION OF INDIA
v.
P.N. MENON AND ORS.

MARCH 17, 1994
B
[AM. AHMADI AND N.P. SINGH, JJ.J

Constitution of India 195(}-Article, 14-Central Civil Services (Pen-
sion) 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 ofpension 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.
D
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.
E
Scheme forencashment of earned leave-Family pension scheme made
non-contributory-Fixation of cut-off dates for eligibility-Held, not ar-
bitrary-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
I ~-
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 D
·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 Com-
mision. As such it cannot be held that the cut off date has been selected E
in an arbitrary manner. (52-F-G)

D.S. Nakara and others v. Union of India, [1983) 2 SCR 165, distin-
guished.
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. G

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
)'

46 SUPREME COURT REPORTS [1994] 3 S.C.R.

A 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)
B
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.
E
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 Ayyangar 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.
U.0.1. v. P.N. MENON [N.P. SINGH, J.] 47

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 B

N.P. SINGH, J. The respondents, who are retired Government ser-
vants 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
c
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 ser-
vants, irrespective of their date of superannuation.
D
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.
E
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, 0 being 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
'
)

48 SUPREME COURT REPORTS [1994] 3 S.C.R.

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 Govern-
B
ment 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
c 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 p~y 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
E 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,
F 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,
who retired on or after 30th September, 1977 but not later than 30th April,
H 1979, will have an option to choose either of the two alternatives given in
U.0.1. v. P N. MENON [N.P. SINGH, J.] 49

~·· the said Office Memorandum :- A
"(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

OR

(b) to have their pension and DCR Gratuity recalculated after
taking into account the element of dearness pay. In such
t
cases, the first four instalments of graded relief sanctioned
c
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 ser-
vants, 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
E
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 F
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.
G
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
)

50 SUPREME COURT REPORTS [1994] 3 S.C.R.

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
B 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 r~ndered in the past and to ensure
c 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.

D
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
E 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
F
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 :·
G
"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
H revised. 11
'U.0.1. v. P.N. MENON [N.P. SINGH, J.] 51

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.
B
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-cum-
retirement 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 Ihose 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 al-
lowance, which is based on the level of price index. Different institu-
tions/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
52 SUPREME COURT REPORTS [1994] 3 S.C.R.

A 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 Septem-
ber, 1977 or retired after 30th September, 1977, but had opted not to get
the benefit of the impugned Office Memorandum.

B 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
c Government servants. Respondents, who were not in service on the
relevant date, cannot make any grievance of the scheme regarding encash-
ment 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,
D
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.
E 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 con-
tributed by them under the old scheme, while they were in service, did not
F 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
U.O.l. v. P.N. MENON [N.P. SINGH. J.] 53

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 superan-
nuated 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
B
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. C

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 contribu-
tion 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
54 SUPREME COURT REPORTS (1994] 3 S.C.R.

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
because the pension retirees in course of time because of revision, were
B 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 :·

1
' We have referred to this decision merely to indicate that another
F 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 com-
G putation of their pension be different.11

Jn the case ·of State Gove1nn1ent Pensioner~/ Association v. State of
Andhra Pradesh, I1986] 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
U.0.1. v. P.N. MENON [N.P. SINGH, J.] 55
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 retrospec-
tively. 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
B
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.pril 1 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 c
of D.S. Nakara's case (supra) was not applicable.

In yet another case of All India Reserve Bank Retired Officers Associa-
tion 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 Provi-
dent 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 E
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 F
September, 1977 but not later than 30th April, 1979, to exercise an option
to get their pension and" death-cum-retirement gratuity calculated by ex-
cluding the element of dcarnes' pay as indicated in the aforesaid Office
~Icn1orandun1 or tn gel it included in their pension and death-cum-retire-
ment 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
56 SUPREME COURT REPORTS [1994] 3 S.C.R.

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-con-
tributory. 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
had already been contributed by them, did arise. According to us, the High
B 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.