Holding

The Court may order a reasonable increase in pension but cannot replace the existing pension scheme with a wholly new set of service conditions, and therefore accepted Scheme C as a one‑time final measure.

Summary

The petitioners, former employees of the Oriental Government Security Life Assurance Company, sought a revision of their pension and dearness allowance under the Oriental Pension Fund now managed by LIC, arguing that the existing minimum pension of Rs.375 was inadequate. LIC contended that the pension fund was a contractual scheme governed strictly by its rules and that any further increase would impose a heavy financial burden. The Supreme Court, exercising jurisdiction under Article 32 read with Article 142, examined whether it could replace the existing pension scheme with a new one and whether the petitioners were entitled to a higher pension. It held that the Court may order a reasonable increase but cannot substitute an entirely new set of service conditions for the existing scheme. After evaluating three schemes presented by LIC, the Court accepted Scheme ‘C’ as a one‑time final measure, raising the minimum pension to Rs.575 with scheduled increments, and rejected the remaining reliefs sought by the petitioners.

Issues considered

Can the Supreme Court, under Article 32/142, substitute a completely new pension scheme for the existing Oriental Pension Fund?
Are the petitioners entitled to a further increase in minimum pension and dearness allowance beyond the interim order of Rs.375?
Which of the proposed schemes (A, B, or C) is a permissible and equitable solution balancing pensioners' needs and LIC's financial constraints?

Legislation cited

Life Insurance Corporation Act, 1956s. 8(1), s. 8(3)

Subjects

pension revisionLife Insurance CorporationArticle 32Article 142dearness allowanceservice conditionscontractual obligationscheme Cfinancial burden

Judgment

A V.M. GADRE
v.
M.G. DIWAN

MARCH 15, 1996

B [A.M. AHMADI, 0., N.P. SINGH AND S.P. BHARUCHA, JJ.]

Life Insurance Corporation Act 1956-Ss. 8(1), 8(3) r/w Pension Fund
Rules, Rules JO, 11 and 24-Life Insurance Corporation (LIC) taking over
management of Pension Fund of employees of Oriental Government Security
+
C Life Assurance Company upon nationalisation--Periodic increase in pension
amounts stopped since 1984-Supreme Court by interim orders directing min-
imum pension of Rs. 375--Petitioners claiming revision of pension consistent
with increased cost of livin~Held, as a one-time. final measure Scheme 'C'
worked out by LIC under which minimum pension worked out to Rs. 575
D accepted-Constitution of India, Articles 14, 38 and 39.

Constitution of India-Article 32 r/w 142--Writ Petition by erstwhile
employees of nationalised insurance company claiming revision of pen-
sion-Held, while exercising jurisdiction under Article 32 read with 142 it
would not be pennissible for Court to substitute a totally new pension plan
E in place of an existing one-l'ractice and Procedure.

The petitioners were erstwhile employees of the Oriental Govern·
ment Security Life Assurance Company ('Company'). Under s.8(1) of the
Life Insurance Corporation Act, 1956 ('Act') the Pension Fund created by
the Company came to be vested in the Life Insurance Corporation of India
F (LIC). Under s. 8(3) LIC created a trust named the LIC (Oriental) Pension
Fund and made Rules and Regulations for its management.

While there was no increase in the dearness allowance component,
the pension was revised by LIC in 1980 and 1984. Thereafter there was no
G further revision,

The petitioners numbering 669, of which all but two or three had
retired, in a writ petition filed in the Supreme Court in 1988, sought
directions to LIC to step up the pension to a minimum of Rs. 375 p.m. and
to grant dearness allowance/relief as admissible to pensioners of the
H Central Government or the State Bank of India with effect from 1.1.1973.
480
t
I

V.M. GADREv. M.G. DIWAN [AHMADI, CJ.] 481

LIC contended that the petitioners were on a better footing than those A
covered by the Provident Fund Scheme. The Pension Fund was contractual
in nature
-<. _.,.
and had to be strictly governed by the Rules framed for the
purpose;

By an interim order made in May, 1991 this Court directed the
minimum pension to be raised to Rs. 375. During the hearing, at the B
request of the Court, LIC presented three alternative schemes ('A', 'B' and
'C') of revision of pension. Under Scheme 'C' the minimum and maximum
pension amounts would be revised to Rs. 575 and 2131 respectively over a
·• period of five years.

Partly allowing the Writ Petition, this Conrt c
HELD : 1. Scheme 'C' is accepted as a one-time final measure. This
scheme is more beneficial and would also provide a measure of satisfaction
in view of the annual increments. [490-B]

2. While exercising jurisdiction under Article 32 read with Article
D
~ 142 it would not be permissible for the Court to substitute all the existing
service conditions by a totally new set of service conditions. That would
tantamount to re~writing the service conditions and conseqentially the
retiral benefits as well for all those who had retired long back and are in
receipt of pension under the extant rules. [486-H, 487-A] E
CIVIL ORIGINAL JURISDICTION : Writ Petition (C) No. 127 of
1988.

"'· (Under Article 32 of the Constitution of India.)
F
Ms. Indira Jaisingh, P.H. Parekh for the Petitioners.

R.P. Kapur (NP) for the Respondents.

Barish N. Salve, Kailash Vahdaw, (R.B. Misra) for Ms. A. Sub-
hashini for the Respondents. G
· 'I' The following Jndgment of the Court was delivered by

AHMADI, CJI. By ihis petition brought under Article 32 of the
Constitution of India by and on behalf of the retired and in-service
employees of Life Insurance Corporation of India ('LIC' for short) who H
482 SUPREME COURT REPORTS [1996] 3 S.C.R.

A were employee of the erstwhile Oriental Government Security Life As-
surance Company, Limited, (hereinafter called 'the Company"), certain
reliefs in regard to the upward revision of pension and dearness allowance
.,
or dearness relief payable thereon and other reliefs related thereto are
sought. The brief facts which are relevant for our purpose are as follows :

B The erstwhile Company had sometime in the Year 1908 established
a Pension Fund for the Oriental employees which on the nationalisation of
life insurance business under the Life Insurance Corporation Act, 1956
(hereinafter called 'the Act') has been renamed Life Insurance Corpora-
tion (Oriental) Pension Fund. Thus, the responsibility of managing the said •
c Fund was taken over by the LIC. The Company had framed rules for the
administration of the pension Fund; Rule 10 whereof provided for addition
of interest to the said Fund to the extent it would work out to 5% of the
amount of the Pension Fund at the close of the year. Rule 11 permitted
additions to the Fund by way of subsidies. Rule 24 provided for minimum
pension.
D
The petitioners who are erstwhile oriental employees and •
beneficiaries under the said Fund contend that the pension amount admis-
sible under the said scheme is very meagre and, therefore, to ameliorate
the conditions of the old and infirm pensioners it is necessary to revise the
E pension adequately, consistently with Articles 38 and 39 of the Constitu-
tion. The petitioners contend that employees other than Oriental
employees are paid dearness relief on their pension money while the same
benefit is not extended to pensioners governed under the Pension Fund.
;.
F The Oriental employees is a withering class. At the date of the
institution of the petition they number 669, all of whom barring two or three
had retired, say the petitioners. Under the Pension-plan worked out for
such employees, every employee had to contribute 5% of the substantive
monthly salary and the employer had to make a matching grant every six
months. He also the employer was required to pay interest on the monies
G contributed to the Fund so, however, that the total interest added at the
end of each year was equivalent to 5% of the total Fund. After the Act, )C

the LIC took over the assets & properties of the erstwhile Company. By
reason of Section 8(1) of the Act, the Pension Fund came to be vested in
tl.e LIC. Tbe latter created a trust under Section 8(3), namely, the LIC
H (oriental) Pension Fund which is being managed by the LIC under the
V.M. GADREv. M.G. DIWAN [AHMADI, CJ.] 483

Rules and Regulations made under the Act. A

The Pension-Fund established in 1908 underwent several changes
and before it was taken over by the LIC, the erstwhile Company had started
giving dearness allowance to the pensioners at varying rates form Rs. 4 to
Rs. 8 per month. The increase was granted from the general revenues of B
the Company and not the Pension Fund. That is because Rule 11 permitted
addition to the Fund by way of subsidies by the Company from time to
time. The said rule enabled the Company to contribute to the Pension-
Fund. Accordingly, even after nationalisation, the petitioners received
dearness allowance upto about 1959, when the same was merged with
pension and the practice of paying dearness allowance or relief on pension C
was discontinued. The pension was revised in 1980 and 1984 due to
availability of funds in the Pension Fund but not by way of dearness
increase. Efforts to seek increase in pension have since failed. The
petitioners complain that out of the pension paid to them, 6.38% is
deducted every month to guarantee the payment of pension for ten years D
to the pensioners or their legal representatives. Since the cost of living was
increasing by leaps and bounds the Oriental pensioners were finding it
difficult to survive on their meagre pensions and hence they demanded
increase in their pension amount by addition of dearness allowance as in
the case of State and Central Government pensioners. Their plight was
even worse because their pensions had not been revised since 1954 and E
there was actually no increase in the dearness a11owance on pensions since
the last 33 years or thereabouts. They, therefore, approached the Govern-
ment to do away with the 6.38% deduction and enhance the pension
consistently with the standard of living and other economic factors relevant
to the same by giving dearness allowance. Reliefs in regard to certain other F
matters like medical allowance, family pension, etc., have also been sought.

The LIC in its counter contends that after the insurance business was
nationalised with effect from 1st September, 1956, under Section 7 of the
Act all assets and liabilities of existing insurers carrying on business in life G
insurance came to be transferred to and vested in the LIC. Section 8 of
the Act inter alia provided for dealing with provident, superannuation and
other like funds. The existing Pension Fund governing the Oriental
employees was thus taken over by the LIC and has since been managed
like an independent trust. This being the only pension scheme operating
within the fold of the LIC, it is managed strictly in accordance with the H
484 SUPREME COURT REPORTS [1996] 3 S.C.R.

A rules and regulations governing the same. The entry to the said Pension
Fund was closed by closed by the erstwhile Company in 1947 and therefore
all employees who joined the Company after 1947 were not contributories "
to the Pension Fund but became contributories to the Provident Fund
Scheme. Thus, members who joined the Fund did not received any Provi-
dent Fund benefits and vice-versa. It is further stated that the Pension Fund
B is not akin to the Pension Scheme governing the State employees and the
Central employees because it is governed under a different set of rules and
regulations and has been treated as a protected fund under the provisions
of the Act. On March 2, 1968, the said Pension Fund Rules were amended
to secure, among others, a guaranteed pension for 10 years instead of
c pension for life to those who were desirous of availing of the same. This
was to meet with the demands made by the Oriental pensioners for
improvement in the Scheme. Their main grievance was that there was no
guarantee of pension and if they were to die, their legal representatives
were granted only the residue of their contributions. It is further contended
that increase in pension was given from time to time, the last such increase
D being of 1984. It is pointed out that the Oriental pensioners received a
much larger sum as pension than the amount received by their counterparts
by way of contribution to the Provident Fund; while the former contributed
only 5% of the basic salary with contribution by the employer to the fund
plus the deficit made good placed them on a far better footing than
employees governed under the Provident Fund Scheme. To illustrate this,
E a short comparative chart has been set out in paragraph 11 of the counter
affidavit. The LIC further contends that the Pension Fund continued by it
after its constitution under the Act was in the nature of a contractual
obligation and had to be governed strictly in accordance with the rules and
regulations farmed for its management. The LIC, therefore, cannot dis-
F criminate between those governed under the Pension Fund and those
governed under the Provident Fund Scheme. Yet, however, it has to the
extent possible under the rules and regulations governing the Pension Fund
given grants from time to time to ensure that the fund does not deplete. In
fact, the increase in the pension in the year 1984 was so generous that it
exceeded the demand for dearness allowance on pension. The deficit made
G good by Corporation has at times been in excess of 5% contribution
required to be made by it under the rules. Lastly, it is said that this Court
should not exercise its jurisdiction under Article 32 of the Constitution
because the very same dispute was the subject matter of Writ Petition No.
5137 of 1976 filed under Article 226 of the constitution in the High Court
of Bombay wherein the Court after considering the pros and cons of the
H
r
!
V.M. GADREv. M.G. DIWAN [AHMADI, CJ.] 485

demands made by oriental employees rejected the same. A
Rule Nisi was issued on 8.11.1988. While issuing rule, this Court
made an interim order after hearing learned counsel for the parties direct-
ing the UC to pay a minimum amount of Rs. 250 as pension to the
pensioners getting less than Rs. 250. This minimum amount was sub-
sequently raised to Rs. 375 by an order dated 7.S.1991. The UC contends B
that as at present under this Court's order the Oriental pensioners covered
under the Fund are actually receiving more than the employees covered
under the Provident Fund Scheme; any further increase will prompt the
latter to demand that they too be covered under the said or similar pension
scheme. The LIC, therefore, prays that this Court should refrain from C
hiking up the pension any further as it is likely to set in motion a chain
reaction which will throw a hugs financial burden on the LIC. Thus, as the
position presently stands, the minimum pension is of Rs. 375 p.m. and the
maximum pension is of Rs. 1202.50 p.m.

It is pointed out by the UC that since the Fund is recognised under
D
the Income Tax Act, 1962 and Rules framed thereunder, all its investments
have to be made in accordance with the provisions of the Act and the
Rules, in particular Rule 67, and hence it is obligatory on the part of the
LIC to invest the Fund money in accordance with the said provisions. In
the year 1986 the corpus available was Rs. 1,95,22,000 which yielded E
interest of Rs. 16,73,600 at the rate of 8.96%, in 1987 the annual corpus
was Rs. 1,88,26,000 which generated interest of Rs. 17,34,400 at the rate of
9.70% and in the year 1988 the corpus was of Rs. 1,83,76,000 and the
income by way of interest was Rs. 18,92,500 calculated at 10.86%. The
above are arinual mean figures which sho'v that every year the corpus was
shrinking notwithstanding the higher interest return. In 1988 the annual F
outgo was Rs. 31,54,000 as against the income of Rs., 18,92,500. This is on
account of the fact that Fund is a reducing one which is expected to dry
up with the passing away of the last surviving member. This is to show that
the calculation based on 13% return is fallacious.

It is further the case of the LIC that in order to pay a minimum
G
pension of Rs. 375 p.m. it will require an amount of Rs. 8,35,000 at the
initial stage to be followed by further subventions to maintain the viability
of the Fund and if payment has to be made at that rate from 1.1.1986 the
Fund will have to be augmented by a sum of Rs. 26,00,000 to meet its
liability upto 30.4.1991 and with the added liability of dearness allowance H
486 SUPREME COURT REPORTS (1996] ~ S.C.R.

A or relief on pension for the said period the additional liability will be a
further Rs. 11,90,00,000, a financial burden which LIC can ill-afford to
meet. If the reliefs claimed by the Oriental pensioners is conceded under
different heads the total liability is expected to rise to Rs. 24,20,86,642.
Such a huge financial burden cannot be borne by the LIC yet the UC has
provided subvention to the tune of Rs. 1,43,00,000 from 1965 to .1985. The
B LIC's contributions to the Fund thus work out to be 22.5% as against the
maximum 10% interest paid on Provident Fund Deposits. The Oriental
pensioners are thus better placed and hence the demand by the LIC
employees to be brought on par with the Pension-Plan.

C Several reliefs have been claimed in paragraph 55 of the writ petition.
The first two reliefs need be noticed. The first is to step up the pension to
a minimum of Rs. 375 p.m. and the second is to grant dearness al-
lowance/relief linked with the cost index number in January and July every
year as is admissible to pensioners of the Central Government or the State
Bank of India with effect from 1.1.1973. There is the demand for refund of
D the 5% contribution recovered from 1954 and to discontinue the deduction
made al the rate of 6.38% from the pension payable under the scheme.
Next it is prayed that a Family Pension Scheme and Medical Reimburse-
ment Scheme be introduced and the fixation of the pension amount be
revised on the basis of the one calculated on the average pay of last ten
E months. It is obvious from the above reliefs claimed in this case that the
pensioners desire to give a complete go-by to the extant pension-plan and
replace it by a totally new scheme. These demands made in a petition under
Article 32 of the Constitution totally overlook the fact the Court cannot
substitute a totally new pension-plan in place of an existing one as each
service and each institution has its own service conditions and merely
F because in another service the pension-plan is better it cannot be adopted
and substituted in a different service. In any service a pension-plan is only
one component of the basket of service conditions for that service and it
cannot be viewed in isolation and where comparison is permissible all the
conditions have to be compared because in one service weightage may have
G been given to fixation of pension whereas in another the benefit may have
been given to house rent or maximum medical expenses. This becomes
clear if we examine cases under the Industrial Disputes Act where ques-
tions of fixation of service conditions on region-cum-industry basis are
attempted. While exercising jurisdiction under Article 32 read with Article
142 it would not be permissible for the Court to substitute all the existing
H service conditions by a totally new set of service conditions. That would
,_

/
V.M. GADREv. M.G. DIWAN [AHMADI, CJ.] 487

tantamount to re-writing the service conditions and consequentially the A
retiral benefits as well for all those who had rrtired long back and are in
receipt of pension under the extant rules. Realising this difficulty the relief
was confined to the fust two demands only and that too in a modified form.
The learned counsel for the LIC submitted that if the Court on
humanitarian grounds proposes a reasonable hike in the pensionary benefit
without raising an excessive fiscal burden, it will have no objection to grant B
the same.

We must, therefore, confine ourselves to the first two. reliefs. Actually
the relief for fixation of the minimum pension at Rs. 375 p.m. has in fact
been satisfied by the interim order of this Court. Counsel for LIC did not
contend for its reduction. However, counsel for the petitioners contended C
for increase in the minimum in view of the passage of time since the filing
of this petition. During the course of the hearing of this petition at the
behest of the Court, several alternatives were worked out by the LIC and
presented to the Court. these may be reproduced as under :

nsche1ne A: D

The Pension Fund will be dissolved and the corpus of the Fund
will be applied for issuing individual annuity policies to the pen-
sioners. On doing so all the pensioners will be allowed an increase
of 10% in the pension and the minimum pension will be increased E
to Rs. 500 - per month. The pension presently being paid and the
annuity payable on giving 10% rise to a few of the pensioners are
as follows :

Pension being paid as per the Annuity on revision
Interim Order .dated 7.5.1991 F
(Rs.) (Rs.)
375 500
444 500
512 563
605 666
703 773 G
806 887
898 988
933 1026
1133 1246
1202.50 1323
H
•
488 SUPREME COURT REPORTS [1996] 3 S.C.R.

A Scheme B:

The Pension Fund will be dissolved and the corpus of the Fund
will be applied for issuing individual annuity policies to the pen-
sioners. Every pensioner will be given a minimum annuity of Rs.
500 per month. Further, the pension will be increased every year
B at 2.5% per annum. The pension presently being paid and the
annuity payable to a few of the pensioners for the next 10 years
will be as follows :

Pension being paid Annuity payable on revision
as per the Interim
c Order dt. 7.5.1991 Aug 94 Aug 95 Aug 96 Aug 97 Aug 98

375 500 513 526 539 552
444 500 513 526 539 552
512 25 538 551 565 579
605 620 636 652 668 685
703 721 739 757 776 795
D 806 826 847 868 890 912
898 920 943 967 991 1016
933 956 980 1005 1030 1056
1133 1161 1190 1220 1251 1282
1202.50 1233 1264 1296 1328 1361
E Pension being paid Annuity payable on revision
as per the Interim
Order dt. 7.5.1991 Aug 99 Aug 2000 Aug 01 Aug 02 Aug03

375 566 580 595 610 625
444 566 580 595 610 625
F 512 593 608 623 639 655
605 702 720 738 756 775
703 815 835 856 877 899
806 935 958 982 1007 1032
898 1041 1067 1094 1121 1149
933 1082 1109 1137 1165 1194
G 1133 1314 1347 1381 1415 1450
1202.50 1395 1430 1466 1503 1541

Scheme C:

·H If the corpus of the Fund on dissolution of the Oriental Pension
V.M. GADREv. M.G. DIWAN [AHMADI, CJ.] 489

Fund is taken to be Rs. 2 crores and if an increase of 10% per A
annum in the annuity is to be provided, the minimum pension
amount that would be possible is Rs. 575 p.m. and the pension
payment to a few of the pensioners for the next 5 years would be
as follows :
As per Interim Annuity Polices As above B
Order dt. 7.5.1991 Aug 94 Aug 95 Aug 96 Aug 97 Aug 98 Aug 99

Rs. 375 575 633 696 766 843 927
Rs. 444 575 633 696 766 843 927
Rs. 512 575 633 696 766 843 927
Rs. 605
Rs. 703
666
773
733
850
806
935
887
1029
976
1132
1074
1245
c
Rs. 806 887 976 1074 1181 1299 1429
Rs. 898 988 1087 1196 1316 1448 1593
Rs. 933 1026 1129 1242 1366 1503 1653
Rs. 1133 1246 1371 1508 1659 1825 2008
Rs. 1202.50 1323 1455 1601 1761 1937 2131 D
Individual Annuity polices will be issued to provide for the payment as
above. 11

We have carefully considered the three schemes worked out at our
behest. It was emphasised on behalf of LIC that any increase in pension E
will throw a corresponding financial burden on establishment. It was
further urged that in law the pensioners are not entitled to any increase
but the LIC has always adopted a humanitarian approach in such cases
and has, therefore, even in the past granted reasonable increases in pen-
sion. Therefore, counsel for the LIC contended the increase, if any, must
take into consideration the financial burden that may fall on the LIC. F
Howcyer, counsel for the pensioners submitted that the pensioners having.
served the establishment faithfully during their service can legitimately
expect a reasonable sum by way of pension which would help them to
survive in these days of high inflation. The pensioners when they subscribed
to the pension-plan conld not have imagined the fall in the rupees value G
and could not have visuali.,ed the high cost of Jiving and, therefore, where
the establishment can bear the burden, the court should not deny to them
a reasonable increase in pension.

Taking in view the above submissions we are of the opinion that
Scheme 'A' gives only a marginal benefit to the pensioners at the levels H
490 SUPREME COURT REPORTS [1996]3 S.C.R.

A below the minimum. Scheme 'B' is an improved version of scheme 'A' and
offers an annual increase but having regard to the age factor of the
pensioners the progression in regard to annual increments is rather slow
and limited. We are, therefore, inclined to accept Scheme 'C' since we are
accepting it as a one-time final measure. We find that this scheme is more
beneficial and would also provide a measure of satisfaction in view of the
B annual increments.

In the result we allow the petition to the aforesaid limited extent only.
We reject the rest of the reliefs prayed for. We make it clear that we are
accepting Scheme 'C' in full and final settlement of the claim made by the
petitioners. No further claim will be entertained. Under Scheme 'C' the
C petitioners will be entitled to revised pension from August, 1994. Annual
increase in pension will be allowed as per the said table of Scheme 'C'. If
there are intermediary scales, the pension in regard to them will be fixed by
the LIC. The differenee in pension paid for the month of August, 1994 and
thereafter and that payable under Scheme 'C' Should be worked out within
D two months and be paid to the pensioner or his legal representatives (if he or
she is no more) within even time. Future pension should be paid as per
formula of scheme 'C', which will supersede all prior arrangements in regard
to the pension plan. We once againmake it clear that this revised Scheme 'C'
pension-plan is in full and final settlement of all claims of the pensioners. The
petition shall stand so disposed of with no order as to costs.
E
J.N.S. Petition disposed of.