Retired Officers Welfare Society & Ors vs Indian Oil Corporation Ltd. & Anr on 4 April, 2025

April 9, 2025

Delhi High Court

Retired Officers Welfare Society & Ors vs Indian Oil Corporation Ltd. & Anr on 4 April, 2025

1. Petitioner No. 1 in W.P.(C) 4406/2017 is Retired Officers Welfare
Society of Indian Oil Corporation Ltd. (‘IOCL’) while Petitioners No. 2 and
3 are individual retired officers. Petitioners in W.P.(C) 7690/2017 are

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individual retired employees of Mathura Unit of IOCL. Petitioners lay a
challenge to impugned Circular dated 19.04.2011 and Office Memorandum
dated 01.06.2011 as also Deed of Variance dated 18.05.2011 issued by
IOCL, whereby Superannuation Benefits Fund Scheme (‘hereinafter referred
to as ‘SBF Scheme’) dated 24.12.1987 was retrospectively modified w.e.f.
01.01.2007. Declaration is sought to declare that all Deeds of Variance
making changes to Principal Trust Deed dated 24.12.1987 are illegal and
void ab initio. Writ of Mandamus is sought to IOCL to restore pension
benefits to the Petitioners in accordance with the original SBF Scheme
calculated on actual salary (Basic Pay + DA) and reckonable years of
service as on actual date of superannuation of the members of Petitioner
No.1 Society and individual retirees, who superannuated after 01.01.2007.
On account of similitude of legal issues with respect to the same SBF
Scheme, both petitions were heard together and are being decided by this
common judgment.

2. Facts to the extent necessary and as averred in the writ petitions are
that Board of Respondent No.1/IOCL vide Board Agenda No.CH/371 in a
meeting held on 05.11.1986, passed a resolution approving in principle, the
institution of a Self Contributory Superannuation Benefits Fund Scheme
(‘hereinafter referred to as ‘SBF Scheme’) on co-operative basis for the
employees of the Corporation, as a social welfare measure and to enable the
Corporation to attract and retain talent. The proposed scheme was felt
necessary as the existing benefits available to employees by way of
Provident Fund, Gratuity, Encashment of leave were inadequate to meet the
needs of the employees in their post-retirement phase. To secure their retired
life, employees conveyed their willingness to contribute part of their salaries

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and also to forego some of the existing benefits like uniform allowance etc.
to contribute indirectly towards the corpus.

3. It is averred that prior to grant of in-principle approval by the Board, a
study was made with the help of Consulting Actuaries as to the funding
needed for ensuring a guaranteed superannuation benefit @ 40% of the
salary (Basic Pay + DA) of the employee upon his retirement with a
consideration that an employee would contribute for minimum 32 years of
service. Pursuant to Resolution dated 05.11.1986, IOCL through its
Director, Director (Finance), Director (Marketing) and Director (R&P)
entered into a Memorandum of Understanding (‘MoU’) dated 07.11.1987
with the representatives of the Indian Oil Officers’ Association, for setting
up the Self Contributory Superannuation Benefits Fund (‘SBF Fund’) for the
benefit of the employees of the Corporation. The salient features of MoU
were nearly similar to the Board Agenda dated 05.11.1986, save and except,
the following salient deviations:

“a). As per Note of Clause 2, Officers having service of less than 5 years
for superannuation shall be required to contribute minimum for a period
of 5 years. For this purpose, contribution was to be made on monthly basis
during the service period and balance was to be paid in lumpsum at the
time of superannuation.

b). As per Clause 5, 32 years’ service was replaced with 32 [full] years’
reckonable service for earning full 40% of benefits.

c). As per Clause 8, no officer was required to contribute for the past
service.”

4. With the above deviations, an officer superannuating immediately on
implementation of the proposed scheme was eligible for the benefit merely
by paying contribution for a period of 5 years only. During the initial years
of the SBF Scheme, numerous objections were raised by some of the
employees especially younger group, who did not want to opt for this

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Scheme, considering that the proposed contribution including surrender of
allowances was not in line with the envisaged benefits. However, the
employees were assured that the proposed scheme would provide them a
social security to lead a reasonably comfortable post-retirement life, which
was more crucial and important than current benefits. Clause 13 of the MoU
provided that if in future, Government of India came up with any
Pension/Superannuation Scheme, the same would be introduced in addition
to SBF Scheme.

5. By an Internal Office Memo (‘IOM’) dated 10.11.1987, IOCL
formally introduced the SBF Scheme in its different Divisions. The Scheme
was made applicable to all officers, new entrants and the promotees from
amongst the ranks of non-officers in service as on the date of introduction of
the Scheme. It was stated in the IOM that monthly fixed rate of contribution
would be in the range of 2% to 5% of the salaries, depending upon the age
group and cost towards surrender of the allowances such as Benevolent fund
for education, compensation towards rehabilitation of a spouse on death of
an officer while in service, Tea/Coffee allowance, washing allowance,
uniform allowance etc. would go as contribution to fund the SBF Scheme. In
return, SBF Scheme assured 40% of the last drawn salary (Basic Pay +
Dearness Allowance) for a reckonable service of 32 years as monthly
pension and for lesser period pension was to be pro-rated. IOCL was to pay
monthly pensions by purchasing annuities of equivalent value from LIC
from the fund accumulated with the Trust.

6. It is stated that pursuant to the MoU, a Trust Deed dated 24.12.1987
was executed and signed between IOCL and the Trustees to form the Indian
Oil Employees Superannuation Benefit Fund. The signatories to the Trust

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Deed were the then Chairman of IOCL and the then Director (Finance) and
Director (Personnel) of IOCL as Trustees and the then President of Indian
Oil Officers’ Association. Although the Scheme was primarily funded by
employees’ contributions, power to appoint the Trustees rested with the
Chairman of IOCL. The number of Trustees was to be kept at minimum of
two but not more than nine. Normally, majority of Trustees including
Chairman and Secretary were officers of IOCL. Therefore, for all practical
purposes, IOCL and the Trustees were one i.e. Trustees were the extended
arm of IOCL and worked under the aegis and control of IOCL. In a nutshell,
corpus of the Trust was to be used for working the SBF Scheme, which was
a self-contributory scheme and the corpus comprised of monthly
contributions by employees from their salaries as also costs of allowances
surrendered by them.

7. It is averred that in consonance with Rule 16(a)(iii) of the Trust Deed,
IOCL was to pay annual contribution as determined by actuarial valuation
not exceeding the limit prescribed under Rule 87 of the Income Tax Rules,
1962 i.e. 25% of salary of an employee reduced by employer’s contribution
towards provident fund. Notably, Rule 4.12 of “Rules and Regulations of
Indian Oil Corporation Limited Employees Superannuation Fund” framed
as Schedule to the Trust Deed stipulated that the Trustees may at any time
by a Resolution and with the consent in writing of the company, but not
otherwise, alter, vary or/amend any of the provisions of the rules, provided
that subject to Rule 9.2, no such alternation or variation shall be inconsistent
with the main objects of the Trust nor shall such alteration or variation in
any way prejudice the rights or interests of a member or his beneficiaries. As
per Rule 21, no monies belonging to the Fund shall be receivable by the

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Company under any circumstances nor shall the Company have any lien or
charge on the Fund.

8. It is stated that a Deed of Variation was executed on 24.03.1988
wherein provision of contribution by the employer towards cost of
Benevolent Fund i.e. Rs. 25/- per month was removed and a new provision
i.e. a token contribution by employer of Rs.100/- per year to the Trust to
meet Income-Tax requirements was introduced. Statutory approval of SBF
Fund w.e.f. 07.11.1987 was granted by Income Tax Authority, Mumbai vide
Order No. B.C.NO.T.II/251/7/87-88 dated 08.04.1988.

9. It is averred that between the years 1987-1995, post signing the MoU
with Indian Oil Officers Association, IOCL signed 20 more such Tripartite
Agreements through Conciliation proceedings under Section 18(1) of
Industrial Disputes Act, 1947 before the respective ALC/RLC/DCCC with
various collectives-20 Recognized Unions of IOCL on different dates to
cover all the Non-Officers/Staff/Workmen under same social security cover.
All these agreements had same/similar provisions like MoU with Officers.
Significantly, after implementation of the scheme for all employees, the
scheme was also made a part of the service conditions as could be seen from
appointment letters as also notifications for filling up vacancies on different
posts.

10. It is further averred that on 06.01.1992, a Deed of Variation was
executed affecting a change in Rule 18.2(c). Under the earlier Rule, when a
member resigned, without completing the qualification service of 15 years,
accumulated contribution was to be refunded without interest, however, as
per modified Rule, 10% per annum interest was payable. IOCL introduced a
monthly ex-gratia payment system w.e.f. 01.12.2003 exclusively for ex-

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employees who were not covered by SBF Scheme and to pay the differential
amount to those employees who superannuated after introduction of SBF
Scheme in 1987 and drawing less than ex-gratia amount payable under the
Scheme.

11. It is averred that in the year 2000, to optimize manpower, a lucrative
One Time Voluntary Separation Scheme (‘OVSS’) for the employees of 50
years and above age, was introduced by IOCL. Under this Scheme in
addition to almost full salary for the balance period of service, full pension
depending upon their reckonable service on that day was also granted. This
unplanned mass retirement (about four times the normal average) resulted in
temporary shortage of funds. Accordingly, as recommended by Advisory
Council, the Trust in its 27th Board meeting held on 03.01.2003 decided that
the salaries of the employees for calculation of the pension payable under
the SBF Scheme will be frozen as on 01.01.2003. The subsequent increase
in the salaries was limited to 7% p.a. for the purpose of calculation of
pension. Further, as recommended by Advisory Council, the fund was to be
reviewed every six months to take remedial measures.

12. It is averred that pursuant to recommendations of the Justice (Retd.)
M. Jagannadha Rao Committee, Department of Public Enterprises (‘DPE’)
vide Office Memorandum dated 26.11.2008 revised the pay scales for Board
Level and below Board level Executives and Non-Unionized Supervisors in
Central Public Sector Enterprises (‘CPSEs’) w.e.f. 01.01.2007 for a period
of 10 years. CPSEs were allowed to contribute 30% of Basic Pay as
superannuation benefits, which may include Contributory Provident Fund
(‘CPF’), Gratuity, Pension, and post-superannuation medical benefits. DPE
vide O.M. dated 02.04.2009, clarified that the 30% limit on the

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superannuation benefits, would be calculated on Basic Pay plus DA, instead
of Basic Pay alone. With the above guidelines of DPE, IOCL after
discounting payments made towards PF, Gratuity, and post-retirement
medical benefits from 30% limit was left with around 14% of salary for
investment in a new Pension Scheme.

13. It is averred that instead of bringing in the new Superannuation
Benefit Fund Scheme (hereinafter referred to as ‘SBFS-2’) as an additional
scheme, as envisaged in Clause 13 of MoU, through its Board Agendas
dated 25.01.2011 and 10.02.2011, IOCL resolved to terminate/modify the
existing SBF scheme retrospectively w.e.f. 31.12.2006 and introduce
SBFS-2 w.e.f. 01.01.2007. It was resolved to freeze the existing
superannuation benefits as on 31.12.2006 in respect of each employee who
was on roll on that day and was to continue in service, which meant that
pension was to be computed taking the reckonable service period and salary
(Basic Pay + DA) as on 31.12.2006. It was also resolved that no interest will
accrue to the employees on the frozen amount of benefit, which will be paid
as pension on actual date of superannuation. This, according to the
Petitioners, was contrary to the Actuary Report attached with the Board
Agenda dated 25.01.2011, as per which opening balance of the SBF Fund as
on 01.04.2011 was Rs.414.64 Crores and thus there was no shortage of
fund to continue with the SBF Scheme. Further, albeit direct contribution
already received from employees in the period of 01.01.2007 to 31.04.2011
was transferred to individual accounts for purchase of annuity, the
indirect contributions were utilized by IOCL to reduce the foreclosure
liability.

14. Petitioners aver that the impugned action of IOCL created wide

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disparity between similarly placed employees who retired before and after
31.12.2006. Employees who retired prior to the cut-off date of 31.12.2006
were paid full benefit (40% of salary) as per reckonable service, whereas for
employees superannuating w.e.f. 01.01.2007, the pension reduced
drastically. It is brought forth that illustratively, for an officer retiring in
January, 2016, pension reduced to as low as 8%, as against the promised
pension of 40% salary for 32 years of service.

15. It is stated that the Marketing Division of IOCL through its Circular
No. 2011/HR/22 dated 19.04.2011 enforced the changes highlighting that
SBF Scheme be frozen as on 31.12.2006 and new defined contribution
scheme shall take effect from 01.01.2007. It was also stated that earlier
freezing of pension calculation from 01.01.2003 will be withdrawn. This
action was contrary to Rule 4.12 of Trust Deed and illegally and arbitrarily,
IOCL executed Deed of Variation dated 18.05.2011 with the Trust. Notably,
unlike the Trust Deed dated 24.12.1987, this Deed was not signed by the
employees’ collective and was only signed by the then Chairman of IOCL
and the then Chairman of the Trust, who also happened to be Director
(Finance) of IOCL.

16. It is stated that pursuant to Resolutions dated 25.01.2011, 10.02.2011
and Deed of Variation dated 18.05.2011, IOCL vide IOM No.DP/3/21/52
dated 01.06.2011 formally brought into force SBFS-2 in place of the
SBF Scheme and that too, retrospectively from 01.01.2007. SBFS-2 is a
defined contributory scheme wherein employees’ contribution was kept at
2% of the salaries and IOCL’s contribution was to be 30%, after discounting
expenditures towards PF, Gratuity and Post-Retirement Medical benefits, as
per DPE Guidelines. Numerous protests lodged by employees and written

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representations were of no avail despite immense hardships being caused to
the employees as they were retiring on reduced pensions.

17. Aggrieved by the impugned decision, Petitioner No. 1 Society along
with individual Petitioners approached the Supreme Court under Article 32
of the Constitution of India by way of W.P. (C) No.207/2017 challenging
the impugned action, however, vide order dated 10.04.2017, the Supreme
Court permitted the Petitioners to approach the High Court and these
petitions were filed.

ARGUMENTS ON BEHALF OF THE PETITIONERS:

18. Petitioners contended that the impugned action of IOCL is
discriminatory, arbitrary and contrary to Article 14 of the Constitution of
India. In the name of modification, SBF Scheme was terminated by IOCL
vide Circular dated 19.04.2011, retrospectively. The net effect of the
impugned Circular was that while those employees who retired prior to
01.01.2007 were granted full pension at 40% of last salary if they had 32
years of service or in case of lesser service at a proportionate rate but for
those like the Petitioners who retired post the cut-off date, their salaries as
also reckonable service period was frozen as on 31.12.2006, resulting in
drastic reduction of pension due to reduced service and last drawn salary.
This created a class within a homogenous class of retirees with no nexus
with the object sought to be achieved. Both set of employees performed the
same duties and contributed in the same manner to the SBF Fund yet the
date of retirement which was a fortuitous circumstance, was taken as a
criteria to create this huge disparity and gap and thus the decision deserves
to be struck down.

19. Pursuant to Circular dated 19.04.2011, Deed of Variance dated

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18.05.2011 was executed by the Trust modifying the earlier Trust Deed and
the superannuation benefits were bifurcated into two periods. Benefit of
pre-01.01.2007 service period was given as per the Original SBF
Scheme, however, the same was kept in the frozen accounts for later
payment. Benefit for post 01.01.2007 period was given under SBFS-2 and
even if the consolidated pension is to be taken, for most 2006 retirees the
pension did not work out to more than 20% of the actual last salary drawn
on the date of retirement, against an entitlement of 40% for 32 years of
reckonable service or even lesser on pro-rata basis, causing irreparable
prejudice.

20. Petitioners invested percentage of their salaries every month into the
corpus of the SBF Fund and had also foregone most of their allowances so
as to contribute their equivalent value towards the corpus and yet they were
meted with the differential treatment. It was mandatory for the Petitioners to
become a member of the SBF Scheme and despite resistance most people
contributed only because they were assured that they would be given full
pension at 40% of the last salary drawn on the date of retirement if they had
32 years of service and the pension will be prorated in case of lesser service.
Since Petitioners became members the Scheme and the Fund and
contributed over the years their hard earned salaries and allowances, vested
rights accrued in their favour to receive pension at the rate assured by the
written terms of the SBF Scheme and as per settled law, vested rights cannot
be taken away and that too retrospectively. The assured pension under the
SBF Scheme was only a deferred payment as a promise under a service
contract and this term could not be modified or varied by freezing from an
earlier date, either the salary or the reckonable service. Even otherwise, as

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per terms of the MoU and the Trust Deed, IOCL had no power to alter either
of the two and that too, to the detriment of the Petitioners.

21. Almost all members of Petitioner No. 1 Society were founder
members of the SBF Scheme and the Trust and contributed towards the
corpus, for decades. Members who superannuated prior to 01.01.2007
obviously contributed less towards the Trust but were given full benefits
whereas members like the Petitioners who superannuated much later, were
given meagre pensions. In fact, those employees who superannuated
immediately after introduction of the SBF Scheme itself in 1987 were given
full benefit on their total contribution for a period of just five years. This
artificial division is completely irrational and arbitrary.

22. SBFS-2 was introduced pursuant to recommendations of Justice
Rao Committee w.e.f. 01.01.2007 and was essentially employer’s
contribution scheme with an objective that those employees retiring post
01.01.2007 who were getting lesser pensions should get enhanced pensions
with the increase in wages, but the objective was wrongly construed by
IOCL and instead of enhancing the benefits, IOCL modified the original
Scheme to reduce the pensionary benefits. Clause 13 of MoU dated
07.11.1987 clearly provided that any future Government Scheme for pension
would only be in addition. Moreover, minimum service of 15 years was the
criteria under SBF Scheme and Petitioners had already completed the
eligibility period and therefore, it was not open to IOCL to introduce an
artificial distinction and cut-off date to deprive the Petitioners of the benefits
under the earlier Scheme. Reliance was placed on the judgment in State
Bank of India v. L. Kannaiah and Others, (2003) 10 SCC 499, wherein the
Supreme Court held that when the employees had completed minimum

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qualifying service, the benefits of pension could not be denied on the basis
of a new scheme conferring a new benefit. Pension is not a bounty of the
State but is a benefit that an employee earns by dint of long, continuous,
dedicated and unblemished service and any artificial date creating a
classification between a homogenous class of employees cannot be sustained
in law as held by the Supreme Court in D.S. Nakara and Others v. Union of
India, (1983) 1 SCC 305.

23. IOCL has mainly predicated its case on the Presidential Directive
issued through the DPE O.Ms. Firstly, none of these O.Ms. compelled IOCL
to apply the superannuation schemes envisaged by the Government of India
in derogation of the existing Schemes and/or to prematurely terminate the
SBF Scheme and that too with a retrospective effect. IOCL was certainly
free to introduce the new scheme as per DPE Guidelines but the same could
be in addition only and this could be achieved by IOCL by simply
harmonising the old and the new schemes taking upon itself the burden of
contributing 30% to the corpus as per the DPE O.Ms. and the old scheme
would have run its course. The two Schemes were entirely different as SBF
Scheme was an employee-centric Scheme with entire contribution coming
from the employees while SBFS-2 was employer-centric, entailing 30%
contribution from the CPSE concerned. There is nothing in the DPE O.Ms.
which could be interpreted as a directive to IOCL to discontinue the
employee’s self-contributory schemes. Moreover, even under the MoU,
there was no power with the Trustees to fix a cut-off date and Clause 10
provided a limited power that Trustees may review the availability of funds
annually to decide whether any revision was required in the maximum
entitlement and/or in the rate of the contributions.

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24. The entire counter affidavit of IOCL is based on the alleged depleting
funds of the corpus of the SBF Fund running the SBF Scheme and it is
repeatedly stated that the SBF Fund was unviable. Firstly, this is factually
incorrect. Minutes of Board Agenda dated 25.01.2011 clearly record that the
opening balance of the SBF Fund as on 01.01.2011 was Rs.414.64 crores
and it was noted that the Fund was viable as also that the contribution was
sufficient to keep the Fund viable and running. Secondly, the Board Agenda
does not reflect that the viability of the SBF Fund was the reason to
introduce SBFS-2 and a plain reading only indicates that in order to
follow the directives of DPE, by a reverse engineering method IOCL found
a way to create an artificial shortfall, which did not exist and justify
modification of the SBF Scheme, retrospectively. Even the figure of
Rs.2224.84 crores was wrongly shown as a shortfall, calculated on an
assumption that all employees would superannuate on 31.12.2006, which is
not how a pension fund works. Assuming a shortfall, under Clause 16(a)(ii)
of the Deed of Variation dated 24.03.1988, IOCL was under an obligation to
contribute additional amount to maintain the viability of the Fund.

25. The shortfall, if any, was a result of mismanagement of the funds in
the Trust and the methodology adopted to give effect to DPE O.Ms. as also
working on assumptions on the disbursement of pension under the Scheme.
Firstly, it was erroneously assumed that increase of wages from 01.01.2007
would deplete the fund, overlooking that there would be a proportionate
increase in the contributions from the salaries and allowances. To
compound, IOCL unilaterally refunded a sum of Rs.114.02 crores and
credited the same to individual accounts of employees under SBFS-2. To
adjust its liability created deliberately by foreclosure of the SBF Scheme, it

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took away Rs.432.31 crores, which was lying in the SBF Fund as an indirect
contribution of the employees in lieu of uniform allowance. Additionally,
IOCL in this period introduced the Scheme of ex-gratia payments as also
voluntary retirement scheme, leading to mass retirements of employees and
resultant payment of terminal benefits, but this could not be done at the cost
of the Petitioners, who had rights under the old Scheme to receive a certain
quantum of monthly pension.

26. Learned Senior Counsels referred to actuary reports and produced a
graph to demonstrate that the fund was viable and the old scheme ought to
have continued in the original form and also relied on the following
judgments:-

(A) Proposition: Rights of employees to receive benefits such as
pension cannot be contingent on the fortuitous circumstance of the date
of joining of an employee if the joining is beyond the control of the
employee.

(a). Avinash Singh & Ors. v. Union of India & Ors., 2011
SCC Online Del 2432;

(b). Naveen Kumar Jha v. Union of India and Others,
2012 SCC Online Del 5606;

(c). Inspector Rajendra Singh & Ors. v. UOI & Ors., 2017
SCC Online Del 7879; and

(d). Naresh Kumar v. Union of India and Others, 2018
SCC Online Del 13015.

(B) Proposition: An amendment having retrospective operation
which has the effect of taking away a benefit already available or
accrued to an employee under the existing rule is arbitrary,
discriminatory and violative of rights under Articles 14 and 16 of the
Constitution of India.

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(a). Punjab State Cooperative Agricultural Development
Bank Limited v. Registrar, Cooperative Societies and
Others, (2022) 4 SCC 363;

(b). Chairman, Railway Board and Others v. C.R.
Rangadhamaiah and Others, (1997) 6 SCC 623; and

(c). State of Himachal Pradesh and Others v. Rajesh
Chander Sood and Others, (2016) 10 SCC 77.

(C) Proposition: Article 14 of the Constitution of India forbids
class legislation but permits reasonable classification, which
classification must satisfy the twin tests i.e. classification is founded
on an intelligible differentia which distinguishes persons or things that
are grouped together from those who are left out and the differentia
must have a rationale nexus to the object sought to be achieved. While
a cut-off date can be fixed by the employer, but same cannot be
arbitrary and that pensioners form a homogenous class.

(a). D.S. Nakara (supra); and

(b). All Manipur Pensioners Association by its Secretary
v. State of Manipur and Others, (2020) 14 SCC 625.

SUBMISSIONS/ARGUMENTS ON BEHALF OF THE IOCL:

27. Absent any pension scheme in IOCL prior to 1987, its officers
represented by the Indian Oil Officers Association, sought to create a
superannuation benefit fund scheme to which employees of IOCL were to
fully contribute to create a corpus for purchasing annuities on the retirement
of employees so as to provide a defined benefit pension linked to the salaries
of the retiring employees of IOCL. In this regard, officers and employees of
IOCL desired that a Fund should be set up, administered and controlled by
the Trustees. Accordingly, in November 1986, for the limited purpose of
providing administrative support and infrastructure to setup, operate and

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maintain such a Fund, the Board of Directors of IOCL passed a resolution
approving in-principle the Scheme of its employees for constitution of their
own self-contributory superannuation fund on a clear understanding that
there would be no resultant financial burden on IOCL.

28. Consequently, an MoU was executed and signed on 07.11.1987
between IOCL and its officers and a Trust was formed to administer the
Fund and to provide defined pension as per the scheme, which was
envisaged to be sustainable out of contributions by the employees, who
would contribute out of their salaries and allowances, but with no
contribution by IOCL. Only for Income Tax exemption, a token contribution
of Rs.100/- was fixed to be paid by IOCL to the Trust. Pursuant to MoU,
SBF Fund was formed through a Trust Deed dated 24.12.1987. The SBF
Scheme had the following main features:

“(a) The employees would contribute of the SABF Fund as follows:

Direct contribution: Ranging from 2% to 5% of employee’s salary
depending on the age group;

Indirect contribution: Benefits/amount surrendered by employees for
contribution to the SABF Fund like tea/coffee allowance. Washing
allowance, Uniform, benevolent fund for education, etc.

(b) Except for the token contribution of Rs.100/- per annum required to
sustain the Income Tax Exemption to the SBF Trust, the Respondent No. 1
Corporation had no financial liability or obligation to contribute to the
SABF Fund.

(c) The role of the Respondent No. 1 Corporation was limited to providing
administrative support by making deductions from the employee’s salary
and allowances and benefits as agreed and depositing the same in the
SABF Fund.

(d) Superannuation Benefits through the SABF Fund would be available
only to employees who retired after November 7, 1987.”

29. Employees who superannuated before 07.11.1987, challenged the
SBF Scheme as being discriminatory by filing a Writ Petition in the Bombay

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High Court titled V.R. Hiremath and others v. Indian Oil Corporation and
others, 2002 SCC Online Bom 23, but the petition was dismissed holding
that they could not be given membership of the Scheme. The Scheme
continued to run as per the Rules and Regulations governing the Trust and
SBF Fund, however, later in 2001, it was realised that the monies available
in the Fund were not sufficient to purchase annuity policies to provide
maximum pension benefits envisaged in the SBF Fund. Trustees had the
power under Rule 9.2 to review the availability of funds and modify the SBF
Scheme/Trust. Rule 9.2 is as follows:

“9.2 The Trustees shall review the availability of funds of the scheme
annually or at such intervals as may be deemed fit by the Trustees and to
decide any revision in the maximum benefit or rate of the employees
contribution under the Scheme.”

30. To obtain an actuarial valuation of the liability and the additional
funds required to be contributed, if the current maximum benefits were to be
maintained or increased, M/s K.A. Pandit, Consultant Actuary, was engaged
and the Actuary found that there was a huge gap between funds currently
available in the corpus of SBF Fund with future contributions at current rate
and the funds required to meet liabilities of pension of the then existing
employees at the current rate of maximum pension. It was found that the
total fund required to meet the cost of purchasing annuities at the current
level of benefits for the present employees would be Rs. 1881.50 crores. As
against this, the SBF Fund had a current corpus of only Rs.107 crores. The
contributions to the fund by the employees during the period for which the
liabilities of the Trust had been calculated would be Rs.211.661 crores out
of salary of the employees and Rs. 201.5265 crores out of the fixed
allowances making a total corpus of Rs.520.1875 crores (i.e. Rs.107 crores +

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Rs.211.661 crores + Rs.201.5265 crores), leaving a shortfall or gap of
Rs.1361.48225 crores between availability of funds in the SBF Fund and the
liabilities of the Fund to meet the current maximum pension benefits fixed.
In order to fund this shortfall, it was recommended that either the fixed
contributions would have to immediately increase from Rs.450/- per
employee per month to Rs.1700/- per employee per month, with an
acceleration @ 10 % per annum, or the variable contributions would have to
be increased by 7.5 times of the present variable contribution, if the current
level of maximum benefits was to be retained. Alternatively, either the past
service benefit had to be frozen or the current level of maximum benefits
would have to be curtailed. The shortfall reflected in this Actuarial Report
was in substance confirmed by a second Actuarial Report prepared by Ms.
A.V. Ganapathy, another Actuarial Consultant for the Trust.

31. The shortfall in the SBF Fund was discussed by the Trustees, which
included 5 Trustees (out of total 9 Trustees), who were representatives of
collectives/unions of employees, in the meetings of the Trustees held on
30.12.2002 and 03.01.2003 and it was decided that in order to improve the
financial viability and run the SBF Scheme, salaries of the employees for the
purpose of computing the maximum benefit of pension under the Scheme
could be frozen as on 01.01.2003 with a cap of 7% per annum applied on
any subsequent increase in the salaries for the purpose of calculating the
pension. Accordingly, all employees who superannuated from 01.01.2003
onwards were provided Annuity Policies purchased by the Trust from the
SBF Fund on superannuation, in accordance with the revised benefits based
on salaries frozen as on 01.01.2003 and a cap of 7% on increase in salaries
thereafter, for the purpose of computing pension.

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32. By the years 2010/2011, it became apparent that it would not be
financially possible for the Trust to continue to fund even the revised
benefits on the existing rates of employees’ contributions and some solution
had to be found if the SBF Scheme was to continue and sustain in any form.
Prolonged discussions were held with the actuaries and employees’
collectives and it was decided as follows:

(i) The SBF Scheme would be continued only for employees on the
rolls of the IOCL as on 01.01.2011;

(ii) The benefits/pension to be paid @ 1.25% for each year of
reckonable and pensionable service upto 31.12.2006; and

(iii) Salaries to be reckoned for calculation of the pension would be
salaries payable to the employees as on 31.12.2006.

33. M/s. K.A. Pandit, Actuarial Consultants, was tasked to make an
actuarial valuation of the funds required to meet the shortfall between the
liabilities of the SBF Fund for pension for the existing employees based on
1.25% of the monthly salary drawn by the existing employees as on
31.12.2006 for each year of reckonable and pensionable service as on
31.12.2006 and the funds/corpus available in the SBF Fund. M/s. K.A.
Pandit submitted its Report dated 29.11.2010, which indicated that there was
a shortfall of Rs.2224.84 crores between the funds available in the SBF
Fund and the funds required to purchase annuities for the retired and retiring
employees for pension @ 1.25% for each year of reckonable and
pensionable service rendered upto 31.12.2006 payable on the salaries drawn
by them as on 31.12.2006. If this shortfall of Rs.2224.84 crores was to be
funded immediately through one-time lumpsum payment, the discounted
value of the funds immediately required to be provided to the corpus of the

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SBF Fund for investment at an anticipated return of the 10.95% per annum,
would work out to Rs.1123.51 crores.

34. The date of 31.12.2006 was thus fixed for calculating the liability of
the said SBF Fund and the rationale for fixing this cut-off date was that
w.e.f. 01.01.2007, there was a very steep increase in the salaries and benefits
payable to the officers and other employees of IOCL, pursuant to wage
revision decision by DPE for all CPSEs. If pension was to be based on the
revised salaries, the SBF Fund would not have had the money to meet the
liability and the continuation of the SABF Fund and Scheme in any form
would have been financially and practically unworkable and impossible.
When SBFS-2 was introduced by IOCL, employees’ collectives did not
come forward with any proposal where the employees were willing to bear
the burden of either funding the continuation of the earlier SBF Scheme in
any form or funding in instalments the shortfall of Rs.2224.84 crores, or of
making, in the alternative, a onetime lump sum contribution of Rs.1123.51
crores, required to fund the shortfall in the existing SBF Fund to meet even
the pension liabilities frozen as on 31.12.2006.

35. IOCL was, therefore, faced with the dilemma of either permitting the
SBF Scheme to perish, resulting in the existing employees who had
contributed to this SBF Fund being left without any pension or meagre
pension or to make a one-time lump sum voluntary contribution of
Rs.1123.51 crores to the Fund to enable the SBF Fund to continue to provide
pension benefits to its existing employees based on the salaries drawn by
them on 31.12.2006 and on the reckonable service upto that date.

36. Consequently, there were deliberations aimed at ensuring that the
employees who had contributed to the SBF Fund should get some

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pensionary benefit for their contributions. As a result of these deliberations,
it was decided to request the Board of Directors of IOCL to authorize a
onetime lump sum voluntary contribution of Rs.1123.51 crores by the IOCL
to the existing SBF Fund of the employees so that all employees on the rolls
of the IOCL as on 31.12.2006 could get pension out of the SBF Fund based
on their salaries and reckonable and pensionable service as on 31.12.2006.
Board of Directors at a meeting held on 10.02.2011 approved the one-time
lumpsum voluntary contribution by IOCL and the same was given,
envisaging that this would help tide over the crisis. In the meeting held on
18.04.2011, it was decided to continue the SBF Fund and the SBF Scheme
but with benefits based on salaries drawn and reckonable and pensionable
period as on 31.12.2006.

37. From 01.01.2007, the pay and allowances in CPSEs were revised for a
period of 10 years as they were due for review, pursuant to O.M. dated
26.11.2008 issued by DPE. O.M. dated 02.04.2009 was issued by DPE
making certain revisions/changes and giving clarifications in respect of the
emoluments fixed by O.M. dated 26.11.2008 and by a binding and
mandatory Presidential Directive dated 21.04.2009, IOCL was directed to
implement the O.Ms. A salient feature of the revised pay and allowances
covered by the Presidential Directive was incorporated in para (v) of
Annexure IV of the DPE’s O.M. dated 26.11.2008, which provided as
follows:

“(v) Superannuation Benefits: CPSEs would be allowed 30% of Basic
Pay as Superannuation benefits, which may include Contributory
Provident Fund (CPF), Gratuity, Pension and Post – Superannuation
Medical Benefits. The CPSEs should make their own schemes to manage
these funds or operate through insurance companies on fixed contribution
basis. The amount of Pension, Gratuity and Post-Retirement Benefit will
be decided based on the returns from the schemes to be operated. The

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Pension and Medical benefits can be extended to those executives, who
superannuate from the CPSE and have put in a minimum of 15 years of
service in the CPSE, prior to superannuation.”

38. The DPE’s O.M. dated 02.04.2009 in para 2 (ii) also provides as
follows:

“2(ii) Superannuation Benefit: The ceiling of 30% towards
superannuation benefits would be calculated on Basic Pay plus DA instead
of Basic Pay alone. Any superannuation benefit will be under a “defined
contribution scheme” and not under a “defined benefit scheme”. CPSEs
that do not have superannuation scheme, may develop such scheme and
obtain the approval of their Administrative Ministry. However, no other
superannuation benefit can be granted outside this 30% ceiling, (para 12,
Annex (V(v) of O.M. dated 26.11.2008 refers)”

39. Pursuant to the Presidential Directive, IOCL was bound to contribute
upto 30% of Basic Pay and Dearness Allowance towards superannuation
benefits, comprising of Provident Fund contribution, Gratuity, Post-
Superannuation Medical Benefits and a defined contribution pension scheme
(annuity based) and accordingly, it formulated the SBFS-2, which was
“defined contribution scheme” as opposed to “defined benefit scheme”, as
earlier floated by its employees. IOCL decided to contribute to this new
Pension Scheme each year the balance funds available out of the said 30%
limit after accounting for employer’s contribution towards Provident Fund,
liability for payment of gratuity and the cost for providing Post Retirement
Medical Benefits to its employees.

40. It was, therefore, decided by the IOCL that an amount equivalent to
14.62% (subject to review each year of the actual cost of Provident Fund,
Gratuity and Post Retirement Medical Benefits), would be set aside for
providing defined contributions by IOCL for providing annuity based
pension to the employees of IOCL on its rolls as on 01.01.2007 and
thereafter. In line with above, the actuarial valuation is carried out each year

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to determine the contribution, within the overall ceiling of 30% of Basic Pay
and Dearness Allowance. The contribution and the resultant fund was to be
run and managed by the Trust, under a fresh defined contribution pension
scheme floated w.e.f. 01.01.2007, under which –

“a) An account for each employee will be opened under the Scheme like
PF Account from 1.1.07.

b) The Company’s contribution as per DPE guidelines which would come
out of 30% of Basic Pay + DA after adjusting the contribution made
against Provident Fund Scheme (i.e. 12% of Basic Pay + DA), Gratuity
Scheme (i.e. 1.01% of Basic Pay + DA) and Post-Retirement Medical
Attendance Scheme (i.e. 2.37% of Basic Pay + DA) will be credited to the
individual employee’s account.

c) The Superannuation Benefit Fund would be managed by the existing
Trustees through investment as per Income Tax rules. Interest earned on
the fund will be credited to the individual employee’s account every year
just like Provident Fund account.

d) At the time of superannuation, annuity will be purchased for the
balance in the individual’s account as on the date of superannuation under
the Respondent Corporation’s defined Contribution Superannuation
Scheme.”

41. Board of Directors of IOCL accordingly, approved and resolved in the
meeting held on 10.02.2011, for creation of the new defined contribution
scheme w.e.f. 01.01.2007 i.e. SBFS-2, to which IOCL would contribute
approximately 14.62% of the Basic Pay and Dearness Allowances, payable
to each employee or such other sum as may be available in any year within
the 30% ceiling permitted. Pursuant thereto, a Deed of Variation was
executed on 18.05.2011 by IOCL and the Trustees of the Trust, with a view
to incorporate the changes and provide maximum benefits available under
the existing SBF Fund and Scheme of its employees and to introduce the
new defined contribution scheme to provide additional superannuation
recurring benefits/pension to its employees retiring on and after
01.01.2007.

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42. Consequently, employees of IOCL in service retiring on or after
01.01.2007 were and are getting two pensionary benefits: (a) The Annuity
Policy being purchased for providing the defined pension benefits under the
1987 employees SBF Fund and Scheme as frozen on 31.12.2006 (reckoning
period of service as laid down under the 1987 SBF scheme not exceeding 32
years upto 31.12.2006); and (b) Annuity Policy, which could be purchased
for an employee on his retirement from the monies standing in his credit in
his account as established and as contributed by IOCL under the new
defined SBFS-2 operating from 01.01.2007.

43. Petitioners have no right to pension under the SBF Fund, except the
benefits determined by the Trustees of the Trust from time to time in
accordance with Rule/Regulation 9.2 of the Trust Deed, depending on the
monies available in the SBF Fund. Present petitions for grant of greater
pension benefit from SBF Fund than those determined by the Trustees of the
Trust depending on the monies available in SBF Fund are not only beyond
the means and basic concept of SBF Fund and Scheme framed thereunder
but are also without any legal or vested rights. Insofar as Clause 13 of MoU
is concerned, Government of India did not introduce any pension/
superannuation scheme for Public Sector employees and any argument on
this is irrelevant.

44. Prior to 01.01.2007, it was believed that freezing the maximum
benefits of pension under SBF Scheme of 1987 on the salary drawn as on
01.01.2003 with a cap of 7% per annum on subsequent increases in salary,
would render SBF Fund/Scheme viable even with the employees’
contributions remaining at the same level. However, this scenario changed
after the revision of pay scales w.e.f. 01.01.2007. The pay revision w.e.f.

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01.01.2007 (which was implemented during 2009) introduced a sea change
in the employees’ ability to contribute to SBF Fund and the Scheme, through
uniform, tea and washing allowances, which constituted the major
contribution of the employees to the SBF Fund prior to 2007. While there
was no limit on the allowances which could be drawn by employees prior to
2007 without affecting the take home pay, after 01.01.2007, however, a limit
of 50% of basic pay was placed on the allowances which could be drawn by
the employees on a cafeteria basis. This permitted the employees to choose
the allowances which they wished to draw within the said 50% limit. Had
the employees chosen to continue the uniform, tea and washing allowances
and to contribute these to SBF Fund, this would have had an impact on their
take home pay. The employees were, therefore, unwilling to continue their
contributions to the SBF Fund through the uniform, tea and washing
allowances as before, since this would affect their total take home pay. This
was one of the major reasons why, after 01.01.2007, the employees were
unwilling to continue to fund and support the SBF Fund, which would have
called for even larger contributions forms the employees, if the SBF Fund
was to provide pension based on revised salaries.

45. Employees have not contributed to the SBF Scheme Fund after
01.01.2007. If the employees’ collectives wish to sustain their SBF Scheme
to provide maximum defined benefits on the revised salaries actually drawn
by them on the dates of their superannuation, an actuarial valuation
undertaken indicates that an additional amount of Rs.20,483.77 crores
would have to be contributed by the employees retiring from and after
01.01.2007 to draw such benefits based on existing salaries. If the
Petitioners and the employees’ collectives are willing to make these

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contributions, SBF Fund and Scheme of the employees would have the
finances required to purchase the annuity policies to provide the pension
under this SBF Fund and Scheme as sought by the Petitioners, based on
current rates of salaries. This figure of employees’ contribution will
increase if there is any further increase in salaries or in annuity rates.
Unless such additional contributions are made by the employees, the
demands for enhanced pension as claimed by the Petitioners from the self-
contributory SBF Fund/Scheme of the employees are wholly financially
unsustainable and misconceived.

46. Learned counsel for IOCL relied on the following judgments:-

(a) State of West Bengal and Others v. Ratan Behari Dey and
Others, (1993) 4 SCC 62;

(b) Union of India v. P.N. Menon and Others, (1994) 4 SCC
68;

(c) State of Rajasthan and Another v. Amrit Lal Gandhi and
Others, (1997) 2 SCC 342;

(d) T.N. Electricity Board v. R. Veerasamy and Others, (1999)
3 SCC 414;

(e) State of Punjab and Another v. J.L. Gupta and Others,
(2000) 3 SCC 736;

(f) V.R. Hiremath (supra); and

(g) L. Kannaiah (supra).

ANALYSIS AND FINDINGS

47. Heard learned Senior Counsels for the Petitioners and learned
counsels for the Respondents and examined their rival submissions.

48. Undisputed facts are that Board of IOCL in a meeting held on
05.11.1986 resolved for introduction of SBF Scheme for employees of
IOCL as a social welfare measure and to enable the Corporation to attract

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and retain talent. This was in light of the fact that existing retiral benefits
such as provident fund, gratuity, encashment of leave etc. were inadequate
to meet the needs in the post-retirement period and considering this to be a
welfare measure, employees conveyed their willingness to contribute to the
Scheme. Basis the Resolution, IOCL entered into an MoU dated 07.11.1987
with the representatives of Indian Oil Officers’ Association for setting up the
SBF Scheme and pursuant thereto SBF Fund was formed through a Trust
Deed dated 24.12.1987.

49. Admittedly, this was a self-contributory and self-sustaining Scheme
with ‘defined benefits’ which were to be paid at the time of superannuation
of employees. It is also an admitted fact that employees made direct monthly
contributions to the Fund at the rate of 2% to 5% of their salaries (Basic Pay
+ DA) based on age profiles and indirect contributions by surrendering
various allowances such as uniform, tea/coffee, washing, rehabilitation grant
given to the spouse on the death of the employee, etc. IOCL made no
contribution, save and except, a token contribution of Rs.100/- per annum to
sustain the income tax exemption to the SBF Trust. Importantly, the SBF
Scheme envisaged and assured a post-retirement monthly pension of 40% of
the last drawn salary for a period of guaranteed 15 years or death of the
employee, whichever was later for a reckonable service of 32 years. For
lesser service, pension was prorated. Minimum qualifying service to become
entitled for the benefits under the Scheme was 15 years which included
minimum of 5 years service after introduction of the SBF Scheme, save and
except, in the case of death/permanent disablement. In case, an employee
with less than 15 years’ service resigned from service, his contribution from
salary was to be refunded without interest.

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50. The other salient features of the SBF Scheme were that the recurring
benefit was not linked to inflation or consumer price index and monthly
benefit once fixed at the time of superannuation based on the annuity
amount, remained fixed for all time. Annuities were purchased from Life
Insurance Corporation of India under the standard option i.e. life time of the
member with guaranteed benefit for 15 years. Employee had an option to
commute 1/3rd pension on superannuation. Clause 13 of MoU provided that
in case Government of India came out with a Pension/Superannuation
Scheme, meant in general for all Public Sector employees, the Government
Scheme will be introduced in addition to SBF Scheme.

51. A Trust Deed was thereafter executed and signed on 24.12.1987
between IOCL and the Trustees to form SBF Fund and signatories of the
Deed were Chairman of IOCL for IOCL and Director (Finance) and Director
(Personnel) on behalf of the Trustees and President of Indian Oil Officers’
Association. The Trust fund was to be used for the SBF Scheme as the
Scheme was primarily self-contributory. Rule 4.12 of Rules framed as
Schedule to the Trust Deed provided that the Trustees may at any time by a
Resolution and with consent in writing of the company, alter, vary, or amend
any of the provisions of the Rules provided that subject to Rule 9.2, no such
alteration or variation shall be inconsistent with the main objects of the Trust
nor such alternation or variation in any way prejudice the rights or interests
of a Member or his beneficiary and shall not be without prior approval of the
Commissioner, Income Tax. Rule 21 provided that no monies belonging to
the Fund shall be received by the Company nor shall the Company have any
lien or charge on the Fund and the termination of the Trust could only be for
reasons specified in Rule 23. Statutory approval of the Fund was granted by

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Income Tax Authorities on 08.04.1988. After implementation of the SBF
Scheme, the same was made a part of the service conditions and this was
notified in the vacancy notices while conducting recruitments and can be
seen from the appointment letters of some employees.

52. Subsequent thereto, a Deed of Variation was executed on 06.01.1992
with some minor changes, which are not relevant for the present case. On
19.12.2003, IOCL introduced monthly ex-gratia payment system for ex-
employees not covered by the SBF Scheme and to pay differential amount to
those who superannuated after introduction of the SBF Scheme in 1987 and
were drawing less than the ex-gratia amount under the Scheme. To optimise
manpower, OVSS was introduced by IOCL for employees of 50 years and
above and in addition to almost full salary for balance period of service, full
pension depending on reckonable service was to be granted. This led to
unplanned mass retirements and temporary shortage of fund. On
recommendation of Advisory Council, the Trust in its 27 th Board Meeting
held on 03.01.2003, decided to freeze the salary component under the SBF
Scheme as on 01.01.2003 and subsequent increase in salaries was capped at
7% per annum. Another development took place in this period where
pursuant to recommendations of Justice (Retd.) M. Jagannadha Rao
Committee, DPE vide O.M. dated 26.11.2008 revised the pay scales for
below Board level and Board level Executives and non-unionized
Supervisors in CPSEs w.e.f. 01.01.2007 and CPSEs were to contribute 30%
of Basic Pay as superannuation benefits including CPF, gratuity, pension
and post-superannuation medical benefits. By O.M. dated 02.04.2009, it was
clarified that 30% limit would be calculated on Basic Pay + DA.

53. According to IOCL, there was already a shortfall in the Fund from

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2001 as reflected from several Actuarial Reports which worsened with time
and as per the report by M/s. K.A. Pandit rendered on 29.11.2010, there was
a shortfall of Rs.2224.84 crores between the fund available in the SBF Fund
and the fund required to purchase annuities for the retired and retiring
employees for pension at the rate of 1.25% for each year of pensionable
service rendered upto 31.12.2006, which had to be funded immediately
through one-time lump sum payment and with increase in wages from
01.01.2007, it was decided by the Trustees in the meeting held on
18.04.2011 to continue the SBF Scheme and SBF Fund with benefits based
on salary drawn and reckonable and pension service as on 31.12.2006. The
salient features of the minutes are as follows:-

“a) The freeze imposed on salary and service period for computation of
benefit from 01.01.2003 as per Resolution passed in the Trust meeting held
on 03.01.2003 shall stand withdrawn from 01.01.2003. Benefit to
employees shall be payable at the rate of annuity calculated at 1/80th of
Salary as on the date of superannuation or as on 31.12.2006, whichever is
earlier for every completed year of reckonable service upto the date of
superannuation or till 31.12.2006, whichever is earlier subject to
maximum service being restricted to 32 years.

b) The maximum benefit payable under (i) a) hereinabove would be @40%
of the Salary based on reckonable service of full 32 years. For reckonable
service of less than 32 years, the benefit would be proportionately less.

This provision shall apply only in those cases where the employee was
enrolled under the Scheme prior to 01.01.2007.

c) The monthly benefit as notionally accrued on 31.12.2006 but due on
attaining the age of superannuation shall be frozen in respect of each
employee on roll as on 31.12.2006 and continued in service thereafter.

d) The Reckonable Service of an employee shall include past service of
that employee upto 01.01.1989 in respect of employees of erstwhile IBP
Co. Limited or upto 01.12.2003 in respect of employees of erstwhile
Bongaigaon Refinery and Petrochemicals Limited, discounted at the rate
of one percent for each year of such service, plus the actual period of
service of that employee put in after the date when he joined the fund upto
31.12.2006.

e) The monthly benefit nationally accruing on 31.12.2006 in respect of

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members of erstwhile IBP Co. Limited Superannuation Fund and erstwhile
BRPL Employee Superannuation Benefit Fund shall be worked out based
on the provisions of their respective SBF schemes prevailing before
merger of their fund with IOCL SBF and frozen in the manner explained
above.

f) In respect of employees retired during 01.01.2003 to 31.12.2006 and in
receipt of monthly benefit by self or by the beneficiary(s) after the death of
the retired employee, benefit shall be revised based on the salary and
period of service as on the date of retirement. Such differential benefit
shall however be paid prospectively. There shall be no review of benefit in
the cases where no such monthly benefit is being received and return of
capital has been settled by LIC.”

54. According to IOCL, bound by the Presidential Directive issued by
way of DPE O.Ms. dated 26.11.2008 and 02.04.2009, it introduced the
SBFS-2 which was a ‘Defined Contribution Scheme’ as opposed to ‘Defined
Benefit Scheme’ existing then. Under SBFS-2, IOCL decided to
contribute an amount equivalent to 14.62% for providing annuity based
pension to employees on rolls as on 01.01.2007. The salient features were as
follows:-

“a) An account for each employee will be opened under the Scheme like
PF Account from 1.1.07.

b) The Company’s contribution as per DPE guidelines which would come
out of 30% of Basic Pay + DA after adjusting the contribution made
against Provident Fund Scheme (i.e. 12% of Basic Pay + DA), Gratuity
Scheme (i.e. 1.01% of Basic Pay + DA) and Post-Retirement Medical
Attendance Scheme (i.e. 2.37% of Basic Pay + DA) will be credited to the
individual employee’s account.

c) The Superannuation Benefit Fund would be managed by the existing
Trustees through investment as per Income Tax rules. Interest earned on
the fund will be credited to the individual employee’s account every year
just like Provident Fund account.

d) At the time of superannuation, annuity will be purchased for the
balance in the individual’s account as on the date of superannuation under
the Respondent Corporation’s defined Contribution Superannuation
Scheme.”

55. Pursuant to decision dated 18.04.2011 and Circular dated 19.04.2011,
a Deed of Variation was executed on 18.05.2011 by IOCL and the Trustees

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to incorporate the changes and under SBFS-2, employees of IOCL in
service who retired on or after 01.01.2007 were entitled to two pensions
from: (a) annuity policy purchased for providing benefits under the
SBF Scheme as chosen on 31.12.2006; and (b) annuity policy which
would be purchased on retirement from the monies standing to the credit of
an employee in his account as established and as per the contribution
by IOCL. These decisions of IOCL led to the present writ petitions being
filed.

56. The long saga and sufferings of the Petitioners in this case reminds
me of a passage from the judgment of the Supreme Court in D.S. Nakara
(supra), and I quote:-

” With a slight variation to suit the context Woolesey’s prayer: “had I
served my God as reverently as I did my King, I would not have fallen on
these days of penury” is chanted by petitioners in this group of petitions in
the Shellian tune: “I fall on the thorns of life I bleed”. Old age, ebbing
mental and physical prowess, atrophy of both muscle and brain powers
permeating these petitions, the petitioners in the fall of life yearn for
equality of treatment which is being meted out to those who are soon going
to join and swell their own ranks.”

57. Coming back home, the vexed questions that arise for consideration in
this case are: (a) do pensioners entitled to receive retiral pension under a
particular scheme or rule form a class as a whole? (b) is the date of
retirement a relevant consideration and enough to meet out a differential
treatment to pensioners forming a homogenous class? and (c) does the
discontinuation of the SBF Scheme for those retiring post 01.01.2007
resulting in considerable reduction of pension, violates Article 14 of the
Constitution of India? Almost similar questions arose before the Supreme
Court in D.S. Nakara (supra) and it would be apposite to refer to the
observations of the Supreme Court in this context:-

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“2. Do pensioners entitled to receive superannuation or retiring pension
under Central Civil Services (Pension) Rules, 1972 (“1972 Rules”, for
short) form a class as a whole? Is the date of retirement a relevant
consideration for eligibility when a revised formula for computation of
pension is ushered in and made effective from a specified date? Would
differential treatment to pensioners related to the date of retirement qua
the revised formula for computation of pension attract Article 14 of the
Constitution and the element of discrimination liable to be declared
unconstitutional as being violative of Article 14? These and the related
questions debated in this group of petitions call for an answer in the
backdrop of a welfare State and bearing in mind that pension is a socio-

economic justice measure providing relief when advancing age gradually
but irrevocably impairs capacity to stand on one’s own feet.

xxx xxx xxx

9. Is this class of pensioners further divisible for the purpose of
“entitlement” and “payment” of pension into those who retired by certain
date and those who retired after that date? If date of retirement can be
accepted as a valid criterion for classification, on retirement each
individual government servant would form a class by himself because the
date of retirement of each is correlated to his birth date and on attaining a
certain age he had to retire. It is only after the recommendations of the
Third Central Pay Commission were accepted by the Government of India
that the retirement dates have been specified to be 12 in number being last
day of each month in which the birth date of the individual government
servant happens to fall. In other words, all government servants who retire
correlated to birth date on attaining the age of superannuation in a given
month shall not retire on that date but shall retire on the last day of the
month. Now, if date of retirement is a valid criterion for classification,
those who retire at the end of every month shall form a class by
themselves. This is too microscopic a classification to be upheld for any
valid purpose. Is it permissible or is it violative of Article 14?

10. The scope, content and meaning of Article 14 of the Constitution has
been the subject-matter of intensive examination by this Court in a catena
of decisions. It would, therefore, be merely adding to the length of this
judgment to recapitulate all those decisions and it is better to avoid that
exercise save and except referring to the latest decision on the subject
in Maneka Gandhi v. Union of India [(1978) 1 SCC 248 : AIR 1978 SC
597 : (1978) 2 SCR 621] from which the following observation may be
extracted: (SCC pp. 283-84, para 7)
“[W]hat is the content and reach of the great equalising principle
enunciated in this article? There can be no doubt that it is a founding
faith of the Constitution. It is indeed the pillar on which rests securely
the foundation of our democratic republic. And, therefore, it must not
be subjected to a narrow, pedantic or lexicographic approach. No

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attempt should be made to truncate its all-embracing scope and
meaning, for to do so would be to violate its activist magnitude.
Equality is a dynamic concept with many aspects and dimensions and
it cannot be imprisoned within traditional and doctrinaire limits….
Article 14 strikes at arbitrariness in State action and ensures fairness
and equality of treatment. The principle of reasonableness, which
legally as well as philosophically, is an essential element of equality
or nonarbitrariness pervades Article 14 like a brooding
omnipresence….”

11. The decisions clearly lay down that though Article 14 forbids class
legislation, it does not forbid reasonable classification for the purpose of
legislation. In order, however, to pass the test of permissible classification,
two conditions must be fulfilled viz. (i) that the classification must be
founded on an intelligible differentia which distinguishes persons or things
that are grouped together from those that are left out of the group; and (ii)
that that differentia must have a rational relation to the objects sought to
be achieved by the statute in question (see Ram Krishna Dalmia v. Justice
S.R. Tendolkar [AIR 1958 SC 538 : 1959 SCR 279, 296 : 1959 SCJ 147] ).
The classification may be founded on differential basis according to
objects sought to be achieved but what is implicit in it is that there ought
to be a nexus i.e. causal connection between the basis of classification and
object of the statute under consideration. It is equally well settled by the
decisions of this Court that Article 14 condemns discrimination not only by
a substantive law but also by a law of procedure.

xxx xxx xxx

13. The other facet of Article 14 which must be remembered is that it
eschews arbitrariness in any form. Article 14 has, therefore, not to be held
identical with the doctrine of classification. As was noticed in Maneka
Gandhi case [(1978) 1 SCC 248 : AIR 1978 SC 597 : (1978) 2 SCR 621]
in the earliest stages of evolution of the constitutional law, Article 14 came
to be identified with the doctrine of classification because the view taken
was that Article 14 forbids discrimination and there will be no
discrimination where the classification making the differentia fulfils the
aforementioned two conditions. However, in E.P. Royappa v. State of T.N.
[(1974) 4 SCC 3 : 1974 SCC (L&S) 165 : AIR 1974 SC 555 : (1974) 2
SCR 348 : (1974) 1 LLJ 172] it was held that the basic principle which
informs both Article 14 and 16 is equality and inhibition against
discrimination. This Court further observed as under: (SCC p. 38, para

85)
“From a positivistic point of view, equality is antithetic to
arbitrariness. In fact equality and arbitrariness are sworn enemies;
one belongs to the rule of law in a republic while the other, to the
whim and caprice of an absolute monarch. Where an act is arbitrary,
it is implicit in it that it is unequal both according to political logic

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and constitutional law and is therefore violative of Article 14, and if it
affects any matter relating to public employment, it is also violative of
Article 16. Articles 14 and 16 strike at arbitrariness in State action
and ensure fairness and equality of treatment.”

14. Justice Iyer has in his inimitable style dissected Article 14 in Maneka
Gandhi case [(1978) 1 SCC 248 : AIR 1978 SC 597 : (1978) 2 SCR 621]
as under at SCR p. 728: (SCC p. 342, para 94)
“That article has a pervasive processual potency and versatile
quality, egalitarian in its soul and allergic to discriminatory diktats.
Equality is the antithesis of arbitrariness and ex cathedra ipse dixit is
the ally of demagogic authoritarianism. Only knight-errants of
‘executive excesses’ — if we may use current cliche — can fall in love
with the Dame of despotism, legislative or administrative. If this Court
gives in here it gives up the ghost. And so it is that I insist on the
dynamics of limitations on fundamental freedoms as implying the rule
of law: Be you ever so high, the law is above you. [(1978) 1 SCC 248 :

AIR 1978 SC 597 : (1978) 2 SCR 621] ”

Affirming and explaining this view, the Constitution Bench in Ajay
Hasia v. Khalid Mujib Sehravardi [(1981) 1 SCC 722 : 1981 SCC (L&S)
258 : (1981) 2 SCR 79 : (1981) 1 LLJ 103] held that it must, therefore,
now be taken to be well settled that what Article 14 strikes at is
arbitrariness because any action that is arbitrary must necessarily involve
negation of equality. The Court made it explicit that where an act is
arbitrary it is implicit in it that it is unequal both according to political
logic and constitutional law and is, therefore, violative of Article 14. After
a review of large number of decisions bearing on the subject, in Air
India v. Nergesh Meerza [(1981) 4 SCC 335 : 1981 SCC (L&S) 599 : 1981
UPSC 137 : (1982) 1 SCR 438AIR 1981 SC 1829 : (1981) 2 LLJ 314] the
Court formulated propositions emerging from an analysis and examination
of earlier decisions. One such proposition held well established is that
Article 14 is certainly attracted where equals are treated differently
without any reasonable basis.

15. Thus the fundamental principle is that Article 14 forbids class
legislation but permits reasonable classification for the purpose of
legislation which classification must satisfy the twin tests of classification
being founded on an intelligible differentia which distinguishes persons or
things that are grouped together from those that are left out of the group
and that differentia must have a rational nexus to the object sought to be
achieved by the statute in question.

xxx xxx xxx

19. What is a pension? What are the goals of pension? What public
interest or purpose, if any, it seeks to serve? If it does seek to serve some
public purpose, is it thwarted by such artificial division of retirement pre

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and post a certain date? We need seek answer to these and incidental
questions so as to render just justice between parties to this petition.

20. The antequated notion of pension being a bounty, a gratuitous payment
depending upon the sweet will or grace of the employer not claimable as a
right and, therefore, no right to pension can be enforced through Court
has been swept under the carpet by the decision of the Constitution Bench
in Deokinandan Prasad v. State of Bihar [(1971) 2 SCC 330 : AIR 1971
SC 1409 : 1971 Supp SCR 634 : (1971) 1 LLJ 557] wherein this Court
authoritatively ruled that pension is a right and the payment of it does not
depend upon the discretion of the Government but is governed by the rules
and a government servant coming within those rules is entitled to claim
pension. It was further held that the grant of pension does not depend upon
anyone’s discretion. It is only for the purpose of quantifying the amount
having regard to service and other allied matters that it may be necessary
for the authority to pass an order to that effect but the right to receive
pension flows to the officer not because of any such order but by virtue of
the rules. This view was reaffirmed in State of Punjab v. Iqbal Singh.
[(1976) 2 SCC 1 : 1976 SCC (L&S) 172 : AIR 1976 SC 667 : (1976) 3
SCR 360]
xxx xxx xxx

29. Summing up it can be said with confidence that pension is not only
compensation for loyal service rendered in the past, but pension also has a
broader significance, in that it is a measure of socio-economic justice
which inheres economic security in the fall of life when physical and
mental prowess is ebbing corresponding to aging process and, therefore,
one is required to fall back on savings. One such saving in kind is when
you give your best in the hey-day of life to your employer, in days of
invalidity, economic security by way of periodical payment is assured. The
term has been judicially defined as a stated allowance or stipend made in
consideration of past service or a surrender of rights or emoluments to one
retired from service. Thus the pension payable to a government employee
is earned by rendering long and efficient service and therefore can be said
to be a deferred portion of the compensation or for service rendered. In
one sentence one can say that the most practical raison d’etre for pension
is the inability to provide for oneself due to old age. One may live and
avoid unemployment but not senility and penury if there is nothing to fall
back upon.

30. The discernible purpose thus underlying pension scheme or a statute
introducing the pension scheme must inform interpretative process and
accordingly it should receive a liberal construction and the courts may not
so interpret such statute as to render them inane (see American
Jurisprudence, 2d, 881).

31. From the discussion three things emerge: (i) that pension is neither a

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bounty nor a matter of grace depending upon the sweet will of the
employer and that it creates a vested right subject to 1972 Rules which are
statutory in character because they are enacted in exercise of powers
conferred by the proviso to Article 309 and clause (5) of Article 148 of the
Constitution; (ii) that the pension is not an ex gratia payment but it is a
payment for the past service rendered; and (iii) it is a social welfare
measure rendering socio-economic justice to those who in the hey-day of
their life ceaselessly toiled for the employer on an assurance that in their
old age they would not be left in lurch. It must also be noticed that the
quantum of pension is a certain percentage correlated to the average
emoluments drawn during last three years of service reduced to 10 months
under liberalised pension scheme. Its payment is dependent upon an
additional condition of impeccable behaviour even subsequent to
retirement, that is, since the cessation of the contract of service and that it
can be reduced or withdrawn as a disciplinary measure.

xxx xxx xxx

42. If it appears to be undisputable, as it does to us that the pensioners for
the purpose of pension benefits form a class, would its upward revision
permit a homogeneous class to be divided by arbitrarily fixing an
eligibility criteria unrelated to purpose of revision, and would such
classification be founded on some rational principle? The classification
has to be based, as is well settled, on some rational principle and the
rational principle must have nexus to the objects sought to be achieved.
We have set out the objects underlying the payment of pension. If the State
considered it necessary to liberalise the pension scheme, we find no
rational principle behind it for granting these benefits only to those who
retired subsequent to that date simultaneously denying the same to those
who retired prior to that date. If the liberalisation was considered
necessary for augmenting social security in old age to government
servants then those who, retired earlier cannot be worst off than those who
retire later. Therefore, this division which classified pensioners into two
classes is not based on any rational principle and if the rational principle
is the one of dividing pensioners with a view to giving something more to
persons otherwise equally placed, it would be discriminatory. To illustrate,
take two persons, one retired just a day prior and another a day just
succeeding the specified date. Both were in the same pay bracket, the
average emolument was the same and both had put in equal number of
years of service. How does a fortuitous circumstance of retiring a day
earlier or a day later will permit totally unequal treatment in the matter of
pension? One retiring a day earlier will have to be subject to ceiling of Rs
8100 p.a. and average emolument to be worked out on 36 months’ salary
while the other will have a ceiling of Rs 12,000 p.a. and average
emolument will be computed on the basis of last 10 months’ average. The
artificial division stares into face and is unrelated to any principle and
whatever principle, if there be any, has absolutely no nexus to the objects

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sought to be achieved by liberalising the pension scheme. In fact this
arbitrary division has not only no nexus to the liberalised pension scheme
but it is counter-productive and runs counter to the whole gamut of
pension scheme. The equal treatment guaranteed in Article 14 is wholly
violated inasmuch as the pension rules being statutory in character, since
the specified date, the rules accord differential and discriminatory
treatment to equals in the matter of commutation of pension. A 48 hours’
difference in matter of retirement would have a traumatic effect. Division
is thus both arbitrary and unprincipled. Therefore, the classification does
not stand the test of Article 14.”

58. I may also allude to the judgment in All Manipur Pensioners
Association (supra), wherein the Supreme Court was dealing with
classification of retirees based on a formula of pension whereby those
retiring prior to 01.01.1996 were given a lower rate of revised pension
compared to those retiring after the said date and the Supreme Court held
that the classification had no reasonable nexus to the objectives sought to be
achieved while revising the pension as all pensioners formed a single class.
Relevant paragraphs are as under:-

“2. The facts leading to the present appeal in a nutshell are as under: that
the State of Manipur adopted the Central Civil Services (Pension) Rules,
1972, as amended from time to time. As per Rule 49 of the Central Civil
Services Rules, 1972, a case of a government employee retired in
accordance with the provisions of the Rules after completing qualifying
service of not less than 30 years, the amount of pension shall be calculated
at 50% of the average emoluments subject to a maximum of Rs 4500 per
month. It appears that considering the increase in the cost of living, the
Government of Manipur decided to increase the quantum of pension as
well as the pay of the employees. That the Government of Manipur issued
an office memorandum dated 21-4-1999 revising the quantum of pension.
However, provided that those Manipur Government employees who retired
on or after 1-1-1996 shall be entitled to the revised pension at a higher
percentage and those who retired before 1-1-1996 shall be entitled at a
lower percentage.

xxx xxx xxx

8. Even otherwise on merits also, we are of the firm opinion that there is
no valid justification to create two classes viz. one who retired pre-1996
and another who retired post-1996, for the purpose of grant of revised
pension. In our view, such a classification has no nexus with the object

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and purpose of grant of benefit of revised pension. All the pensioners form
one class who are entitled to pension as per the pension rules. Article 14
of the Constitution of India ensures to all equality before law and equal
protection of laws. At this juncture it is also necessary to examine the
concept of valid classification. A valid classification is truly a valid
discrimination. It is true that Article 16 of the Constitution of India permits
a valid classification. However, a valid classification must be based on a
just objective. The result to be achieved by the just objective presupposes
the choice of some for differential consideration/treatment over others. A
classification to be valid must necessarily satisfy two tests. Firstly, the
distinguishing rationale has to be based on a just objective and secondly,
the choice of differentiating one set of persons from another, must have a
reasonable nexus to the objective sought to be achieved. The test for a
valid classification may be summarised as a distinction based on a
classification founded on an intelligible differentia, which has a rational
relationship with the object sought to be achieved. Therefore, whenever a
cut-off date (as in the present controversy) is fixed to categorise one set of
pensioners for favourable consideration over others, the twin test for valid
classification or valid discrimination therefore must necessarily be
satisfied.

8.1. In the present case, the classification in question has no reasonable
nexus to the objective sought to be achieved while revising the pension. As
observed hereinabove, the object and purpose for revising the pension is
due to the increase in the cost of living. All the pensioners form a single
class and therefore such a classification for the purpose of grant of revised
pension is unreasonable, arbitrary, discriminatory and violative of Article
14 of the Constitution of India. The State cannot arbitrarily pick and
choose from amongst similarly situated persons, a cut-off date for
extension of benefits especially pensionary benefits. There has to be a
classification founded on some rational principle when similarly situated
class is differentiated for grant of any benefit.

8.2. As observed hereinabove, and even it is not in dispute that as such a
decision has been taken by the State Government to revise the pension
keeping in mind the increase in the cost of living. Increase in the cost of
living would affect all the pensioners irrespective of whether they have
retired pre-1996 or post-1996. As observed hereinabove, all the
pensioners belong to one class. Therefore, by such a classification/cut-off
date the equals are treated as unequals and therefore such a classification
which has no nexus with the object and purpose of revision of pension is
unreasonable, discriminatory and arbitrary and therefore the said
classification was rightly set aside by the learned Single Judge of the High
Court. At this stage, it is required to be observed that whenever a new
benefit is granted and/or new scheme is introduced, it might be possible
for the State to provide a cut-off date taking into consideration its financial
resources. But the same shall not be applicable with respect to one and

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single class of persons, the benefit to be given to the one class of persons,
who are already otherwise getting the benefits and the question is with
respect to revision.

9. In view of the above and for the reasons stated above, we are of the
opinion that the controversy/issue in the present appeal is squarely
covered by the decision of this Court in D.S. Nakara [D.S.
Nakara v. Union of India, (1983) 1 SCC 305 : 1983 SCC (L&S) 145] . The
decision of this Court in D.S. Nakara [D.S. Nakara v. Union of India,
(1983) 1 SCC 305 : 1983 SCC (L&S) 145] shall be applicable with full
force to the facts of the case on hand. The Division Bench of the High
Court has clearly erred in not following the decision of this Court in D.S.
Nakara [D.S. Nakara v. Union of India, (1983) 1 SCC 305 : 1983 SCC
(L&S) 145] and has clearly erred in reversing the judgment and order of
the learned Single Judge. The impugned judgment and order [State of
Manipur v. All Manipur Pensioners’ Assn., 2016 SCC OnLine Mani 22]
passed by the Division Bench is not sustainable and the same deserves to
be quashed and set aside and is accordingly quashed and set aside. The
judgment and order [All Manipur Pensioners’ Assn. v. State of Manipur,
2005 SCC OnLine Gau 118 : (2005) 3 Gau LR 384] passed by the learned
Single Judge is hereby restored and it is held that all the pensioners,
irrespective of their date of retirement viz. pre-1996 retirees shall be
entitled to revision in pension on a par with those pensioners who retired
post-1996. The arrears be paid to the respective pensioners within a
period of three months from today.”

59. From the conspectus of the aforementioned judgments, it is palpably
clear that pension is not a bounty of the State but a right emanating from the
long service rendered by an employee, subject of course to fulfilment of
requirements of reckonable and satisfactory service. It is not a matter of
discretion of an employer. Pension is a method of social-economic justice
which inheres economic security in the fall of life when physical and mental
prowess is ebbing corresponding to aging process and one falls back only on
the saving, as observed by the Supreme Court. Thus, any Scheme or Rule
which is the genesis of grant of pension must receive a liberal construction
and interpretation. It is equally settled that pensioners for the purpose of
pensionary benefits form a homogenous class and any classification must
have nexus to the object sought to be achieved. Surely, when the purpose of

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pension is payment for the past service rendered and a measure of socio-
economic justice for those who in the hey-day of their life tirelessly toiled
for their employer on the assurance that in the old age they will not be left to
fend for themselves, can IOCL be heard to defend its stand and justify a
situation where those who retired prior to 01.01.2007 would get 40% of their
last drawn salaries with entire reckonable service to their credit for
computation, but those who retired post the said date with more or equal
number of years of service are worse off, when they equally contributed
their part salaries and surrendered allowances and the answer can only be a
‘No’.

60. While this Court is conscious of the law that fixation of cut-off dates
for the purpose of grant of benefits is the domain of the employer and in a
given case may have a justification but at the same time, Courts can examine
the arbitrariness in fixing the date and the resultant discrimination between a
homogenous class of employees. Petitioners are right in relying on the
judgements referred to above, that the fortuitous circumstance of retirement
date may not in a given case be a justified marker to divide a homogenous
class of retirees for the purpose of pension fixation. With that backdrop, let
me now test whether the cut-off date of 31.12.2006 is arbitrary and
discriminatory, in light of the SBF Scheme and the subsequent impugned
Circular dated 19.04.2011, retrospectively modifying the SBF Scheme and
limiting the benefits of monthly pension by freezing the salary and the
reckonable service as on 31.12.2006.

61. Indisputably, under the SBF Scheme, employees of IOCL which
includes the Petitioners in the two petitions, had contributed not only
directly by way of a certain percentage of their salaries per month depending

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on varying age groups but had surrendered various allowances to indirectly
contribute to the corpus of the Fund and in that sense the SBF Scheme was
completely self-contributory and self-sustaining. In fact, there was no option
to the employees to not contribute and/or join as members of the SBF
Scheme. Most of the Petitioners are stated to be founder members of the
SBF Scheme and the remaining have also given their dedicated services to
IOCL over several years and contributed their hard-earned salaries and
allowances. For the sake of completeness, it be mentioned that Petitioners
are stated to have retired on different dates between 2013 and 2017. It was
brought forth that in the initial stages, there was a resentment and resistance
to contribute to the corpus, but on an assurance that the SBF Scheme was a
welfare measure and on the day of retirement, an employee would get
monthly pension computed at 40% of his/her last drawn salary based on the
number of years of reckonable service, the contributions were consistently
made for several years. In fact, this salient feature of the SBF Scheme is also
highlighted by the Division Bench of the Bombay High Court in V.R.
Hiremath (supra). The Court observed that the SBF Scheme did not depend
on IOCL or on the Government Funds and was evolved by the employees
and funded by them. It was a self-generating Scheme and prospective in
nature and that the maximum benefit payable to an employee on
superannuation was 40% of the last drawn salary for reckonable service of
32 years pro-rated in case of lesser years of service. Relevant paragraphs are
as follows:-

“11. The next question is whether it can be said that the fund or the
scheme has been Jointly floated by the employer and the employees. No
doubt. Rule 16(a) provides for contribution by the employer. Rule
16(a)(i) provides for mandatory contribution of Rs. 100 per annum by
respondent No. 1. Rule 16(a)(ii) is a discretionary one is the respondent

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No. 1 may contribute additional amount. It has been pointed out by
respondent No. 1 that no additional amount has been contributed by
respondent No. 1 except the amount of Rs. 100 per annum. Obviously, the
contribution of Rs. 100 is to enable the said Trust to get clearance or
approval from the Income Tax Commissioner. The provisions of the
Income Tax Act in this respect are relevant. Section 36 of the Income Tax
Act, 1961, provides for other deductions. Section 36(iv) provides that any
such amount paid by the assessee as an employer by way of contribution
towards a recognised provident fund or an approved superannuation fund.
Section 80-C(2)(e) (as it then stood) provides that if the assessee is an
employee participating in an approved superannuation fund any sum paid
in the previous year by him by way of contribution towards the
superannuation fund can be deducted. Part B of Fourth Schedule of
Income Tax Act deals with approved superannuation funds. Rule 2 thereof
provides that the Chief Commissioner or the Commissioner may accord
approval to the superannuation fund which complies with the requirement
of rule 3. Rule 3 provides for conditions for approval. Rule 3(c) provides
that the employer in the trade or undertaking shall be a contributor to the
fund. It is clear from the said provisions that even if an employee who
wants to get benefit of deduction from his income for the contribution
made by him towards such a scheme or fund then such scheme or the fund
is required to be approved under the rules and one of the conditions for
such approval is that the employer should make contribution. This
clarifies why the mandatory contribution of annual Rs. 100 is provided
under Rule 16(a)(i) of the scheme and which is in fact made by respondent
No. 1. Therefore, making such a contribution for the purpose of getting
clearance from the Income Tax Commissioner for the said fund of the
scheme does not mean that the respondent No. 1 has made any
contribution. It is merely a token or nominal contribution and employer
getting deduction for it is irrelevant.

                                  xxx                                  xxx                            xxx
                                  13.....

The superannuation benefit fund scheme does not depend upon the
respondent No. 1 or on the funds of the Government. This has been
evolved by the employees and funded by them. It is self-generating scheme
and prospective in nature. The employees were to decide the cut-off date
and accordingly they have decided as 7 November, 1987. The
contributions to be made were to be decided by the trustees from time to
time and deductions were only to be made from the salaries by the
respondent No. 1 as per the decision of the trustees. It has been pointed
out that the maximum benefit payable to an employee on superannuation
was at the rate of 40 per cent of the last drawn salary for a reckonable
service of 32 years prorated in case of lesser years of service. For this
purpose, annuity is to be purchased from L.I.C. out of the fund. It has been

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pointed out that since the contribution had to come from the members and
not from the respondent No. 1 if any such benefit is given to the employees
who retired prior to 7 November, 1987, there it would become unviable as
there are no contributions from the respondent No. 1 and the contributions
from the existing members cannot be sufficient to meet additional burden.
It would not be possible to operate the scheme. Therefore, it is not possible
to hold that it is a fund or the scheme floated jointly by the employer and
the employees.”

62. It is thus clear that by becoming members of the SBF Scheme and
contributing to its corpus, vested rights accrued in favour of the Petitioners
to seek and demand the fruits of the contributions in the form of assured
percentage of the last drawn salary with computation based on reckonable
number of years of service put in by the employees on the actual dates of
retirement rather than by computing by freezing the salary and service
period on an arbitrary date, to their detriment. In light of these crucial facts,
Petitioners are right in contending that their right to receive pension as per
Clause 4 of MoU dated 07.11.1987 on the basis of last drawn salary on the
date of retirement cannot be taken away basis the impugned Circular dated
19.04.2011. For the ease of reference, to show the manner in which SBFS-2
works as a defined contributory Scheme, salient features from the impugned
Circular dated 19.04.2011 are extracted hereunder:-

“Salient features of SABF trust consequent to implementations of DPE
Guidelines on Pension Scheme.

OLD SCHEME:

• Old SABF scheme will be frozen as of 31.12.2006
• Earlier freezing of pension calculations from 1.1.2003 will be
totally removed.

• Employees contributed for old Scheme will get pension for the
services upto 31.12.2006 based on the Old SABF rules as below:

1. For every completed year of service 1.25% pension will be
calculated.

2. Maximum pension period is 32 years

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3. Service prior introduction of scheme, say prior to Nov 1987
will be discounted as specified in original scheme.

• Because of modification, employees retired from 1.1.2003 to
till date will also get the benefits of current changes.
NEW SCHEME
• New pension scheme will be effective from 1.1.2007
• Contribution to the new scheme will be out of 30% of retiral
benefit proposed by DPE
• Currently, the retiral benefit is distributed in the following
manner. This is subject to change every year, based on the
valuation of Gratuity & PRMS.

1. PF =12.00%

2. Gratuity =1.01%

3. PRMS =14.62%
• Earlier contribution to the SABF on the head of uniform stands
withdrawn.

• The new Fund will be maintained by the trust similar to
individual PF account.

• Employee’s contribution of 2% will continue in the new scheme as
additional contribution.

• Income tax is payable by the employee, in case employer
contribution exceeds 1 lac per annum towards New Scheme.
• Based on the amount available (contribution based) on individual
account annuity will be purchased. It is not related to Basic pay
and DA of individual employee. In addition to pension based on the
new scheme, pension calculated for the service period up to
31.12.206 based on old scheme also will be paid.

• Commutation rule will continue i.e. Maximum of 1/3 of available
fund on individual account can be commuted.

• Existing benefit on death cases will continue for R1 & R3 options.
R2 option will be discussed with collectives at a later date.
• In case of resignation, employee having less than 15 – years
services will get back only 2% of employee contribution with
interest.

• Those who resigned or who has gone on VRS after 15 years of
service, pension will start at the age of 60 years.

• Employees shifting to another PSU and where such
similar facilities are available, balance on individual account will

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be transferred the new PSU, irrespective of number years of
service.”

63. The impugned Circular is stated to be based on a decision taken by
Board of IOCL in the meeting held on 25.01.2011 implemented by the
Board of Trustees through a Resolution in the meeting held on 18.04.2011.
The direct result of this decision to terminate/modify the SBF Scheme is that
Petitioners having retired post 01.01.2007 will be entitled to lesser pension
as compared to those who retired prior to that date, though both sets of
retirees formed a homogenous class by rendering service to IOCL,
discharging duties and by contributing from their salaries and allowances.
The impact of this modification is demonstrated by the Petitioners by first
comparing the salient features of the SBF Scheme dated 24.12.1987 and
SBFS-2 and secondly, by the showing the difference in the actual monthly
pension in a given case. Under SBF Scheme, an employee who retires on
completion of 32 years of reckonable service would get 40% of the last
drawn salary and benefit was to be calculated at the rate of annuity taking
1/80th of the last drawn salary for every completed year of reckonable
service, subject to maximum of 32 years. Quite to the contrary, under Clause
3.4.2 of SBFS-2, the salary and reckonable service for computing the
pension is frozen as on 31.12.2006 in respect of each employee on roll as on
that date and who continued thereafter. Therefore, pension would be
calculated by taking the reckonable service as on 31.12.2006 as also the
actual salary (Basic Pay + DA) as on that day and no interest would accrue
on the frozen benefit.

64. Illustratively, if an employee joined service in 1984 and retired in
2016, the reckonable service will be 32 years entitling him to 40% of the last

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drawn salary in 2016. However, due to freezing, his reckonable service will
be 22 years as on 31.12.2006 and he will not get the maximum benefit of
40% and compounded disadvantage will be that his last drawn salary will be
taken as on 31.12.2006. The inevitable result is that in a given case, the
employee could be getting Rs.2 lacs as salary in 2016 but may have been in
the salary of Rs.50,000/- on 31.12.2006 due to being in a lower post or in the
pre-revised scale and therefore, his pension will be calculated at Rs.50,000/-
with no interest on the monies paid to the Fund over the years. This
difference will arise between a pensioner retiring on 01.01.2007 and the one
retiring on 31.12.2016 and cannot but be termed as an arbitrary and
discriminatory action, violative of Article 14 of the Constitution of India.
Petitioners correctly flagged that being retirees between 2013 to 2017, they
are worse impacted as they have put in many more number of years of
service than an employee who retired on 31.12.2006 or even on 01.01.2007.
In fact, Petitioners have demonstrated this through a table and graph which
is extracted hereunder for ready reference:

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65. The stand of IOCL that by introduction of SBFS-2, Petitioners seek to
gain as they are drawing two kinds of pensions is completely misconceived.
The retrospective modification of the SBF Scheme by IOCL and consequent
issuance of Deed of Variance dated 18.05.2011 has led to grant of benefits
to the Petitioners for two separate service periods i.e. for reckonable service

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upto 31.12.2006 and then from 01.01.2007 onwards. Benefit for pre-
01.01.2007 period was given as per original SBF Scheme but keeping
31.12.2006 as the date to calculate reckonable service period as also last
drawn salary. This benefit was kept in frozen account to be paid later on
superannuation. Post-01.01.2007 benefit was given under SBFS-2 and even
if consolidated pension benefits are worked out, according to the Petitioners,
the monthly pension is not more than 20% of the actual last salary drawn on
the actual date of retirement as against 40% full pension of last drawn salary
for 32 years of service and above and in some cases as low as 8%.
Therefore, it can hardly be argued by IOCL that grant of two pensions
stands to benefit the Petitioners.

66. Petitioners are also right in their contention that there is no intelligible
criteria for fixing the artificial cut-off date and it has no nexus with the
object sought to be achieved and therefore, this classification cannot be
called a valid classification in law. In this context, I may first refer to a
passage from L. Kannaiah (supra), as follows:-

“6. Para 5 of the circular stipulated that the age-limit (viz. not being over
35 years) for admission to Pension Fund shall continue. Thus the
pensioned ex-service personnel were admitted to pensionary benefits with
effect from 1-1-1965 subject to the restriction of the age-limit of 35 years
(which was later on enhanced to 38 years) on that date. As the date of
confirmation of the respondents was much earlier to 1-1-1965, the crucial
date for admission to the Pension Fund would be 1-1-1965. On that date,
the confirmed employee of the Bank should not have exceeded 35 years of
age. That is the combined effect of Staff Circular No. 18 dated 8-4-1974
read with the Pension Fund Rules referred to supra. The reason for
prescribing the maximum age-limit of 35 or 38, as the case may be, for the
purpose of induction into Pension Fund appears to be that the employee
would be able to render minimum service of 20 years as contemplated by
Rule 22 of the Pension Fund Rules. However, there does not appear to be
any rationale or discernible basis for fixing the cut-off date as 1-1-1965,
notwithstanding their earlier confirmation in bank service. True, a new
benefit has been conferred on the ex-servicemen and therefore, a cut-off

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date could be fixed for extending this new benefit, without offending the
ratio of the decision in D.S. Nakara v. Union of India [(1983) 1 SCC 305 :

1983 SCC (L&S) 145 : AIR 1983 SC 130] but, there could be no
arbitrariness or irrationality in fixing such date. Minimum qualifying
service being the essential consideration, even according to the Bank,
there is no reason why the ex-servicemen like the respondents, who from
the date of their confirmation had put in more than twenty years of service,
even taking the retirement age as 58, should be excluded. No reason is
forthcoming in the counter-affidavit filed by the Bank for choosing the said
date. When it is decided to extend the pensionary benefits to ex-servicemen
drawing pension, the denial of the benefit to some of the serving employees
should be based on rational and intelligible criterion. In substance, that is
the view taken by the High Court and we see no reason to differ with that
view.”

67. Case of IOCL is largely predicated on the viability of SBF Fund and
the objective of the classification and fixing the cut-off date was to sustain
the Fund. Learned Senior Counsels for the Petitioners had taken pains to
show that this plea is wholly incorrect and the issue of viability is only a
smokescreen to defeat the rights of the Petitioners who contributed through
their service career from their salaries and had also forgone most of their
allowances to be comfortable in the post-retirement phase. I may also note
that even in the counter affidavit, it is repeatedly asserted that the SBF Fund
was not viable from 2001 and there was a huge gap in the available fund and
the amounts required to discharge the liabilities and the crisis worsened due
to ex-gratia payments and disbursal of pensionary benefits under the
voluntary retirement scheme, due to mass retirements. The other two
pedestals of IOCL’s stand are: (a) Presidential Directive in the form of DPE
O.Ms. to increase the wages from 01.01.2007 and contribute 30% to the
superannuation funds; and (b) financial impact due to consequent steep
increase in wages. Coming to the first plank of the argument. On this aspect,
Petitioners are right that viability of the SBF Fund was never a reason for
taking the impugned decision and in this context, Agenda for the Board

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Meeting dated 25.01.2011 was highlighted and rightly so. It is clearly
mentioned in the Agenda in paragraph 2.4.4 that the SBF Scheme was viable
with current contribution in the SBF Fund and was expected to meet future
liabilities. It was noted that the Trustees manage the funds and upon a
member qualifying under the SBF Scheme, they purchase annuities from
LIC to secure entitled recurring benefit. SBF Scheme operates under the
concept of ‘defined benefit’ wherein employees make direct monthly
contribution as some percentage of their salaries as also indirectly by
surrendering allowances. Petitioners have also brought forth in the rejoinder
that in the 36th Meeting of the Board of Trustees held on 29.01.2010, the
SBF Fund was held to be viable and there was a resistance to the merger of
SBF Fund of erstwhile IBP Company Limited with IOCL SBF Fund. Fund
position as on 31.12.2010 brought out in the rejoinder shows the net balance
of contributions and refund of contributions under SBFS-2 as Rs.1,195.15
crores. Petitioners also highlighted Annexures-III and IV which is the
Actuarial Report for the Board Agenda dated 10.02.2011, wherein it was
stated that from 01.04.2006 to 31.12.2010 period not only annual collections
remained more than liabilities of all superannuated employees, though
separated due to VRS and death and reached double mark in 2008-09
onwards. It was also noted that there was a rising trend in cash flow surplus
with the Trust from opening balance of Rs.(-)3 crore as on 01.01.2007 to
Rs.414.64/- crore as on 01.01.2011. It was noted that cumulative cash flow
surplus on 01.01.2011 was more than sufficient to cater to liabilities for next
three years without any further contributions. Relevant paragraphs from
Agenda dated 25.01.2011 are as follows:-

“2.4.4 The Scheme since introduction is being operated through a Trust.
The Scheme is viable with current contribution in the Fund and is expected

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to meet in future liabilities. The Trustee manages the funds and upon a
member’s qualifying under the scheme, purchase annuity from the LIC to
secure entitled recurring benefit. The schehie operates under the concept
of “defined benefit” viz. the benefits are determined at the time of
superannuation based on the period of service and the last pay drawn of
the employee. It has following silent features:

a) Employees make a direct monthly contribution to the Fund @ 2%
to 5% of (Basic Pay+DA) based on age profile at the time of
Introduction / joining the scheme. As per the MOU with the collective,
it was further agreed that certain benefits enjoyed by the employees at
that time viz.. Uniform, Benevolent Fund for education.

Rehabilitation. Grant given to spouse on death of an employee in
service, Tea Allowance and Washing allowance will be discontinued
and the costs incurred on these items will be utilized by the
Corporation in finding the Scheme.

b) The scheme envisages a post-retirement monthly benefit of 40% of
Basic Pay plus DA of the employee for a reckonable service of 32
years. For lesser period, the benefit is proportioned. This is subject to
a minimum service requirement of 5 years in case of superannuation.
The past service prior to introduction of the Scheme has been
discounted @ 1% for each year.

c) The recurring benefit under the Scheme is not linked to inflation or
consumer price index. Monthly benefit once fixed at the time of
superannuation, based on annuity amount, remains fixed for all time.

d) Annuities are purchased from Life Insurance Corporation of India
under the Standard option i.e. Life time of the member with
guaranteed benefit for 15 years. The employee has an option to
commute 1 /3rd pension at the time of superannuation. In case of death
of an employee during service, benefit is given as per the
rehabilitation option exercised.

….”

68. Petitioners have also brought forth that the counter affidavit
incorrectly and falsely states that the reason for closing the SBF Scheme was
a shortfall of Rs.2224.84 crores if the Scheme had continued. Firstly, the
shortfall was calculated based on deemed superannuation of all employees
on 31.12.2006, as rightly flagged by the Petitioners. If this is the
methodology adopted to work out the viability, no pension fund will
withstand the disbursal of a defined benefit scheme to all beneficiaries at

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one go at any point of time. SBF Scheme works on the principle of a rolling
plan where place of outgoing employees on retirement is taken over by new
employees which may be larger in number and whose contributions would
naturally add to the Fund. Moreover, assuming for the sake of argument,
there was a shortfall, as per Clause 16(a)(ii) of the Deed of Variation dated
24.03.1988, it was the obligation of the IOCL to contribute additional
amount to maintain its viability, as in any event the Trustees were the
extended arm of IOCL. Instead, as highlighted by the Petitioners, IOCL not
only arbitrarily closed the SBF Scheme but took away Rs.432.31 crore,
lying in the Fund from the indirect contribution of the employees in lieu of
the uniform allowance to adjust its liability created due to foreclosure of the
Scheme and also unilaterally refunded Rs.114.02 crores and credited the
same to individual accounts of employees under SBFS-2.

69. At the cost of repetition, the entire counter affidavit filed by IOCL is
replete with what according to them was a depletion in the corpus of the
SBF Fund from 2001 onwards. It is stated that in 2001, the Trust realised
that the money was not sufficient to purchase annuity policies to provide
maximum benefits envisaged under SBF Scheme and accordingly,
Consultant Actuaries were engaged who pointed out that the total fund
required to meet the liability would be Rs.1881.50 crores at that time while
the current corpus was only Rs.107 crore. The shortfall, according to IOCL,
was confirmed in the subsequent Actuary Report also and which is why a
decision was taken in 2003 to freeze the salaries as on 01.01.2003 with
capping of 7% on increase in salaries. Reference is then made in the counter
affidavit to a shortfall of Rs.2224.84 crore as per the Actuary Report dated
29.11.2010. Interestingly, in the same affidavit, two factors are attributed to

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the change in decision to introduce SBFS-2. It is stated that if this shortfall
was to be funded immediately through one-time lump sum payment, the
discounted value of funds immediately required will be Rs.1123.51 crores.
The second reason is the increase in wages from 01.01.2007 pursuant to a
Presidential Directive. Both these reasons to my mind do not further the case
of IOCL.

70. The stand that the impugned SBFS-2 was introduced due to a shortfall
in the corpus of SBF Fund, as noted above, is belied by the Board Agenda
dated 25.01.2011, noting that at that stage the Fund was viable. Secondly,
this very Agenda indicates that the reason to introduce SBFS-2 was not the
alleged shortfall but clearly the Presidential Directive to introduce revised
provisions of superannuation benefits under the Defined Contribution, which
too the IOCL, to my mind, totally misconstrued. A reading of the DPE
O.Ms., which are extracted in the earlier part of the judgment, does not
reflect any mandate by DPE to CPSEs including IOCL to introduce any new
scheme and that too contrary to its own existing Scheme and certainly not to
the disadvantage of the contributing members of the scheme. Moreover,
Clause 13 of the MoU dated 07.11.1987 clearly mandated that any
Government of India Pension/Superannuation Scheme shall be in addition to
the existing SBF Scheme and therefore, no Scheme could have been
introduced by the IOCL in derogation of the existing Scheme and that too
with a serious impact on the employees reducing pensions in some cases to
as low as 8%. There is also no mandate to prematurely terminate any
existing pension scheme. In fact, the O.Ms. provided for CPSEs to
contribute to a maximum of 30% to the superannuation benefits and
therefore all that IOCL should have done was to increase its contribution to

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SBF Fund and the Scheme would have continued and run its course. There
was absolutely no requirement of fixing a cut off date to freeze the salaries
and reckonable service and deprive the retirees of pension computed at last
drawn salaries. As rightly placed by the Petitioners, IOCL mismanaged the
Fund and transferred monies to achieve a foreclosure of the SBF Scheme.
Agenda dated 25.01.2011 clearly reflects the reverse engineering to achieve
the goal of being in line with the DPE O.Ms. and start a new scheme and
methodology of contribution and create an artificial shortage of funds, which
actually did not exist and close to the decision, as mentioned in this very
agenda, the Fund was viable.

71. As for the increase in wages from 01.01.2007 being one of the reasons
to modify the SBF Scheme, this stand is also fallacious. It needs no
reiteration that if the wages increased from 01.01.2007, the contributions by
way of percentage of salaries as also surrender of enhanced allowances
would have proportionately increased the corpus, assuming there was any
shortfall. Therefore, even this contention has no merit. Clearly, IOCL has by
the impugned decision seriously effected and prejudiced the vested rights of
the Petitioners to reap fruits of the seeds they have sown over decades by
rendering dedicated service and contributing percentages of their salaries
every month and forgoing allowances to add to the corpus and the impugned
decision cannot be sustained. The smokescreen of showing alleged shortfall
in the fund on account of mass retirements due to introduction of VR
Schemes or ex-gratia schemes also cannot help IOCL as this was neither
attributable to the Petitioners nor can they be deprived of what they were
assured when they were contributing to the SBF Scheme, a purely self-
contributory and self-sustaining scheme, for this reason.

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72. The judgments relied upon by IOCL do not inure to its advantage. In
Ratan Behari Dey (supra), the Supreme Court has held that a Scheme of
grant of pensionary benefit as a condition of service can be made operative
from a cut-off date even retrospectively provided fixation of cut-off date is
reasonable and non-arbitrary. There can be no dispute with this proposition
and this is exactly what the Petitioners urge, however, in the present case,
Court has found the fixation of the date to be arbitrary and discriminatory.
To the same effect are the judgments in P.N. Menon (supra) and Amrit Lal
Gandhi (supra). In T.N. Electricity Board (supra), the Supreme Court was
again dealing with the validity of the cut-off date and in that context held
that the Board was not bound to extend the pension Scheme to those who
had retired earlier and availed of the benefit under the CPF Scheme existing
before the Pension Scheme as they form a separate class. This judgment is
wholly inapplicable to the issues arising in the present petitions. In J.L.
Gupta (supra), the Supreme Court was dealing with a Government
Notification pertaining to Dearness Allowance for the purpose of pension
calculation etc. and has no application to this case. Lastly, Mr. V.N. Koura
had relied on the judgment of the Bombay High Court in V.R. Hiremath
(supra) and much emphasis was laid on the judgment on account of the fact
that it dealt with the same SBF Scheme and where IOCL was the
Respondent. The judgment of the Division Bench, however, cannot rescue
IOCL for the simple reason that Petitioners in the said petition sought a writ
to the Respondents to give benefit of the SBF Scheme under MoU dated
07.11.1987. Petitioners were employees of IOCL who had retired between
October, 1986 to November, 1987. Declining the relief to the Petitioners, the
writ petition was dismissed for the reason that the benefit of the Scheme

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could be given only to those employees who were in service when the
Scheme came for the reason that the amounts were to be contributed by the
employees themselves and annuities were to be purchased from LIC to grant
pension, which is not the case here and in fact, as noted above, the Division
Bench highlighted the self-contributory nature of the Scheme and how it was
self-sustaining.

73. For all the above reasons, this Court holds that fixing the date of
31.12.2006 for freezing the salaries and reckonable service for computation
of monthly pensions of the Petitioners is arbitrary and discriminatory and
thus violative of Article 14 of the Constitution of India and to that extent
Circular dated 19.04.2011, Deed of Variance dated 18.05.2011 and Office
Memorandum dated 01.06.2011 will not come in the way of the Petitioners
from getting monthly pensions under the original SBF Scheme. It is thus
held that monthly pensions of the Petitioners will be re-fixed on the basis of
the original SBF Scheme as per the terms of MoU dated 07.11.1987 and
Trust Deed dated 24.12.1987, which would mean that their pensions will be
re-fixed taking last drawn salaries and the reckonable service on the actual
dates of respective retirements and not the date of freezing. Pensions of the
Petitioners will be re-fixed and arrears will be disbursed with interest @ 6%
per annum from the due dates till actual payments. The entire exercise will
be carried out by IOCL within 03 months from today.

74. Writ petitions are allowed in the aforesaid terms. Pending applications
also stand disposed of.




                                                                                      JYOTI SINGH, J
                          APRIL        04 , 2025/shivam


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Author: Jyoti Singh

Bench: Jyoti Singh

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