Can’t give officers hike, snub workers: Calcutta High Court says VRS does not wipe out ‘benefits accrued’ by employees

Underscoring that accrued benefits for service already rendered cannot be denied after retirement, the order added that retirement or retirement on VRS does not extinguish accrued service benefits.

Background

The legal battle involving the BSCL ex-employees’ welfare association and the Union of India centres on a protracted dispute over the implementation of the 1997 revised pay scale for workmen who exited the company over two decades ago.

The “checkered background” of the litigation:

• BSCL, a public sector undertaking, was referred to the Board for Industrial and Financial Reconstruction (BIFR) on January 20, 1995, after its net worth was eroded, leading to its declaration as a “sick industrial company”.
• Despite its financial state, the government of India issued an office memorandum on June 25, 1999, implementing a pay scale revision effective from January 1, 1997, for employees of public sector undertakings.
• In 2002, BSCL introduced a Voluntary Retirement Scheme.
• The petitioners alleged that employees were effectively compelled to accept the scheme due to the illegal stoppage of salaries for several months, the curtailment of basic facilities, and the constant threat of the company’s units closing.
• At the time of their retirement in 2002, the 1997 pay revision had been sanctioned but not yet physically implemented for these workmen.

Justice Rai Chattopadhyay was dealing with a plea filed by the company’s workmen who accepted the VRS in 2002. (Image enhanced using AI)

The 2010 settlement

• In August 2010, a new plan was approved, and administrative control of BSCL was transferred from the Ministry of Heavy Industries to the Ministry of Railways.
• Following this, the management entered into a bipartite settlement with the workers’ union then active in the company.
• This settlement stipulated that the 1997 pay revision would only be implemented prospectively from October 1, 2010, and would apply exclusively to employees who were on the company’s rolls as of that date.
• This effectively excluded all workmen who had retired under the 2002 VRS.

Allegations of arbitrary discrimination

• A critical turning point in the case arose when it was revealed that officers of the company who had also accepted voluntary retirement in 2002 were granted the benefits of the 1997 pay revision.
• These payments were made from a Rs 417-crore corpus sanctioned by the Supreme Court.
• The petitioners argued that denying the same benefit to workmen while granting it to officers, both of whom retired under the same scheme in the same year, constituted arbitrary discrimination and a violation of Article 14 of the Constitution.

‘Can’t take away rights of retired employees’

• Acceptance of voluntary retirement under such a scheme cannot be construed as a waiver of statutory or policy-based entitlements which had already accrued or which were intended to accrue to the employees under the government’s pay revision policy.
• The VRS guidelines themselves support this proposition.
• The guidelines specifically provide that in the event of pay revision being sanctioned after voluntary retirement, the ex gratia amount is liable to be recalculated based on the revised scale of pay.
• Statutory dues such as provident fund, leave encashment, gratuity, notice pay, and other benefits are to be determined in accordance with the relevant service conditions and statutory provisions.
• The scheme itself preserves the right of employees to receive recalculated benefits once the pay revision is implemented.
• The respondents’ contention that all claims stood extinguished once the petitioners accepted VRS benefits cannot, therefore, be sustained.
• The court is unable to accept that such a settlement can take away the rights of those employees who had already retired earlier.

Court’s findings

• It is well settled in service jurisprudence that where a pay revision is made effective from a date when an employee was still in service, the financial benefits flowing from such revision constitute an accrued or vested right in respect of the period during which the employee actually served the establishment.
• Retirement, including under VRS, merely brings the jural relationship of employer and employee to an end prospectively and does not operate to divest the employee of benefits which relate to the service already rendered.
• If the revised pay structure is given retrospective effect from a date before the employee’s retirement, the employee becomes entitled to have his pay for the relevant period refixed in accordance with the revised scale and to receive all consequential benefits, including recalculation of terminal dues and pension.
• The policy for revision of pay of the employees, which was undertaken in 1997, directly relates to the service conditions of the employees on the roll as on that date.
• The rationale is that pay revision relates to the service already rendered, not to future employment.
• The said policy made a special provision for sick industrial companies referred to the BIFR.

• It clearly stipulated that revision of pay scales in such enterprises would be implemented in accordance with the rehabilitation package and the additional financial burden on account of such revision would be provided for in the rehabilitation scheme itself.
• The very scheme of the policy demonstrates that employees of sick companies were never intended to be excluded from the benefit of the 1997 pay revision.
• Rather, the policy created a mechanism for accommodating the financial implications within the rehabilitation framework.
• It is further significant that the same policy expressly provided that, for sick enterprises, voluntary retirement benefits should be determined based on the actual revised pay and not on a notional basis.
• Such stipulation unmistakably indicates that the government itself contemplated that employees who would opt for voluntary retirement during the relevant period would nevertheless remain entitled to have their retirement benefits computed based on the revised pay scale once such revision became operative.