The Calcutta High Court has clarified that employees who were in service on the effective date of a pay revision acquire a vested right to the benefits of that revision, even if they subsequently retire under a Voluntary Retirement Scheme before its implementation. This accrued right cannot be extinguished by a subsequent settlement between the employer and the union of then-existing employees, as such a settlement does not bind former employees.
Further, extending the benefit of such a retrospective pay revision to one category of voluntarily retired employees (officers) while denying it to another (workmen) who retired under the same scheme is arbitrary, discriminatory, and violative of the right to equality under Article 14 of the Constitution of India, added the Court, observing that the subsequent dissolution of the company does not defeat such lawful claims, especially when a successor entity has provided an undertaking to indemnify such liabilities.
A Single Judge Bench of Justice Rai Chattopadhyay observed that when a pay revision is made effective from a date an employee was still in service, the financial benefits flowing from it constitute an accrued or vested right. Retirement, including under a VRS, ends the employer-employee relationship prospectively and does not divest the employee of benefits related to service already rendered. The Bench noted that the 1997 pay revision policy and the VRS guidelines themselves contemplated that employees of sick companies opting for VRS would be entitled to have their benefits recalculated based on the revised pay scales. Therefore, accepting VRS benefits cannot be seen as a waiver of this entitlement.
The Bench found the decision to implement the revision prospectively from October 1, 2010, based on a settlement with the then-existing union, to be arbitrary. The effective date of the pay revision was specified in the government policy itself (January 1, 1997), and this could not be altered by a subsequent settlement to the detriment of employees who had already retired.
Further, the Bench observed that a settlement under the Industrial Disputes Act, 1947, between an employer and a union representing existing employees cannot operate to the detriment of employees who had already severed their relationship with the company. Such a settlement cannot extinguish the vested or accrued rights of a distinct class of former employees who had no participation in the negotiation process.
The Bench also held that the respondents’ action was discriminatory. It noted that officers who also accepted VRS in 2002 were granted the benefit of the revised pay scale from January 1, 1997. Thus, denying the same benefit to the petitioner employees, who retired under the very same scheme, has no rational nexus to the object of the pay revision and amounts to arbitrary discrimination, violating Article 14 of the Constitution. The plea of financial incapacity also deserves rejection, as a substantial fund of Rs. 417 Crores was available and had been used to pay the officers.
Briefly, the petitioners are a welfare association representing ex-employees and an individual ex-employee of Burn Standard Company Limited. The company was declared a sick industrial company and was referred to the Board for Industrial and Financial Reconstruction (BIFR) in 1995. Later, a Government of India memorandum dated June 25, 1999, implemented a revision of pay scales for public sector undertakings, effective from January 1, 1997. In 2002, the company introduced a Voluntary Retirement Scheme (VRS), which the petitioners claim they were compelled to accept due to non-payment of salary and threat of closure.
Subsequently, in 2010, the company came under the control of the Ministry of Railways, and a bipartite settlement was reached with the then-existing workers’ union to implement the 1997 pay revision prospectively from October 1, 2010, making it applicable only to employees on the company’s roll on that date. This excluded the employees who had taken VRS in 2002. However, officers of the company who had also accepted VRS in 2002 were extended the benefit of the 1997 revised pay scale from a fund of Rs. 417 Crores, which was disbursed following a Supreme Court order.
The company was eventually dissolved and its name was struck off from the Register of Companies on September 26, 2022, with the Railway Board undertaking to indemnify all lawful claims against the company. The petitioners therefore approached the High Court seeking implementation of the 1997 revised pay scale with effect from January 1, 1997, and the disbursement of arrears.
Appearances:
Advocates Siddhartha Banerjee, Saheli Sen, Rajib Mullick, Ayantika Saha, Sandipto Bose, and Anchita Sarkar, for the Petitioner
Advocates Shiv Chandra Prasad, Sarda Sha, Ranjan Kr. Sinha, and Smita Das De, for the Respondent
