Actual Pay Drawn During Last 10 Months Must Be Basis For Pension Calculation, Regardless Of Notional Pay In Parent Bank: Punjab & Haryana High Court

"Respondent-Bank’s decision to ignore this actual pay and to compute pension on a lower, notional figure is thus directly contrary to the statutory scheme and runs foul of the principle that statutory pension rights cannot be diluted by administrative instruments or unilateral understandings." Punjab and Haryana High Court, in a significant ruling, held that a bank cannot ignore the actual pay drawn by an employee during their last ten months of service—including higher pay drawn while on deputation—to compute pension on a lower notional figure.

A bench of Justice Sandeep Moudgil observed that statutory pension rights, protected by specific regulations, cannot be whittled down by administrative circulars or unilateral understandings. The Court emphasized that if the pay was the basis for Provident Fund contributions, it must necessarily be considered "pay" for pensionary benefits.

The petitioners, who were originally employees of Punjab National Bank (PNB), had been sent on deputation to various Regional Rural Banks (RRBs) sponsored by PNB. Upon their retirement from service, their pension was fixed based on a lower "notional" pay they would have drawn in their parent bank, rather than the actual, higher pay they drew during their last ten months of service at the RRBs. Aggrieved by this reduction, which ignored the actual emoluments that were subjected to Provident Fund deductions, they approached the High Court seeking a re-computation of their retiral benefits.

The primary question before the Court was whether "average emoluments" for the purpose of computing pension under the 1995 Regulations should be reckoned with reference to the actual pay drawn during the last ten months or restricted to a notional substantive pay. The Court was also called upon to determine whether executive clarifications issued by the Ministry of Finance could override the plain language of statutory Pension Regulations.

Statutory Definition Of Pay Linked To Provident Fund Contributions

The Court analyzed Regulation 2(s) of the Punjab National Bank (Employees) Pension Regulations, 1995, which defines "pay" to include basic pay and all components counted for the purpose of making contributions to the Provident Fund. It noted that since the petitioners were drawing a specific rate of basic pay in the RRBs which formed the basis for their PF contributions under the arrangement between the sponsor Bank and the RRBs, such pay squarely falls within the statutory definition of "pay."

Justice Moudgil observed that once the pay meets the description under Regulation 2(s), it must enter the computation of "average emoluments" under Regulation 2(d). The Court held that the Bank’s attempt to restrict this to a notional figure was a departure from the clear and unambiguous mandate of the regulations which require the average of the pay drawn during the last ten months of service.

"That pay, averaged over the last ten months, constitutes their 'average emoluments' under Regulation 2(d) read with Regulation 38, and their basic pension has to be fixed at 50% thereof in terms of Regulation 35."

Administrative Instructions Cannot Override Statutory Regulations

The respondent-Bank relied on a clarification from the Ministry of Finance dated November 27, 2019, to justify using notional pay for pension purposes. However, the Court rejected this contention by citing the Supreme Court’s decision in Bank of Baroda v. G. Palani, which dealt with identical regulations. The Court noted that Pension Regulations, having been framed in exercise of statutory power, have the force of law and cannot be whittled down by settlements, circulars, or administrative instructions.

The Court further explained that any executive device that deprives an employee of a pension computed on the basis of actual last-drawn pay is arbitrary and unsustainable. It held that the Ministry's letter merely reflected an administrative understanding that cannot operate to amend or neutralize the plain terms of the 1995 Regulations.

"The interpretation of Regulation 38(2) as per deeming fiction is wholly impermissible. That it is not permissible to add or subtract any word in a provision is a settled principle of statutory interpretation."

Pension Underpayment Constitutes A Continuing Cause Of Action

Addressing the Bank's plea that the petitions were hit by delay and laches since the petitioners retired years ago, the Court held that the wrong complained of is not a one-time action. It clarified that the under-payment of pension in breach of statutory regulations is a continuing wrong that partakes the character of a continuing cause of action.

The bench observed that mere passage of time should not stand in the way of rectifying a statutory infraction, especially when the legal position has been clarified by the Apex Court. Since the Bank did not demonstrate any financial prejudice or alteration of position that would make the relief inequitable, the Court ruled that the claims could not be defeated on technical grounds of delay.

"Pension is a recurring benefit and partakes the character of a continuing cause of action. In such matters, Courts have repeatedly taken the view that mere passage of time should not stand in the way of rectifying an ongoing statutory infraction."

The Court quashed the impugned communications by which the Bank had declined the petitioners' claims. It directed the respondent-Bank to re-compute the pension of the petitioners by taking into account the actual pay drawn by them during the last ten months preceding their retirement, inclusive of the pay drawn on deputation in the sponsor RRBs.

The Bank was further ordered to release all consequential arrears, including pension and commutation, within two weeks. The Court also awarded interest at the rate of 6% per annum on the arrears from the dates the amounts became due until the actual date of payment.

In conclusion, the Court reaffirmed that statutory pensionary rights are hard-earned benefits that cannot be diluted through administrative "notional" fictions when the underlying regulations clearly favor the actual emoluments drawn by the employee.

Date of Decision: March 11, 2026