Master Policy Cannot Rewrite a Concluded Pension Contract: Himachal Pradesh High Court Protects HIMUDA Employees Against LIC’s Unilateral Terms

The Master Policy had to supplement the terms already agreed, not supplant them —Himachal Pradesh High Court at Shimla delivered a far-reaching verdict in a clutch of appeals and writ petitions led by Life Insurance Corporation of India & Anr. v. Rajesh Kumar Thakur & Ors., rejecting LIC’s attempt to evade liability by introducing new terms through a so-called “Master Policy” issued years after the pension scheme had been concluded and acted upon.

The Division Bench of Justice Vivek Singh Thakur and Justice Sushil Kukreja dismissed four appeals filed by LIC and upheld the claims of retired employees and widows of deceased staff of the Himachal Pradesh Urban Development Authority (HIMUDA). The Court categorically directed LIC to release pensions and family pensions “strictly in terms of the Pension Scheme of 2008 and the Trust Deed” and declared demands raised on the basis of the Master Policy to be illegal.

“A Pension Scheme Once Concluded and Funded Cannot Be Undone Two Years Later”

The dispute arose after the State repealed its earlier pension scheme in 2004, prompting HIMUDA to negotiate with LIC for a contributory pension plan. A Trust Deed was executed on 31 March 2008, and LIC received over ₹21 crores by 2009, following which it began disbursing pensions. However, in 2010, LIC issued a “Master Policy” with additional terms never accepted by HIMUDA, and in 2014 it abruptly stopped paying pensions, citing insufficiency of funds under those terms.

Rejecting LIC’s defence, the Court held:

“There is ample material on record that contract was concluded in the year 2008 when the Trust Deed was executed and pension scheme agreed and acted upon by the parties. The Master Policy had to be in furtherance and in consonance with the agreed terms. Any conditions in conflict with the Pension Scheme are unenforceable and non-existent.”

“Estoppel Applies Against LIC, Not Against Employees”

LIC had argued that employees and HIMUDA were estopped from questioning the Master Policy since it was contemplated in the scheme itself. The Court turned this argument on its head:

“Though there is reference of Master Policy in the Scheme and Trust Deed, LIC had accepted more than ₹21 crores and started disbursing pension two years before issuance of the Master Policy. LIC was therefore estopped from introducing conflicting conditions thereafter.”

The Court emphasised that LIC’s attempt amounted to breach of good faith and unfair contract practices, recalling the Supreme Court’s observations on standard form contracts and the need for insurers to act with transparency and fairness.

“Public Policy Demands Protection of Retirees’ Pension Rights”

The Bench underscored that this was not merely a contractual dispute but a matter of public policy affecting livelihood security of retired and deceased employees’ families. Rejecting LIC’s contention that complex facts required a civil trial, the Court observed:

“The issue involved relates to public policy and has been decided on the basis of documents on record. This plea of LIC is not sustainable and is rejected.”

The judges further warned that pension obligations, once crystallised, cannot be whittled down through unilateral instruments disguised as policy terms.

“Any Terms Contrary to the Pension Scheme Are Void and Must Be Struck Off”

Applying the doctrine of the “blue pencil,” the Court held that any inconsistent clauses in the Master Policy stood invalid.

“The demands raised by LIC contrary to the Pension Scheme are illegal. Any conflicting terms in the Master Policy must be considered void and non-existent.”

LIC Directed to Release Pension and Family Pension

The Court affirmed the Single Judge’s ruling, dismissed LIC’s appeals, and allowed the petitions of dependents. It directed that pensions and family pensions be released in accordance with the 2008 Pension Scheme and Trust Deed.

“Accordingly, LIC is directed to pay pension/family pension strictly in terms of the Pension Scheme already finalised between the parties and the Trust Deed. The appeals of LIC stand dismissed.”

Date of Decision: 15 September 2025