Once Regularised, Contractual Service Counts for Pension: Supreme Court Applies Rule 17 to Protect Retired Employees' Rights

“Exclusion Ends With Regularisation — Contractual Past Must Be Counted for Pension”, - Supreme Court ruled that employees initially engaged on contract but later regularised are entitled to pensionary benefits by counting their entire pre-regularisation contractual service, in accordance with Rule 17 of the Central Civil Services (Pension) Rules, 1972.

“In light of the clear language of Rule 17… the contractual service period rendered prior to the appellants’ regularisation in 2015 must be counted towards the payment of their pensionary benefits,” held a Bench comprising Justices Pamidighantam Sri Narasimha and Joymalya Bagchi, in a decision affirming and extending the Supreme Court’s earlier ruling in State of Himachal Pradesh v. Sheela Devi (2023).

Contractual Workers Regularised After Years of Service

The appellants were appointed between 1996 and 1999 as Data Entry Operators under a Central Government Plan Scheme, on a temporary and contractual basis. After years of service and legal battles, their positions were regularised by an Office Memorandum dated 05.01.2015, with appointments formalised from 01.04.2015.

The Central Administrative Tribunal (CAT) had ruled in 2016 that their entire period of contractual service should count for pay protection, pension, and seniority. However, the Karnataka High Court in 2021 reversed this decision in part, holding that since the original appointments were not made through the Staff Selection Commission or against sanctioned posts, the workers were not entitled to seniority or pension for the contractual period. The only relief retained was protection of their pay scale from the contractual phase.

“Rule 17 Squarely Covers This Case”: Supreme Court Resolves the Issue of Pension Entitlement

The apex court limited its consideration to the issue of pension, leaving aside the claims for seniority and service benefits. Referring to Rule 17 of the Pension Rules, the Court reiterated:

“A person who is initially engaged by the Government on a contract for a specified period and is subsequently appointed... in a pensionable establishment without interruption of duty, may opt... to count in lieu thereof the service... for which the aforesaid monetary benefits may have been payable.”

The Court also referred to its own ruling in Sheela Devi, which had clearly held that once a contractual employee is regularised, Rule 17 becomes applicable, even though contractual workers are otherwise excluded under Rule 2(g). In Sheela Devi, the Court directed the government to initiate a structured process of options for such employees.

“Options Must Be Provided — Refund Mechanism to Be Explained”: Court Issues Binding Directions

In applying the same principle, the Court directed the Union of India to:

“Take immediate steps and indicate the mode and manner for the appellants to exercise the option provided under Rule 17... and notify the amounts that the appellants would have to remit.”

This process is meant to allow employees to either retain CPF contributions or refund them in order to opt for pension by counting the earlier service. The government is bound to provide clarity and timelines for executing this transition, as laid down in Sheela Devi.

High Court Partly Set Aside, Pension Rights Restored

The Supreme Court partly allowed the appeals and overturned the High Court’s denial of pension rights:

“We partly allow the present appeals... and set aside the impugned order... to the extent indicated.”

The Court refrained from expressing any view on other service benefits or seniority but preserved the pension relief fully under Rule 17.

Date of Decision: April 29, 2025