Retired Employees Cannot Challenge 15-Year Restoration Period for Commuted Pension: Allahabad High Court

Employees, Having Accepted the Pension Commutation Scheme, Cannot Later Seek Modification of Its Terms - Allahabad High Court dismissed a writ petition in Ashok Kumar Agarwal and 48 Others v. Union of India and Another (Writ - A No. 17819 of 2024). The petitioners, retired employees of Punjab National Bank, challenged the 15-year restoration period for commuted pension under Regulation 41(4) and 41(5) of the Punjab National Bank (Employee) Pension Regulation, 1995. The Court upheld the validity of the 15-year period, holding that it was a binding contractual obligation voluntarily accepted by the petitioners.

The Court observed: "Having acquiesced to the commutation policy with open eyes, it is not open for the retiring employee to contend later that the period of restoration of full pension be reduced from 15 years to 10 years. Whether or not the lump sum amount gets equalised on expiry of 10 years or 11 years is not decisive or material."

The petitioners, retired employees of Punjab National Bank, availed of the commutation benefit under Regulation 41 of the Punjab National Bank (Employee) Pension Regulation, 1995 at the time of their retirement. As per the Regulations, the retirees received a lump sum payment equivalent to one-third of their pension upon commutation, with a provision that the commuted portion would be restored only after 15 years.

The petitioners contended that the actual amount deducted on account of commuted pension over a period of 10-11 years almost equaled the lump sum amount paid. They argued that the restoration period of 15 years was unjustified and sought its reduction to 10 years.

The petitioners also alleged that the commutation scheme lacked transparency, asserting that the manner of calculating the commuted amount and the restoration period was not adequately disclosed.

The High Court rejected the petitioners’ arguments and upheld the statutory provisions under the Pension Regulations.

The Court emphasized that the pension commutation scheme under Regulation 41 is a voluntary option extended to employees. Once the employee accepts the terms of the scheme, a binding contractual obligation is created. The Court observed:
"The Policy contained in the Regulations of 1995 extends an offer to the retiring employee to avail the benefit of commutation on specific terms. These terms clearly provide for restoration of pension only on expiry of 15 years. Having accepted such offer, a binding contract comes into existence between the employee and the employer as per which the original pension is to be restored after 15 years."

The petitioners argued that the bank effectively recovered the commuted amount within 10-11 years and, therefore, the 15-year restoration period was arbitrary. Rejecting this contention, the Court held:
"Whether or not the lump sum amount gets equalised on expiry of 10 years or 11 years is not decisive or material. What is material is the nature of obligation which enures upon the parties when the retiring employee accepts the provision of commutation of pension."

The Court noted that the statutory scheme under Regulation 41(4) specifically provides for restoration of the commuted pension after 15 years, and this provision was accepted by the petitioners at the time of commutation.

Addressing the petitioners' claim that the commutation scheme lacked transparency, the Court observed that Regulation 41 provides detailed calculations for determining the commuted amount and the restoration period. It held:
"The chart specifies the manner in which the commutation is to be fixed and the period after which the original pension is to be restored. In case the employees had any misgivings about it, they could have sought appropriate clarification before accepting the offer."

The Court further stated that once the petitioners accepted the scheme, it was not open for them to later challenge its terms.

The Court relied on several precedents to support its decision, including the Supreme Court’s judgment in "Common Cause," A Registered Society and Others v. Union of India (1987) 1 SCC 142 and R. Gandhi v. Union of India and Others (1999) 8 SCC 106, which upheld the binding nature of pension commutation agreements.

Citing these rulings, the Court reiterated: "An employee who voluntarily accepts the terms of commutation cannot resile from the terms later on the ground of perceived inequities."

The Allahabad High Court dismissed the writ petition, holding that the petitioners’ challenge to the 15-year restoration period was untenable. The Court concluded:
"The statutory scheme is abundantly clear that an option is extended to the retiring employee to avail of the benefit of commutation on specific terms. The employees, having acquiesced to these terms, cannot later seek modification of the policy."

The petitioners’ argument for reducing the restoration period to 10 years was found to be without merit, as the 15-year period formed an integral part of the statutory and contractual framework.

Date of Decision: January 15, 2025