# PENSION SCHEME v. KURIAKOSE V. CHERIAN AND ORS

- **Citation:** [2005] Supp. 3 S.C.R. 867
- **Court:** Supreme Court of India
- **Decided:** 2005-10-03
- **Bench:** Y.K. Sabharwaland Tarun Chatterjee
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/pension-scheme-v-kuriakose-v-cherian-and-ors-20738
- **Pages:** 24

## Headnote

Service Law:
Air India Employees Seif-Contributory Superannuation Pension Scheme; C.
Amendment affecting rights of the retired employees-Whether can have
retrospective application-Held, No-Rights of the employees to receive the
annuity and quantum of the annuity get crystallized at the time of purchase
of the annuity.
The dispute in these matters basically between the appellant and the
serving employees of Air India on one hand and retired employees on the other
is about the interpretation of Air India Employees Self-Contributory
Superannuation Pension Scheme (hereinafter referred to as 'Scheme').
D
The main object of the Scheme is to provide to the members on E
retirement a fixed amount per month. The amount is to be calculated according
to the Scheme on superannuation of an employee and annuity is required to
be purchased from Life Insurance Corporation oflndia (Liq so as to ensure
payment by LIC of a fixed monthly sum to the retired employee and on his
demise the payment of the annuity amount to his legal representatives.
F
According to the appellants, the existing employees, the Scheme was
defective inasmuch as large amounts were given to the retiring employees
without having regard to the contributions made by them towards the Scheme
and resultantly the old employees by making smaller contributions received
disproportionately larger amount of benefits. No fund woμId have been available
with the Scheme for giving pension to the employees retiring after 2005 G
despite they having contributed large amount to the fund under the Scheme,
thus, requiring corrective action. Under these circumstances, the Scheme
was amended with effect from 3rd April, 2002. The amendment requires the
pensioners to make payment of additional contribution towards annuities
867
fl
-.
868
SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.
A purchased from LIC. The amendment provided that the amount of the pension
shall be corresponding to the contribution made by the respective retired
employees and not on the basis of 40 per cent of the last drawn salary of the
employees. In support of these appeals, three contentions have been urged:
(1) depletion of the fund amount if not checked would result in the retirees
after the year 2005 not getting any pension. Therefore, there was the
B requirement to make the impugned amendments; (2) the trustees in terms of
Deed and the Rules have unrestricted power to amend the Scheme so as to
apply amendment to also those who stand retired; and (3) the Scheme is not
amenable to the writ jurisdiction. The appellants are neither an
instrumentality or agency of the State nor other authority contemplated by
C Article 12 of the Constitution.
The validity of the aforesaid amendment of the Scheme was challenged
by the retired employees in writ petition filed under Article 226 of the
Constitution oflndia before the High Court mainly on the ground that rights
in their favour crystallized on purchase of annuities at the time of their
D superannuation and the same cannot be subjected to any alteration or
amendment The contention urged before the High Court was that the trustees
could only effect amendment to the Scheme for future benefits of existing
employees and had no right to effect any amendment which adversely affects
vested rights of the pensioners in regard to the pension payable to them as
E per the amended Scheme. The plea was that their pension as per the amended
Scheme would be considerably reduced. It was contended that on retirement
the ex-employees sever all their relations with the Scheme, which does not
envisage making of any additional contribution, by members after
superannuation. The LIC having accepted annuity and having made monthly
payments to retired employees cannot refund to the trust any amount or reduce
F monthly payment to the detriment of the pensioners.
The High Court by the impugned judgment held that the iIPpugned
amendment to the Trust Deed to the extent it applies in future is legal and
valid but the

## Text

_Characters 0–39,793 of 59,553. This is a partial read: ask again with offset=39793 for what follows._

AIR INDIA EMPLOYEES SELF CONTRIBUTORY SUPERANNUATION
A
PENSION SCHEME
v.
KURIAKOSE V. CHERIAN AND ORS.
OCTOBER 3, 2005
B
[Y.K. SABHARWALAND TARUN CHATTERJEE, JJ.]
Service Law:
Air India Employees Seif-Contributory Superannuation Pension Scheme; C.
Amendment affecting rights of the retired employees-Whether can have
retrospective application-Held, No-Rights of the employees to receive the
annuity and quantum of the annuity get crystallized at the time of purchase
of the annuity.
The dispute in these matters basically between the appellant and the
serving employees of Air India on one hand and retired employees on the other
is about the interpretation of Air India Employees Self-Contributory
Superannuation Pension Scheme (hereinafter referred to as 'Scheme').
D
The main object of the Scheme is to provide to the members on E
retirement a fixed amount per month. The amount is to be calculated according
to the Scheme on superannuation of an employee and annuity is required to
be purchased from Life Insurance Corporation oflndia (Liq so as to ensure
payment by LIC of a fixed monthly sum to the retired employee and on his
demise the payment of the annuity amount to his legal representatives.
F
According to the appellants, the existing employees, the Scheme was
defective inasmuch as large amounts were given to the retiring employees
without having regard to the contributions made by them towards the Scheme
and resultantly the old employees by making smaller contributions received
disproportionately larger amount of benefits. No fund woμId have been available
with the Scheme for giving pension to the employees retiring after 2005 G
despite they having contributed large amount to the fund under the Scheme,
thus, requiring corrective action. Under these circumstances, the Scheme
was amended with effect from 3rd April, 2002. The amendment requires the
pensioners to make payment of additional contribution towards annuities
867
fl
-.
868
SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.
A purchased from LIC. The amendment provided that the amount of the pension
shall be corresponding to the contribution made by the respective retired
employees and not on the basis of 40 per cent of the last drawn salary of the
employees. In support of these appeals, three contentions have been urged:
(1) depletion of the fund amount if not checked would result in the retirees
after the year 2005 not getting any pension. Therefore, there was the
B requirement to make the impugned amendments; (2) the trustees in terms of
Deed and the Rules have unrestricted power to amend the Scheme so as to
apply amendment to also those who stand retired; and (3) the Scheme is not
amenable to the writ jurisdiction. The appellants are neither an
instrumentality or agency of the State nor other authority contemplated by
C Article 12 of the Constitution.
The validity of the aforesaid amendment of the Scheme was challenged
by the retired employees in writ petition filed under Article 226 of the
Constitution oflndia before the High Court mainly on the ground that rights
in their favour crystallized on purchase of annuities at the time of their
D superannuation and the same cannot be subjected to any alteration or
amendment The contention urged before the High Court was that the trustees
could only effect amendment to the Scheme for future benefits of existing
employees and had no right to effect any amendment which adversely affects
vested rights of the pensioners in regard to the pension payable to them as
E per the amended Scheme. The plea was that their pension as per the amended
Scheme would be considerably reduced. It was contended that on retirement
the ex-employees sever all their relations with the Scheme, which does not
envisage making of any additional contribution, by members after
superannuation. The LIC having accepted annuity and having made monthly
payments to retired employees cannot refund to the trust any amount or reduce
F monthly payment to the detriment of the pensioners.
The High Court by the impugned judgment held that the iIPpugned
amendment to the Trust Deed to the extent it applies in future is legal and
valid but the amendment cannot apply to the employees who have retired before
the date of amendment and such employees shall continue to receive
G pensionary benefits as before, namely, the benefits which existed at the time
of amendment
Dismissing the appeals, the Court
H
HELD: I.I. An annuity is a right to receive de anno in annum a certain
AIR INDIA EMPLOYEES v. KURIAKOSE V. CHERIAN
869
sum; that may be given for life, or for a series of years; it may be given during A
any particular period, or in perpetuity; and there is also this singularity about
annuities, that, although payable out of the personal assets, they are capable
of being, even, for the purpose of devolution, as real estate; they may be given
to a man and his heirs, and may go to the heir as real estate. [885-F[
Advanced Law Lexicon by P Ramanatha Aiyar, 3rd Edition 2005, B
referred to.
Commissioner of Wealth Tax v. P.K. Benerjee, (1981[ l SCC 63, In-re
Duke of Norfolk Public Trustee v. lnland Revenue Commr., (1950) l Ch 487,
relied on.
c
2.1. None of the clauses of the Trust Deed render any assistance to the
appellants. The relied upon clauses deal with the members who continue to
contribute to the Fund. The liability of the retiring member to make any such
contributing ceases on retirement. It is nobody's case that after the retirement
any contribution is made or required to be made by retired employees. The D
aforesaid clauses only show the right and power to review the Fund and the
benefits payable to the continuing members/ employees. Likewise, reliance
on Rule 14 which stipulates that the member or his beneficiary shall not have
any interest in the master policy taken out in respect of the members in
accordance with the Rules of the Scheme but shall be entitled to
superannuation benefits in accordance with the Rules, has no applicability. E
The retired employees are not claiming any interest in the master policy but
are claiming right flowing from the annuity purchased on their retirement.
The rights of the employees to receive the annuity and quantum of the annuity
get crystallized at the time of purchase of the annuity. (887-D-E[
Sasadhar Chakravarty and Anr. v. Union of India and Ors., (1996[ 11 F
sec 1, relied on.
2.2. Any subsequent improvement in a given pension fund will benefit
only those whose moneys form part of the pension fund. As soon as an employee
retires, an annuity is purchased for his benefit under Rule 89, there remains G
no scope for any fresh contribution on his account so as to entitle him to an
increased pension prospectively on the basis of the improvement made
subsequently in the pension scheme of a fund since the existing pensioners
from a distinct class. After retirement retirees are not liable for any deficit
in the fund which is sought to be made good by recovery from them which is
the effect of retrospective amendment. Further, as already noted it was a benefit H
870
SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.
A and rolling scheme as opposed to a contributory scheme. (888-D-EJ
2.3. Neither clauses 32 and 33 or the Trust Deed nor Rule 14 has any
applicability on question of retrospective operation of amendment to the retired
employees. It has been admitted that the form of insurance annuity policy with
LIC was adopted as a result of mandate of the statute. Having done that, the
B appellants are bound by the consequences flowing from purchase of annuity.
In view of the above there is neither any substance in the contention that
contract was between LIC and the trustees nor is it of any consequence in
view of the conclusion that the amount, on retirement of employees, leaves
the fund for purchase of annuity and the rights of the retirees are crystallized
C on their retirement by purchase of annuity and thus no amount can be claimed
from them by making applicable amendment dated 3rd April, 2002 with
retrospective effect. (889-B-C-DJ
3.1. The contention that there is no privity of contract between LIC and
the retired employees as contract for purchase of annuities is between trust
D and LIC has also no substance. Under Section 2(11) of the Insurance Act, the
purchase of annuity amounts to purchase of an insurance policy. It would make'
no difference, in the present case, as to who made the payment. LIC having
accepted the annuity and having effected monthly payments can neither reduce
the annuity amount nor refund it to the trust to the detriment of the retirees
since the annuity has already crystallized and no change can be made in such
E annuity as stipulated by the impugned amendments. LIC has obligation to fulfill
the promise given by it to the retirees, who are assured under the annuity
scheme. Annuities dependent on human life constitute a species of contract
of life insurance. (889-E-F; 890-A-B(
Chandulal Harjivandas v. Commissioner of Income-tax, Gujarat, AIR
F (1967) SC 816, Commissioner of Wealth Tax, Punjab, J and K, Chandigarh,
Patiala v. Yuvraj Amrinder Singh and Ors., fl985( 4 SCC 608 and Life
Insurance Corporation of India and Ors. v. Asha Goel (Smt.) and Anr., (2001 (
2 sec 160; relied on.
G
CIVIL APPEL LA TE JURISDICTION : Civil Appeal No. 4267 of2003.
From the Judgment and Order dated 3/4.4.2003 of the Bombay High
Court in W.P. No. 1273 of2002.
WITH
H
C.A. Nos. 7035-36, 937/2003 and C.A. Nos. 2327 of2004.
AIRINDJA EMPLOYEES v. KURIAKOSE V. CHERIAN [SABHARWALJ.] 871
Mukul Rohtagi, V.B. Joshi and Ravi Kini for the Appellant in C.A. No. A
426712003.
Pradeep Rajagopal, Ms. Rekha Rajagopal, Ms. Bina Madhavan for Ml
s. Lawyer's Knit & Co. for the Appellant in C.A. No. 9372/2003 and Respondent
in C.A. No. 4267/2003.
Vishwajit Singh for the Appellant in C.A. No. 2327 /2004.
Ashok Shetty, S. Ravi Shankar and Ms. Yamunah Nachiar for the
Appellant in C.A. No. 7035/2003 and Respondent in C.A. No. 4267/2003.
B
J.P. Cama, Kailash Vasdev, Navin Prakash, Ms. Ritu Biswas and Gopal C
Singh for the Appellant in C.A. No. 7036/2003 and Respondents in C.A. Nos.
4267, 7035, 9372/2003 and 232712004.
Praveen Jain for Respondent in C.A. No. 4267/2003.
A.V. Rangam, A. Ranganadhan and Buddy A. Ranganadhan for L.1.C. D
The Judgment of the Court was delivered by
Y.K. SABHARWAL,J. The dispute in these matters basically between
the appellant and the serving employees of Air India on one hand and retired
employees on the other is about the interpretation of Air India Employees E
Self-Contributory Superannuation Pension Scheme (hereinafter referred to as
'Scheme').
In or about 1994, Air India proposed creation ofa Pension Scheme for
its employees. The Scheme was based on actuarial reports. The employees
had to contribute to the fund under the Scheme, Air India contributing a F
token sum of Rs. I 00 per annum for all the employees put together. Broadly,
Scheme was that all full time employees of Air India would become members
of the Scheme and contribute a percentage of their salary to be deducted
every month and credited to the fund under the Scheme. Each member had
to contribute for a minimum period of 15 years and for those who did not have G
sufficient number of years of service from the date of the commencement of
the Scheme upto their superannuation, an amount was calculated based on
the total number of years in deficit and the member was required to make
payment of the entire sum so calculated either in lump sum or to pay the said
amount in monthly installment along with interest on the total sum due. On
12th August, 1996, a deed of trust for incorporating the Scheme was entered H
872
SUPREME COURT REPORTS (2005) SUPP. 3 S.C.R.
A into between Air India and the trustees. The deed also contained rules known
as 'Air India Employees Self-Contributing Pensionary Scheme Rules'
(hereinafter referred to as 'the Rules'). Further, it postulated creation of a
pension fund. A deed of variation of the trust was executed on 7th October,
1997 to amend certain provisions of the trust deed. The trust deed, inter alia,
stipulates that the retiring employees would get pension equivalent to 40 per
B cent of the last pay drawn salary, consisting of basic pay, dearness allowances
and personal pay, if any.
To give effect to the aforesaid, an agreement was entered into with Life
Insurance Corporation of India which issued a master policy stipulating
C variol!_S terms and conditions.
Rules stipulate that a member or his beneficiary shall have no interest
in the master policy taken out in respect of the members or any investment
otherwise made by the trustees in accordance with the Rules or the Scheme
but shall be entitled to receive superannuation benefits in accordance with
D the Rules and that the trustees shall always administer the Scheme for the
benefit of the members and their beneficiaries in accordance with the provisions
of the Rules.
A staff notice dated 30th September, 1996 was issued reproducing
therein salient features of the Scheme. It stipulated that the Scheme will take
E effect from !st April, 1994. The main object of the Scheme is to provide to
the members on retirement a fixed amount per month. The amount is to be
calculated according to the Scheme on superannuation of an employee and
annuity is required to be purchased from Life Insurance Corporation of India
(LIC) so as to ensure payment by LIC of a fixed monthly sum to the retired
F employee and on his demise the payment of the annuity amount to his legal
representatives.
Besides the Scheme, the existing employees represented by their
respective associations are the appellants before us. According to the
appellants, the Scheme was defective inasmuch as large amounts were given
G to the retiring employees without having regard to the contributions made by
them towards the Scheme and resultantly the old employees by making
smaller contributions received disproportionately larger amount of benefits.
No fund would have been available with the Scheme for giving pension to
the employees retiring after 2005 despite they having contributed large amount
to the fund under the Scheme, thus, requiring corrective action. Under these
H circumstances, the Scheme was amended with effect from 3rd April, 2002. The
AIR INDIA EMPLOYEES v. KURIAKOSE V. CHERIAN [SABHAR WAL, J.] 873
amendment requires the pensioners to make payment of additional contribution A
towards annuities purchased from LIC. The amendment provided that the
amount of the pension shall be corresponding to the contribution made by
the respective retired employees and not on the basis of 40 per cent of the
last drawn salary of the employees. Corresponding amendments were also
made in the Rules, inter alia, providing that the employees who have retired
upto 31st October, 200 I shall contribute the amount so as to make up the B
difference between cost of annuity purchased for them from the pension fund
from LIC and the total contribution made by them till date of retirement. Other
consequential amendments were also made providing that the trustees shall
notify LIC for retrieval of the shortfall in the contribution from the purchase
price of the annuity paid to LIC in respect of such members and for appropriate C
reduction in the monthly amount payable to such employees. The amount so
retrieved is required to be added to and form part of the corpus of the trust
fund to be equally distributed amongst the contributing members.
The validity of the aforesaid amendment of the Scheme was challenged
by the retired employees in writ petition filed under Article 226 of the D
Constitution of India before the High Court mainly on the ground that rights
in their favour crystallized on purchase of annuities at the time of their
superannuation and the same cannot be subjected to any alteration or
amendment. The contention urged before the High Court was that the trustees
could only effect amendment to the Scheme for future benefits of existing E
employees and had no right to effect any amendment which adversely affects
vested rights of the pensioners in regard to the pension payable to them as
per the amended Scheme. The plea was that their pension as per the amended
Scheme would be considerably reduced. It was contended that on retirement
the ex-employees sever all their relations with the Scheme, which does not
envisage making of any additional contribution, by members after F
superannuation. The LIC having accepted annuity and having made monthly
payments to retired employees cannot refund to the trust any amount or
reduce monthly payment to the detriment of the pensioners.
These appeals have been filed by the Scheme, Air India, Cabin Crew
Association, Ground Staff Association, Officers Association, and Employees G
Guild Association. Learned counsel for the appellants contend that out of
I 8,386 employees who were members of the Scheme from· the year 1994 till .
date, 1852 employees retired leaving 16534 employees in service. They pointed
out that though retirees were only about I 0 per cent of the employees but
had taken 60 per cent of the total contribution made by all the employees H
874
SUPREME COURT REPORTS (2005] SUPP. 3 S.C.R.
A against their contribution of about 17 .98 per cent. If this trend continues the
corpus would get fully exhausted and the result would be that the employees
who retire after the year 2005 will not get any benefit since by that time no
amount will be left in the fund. It is contended that the annuities continue
B
c
to remain the property of the scheme and as such trustees have a right to
review the situation and amend the scheme. The contention is that the
trustees have unrestricted power to amend or alter the Scheme even
retrospectively. Further, it is urged that strictly speaking the amendment is not
retrospective inasmuch as the revision of the pension is prospective. The
amount of the pension would be reduced on non-fulfillment of the conditions
by the retiring employees after the date of the amendment.
The High Court by the impugned judgment held that the impugned
amendment to the Trust Deed to the extent it applies in future is legal a11d
valid but the amendment cannot apply to the employees who have retired
before the date of amendment and such employees shall continue to receive
pensionary benefits as before, namely, the benefits which existed at the time
D of amendment.
For the aforesaid conclusion, the main ground which prevailed with the
High Court is that the right to annuity in favour of retired employees crystallized ·
on the date of superannuation and the same cannot be changed by amendment.
E
The High Court held that annuitant has no connection with the quantum
of the remaining trust fund; whether it increases or decreases and that on
retirement of the employee, the quantum of corpus, which yields the annuity,
is paid over to the LIC and physically leaves the trust fund. The retiree gets
a life long annuity and on his demise his heirs get the designated corpus.
F Thus the designated corpus which leaves the trust on date of superannuation
never returns. The trust is created because of the requirement of Income Tax
Act and for the purpose of administrative convenience. Annuitants are in no
way concerned with the financial health of the trust fund which originally
purchased the annuities. They are not entitled to look to original trust for any
assistance in case the interest rate of LIC falls and they cannot claim any
G additional benefit even if trust decides to increase the benefits for such
existing employees.
Challenging the impugned judgment, learned counsel for the appellants
contend that the beneficiaries, namely, retired employees cannot have any
interest in the insurance policy entered by the trustees; the entire fund is
H within the control of the trustees; legal obligation is cast on the trustees that
AIR INDIA EMPLOYEES v. KURIAKOSE V. CHERIAN [SABHAR WAL, J.] 875
none of the member is deprived of pension. The trustees have not only right A
but an obligation to correct the mistake and amend the Scheme so that the
employees retiring after 2005 also get pension and are not deprived of it
despite having contributed to the fund from their salary. Amendment became
necessary on finding out that the funds are likely to be depleted as a result
of the bona fide mistake. It is because of such mistake disproportionate B
amounts have been paid to the retirees without regard to the contributions
made by them.
The crucial question is whether the benefits, which the retired employees
are getting, can be curtailed because of reduction of the fund amount.
In support of these appeals, three contentions have been urged: (I)
depletion of the fund amount if not checked would result in the retirees after
the year 2005 not getting any pension. Therefore, there was the requirement
to make the impugned amendments; (2) the trustees in terms of Deed and the
Rules have unrestricted power to amend the Scheme so as to apply amendment
c
to also those who stand retired; and (3) the Scheme is not amenable to the D
writ jurisdiction. The appellants are neither an instrumentality or agency of
the State nor other authority contemplated by Article 12 of the Constitution.
Taking the last contention first, the High Court rejected it observing
that the creation of pension fund flows from the socio economic obligations
of the States and that the pension is not a charge or bounty nor is it a E
gratuitous payment depending on the whims of the employer. The High Court
is of the view that writ is maintainable as it was mainly directed against LIC.
It is, however, contended on behalf of the appellants that the nature of the
Scheme under consideration is different. Despite use of the term 'pension',
the benefit under the Scheme is not 'pension' as understood in service p
jurisprudence. The observations made in the impugned judgment relying
upon various earlier precedents dealing with pension and holding that it is
not a bounty may not strictly apply to the benefits stipulated for the retiring
employees under the Scheme in question. Further, it is possible to contend
that UC is only a proforma party to the litigation and that it cannot be said
that writ is directed mainly against LIC, the main question being the power G
of the trustees to amend the Scheme with retrospective effect. We need not,
however, examine, in the present case, the aforesaid question and the
correctness of the view of the High Court on the aspect of maintainability of
the writ petition since learned counsel challenging the correctness of the
impugned judgment, have adopted a pragmatic and fair approach that this H
876
SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.
·'
A Court having heard the matter in detail, it would not serve either the interest
of the retired employees or the employees in service or the Scheme, if the
parties are relegated to litigation before other forums on this court reversing
view of the High court on the question of maintainability of the writ petition.
Under these circumstances, we leave open the question of maintainability of
the writ to be decided in an appropriate case.
B
Now, we will examine other two contentions. The object of introducing
the Scheme was to enable the employees to obtain monetary benefit on their
superannuation and/or payment to the beneficiaries in the event of death of
the employee. How it was sought to be achieved shall have to be considered
C in the light of the Scheme, the stand of the appellants and also the provisions
of the Income Tax Act and the Rules. Air-India Employees' Superannuation
Pension Trust (for short 'Trust') was established to administer the pension
scheme also in fulfillment of the requirement under the Income Tax Act, 1961.
The pension scheme was approved by the Commissioner of Income Tax.
D
Under Section 2(6) of the Income Tax Act, 'approved superannuation
E
fund' has been defined to mean superannuation fund or any part of the
superannuation fund which has been and continues to be approved by the
Chief Commissioner or Commissioner in accordance with the Rules contained
in Part B of the Fourth Schedule.
Part B of Schedule IV of the Income Tax Act, 1961 deals with approved
superannuation funds. Under clause 3 thereof, in order that the superannuation
fund may receive and retain approval, it shall satisfy the conditions set out
in the said clause and any other conditions which the Board may, by Rules,
prescribe. One of the conditions is their fund shall be a fund established
F under an irrevocable trust. Another condition is that fund shall have for its
sole purpose the provision of annuities for employees in the trade or
G
undertaking on their retirement at or after a specified age or on their becoming
incapacitated prior to such retirement, or for the widows, children or dependents
of persons who are or have been such employees on the death of those
persons.
Part XIII of Income Tax Rules, 1962 covering Rules 82 to 97 dealing with
approved superannuation funds is framed in exercise of the powers conferred,
intera/ia, under clause l l(l)(cc) of Part B of Schedule IV. Under Rule 85, it
is, inter alia, stipulated that all monies contributed to the approved
superannuation fund are required to be invested in a post office savings bank
H account in India or in a current account or in a savings account with scheduled
AIR INDIA EMPLOYEES v. KURIAKOSEV.CHERIAN [SABHARWAL,J.] 877
bank or utilized in accordance with Rule 89 for making payment under a A
scheme of insurance or for purchase of annuities referred to in that rule.
Under Rule 87, the ordinary annual contribution by the employer to a fund
in respect of any particular employee shall not exceed 25% of his salary for
each year as reduced by the employer's contribution, if any, to any provident
fund (whether recognized or not) in respect of the same employee for that
year.
B
Rule 89, inter a/ia, provides that for the purpose of providing the
annuities for the beneficiaries, the trustees shall enter into a scheme of
insurance with LIC and accumulate the contributions in respect of each
beneficiary and purchase an annuity from the said LIC at the time of the C
retirement or death of each employee or on his becoming incapacitated prior
to retirement.
Clause 3 of the trust deed, inter a/ia, provides that pension fund is to
be established under irrevocable trust and the fund shall have for its sole
purpose the provision of annuities for employees.
Clause 14 provides that power of appointing the Trustee shall be vested
in the employer. The Board of Trustees shall consist of three representatives
of the employer and eight members who are employees. The employer shall
appoint, its representatives, the representatives of the members, who shall be
D
the employees. The employer shall exercise power of filling up any vacancies E
and removing any Trustee and the employer shall nominate one of its
representative Trustees as Chairman of the Trust.
Clause 19 provides that the employer shall have the power to appoint
any officer to act as Secretary of Fund who will be invested with such powers
of management of the Trust as the Trustees may from time to time in their F
discretion determine. With the consent of the employer the trustees shall have
power to employ any person or persons to do any legal, accountancy or other
work.
The Trust deed shows that the trustee agreed to act as such of the G
pension fund at the behest of the employer. It further shows that the employer
has considerable control over the functions as well as the administration of
the Scheme.
Clause 5 of the trust deed deals with power to amend. It reads as under:
H
878
SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.
A
"The Trustees may at any time with the previous concurrence and/
or approval in writing of the employer alter, vary or amend any of the
trusts or provisions of this Deed and the Ru Jes.
B
c
Provided that no such alteration or variation shall be inconsistent
with the main objects of the trusts hereby created.
Provided further that no such alteration or variation shall be made
without the prior approval of the Commissioner of Income-tax having
jurisdiction over the Fund."
Clause 8 provides that members to have no legal right. It reads thus:
"Except as provided for in this Deed or in the Rules, no Member,
Beneficiary or other person claiming right from such Member shall
have any legal claim, right or interest in the Fund."
We may also reproduce clauses 24, 26, 27, 32 and 33 which read as
D under:
"24. Trust Fund-The Fund shall consist of the contributions as
specified in this Deed and the Rules governing the Fund and
contributions received by the Trustees from the Company and of the
accumulations thereof and of the securities and the annuities purchased
E
therewith and interest thereon and of any capital gains arising from
the sale of the capital assets of the Fund. The Trustees shall hold the
Fund upon such trust and with and subject to such powers and
provisions as are or shall be contained in this Deed and the Rules for
the time being in force to the intent that the said Fund shall be
established for the benefit of the Members and/or their Beneficiaries.
F
The Fund shall. be vested in the Trustees. The Trustees shall have the
entire custody, management and control of the Fund. No monies
belonging to the Fund shall be recoverable by the Employer under
any circumstances nor shall the Employer have any lien or charge
over the Fund, except or any loans that may be lent by the Employer
G
to the Fund for meeting its immediate liabilities.
26. Provisioins of Benefit-The trustees may enter into any Scheme
of insurance or contracts with the Life Insurance Corporation of India
to provide for all or any part of the benefits which shall be or may
become payable under these presents and may pay out of the Fund
H
all payments to be made by it under such Scheme or contracts.
AIR INDIA EMPLOYEES v. KURIAKOSE V. CHERIAN [SABHARWAL, J.] 879
27. Investment of Funds-{ a) All monies from time to time in the hands A
of the Trustees and not immediately required for the purpose of the
Trust shall be deposited/invested by the Trustees within 15 days from
the date of receipt or accrual, as the case may be, in accordance with
Rule 85 of the Income-tax Rules, 1962 or any modification or reenactment or reframing or renumbering thereof.
(b) The Trustees shall have power at any time and from time to time
to vary, transpose or sell such investments and reinvest the Funds in
other investments of the nature hereby authorised, within the guidelines,
notifications or Rules issued by the Government from time to time.
B
32. Review of Funds-The Trustee shall review the availability of C
Funds of the Scheme annually or at such intervals as may be deemed
fit by the Trustees and to decide any revision in the maximum benefit
or rate of the member's contribution under the Scheme.
33. Review of Benefits-Notwithstanding anything to the contrary
contained in these presents or in the rules the Trustees shall have and D
shall always be deemed to have the right to review any limit the
benefits payable to the Beneficiaries including the right to reduce the
benefits payable in accordance with the rules in the event of any or
all the members ceasing or reducing to make contribution to the Fund
in accordance with these presents and the Rules.
E
Rule 14 provides that members or his beneficiary shall have no interest
in the master policy. It reads as under:
"A member or his beneficiary shall have no interest in the Master
Policy taken out in respect of the members or any investment otherwise F
made by the Trustees in accordance with the Rules of the Scheme but
shall be entitled to receive superannuation benefits in accordance
with the Rules. Provided always that the Trustees shall administer the
Scheme for the benefit of the members and their beneficiaries in
accordance with the provisions of these Rules."
Dealing now with the first contention as to the depletion of the fund
amounts, case of the appellants is that the scheme was based upon actuarial
valuation carried out in the year 1993/1994 on assumptions as under:
(I) Basic pay and DA were taken as pre-revised scales.
G
(2)
Assumption that the contribution will start flowing on monthly H
880
A
SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.
basis from April, 1994.
(3) Rate of interest was assumed at 12 per cent.
(4) Contribution of Rs. 350 per month was supposed to increase by
10% per annum.
B
(5) Total number of members of the Scheme at any given time would
c
D
E
F
G
remain constant i.e. retirees are replaced by recruits.
it is urged that when the Scheme was launched in 1996 none of the
above assumptions were found to be in existence as evidenced from the
following:-
(!) With the wage agreement in 1996, the salary scales were
substantially revised.
(2) Monthly deductions of contribution started only from September,
1996 and arrears of contributions for the period April, 1994 to
August, 1996 were received by the Trust from March 2000 only.
(3) Rate of interest has been progressively declining.
(4) The contribution of Rs. 350 p.m. has not been escalated by 10%
per annum.
(5) Number of employees contributing to the Scheme has
progressively declined in view of non-recruitment since 1995.
Further, according to the appellants, there was shortfall of Rs. 155
crores which is as under:
"Rs. in Crores
(a)
Increase in annuity cost on account of
revision of grades and pay scales
65
(b) Non-escalation of additional contributions
60
since 1995@ 10%
(c)
Loss of interest on contribution from April
1994 to April 1996
30
Rs.155"
It is contended that the aforesaid deficit of Rs. 155 crores, as assessed
by the actuaries, only represents the gap between the present value of all
H future pension liability of the Trust as per the original defined benefit scheme
AIR INDIA EMPLOYEES v. KURIAKOSE V. CHERIAN [SABHARWAL, J.] 881
and the present value of all future contributions to be collected by the trust, A
as originally determined. The actuaries had assessed the increase in annuity
cost on account of revision of pay scale at Rs. 65 crores. This is sought to
be illustrated by the appellants by giving figures of pre-revised Basic + DA
and pension calculated at the rate of 40% and cost of annuity and contribution
of retiring employee and also giving figures of revised scales and resultant
increase of cost of annuity without proportionate increase at employee's B
contribution.
The break up of 60 crores on account of non-increase in the additional
contribution of Rs. 350 has also been given. The break up of deficit of Rs.
30 crores has also been given. As per the Scheme, the contribution of the C
members was in two parts (a) 1% to 5% contribution of Basic and D.A. and
(b) additional contribution of Rs. 350 per month. Further, all members who
retired in the period from April, 1994 to August, 1996 did not make the
additional contribution of Rs. 350 p.m. in their 15 years lump sum contribution.
The impact of non-escalation of additional contribution of Rs. 350 has been
assessed at Rs. 60 crores. It has been pointed out that the Scheme was D
applicable to all employees who retired from I st April, 1994 but actual deductions
of contributions from monthly salary commenced from September, 1996. It is
stated that various unions representing the members were not agreeable for
their members making a lump sum contribution and requested Air India
Management to appropriate and pay the Trust such arrears of contribution E
for the period April, I 994 to August, 1996 from the wage agreement arrears
as and when these were paid. Air India was facing a severe financial crunch
at that point of time and the Management had signed agreement with the
Unions to the effect that though revised pay scales were implemented
immediately, arrears would be paid only when the company's liquidity position
permitted the same. It was understood that the Management was not to pay F
any interest on such deferred payment of arrears. The payment of arrears of
pension contribution to the Trust, therefore, was also deferred until the
settlement of wage arrears i.e. till March 2000. This resulted in loss of interest
on such arrears.
The aforesaid financial position has been disputed and retirees have G
sought to explain that the facts and figures given and conclusions drawn by
the Scheme are entirely incorrect and misleading. It was pointed out that in
addition to the simple computation mistakes, the projection has not taken into
account the interest accrual. According to retirees, as per the correct position
the shortfall if at all will be minimal and in any case it was to be borne in mind H
882
SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.
A that the Scheme as originally fonnulated was rolling scheme and benefits were
not confined to the extent of contributions made.
The retirees have also given facts and figures giving calculations based
on pre-revised Basic and DA with accrued interest (without escalation) as
also calculations based on revised Basic and DA without escalation and the
B calculations based on with escalation.
Further, according to the retirees, the trustees took no steps to either
approach Air India to recover the monies which is stated to be due from Air
India nor they approached the Income Tax Officer for permission to invest
amounts in short term deposits nor have they taken steps to revise
C contributions. According to them, the trustees to save their own skin attempted
to recover the amounts from the retirees under the guise of acting fairly to
balance out the difference without explaining as to what prevented them from
taking requisite steps while the retirees were still in employment. They have
also highlighted the factor of failure of trustees to take steps for making the
D recoveries from Air India which kept amount after deducting the same from
the salaries of the employees.
It is not necessary to go into detail calculations. It does appear that
there is shortfall in the Fund though a lot can be said in respect of calculation
submitted by both sides. No doubt, the amount which went out of the fund
E for purchase of annuity for retiring employee was considerably more than
what was contributed by the outgoing employee but it is also true, at the
same time, that the huge amounts did not come to the fund from Air India
and some of assumptions on which Scheme was fonnulated did not hold good
on commencement of the Scheme. The reason for the position of the fund
F which necessitated the amendment cannot be attributed entirely on account
of the gap between the amount contributed by the retiring employee and the
amount used for purchase of annuity. It may also be noted that the appellant's
own case is that there was basic fallacy in the Scheme from its inception. The
Scheme, as originally conceived was flawed, is the stand of the appellants in
CA No. 4267 of 2003. It is further their own stand that concept of granting
G annuities on a defined benefit basis in a self-contributory fund is inherently
fallacious as in the self-contributory scheme the only consideration is the
contributions made by the members and hence the benefit has to necessarily
flow from their contributions and the interest accrued thereon. As against
this, the present is a case of defined benefit Scheme. This basic fallacy in the
H Scheme was never rectified from inception. It is the own case of the appellants
AIR INDIA EMPLOYEES v. KURIAKOSE V. CHERIAN (SABHAR WAL, J.) 883
that in addition to this inherent fallacy in the formation of the Scheme, the A
situation was aggravated by various factors noticed above.
We would assume that there were several contributory factors as a
result of which the fund position became quite bad.