SC on Formula for Payment of Dearness Relief to Pensioners


May 17, 2018

Case name: United Bank of India and others v. United Bank of India Retirees’ Welfare Association

Date of Judgment: May 16, 2018

The present appeal challenges Calcutta High Court’s order, whereby the Court held that there was no justification for making a distinction between pre November, 2002 retirees and post November, 2002 retirees and the appellant must pay dearness relief to all pensioners at the same rate.

The aforesaid order was challenged by the Appellant Bank on the ground that the retirees prior to 01.11.2002 could not claim same benefit/ parity at par with those who retired after 01.11.2002 and that the dearness allowance payable to the pensioners was linked to the pay and pre 01.11.2002 retirees were being paid pension or dearness relief thereon as per service conditions applicable to them at the time of retirement.

Here it would be relevant to mention that a Memorandum of Settlement dated 29.10.1993 was entered into between the managements of 58 banks and their workmen represented by the All India Bank Employees’ Association (AIBEA). Paragraph 6 of the memorandum dealt with Dearness Allowance relief to the pensioners and it stipulated:

“Dearness relief to pensioners will be granted at such rates as may be determined from time to time in line with the Dearness Allowance formula in operation in Reserve Bank of India”

Thus, in case of employees who had retired during the period 01.04.1998 to 31.10.2002, dearness relief at the rate of 0.24% was awardable upto Rs.3550/- of basic pension per month and thereafter the percentage for amounts in excess of Rs.3550/- was successively at reduced rates. On the other hand, in case of employees who retired during the period 01.11.2002 to 30.04.2005 the percentage of 0.18% was without any such tapering formula. The idea of tapering formula under the Bipartite Settlement dated 27.04.2010 was retained with respect to pre November 2002 retirees while the dearness relief to post November 2002 retirees was to be at the flat rate of 0.18 %.

Bench’s Verdict

The Two-Judge Bench of the Supreme Court upheld the classification, hence allowed the appeal and made the following conclusions in the case:

  • At the outset it must be stated that Appendix II to the Pension Regulations had categorized employees in three different segments and the dearness relief payable on basic pension in respect of employees in these three categories was on the basis of tapering formula which differed in each of the categories. In respect of those who were in the first category i.e. those who had retired earliest, the dearness relief was 0.67% on the first slab namely upto Rs.1250/- of basic pension. The rate then tapered and finally was 0.17% of basic pension in excess of Rs.2130/-. At the same time in respect of retirees in the second category, the rate of dearness relief was 0.35 per cent in respect of first slab namely upto Rs.2400/-. Here also the dearness relief was on a tapering formula and finally was 0.09% of basic pension in excess of Rs.4100/-. The third category which was in respect of employees who retired after 01.04.1998, the rate was 0.25% for the first slab upto Rs.3380/-. Going by the tapering formula, the rate was 0.06 per cent of the basic pension in excess of Rs.5770/-. If Clause 7(2) of the 9th Bipartite Settlement dated 27.04.2010 is compared with the last category of the Appendix II of the Pension Regulations, there is hardly any change in respect of retirees during the period 01.04.1998 to 31.10.2002. Thus, whatever benefit was conferred and was enjoyable by the employees who retired before November 2002 was not taken away.
  • If both categories dealt with by 9th Bipartite Settlement dated 27.04.2010 are further compared, the retirees prior to 01.11.2002 would be entitled to dearness relief on a tapering formula where the initial slab upto Rs.3550/- is to be governed by quotient of 0.24%. The tapering formula then ends with 0.06% of basic pension in excess of Rs.6010/-. The starting point is at a level of 0.24% while the end point tapers to 0.06%. The maximum advantage is sought to be given to those who are getting basic pension at lower levels of slab who would get the dearness relief at 0.24%. As against this, the retirees after 01.11.2002 are to be given dearness relief at a flat rate of 0.18% of the basic pension. Theoretically, the starting level for the retirees prior to 01.11.2002 is at a higher level of 0.24% as against the retirees after 01.11.2002. It could possibly be said that for those who are with basic pension in the region of Rs.6000/, on the basis of a tapering formula may well, in the ultimate analysis, average to the same level of 0.18%.
  • The parity that was sought in the petition was not so much regarding applicability of same rate of 0.18% but was in respect of “flat rate” idea. If we were to simply borrow the same rate of 0.18% in the case of retirees prior to 01.11.2002, the concerned retirees may well be at a disadvantage. It will not therefore be correct to adopt and apply the same rate as is made applicable in case of post 01.11.2002 retirees.
  • The tapering formula undoubtedly begins with 0.24% for the first segment of Rs.3550/- of basic pension and then progressively steps down and finally reaches the level of 0.06% where the basic pension is in excess of Rs.6010/-. What is devised by way of such tapering formula is higher rate at the lower levels of segments so that larger number of peoples would get maximum advantage and the rate thereafter keeps stepping down.
  • Neither can we apply the rate of 0.18% which will then cause great harm and damage to the retirees nor can we adopt a flat rate of 0.24% for the entire amount of basic pension. The benefit which is sought to be conferred by the tapering formula lies in the averaging which comes to near about the same quantum as is given to the post 01.11.2002 retirees.
  • If we adopt a flat rate of 0.24% as is being prayed for, the class of retirees who retired before 01.11.2002 will stand conferred better rate than those employees who retired after 01.11.2002. Nor can we apply a flat rate of 0.18% for them. Each class is governed by distinct and different parameters. These are all matters of policy making.
  • The conferral of advantages of benefits on two different classes of retirees has a completely distinct formula and rates and it would not be possible to have a synthesis on any count or to put both the sets of retirees on any common parameters. Both classes are distinct and do not form a homogenous group. It would be extremely difficult and hazardous to adopt a flat rate as is sought to be projected. It is not a case of creating a class within a class.
  • In our view both the categories of retirees, namely, pre November 2002 and post November, 2002 stand on different footing, the parameters which govern the computation of dearness relief are also on a different level.

About the Author

Shilpi Sharan

- Shilpi Sharan is the Editor at Vakilno1.com - an Advocate with extensive knowledge in myriad fields of Law. She has a flair of writing and has legal publications in national and international law magazines to her credit. She focuses on legal research and aims at raising public awareness of laws in India.