Can past contractual service count towards pension once an employee is regularised? Supreme Court answers

Supreme Court: In an appeal filed against the Karnataka High Court, wherein it was held that the appellants, who were initially appointed on contractual basis and subsequently regularised, will not be entitled to seniority, service benefits, and pension for the period of their contractual service, the division bench of PS Narasimha* and Joymalya Bagchi, JJ. highlighted that upon regularisation, the Central Civil Services (Pension) Rules, 1972 (‘Pension Rules’) would apply, and Rule 17 mandates that the past service as a contractual employee be taken into account when calculating pension. Hence, upon consideration of the Pension Rules and the decision in State of H.P. v. Sheela Devi, 2023 SCC OnLine SC 1272, the Court partly allowed the present appeals and directed Union of India to grant pensionary benefit to the appellants in accordance with law.

Background

The appellants were appointed as Data Entry Operators under the Plan Scheme called ‘Rationalisation of Data Processing Facilities’ on a temporary and contractual basis between 1996 and 1999. Pursuant to an order of the Central Administrative Tribunal (‘CAT’) dated 01-04-2013, the respondents issued an Office Memorandum dated 05-01-2015 to regularise the appellants’ services from a prospective date, i.e., from the date of issuance of the order. Consequently, the appellants were appointed on a regular basis by an order dated 01-04-2015, with effect from 05-01-2015. The appellants filed an Original Application before the CAT, seeking regularisation of their services from the date of their initial appointment or, at the very least, from the date of completion of 10 years of service. They also sought protection of their pay, along with seniority, service benefits, and pension by counting their period of contractual service. The respondents challenged the CAT’s order through a writ petition, which was partly allowed by the High Court. The High Court set aside the CAT’s directions concerning the counting of the period of contractual service for the purposes of seniority, service benefits, and pension, on the grounds that the initial appointment had been on a contractual basis and was not made pursuant to the recommendations of the Staff Selection Commission. The Court held that the appellants were entitled to regularisation and its consequential benefits only from 01-04-2015. However, the Court upheld the CAT’s direction regarding the protection of the appellants’ pay while fixing their pay scale.

Analysis and Decision

The Court observed the scope of the prayers made before the CAT, the High Court, and this Court. Before the CAT, the appellants had prayed for regularisation with retrospective effect, protection of pay, and the grant of seniority, service, and pension benefits by counting their period of contractual service. Following the High Court’s impugned order dated 23-03-2021, only the appellants’ pay was protected, while their prayers for seniority, service, and pension benefits by including the period of contractual service were rejected. The submissions before this Court have been limited to the grant of pensionary benefits by including the contractual period, relying on the decision in Sheela Devi (supra) and the applicable Pension Rules. Issues relating to retrospective regularisation, seniority, and service benefits during the contractual period were not argued before this Court. Accordingly, the Court confined itself to addressing the issue of pension.

The Court took note of Rule 17 of the Pension Rules, which addresses the counting of service on a contractual basis for the purpose of granting pension. This rule directly applied to the present case. Rule 17 had been considered and interpreted in Sheela Devi (supra), where this Court held that although Rule 2(g) of the Pension Rules excludes contractual employees from its application, Rule 17 becomes applicable once such an employee is regularised at a later date.

The Court explained that upon regularisation, the Pension Rules would apply, and Rule 17 mandates that the past service as a contractual employee be taken into account when calculating pension.In this context, Rule 17 requires a regularised employee to exercise an option to either retain the Government’s contribution to the Contributory Provident Fund (CPF), refund the amount, or forgo it if it had not been paid, in exchange for counting the period of service for which such benefits may have been payable. In Sheela Devi (supra), this Court issued specific directions based on these principles, ensuring that the past contractual service was factored into the calculation of pension benefits, subject to the exercise of the necessary options by the regularised employees.

The Court highlighted that, in light of the clear language of Rule 17 of the Pension Rules and its interpretation in Sheela Devi (supra), the period of contractual service rendered by the appellants prior to their regularisation in 2015 must be counted for the purpose of determining their pensionary benefits, in accordance with the mechanism set out in Rule 17. The Court, following the directions issued in Sheela Devi (supra), directed the Union of India to take immediate steps to facilitate the appellants’ exercise of the option under Rule 17 of the Pension Rules. The Court further directed that the Union of India should notify the appellants about the mode and manner in which they could exercise this option and provide information regarding the amounts that the appellants will need to remit if they choose to opt for pension under the Rules.

With the above reasoning and directions, the Court partly allowed the present appeals and set aside the impugned order of the High Court.