Service Benefits Accrued Cannot Be Denied Post-VRS; Ex-Employees Entitled To Arrears: Calcutta High Court

The Calcutta High Court has held that employees who accepted voluntary retirement cannot be denied the benefit of a retrospective pay revision that accrued during their service, observing that such benefits constitute a vested right which survives retirement. Deciding writ petitions filed by ex-employees of Burn Standard Company Limited, Justice Rai Chattopadhyay ruled that once a pay revision is made effective from a date when employees were still in service, the financial benefits flowing from such revision cannot be withheld merely because they later opted for Voluntary Retirement Scheme (VRS).

The petitioners, who had retired under a VRS in 2002, sought implementation of the revised pay scale of 1997 with effect from January 1, 1997, along with recalculation of their retiral benefits. The dispute arose after the company restricted implementation of the revised pay scale prospectively from October 1, 2010, limiting its benefit only to employees who were on the rolls as of that date pursuant to a settlement with the existing union. The Court found such a stand untenable in law, holding that pay revision relates to past service rendered and therefore creates an accrued right in favour of employees who were in service during the relevant period. It emphasized that voluntary retirement only terminates the jural relationship prospectively and does not extinguish rights connected to the period of actual service.

The Court further held that acceptance of VRS does not amount to waiver of statutory or policy-based entitlements unless expressly provided. Referring to the VRS guidelines, it noted that they themselves contemplate recalculation of ex-gratia and other benefits in the event of a subsequent pay revision. Rejecting the respondents' reliance on the 2010 settlement, the Court held that a settlement arrived at with existing employees cannot bind or prejudice ex-employees who were not parties to such negotiations, nor can it take away their vested rights.

A significant aspect considered by the Court was the allegation of discrimination. It was noted that officers of the same company who had also opted for VRS in 2002 were granted the benefit of the revised pay scale with effect from January 1, 1997, while similarly placed workmen were denied the same. The Court held that such differential treatment lacked any rational basis and violated Article 14 of the Constitution. It also rejected the plea of financial incapacity, observing that financial constraints cannot be used to deny lawful dues, particularly when a substantial fund of ₹417 crores was available and had been utilised for payment to another category of employees.

Addressing the objection regarding maintainability, the Court held that dissolution of the company would not defeat the claims of the petitioners, especially in light of the undertaking given by the Ministry of Railways to satisfy all lawful liabilities of the erstwhile company. It further held that the issues involved were primarily legal in nature and did not warrant rejection on the ground of disputed facts.

Accordingly, the Court allowed the writ petitions and directed the respondents to refix the pay of the petitioners in terms of the revised 1997 pay scale with effect from January 1, 1997, and to recompute all consequential retiral benefits, including ex-gratia, gratuity and leave encashment. The respondents were also directed to disburse the arrears arising from such refixation within four months. The Court clarified that the directions would be complied with by the Union of India/Ministry of Railways in terms of its undertaking to meet the lawful claims of the ex-employees, notwithstanding the dissolution of the company.

Case: Burn Standard Ex-Employees' Welfare Association & Anr. Vs. Union of India & Ors

Case No: WPA 2112 of 2020

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