Can't Challenge After Taking Benefit: Andhra Pradesh HC Upholds Rule On Commutation Of Govt Employees' Pension After 15 Years

The Court had to primarily determine whether the petitioners, who had reaped benefit of the 1944 Rules by way of commutation of pension, could challenge Rule 18 and the prescribed 15 year period for restoration of full pension. Dismissing a bunch of writ petitions, a Division Bench of the High Court comprising Chief Justice Dhiraj Singh Thakur and Justice Ravi Cheemalapati held,

“In our opinion, the petitioners having derived the benefit of lump sum payment on commutation of pension cannot be permitted to now challenge the very Scheme under which they had obtained the said benefit. The maxim qui approbat non reprobat, that is one who approbates cannot reprobate, is a doctrine which is embodied in English common law and is applied by Courts in this country. The doctrine of approbate and reprobate which is a species of estoppel clearly applies in the instant case.”

Facts:

The High Court was dealing with a bunch of writ petitions challenging the validity of Rule 18 of the 1944 Rules, which read as:

“In the case of pensioners drawing pension in India, the commuted portion of pension was ordered to be restored to the petitioners on completion of 15 years from the date of retirement if the commutation was simultaneous with retirement. If there is any time gap between the date of retirement and the date of commutation, the commuted portion of pension shall be restored after expiry of 15 years from the date on which reduction in pension on account of commutation becomes effective.”

The petitioners were retired Government Employees who had joined service before September 1, 2004, and had subsequently superannuated from service at the age of 58 years. The petitioners were entitled to pension and were also afforded the opportunity of voluntary commutation of pension. However, the 1944 Rules made it clear to a retiring employee that upon receipt of the lump sum amount representing the commuted value of the pension calculated as per the prescribed mechanism, the full pension would be restored only after 15 years from the date of commutation of the pension.

The petitioner challenged Rule 18 on the grounds that the period of 15 years had been fixed arbitrarily and without any mathematical basis inasmuch as the value of the commuted portion of pension was recovered by the State in approximately 11 years and 3 months and that any recovery thereafter up to a period of 15 years amounts to nothing but undue enrichment to the State.

Defending the validity of Rule 18, the respondents submitted that while the payment of huge lump sum amounts upfront to the retiring employees provides a lump sum benefit and financial flexibility to the petitioner, it nonetheless financially burdened the State resources. Regardless, commutation of pension is accepted by the retiring employee after full consideration of the rules and their implications. Additionally, the respondents submitted that the 15 year period for restoration is not arbitrary but is based on the recommendations of expert bodies, including various Pay Commissions, and has been upheld by the Supreme Court in Common Cause v. Union of India and further that this period accounts for various factors, including mortality risk and the overall financial implications for the State.

Findings:

At the outset, the Court, after taking reference from the judgment of the Supreme Court in Common Cause vs. Union of India highlighted the benefits of commutation of pension and noted,

“…that the risk factor involved in commutation is a significant consideration. The State provides a lump sum amount upfront, and in case of premature death of the pensioner before the completion of the restoration period, the unrecovered amount is foregone by the State. This aspect cannot be overlooked. This Court also notes that the commutation of pension provides certain advantages to the pensioner, as highlighted by the Supreme Court in Common Cause case, namely, the availability of a lump sum amount and the risk factor. Additionally, the commutation of pension is presently not taxed under the Income Tax Act, 1961, which adds to the monetary benefit accruing to the pensioners.”

The Court held that the 15 year period is a consistent policy followed by the State Government, based on the Central Government's policy and upheld by the Supreme Court in the Common Cause and that matters relating to commutation of pension are fundamentally policy matters, which are examined on the basis of recommendations of expert bodies like the Pay Commissions.

With respect to the argument of the petitioners that 15 years is an arbitrarily fixed time period which lacked mathematical basis, the Court referred to the decision of the Delhi High Court in Forum of Retired IPS Officers v. Union of India and held that such calculations are complex, convoluted, and cannot be decided merely on mathematical formulae and the argument of the petitioners that the commuted portion is recovered with interest within 11 years and 3 months was based on a simplistic calculation that failed to consider factors such as mortality risk, and the overall financial implications for the State. In this regard, the Court further held,

“While the petitioners have tried to suggest the time period within which the commuted amount stands recovered, but there is no explanation as to how the risk which the Government takes in foregoing the lump sum amount on account of death of a pensioner could be balanced.”

Lastly, after referring to the 11th Pay Revision Commission which showcases the advantage which pensioners secure upon receipt of lump sum payment, the Court concluded,

“The fact that even after 15 years, receipt of a lump sum amount by a pensioner if invested rightly earns better returns as compared to receiving full pension on a monthly basis, goes to show that the scheme framed by the Government, even when it envisages restoration of full pension upon completion of 15 years, is not detrimental to the interest of the petitioner. Moreover, whereas the pensioner is liable to pay income tax on the monthly pension which he receives at the end of the year, the amount if paid in lump sum upon commutation is not liable to be taxed at all.”

Accordingly, the Court dismissed the set of writ petitions.

Case Title: Thupakula Venkateswar Rao and others Vs. The State of AP and others

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