2005 Supreme(SC) 441

2005(6) Supreme 754
Supreme Court of India
(From Bombay High Court)
Y.K. Sabharwal & Tarun Chatterjee, JJ.
Air India Employees Self Contributory Superannuation Pension Scheme —Appellant
versus
Kuriakose V. Cherian and Ors. —Respondents
Civil Appeal No. 4267 of 2003
With
C.A.No. 7035-36 of 2003, C.A.No. 9372 of 2003 & C.A.No. 2327 of 2004
All Decided on 3-10-2005
Counsel for the Parties :
For the Appellant in C.A.No. 4267/2003 : Mukul Rohtagi, Sr. Advocate, V.B. Joshi and Ravi Kini, Advocates.
For the Appellant in C.A.No. 9372/2003 and Respondent in C.A.No. 4267/2003 : Pradeep Rajagopal, Ms. Rekha Rajagopal, Ms. Bina Madhavan, Advocates for M/s. Lawyer’s Knit & Co., Advocates.
For Appellant in C.A.No. 2327/2004 : Vishwajit Singh, Advocate.
For the Appellant in C.A.No. 7035/2003 and Respondent in C.A.No. 4267/2003 : Ashok Shetty, S. Ravi Shankar, Ms. Yamunah Nachiar, Advocates.
For the Appellant in C.A.No. 7036/2003 and Respondents in C.A.Nos. 4267, 7035, 9372/2003 & 2327/2004 : J.P. Cama and Kailash Vasdev, Sr. Advocates, Navin Prakash, Ms. Ritu Biswas, Gopal Singh, Advocates.
For the Respondent in C.A.No. 4267/2003 : Praveen Jain, Advocate.
For the L.I.C. : A.V. Rangam, A. Ranganadhan and Buddy A. Ranganadhan, Advocates.

Important point
The Life Insurance Corporation has obligation to fulfill the promise given by it to the retirees, who are assured under the annuity scheme.

Headnote:(i) Service Law—Air India Employees Self-Contributing Pensionary Scheme Rules—Creation of a Pension Scheme for employees of Air India—Employees had to contribute to the fund under the Scheme—Main object of the Scheme is to provide to the members on retirement a fixed amount per month—Amount is to be calculated according to the scheme on superannuation of an employee—Annuity is required to be purchased from Life Insurance Corporation of India so as to insure payment by LIC of a fixed monthly sum to the retired employee and on his demise to his LRs—Appellants, existing employees represented by respective associations challenged the Scheme as defective—Allegations that large amounts were given to retiring employees without having regard to contributions made by them towards the Scheme—Scheme was amended w.e.f. 3-4-2002, requiring the pensioners to make payment of additional contribution towards annuities purchased from LIC—Amendment provided that amount of pension shall be corresponding to the contribution made by respective retired employees and not on basis of 40 percent of the last drawn salary of the employees—Validity of the amendment of the Scheme was challenged by retired employees on 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—High Court held that the impugned amendment to the extent it applies in future is legal—It was held that the amendment cannot apply to employees who have retired before the date of amendment—Whether the benefits, which the retired employees are getting, can be curtailed because of reduction of the fund amount—Whether judgment of the High Court is sustainable—(Yes).

       Held : 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 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. (Para 16)

       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 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 formulated did not hold good on commencement of the Scheme. The reason for the position of the fund 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 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 Scheme was never rectified from inception. It is the own case of the appellants that in addition to this inherent fallacy in the formation of the Scheme, the situation was aggravated by various factors noticed above. (Para 37)

       The retirees received what was receivable by them according to the existing scheme on the date of retirement. The pension scheme, as originally conceived and formulated, was a rolling scheme postulating outgoing employees on retirement and their place being taken by induction of new employees whose contributions would add to the fund. (Para 40)

       The 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 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. (Para 56)

       (ii) Words and Phrases—Expression ‘Annuity’—No statutory definition—Dictionary meaning—It means an obligation to pay a stated sum usually monthly or annually to a stated recipient.

       Held : The expression ‘Annuity’ has no statutory definition. However, according to Black’s Law Dictionary, it means an obligation to pay a stated sum usually monthly or annually to a stated recipient. An annuity is a right to receive de anno in annum a certain sum; that may be given for life, or for a series of years; it may be given during 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. (Paras 46 & 47)