Important pointThe parties are bound by the terms of contract of voluntary retirement.

Headnote:Service Law—Voluntary retirement—Respondent company, a sick company, floated a scheme for voluntary retirement of its employees—One of such scheme was floated in year 1987 which remained in force upto 1990—A revised scheme was floated on and about 20.10.1990 which was extended from time to time—Both unionised and non-unionised employees numbering in thousands opted thereunder—Appellants opted for the said voluntary retirement scheme dated 22.10.1990 and retired between the period 1.1.1992 and 31.12.1996—Revision of scales of pay by the Company in terms of circular dated 9.10.1997—Appellants claiming benefit of that circular—Writ petition filed against the order rejecting appellants claim dismissed—Whether appellants were entitled to the benefit of revision of pay—(No)—It cannot be said that the Company intended to extend the said benefit to those who had opted for voluntary retirement.
       Held : An offer for voluntary retirement in terms of a scheme, when accepted, leads to a concluded contract between the employer and the employee. In terms of such a scheme, an employee has an option either to accept or not to opt therefor. The scheme is purely voluntary, in terms whereof the tenure of service is curtailed which is permissible in law. Such a scheme is ordinarily floated with a purpose of downsizing the employees. It is beneficial both to the employees as well as to the employer. Such a scheme is issued for effective functioning of the industrial undertakings. Although the Company is a "State" within the meaning of Article 12 of the Constitution of India, the terms and conditions of service would be governed by the contract of employment. Thus, unless the terms and conditions of such a contract are governed by a statute or statutory rules, the provisions of Contract Act would be applicable both at the formulation of the contract as also the determination thereof. By reason of such a scheme only an invitation of offer is floated. When pursuant to or in furtherance of such a voluntary retirement scheme an employee opts therefor, he makes an offer which upon acceptance by the employer gives rise to a contract. Thus, as the matter relating to voluntary retirement is not governed by any statute, the provisions of Indian Contract Act, 1872, therefore, would be applicable to. (Para 11)
       It is also common knowledge that a scheme of voluntary retirement is preceded by a financial planning. Finances for such purpose, either in full or in part, might have been provided for by the Central Government. Thus financial implications arising out of implementation of a scheme must have been borne in mind by the Company, particularly when it is a sick industrial undertaking. Offers of such number of employees for voluntary retirement, in that view of the matter, were to be accepted by the Company only to the extent of finances available therefor. We have noticed hereinbefore the benefits admissible under the scheme. The employee offering to opt for such voluntary retirement, not only gets his salary for the period mentioned therein but also gets compensation calculated in the manner specified therein, apart from other benefits enumerated thereunder. (Paras 12 and 13)
       The revised scale of pay have been made applicable on a pro-rata basis to those employees who were on the rolls of the Corporation as on 01.01.1992 but have subsequently ceased to be in service of the Corporation on account of superannuation or death. While extending the said benefit, the word "only" has been used which is of some significance. Clause 3.3 of the scheme which excludes the applicability of the scheme categorically states that the same shall not be applicable to those who were on the rolls of the Corporation on the said date, but subsequently left the services for the reasons stated thereunder. (Para 15)
       The voluntary retirement scheme speaks of a package. One either takes it or rejects it. While offering to opt for the same, presumably the employee takes into consideration the future implication also. It is not in dispute that the effect of such voluntary retirement scheme is cessation of jural relationship between the employer and the employee. Once an employee opts to retire voluntarily, in terms of the contract he cannot raise a claim for a higher salary unless by reason of a statute he becomes entitled thereto. He may also become entitled thereto even if a policy in that behalf is formulated by the Company. (Paras 18 and 19)
       We have indicated hereinbefore that before floating such a scheme both the employer as also the employee take into account financial implications in relation thereto. When an invitation to offer is floated by reason of such a scheme, the employer must have carried out exercises as regard the financial implication thereof. If a large number of employees opt therefor, having regard to the financial constraints an employer may not accept offers of a number of employees and may confine the same to only a section of optees. Similarly when an employer accepts the recommendations of a Pay Revision Committee, having regard to the financial implications thereof it may accept or reject the whole or a part of it. The question of inclusion of employees who form a special class by themselves, would, thus, depend upon the object and purport thereof. The appellants herein do not fall either in clauses 3.2 or 3.3 expressly. They would be treated to be included in clause 3.2, provided they are considered at par with superannuated employee. They would be excluded if they are treated to be discharged employee. We have noticed that admittedly thousands of employees had opted for voluntary retirement during the period in question. They indisputably form a distinct and different class. Having given our anxious consideration thereto, we are of the opinion that neither they are discharged employees nor are superannuated employees. The expression "superannuation" connotes a distinct meaning. It ordinarily means, unless otherwise provided for in the statute, that not only he reaches the age of superannuation prescribed therefor, but also becomes entitled to the retiral benefits thereof including pension. "Voluntary retirement" could have fallen within the afore-mentioned expression, provided it was so stated expressly in the scheme. Financial considerations are, thus, a relevant factor both for floating a scheme of voluntary retirement as well as for revision of pay. Those employees who opted for voluntary retirement, make a planning for the future. At the time of giving option, they know where they stand. At that point of time they did not anticipate that they would get the benefit of revision in the scales of pay. They prepared themselves to contract out of the jural relationship by resorting to "golden handshake". They are bound by there own act. The parties are bound by the terms of contract of voluntary retirement. We have noticed hereinbefore that unless a statute or statutory provision interdict, the relationship between the parties to act pursuant to or in furtherance of the voluntary retirement scheme, is governed by contract. By such contract, they can opt out for such other terms and conditions as may be agreed upon. In this case the terms and conditions of the contract are not governed by a statute or statutory rules. (Paras 20 to 22)
       It will also be germane for such a purpose to take into consideration the question as to whether those who are no longer on the rolls of the company should be given the benefit thereof. Considering the matter from that context, we are of the opinion that it cannot be said that the Company intended to extend the said benefits to those who had opted for voluntary retirement. Clause 3.2 of the circular includes only those who were on the rolls of the Corporation as on 1.1.1992, as also those who ceased to be in service on that date on account of superannuation or death. The appellants do not come in the said category. In view of the fact that they have not been expressly included within the purview thereof, we are of the opinion that although they have not been excluded by clause 3.3, they would be deemed to be automatically excluded. (Paras 25 and 26)

Judgement Key Points

Certainly. Based on the provided legal document, the key points are as follows:

The parties are bound by the terms of the voluntary retirement contract, which is a voluntary scheme offering employees the option to retire and accept associated benefits (!) (!) .
The scheme creates a contractual relationship upon acceptance of the offer by the employee, leading to a concluded contract between employer and employee, governed primarily by the principles of contract law in the absence of statutory rules (!) (!) .
The voluntary retirement scheme is designed for downsizing and is beneficial to both parties, with financial planning considerations influencing the terms and scope of benefits offered (!) (!) .
The benefits under the scheme, including salary, compensation, gratuity, provident fund, and other allowances, are subject to the specific terms of the scheme and the contractual agreement, and do not automatically include benefits arising from pay revisions unless explicitly stated (!) (!) .
The scheme explicitly excludes employees who ceased to be on the rolls of the company due to reasons such as superannuation, death, dismissal, discharge, resignation without permission, or disciplinary action involving moral turpitude, from certain benefits like pay revision (!) (!) (!) (!) (!) (!) .
Employees who opted for voluntary retirement and retired during the relevant period do not automatically qualify for benefits of pay revision or salary scale enhancements unless the scheme or specific contractual provisions explicitly include them (!) (!) .
The intention of the employer, in this context, was not to extend benefits such as revised pay scales to employees who had already retired voluntarily, especially those not explicitly included in the relevant clauses of the scheme (!) (!) .
The scheme's language and clauses indicate that only employees on the rolls as of a specific date or those who retired due to superannuation or death are eligible for certain benefits, and employees who voluntarily retired do not fall into these categories unless explicitly included (!) (!) .
The application of pay revision benefits to retired employees depends on the interpretation of the scheme's clauses and the intent behind them, with a general principle that benefits are not extended retroactively to those who have already exercised their voluntary retirement option unless explicitly stated (!) (!) .
The legal relationship arising from voluntary retirement is contractual and ends upon retirement; thus, employees cannot claim higher benefits or pay revisions unless there is a statutory or contractual provision that explicitly provides for such benefits (!) (!) (!) .
The employer's financial considerations and the specific terms of the scheme influence the scope of benefits, and the scheme's extension over a period does not automatically incorporate it into the general terms of employment (!) .
The distinction between voluntary retirement and superannuation is significant; unless explicitly included, voluntary retirement does not entail entitlement to benefits like enhanced pension or pay revisions (!) (!) .
External government directions or circulars that are not incorporated into statutory rules or explicitly adopted into the scheme do not have binding legal effect on the employer's contractual obligations (!) (!) .
The final decision underscores that the scheme's terms and the employer's intent do not support extending pay revision benefits to employees who retired voluntarily during the relevant period, leading to dismissal of the appeals (!) .

Please let me know if you require a detailed analysis or specific legal advice based on these points.

Judgment

S.B. Sinha, J.—These two appeals involving common questions of fact and law were taken up for hearing together and are being disposed of by this common judgment.

2. The members of the appellant Union were employees of Heavy Engineering Corporation Limited, the respondent herein (‘the Company’). It is a sick company. It was referred to BIFR in terms of the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. As one of the measures for revival of the company it floated a scheme for voluntary retirement of its employees. One of such scheme was floated in the year 1987 which remained in force upto 1990. On and about 20.10.90 a revised Voluntary Retirement Scheme was floated. The said scheme was to remain effective for an initial period of one year but admittedly the same has been extended from time to time. Both unionised and non-unionised employees numbering in thousands opted thereunder. Pursuant to or in furtherance of the said scheme the following benefits were to be given to the employees opting for voluntary retirement :

"5.1.1 Compensation at the rate of one and half month months’ salary for each completed year of service, subject to a ceiling equal to the employee’s monthly salary at the time of voluntary retirement multiplied by balance months of service left before the normal date of superannuation.

5.1.2 Payment of salary for the notice period as provided in the offer of appointment of the employee.

5.1.3 Cash value of the unavailed Earned Leave at the credit of the employee on the effective date of voluntary retirement subject to the existing limit of 240 days.

5.1.4 Payment of Provident Fund accumulation inclusive of Corporation’s contribution in full together with interest thereon standing to the employee’s credit in the Provident Fund Account as on the date of the voluntary retirement.

5.1.5 Gratuity as admissible under the Gratuity Rules applicable to the employee.

5.1.6 Payment of TA, cost of transportation of baggage. Transfer Grant and incidental Travelling Allowance etc. as in the case of serving employees on transfer for proceeding to his Home Town or to the place where he intends to settle in India."

3. The Company issued a circular letter being Circular No. 5/97 dated 9th October, 1997 effecting revision in the scale of pay. The same, although issued on 9th October, 1997, was given retrospective effect from 1.1.1992. It was to remain in force for a period of 5 years from the said date, i.e., upon 31.12.1996. Clauses 3.2 and 3.3 thereof read as under :

"3.2 The revised Scales of Pay shall also be applicable on a pro-rata basis to only those Executives, non Unionised Supervisors and Employees in equivalent salary grades who were on the rolls of the Corporation as on 1.1.1992 but have subsequently ceased to be in service of the Corporation on account of superannuation or death.

3.3 Benefits of revision of Scales of Pay shall not be applicable to those Executives, Non Unionised Supervisors and Employees in equivalent Salary Grades of the Corporation who were on the rolls of the Corporation as on 1.1.1992 but have subsequently left the services of the Corporation for the following reasons:-

3.3.1 Dismissal;

3.3.2 Discharge;

3.3.3 Resignation without permission;

3.3.4 Resignation in cases where disciplinary action for misconduct involving moral turpitude has been initiated or contemplated."

4. The appellants herein indisputably opted for the said voluntary retirement scheme dated 22.10.1990 and retired between the period 1.1.1992 and 31.12.1996.

5. In view of the revision of scales of pay by the Company in terms of the afore-mentioned circular dated 9th October, 1997 a contention was raised by the appellant that they were entitled to the benefit thereof. The matter was referred to the Government of India and the Ministry of Industries by a letter dated 24th March, 1993 stated that the employees who had opted for voluntary retirement in terms of the aforementioned scheme were entitled to the benefit of t

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2006 Supreme(SC) 166

Important pointThe parties are bound by the terms of contract of voluntary retirement.

Cases Referred (7)