SC: Interest on commuted value of pension? Only if state acts arbitrarily

The Hon’ble Supreme Court, today, i.e on 8th March 2019, in the matter of Chief General Manager Gujarat Telecom Circle, Bharat Sanchar Nigam Ltd. & Ors. V. Manilal Ambalal Patel & Anr. pronounced that under Rule 9 of the CCS (Pension) Rules, 1972, a suspension can constitute a departmental proceeding only if the suspension is at the time of retirement on superannuation. A suspension which was subsequently revoked  before the retirement on superannuation cannot constitute departmental proceeding within the meaning of Rule 9(6)(b). 

The Hon’ble Supreme Court observed that:

The scheme of the CCS (Pension) Rules, 1972, inter alia, indicate that under Rule 59, the authorities are duty bound to set in motion, the proceedings for calculating and paying the pension by the due date. Rule 59 would indicate that the said procedure is divided into three stages; first stage – verification of service; second stage – making good omission in the service book; third stage – as soon as the second stage is completed, but not later than eight months prior to the date of retirement of the Government servant various steps are to be undertaken. Rule 61 contemplates that after complying with the requirement of Rules 59 and 60, pension papers are to be forwarded to the accounts officer. Rule 64 contemplates provisional pension being paid for reasons other than departmental or judicial proceedings. (Para 10)

There are two situations which may result in a Government servant not being sanctioned the final pension upon his retirement. Rule 3(l) of the Central Civil Services (Commutation of Pension) Rules, 1981 defines provisional pension to be the pension referred to in Rule 64 or 69 of the CCS (Pension) Rules, 1972, as the case may be. Rule 64 of the CCS (Pension) Rules, 1972 contemplates a situation where the pension is not finalized for reasons other than departmental or judicial proceeding. When a person is so granted provisional pension under Rule 64 of the CCS (Pension) Rules, 1972 then Rule 9 of the Central Civil Services (Commutation of Pension) Rules, 1981 provides for commutation of a fraction of the provisional pension which is to be subject to the limit specified in Rule 5. It may be noticed that Rule 5 of the Central Civil Services (Commutation of Pension) Rules, 1981, inter alia, provides that a Government servant shall be entitled to commute for a lump sum payment of an amount not exceeding forty percent of his pension. Therefore, this limit is applicable in respect of full pension and also cases of provisional pension. (Para 16)

Even if a person is in receipt of only provisional pension but which is granted under Rule 64, which as explained earlier, deals with a case which is not covered by a departmental or judicial proceeding, the Government servant is entitled to commute fraction of the provisional pension subject to the limit, as provided under Rule 5 of the Central Civil Services (Commutation of Pension) Rules, 1981. Rule 31 of the Central Civil Services (Commutation of Pension) Rules, 1981 provides that when final assessment of the pension is one in regard to an employee to whom commuted value of the percentage of the provisional pension has been given under Rule 9, then he will be paid the difference of the amount between commuted value determined on final assessment of the pension and the commuted value already paid. (Para 16)

A scanning of the Central Civil Services (Commutation of Pension) Rules, 1981 reveals that there is no provision which contemplates payment of interest. (Para 20)

Commuted Value Of Pension is inter-linked with pension. Pension is not a bounty. It is a legal as well as a fundamental right of a Government servant to receive his pension.It is not an act of grace by the employer but it is the right of the Government servant who has put in the required number of years of service. This is subject no doubt to Rule 9 of the CCS (Pension) Rules, 1972 under which there is power to withhold and recover part or whole of the pension. In regard to pension, it is beyond dispute that for belated payment of pension, interest can be ordered to be paid. (Para 21)

Commutation of pension is nothing but payment of a portion of the pension calculated on a formula provided in the Rules, the result of which is that the employer will be absolved from payment of the pension to the extent it is commuted and the employee will receive the value of commuted pension in a lump sum at one go. No doubt after a certain number of years (15 years) the full pension gets restored. Therefore, Commuted Value Of Pension flows out of his right to receive pension. In fact, it is a part of his pension which is paid in lump sum to the employee. (Para 22)

It is undoubtedly true that it is entirely optional for the officer to commute a part of his pension. In that sense it can be said that without an application, he has no right to get commuted value. (Para 23)

It is important to notice Clause (c) to the proviso to Rule 6 of the Central Civil Services (Commutation of Pension) Rules, 1981. It clearly contemplates that in the case of person who applied under Rule 13(3), the Commuted Value Of Pension becomes payable on the date following the date of his retirement. This interpretation is inevitable having regard to the express language of the said Rule. In fact, it contemplates that the reduction in the amount of pension on account of commutation shall be operative from its inception. This means that consequent upon commutation, the full pension which he would otherwise receive would suffer a diminution and it is to take effect from the very first day following his retirement. (Para 28)

In a case where Rule 13(3) applies and the Government servant who is due to retire on superannuation applies for getting Commuted Value Of Pension along with pension papers, prior to the date of his retirement as provided and he actually retires on superannuation and his application is within time, the Commuted Value Of Pension must be paid immediately after the retirement. It may be true that in the case of a person covered by Rule 18 which deals with the cases, which we have mentioned, like invalid pension, pension under Rule 40 of the CCS (Pension) Rules, 1972 on being compulsorily retired by way of penalty or compassionate allowance on being dismissed or removed he must undergo a medical examination. (Para 30)

As far as application by a person governed by Rule 12, provided he makes an application as contemplated under Rule and the application gives details of the amount of percentage of commutation which he requires subject to the maximum of forty percent, he is entitled to demand the payment of Commuted Value Of Pension. (Para 30)

It is not the law that to constitute a departmental proceeding for the purpose of attracting the provisions of Rule 9 of the CCS (Pension) Rules, 1972 that a Government servant has been placed under suspension at some point of time of his career. What is contemplated is that there must be a suspension when the applicant would have otherwise retired on superannuation. The suspension which was subsequently revoked cannot constitute suspension within the meaning of Rule 9(6)(b). (Para 39)

The basis for interest on Commuted Value Of Pension can only be state action which is arbitrary. (Para 44)

A claim for interest in regard to Commuted Value Of Pension may lie when an application has been made in time under rule 13(3) of the Central Civil Services (Commutation of Pension) Rules, 1981  and the payment is delayed. But in a case where application is made under Rule 13(1) which can be made within a period of one year from the date of retirement, the same would have to be processed and undoubtedly at the earliest it must be brought to its logical culmination as per the rules. (Para 45)

In a case falling under Rule 13(1) there can be no question of paying interest from the date of retirement as the application itself is predicated after the date of retirement. No doubt the question as to payment of interest even in such cases would arise based on the date of application and the reasonableness of the time taken in processing it and the arbitrariness in a particular case in delaying the matter. (Para 45)

 The premise on which interest can be granted in the case of Commuted Value Of Pension also is the breach of Articles 14 and 21 and it is a matter to be decided on the facts of each case. (Para 45)

Without having made an application Rule 13(3) of the Central Civil Services (Commutation of Pension) Rules, 1981, it is clear that there can be no question of even becoming entitled to commute pension w.e.f. first day following retirement. (Para 46)

Copy of judgement: Judgement_08-Mar-2019

-Tushar Kaushik

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