The Supreme Court has held that service rendered by employees on a contractual, ad hoc, daily-wage or work-charge basis before regularisation must be counted as qualifying service for pension where the employment was long and substantially continuous.

The bench of  Justice Prashant Kumar Mishra and Justice Shree Chandrashekhar  ruled that employees who entered service before January 1, 2004, but were regularised after that date, could not automatically be placed under the new Defined Contributory Pension Scheme merely because their formal regularisation took place later.

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The Bench upheld the Punjab and Haryana High Court’s decision granting pensionary benefits to employees of the Punjab School Education Board.

The Supreme Court said that the employees must be treated as having entered government service before January 1, 2004. It further held that they would have the discretion to choose between the old General Provident Fund pension scheme and the new pension scheme.

“Pension is a deferred wage that must be assessed and paid on the basis of the service rendered by the employee,” the Court observed.

Employees Initially Engaged During 1993-1996

The employees were initially engaged by the Punjab School Education Board as clerks and peons between 1993 and 1996. Some of them were subsequently promoted as junior and senior assistants.

Their initial appointments were made on contractual, ad hoc, daily-wage or work-charge terms, generally for periods of 89 days.

The dispute had a long history of litigation. In May 1994, the Punjab and Haryana High Court directed that contractual and ad hoc appointments should not continue beyond six months or until regularly appointed candidates became available.

Consequently, the services of 224 ad hoc clerks were terminated on January 31, 1995. However, because of administrative requirements and the commencement of examinations, 184 employees were re-engaged in February 1995 on six-month contracts carrying fixed salaries.

Their engagements were subsequently extended from time to time because of administrative and operational needs.

Board Adopted Punjab Government’s Regularisation Policy

In January 2001, the Punjab Government issued a policy providing for the regularisation of work-charge, daily-wage and similarly situated employees working in government departments, public sector undertakings, corporations, boards, local authorities and autonomous bodies.

The policy contemplated regularisation against existing sanctioned vacancies. Employees who had completed three years of service were to be considered in accordance with their seniority.

Earlier proceedings seeking enforcement of that policy against the Punjab School Education Board were unsuccessful because the High Court held that the Board was an autonomous statutory body and was not automatically bound by government instructions unless it chose to adopt them.

Subsequently, the Board constituted a committee to examine the employees’ demand for regularisation. In July 2004, the committee recommended adopting the January 2001 policy as a one-time humanitarian measure with necessary modifications.

The Board accepted the recommendation on July 13, 2004. A public notice was thereafter issued stating that the Board had decided to appoint work-charge, daily-wage and other categories of existing workers on a regular basis against permanent vacant posts.

Regularisation letters were issued to the employees beginning in August 2004, and they were granted regular pay scales from that month.

State Government Denied Old Pension Benefits

After their regularisation, the employees sought coverage under the old pension scheme on the ground that they had originally entered service during the 1990s.

The Board referred the matter to the Punjab Government in November 2011 and sought approval for extending the old pension policy to the employees.

In its communication to the State Government, the Board itself stated that the employees had not been freshly recruited after January 1, 2004. It acknowledged that they had entered service much before the introduction of the new pension scheme and had subsequently been regularised after rendering long service.

The State Government, however, rejected the request on December 9, 2011. It took the position that the employees were governed by the Defined Contributory Pension Scheme because their regularisation took place after January 1, 2004.

The employees approached the Punjab and Haryana High Court. Both the Single Judge and the Division Bench ruled in their favour, holding that the exercise undertaken in 2004 was one of regularisation and not fresh recruitment.

The Punjab School Education Board challenged the Division Bench’s January 14, 2020 judgment before the Supreme Court.

Substance of Employment Must Prevail Over Terminology

The Supreme Court rejected the Board’s contention that the letters issued in 2004 constituted fresh appointments.

It held that the substance of the employment relationship must prevail over the terminology used in the appointment letters.

The Court examined the Punjab Government’s regularisation policy, the recommendation of the Board’s committee, the Board’s July 2004 decision and the subsequent public notice. It found that these materials clearly established an intention to regularise existing employees.

The public notice was not an advertisement inviting applications from the general public. It merely communicated the Board’s decision to place the employees already working with it on a regular basis against permanent vacancies and invited objections, if any.

“Mere nomenclature at this belated stage cannot overcome such extensive evidence establishing that the appellant-Board indeed regularized the respondent-employees,” the Court said.

The Court also relied upon the Board’s own 2011 communication to the State Government, in which it had described the employees as having been regularised after rendering long service.

Artificial Service Breaks Must Be Ignored

The applicable Punjab School Education Board pension regulations provided that qualifying service generally included all uninterrupted periods spent on duty and periods of leave for which leave salary was paid.

The Supreme Court held that the employees’ service before August 2004 had to be counted for retirement and pension benefits. The interruptions in their service were either notional, artificially created for administrative purposes or caused by court orders.

Such breaks, the Court ruled, had to be ignored, and the employees’ service was required to be treated as continuous.

Referring to the Constitution Bench decision in D.S. Nakara v. Union of India, the Court reiterated that pension is neither a bounty nor an ex gratia payment. It is compensation for past service and a social welfare measure intended to advance socio-economic justice.

“When an employee has rendered long and continuous service, and stands ultimately regularized, denial of pensionary benefits based on technicalities or artificialities is generally unjustified,” the Court observed.

Earlier Punjab Rulings Applied

The Supreme Court also approved the High Court’s reliance on its earlier decision in Harbans Lal v. State of Punjab.

In that case, an employee had been appointed as a daily-wage pump operator in 1988 and was regularised only in 2005. The High Court held that his daily-wage service before regularisation had to be counted as qualifying service for pension.

Since he had entered service before January 1, 2004, the new contributory pension scheme was held inapplicable to him. The Supreme Court had subsequently declined to interfere with that ruling.

The Court found that the same principle applied to the Punjab School Education Board employees, whose initial engagements had commenced well before the January 1, 2004 cut-off date.

Autonomous Status Does Not Defeat Employees’ Claim

The Board’s autonomous status could not help it avoid its pension obligations, the Supreme Court held.

Although the Board was initially free to accept or reject the Punjab Government’s 2001 regularisation policy, it had later voluntarily adopted the policy with appropriate modifications.

Conditions such as clearing a typewriting test, undergoing probation or furnishing a medical certificate did not convert the regularisation exercise into a process of fresh recruitment. Those conditions merely reflected modifications made to adapt the policy to the Board’s administrative requirements.

The Court noted that similarly situated employees in other departments had also received comparable relief. Denying the same benefit to the respondents would therefore be prima facie discriminatory.

Finding no illegality in the High Court’s judgments, the Supreme Court dismissed the Board’s appeal without imposing costs.

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