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PETITIONER:

MAFATLAL GROUP STAFF ASSN.

Vs.

RESPONDENT:

REGL. COMMR. P.F.

DATE OF JUDGMENT30/03/1994

BENCH:

JEEVAN REDDY, B.P. (J)

BENCH:

JEEVAN REDDY, B.P. (J)

KULDIP SINGH (J)

BHARUCHA S.P. (J)

CITATION:

1994 AIR 2271 1994 SCC (4) 58

JT 1994 (3) 133 1994 SCALE (2)420

ACT:

HEADNOTE:

JUDGMENT:

The Judgment of the Court was delivered by

B.P. JEEVAN REDDY, J.- Leave granted in SLPS.

2. For the sake of convenience, we shall take up the facts

in Civil Appeal No. 5158 of 1993 as illustrative of the

facts in all the matters since they are all practically

similar.

Civil Appeal No. 5158 of 1993

3. In this appeal preferred against the judgment of the

Bombay High Court, the validity of the Employees' Family

Pension Scheme is called in question. The writ petition was

initially allowed by a learned Single Judge of the Bombay

High Court on the ground that the Scheme violates the equal

protection clause in Article 14 of the Constitution of

India. On appeal being preferred by the Regional Provident

Fund Commissioner, however, the Division Bench took a

contrary view. It upheld the validity of the Scheme.

4. With a view to provide certain terminal and other

benefits to the employees engaged in factories and other

establishments, Parliament enacted the Employees' Provident

Funds and Miscellaneous Provisions Act, 1952. The Act

provides inter alia for framing of "Employees' Provident

Fund Schemes". A certain percentage of the monthly wages of

the workers is deducted and credited to the said Fund. The

employer is also made liable to contribute an equal amount

to the Fund. The employee-member of the Fund is entitled to

withdraw the full amount to his credit in the Fund on his

retirement or termination of service, as the case may be.

He can also draw advances out of the Fund in certain

situations like illness, marriage or

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education of children and so on. But there were many cases

in which the amount payable, on the death of an employee, to

his wife and minor children was too small to be of any help

to them particularly where an employee died within a few

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years of his employment. With a view to provide longterm

payments (Pension) to the widow or minor children in such

cases, Parliament thought of creating a Family Pension Fund

Scheme. For this purpose, it introduced Section 6-A (read

with Schedule III) and certain other provisions in the Act,

by the Amendment Act 16 of 1971. Section 6-A empowered the

Central Government to frame a scheme called "the Employees'

Family Pension Scheme" to provide family pension and life

assurance benefits to the employees of any establishment or

class of establishments to which the Act applied. The

Statement of Objects and Reasons leading to the introduction

of the Family Pension Fund Scheme throws light upon the

objectives and purposes sought to be achieved by the new

Scheme:

"The Coal Mines Provident Fund and Bonus

Scheme Act, 1948 and the Employees' Provident

Fund Act, 1952 provides for the institution of

provident funds for employees in coal mines,

factories and other establishments. Provident

Fund is an effective old age and survivorship

benefit but when the employee happens to die

prematurely, the accumulations to the

Provident Fund are too small to render

adequate and long-term protection to his

family. With a view to providing longterm

financial security to the families of

industries employees in the event of their

premature death, it is proposed to introduce a

Family Pension Fund for the employees covered

under the two Acts, and to create a Family

Pension Fund for this purpose by diverting a

portion of the employer's and the employee's

contribution to the Provident Fund, to which

will be added a contribution by the Central

Government. Out of the fund so set up, it is

proposed to pay Family Pension at prescribed

scales to the survivors of employees who die

while in service before reaching the age of

superannuation."

5. Sub-section (2) of Section 6-A provides for diversion

of a portion of the contributions made by the employees and

employers to the Provident Fund under Section 6 of the Act

to the Pension Fund. It also provides for contribution by

the Government of an amount equal to the employee's

contribution to the Pension Fund. The Fund thus has a new

element contribution by the State. The Family Pension Fund

Scheme came into force on and from 1-3-1971.

6. Clause 3 of the Scheme framed by the Central Government

under Section 6-A provides that every person who becomes a

member of the Employees' Provident Fund Scheme on or after

1-3-1971 shall automatically become a member of the Family

Pension Fund Scheme. So far as the existing members of the

Employees' Provident Fund are concerned, the clause gave

them an option to come under the Family Pension Scheme or to

stay out. Such an option was not given to employees who

became members of the Employees' Provident Fund on or after

1-3-1971 and this

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distinction forms the basis for the complaint of

discrimination made by the

writ petitioner-appellants.

7. The Family Pension Scheme provides broadly speaking for

three benefits to its members, viz"

(a) Family pension (pension payable to widow or minor

children on the death of employee before attaining the age

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of 60 years);

(b) Life assurance benefits [clause 31 of the Scheme]; and

(c) Retirement-cum-withdrawal benefits [clause 32 of the

Scheme.]

8. Clause 34-D of the Scheme provides for valuation of the

Fund by a valuer appointed by the Central Government at

intervals of three years. Basing on such valuation, the

Central Government "may alter the rate of contributions

payable under this Scheme or the scale of any benefit

admissible under this Scheme or the period for which such

benefit may be given". In other words, the clause provides

for periodic review of the working of the Scheme and in case

any surplus is found, its benefit is extended to the

employees in one of the three ways mentioned in Clause 34-

D(2). Sub-clause (2) of Clause 34-D no doubt places the

said matter in the discretion of the Central Government but

it goes without saying that such discretion has to be

exercised in a fair manner keeping in view all the relevant

circumstances and contingencies. Before the Division Bench

of the High Court, it was not disputed that the Scheme was

being reviewed from time to time and additional benefits

conferred upon its members pursuant to such review. The

benefits so extended were referred to in detail in para (9)

of the affidavit-in-reply filed by the Commissioner on 3-12-

1984. It was stated in the said affidavit that on the death

of a member-employee, his widow gets a pension @ Rs 400 per

month for the first seven years and thereafter @ Rs 200 per

month for her life or until she remarries, as the case may

be.

9. The learned Single Judge allowed the writ petition

holding the Pension Scheme to be discriminatory for the

reason that it did not provide for an option to employees

who became members of the Provident Fund after 1-3-197 1,

while giving such an option to the employees who were

members of the Provident Fund as on the said date. The

learned Judge also made some observations regarding the

meagreness of the return to the members of the Scheme as

compared to their contribution. On appeal, however, the

Division Bench, in an elaborate and well-considered

judgment, disagreed with the learned Single Judge on both

the points.

10. We are unable to see any substance in the complaint of

discrimination. Rule 3 of the Pension Scheme reads :

"Membership of the Family Pension Fund.-

Subject to subparagraph (3) of paragraph 1,

this Scheme shall apply to every employee

(a) who becomes a member of the Employees'

Provident Fund or of Provident Funds of

factories and other establishments exempted

under Section 17 of the Act on or after the

1st day of March 1971;

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(b) who has been a member of the Employees'

Provident Fund or Provident Fund of factories

and other establishments exempted under

Section 17 of the Act immediately before the

commencement of this Scheme and opts to

exercise his option under paragraph 4 :

Provided that an employee who attains the age

of more than 59 years on the date on which he

would, but for this proviso, have become

eligible for membership or have been required

to become a member of this Scheme shall not be

eligible for membership under this Scheme."

Merely because the employees who were the members of the

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Employees' Provident Fund Scheme before March 1, 1971 were

given an option to become or not to become members of the

Family Pension Scheme, it does not follow that the employees

who become members of the Provident Fund Scheme after March

1, 197 1, and who are not given such option are

discriminated against. Here is a beneficial social

legislation conceived with the intention of providing a

safety net to the families of deceased employees a safety

net to prevent such families from sinking into the depths of

poverty and misery. Instead of welcoming it, we find it

rather curious that it is being attacked by the very

employees for whose benefit it is devised. We certainly

agree that any oddities and crudities in the working of the

Scheme should be attacked and exposed with a view to set

them right, but to attack the very scheme, in our opinion,

is not called for. Be that as it may, we find no substance

in the said attack. Here is a Scheme newly being

introduced. Those who come after the introduction of the

Scheme do become members but those who were already the

members of the Provident Fund are free to become members of

the Pension Fund or not. This is not an uncommon feature.

Both of them represent two distinct categories. The

reliance on the decision of this Court in D.S. Nakara v.

Union of India' is misplaced. That was a case where a class

of retired employees was sought to be deprived of the

benefit of liberalised pension rules on the only ground that

they had retired prior to a particular date. Here, in this

case, no one is being deprived of the benefit of the new

Scheme. All that the option means is that if any employee

who is already a member of the Provident Fund Scheme thinks

that, having regard to the number of years of service put in

by him and/or for other reasons, it is not beneficial for

him to join the Family Pension Scheme, he can stay out.

While judging the validity of such Schemes one should not

pick out an individual instance not representing the

generality of the situation and make it the basis. One has

to take an overall view, i.e., whether it is beneficial to

the class concerned as a whole or not. The Scheme, as

already stated, is in the nature of an Insurance Scheme. An

employee who dies early in service, his family stands to

gain on a long-term basis while another member who serves

out his full service tenure may not stand to gain that much.

But one thing is clear, no one may get back less than what

he has contributed. As we shall presently point out, that

is precisely the case of the respondents and we are making

necessary directions

1 (1983) 1 SCC 305: AIR 1983 SC 130

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to ensure that. It must be remembered that the monies meant

for Family Pension Scheme are diverted from the Provident

Fund Scheme, which represents equal contributions of

employees and employers, to which amount is added an equal

contribution by the Government. The Government contributes

because the Scheme serves a social purpose. No one can say

that each and every employee must get back not only what he

contributes but also the contributions of the employer and

the Government put together. This is just not possible.

Who is to care for the widows or minor children of the

deceased employees (employees dying before retirement or

before attaining the age of 60 years) and wherefrom that

money is to come if each employee insists upon receiving the

total of his, the employer's and the Government's

contribution. We are, therefore, of the opinion that if one

keeps in mind the aforesaid basic features of the Scheme,

all objections to its desirability and validity appear

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groundless. It may also be mentioned that the decision in

D.S. Nakaral has been explained in a later Constitution

Bench decision in Krishena Kumar v. Union of India2 as also

by a Division Bench in State of W.B. v. Ratan Behari Dey3.

We, therefore, agree with the Division Bench of the Bombay

High Court that the complaint of discrimination by the

appellant-petitioners is wholly unsustainable.

11. Now coming to the other question, which happens to be

the main contention urged before us, the reasoning of the

counsel for the appellants runs thus : The manner in which

the Family Pension Scheme is being operated is in effect

prejudicial to the employee-members. The amount collected

from the employees is far more than the benefit provided to

them. The deductions are being made on the basis of the

present emoluments of the industrial employees while, for

the purpose of calculating the pension and other benefits,

the emoluments in force in 1971 are taken as the basis, with

the result that while the contribution of the employees is

substantially high, the return to them and their families is

negligible. Certain facts and particulars from the judgment

of the learned Single Judge are brought to our notice and on

that basis it is contended that while the total

contributions (employers', employees' and Government) to the

Pension Fund was Rs 142 crores in the year 1983-84 upon

which interest of Rupees sixty crores was earned during that

year, the disbursements on account of the three benefits

provided for by the said Scheme totalled to Rupees seven

crores only. Certain statements are placed before us to

show how much an employee drawing a monthly salary of Rs

1000 would contribute to the Fund over a period of forty

years and how much does he get out of it by way of several

benefits on his retirement or death. From these figures, it

is sought to be established that the return is too low and

bears no relation to the amount contributed by the

employees. In short, the argument is that the scheme is not

really to the benefit of the employees but has operated as a

deprivation. The appellants rely upon a report made by the

Pension and Provident Fund

2 (1990) 4 SCC 207

3 (1993) 4 SCC 62: 1993 SCC (L&S) 1123 : (1993) 25 ATC 574:

(1993) 3 Scale 343

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Manager of the Grindlay's Bank who, it is stated, was

appointed by the respondents to examine the working of the

Pension Fund in 1985, wherein it is stated inter alia :

"Currently, contribution is paid at a rate of three and a

half per cent of pay. Accordingly, actual contribution

exceeds actuarial by 0.44% of pay ... although the

contribution income has increased, corresponding increase in

pension has not taken place.... This would partially explain

the huge accumulation of fund." The report opined that "the

amount of contribution paid to the fund by a member should

at all times be regarded as members' property. At least

this would be returned on exit of a member whether it is by

way of death benefit or by survival benefit. We have

already ensured bigger benefits on death by way of widow

pension and life assurance benefit that contribution

warrants. Therefore, survival benefit would be an amount

equal to return of contribution with a realistic rate of

interest." Certain other recommendations are also made.

12. The facts and figures and particulars furnished by the

petitioners are disputed by the learned counsel for the

respondents. The respondents have furnished a statement

(Annexure-A) showing the number of subscribers and the

number of pensioners from the year 1971-72 to 1991-92. The

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said statement shows that while in 1971-72, when the

Family Pension Fund Scheme originated, the total number

of subscribers was 9.34 lakhs and there were no

pensioners, the situation has changed dramatically by 1991-

92 while the number of subscribers has gone up to 136.68

lakhs, the number of pensioners has risen to

1,29,362. It is pointed out that the widows get the pension

for whole of their life or until they remarry, as the case

may be. The respondents have also filed a chart to show

that, under the Scheme, an employee gets more than what he

really contributes. By way of illustration, the case of an

employee is taken whose salary is Rs 1000 per month for a

period of eleven years and Rs 1600 per month for the next

three years and so on. In the course of twenty one

years, it is pointed out, his share of contribution would

be Rs 4803, to which is added an equal amount being the

employer's contribution, making a total of Rs 9606. The

interest on the said amounts for the period of twenty-one

years is calculated at Rs 6868 on each of the employer's and

employee's contribution thus making a total of Rs 23,342. As

against this, his withdrawal benefit, according to the rates

applicable from 1-4-1992, it is stated, would be Rs 18,235

which is far more than the contribution made by him, namely,

Rs 4803 + Rs 6868 = Rs 1 1,67 1. It is submitted

that since several benefits are provided including a long-

term benefit like Pension Fund to a large number of

widows/minor children, the employees cannot insist upon

the entire amount contributed by them, their employers and

the Government being paid to them as the withdrawal benefit.

It is just not possible, say the respondents. Another

statement brought to our notice is the one made in the

reply-affidavit filed in Civil Appeal No. 5159 of 1993. It

is stated therein :

"The rates are so designed as to ensure that

the employee gets back the amount of his own

contribution with certain additional amount of

interest. The amount of contribution by the

employer and the Central

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Government and interest of employees'

contribution is retained and utilised to

provide for payment of other two benefits,

namely, monthly Family Pension Fund and Life

Assurance benefit, to the widows or minor sons

or unmarried daughters of those unfortunate

members who die prematurely during employment.

Thus the entire amount of contributions to the

Family Pension Fund is utilised for giving

benefits to the member of the Fund himself or

to his destitute surviving family members in

case of his death in one of the aforesaid four

ways and no part of it is utilised for any

other purpose."

13. Annexure-IV to the said affidavit gives certain

particulars in support of the said averment. With respect

to the report of the Manager of the Grindlay's Bank, it is

submitted by the respondents that it was a report made in

1985 and that since then the Government has revised the

benefits to the employees. It is submitted that according

to the rates of 1992, the benefits to the employees are

larger than their contribution.

14. While it is not possible for us to embark upon an

enquiry into the correctness or otherwise of the rival

statements and particulars furnished by the parties, the

fact remains which we should emphasise that there should

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be a broad correspondence between what the employees

contribute and what they get in return. We have already

expressed ourselves on this aspect while dealing with the

plea of discrimination, which we do not think it necessary

to repeat here. The benefits to be provided to them under

the several schemes should broadly approximate to and be

commensurate with what they contribute. This is what Clause

34-D of Pension Scheme provides, in particular sub-clause

(2) thereof. Though, worded as an enabling provision, it

contains a salutary and an obligatory principle which the

Government should always keep in view. We agree, as already

emphasized hereinbefore, that no conclusions should be drawn

by taking any single instance and that the matter must be

decided taking an overall view, yet the inescapable test

remains, viz., there must be a broad correspondence between

what the employees pay and what they and their families get

ultimately. It cannot be that while the Fund accumulates,

the employees and their families decay. The scheme is one

conceived in their interest and for their benefit and it

should prove so in practice. It is the statutory duty of

the respondents to ensure that both the contributions by

employees and the benefits flowing to them must be broadly

commensurate. Since actuarial appraisal is done every three

years, as provided by the statutory scheme itself, we are

sure that the observations made herein will be kept in mind

and necessary adjustments made.

15. The appeals and the writ petition are dismissed with

the above observations. No order as to costs.

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