Why financial parameters cannot stand in the way of pension upgradation of pension

• Before  the  disappointing judgment was delivered by the Delhi High Court  on 27/4/2017  on the six Writ Petitions before it, there was an excessive emphasis by the Respondent LIC   that  if upgradation of pension was to be provided, there would be an additional financial liability to be provided for at about Rs 32000 cr( as at 31/3/2015 as orally stated before the HC Bench by LIC officials)  to benefit about 40000  pensioners and about 90000 pension optees in service.( As on date there may be 65000 pensioners who may be eligible for upgradation of pension).

It was further contended on behalf of LIC that such a huge financial burden will  lead to LIC  exceeding the statutory limit on the expenses resulting in policyholders being adversely affected by reduction in policy bonus arising on account  of reduced  valuation surplus.

But what was  not known by the petitioners  and hidden by LIC from the Court was the fact  that IRDAI in its Regulations 2016 on expenses of management how the excess over the limit of expenses should be dealt with. The following extract from the Regulations will make the position clear:

"16. The Insurers shall ensure that their expenses of management are within the allowable limit on the segmental basis. Where an insurer has violated the limits of expenses of management for one or more segments but is overall compliant with the limits, the excess of such expenses shall be borne by the Shareholders.

Action for Non-compliance

17. Any violation of the limits on overall basis or the directions issued by the Authority in this regard may entail one or more of the following actions:

(1) Excess to be charged to Shareholders' Account;.........."

The Regulations of 2016 were repealed  by the Gazette Notification dated 31/3/2023 on the same subject. The relevant  stipulations on limits of limits of expenses of management are as follows:

"Additional compliance:

 17. In case an insurer exceeds the limits of expenses as specified in these regulations; in case of participating policies or non-participating policies (including Linked) policies on an overall basis or is not in compliance with the directions issued by the Authority in this regard, it may be subject to one or more of the following actions: (1) Excess to be charged to Profit & Loss  Account;………."

 In the repealed earlier regulations, it was stipulated that any excess over the allowable   limit on expenses should be charged to the Shareholders' Account. In the latest Notification dated 31/3/2023, it has been stated that the excess over allowable limit on expenses should be charged to the Profit & Loss Account.

As seen from the Annual Reports upto   FY 2023-24, the following amounts have been charged to the P & L Account:

    FY                Towards Excess Expenses

                       of Management (Rs Cr)

2021-22                9.4245

2022-23                9.365

2023-24              12.98

The Rule 5(3) of LICEP Rules 1995 states " 

 "5 (3) The Corporation shall be a contributor to the Fund and shall ensure that sufficient sums are placed in it to enable the trustees to make due payments to beneficiaries under these rules."

This rule imposes an obligation on LIC to ensure that pension is  paid as per the Rules irrespective of any financial condition of LIC. What is before the Supreme Court is an adjudication required on entitlement of pensioners for upgradation.Once that is upheld by the Apex Court financial constraints cannot come in the way of due benefits to employees as per rules.

In other words any  financial burden falling on the shoulders of the Corporation on account of exceeding the expenses of management on any segment will have to be borne by the Shareholders of the Corporation.Within the permissible limits on expenses , the with profit policyholders will get whatever they are entitled to get as bonus based on  90% of the valuation surplus that emerges  at the end of every year. Shareholders will get their share of their surplus to the extent of 10% of surplus on Par segment and 100% of surplus on non-par segment.

So ultimately, what it boils down to is that  legal ,statutory and constitutional obligations supersede financial considerations, more so when our wage revisions are not subject matters of agreements but unilateral Notifications by the Central Government in exercise ofits powers under Sec 48(2) of the LIC Act 1956.In the circumstances safeguarding the  Fundamental  Rights   enshrined in the Constitution  for LIC employees/pensioners is paramount.

We need to put forth the above perspective before the Supreme Court through our senior counsel.

C H Mahadevan