Note on LIC of India (Employees) Pension Rules & Service Rules

                             Note on LIC of India (Employees) Pension Rules & Service Rules

                  “The more I learn, the more I realize how much I don't know.” - Albert Einstein

When I retired, I was under the mistaken impression that the pension I have opted for in lieu of CPF is similar to the pension, given to the retired Employees of Government. Quite later, I knew that our pension scheme is not like the pension scheme of the Government Employees. I could also know that pensioners of LIC are fighting for getting pension revision with wage revision as had been granted to Central Government Pensioners from Fifth Pay Commission. Awareness about deficiencies in our pension scheme started spreading from 2010, when Jaipur Bench of Rajasthan High Court gave a favourable judgment in the WPs filed by Shri KML Asthana. Judgments from other High Courts on almost similar issues followed the judgment of Rajasthan High Court. Through the time taking processes of appeals/review/SLPs, the cases were remanded to Delhi High Court and again reached Supreme Court where the final verdict is to be delivered. During this period, awareness not about the deficiencies of LIC Pension Scheme alone but of the PSU Banks Pension Scheme was increased considerably among majority of the LIC Pensioners. After the cases were remanded to DHC, several activists having legal expertise shared their views through group emails, blogs and meetings. There were comments and counter-comments and even heated discussions on blogs and WhatsApp; mostly interesting but sometimes going to the extent of causing animosity. 

The deliberations, write-ups and notes on the issues related to discriminatory payments of pensionary benefits shared by various learned pensioners, inspired me to study the pensioners’ grievances. This also made me to peep into our staff regulations, the history of legal battle from 1976 to 1981 on ‘bonus’ and changes in LIC Act, 1956 empowering the Central Government to make rules governing the terms and conditions of service of the employees. I have also seen some write ups and notes where pension scheme is described as contract or statutory contract by some experts and as statute by the others. Some pension schemes are known as Pension Regulations (as in case of RBI/PSU Banks) and some are known as Pension Rules (as in case of LIC and PSU General Insurance Companies). To appreciate the correct meaning of the terms and understand the fine difference between apparently similar looking terms, I referred to the relevant Acts, Rules, Regulations and SC judgments and tried to understand the correct meaning thereof. With a view to share my findings with our members, the terms and their details are discussed below along with the briefs of legal battle on the bonus case, which resulted in conferring the powers of making our service rules by the Central Government instead of entering into a bipartite settlement. 

History of Legal Battle on the 1974 Settlement:

In 1974, Bonus Settlement was signed between LIC and Class III and Class IV employees of LIC providing for a cash bonus @15%. The settlement was for four years from 1/4/1973 to 31/3/1977.

In 1975, the issue of bonus to industrial workers was debated in the parliament and ‘Payment of Bonus (Amendment) Act 1976’ was passed by the parliament. The Central Government decided that the employees of establishments not covered by the Payment of Bonus Act would not be eligible to get bonus and ex-gratia payment in lieu of bonus. LIC of India was not covered by the said Payment of Bonus Act 1976. Consequently, payment of Bonus for the year 1975-1976 to the employees of the Corporation was stopped under instructions from the Central Government. A writ petition was filed by the employees of the Corporation in the Calcutta High Court, which was allowed, and the Corporation was directed to act in accordance with the terms of the settlement. 

Then, LIC (Modification of Settlement) Act, 1976 was passed to stop payment of bonus to the employees. The Act was challenged in Supreme Court (Madan Mohan Pathak v. Union of India) where it was held, vide order dated 21/2/1978 that the Central Government’s instructions were void. SC directed the Union of India and the Life Insurance Corporation to forbear from implementing the provisions of the 1976 Act and to pay annual cash bonus for the period from 1st April, 1975 to 31st March, 1976 and 1st April 1976 to 31st March, 1977, to Class III and Class IV employees in accordance with the existing settlements.

 On completion of the term of the settlement, the Corporation issued a notice on March 31, 1978, declaring its intention to terminate the settlements. The Corporation also issued another notice to change the conditions of service applicable to the employees. Subsequently, the Life Insurance Corporation (Alteration of Remuneration and other Terms and Conditions of Service of Employees) order, 1957, was amended by the Central Government vide notification dated 26/5/1978 issued under Sec.49, specifically substituting the ‘bonus’ clause by the wordings, “No employee of the Corporation shall be entitled to profit sharing bonus. However, the Corporation may, having regard to the financial condition of the Corporation in respect of any year and subject to the previous approval of the Central Government, grant non-profit sharing bonus to its employees in respect of that year at such rate as the Corporation may think fit and on such terms and conditions as it may specify as regards eligibility for such bonus”.

The validity of the aforesaid two notices and the notification issued for the purpose of nullifying any further claim to annual cash bonus was challenged by the employees in Allahabad High Court (D J Bahadur Case), where judgment was given in favour of employees. LIC and UOI preferred appeal in the SC. Another WP filed in Calcutta High Court on the same issues was also transferred to SC. The Supreme Court decided the cases in favour of the employees vide order dated 10/11/1980 and directed LIC and The Central Government "to give effect to the terms of the settlements of 1974 relating to bonus until superseded by a fresh settlement, an industrial award or relevant legislation".

The Central Government, pursuant to the aforesaid order, preferred to substitute the settlements by legislation and amended Sec 48 of LIC of India Act, 1956 by adding sub-section (2) (cc), (2A), (2B) and (2C) and took the powers of making rules in respect of terms and conditions of service of employees vide LIC of India (Amendment) Act, 1981 with retrospective effect from 20/6/1979.

Accordingly, the Service Rules (given in subsequent paras), made by the Central Government came into existence.

The amendments in Sec. 48 and Sec.49 of LIC Act 1956 were challenged by the employees in SC in ‘A V Nachane Vs. UOI’. The SC, vide order dated 28/12/1981, did not accept the contention of petitioner employees that the Act was invalid on the ground of excessive delegation of legislative functions. However, it was held that it cannot have retrospective effect to nullify the effect of the writ issued by Supreme Court in Madan Mohan Pathak case. 

We can, now, understand the difference between Regulations and Rules in the context of LIC of India Act, 1956, as discussed in following paragraphs:

Regulations: As per Sec 49 (1) of the LIC of India, Act 1956, the Corporation, with the previous approval of the Central government, makes regulations on certain matters. Sub-Sec (2) states the subject matter where the Corporation may make regulations. Before the amendment of 31//1/1981, the terms and conditions of service of employees and agents were governed by the Regulations made by the Corporation under Sec. 49 (2) (bb); but this provision was deleted from Sec 49 and added in Sec 48 as (2) (cc) by LIC of India (Amendment Act), 1981. In 2011, provision related to agents was deleted from Sec 48 (2) (cc) and brought in Sec 49 (2) again. The existing Agents Regulations 2017 is made by the Corporation under amended Sec. 49 (2). Where the terms and conditions of service of the employees are governed by the rules made by the Central Government as per Sec 48 (2) (cc); ‘the method of recruitment of employees’ is still governed by the regulations made by the Corporation under Sec 49 (2).

Regulations can be made by the Corporation as an executive function. LIC of India (Regulations) 1959 providing for the powers and functions of the Corporation, Chairman, Zonal Managers, etc.  are the example of the Regulations made using executory powers. Regulations made by the Corporation as per agreement with other parties are known as settlements. Prior to 1981 amendment in the LIC Act 1956, the terms and conditions of service of employees were decided by settlement signed by the employees’ unions and LIC Management. The Corporation was empowered to make regulations based on the settlement under Sec 49, and notifying in the Gazette of India. As per definitions given in a number of judgments of the Supreme Court, such Regulations are termed as Statutory Contracts. In LIC, now the terms and conditions of service of employees are made by the Central Government as per Sec 48 (2) (cc), but in PSU Banks, the terms and conditions of service of employees are decided by settlement signed by the employees’ unions and IBA, and the Concerning Bank makes Regulations based on the settlement, which are notified in Gazette of India. Such regulations are statutory Contracts.

Rules:  As per Sec 48 (1) of the LIC of India act, 1956, the Central Government makes the rules to carry out the purpose of this Act. As stated above, Sub-Section 2 (cc) was added in 1981 which states that the Central Government is empowered to make rules providing for the terms and conditions of service of the employees and agents. The part related to agents was deleted by amendment in 2011. Shifting of the provision of terms and conditions of service of employees from Sec 49 (which authorises LIC to make regulations based on the settlement) to Sec 48 (which authorises the Central Government to make the rules) was the fall out of long litigation on bonus issue. How the ‘Service Rules’ had come into existence is already discussed in earlier paras. Now, the employees’ unions take part in information sharing meeting on wage revision but they do not sign the settlement. In legal matters, the terms and conditions of service of employees are governed by legislation and not by agreement. The Central Government exercising its power given in Sec 48 of the LIC Act, 1956, notified the following service Rules:

Life Insurance Corporation of India Class-1 Officers (Revision of Terms and Conditions of Service), Rules 1985, effective from 1.10.1983

Life Insurance Corporation of India Development Officers (Revision of Terms and Conditions of Service), Rules 1985, effective from 1.4 1988

 Life Insurance Corporation of India Class-III & Class-IV Employees (Revision of Terms and Conditions of Service), Rules 1985, effective from 22.2.1983

These Rules are known as the ‘Service Rules’ and conventionally amended every five years to fix the revised pay scales and other benefits.

Sec 48 (2A) of the LIC of India Act 1956 provided that the LIC of India (Staff) Regulations, 1960 will be treated as the rules made by the Central Government. LIC of India (Employees) Pension rules, 1995 are also made by the Central Government.

Service Rules of LIC of India are not contract or statutory contract. These are statute made by the Government of India as per the power given by the Act passed by the Parliament. The employees whose terms and conditions of service are governed by settlement i.e. statutory contract enjoy the autonomy of giving consent. The position is precisely explained by the Supreme Court, in “Roshan Lal Tandon vs Union of India” decided on 14/8/1967. Relevant part of the judgment is as under:

“It is true that the origin of Government service is contractual. There is an offer and acceptance in every case. But once appointed to his post or office the Government servant acquires a status and his rights and obligations are no longer determined by consent of both parties, but by statute or statutory rules which may be framed and altered unilaterally by the Government. In other words, the legal position of a Government servant is more one of status than of contract. The hall-mark of status is the attachment to a legal relationship of rights and duties imposed by the public 'law and not by mere agreement of the parties. The emolument of the Government servant and his terms of service are governed by statute or statutory rules which may be unilaterally altered by the Government without the consent of the employee.”

The employees, whose terms and conditions of service are governed by the rules made by the Government enjoy the status. In the language of juris- prudence ‘status’ is a condition of membership of a group of which powers and duties are exclusively determined by law and not by agreement between the parties concerned. 

LIC of India (Employees) Pension Rules, 1995 –contract or legislation? 

The Corporation, in consultation with the Unions of the employees have recommended introduction of an index-linked pension scheme in lieu of Corporation’s contribution to the Provident Fund with effect from 1st November, 1993. LIC of India conveyed the record of agreed conclusions reached during information sharing meetings with the employees’ unions vide its letter dated 14/1/1994. In exercise of the powers conferred by Section 48 of the Life Insurance Corporation Act, 1956 (31 of 1956), the Central Government has made the LIC of India (Employees) Pension Rules, 1995. The Pension Rules are applicable to in service employees as well as retired employees who have opted for it. As stated above, our pension scheme is in lieu of Corporation’s Contribution to PF. It means that those who opted for pension would not be member of CPF scheme and Corporation’s Contribution to PF will not be payable to them. They shall be member of LIC of India (Employees) Pension Scheme. This does not mean that the employees opted for pension shall be given pension equivalent to the amount of CCF. Amount of pension shall be payable in accordance with the Pension Rules. 

Our pension scheme is indexed linked pension scheme, which provides for increase or decrease in the dearness allowance according to rise or fall in the Consumer Price Index. 

LIC of India preferred to set a Pension Fund which is administered by the Trust of the Life Insurance Corporation of India (Employees) Pension Fund set as per Rule 8. Rules provide for contributing sufficient amount to the funds so that pension is paid to the employees as per rules. Rules also provide for making additional contribution for upward revision of the benefits. To pay pension to the employees of Corporation by setting a Pension Fund or by any other method like ‘pay as you go’ is the prerogative of the employer –LIC of India. But, in no way it restricts revision of pension. Thus, our pension scheme is not contributory or restricted fund Pension Scheme. Our Pension Scheme is similar to the CCS Pension Scheme as can be inferred from Rule 56.

Pension Fund: Pension Fund contains contribution made by LIC and Interest earned on the existing Fund (on introduction of the scheme effective from 1/11/1993, those who retired after 1/1/1986 and before introduction of the scheme were also covered subject to their consent for pension in lieu of CPF and amount of CPF paid to them was refunded by them along with interest and deposited in the Pension Fund). The Corporation is the sole contributor to the Fund. It is the responsibility of the Corporation to ensure that sufficient sums are placed in it to enable the trustees to make due payments to beneficiaries under these rules. As soon as an employee retires, the contribution by the Corporation at the rate of ten per cent per month of his pay stops. A sum from the pension fund is used to: 

pay the commuted value of the Pension, if opted, 

purchase immediate annuity for arranging monthly pension for life with the provision of family pension, if the spouse survives the employee, and

purchase additional annuities when there is upward revision in pension like increase in dearness allowance when required.

From above, it can be understood that as soon as the sum for aforesaid payments is apportioned from the pension fund, retired employees claim is almost settled (except providing for the annuities for future DR increase). The amount in the Pension fund is the obligation towards payment of pension to future retirees who have opted for the pension. Pension Rules are applicable to in service employees as well as retired employees who have opted for it.

Contribution to the Pension Fund is paid from the same head of account from which salaries to the employees is paid. However, pension is paid from the pension fund and shown as ‘benefit paid’. The Pension Rules provide for actuarial valuation of the Pension Fund every year to assess the future liability and make additional contribution to the Pension Fund, if required. As submitted by LIC in Delhi High Court, LIC has to make additional contribution every year to meet with increased liability due to increase in dearness allowance. The following table shows how additional contribution is made by LIC:

                                                                    LIC Employees Pension Fund (in Crs)

                                                                 31/03/2013       31/03/2014        31/03/2015          31/03/16

         Fund at Beginning of Year           16,544                  21,073                  27,039                  32,578

         Investment Income                         2,111                    1,950                     2,439                    2,728

         Regular Contributions (10%)            269                        273                       340                    1,004

          Additional Contributions                3,654                    4,769                    4,038                    3,589

          Benefits paid                                     1,515                    1,026                    1,278                       973

          Fund as at end of year                   21,073                 27,039                  32,578                  38,925

Benefit paid i.e. pension paid in a particular year is quite less than the investment income. But, amount of additional contribution in the same year is higher than the regular contribution, which indicates that regular contribution does not suffice to meet with the liability. This is a mis-conception that the entire pension fund belongs to the existing pensioners only. On the contrary, most portion of the Fund belongs to the pension optee employees who have to retire in future. As per the Annual Report of LIC for the tear 2019, Pension Fund as on 31/03/2019 is Rs. 61113.31 Crores. In Delhi High Court, LIC pleaded that pension updation would impact the financial viability of the Corporation adversely. Petitioners do not agree with such pleadings. Impact of arrears of pension updation, in case of existing pensioners is quite low as evident from the affidavit given by LIC in Feb. 2018 in Delhi High Court, which states that as on 31/3/2017, cost of upgradation of pension for existing pensioners was Rs. 8297.97 Crores (Rs. 3162.90 Crs towards arrears and Rs. 5135.07 Crs towards future liability) and in case of in service pension optees it was Rs. 23583 .00 Crs (only future liability, no arrears). However, pension is a statutory liability to the employer and employer is under legal obligation to pay the same. 

If any provision or rule in the Pension Scheme is discriminatory and violates the provisions of Fundamental Rights, the same needs to be corrected either by executory i.e. LIC or The Central Government or by judiciary. Such rectification, even if involves financial implication, is obligatory on the part of the employer. 

As stated in the beginning of this article, the contents in this article are based on the provisions given in the LIC Act, 1956, Rules and Regulations made thereunder and various court judgments. Inaccuracy or inadequacy, if any, may be corrected by the well-informed readers.

With season’s greetings.

M P Agnihotri

Hyderabad.