STATE OF A.P. AND ANR V. A.P. PENSIONERS ASSOCIATION AND ORS INSC 638

1. Name of the Case: State Government Pensioners' Association & Ors Vs. State of Andhra Pradesh [1986] INSC 150 (25 July 1986). (1)

2. Facts: The Government of Andhra Pradesh issued Order No. 88 on March 26, 1980, which revised gratuity payments, effective from April 1, 1978. This order allowed retirees to receive 1/3rd of the pay drawn at retirement for every six months of service, subject to a maximum of 20 months' pay, capped at ₹30,000. The petitioners, retired government employees who had retired before April 1, 1978, filed a petition under Article 226, claiming that gratuity is part of pensionary benefits. They argued that gratuity payments should also be revised retrospectively to provide them equal benefits. The State contended that gratuity is distinct from continuing pensionary benefits like pensions or family pensions. Gratuity payments for those retiring before April 1, 1978, had been calculated and paid under the prevailing rules, and there was a valid distinction between pre- and post-April 1, 1978 retirees. The High Court dismissed the petition, stating that the revision was intended to have prospective effect only. (2)

3. Issue(s): Whether the prospective application of enhanced gratuity payments under Government Order No. 88 dated March 26, 1980, violates Article 14 of the Constitution of India by denying benefits to those who retired before April 1, 1978.

4. Holding(s): No, the prospective application of enhanced gratuity payments does not violate Article 14 because the classification of retirees based on the effective date of April 1, 1978, is reasonable and not arbitrary.

5. Rationale: The Supreme Court upheld the prospective application of the revised gratuity rules and concurred with the High Court's decision. The Court relied on the precedent set in D.S. Nakara v. Union of India (1983), where it was clarified that pension revisions could be prospective, with no obligation to pay arrears to pre-specified-date retirees. Gratuity, being a one-time payment, crystallizes at the time of retirement. Since the petitioners retired before April 1, 1978, their gratuity was lawfully determined under the rules in effect at their time of retirement. The court emphasized that creating a distinct class of pre- and post-April 1,1978 retirees for gratuity purposes is based on rational grounds, including the state's financial considerations. The retrospective application of such benefits would involve rewriting the notification, which is beyond the court's scope. The Court noted that upward revisions in financial benefits (e.g., pay scales or gratuities) are inherently prospective and do not violate Article 14, as individuals retiring earlier operated under different economic conditions. (3)

References (1) STATE OF A.P. AND ANR V. A.P. PENSIONERS ASSOCIATION AND ORS INSC 638 (2) Latest Laws. <https://www.latestlaws.com/latest-caselaw/1986/july/1986-latest-caselaw-150-sc> (3) Ibid