SC Upholds Right to Pension of SBI Employees Who Took VRS after 15 or More Years of Service

The Supreme Court observed that a contract is void if prohibited by a statute under a penalty, even without express declaration that the contract is void

In a major relief for a section of retired employees of the State Bank of India, the Supreme Court has made it clear that those who opted for the 2000 voluntary retirement scheme after 15 or more years of service are entitled to proportionate pension.

The order was issued by a three-judge bench comprising Justices Arun Mishra, M R Shah and B R Gavai of the Supreme Court of India. The bench directed the bank to implement the verdict within three months. The bank has to pay the arrears within this time frame. In case, they failed to pay the arrears, they have to pay an interest of six percent per annum for the amount.

Prior Facts:

As per the VRS scheme proposed by the Indian Banks Association (IBA), any employee with 15 years of service was eligible for pension. On December 27, 2000, the Central Board of the SBI approved the scheme. However, as per SBI Pension Fund Rules, an employee is eligible for pension only on completion of 20 years of service. SBI issued a clarification on January 15, 2001 stating that its Pension fund Rules were applicable while deciding on pension benefits. Several retired employees soon approached the High Courts, which ruled in their favour. Challenging the HC verdicts, the SBI approached the Supreme Court.

Key Features:

  • The main question involved is whether the respondent employees are entitled to pension on completion of 15 years of service as per the State Bank of India Voluntary Retirement Scheme.
  • The petitioner contended that, the heart and soul of the scheme were that benefits to be given on completion of 15 years of service. The eligibility for benefits was provided to   those   who   had   completed   15   years   of   service   as   on 31.12.2000.
  • The appellants   further   submitted   that   20   years’   period   is provided in case of voluntary retirement to ensure that an employee on whom the bank has spent a considerable amount during training, works for a substantial period before he seeks retirement.
  • The appellant’s showed that, IBA’s letter dated 31.8.2000 makes clear the salient features of the VRS scheme that all permanent employees with 15 years of service were eligible to retire. Ineligible persons have also been specified. In unqualified terms,   it   was   mentioned   in   the   annexures   that   such employees would be entitled to the amount of ex gratia of 60 days’ salary for each completed year of service or salary for the number of month’s service is left, whichever is less.
  • The petitioners contended that, the pension specified in clause 6 of scheme was to be worked out in terms of the Pension Fund Rules including the commuted value of the pension. It was not mentioned in the VRS adopted by the SBI that the person on completion of 15 years would not be entitled to the benefit of pension.
  • The petition added that, the meaning of the expression “pension” in terms of the rules would be proportionate pension on completion of 15 years of service as per the terms of calculation provided in Rule 23 of the Pension Rules. VRS is an independent contract and the background in which it was floated, pension on completion of 15 years of service was an essential part of the scheme of VRS 2000, as approved by the Government and floated by the IBA and adopted by all the Banks, and Pension Rules were to be amended accordingly.


  • The SC bench observed that SBI is an instrumentality of State under Article 12. Hence they are bound by the principle of fairness. The Central Board of Directors of the SBI accepted the VRS proposal of the IBA without any reservation. As the memorandum containing the IBAs proposal of providing pension was approved in absolute terms by the Central Board of Directors of the bank, the 2001 clarification could not be of any value to dilute the otherwise clear and unambiguous resolution of the Board of Directors.
  • The Court also held that the VRS scheme, once approved by the Board of Directors of SBI, became a contract enforceable by law. The rights under contract cannot be taken away.
  • The Court held that, Let order be complied with and arrears be paid within three months, failing which amount to carry interest at the rate of 6 per cent per annum from the date of this order.
  • The Court observed that, the principal aim of the socialist State as envisaged in the Preamble is to eliminate inequality. The basic framework of socialism is to provide security in the fall of life to the working people and especially provides security from the cradle to the grave when employees have rendered service in heydays of life, they cannot be  destitute   in   old   age,   by  taking  action   in   an   arbitrary manner and for omission to complete obligation assured one.
  • It added that, though there cannot be estoppel against the law but when a bank had the power to amend it, it cannot take shelter of its own inaction and SBI ought to have followed the pursuit of other banks and was required to act in a similar fair manner having accepted the scheme.

Edited by J. Madonna Jephi

Approved & Published – Sakshi Raje


  • Case of Assistant General Manager, State Bank of India & Ors. Vs. Radhey Shyam Pandey, Civil Appeal No.2463 Of 2015, decide by the Supreme Court of India on March 02, 2020.
Vaibhav Goyal
Vaibhav Goyal is a 3rd year BA.LLB (H) student of UILS, Panjab University, Chandigarh, India. He also basically belongs to the “City Beautiful-Chandigarh”. He had interned and have work experience at various Central and State Government bodies of India including the National Human Rights Commission, New Delhi; the Central Information Commission, New Delhi; U.T. Legal Services Authority, Chandigarh, etc. His research projects includes the study on the Right to Emergency Services (PSHRC), Resettlement of Migrant People (NHRC), Implications of RTI in Financial Institutions (CIC), etc. His publications involve articles in different fields of law like administrative, jurisprudence, etc. on online journals including the Juscholars Blog, Burnished Law Journal, etc. His research paper on Prison Reform was published in the Panjab University Journal and his paper was selected in category of best abstract on the topic of Naxalism: A State of Lawlessness and Arbitrariness. He had scored well in various competitions of law consisting of Quiz, Essay Writing, Lecture, Declamation, etc. He had also participated in various conferences including the World Law Forum Conference on Strategic Lawsuits on Public Participation held in New Delhi on Oct 20, 2018 and the National Law Conclave 2020 held at Vigyan Bhawan, New Delhi on Jan 11, 2020.