New Delhi, Dec. 21: One-time payments like gratuity or provident fund cannot be deducted from pension, the Supreme Court has said, spiking a controversial bank scheme offering pension or gratuity, not both.

“The payment of gratuity or provident fund should not occasion any deduction from the pension as a ‘set-off’. Otherwise, the solemn statutory provisions ensuring provident fund and gratuity become illusory,” a bench of Justices B. Sudershan Reddy and R.M. Lodha said in their judgment delivered last week.

Allahabad Bank said some retired employees had “voluntarily opted for the scheme, under which one could either get pension or gratuity, not both. The pensioners — represented by the All India Allahabad Bank Retired Employees’ Association, which filed the case — argued that exercising the option of pension couldn’t deprive them of their statutory right to receive gratuity. The high court had ruled in favour of the ex-employees, prompting the bank to appeal.

The Supreme Court upheld that ruling, clarifying that the two types of payments couldn’t be made mutually exclusive. “One does not exclude the other,” it said.

The judges then explained the rationale behind the two benefits. “Pensions are paid for past meritorious services. The roots of gratuity and provident fund are different. Each is a salutary benefaction statutorily guaranteed independently of the other.”

Gratuity is paid after least five years of continuous service. The government can, however, exempt an establishment from the Payment of Gratuity Act, 1972, if in its opinion the gratuity or pension benefits given by the organisation are better than what is laid down under the law. The organisation must seek the exemption.

“Only in cases where the gratuity component in such pension schemes is in better terms in comparison to that of what an employee may get under the act, (the) government may grant an exemption and relieve the employer from the statutory obligation of payment of gratuity.”

Allahabad Bank had secured no such exemption for its scheme, though it argued that the pension benefits were more advantageous to employees than one-time payments such as gratuity.

The apex court disagreed, saying social welfare laws like the gratuity act could not be circumvented in any manner to deprive anyone of such benefits. “Gratuity payable to an employee on termination of his employment after rendering continuous service for not less than five years, and on superannuation or retirement or resignation, being a statutory right cannot be taken away except (under an) exemption granted only by the appropriate government.”

The apex court noted that the employees had not relinquished their right to gratuity while opting for the scheme.

“The fundamental principle underlying gratuity is that it is a retirement benefit for long service as a provision for old age,” the apex court said.