Legal Heirs are Entitled to VRS Benefits if the Employee’s Application was Scrutinized and Accepted Prior to Death.

Sri K.S.R. Sastry, an employee of State Bank of India (SBI) since 1971, applied for the Voluntary Retirement Scheme (VRS) on 15.01.2001.

The application was scrutinized, found eligible, and its acceptance was communicated to the relevant branch on 03.03.2001.

However, the applicant died of a heart attack on 27.02.2001, prior to the official "effective date" of retirement set by the bank as 31.03.2001.

The respondents rejected the petitioners’ (legal heirs) claim for VRS benefits, asserting that the application became invalid upon the employee's death because he was not in service/alive on the cutoff date and acceptance had not been communicated to him in writing before his demise.

1. Whether the legal representatives of a deceased employee are entitled to Voluntary Retirement Scheme (VRS) benefits when the employee died after the acceptance of the application but before the stipulated effective date of retirement.

The court primarily relied on the principles of fairness and non-discrimination under Article 12 of the Constitution of India regarding instrumentalities of the State.

The court heavily applied the precedent set by the Hon’ble Supreme Court in Assistant General Manager and others v. Radhey Shyam Pandey (2020) 6 SCC 438, which held that SBI must act fairly and cannot wriggle out of obligations by issuing irrational clarifications or refusing to follow uniform methodologies adopted by other nationalized banks.

The court also noted the internal consistency across the banking sector, citing Clause 11.13 of the State Bank of Hyderabad VRS, which expressly allowed payment of ex-gratia to legal heirs if an employee died after acceptance of the VRS request.

The court reasoned that since the applicant’s request had passed the withdrawal period, underwent scrutiny, and was accepted by the competent authority with communication sent to the branch, the process was effectively complete.

The court rejected the bank’s technicality regarding the March 31st cutoff date, noting that the death of an individual is unpredictable and occurred only one month prior to the effective date.

Following the logic in Radhey Shyam Pandey, the court observed that SBI, as an instrumentality of the State, is bound by the principle of fairness and cannot exercise superior bargaining power to deprive employees of benefits through vague or fanciful clarifications.

Since other nationalized banks (and the merged State Bank of Hyderabad) recognized the rights of legal heirs in similar circumstances, SBI’s refusal was deemed unjustified and arbitrary.

The court set aside the impugned letters dated 29.03.2001 and 06.11.2001 and directed the respondents to pay the VRS amount (Rs. 9,48,474/-) to the petitioners within four months, after deducting any terminal benefits already paid. The writ petition was disposed of with no order as to costs.