VRS: It is not open for the Employees to withdraw the Application after the stipulated last date: SC [Read Judgment]

VRS Schemes are contractual in nature and the provisions of the Indian Contract Act, 1872 would apply to them, which categorically lay down that an offer made by a person can be withdrawn before acceptance, not thereafter. 

The Supreme Court in Madhya Pradesh State Road Transportation Corporation vs. Manoj Kumar & Anr. held that Voluntary Retirement Schemes (VRS) are contractual in nature and the option to opt for them constituted as an ‘invitation to offer’ and not an ‘offer’ themselves. The Bench of Justices AK Sikri and RK Agrawal also held that it is not open to the applicants to withdraw their applications after the stipulated last date

In the concerned case, the Madhya Pradesh State Road Transportation Corporation is a PSU that was running into losses hence, permission was obtained to wind it up and a VRS was introduced for the benefit of the employees. The employees could sign up for the scheme between 1^st July 2005 and 1^stAugust 2005 and no more options were to be accepted by the Corporation thereafter. However, vide order dated 12^th October 2006 extended the date for applying up to 28^th October 2006.

The Court broadly relied on the two cases, namely, Bank of India & Ors. Vs. O. P. Swarnakar etc. andState Bank of Patiala vs. Romesh Chander Kanoji & Ors. to lay down the following legal principles in regard to the issue at hand:

1. VRS Schemes are contractual in nature and the provisions of the Indian Contract Act, 1872 would apply to them, which categorically lay down that an offer made by a person can be withdrawn before acceptance.


2. It is not open to the applicants to withdraw their applications after the stipulated last date (in this case, 1^stAugust 2005) for the first set of employees and 28^thOctober 2006 for the second set of employees). This is because the schemes are funded and the Management needs time, the number of applications, cost of scheme, liabilities under the scheme to finalise a functional scheme thus, if applicants are allowed to withdraw their options even after the closure, the calculations depending on variable factors will fail.


3. Where the scheme is statutory in character, its terms will prevail over the general principles of contract and the Provision of Contract Act. Subject to any challenge to the validity of the scheme in itself, the terms of the statutory scheme will be binding on the employees and once an employee opts for a VRS scheme statutory in nature, cannot withdraw his application.

Another important question that was dealt with was whether changing the last date for accepting applications from 1^st August 2005 to 28^th October 2006 promulgated a new scheme or if it was an extension of the existing scheme. It was held that there are two separate groups of employees in the case; one that had to submit applications by 1^st August 2005 and the last date for the other was 28^thOctober 2006. But between 1.08.2005 and 28.10.2006 no VRS scheme existed. Thus, those who had sent their applications in the first slot had to withdraw their option before 1.08.2005 and the option of revoking it after the stipulated last date was not an option for the first group, similarly, withdrawing applications after 28.10.2006 for those who sent their applications in the second slot.

“The VRS Scheme floated by the employer would be treated as invitation to offer and the application submitted by the employees pursuant thereto is an offer which does not amount to resignation in praesenti and the offer can be withdrawn during the validity period. This would be the position even when there is a clause in the Scheme that offer once given cannot be withdrawn at all. However, exception to this principle is that in such cases offer is to be withdrawn during the validity period of the Scheme and not thereafter even when if it is not accepted during the period of the Scheme”, said the Bench.

The Court took delivered the judgment that the direction reinstating the employees would be of no consequence because their withdrawal of application post tenure of the scheme is contrary to law and set aside, thereby favouring the contentions of the Corporation.

Read the Judgment here.