The quality and content of responsibilitiesassigned to them were the same & Ors. v. STATE OF MAHARASHTRA ABCDEFGH1175 The Judgment of the Court was delivered byS & Ors.
Case at a glance
Provisions considered
- Constitution of India arts. 14, 16
- State Financial Corporations Act, 1951 s. 39
- State FinancialCorporations Act, 1951 s. 39
Key paragraphs
- Para 66. After quoting the counter affidavit filed by the State Government, which approved such revision, the High Court accepted MSFC’sargument: ““…It was also considered that there were only 115 employeesworking in the Respondent No.2 Corporation and the saidstrength of said employees will further reduce in…
- Para 2323. By Office Order dated 09.04.2010, the MSFC decided toimplement the decision of the Government of Maharashtra and grantthe benefits of the Fifth Pay Commission to employees of the Corporationwho were on its rolls on that date. That order9 itself contains a reasonwhy the cut-off…
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Civil Appeal No. 778 of 2023
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ABCDEFGH1173Association by its Secretary v. State of Manipur & Ors.[2019] 9 SCR 905 : (2020) 14 SCC 625 – relied on.1.6 In the present case the employees who retired prior to29.03.2010 discharged the same duties as in the case of thosewho did thereafter. The quality and content of responsibilitiesassigned to them were the same. The respondents’ decision notto grant arrears prior to 01.01.2006 cannot be found fault with; however, not to grant any revision to those who were not inservice when the order implementing the pay revision was issuedand confining it to those, in employment is clearly discriminatory. The rationale that granting such pay revision only to existingemployees would be to enthuse them to recover NPA amountspayable to MSFC has no rational nexus with the object sought tobe achieved by the pay revision, which is to benefit employeesand protect them from the rise in the cost of living.
There is nodistinction between those who retired (or died in service) before29.03.2010 and those who continued in service (and were givenpay revision). They fell in the same class and a further distinctioncould not be made. The fact that the MSFC did not recover anyinterim relief or amount disbursed towards the 5th PayCommission reaffirms that these ex-employees belonged to thesame class. The exclusion of the retired employees, who retiredbetween 01.01.2006 and 29.03.2010 on achieving their date ofsuperannuation, is violative of Article 14 of the Constitution of India. [Para 36-37][1194-E-H; 1195-A-B]1.7 However, employees who secured VRS benefits andleft the service of MSFC voluntarily during this period, stand ona different footing. They cannot claim parity with those whoworked continuously, discharged their functions, and thereaftersuperannuated. VRS employees chose to opt and leave the serviceof the corporation; they found the VRS offer beneficial to them.
Apart from the normal terminal benefits they were entitled to, the additional amount each of them was given - was an ex-gratiaamount, equal to a month’s salary for each completed year ofMAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v. STATE OF MAHARASHTRA ABCDEFGH1174SUPREME COURT REPORTS[2023] 1 S.C.R.service. Other retired employees were never given suchamounts. [Para 38][1195-B-D]A.K. Bindal v. Union of India [2003] 3 SCR 928: (2003)5 SCC 563– relied on.1.8 Those who retired from the services of MSFC betweenretrospective cut-off date and date of implementation, and thelegal heirs/representatives of those who died during that period, shall be entitled to arrears based on pay revision. VRS employees, and those who were dismissed or terminated from service, cannotclaim parity for benefit of pay revision. [Para 39, 40][1196-E-F]Case Law Reference[1994] 2 Supp. SCR 217relied on Para 28[1974] 1 SCR 771relied on Para 32[2017] 14 SCR 446relied on Para 33[2006] 2 Suppl.
SCR 582relied on Para 34[2019] 9 SCR 905relied on Para 35[2003] 3 SCR 928relied on Para 38, 39CIVIL APPELLATE JURISDICTION : Civil Appeal No.778 of2023.From the Judgment and Order dated 19.06.2018 of the High Courtof Judicature at Bombay at Nagpur in WP No.1420 of 2013.Jay Savla, Sr. Adv., Satya Priya Rao, Nitin S.Tambwekar, Seshatalpa Sai Bandaru, Jasdeep Singh Dhillon, Advs. for the Appellants. Santosh Paul, Sr. Adv., Maithreya Shetty, Vedant Mishra, AkshayKumar, M. J. Paul, Sachin Patil, Siddharth Dharmadhikari, AadityaAniruddha Pande, Geo Joseph, Risvi Muhammed, Durgesh Gupta, Advs.for the Respondents. ABCDEFGH1175The Judgment of the Court was delivered byS. RAVINDRA BHAT, J.
Special leave to appeal granted. With the consent of learnedcounsel for the parties, the appeal was heard finally.
What is involved in this case, is the fixation of date for theimplementation of the Fifth Pay Commission recommendations, whenapplied to the respondent Corporation. That framing a policy concerningfixation of pay for the salaries of its employees, the extent of its revision, and even the date of its implementation, are matters of undoubtedexclusive executive decision making powers. However, the manner ofits implementation, the timing of applicability of a scheme, and its impact, especially where it results in exclusion of a certain section of publicemployees from the benefit, are subject matters of scrutiny by the court, especially, when the complaint is of discrimination and violation of Article14 of the Constitution. This is one such case.
The appellant association (consisting of employees who hadsuperannuated, opted for VRS, resigned, or legal heirs of expiredemployees of the respondent corporation) challenge a judgment1 of the Bombay High Court (Nagpur bench). In that proceeding, the appellantshad complained of discrimination against the decision dated 29.03.2010,of the Industry, Energy and Labour Department, Government of Maharashtra (hereafter “the State”). That decision denied the benefitof revision of pay scales, as recommended by the Fifth Pay Commission, to the employees of the Maharashtra State Financial Corporation(hereafter “MSFC”) who had retired or died during the period of01.01.2006 to 29.03.2010. That decision of the State made the revisionof pay scale as a result of the Report of the Fifth Pay Commissionapplicable to 115 employees of MSFC who were working as on29.03.2010. The revision, however, was given effect from 01.01.2006.
The appellants had urged before the High Court, that denyingthem the benefit of pay scales was discriminatory and arbitrary, becausethey were in continuous service, and had even received the benefit ofinterim revision, pending finalization of pay scales pursuant to the PayCommission Report. It was urged that those in employment on and after29.03.2010, and those who continued in service after 01.01.2006 butretired before 29.03.2010, belonged to the same category. The only1 dated 19.06.2018 in W.P. No. 1420/2013MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v. STATE OF MAHARASHTRA ABCDEFGH1176SUPREME COURT REPORTS[2023] 1 S.C.R.difference between those who were in service after the latter date, wasthat they had longer period of service. However, the crucial date forgrant of pay revision, was the date from which it was given effect to,i.e., 01.01.2006. As all the appellants were in service as on that date, thedenial of pay revision, which was concededly for the period they hadworked, amounted to not only hostile discrimination, but also withholdingof pay revision benefits, legitimately and rightfully theirs.
By the impugned order, the High Court accepted the submissionsof MSFC and the State, that financial considerations were of importancein regard to grant or denial of monetary benefits. The MSFC had alsourged before the High Court, that the benefit was granted to thoseemployees on the rolls of the corporation, as of 29.03.2010, in order tomotivate and incentivise them for better performance.
After quoting the counter affidavit filed by the State Government, which approved such revision, the High Court accepted MSFC’sargument: ““…It was also considered that there were only 115 employeesworking in the Respondent No.2 Corporation and the saidstrength of said employees will further reduce in near future. An expenditure of Rs.16.00 lakhs per month was beingincurred on the salary payable to the employees. It was alsonoted that the Respondent No.2 stopped sanctioning anddisbursing loan from the year 2005 and presently only thework of recovery of loans already given is being done. It wasalso considered that the strength of the employees existing isnecessary for carrying out the work of loan recovery. Considering the target of loan recovery fixed for the years2009-10, it was felt necessary to motivate the existing staff togive benefit of pay revision to employees to work hard forachieving the recovery target.
Considering the financialimplications, keeping in view the number of employees it wasdecided to implement 5th pay to the employees of RespondentNo.2. Accordingly, considering its income and consideringall relevant factors; it was decided that the pay revision basedon 5th Pay Commission recommendations should be givenonly to the existing employees and that the revised pay scalesshould be made applicable from 01.01.2006. Afterconsidering the above fact, the Finance Department of theanswering Respondent took decision to approve the revision ABCDEFGH1177of pay scale and communicated decision to respondent No.2vide Government GR No.SFC-2009 (422/Industries-7) dated29/03/2010, as per the recommendations made by the FinanceDepartment. Accordingly, Government Resolution dated20.03.2010 was issued.16. It is specifically denied that the Government Resolutiondated 29.03.2010 is discriminatory in nature and violets thefundamental rights of the member of the Petitioner Union.
Itis submitted that the answering Respondent has already takenpolicy decision on 16.02.2010 not to extend any budgetarysupport to any public sector Corporation in the State for thepurposes of granting pay revision to its employees. Considering the fact the Respondent No.2 is not a profitmaking Corporation, the question of pay revision wasconsidered keeping in view the financial implications and thecapacity of Respondent No.2 which played development roleto bear the additional financial burden on account of suchpay revision. At the same time it was noted that it was alsonecessary to give existing employees pay revision to motivatethem to work hard for recovering the loans already disbursed. The pay revision was made effective from 01.01.2006 againkeeping in view the financial implications. It is submitted thatthe decision taken by the answering Respondent is based onobjective and rational considerations.”
In the decisions relied upon by Shri Puranik, the learnedCounsel for the respondent - Corporation in the matter ofrevision of pay scale, the Apex Court has clearly laid downthat financial implication is the relevant criteria for fixingthe cut-off date. The other decisions relied upon by ShriDhole, the learned Counsel for the petitioners are on thequestion of payment of pension and other benefits.
Keeping in view the justification furnished by the respondentnos.1 and 2, we do not find that fixation of cut off date of 29/3/2010 in the present case is arbitrary or irrational. We,therefore, do not find any substance in the petition.” The appellants’ contentions7. Mr. Jay Salva, learned counsel for the appellants argued thatthe last pay revision was made applicable to MSFC’s employees fromMAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.] ABCDEFGH1178SUPREME COURT REPORTS[2023] 1 S.C.R.01.01.1986, which expired on 31.12.1989, and MSFC considered payrevision to be made effective from 01.01.1990. Its proposal for payrevision was submitted to the State Government by the Board of Directorsof MSFC. The revision of pay and emoluments was approved by MSFC’sBoard of Directors, and it was forwarded to the State of Maharashtrafor final approval in the year 1996. Pending approval of the said revision, further five revisions were kept due. Instead of considering thoserevisions, the MSFC’s Board of Directors arbitrarily implemented thepay commission’s recommendations w.e.f. 01.01.1996. The benefits ofrevised pay were passed on to the existing 115 employees working atthe relevant time only, and deprived 900 ex-employees of similar benefits, though the revision was applicable to them for the period of their servicetime span, respectively.8. It was submitted that the cut-off date, for granting benefits ofthe pay revision, is arbitrary, because several employees had retired, after long years of loyal service. They would be deprived of the benefitof any pay revision, merely because the MSFC chose to implement thedecision on a particular date, after their retirement.
It was also urged that the State and the MSFC cannotdiscriminate between persons who worked during the same period, anddischarged their duties in accordance to its mandate, merely becausesome of them had retired. Thus, the fixation of date, in this case, isarbitrary as it deprives the benefit of pay revision - which is otherwisemade applicable to all employees who worked during a particular period- to those who ceased to be in employment, despite working in the saidperiod. It was submitted that those who worked for the period 2000-2005 are in the same class of employees, who worked after the so calledcut-off date, i.e., 01.01.2006.
It was submitted that all those in employment, including thosewho were finally deprived of the pay revision on account of retirement, were granted three interim reliefs by the MSFC from September, 1993onwards (on 03.03.1994, 29.04.1996, and 07.09.1996) towards therecommendations of the Fifth Pay Commission, in line with directions ofthe Maharashtra government.
It was further argued that no recoveries were made (underthe impugned GR dated 29.03.2010) of the amount paid towards interimrelief and ad hoc amount paid to existing employees from September, ABCDEFGH11791993 to July, 2001 which shows that the Fifth Pay Commission’srecommendations were implemented from 01.01.1996.
Mr. Salva further submitted that the total liability of the MSFCis not more than ` 32 crores, in respect of past employees, includingthose who had retired, sought VRS, or had died before the pay revisionwas made effective. The figure of existing employees, as on the date ofthe issuance of the order was 114; 130 had retired and 631 had soughtvoluntary retirement. However, all of them had benefited and securedinterim relief to the extent of 30%, through the orders of the MSFCitself. In these circumstances, singling out existing employees from ahomogenous larger group, amounted to hostile discrimination against thoseleft out.
It was submitted that those who had sought voluntary retirementcannot be left out, on the ground that they had secured benefits and notcompleted their tenure. In this regard, Mr. Salva placed reliance on thefollowing condition (Clause 5) of the VRS scheme2:
The officers/employees whose request for voluntaryretirement is accepted by the Corporation will be entitled forpayment of arrears on account of revision of pay-scales andallowances as also for the difference of voluntary retirementbenefits accruing to them on account of revision of pay-scales, if and as may be made effective retrospectively to theemployees of the Corporation by the Board and approved by Govt. of Maharashtra and IDBI.
Reliance was placed on the decisions of this court in Col B.J.Akkara (Retd) v. Govt of India3 , D.S. Nakara v. Union of India4 tourge that the employer cannot discriminate and divide a homogenousclass of employees, and deprive one section of them by the artificialdevice of a cut-off date. Contentions of MSFC15. Mr. Sachin Patil, learned counsel appearing for the respondents– the State government, and MSFC, urged that the impugned judgmentdoes not call for interference. It was submitted that MSFC is anautonomous corporation established under the State Financial Corporation2 Introduced by the MSFC’s Office Order No. 14 dated 29.03.19963 [2006] 7 Suppl. SCR 58; (2006) 11 SCC 7094 [1983] 2 SCR 165; (1983) 1 SCC 305MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.] ABCDEFGH1180SUPREME COURT REPORTS[2023] 1 S.C.R.Act. It is not bound to follow the terms and conditions applicable to Maharashtra Government employees. In fact, it has to independentlygenerate its income from its own resources to meet any additional burdenor expenditure due to increased pay or increase in wages for itsemployees. It was submitted that under Section 39 of the State FinancialCorporations Act, 1951 it has to seek guidance and directives of the State Government in policy matters.
It was submitted that the MSFC was not bound by the decisionof the State to implement the decisions of the Fourth, Fifth and Sixth PayCommissions for its employees. In fact, the State never directed the Corporation to implement such Pay Commission recommendations. Itonly approved a proposal to extend the benefit of Fifth Pay Commissionrecommendations to the Corporation’s employees in terms of its letterdated 23.09.2010. Before that, the State refused to grant approval to theresolution passed by the Board of Directors on 24.07.1996.
It was further argued that the employees of the Corporationcannot claim, as a matter of right, any benefit of pay revision withoutMSFC’s ability to bear the burden of such pay increase. Learned counselhighlighted that the Corporation was running in losses as a result ofwhich there was no justification for granting the benefits in the termsclaimed by the appellants.
It was submitted that the fixation of cut-off date is a policymatter, especially in respect of revision of salaries, allowances, and theother benefits to employees of a State Corporation. These depend onvarious considerations, including financial constraints and the number ofemployees involved. It was urged that the paying capacity of an employeris an important and valid consideration of such an exercise. Grantingany benefit to employees normally involves fixing of cut-off date. Ifthese factors are kept in mind, devising a limited retrospective limit forthe employees who are on the rolls of the Corporation lessens the impactof the financial burden. Thus, the fixation of cut- off date in the presentcase was not arbitrary.
It was urged that the claim of those who retired from theMFSC prematurely by opting for VRS was to benefit both the parties,i.e., the Corporation and the retiring employee. The Corporation benefittedby decreasing its liability towards salary dues; on the other hand, theemployee concerned was not bound by any scheme but exercised an ABCDEFGH1181independent and voluntary option to seek severance from theemployment. For these reasons, such employees were entitled to benefitsover and above what they would have earned if they had continued inservice by way of ex-gratia payment, in respect of a package which isgenerally called a golden handshake. The payment of such amountsalong with other terminal dues led to cessation of employment; consequently, the claim of such employees who have already securedbenefits by way of ex-gratia payouts towards pay revision was notjustified. It was submitted that the appellant association’s grievanceespouses the cause of 835 ex-employees, a large number of whom arethose who opted for voluntary retirement. There can be no complaint ofdiscrimination on their part. It was submitted that apart from financialconstraints, the other independent justification for limiting pay benefitsto those 115 existing employees is sound, i.e., to motivate them to recovermaximum amounts from the Non-Performing Assets (NPA) accounts. This rationale is relevant since the MSFC has incurred losses over theyears.
Mr. Patil, learned counsel relied upon some decisions of the Court, A.K. Bindal & Anr. v. Union of India & Ors.5; State of Punjab& Ors. v. Amar Nath Goyal & Ors.6 and State of Rajasthan & Anr. v.Amritlal Gandhi & Ors.7, to urge that the financial implications uponthe employer is a relevant factor which the Court must weigh whileadjudging whether implementation of any policy is arbitrary. Analysis and conclusions21. A close analysis of the facts would show that the question ofpay revision of employees of MSFC has been engaging attention for aconsiderable period of time. Apparently, the recommendations of the Fifth Pay Commission had been made and were implemented by the State Government with effect from 01.01.1996. However, the MSFC,did not, finalise whether to adopt those scales for its employees and sentthe proposal to the State Government (as provided under S. 39 of the State Financial Corporations Act). In the meanwhile, interim relief ofpay revision was granted to all existing employees. Some of these ordersgranting interim relief towards pay revisions have been placed on therecord. They are orders/decisions dated 03.03.1994 (Office Order5 [2003] 3 SCR 928; (2003) 5 SCC 5636 [2005] 2 Suppl. SCR 549; (2005) 6 SCC 7547 (1997) 2 SCC 342MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.] ABCDEFGH1182SUPREME COURT REPORTS[2023] 1 S.C.R.No.191); 03.03.1994 (Office Order No. 19); 11.10.1995 (Office OrderNo.73); and 07.09.1996 (Office Order No.66), which are part of theappeal records. Those employees who were on the rolls of MSFCbetween 01.01.1996 and 29.03.2010 concededly enjoyed the benefits ofthese interim payments. On 29.03.2010, MSFC decided to implementthe pay revision recommendations of the Fifth Pay Commission.
The decision to make the pay revision effective in respect ofthe employees who were existing employees and limit the arrears payablefrom 01.01.2006, is based upon the State of Maharashtra letter dated29.03.20108. That decision was placed on the record during the hearingand reads as follows:
Government of MaharashtraGovernment Decision No. SFC 2009/(422) Ind-7Industries, Energy & Labour Department, Mantralaya, Mumbai-400032Dated 29th March, 2010 Introduction: The proposal for implementation of 5th Pay Commission tothe employees of Maharashtra State Financial Corporationwas under consideration of the Government. The Governmenthas taken following decision in this regard. Government Decision: The Government has given its consent vide this Order forimplementation of revised Pay Scales as per 5th Commissionsubject to the following terms to the employees/officers of Maharashtra State Financial Corporation as shown in Column No.5 of the enclosed Annexure ‘A’.1.The revised pay as per 5th Pay Commission will be madeapplicable w.e.f. 01.01.2006 to Officers/Employees onthe rolls of the Corporation as mentioned in ColumnNo.3 of the Annexure ‘A’ of the Corporation. 2. No arrears on account of revised pay scales will bemade applicable prior to 01.01.2006.8 Decision no. SFC 2009/ (422)/Ind-7. ABCDEFGH11833.Maharashtra State Financial Corporation will have tobear liabilities (Salary and Arrears) on account of aboverevision in pay scales from its own income. TheGovernment will not make any financial provision forthe same. 4. As per revised pay scales, other eligible allowances willbe payable to the employees as per rules. 5. The Corporation should obtain an undertaking inrespect of revised pay scales from Employees’ Union.2. This Government decision is issued in terms of FinanceDepartment’s informal reference no.23/2010/PU dated05.02.2010.In the name and Order of the Governor of Maharashtra.
By Office Order dated 09.04.2010, the MSFC decided toimplement the decision of the Government of Maharashtra and grantthe benefits of the Fifth Pay Commission to employees of the Corporationwho were on its rolls on that date. That order9 itself contains a reasonwhy the cut-off date was resorted to as is evident from its expressterms, i.e., that the State Government approved that cut-off date, “inorder to motivate the present staff to recover maximum amount inNPA Accounts”. Relevant para reads as follows:
MAHARASHTRA STATE FINANCIAL CORPORATIONHEAD OFFICE, MUMBAIMSFC/HO/P&AD/PR/2010-11/289th April, 2010OFFICE ORDER NO.1Re: Implementation of Fifth Pay Commission to the Employeesof the Corporation1. The Govt. of Maharashtra in order to motivate the presentstaff to recover maximum amount in NPA Accounts, vide itsGR No.SFC-2009/(422)/Industries-7 dated 29.03.2010 hasdecided to implement Fifth Pay Commission to the employeesof the Corporation who are on the roll of the Corporation ason date of the issue of the Government GR subject to termsand conditions as mentioned in the said GR.xxxxxx xxxxxx xxxxxx
9 Office Order No.1 dated 09.04.2010MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v.
STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.] ABCDEFGH1184SUPREME COURT REPORTS[2023] 1 S.C.R.24. The benefit of pay revision was made applicable to theemployees of the Corporation; the terms and conditions of fixation andthe grant of benefits to the extent they are relevant, are extracted below: “TERMS AND CONDITIONS:(i)The revised pay scale will be made applicable to theemployees who are presently on the roll of MSFC asmentioned in the Annexure ‘A’ attached to the Govt. GRdated 29.03.2010.(ii)The revised pay will be fixed w.e.f. 01.01.1996 as perthe formula of Fifth Pay Commission. (iii)The employees of the Corporation will not be heldeligible for arrears from 01.01.1996 to 31.12.2005.xxxxxxxxxxxxxxxxxxx(x)Interim Reliefs (IR) paid from 01.01.2006 to 31.03.2010will be recovered from arrears to be paid to theemployees. However, interim reliefs paid from 18.09.96to 31.12.2005 will not be recovered.
(xi)Salary as per revised Pay Scale will be paid from01.04.2010 and arrears for the period from 01.01.2006to 31.03.2010 will be paid in two instalments on or before31st May, 2010.” The fixation of pay as per revised pay-scales condition, in the saidorder, reads as follows:
6. Fixation of pay as per revised pay scale: The revised pay of the employees of the Corporationwill be fixed with effect from 01.01.1996 as per the formulaof the Fifth Pay Commission as mentioned below: Fixation Formula:1.Old Basic Pay as on 01.01.19962.Add: applicable DA as on 01.01.19963.Add: Amount of 1st Interim Relief i.e. Rs.100/- only. 4. Add: Amount of 2nd Interim Relief i.e. 10% of oldBasic Pay (subject to minimum Rs.100/-). ABCDEFGH11855.Add: 40% of old Basic Pay as on 01.01.1996 asloading. =Total (1 to 5)
25. The appellants have placed on record and relied upon theminutes of MSFC’s Board Meeting dated 06.07.2017, which in ItemNo.9 had discussed the question of pay revision.
The note placed in Item no.2 of the said note reads as follows: “2. The Corporation has granted interim relief from Sept. 1993towards proposed revision in Pay Sale on line of the Govt. of Maharashtra as under: Date Amount (Rs.) 16.09.1993 100/- p.m. 01.06.1995 10% of basic pay p.m. 01.04.1996 10% of basic pay p.m. Besides aforesaid interim relief, the Corporation also gavelumpsum adhoc amount towards Revision of Pay Scale from September, 1996 to July, 2001 as under: Category Amount (Rs.) Class “A” employees 34,375/- Class “B” employees 28,480/- Class “C” employees 22,585/- The note also set out the number of employees concerned, asfollows: “There were 950 employees on the roll of the Corporation ason 01.01.1996. The Corporation has worked out arrearsamount based on average basis of the amount of the arrearspaid to existing employees. The total net liability works out toRs.39.08 crore after deducting amount of interim relief andad-hoc payment, the details of which are as under: (Rs. in crore)Sr.No.
Particulars No. of employees Estimated arrears amount on average basis Amount of interim relief and Ad-hoc amount paid Net Arrears amount. 1. Employees 114 7.49 1.07 6.42 MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.] ABCDEFGH1186SUPREME COURT REPORTS[2023] 1 S.C.R. existing as on date of GR dtd. 29.03.2010 2. Retired employees 130 6.96 1.02 5.94 3. VRS employees 631 29.02 4.65 24.37 4. Expired employees 21 0.66 0.11 0.55 5. Resigned employees 48 1.96 0.29 1.67 6. Employees dismissed 4 0.12 0.01 0.11 7. Employees terminated 2 0.02 0.00 0.02 Total 950 46.23 7.15 39.08 26. It is noticeable from the facts that two justifications wereprovided by the MSFC to deny the benefit of pay revisions, in terms ofthe Fifth Pay Commission recommendations. One, that it is “in order tomotivate the present staff to recover maximum amount in NPAAccounts…” and two, that the fixation of cut-off date falls within thestate’s policy making domain, involving among others - an importantconsideration, which is the state’s financial concerns, which the courtshould not interfere in.27.
That on whether, and what should be the extent of pay revision, are undoubtedly matters falling within the domain of executive policymaking. At the same time, a larger public interest is involved, impellingrevision of pay of public officials and employees. Sound public policyconsiderations appear to have weighed with the Union and stategovernments, and other public employers, which have carried out payrevision exercises, periodically (usually once a decade, for the past 50years or so). The rationale for such periodic pay revisions is to ensurethat the salaries and emoluments that public employees enjoy, shouldkeep pace with the increased cost of living and the general inflationarytrends, and ensure it does not adversely impact employees. Pay revisionsalso subserve other objectives, such as enthusing a renewed sense ofcommitment and loyalty towards public employment. Another importantpublic interest consideration, is that such revisions are meant to deterpublic servants from the lure of gratification; of supplementing theirincome by accepting money or other inducements for discharging theirfunctions.
ABCDEFGH118728. Article 43 of the Constitution10 obliges the state to ensure thatall workers, industrial or otherwise, are provided with a living wage andassured of a decent standard of living. In this context, the need forproviding a mechanism to neutralize price increase, through dearnessallowance has been emphasized, in past decisions of this court. InHindustan Lever Ltd. v. B.N. Dongre11, the court explained that if paypackets are “frozen”, the purchasing power of the wage would shrink, and there would be a fall in real wages, which needs to be neutralized. The court also noted neutralization of wages, through dearness allowanceis on a “sliding scale” with those at the lowest wage bracket, getting fullneutralization and those in the highest rungs being given the least of suchallowance: “Workers are therefore concerned with the purchasing powerof the pay- packet they receive for their toil.
If the rise in thepay-packet does not keep pace with the rise in prices ofessentials the purchasing power of the pay- packet fallsreducing the real wages leaving the workers and their familiesworse off. Therefore, if on account of inflation prices risewhile the pay- packet remains frozen, real wages will fallsharply. This is what happens in periods of inflation. In orderto prevent such a fall in real wages different methods areadopted to provide for the rise in prices. In the cost-of-livingsliding scale systems the basic wages are automaticallyadjusted to price changes shown by the cost-of-living index. In this way the purchasing power of workers’ wages ismaintained to the extent possible and necessary. However, leap-frogging must be avoided. This Court in Clerks & DepotCashiers of Calcutta Tramways Co. Ltd. v. Calcutta TramwaysCo. Ltd. [AIR 1957 SC 78], held that while awarding dearnessallowance cent per cent neutralisation of the price of cost ofliving should be avoided to check inflationary trends.
That iswhy in Hindustan Times Ltd. v. Workmen [AIR 1963 SC 1332]Das Gupta, J. observed that the whole purpose of granting10
Article 43. Living wage, etc, for workers The State shall endeavour to secure, bysuitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuringa decent standard of life and full enjoyment of leisure and social and cultural opportunitiesand, in particular, the State shall endeavour to promote cottage industries on an individualor co-operative basis in rural areas.
11 [1994] 2 Suppl. SCR 217; (1994) 6 SCC 157MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.] ABCDEFGH1188SUPREME COURT REPORTS[2023] 1 S.C.R.dearness allowance to workmen being to neutralise the portionof the increase in the cost of living, it should ordinarily be ona sliding scale and provide for an increase when the cost-of-living increases and a decrease when it falls.
The sameprinciple was reiterated in Bengal Chemical and Pharmaceutical Works Ltd. v. Workmen [AIR 1969 SC 360]and Shri Chalthan Vibhag Khand Udyog Sahakari MandliLtd. v. G.S. Barot, Member, Industrial Court, Gujarat [(1979)4 SCC 622] and it was emphasised that normally fullneutralisation is not given except to the lowest class ofemployees and that too on a sliding scale.” 29. Therefore, the state and public employers have an obligationto address – as a measure of public interest, the ill-effects of rise in thecost of living, on account of price rise, which results in fall in real wages. This obligation should be discharged on a periodic basis. Yet, there cannotbe any straitjacket formula as to when such pay revisions are to bemade and to what extent revisions should take place. As a generalpractice, the Union and state governments have been undertaking suchexercises each decade.30. Returning to the facts of this case, it is evident that therespondents have confined the grant of revised pay scales to employeesexisting as on 29.03.2010.
Whilst the fixation of cut-off date for thegrant of benefits cannot be questioned, what is within the domain of thecourt, is to examine the impact of such fixation and whether it results indiscrimination. In the present case, the Pay Commission’srecommendations for pay revision were with effect from 01.01.1996.However, the State and MSFC decided not to implement it from thatdate, but with effect from 01.01.2006, i.e., a decade later, because thebenefit given to employees (or arrears) on the rolls of MSFC as on29.03.2010 were confined or limited to arrears payable from 1January 2006. At the same time, fitment and fixation of salary waswith effect from 1 January 1996, in terms of Para 6 of the MSFC’scircular dated 09.04.2010, which stipulated that revised salary “will befixed with effect from 01.01.1996 as per the formula of the FifthPay Commission as mentioned below”. The formula was: “Old BasicPay as on 01.01.1996 Add: applicable DA as on 01.01.1996 Add: Amount of 1st Interim Relief, i.e., Rs.100/- only.
Add: Amount of 2ndInterim Relief, i.e., 10% of old Basic Pay (subject to minimum Rs.100/-). Add: 40% of old Basic Pay as on 01.01.1996 as loading =Total(1 to 5)”. This fitment formula clearly envisioned the fixation in the ABCDEFGH1189new scales, even if notionally, from 01.01.1996. Arrears were madepayable, based on that fitment and fixation, with effect from 01.01.2006.31. Another significant fact is that interim relief had been directedand was made payable, to all employees, between 01.01.1996 and29.03.2010. The order issued on 09.04.2010 stated that “interim reliefspaid from 18.09.1996 to 31.12.2005 will not be recovered”. Thisdemonstrates that those who retired between these dates, and thosewho continued in service, form part of the same class. Further, there isalso no distinction between those in service as on 01.01.2006 but retiredbefore 29.03.2010 and those who continued thereafter.32. This court held in State of J & K v.
Triloki Nath Khosa12 that“Discrimination is the essence of classification and does violenceto the constitutional guarantee of equality only if it rests on anunreasonable basis”. The question is whether the classification, excluding employees who retired before 29.03.2010 and confining payrevision benefits (albeit with effect from 01.01.2006) result indiscrimination.33. In Maharashtra Forest Guards & Foresters Union v. Stateof Maharashtra13 there was no quota reserved for the graduate ForestGuard for promotion to the post of Forester. Seventy-five per cent of theposts were to be filled through the regular promotion channel based onseniority and twenty-five per cent “by selection of suitable personsfrom amongst the persons holding the post of Forest Guard, on thebasis of common merit list prepared by the Additional Principal ChiefConservator of Forests (Administration Subordinate Cadre),Maharashtra State, Nagpur, on the basis of result of the “LimitedDepartmental Competitive Examination…”.
A further condition forthose attempting the limited departmental exam was imposed, i.e., thatonly graduates could apply and appear; that condition was challenged. This court held that the condition was impermissible, as it amounted tocreating a class within a class: “The challenge is on the further rigour put on the eligibilityto appear in LDCE. The whole purpose of LDCE is toencourage and facilitate the Forest Guards to get acceleratedpromotion on the basis of merit. Since seniority is the criterionfor promotion to three-fourth of the posts, one- fourth is givena chance to compete in a competitive examination. It is also12 [1974] 1 SCR 771; (1974) 1 SCC 1913 [2017] 14 SCR 446; (2018) 1 SCC 149MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.] ABCDEFGH1190SUPREME COURT REPORTS[2023] 1 S.C.R.to be noted that there is no quota prescribed on the basis ofhigher educational qualification.
The situation would havebeen different if, in the first place, there had been aclassification wherein 75% of the posts have to be filled basedon seniority and 25% reserved for graduates and againsubject to inter se merit in the competitive examination. Thatis not the situation in the present case. The LDCE is meant forselection for promotion from the entire lot of Forest Guardsirrespective of seniority but subject to minimum five years ofservice. In that situation, introducing an additional restrictionof graduation for participation in LDCE without there beingany quota reserved for graduates will be discriminatory andviolative of Articles 14 and 16 of the Constitution of Indiasince it creates a class within a class. The merit of the 25%cannot be prejudged by a sub-classification. It violates theequality and equal opportunity guarantees. The ForestGuards, irrespective of educational qualifications, havingformed one class for the purpose of participation in LDCE, afurther classification between graduates and non-graduatesfor participating in LDCE is unreasonable.
It is a case ofequals being treated unequally.” 34. In U.P. Raghavendra Acharya & Ors. v. State of Karnataka& Ors.,14 a notification dated 22.07.1999, issued by the State of Karnataka, denied revised scales of pay to those teachers who had retiredduring the period from 01.01.1996 to 31.03.1998. The High Court heldthat the impugned notifications were arbitrary as these resulted indiscrimination between the teachers working in the government collegesand the teachers working in the Non-Government Colleges, which wouldmean treating the equals unequally. It was further opined that, in anyevent, the teachers of the Government Aided Colleges as also theteachers of the Regional Engineering Colleges formed a class bythemselves and no discrimination could have been made between theemployees who retired prior to 31.03.1998 and those retiring subsequentthereto. This court held that the discrimination, brought about on thebasis of date of retirement, was invidious: “The State while implementing the new scheme for paymentof grant of pensionary benefits to its employees, may denythe same to a class of retired employees who were governed14 [2006] 2 Suppl.
SCR 582; (2006) 9 SCC 630 ABCDEFGH1191by a different set of rules. The extension of the benefits canalso be denied to a class of employees if the same is permissiblein law. The case of the appellants, however, stands absolutelyon a different footing. They had been enjoying the benefit ofthe revised scales of pay. Recommendations have been madeby the Central Government as also the University GrantCommission to the State of Karnataka to extend the benefitsof the Pay Revision Committee in their favour. The pay intheir case had been revised in 1986 whereas the pay of theemployees of the State of Karnataka was revised in 1993.The benefits of the recommendations of the Pay RevisionCommittee w.e.f. 1.1.1996, thus could not have been deniedto the appellants. The stand of the State of Karnataka that the pensionarybenefits had been conferred on the appellants w.e.f. 1.4.1998on the premise that the benefit of the revision of scales of payto its own employees had been conferred from 1.1.1998, inour opinion, is wholly misconceived.
Firstly, because theemployees of the State of Karnataka and the appellants, inthe matter of grant of benefit of revised scales of pay, do notstand on the same footing as revised scales of pay had beenmade applicable to their cases from a different date. Secondly, the appellants had been given the benefit of the revised scalesof pay w.e.f. 1.1.1996. It is now well settled that a notificationcan be issued by the State accepting the recommendations ofthe Pay Revision Committee with retrospective effect as it wasbeneficent to the employees. Once such a retrospective effectis given to the recommendations of the Pay RevisionCommittee, the concerned employees despite their reachingthe age of superannuation in between the said dates and/orthe date of issuance of the notification would be deemed tobe getting the said scales of pay as on 1.1.1996. By reason ofsuch notification as the appellants had been derived of avested right, they could not have been deprived therefromand that too by reason of executive instructions.
The contention of the State that the matter relating to thegrant of pensionary benefits vis-à-vis the revision in the scalesof pay stands on different footing, thus, must be rejected.” MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.] ABCDEFGH1192SUPREME COURT REPORTS[2023] 1 S.C.R.35. In All Manipur Pensioners Association by its Secretary v.State of Manipur & Ors.15 the classification by which the formula ofpension, whereby those retiring prior to 01.01.1996 were given a lowerrate of revised pension, as compared to those retiring later (who weregiven a higher rate of revision), was held to be discriminatory: “The facts leading to the present appeal in a nutshell are asunder : that the State of Manipur adopted the Central CivilServices (Pension) Rules, 1972, as amended from time to time. As per Rule 49 of the Central Civil Services Rules, 1972, acase of a government employee retired in accordance withthe provisions of the Rules after completing qualifying serviceof not less than 30 years, the amount of pension shall becalculated at 50% of the average emoluments subject to amaximum of Rs 4500 per month.
It appears that consideringthe increase in the cost of living, the Government of Manipurdecided to increase the quantum of pension as well as thepay of the employees. That the Government of Manipur issuedan office memorandum dated 21-4-1999 revising the quantumof pension. However, provided that those ManipurGovernment employees who retired on or after 1-1-1996 shallbe entitled to the revised pension at a higher percentage andthose who retired before 1-1-1996 shall be entitled at a lowerpercentage.********* ********** **********Even otherwise on merits also, we are of the firm opinionthat there is no valid justification to create two classes viz.one who retired pre-1996 and another who retired post-1996,for the purpose of grant of revised pension. In our view, sucha classification has no nexus with the object and purpose ofgrant of benefit of revised pension. All the pensioners formone class who are entitled to pension as per the pension rules.
Article 14 of the Constitution of India ensures to all equalitybefore law and equal protection of laws. At this juncture it isalso necessary to examine the concept of valid classification.A valid classification is truly a valid discrimination. It is truethat Article 16 of the Constitution of India permits a validclassification. However, a valid classification must be basedon a just objective. The result to be achieved by the justobjective presupposes the choice of some for differentialconsideration/treatment over others. A classification to be valid15 [2019] 9 SCR 905; (2020) 14 SCC 625 ABCDEFGH1193must necessarily satisfy two tests. Firstly, the distinguishingrationale has to be based on a just objective and secondly, the choice of differentiating one set of persons from another, must have a reasonable nexus to the objective sought to beachieved. The test for a valid classification may be summarisedas a distinction based on a classification founded on anintelligible differentia, which has a rational relationship withthe object sought to be achieved.
Therefore, whenever a cut-off date (as in the present controversy) is fixed to categoriseone set of pensioners for favourable consideration overothers, the twin test for valid classification or validdiscrimination therefore must necessarily be satisfied. In the present case, the classification in question has noreasonable nexus to the objective sought to be achieved whilerevising the pension. As observed hereinabove, the object andpurpose for revising the pension is due to the increase in thecost of living. All the pensioners form a single class andtherefore such a classification for the purpose of grant ofrevised pension is unreasonable, arbitrary, discriminatory andviolative of Article 14 of the Constitution of India. The Statecannot arbitrarily pick and choose from amongst similarlysituated persons, a cut-off date for extension of benefitsespecially pensionary benefits. There has to be a classificationfounded on some rational principle when similarly situatedclass is differentiated for grant of any benefit.
As observed hereinabove, and even it is not in dispute thatas such a decision has been taken by the State Governmentto revise the pension keeping in mind the increase in the costof living. Increase in the cost of living would affect all thepensioners irrespective of whether they have retired pre-1996or post-1996. As observed hereinabove, all the pensionersbelong to one class. Therefore, by such a classification/cut-off date the equals are treated as unequals and therefore sucha classification which has no nexus with the object andpurpose of revision of pension is unreasonable, discriminatory and arbitrary and therefore the saidclassification was rightly set aside by the learned Single Judgeof the High Court. At this stage, it is required to be observedthat whenever a new benefit is granted and/or new scheme isintroduced, it might be possible for the State to provide a cut-off date taking into consideration its financial resources.
ButMAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.] ABCDEFGH1194SUPREME COURT REPORTS[2023] 1 S.C.R.the same shall not be applicable with respect to one and singleclass of persons, the benefit to be given to the one class ofpersons, who are already otherwise getting the benefits andthe question is with respect to revision. In view of the above and for the reasons stated above, weare of the opinion that the controversy/issue in the presentappeal is squarely covered by the decision of this Court inD.S. Nakara [D.S. Nakara v. Union of India, (1983) 1 SCC305. The decision of this Court in D.S. Nakara shall beapplicable with full force to the facts of the case on hand. The Division Bench of the High Court has clearly erred innot following the decision of this Court in D.S. Nakara andhas clearly erred in reversing the judgment and order of thelearned Single Judge.
The impugned judgment and orderpassed by the Division Bench is not sustainable and the samedeserves to be quashed and set aside and is accordinglyquashed and set aside. The judgment and order passed bythe learned Single Judge is hereby restored and it is held thatall the pensioners, irrespective of their date of retirement viz.pre-1996 retirees shall be entitled to revision in pension on apar with those pensioners who retired post-1996. The arrearsbe paid to the respective pensioners within a period of threemonths from today.” 36. In the present case, too, there is no denial that the employeeswho retired prior to 29.03.2010 discharged the same duties as in thecase of those who did thereafter. The quality and content of responsibilitiesassigned to them were the same. The respondents’ decision not to grantarrears prior to 01.01.2006 cannot be found fault with; however, not togrant any revision to those who were not in service when the orderimplementing the pay revision was issued and confining it to those, in employment is clearly discriminatory.
The rationale that grantingsuch pay revision only to existing employees would be to enthuse themto recover NPA amounts payable to MSFC has no rational nexus withthe object sought to be achieved by the pay revision, which is to benefitemployees and protect them from the rise in the cost of living.37. In the present case, therefore, applying the ratio in the abovedecisions, it is clear that there is no distinction between those who retired(or died in service) before 29.03.2010 and those who continued in service- and were given the pay revision. Those who worked during the period01.01.2006 to 29.03.2010 and those who continued thereafter, fell in thesame class, and a further distinction could not be made. The fact that ABCDEFGH1195the MSFC did not recover any interim relief, or ad-hoc amount disbursedbetween 18.09.1996 to 31.12.2005 (towards recommendations of the5th Pay Commission), also reaffirms that these ex- employees belongedto the same class as those that received the benefit of the pay revisions.
The exclusion of the retired employees, who retired between 01.01.2006and 29.03.2010 on achieving their date of superannuation, is violative of Article 14 of the Constitution of India.38. However, in the opinion of this court, employees who securedVRS benefits and left the service of MSFC voluntarily during this period, stand on a different footing. They cannot claim parity with those whoworked continuously, discharged their functions, and thereaftersuperannuated. VRS employees chose to opt and leave the service ofthe corporation; they found the VRS offer beneficial to them. Apartfrom the normal terminal benefits they were entitled to, the additionalamount each of them was given - was an ex- gratia amount, equal to amonth’s salary for each completed year of service. Other retiredemployees were never given such amounts. This has been emphasizedin A.K. Bindal v. Union of India (supra):“The Voluntary Retirement Scheme (VRS) which is sometimescalled Voluntary Separation Scheme (VSS) is introduced bycompanies and industrial establishments in order to reducethe surplus staff and to bring in financial efficiency.
The officememorandum dated 5-5-2000 issued by the Government of India provided that for sick and unviable units, the VRSpackage of the Department of Heavy Industry will be adopted. Under this Scheme an employee is entitled to an ex gratiapayment equivalent to 45 days’ emoluments (pay + DA) foreach completed year of service or the monthly emoluments atthe time of retirement multiplied by the balance months ofservice left before the normal date of retirement, whichever isless. This is in addition to terminal benefits. The Governmentwas conscious about the fact that the pay scales of some ofthe PSUs had not been revised with effect from 1-1-1992 andtherefore it has provided adequate compensation in thatregard in the second VRS which was announced for all Centralpublic sector undertakings on 6-11-2001. Clause (a) of the Scheme reads as under: (a) Ex gratia payment in respect of employees on pay scalesat 1-1-1987 and 1-1-1992 levels, computed on their existingpay scales in accordance with the extant Scheme, shall beincreased by 100% and 50% respectively.MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEESASSOC. v.
STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.] ABCDEFGH1196SUPREME COURT REPORTS[2023] 1 S.C.R.This shows that a considerable amount is to be paid to anemployee ex gratia besides the terminal benefits in case heopts for voluntary retirement under the Scheme and his optionis accepted. The amount is paid not for doing any work orrendering any service. It is paid in lieu of the employee himselfleaving the services of the company or the industrialestablishment and foregoing all his claims or rights in thesame. It is a package deal of give and take. That is why in thebusiness world it is known as “golden handshake”. The mainpurpose of paying this amount is to bring about a completecessation of the jural relationship between the employer andthe employee. After the amount is paid and the employee ceasesto be under the employment of the company or theundertaking, he leaves with all his rights and there is noquestion of his again agitating for any kind of his past rightswith his erstwhile employer including making any claim withregard to enhancement of pay scale for an earlier period.
Ifthe employee is still permitted to raise a grievance regardingenhancement of pay scale from a retrospective date, even afterhe has opted for Voluntary Retirement Scheme and hasaccepted the amount paid to him, the whole purpose ofintroducing the Scheme would be totally frustrated.” 39. For the above reasons, it is held that VRS employees cannotclaim parity with others who retired upon achieving the age ofsuperannuation. Likewise, those who ceased to be in employment, forthe reason of termination, or their dismissal, etc., would not be entitled tothe benefit of pay revision.40. In view of the above findings, the impugned judgment andorder is hereby set aside. The appeal is accordingly allowed, to the extentthat those who retired from the services of MSFC between 01.01.2006to 29.03.2010, and the legal heirs/representatives of those who died duringthat period, shall be entitled to arrears based on pay revision, acceptedby the Corporation.
The Corporation is directed to pay interest @ 8%p.a. on these arrears from 01.04.2010 till the date of this judgment. Theseamounts shall be calculated and disbursed to those individuals withineight weeks from today. The appeal is partly allowed, in the above terms. There shall be no order on costs. Nidhi JainAppeal partly allowed.
Precedent status how later indexed judgments have treated this case
No known negative treatment found in the Courts & Cases corpus.
This is a result about the indexed corpus, not a finding that the judgment remains good law. Coverage may be incomplete.