Recently, the Supreme Court held that granting pensioners a lower rate of dearness relief (DR) than the dearness allowance (DA) extended to serving employees is arbitrary and violates Article 14 of the Constitution. The Court made it clear that when both benefits are aimed at neutralising inflation, any differential treatment lacks constitutional justification, observing that inequality rooted in arbitrariness cannot stand the test of fairness.
Brief facts:
The case stemmed from a challenge to a Government decision granting a higher rate of dearness allowance (DA) to serving employees while extending a lower rate of dearness relief (DR) to pensioners, despite both being linked to inflation. Aggrieved pensioners approached the High Court, alleging that such differential treatment was arbitrary and violative of Article 14 of the Constitution of India. While the Single Judge upheld the classification, the Division Bench struck it down as discriminatory. This prompted the State authorities to approach the Apex Court, raising the core issue of whether unequal rates of DA and DR can be sustained when both serve the same objective of offsetting inflation.
Contentions of the Appellant:
The State argued that serving employees and pensioners constitute distinct classes, thereby permitting differential treatment under Article 14 of the Constitution. The Counsel submitted that financial constraints and economic considerations justified the lower rate of DR. Reliance was placed on precedents such as T.N. Electricity Board v. R. Veerasamy and ors. and State of Punjab and Ors. v. Amar Nath Goya and Ors, to contend that policy decisions involving financial implications and cut-off classifications fall within executive discretion and are not inherently discriminatory. The Counsel further emphasised its strained financial position as a valid ground for adopting a lower rate for pensioners.
Contentions of the Respondents:
The pensioners countered that the dispute was not about entitlement to DR but the unjustified disparity in its rate vis-à-vis DA. The Counsel argued that both DA and DR serve an identical purpose, mitigating inflation, and since inflation affects both serving and retired employees equally, differential rates lack any rational basis. Reliance was placed on Kallakkurichi Taluk Retired Officials Association, Tamil Nadu and Ors. v. State of Tamil Nadu, asserting that inflation does not distinguish between classes, and therefore, neither should compensatory mechanisms like DA and DR.
Observation of the Court:
The Division Bench of Justice Manoj Misra and Justice Prasanna B. Varale observed that “once pension is admissible and, based on inflation, DR is admissible on it, announcing DR at a rate lower than at what DA is provided, when both are linked to inflation and serve a common object, would be nothing but discriminatory as well as arbitrary. Therefore, in our view, the High Court was justified in holding the same to be discriminatory and violative of Article 14.”
The Court emphasised the constitutional test of equality under Article 14 of the Constitution and the limits of permissible classification. The Court reiterated that while Article 14 permits reasonable classification, such classification must satisfy the twin tests of intelligible differentia and rational nexus with the object sought to be achieved. It clarified that mere classification between serving employees and pensioners is not sufficient; the State must demonstrate how such classification advances the intended objective. The Bench stressed that equality is fundamentally opposed to arbitrariness, and any State action lacking a rational basis would fall foul of constitutional scrutiny. It further observed that the burden lies on the State to justify such classification with cogent reasoning, failing which the action would be struck down as discriminatory.
The Court held that the object of dearness allowance (DA) and dearness relief (DR) is identical, mitigating the impact of inflation. The Bench noted that both DA (for serving employees) and DR (for pensioners) are designed to offset inflationary pressures and ensure economic stability for recipients. It emphasised that inflation does not distinguish between a serving employee and a retired individual; its impact is uniform across both groups. Therefore, when the purpose of both benefits is the same, any differentiation in the rate of enhancement must be backed by a strong and rational justification. The Court made it clear that the absence of such justification renders the distinction constitutionally unsustainable.
The Court observed that differential rates of increase in DA and DR lack any rational nexus with the objective sought to be achieved. Applying the principles of Article 14, the Bench found that granting a higher increase in DA (14%) compared to DR (11%), despite both being linked to the same inflation index, was arbitrary. It highlighted that the differentiation had no logical connection with the purpose of alleviating inflationary hardship. The Court stressed that when the underlying factor, namely inflation, is common, the measure adopted to counter it must also be uniform. Any deviation from this parity, without a clear and rational basis, would amount to unjust discrimination.
The Court rejected the State’s justification based on financial constraints as insufficient to sustain unequal treatment. While acknowledging that financial limitations can influence policy decisions, the Court clarified that such considerations cannot justify discriminatory implementation once a benefit is granted. It observed that financial constraints may allow the State to defer benefits or alter timelines, but they cannot legitimise unequal rates for similarly situated beneficiaries. The Bench made it clear that once the State decides to extend a benefit aimed at addressing inflation, it must do so in a non-discriminatory manner, consistent with constitutional principles.
The decision of the Court:
In light of the foregoing discussion, the Apex Court dismissed the appeals filed by the State of Kerala and KSRTC, affirming the Kerala High Court’s ruling that the differential rates of DA and DR were unconstitutional. The Court held that once benefits linked to a common objective, such as inflation mitigation, are extended, they must be applied uniformly, and any deviation without rational justification would amount to arbitrariness violative of Article 14 of the Constitution.
Case Title: The State of Kerala Vs. M. Vijayakumar & Ors
Case No.: SLP (C) Nos. 11592-11593 of 2023
Coram: Hon’ble Mr. Justice Manoj Misra, Hon’ble Mr. Justice Prasanna B. Varale
Advocate for the Petitioner: Sr. Adv. Jaideep Gupta, AOR C. K. Sasi, AOR Deepak Prakash, Adv. Meena K Poulose, Adv. Riddhi Bose, Adv. Racheeta Chawla, Adv. Sampriti Bakshi, Adv. Siddharth Banerjee, Adv. Sriram P., Adv. Jyoti Pandey, Adv. Divyangna Malik, Adv. Rahul Suresh, Adv. Shivangi Rajawat, Adv. Rahul Rajeev, Adv. Manshi Sinha, Adv. Ridhika Singh, Adv. Sankalp Tewari, Adv. Daksh Rathi, Adv. Snehil Singh
Advocate for the Respondent: Sr. Adv. V. Chitambaresh, AOR Vipin Nair, AOR C.K. Sasi, AOR Deepak Prakash, Adv. Meena K Poulose
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