The Supreme Court held that granting pensioners lower Dearness Relief than employees’ Dearness Allowance violates Article 14. It ruled inflation impacts both equally, making differential increases arbitrary and lacking rational nexus to the objective of mitigating rising living costs.
NEW DELHI: The Supreme Court ruled that a State cannot grant pensioners a smaller increase in Dearness Relief (DR) than the increase in Dearness Allowance (DA) provided to employees. A Bench of Justices Manoj Misra and Prasanna B Varale observed that giving serving employees a higher increase than retired persons is arbitrary and violates Article 14 of the Constitution.
The Court explained that DA for employees and DR for pensioners are intended to serve the same purpose helping people manage rising prices and the cost of living. Since inflation affects working and retired individuals in the same manner, the Court found no justification for pensioners to receive a lower increase.
The Court said,
“Indisputably, inflation hits both serving and retired employees with equal force. Therefore, differentiating the two in the rate of increase of DA and DR has no rational nexus to the object sought to be achieved,”
Factual Backgrounds:
The matter arose out of a Kerala government order under which employees of the Kerala State Road Transport Corporation (KSRTC) were given a 14% increase in DA, while pensioners received only an 11% increase in DR.
Retired employees of KSRTC filed a writ petition challenging the lower rate of increase for DR on pension compared to the rate for DA on salary. They pointed out that serving employees received a 14% increase in DA, while pensioners received an 11% increase in DR. They alleged there was no rationale for different rates, and claimed the differential approach violated the constitutional mandate.
Arguments before the Supreme Court
Before the Supreme Court, the State argued that serving employees and pensioners belong to different classes, and therefore different rates for DA and DR would not violate Article 14.
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KSRTC supported this position by stating that it was under financial constraints, and that the lower increase in DR was a conscious choice made in light of its financial situation.
In response, the pensioners submitted that the object of both DA and DR is to ensure that serving employees and pensioners do not suffer due to inflation. Since inflation impacts both groups, they argued there was no rational basis for applying different enhancement rates.
ISSUE: If dearness allowance (DA) and dearness relief (DR) added to the salary of serving employees and pension of retired employees, respectively, can be granted at a higher rate for DA than for DR?
Analysis of the Court:
The Court explained that Article 14 prohibits class legislation but allows reasonable classification, provided it passes two tests:
- The classification must be based on an intelligible differentia that distinguishes persons grouped together from those left out.
- The differentia must have a rational nexus with the object sought to be achieved.
It further noted that the burden lies on the State to establish that these requirements are satisfied—both the rational basis of the classification and its correlation to the object.
The Court also emphasized that equality is not rigid or limited to traditional boundaries, and that it is incompatible with arbitrariness. It highlighted that when State action is arbitrary, it is typically unequal in both constitutional and practical terms, thereby breaching Article 14 (and where it relates to public employment, also implicating Article 16). It stressed that Articles 14 and 16 are meant to prevent arbitrariness and ensure fair treatment based on relevant and valid principles.
The Court said,
“Besides, equality is a dynamic concept with many aspects and dimensions, and it cannot be cribbed, cabined and confined within traditional and doctrinaire limits. From a positivistic point of view, equality is antithetic to arbitrariness.”
Applying the twin tests, the Court treated the object of DA/DR as the same mitigating the hardship caused by inflation to both salaried employees and pensioners. Since the government order enhanced DA by 14% and DR by 11% even though both were meant to address the same inflationary hardship, the Court concluded that there was no rational nexus for the differential rates.
The Court held that financial crunches may justify delaying benefits or choosing separate implementation dates for schemes, but once a decision is made to provide and enhance allowances linked to inflation, it is not permissible to give a lower rate to those who are retired when both groups experience inflation in an equal way.
Accordingly, the question posed was answered in favour of the pensioners.
Case Title: State of Kerala v. M Vijayakumar & Ors.
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