The Supreme Court of India has held that the State cannot provide a higher rate of enhancement for Dearness Allowance (DA) to serving employees while providing a lower rate for Dearness Relief (DR) to pensioners. A Bench of Justice Manoj Misra and Justice Prasanna B. Varale affirmed that since both allowances are linked to a common inflation index and serve the same objective, any such differentiation is arbitrary and violates the right to equality under Article 14 of the Constitution.
Legal Issue
The central question before the Court was whether there could be a higher rate for the enhancement of DA for serving employees than the rate for DR provided to retired employees. The dispute arose after the State of Kerala and the Kerala State Road Transport Corporation (KSRTC) sanctioned a 14 per cent increase in DA for serving staff but restricted the DR enhancement for pensioners to 11 per cent.
Background of the Case
The case originated from writ petitions filed by retired employees of KSRTC. They challenged a Government Order dated February 25, 2021, which enhanced DA to 112% (a 14% increase) for active employees, while DR for pensioners was only raised to 109% (an 11% increase).
While a Single Judge of the Kerala High Court initially dismissed the petitions on the ground that serving employees and pensioners constitute different classes, a Division Bench subsequently reversed this decision. The Division Bench held that once a decision is made to extend the benefit of inflation-linked relief, discriminating between the two groups during implementation is unconstitutional. The State of Kerala and KSRTC then moved the Supreme Court against this reversal.
Arguments of the Parties
For the Appellants (State of Kerala & KSRTC): Senior Counsel representing the State and KSRTC argued that retired and serving employees constitute two distinct classes. They contended that different rates for separate classes do not violate Article 14. Furthermore, they emphasized that KSRTC was facing a “resource crunch” and a “precarious financial position,” justifying the decision to provide a lower rate of relief to pensioners based on financial constraints. They cited several precedents, including State of Punjab v. Amar Nath Goyal, to argue that financial implications are germane to policy decisions.
For the Respondents (Retired Employees): Counsel for the pensioners argued that the object of both DA and DR is to ensure that employees and pensioners do not suffer due to inflation. Since “inflation is common for both serving and non-serving/retired employees,” they argued there was no rationale for differential rates. They relied on the Supreme Court’s observation in Kallakkurichi Taluk Retired Officials Association v. State of Tamil Nadu that inflation similarly affects all categories of staff and pensioners.
Court’s Analysis
The Court applied the “twin-tests” of reasonable classification under Article 14: whether the classification is founded on an intelligible differentia and whether that differentia has a rational nexus with the object sought to be achieved.
The Court observed:
“The object and purpose of dearness allowance/dearness relief is to mitigate the hardship faced by salaried employees/pensioners on account of inflation… Indisputably, inflation hits both serving and retired employees with equal force, therefore, differentiating the two qua the rate of increase of DA and DR, in our view, has no rational nexus to the object sought to be achieved.”
Addressing the argument of financial constraints, the Bench noted:
“No doubt a financial crunch might be a guiding factor to defer disbursement of certain benefits or may justify separate dates for implementation of beneficial schemes. But once a decision is taken to provide certain allowances as also to increase them, based on inflation, fixing a higher rate of increase for the ones who are serving than the ones who have retired, would be arbitrary and violative of Article 14 of the Constitution.”
The Court distinguished the cases cited by the State, noting that those precedents primarily dealt with eligibility or cut-off dates for new schemes, whereas the present case concerned differential rates for a benefit (inflation relief) to which both groups were admittedly entitled.
The Decision
The Supreme Court dismissed the appeals filed by the State of Kerala and KSRTC, upholding the judgment of the Kerala High Court Division Bench. The Court concluded that fixing different rates of enhancement for DA and DR is “discriminatory as well as arbitrary” when the underlying pressures of inflation do not discriminate between a serving employee and a pensioner.
Case Details
Case Title: The State of Kerala v. M. Vijayakumar & Ors.
Case No.: Civil Appeal No. …. of 2026 (SLP (C) Nos. 11592-11593 of 2023)
Bench: Justice Manoj Misra and Justice Prasanna B. Varale
Date: April 10, 2026
