State Can't Solve Its Financial Crisis By Withholding Employees' And Pensioners' Dues: P&H High Court
The Punjab and Haryana High Court has dismissed a batch of Letters Patent Appeals filed by the Punjab Government and Punjab State Power Corporation Limited (PSPCL), affirming that once the State adopted the Central Government pattern for grant of Dearness Allowance and Dearness Relief, it incurred a binding obligation to release the accrued instalments and could not defer them indefinitely...
The Punjab and Haryana High Court has dismissed a batch of Letters Patent Appeals filed by the Punjab Government and Punjab State Power Corporation Limited (PSPCL), affirming that once the State adopted the Central Government pattern for grant of Dearness Allowance and Dearness Relief, it incurred a binding obligation to release the accrued instalments and could not defer them indefinitely under the guise of financial constraint.
Acting Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor said, "A welfare State cannot balance its budget by silently taxing the erosion of its own employees' and pensioners' subsistence, that in substance, is what indefinite withholding of DA/DR amounts to, for every month of non-release, the cost of inflation is transferred from the exchequer to the kitchen of the employee and the pensioner."
The Court said that that the plea of financial burden fares no better. "The figures placed before us, i.e., an annual salary and pension outgo of approximately Rs. 58,064.05 crore, and an arrear liability of Rs. 14,191 crore, establish the magnitude of the obligation, not the impossibility of performing it, and the law on the point is definite," it noted.
The division bench said that the State employees are right in submitting that DA, in its constitutional setting, gives practical effect to Articles 21, 38, 39 and 43 of the Constitution. It is the mechanism by which the promise of a living wage retains its substance.
"We also find that respondents' argument, that while the issue of financial constraints is being raised as a ground for withholding the legitimate dues of the State's own employees, however, as per the information available in the public domain, the State is expending large amounts of money on grant of freebies, doles, advertorial campaigns, and other expenditure, which would not strictly fall within the domain of essential expenditure by a welfare State, cannot be brushed aside, lightly. In any case, the legitimate dues that are payable to the employees of the State cannot be withheld on the ground of any new alleged welfare schemes," it added.
The bench emphasised that, "Viewed in any manner, large scale advertising campaigns in print or social media and other unproductive expenses cannot justify denial of dues admissible to the State employees."
The Court also issued a pointed direction restraining the State from unproductive expenditure pending compliance "till all such dues are cleared, the State of Punjab shall not resort to any unproductive expenditures, such as large-scale advertising campaigns in print or social media, as these expenses cannot justify the denial of dues admissible to State employees."
The 6th Punjab Pay Commission, which submitted its report on 30.04.2021, recommended that the grant of Dearness Allowance on the basis of the All India Consumer Price Index (AICPI) should be continued on the Central Government pattern. The Department of Finance, Government of Punjab, recommended acceptance of this recommendation, and the Council of Ministers, in its meeting on 18.06.2021, approved the proposals of the Finance Department.
The decision was translated into the Punjab Civil Services (Revised Pay) Rules, 2021, notified under the proviso to Article 309 of the Constitution of India, and was implemented through successive instructions issued in the name of the Governor, granting DA at rates mirroring the Central 7th CPC series.
PSPCL adopted the State's instructions, with the approval of its Board of Directors, and framed the Punjab State Power Corporation Limited (Revised Pay) Regulations, 2021 on the same pattern.
However, from 01.07.2021 onwards, the State began falling behind the Central DA rates. Whereas the Central Government DA progressed from 17% to 60% in successive instalments, the State of Punjab's DA remained at 42% as of the date of the litigation, with four pending instalments (from 42% to 55%) kept in abeyance, pending a decision.
On 13.02.2025, the Council of Ministers approved a Liquidation Plan for phased payment of accumulated arrears — covering pay/pension arrears for 01.01.2016 to 30.06.2021 and DA/DR arrears for 01.07.2021 to 31.03.2024 — involving a total liability of approximately Rs. 14,191 crore, phased over five financial years (2024-25 to 2028-29). For pensioners below 75 years of age, the Plan provided for payment in as many as 42 monthly instalments. The Plan was adopted by PSPCL vide Finance Circular No. 03/2025 dated 03.04.2025.
A Single Judge, vide the impugned common judgment dated 08.04.2026, allowed the writ petitions filed by retired and serving employees of PSPCL and the Municipal Corporation, Ludhiana, quashing the Liquidation Plan as violative of Article 14, directing payment of all arrears by 30.06.2026, and directing the grant of all pending DA/DR instalments at the rates applicable to IAS/IPS/IFS officers. The judgment was held to operate in rem.
The Punjab Government and PSPCL preferred Letters Patent Appeals challenging the impugned judgment on multiple grounds, including that the Single Judge lacked roster jurisdiction (coram non judice), that the Cabinet decision of 18.06.2021 was not a formal expression in the name of the Governor, that the State is free to fix its own rate of DA under Article 309 Rules, that the Liquidation Plan had received judicial imprimatur from a Division Bench in contempt proceedings, and that the judgment in rem exceeded the scope of the writ petitions.
The Division Bench framed nine issues for determination and answered all of them against the appellants. The key findings are summarised below.
Issue I: Whether the State and PSPCL adopted the Central DA pattern, and if so, can they withhold accrued instalments or stagger arrears?
The Court answered this issue emphatically against the State. It held that the 6th PPC's recommendation for continuation of DA on the Central pattern was accepted unconditionally by the Council of Ministers, while only the recommendation regarding simultaneous release received the guarded comment that the State would "endeavour to do so." This distinction, the Court held, was deliberate and pronounced: the rate and pattern were accepted unconditionally, while simultaneity of release was left aspirational.
The Court further observed that every DA instruction issued after the 2021 Rules on 07.09.2021, 02.11.2021, 31.10.2022, 01.12.2023 and 01.11.2024 recited that DA was being released by the Governor on the pattern of the Central Government, and that the rates themselves were, without exception, drawn from the Central 7th CPC series. Crucially, the Court noted:
"When the executive, for five years, uniformly construes and implements its own decision as an adoption of the Central pattern, it is not open to it to subsequently turn around and plead that no such pattern was ever adopted."
Relying on the Supreme Court's judgment in State of West Bengal v. Confederation of State Government Employees, West Bengal, 2026 INSC 123, the Court held that once the State exercises its discretion by adopting a standard, it cannot thereafter deny the benefit flowing therefrom.
The Court further found a distinct Article 14 violation: officers of the All India Services (IAS/IPS/IFS) serving in connection with the affairs of Punjab are paid DA/DR at full Central rates without time-lag, from the same State exchequer, while the State's own employees and pensioners are held at 42% with balance instalments kept in abeyance sine die. No intelligible differentia bearing rational nexus to the object of DA was found to sustain this differential treatment.
Issue II: Whether the Liquidation Plan was rightly quashed as violative of Article 14?
The Court affirmed the quashing of the Liquidation Plan on multiple grounds.
First, Rule 9 of the 2021 Rules, which authorises staggered payment of arrears, is temporally confined to arrears of the block 01.01.2016 to 30.06.2021. The Liquidation Plan, however, also sought to defer DA/DR arrears for the period 01.07.2021 to 31.03.2024 for which no statutory source of power was shown. The Plan thus rested on no legal foundation to that extent.
Second, even within its legitimate field, Rule 9 does not confer an unfettered dispensation. Accrued arrears of pay, pension and DA/DR are 'property' within the meaning of Article 300A, and the right to receive pension is a valuable right. The Court observed that a schedule which retains admitted dues, some accrued as far back as 2016, in the hands of the State until 2028-29, to be paid in staggered instalments without interest, does not liquidate the debt but rather liquidates its value, since inflation steadily erodes each deferred instalment.
Third, while the priority accorded to the eldest (2 instalments for those above 85 years) appeared benign, the Court found the real vice in the tail of the scheme: pensioners below 75 years, the largest cohort, being relegated to 42 monthly instalments stretching into 2028-29, without any compensation. The differentia (age) may be intelligible, but the nexus of 42 instalments to the majority was absent.
"A plan which is arbitrary in part of its coverage (the post-2021 arrears), uncompensated in its deferral, disproportionate in its tail, and, on the State's own subsequent conduct, provisional in its promise, was rightly quashed."
The Court also noted that on 07.04.2026, the State had constituted yet another Cabinet Sub-Committee to re-evaluate the financial feasibility of pending instalments, placing the entire liquidation edifice back into the melting pot.
Issue III: Whether the Cabinet decision of 18.06.2021 was enforceable without formal expression in the name of the Governor?
The Court rejected the State's reliance on Bachittar Singh v. State of Punjab, 1962 INSC 88, distinguishing it on facts.
In Bachittar Singh, the order had never left the secretariat file. The Cabinet decision of 18.06.2021, by contrast, was communicated to all Principal Secretaries, publicly announced through a press note, translated into the 2021 Rules notified in the name of the Governor under Article 309, and implemented through successive DA instructions each reciting the Governor's pleasure.
The Court further held that Article 166 is directory and not mandatory, and that non-compliance in form does not invalidate executive action if it is otherwise shown to have been taken by the Government. Independently, the Court held that the State cannot approbate and reprobate simultaneously — it cannot invoke the Cabinet decision to read down the commitment on timing while denying the existence of that very decision to defeat the commitment on the pattern.
Issue IV: Non-joinder, misjoinder and denial of hearing to PSPCL
The Court held that the objection does not survive scrutiny. PSPCL was arrayed as respondent in one of the connected petitions, and its counsel was present on the final date of adjudication. Applying the principle from State Bank of Patiala v. S.K. Sharma, (1996) 3 SCC 364, the Court held that a violation of natural justice must occasion actual prejudice to be fatal. PSPCL's consistent declared position, that it follows the instructions of the Government of Punjab for DA/DR and adopts them mutatis mutandis meant that no material defence could conceivably have altered the outcome. Further, the comprehensive hearing afforded in the Letters Patent Appeal fully effaced any deficiency at the Single Judge stage.
Issue V: Whether the impugned judgment was coram non judice, and whether the Single Judge erred in passing the order in rem?
The Court rejected the coram non judice challenge. The roster allocated to the Single Judge specifically covered writ petitions concerning Statutory Corporations and Statutory Boards/Bodies of the State of Punjab. Since the petitioners were employees of PSPCL, a statutory corporation, the Registry correctly listed the matters before that Bench.
The consequential directions against the State were inseverable, since the fountainhead of the grievance was the State's own speaking order and Liquidation Plan. The Court further held that even if the allocation were assumed to be doubtful, the present Division Bench, having reheard the matter in its entirety, had effaced any conceivable infirmity.
On the in rem declaration, the Court held it to be the necessary and salutary consequence of quashing instruments of general application, citing All Manipur Pensioners Association, and rejecting the argument that only litigating employees could benefit.
Issue VI: Effect of the Division Bench order in CACP No. 47/2024 (contempt) and the per incuriam declaration of Surinder Singh
The Court held that the Division Bench's order in the contempt matter was a compliance order, not an adjudication on the constitutional validity of the Liquidation Plan. The contempt court's jurisdiction is confined to examining compliance with the directions alleged to have been disobeyed, and cannot travel beyond to adjudicate the constitutional validity of an executive instrument brought on record in demonstration of compliance. Relying on Sudhir Vasudeva v. M. George Ravishekaran, (2014) 3 SCC 373, the Court held that the Division Bench's acceptance of the Plan in contempt did not clothe it with constitutional immunity.
As regards Surinder Singh v. State of Punjab, the Court held that the challenge to the Plan's validity was never raised, argued, or decided in that case, rendering the decision sub silentio on that point. However, the Court added a word of caution: the formal declaration of a co-ordinate Bench's judgment as per incuriam sat uneasily with the restraint counselled by the Constitution Bench in Central Board of Dawoodi Bohra Community v. State of Maharashtra, (2005) 2 SCC 673, and the proper course would have been to distinguish the earlier decision or seek a reference. The Division Bench held that any such procedural infelicity stood cured by the appellate adjudication.
Issue VII: Judicial Review and Fiscal Policy
The Court held that the impugned directions did not formulate fiscal policy but enforced the standard the State itself chose in 2021. Testing the speaking order dated 18.11.2025 and the Liquidation Plan on the touchstone of Article 14 is a classic exercise of judicial review, not an incursion into policy. Further, citing Purshottam Lal v. Union of India, (1973) 1 SCC 651, the Court held that non-implementation of an accepted Pay Commission recommendation has never been regarded as sheltered policy:
"The deference doctrine protects the making of choices; it does not protect the indefinite non-performance of choices already made." it added.
Issue VIII: Comparative emoluments and financial burden
The Court firmly rejected the State's argument that Punjab government employees receive higher aggregate emoluments than their Central Government counterparts. The Court noted that the higher basic pay is the product of the State's own deliberate pay revision policy, of which it cannot complain:
"Basic pay and DA are answers to different questions. The first fixes the value of the post, the second protects that value against inflation, and a surplus in the first is no justification for confiscating the second."
On the financial burden argument, the Court held that financial constraint may inform the making of policy prospectively, but it is no answer to the enforcement of benefits which have accrued under an adopted standard. The Court also took note of the argument that while withholding legitimate dues of employees, the State was expending large sums on freebies and large-scale advertisement campaigns, and held that this argument "cannot be brushed aside lightly."
Issue IX: PSPCL's separate legal personality and unchallenged DA notifications
The Court held that PSPCL's corporate identity does not insulate the withholding. PSPCL is an instrumentality of the State amenable to Part III of the Constitution, and has, by its own corporate volition, adopted every DA instruction of the State mutatis mutandis without a single deviation. Its own affidavit conceded that all decisions relating to DA/DR are taken by the Government of Punjab and that PSPCL is bound to act accordingly.
On the argument that successive DA notifications were unchallenged, the Court held that employees who received what those notifications granted had no occasion to challenge them. Their grievance was against what was withheld, and acceptance of part payment of an admitted debt has never estopped a creditor from claiming the balance.
Since the timeline of 30.06.2026 fixed by the Single Judge had expired during the pendency of the appeals, the Division Bench modified the timelines as under:
The State of Punjab and PSPCL are directed to grant and release all up-to-date pending instalments of DA/DR to all employees and pensioners, at the same rates as paid to IAS/IPS/IFS officers serving within Punjab, within a fortnight.
In default of payment, unpaid amounts shall carry simple interest at 6% per annum from the date of expiry of the stipulated period.
The Chief Secretary to the Government of Punjab is directed to ensure scrupulous compliance and file a compliance report by affidavit before the Registry by 31.08.2026.
Till all such dues are cleared, the State of Punjab shall not resort to unproductive expenditures, such as large-scale advertising campaigns in print or social media.
Title: Additional Chief Secretary to Government of Punjab v. Nirmal Singh Dhanoa and others
Mr. D.S. Patwalia, Senior Advocate with Mr. A.S. Chadha, Advocate for the appellants in LPA-1437-2026.
Mr. Rahul Sharma, Sr. Advocate with Mr. Yash Tayal, Advocate for the appellant in LPA-1249-2026.
Mr. Chanchal K. Singla, Sr. Advocate with Ms. Kavita Joshi, Advocate & Ms. Medha Dewan, Advocate for the appellant in LPA-1290-2026. Mr. D.S. Sobti, Advocate, Mr. Bhavesh Puri, Advocate Mr. Sultaan Sangha, Advocate Ms. Harshpreet Kaur, Advocate for the petitioner.
Mr. Baldev Singh Maan, Advocate for the petitioner in CWP-7021-2026.
Mr. Sunny K. Singla, Advocate, Ms. Riti Aggarwal, Advocate, Mr. Jinesh Singla, Advocate, Mr. Varun Singla, Advocate, Mr. Raj Kumar Garg, Advocate for the petitioner in CWP-29408-2025, CWP-2006-2026, CWP-9953-2026 and CWP-10005-2026.
Ms. Anu Chatrath, Sr. Addl. A.G. Punjab, Mr. Ratik Chatrath Kapur, Advocate for the appellant.
Mr. Maninderjit Singh Bedi, Advocate General, Punjab Mr. Maninder Singh Garcha, Addl. A.G. Punjab, Mr. Salil Sabhlok, Sr. DAG, Punjab Mr. Rajeev Madan, Sr. DAG, Punjab