Granting Pensioners Lower Dearness Relief Than Employees' DA Is Arbitrary, Violates Article 14: Supreme Court

The Supreme Court on Friday (April 10) observed that granting higher dearness allowance (DA) to serving employees than dearness relief (DR) to pensioners is arbitrary and violates Article 14, ruling that both benefits share a common objective, i.e., neutralising the impact of inflation.

A bench of Justices Manoj Misra and Prasanna B Varale dismissed appeals filed by the State of Kerala and the Kerala State Road Transport Corporation (KSRTC), thereby upholding the Kerala High Court's decision striking down the differential rates.

“…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 held.

The controversy stemmed from a 2021 Government Order under which serving employees were granted a 14% increase in DA, whereas Pensioners were granted only an 11% increase in DR. Both increments were linked to the same inflation index and implemented from March 2021.

While a Single Judge of the High Court upheld the classification, a Division Bench struck it down as discriminatory, prompting the State's appeal to the Supreme Court.

Affirming the impugned order, the judgment authored by Justice Misra observed:

“The object and purpose of dearness allowance/dearness relief is to mitigate the hardship faced by salaried employees/pensioners on account of inflation. The Government Order in question increases the rate of DA by 14% and DR by 11% even though the increase is to serve a common object, which is to mitigate the hardship faced by the serving employees and 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.”

The Court rejected the State's argument about facing a financial burden, where the state justified the differential rates for the serving and retired employees. Disagreeing with this argument, the Court observed:

“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 question posited above, is answered accordingly.”

Accordingly, the appeal was dismissed.

Headnote

Constitution of India – Article 14 – Equality before Law – Reasonable Classification – Dearness Allowance (DA) vs. Dearness Relief (DR) – Whether the State/KSRTC can effect a classification between serving employees and pensioners by granting enhancement of DA/DR at differential rates – HELD: No, The object of both DA and DR is common: to mitigate the hardship of inflation - Inflation hits both serving and retired employees with equal force - Once a decision is taken to provide and increase these allowances based on inflation, fixing a higher rate for serving employees (14%) than for pensioners (11%) has no rational nexus to the object sought to be achieved and is discriminatory and arbitrary.

Key Principles and Reliance – i. Twin Tests of Article 14: For a classification to be valid, it must satisfy two conditions: (1) it must be founded on an intelligible differentia which distinguishes those grouped together from others; and (2) that differentia must have a rational nexus to the object sought to be achieved; ii. Arbitrariness as the Enemy of Equality: Equality and arbitrariness are sworn enemies. Where an act is arbitrary, it is implicitly unequal and violative of Article 14; iii. Financial Crunch vs. Discrimination: While a financial crunch may justify deferring benefits or setting implementation dates, it cannot justify providing discriminatory rates of enhancement for the same inflationary pressure once the decision to grant the benefit has been made. [Relied on D.S. Nakara & Others v. Union of India (1983) 1 SCC 305; State of Punjab & Ors. v. Davinder Singh & Ors (2025) 1 SCC 1; Ajay Hasia v. Khalid Mujib Sehravardi (1981) 1 SCC 72; Paras 20-28]

Cause Title: THE STATE OF KERALA VERSUS M. VIJAYAKUMAR & ORS. (and connected case)

Citation : 2026 LiveLaw (SC) 360

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Appearance:

For Petitioner(s) Mr. P.V. Dinesh, Sr. Adv. Mr. Deepak Prakash, AOR Mr. Nachiketa Vajpayee, Adv. Ms. Divyangna Malik, Adv. Ms. Jyoti Pandey, Adv. Mr. Rahul Suresh, Adv. Ms. Shivangi Rajawat, Adv. Mr. Chetan Jadon, Adv. Ms. Anna Oommen, Adv. Mr. Jaideep Gupta, Sr. Adv. Mr. C. K. Sasi, AOR Ms. Meena K Poulose, Adv. Mr. Riddhi Bose, Adv. Ms. Racheeta Chawla, Adv. Ms. Sampriti Bakshi, Adv. Mr. Siddharth Banerjee, Adv.

For Respondent(s) Mr. V. Chitambaresh, Sr. Adv. Mr. Vipin Nair, AOR Mr. Aditya Narendranath, Adv. Mr. Mohd Aman Alam, Adv. Ms. M.b.ramya, Adv. Ms. Deeksha Gupta, Adv. 2 Mr. C. K. Sasi, AOR Ms. Meena K Poulose, Adv. Mr. Deepak Prakash, AOR