Parental Salary Alone Can't Decide OBC Creamy Layer Status : Supreme Court

In an important judgment, the Supreme Court has held that 'creamy layer' status for reservation under the Other Backward Classes (OBC) category cannot be determined solely on the basis of parental income, without reference to the posts and status held by the parents in their organisations.

Dismissing a batch of appeals filed by the Union of India, a bench comprising Justice PS Narasimha and Justice R Mahadevan granted relief to several UPSC candidates, who were denied appointments despite clearing the Civil Service Examinations, as they were wrongly included in the creamy layer category.

The Court held that the authorities had incorrectly applied an income/wealth-based test to exclude them from the non-creamy layer, instead of applying the prescribed status-based criteria to determine whether the candidate falls within the OBC Creamy Layer.

"Mere determination of the status of a candidate as to whether he/she falls within the creamy layer or the non-creamy layer of the OBCs cannot be decided solely on the basis of the income.” the judgment authored by Justice Mahadevan stated.

Background of the Case

The dispute arose from several Civil Services Examination candidates who claimed reservation under the OBC Non-Creamy Layer category.

While verifying their eligibility, the Department of Personnel and Training (DoPT) treated them as belonging to the creamy layer after considering their parents' salary income. Many of these parents were employees of public sector undertakings (PSUs), banks or similar organisations.

The government relied on a 14 October 2004 clarificatory letter, which stated that where equivalence between PSU posts and government posts had not been determined, salary income could be separately considered under the income/wealth test.

On this basis, candidates whose parents earned above the prescribed income threshold were denied OBC reservation benefits.

Several candidates challenged the decision before the Central Administrative Tribunal, and the Madras, Delhi and Kerala High Courts. They argued that the sole application of income test was against the 1993 Office Memorandum, which excluded the inclusion of parental salary to determine creamy layer status. The High Courts ruled in their favour. The Union government appealed those rulings before the Supreme Court.

What did 1993 OM say?

The 1993 OM was formulated in pursuance of the landmark Indira Sawhney judgment.  It provided that certain socially advanced sections within OBCs would be excluded from reservation benefits based primarily on the status of the parents' posts. For instance, children of Group A (Class I) officers and certain Group B officers who are promoted to Group A before the age of 40 are treated as belonging to the creamy layer. The OM also extended similar exclusion to children of persons holding equivalent or comparable positions in public sector undertakings, banks, universities and private employment, once such equivalence with government posts is determined.

The OM also introduced a residual “Income/Wealth Test” (Category VI) to identify creamy layer cases where status-based criteria do not apply. Under this test, families whose gross annual income from sources other than salary and agricultural land exceeded the prescribed ceiling for three consecutive years would be treated as creamy layer. Crucially, the OM clarified that income from salary and agricultural land should not be clubbed with income from other sources while applying this test. Thus, the 1993 policy treated status or position of the parent as the primary indicator of social advancement, while income served only as a secondary filter in limited situations.

Regarding the 1993 OM, the Supreme Court observed, " The plain language of these explanations makes it clear that salary income and agricultural income are consciously kept outside the common pool while determining exclusion under the Income / Wealth Test."

What did 2004 Clarification say?

Para 9 of the 14 October 2004 clarification deals with cases where the parent of an OBC candidate works in organisations such as PSUs, banks, universities or private entities, and the government has not yet determined whether the parent's post is equivalent to a government post (such as Group A or Group B). It states that in such situations, the creamy layer status should be determined using an income test. Under this test, the parents' salary income and income from other sources (excluding salary and agricultural income) must be assessed separately. If either the salary income alone or the income from other sources alone exceeds ₹2.5 lakh per year for three consecutive years, the candidate will be treated as belonging to the creamy layer.

The Court found fault with this approach of the 2004 clarification. The judgment observed :

"Thus, determination of creamy layer status solely on the basis of income brackets, without reference to the categories of posts and status parameters enunciated in the 1993 OM is clearly unsustainable in law."

The Court added that salary income cannot be mechanically aggregated to determine creamy layer status.

"Salary income cannot be mechanically aggregated in a manner that defeats the constitutional objective articulated in Indra Sawhney."

Referencing the Govt. Of India's 1993 Office Memorandum, the Court said that income from salaries, agriculture, or other sources cannot be clubbed for the purpose of applying the income/wealth test to determine the creamy layer status of a candidate.

“It is also evident from a comprehensive reading of the 1993 OM along with the clarificatory letter dated 14.10.2004 that income from salaries alone cannot be the sole criterion to decide whether a candidate falls within the creamy layer. The status as well as the category of post to which a candidate's parent or parents belong is essential.”, the court added.

Affirming the High Courts' decisions, the judgment authored by Justice R. Mahadevan held in an elaborate ruling that the eligibility of the respondent candidates had been wrongly determined by the Union of India on the basis of the 2004 clarificatory letter, while ignoring the 1993 Office Memorandum, which specifically excluded parental income from salaries and agricultural sources when determining the creamy layer status of candidates.

“Overemphasis on the 2004 Letter to the extent of making income alone determinative without regard to parental status or category of service would defeat the structural framework of exclusion envisaged under the 1993 OM…Thus, determination of creamy layer status solely on the basis of income brackets, without reference to the categories of posts and status parameters enunciated in the 1993 OM is clearly unsustainable in law.”, the court said.

The bench held that a clarificatory letter cannot introduce substantive changes to an existing executive policy.

“A clarificatory instruction cannot introduce a substantive condition that does not exist in the parent policy,” the Court observed.

Accordingly, the Court ruled that the 2004 clarification cannot be interpreted in a manner that overrides or dilutes the 1993 policy framework.

Hostile Discrimination Between PSU and Government Employees

The Court also examined whether the government's interpretation resulted in unequal treatment.

It noted that Group C and Group D government employees whose salaries increase over time are not automatically excluded from reservation benefits.

However, under the government's interpretation of the 2004 clarification, children of PSU or private employees could be excluded solely because their parents' salary exceeded the income threshold, even when the posts were equivalent to lower government service categories.

The Court held that such treatment would violate the equality principle under Articles 14 and 16 of the Constitution.

Treating children of PSU or private sector employees differently from similarly placed government employees would amount to “equals being treated unequally, the Court observed.

"The object of excluding the creamy layer is to ensure that socially advanced sections within the OBCs do not appropriate benefits meant for the genuinely backward; it is not to create artificial distinctions between equally placed members of the same social class," the Court observed.

The Court upheld the High Courts' view that treating similarly placed employees of private entities and PSUs differently from Government employees and their wards, while deciding their entitlement to reservation, would amount to hostile discrimination.

Accordingly, the appeals were dismissed, with a direction that the DoPT shall consider the claims of the respondent candidates and intervenors in accordance with the principles laid down in this judgment, applying the creamy layer test without including salary income from the parents' employment, and implement the same within a period of six months.

Noting that the government had earlier indicated before a parliamentary committee that supernumerary posts could be created to accommodate affected candidates, the Court directed authorities to create such posts where necessary.

Cause Title: UNION OF INDIA AND OTHERS VERSUS ROHITH NATHAN AND ANOTHER, ETC. (with connected appeals)

Citation : 2026 LiveLaw (SC) 232

Click here to download judgment

Appearance:

For Appellant(s) Ms. Aishwarya Bhati, A.S.G. Mr. Aman Mehta, Adv. Mrs. Alka Agrawal, Adv. Mr. Apoorva Kurup, Adv. Mr. Navanajay Mahapatra, Adv. Mr. Madhav Sinhal, Adv. Mr. Mayank Pandey, Adv. Ms. Sansriti Pathak, Adv. Mr. Shreekant Neelappa Terdal, AOR Ms. Aishwarya Bhati, ASG Ms. Sonali Jain, Adv. Ms. Manisha Chava, Adv. Ms. Shagun Thakur, Adv. N. Visakamurthy, AOR Mr. Arvind Kumar Sharma, AOR Ms. S. Janani, Sr. Adv. Mr. Kamal Kumar Pandey, Adv. Mr. Deepak Goel, AOR

For Respondent(s) Mr. Basavaprabhu Patil, Sr. Adv. Mr. Sanjay Hegde, Sr. Adv. Mr. Vikram Hegde, Adv. Ms. Hima Lawrence, AOR Ms. Chinmayi Shrivastava, Adv. Mr. Trishan Dollny, Adv. Mr. Ankit Tiwari, Adv. Mr. Arijit Sukla, Adv. Mr. Ashish, Adv. Mr. Tanay Hegde, Adv. Mr. Roy Abraham, Adv. Ms. Reena Roy, Adv. Mr. Adithya Koshy Roy, Adv. Mr. Yaduinder Lal, Adv. Mr. Sarswata Mohapatra, Adv. Mr. Himinder Lal, AOR Mr. Basavaprabhu Patil, Sr. Adv. Mr. T. Raja, Sr. Adv. Mr. Vikram Hegde, AOR Ms. Hima Lawrence, Adv. Ms. Chinmayi Shrivastava, Adv. Mr. M.t. Arunan, Adv. Mr. Trishan Dollny, Adv. Mr. M.A. Aruneshe, Adv. Mr. Arijit Sukla, Adv. Mr. Prateek K Chadha, AOR Mr. Sreekar Aechuri, Adv. Mr. Aniket Chauhaan, Adv. Mr. Harsh Parashar, AOR Mr. Shreekant Neelappa Terdal, AOR Mr. Vardhman Kaushik, AOR Mr. Arindam Sarin, Adv. Mr. Mayank Sharma, Adv. Mr. Dhruv Joshi, Adv. Mr. Vinay Kaushik, Adv. Mrs. P S Vijayadharni, Adv. Mr. Nishant Gautam, Adv. Mr. Varinder Kumar Sharma, AOR Ms. Manju Jetley, AOR Mr. Parmanand Gaur, AOR Mr. Abhikalp Pratap Singh, AOR Mr. Dhanesh Relan, Adv. Mr. Ashish Batra, AOR Mr. Siddhartha Jha, AOR Mr. Basavaprabhu Patil, Sr. Adv. Mr. Sanjay Hegde, Sr. Adv. Mr. Vikram Hegde, Adv. Ms. Hima Lawrence, AOR Ms. Chinmayi Shrivastava, Adv. Mr. Trishan Dollny, Adv. Mr. Ankit Tiwari, Adv. Mr. Arijit Sukla, Adv. Mr. Ashish, Adv. Mr. Tanay Hegde, Adv. Mr. Vikram Hegde, AOR Mr. Prateek K Chadha, AOR Mr. Sreekar Aechuri, Adv. Mr. Aniket Chauhaan, Adv. 4 Mr. Basavaprabhu Patil, Sr. Adv. Mr. T. Raja, Sr. Adv. Mr. Vikram Hegde, AOR Ms. Hima Lawrence, Adv. Ms. Chinmayi Shrivastava, Adv. Mr. M.t. Arunan, Adv. Mr. Trishan Dollny, Adv. Mr. M.A. Aruneshe, Adv. Mr. Arijit Sukla, Adv. Mr. Anuroop Chakravarti, Adv. Mr. M.S.Vishnu Sankar, Adv. Ms. Dimple Nagpal, Adv. M/S. Lawfic, AOR Mr. Varun Thakur, AOR Ms. Shraddha Saran, Adv. Mr. Ramkaran, Adv. Mr. Varinder Kumar Sharma, AOR