2026 INSC 352 SLP (C) Nos. 11592-11593 of 2023 Page 1 of 23

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No…………….. OF 2026

(SLP (C) Nos.11592-11593 of 2023)

THE STATE OF KERALA …APPELLANTS(S)

VERSUS

M. VIJAYAKUMAR & ORS. …RESPONDENT (S)

WITH

CIVIL APPEAL No…………….. OF 2026

(SLP (C) No.18030 of 2023)

J U D G M E N T

MANOJ MISRA, J.

1. Leave granted.

2. These two appeals impugn a common judgment and order of

the High Court of Kerala at Ernakulam

1 dated 22.11.2022 passed

1

The High Court

SLP (C) Nos. 11592-11593 of 2023 Page 2 of 23

in Writ Appeal Nos.131 and 202 of 2022 which arose from W.P. (C)

No.12062 of 2021 and W.P. (C) No.6411 of 2021. As these appeals

impugn a common judgment, they were heard together and are

being decided by a common judgment.

ISSUE

3. The short question posited for our consideration in these

appeals is: If dearness allowance

2 and dearness relief

3 are to be

added on salary and pension payable to serving employees and

retired employees, respectively, whether there could be a higher rate

for enhancement of DA than what it is for DR?

FACTS

4. Retired employees of Kerala State Road Transport

Corporation

4 filed a writ petition questioning the lower rate fixed

for enhancement of DR on pension than what was fixed for

enhancement of DA on salary. Their grievance was that the serving

employees got enhancement of DA by 14 per cent whereas the

pensioners’ DR was enhanced by 11 per cent. Claiming that there

was no rationale for different rates, and the same violated the

2

DA

3

DR

4

KSRTC

SLP (C) Nos. 11592-11593 of 2023 Page 3 of 23

mandate of Article 14

5 of the Constitution of India

6, writ petitions

were filed before a Single Judge of the High Court.

5. The learned Single Judge, vide order dated 14.12.2021,

dismissed the writ petitions holding that serving employees and

pensioners do not constitute one class, and therefore, different

rates of enhancement are permissible.

6. Aggrieved by the order of the learned Single Judge, intra court

appeals were filed before a division bench of the High Court.

7. The Division Bench, after considering the submissions,

formulated the following question for its consideration:

“Whether, after having taken a decision to extend

the benefits of the order of the State Government

declaring the enhancement of DA/DR to its

employees and pensioners, to the KSRTC and its

employees and pensioners , the State

Government/KSRTC could effect a classification

between the employees and pensioners of KSRTC

for the purposes of granting the DA/DR at

differential rates?”

8. After considering several decisions of this Court, the High

Court held as under:

“15. The principles that can be gleaned from the

aforesaid decision, when applied in the context

of the cases before us, compel us to hold that the

action of the State and the KSRTC in restricting

5

Article 14. – The State shall not deny to any person equality before the law or the equal protection of the laws

within the territory of India.

6

Constitution

SLP (C) Nos. 11592-11593 of 2023 Page 4 of 23

the benefit of enhancement of DR to the

pensioners of KSRTC to 109 % with effect from

March, 2021, while extending the benefit of

enhanced DA to its employees @ 112 % with

effect from March, 2021, is to be seen as

discriminatory and violative of Article 14 of our

Constitution. It cannot be disputed that a valid

classification must be justified vis-a-vis the

object that is sought to be achieved through the

measure that is adopted by the Government. In

the cases before us, the object of extending an

enhanced rate of DA/DR was essentially to

balance the effects of ongoing inflation so as to

ensure that the inflation does not interfere with

the enjoyment of life to which an employee

/pensioner is accustomed. Through the payment

of the allowances in question, the objective

aforesaid was to be attained, both in respect of

employees as well as the pensioners. A

restriction of the enhanced benefit to employees

alone to the exclusion of pensioners on the

specious plea of reasonable classification,

appears to us to be violative of the equality

clause enshrined in our Constitution. As already

noticed, while it was open to the State

Government / KSRTC to take into account the

possible financial burden that would be fastened

on them through the grant of enhanced DA/DR,

while deciding whether or not to grant the said

benefit to the employees / pensioners of KSRTC,

once they decided to extend the benefit to the

said employees/ pensioners, there could not be

discrimination between them in the course of

implementation of the decision. It is trite that the

question as to whether a classification is

reasonable or not must necessarily be tested

against the object sought to be achieved for

which the classification is held. In the instant

cases, and vis-a-vis the particular object that

was sought to be achieved through the grant of

enhanced DA/DR, we feel that a classification

between employees and pensioners was not

justified. Thus, we find ourselves unable to

sustain the impugned judgment of the learned

Single Judge. We set aside the same, and allow

the Writ Appeals and the Writ Petitions, with

consequential reliefs to the appellants herein.”

SLP (C) Nos. 11592-11593 of 2023 Page 5 of 23

9. Aggrieved by the decision of the Division Bench of the High

Court, the State of Kerala and KSRTC have separately filed appeals

before us.

10. We have heard Mr. Jaideep Gupta, learned senior counsel,

for the State of Kerala; Mr. P.V. Dinesh, learned senior counsel, for

KSRTC; and Mr. V. Chitambaresh, learned senior counsel, for the

retired employees (respondents).

SUBMISSIONS ON BEHALF OF THE STATE

11. On behalf of the State, it was submitted that retired

employees and serving employees constitute different classes.

Therefore, different rates for DA /DR qua two separate classes do

not violate the right to equality as enshrined in Article 14 of the

Constitution. Besides, financial reasons alone can justify different

rates for two separate classes.

SUBMISSIONS ON BEHALF OF KSRTC

12. Learned counsel representing KSRTC adopted the

submissions made on behalf of the State of Kerala and added that

KSRTC is facing a resource crunch, therefore, considering its

financial health, a conscious decision was taken to provide

dearness relief to the pensioners at a rate lesser than the one at

SLP (C) Nos. 11592-11593 of 2023 Page 6 of 23

which dearness allowance is to be provided to the serving

employees.

DECISIONS CITED ON BEHALF OF APPELLANT(S)

13. In support of their submissions, the learned counsel for the

State and KSRTC have cited following decisions:

i. T.N. Electricity Board vs. R. Veerasamy & Ors

7.

Therein the question that arose for consideration

was “whether the appellant Board acted illegally or

contrary to law in introducing the pension scheme to

the employees, who were hitherto not governed by

such pension scheme , prospectively from

01.07.1986. That is, whether the employees who

retired before 01.07.1986 after receiving all retiral

benefits available to them as per the law existing on

their dates of retirement, can compel the

appellant/Board to extend the benefit of newly

introduced pension scheme with retrospective effect”.

Upholding the Board’s decision, this court held that

the employees who retired before 01.07.1986

7

(1999) 3 SCC 414

SLP (C) Nos. 11592-11593 of 2023 Page 7 of 23

cannot compel the appellant/Board to extend the

benefit of the newly introduced pension scheme

with retrospective effect. While holding so, this

Court accepted the explanation of the Board that

there were financial constraints in making the

scheme applicable to all.

ii. State of Punjab and Ors. vs Amar Nath Goyal

and Ors.

8 Therein the Government took a decision

that those who retired or died on or after 01.04.1995

were entitled to get retirement gratuity/ death

gratuity on the basis of addition of certain portion

of the dearness allowance to the basic pay. The

employees who retired prior to 01.04.1995, being

deprived of its benefits, laid a challenge to such

deprivation. Negativing the challenge, this Court

held that financial and economic implications are

very relevant and germane for any policy decision

touching the administration of the Government.

Therefore, the decision of the Government, after

assessing the financial implications thereof, to limit

8

(2005) 6 SCC 754

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the benefits only to employees who retired, or died,

on or after 01.04.1995, was neither irrational nor

arbitrary.

iii. State of Rajasthan and Anr. vs. Amrit Lal

Gandhi and Ors.

9 Therein the validity of the cut-off

date from which the pension scheme was made

applicable was under challenge. As per the decision

of the Government, the scheme was made

applicable with effect from 01.01.1990. The

challenge laid to the said cut-off date was accepted

by the High Court and a direction was issued to

make it applicable from 01.01.1986 as the

recommendations were forwarded in 1986 . This

Court set aside the order of the High Court holding

that recommendations made in 1986 did not

contain a specific date with effect from which the

pension scheme was to be made applicable.

Moreover, the recommendations were subject to

approval. Additionally, the Court accepted the

explanation of the State that the decision for the

9

(1997) 2 SCC 342

SLP (C) Nos. 11592-11593 of 2023 Page 9 of 23

cut-off date of 01.01.1990 was “wholly economic”.

Besides, it was observed that “financial impact of

making the regulations retrospective can be the sole

consideration while fixing a cut-off date.”

iv. Chairman & MD, Kerala SRTC vs. K.O. Varghese

and Ors.

10 In this case, the issue was regarding the

decision to defer release of the benefits of 5

th Pay

Commission to the pensioners of KSRTC. The

Government of Kerala had authorized KSRTC to pay

pension to its employees as per the Kerala Service

Rules. Pursuant thereto, KSRTC took a decision to

pay pension to all those employees who retired after

01.04.1984, subject to fulfilling certain conditions.

When 5

th Pay Commission recommendations were

accepted by the State Government, due to

precarious financial position of KSRTC, a decision

was taken to implement only some of the

recommendations with effect from 01.11.1986 .

Further, the implementation of the

recommendations of 5

th Pay Commission relating to

10

(2007) 8 SCC 231

SLP (C) Nos. 11592-11593 of 2023 Page 10 of 23

pension and allied matters was deferred. Some of

the employees of KSRTC filed a writ petition in the

High Court challenging non-implementation of the

recommendations. Those writ petitions were

disposed of with direction to the Government to take

a policy decision on whether the benefits of 5

th Pay

Commission recommendations should be extended

to the pensioners of KSRTC. Pursuant thereto, a

decision was taken by the State Government

deferring the implementation of the

recommendations for better times. The matter

ultimately came to this Court. This Court held that

KSRTC is an autonomous corporation established

under the Road Transport Corporations Act, 1950.

It can regulate the service conditions of its

employees by making appropriate regulations in

that behalf. Until such regulations are framed, it is

entitled to take note of its financial health in

considering whether a particular recommendation

for enhanced pay or pension in respect of

government employees should be adopted by it, and

SLP (C) Nos. 11592-11593 of 2023 Page 11 of 23

if it is to be adopted by it, from what point of time.

Additionally, it was observed that financial

condition of a corporation like KSRTC is a relevant

factor. Consequently, this Court upheld the

decision of KSRTC to defer the implementation of 5

th

Pay Commission recommendations.

v. Himachal Road Transport Corporation and Anr.

vs. Himachal Road Transport Corporation

Retired Employees Union

11. Therein, this Court

held that employees who were governed by CPF

scheme and retired prior to 05.06.1995 by availing

benefit of the scheme and employees who were in

service and continued after 05.06.1995 cannot be

treated as a homogenous class. Besides, fixing the

cut-off date is an executive function based on

several factors like economic conditions, financial

constraints, administrative and other

circumstances. This Court also observed that it is

always open for the employer to introduce new

schemes and benefits, having regard to financial

11

(2021) 4 SCC 502

SLP (C) Nos. 11592-11593 of 2023 Page 12 of 23

health of the employer. It was further observed that

whenever such new benefit is extended for the

existing employees, retired employees cannot seek

such benefit merely on the ground that they too

were the former employees of the Corporation.

14. By relying on the aforesaid decisions, it was contended that

serving and retired employees cannot be equated and financial

decisions are not amenable to challenge, as the employer is the

best judge of which scheme is to be brought and implemented, and

to what extent.

SUBMISSIONS ON BEHALF OF THE RETIRED EMPLOYEES

/RESPONDENTS

15. On behalf of the pensioners, it was submitted that this is not

a case where eligibility to pension or dearness relief is in issue. The

State Government has authorized KSRTC to give pensionary

benefits to its employees. Pursuant thereto, KSRTC has taken a

conscious decision to pay pension to its employees. Therefore,

there is no doubt regarding eligibility to pension, and there is no

dispute that DR, which is linked to inflation, is payable to

pensioners. However, the issue is whether DR could be enhanced

at a rate lower than at which DA is enhanced for the serving

SLP (C) Nos. 11592-11593 of 2023 Page 13 of 23

employees. In that context, it is submitted that the object of DA

as well as DR is to ensure that serving employees / pensioners do

not suffer on account of inflation. But since inflation is common

for both serving and non-serving/ retired employees, there is no

rationale for differential rates. Hence, the High Court’s decision

does not warrant any interference.

16. In support of his submissions, the learned counsel for the

petitioner relied on:

(i) Kallakkurichi Taluk Retired Officials

Association, Tamil Nadu and Ors. vs. State of

Tamil Nadu.

12 In this case, it was observed that the

object of extending DA and Dearness Pay, which is

equivalent to DR, to employees / retired employees

is to balance the effects of ongoing inflation. Since

the component of inflation similarly affects all

employees and all pensioners irrespective of the

date of their entry into service or retirement, it is not

per se possible to accept different levels of dearness

pay to remedy the malady of inflation.

12

(2013) 2 SCC 772

SLP (C) Nos. 11592-11593 of 2023 Page 14 of 23

(ii) Kerala High Court judgment in Writ Petition (C)

No.13798/2012: M. Venugopalan Nair vs. The

Chairman and Managing Director , KSRTC, dated

03.07.2013. Therein it was held as follows:

“Learned Standing Counsel contended

that the serving employees and retired

employees are two different and distinct

classes. Once KSRTC takes a decision to

disburse such benefits to distinct classes

on different dates, no discrimination can

be attributed, is the contention. It is to

be accepted that serving employees and

pensioners fall within two distinct and

different categories. But question to be

considered is as to whether the decision

for giving benefits on different dates

among those categories is justified or not.

When it comes to the question of

sustainability or justification of such

decision, the objective has to be looked

into. Merely because they fall within two

categories, there cannot have different

yardsticks in the matter of payment of

benefits. Once KSRTC takes a decision to

implement the revision of D.A., the same

should have been uniformly applied.

Unless there is any nexus with any

objective sought to be achieved, no

justifiable reasoning can be there for the

differentiation among the two categories,

and in such situation, it will amount to

discrimination. Therefore, I am of the

view that there is justification in the

claim made by the petitioner seeking

declaration for uniform treatment.”

(iii) Division bench decision of the Kerala High Court in

W.A. No. 176/2014: The Managing Director of

KSRTC vs. M. Venugopalan Nair , dated

SLP (C) Nos. 11592-11593 of 2023 Page 15 of 23

09.02.2017. In this case, the High Court had

observed:

“Though serving employees and

pensioners fall under two distinct and

different categories, there cannot be

different yardsticks in the matter of

payment of benefits on revision of DA.

Once the appellant corporation takes a

decision to implement the revision of DA

the same should have been uniformly

applied. Unless there is any nexus with

any objective sought to be achieved, no

justifiable reasoning can be there for the

differentiation among the two categories,

and in such situation, it will amount to

discrimination.”

17. Relying on the above decisions, the learned counsel for the

respondents submitted that as KSTRC had taken a decision to

provide DR to meet inflationary pressure, there was no justification

to have a different rate for increase of DR than what it is for DA,

when the inflation index is common.

REJOINDER SUBMISSIONS

18. In his rejoinder submission, learned counsel for the State

invited our attention to paragraph 37 of th e judgment in

Kallakkurichi Taluk (supra), wherein it was observed as follows:

-

“37. The issue in hand needs to be examined

from another perspective as well. It must be

clearly understood that no employee has a right

SLP (C) Nos. 11592-11593 of 2023 Page 16 of 23

to draw “dearness allowance” as “dearness pay”

till such time as the State Government decides

to treat “dearness allowance” as “dearness pay”.

And therefore, the State Government has the

right to choose whether or not “dearness

allowance” should be treated as “dearness pay”.

As such, it is open to the State Government not

to treat any part of “dearness allowance” as

“dearness pay”. In case of financial constraints,

this would be the most appropriate course to be

adopted. Likewise, the State Government has the

right to choose how much of “dearness

allowance” should be treated as “dearness pay”.

As such, it is open to the State Government to

treat a fraction, or even the whole of “dearness

allowance” as “dearness pay”. Based on Rule 30

of the Pension Rules, it is clear that the

component of “dearness pay” would be added to

emoluments of an employee for calculating

pension. In a situation where the State

Government has chosen, that a particular

component of “dearness allowance” would be

treated as “dearness pay”, it cannot discriminate

between one set of pensioners and another, while

calculating the pension payable to them (for the

reasons expressed in the preceding paragraphs).

Of course, a valid classification may justify such

an action. In this case, the State Government

has not come out with any justification/basis for

the classification whereby one set of pensioners

has been distinguished from others for

differential treatment.”

19. We have considered the rival submissions and have perused

the materials on record.

DISCUSSION

20. Before we dwell on the question framed above, it would be

apposite to have a glimpse at the undisputed facts. There is no

dispute inter se parties that the State of Kerala, vide G.O. (Rt)

SLP (C) Nos. 11592-11593 of 2023 Page 17 of 23

No.98/2021/TRANS dt. 25.02.2021 , to meet inflationary

pressures had sanctioned a certain sum of money, by way of

temporary relief, while enhancing DA to 112% (an increase of 14%)

for KSRTC employees and DR to 109% (an increase of 11%) for

pensioners, effective March 2021. Thus, what is clear is that DR

is payable to pensioners of KSRTC and the same is to be increased

from time to time. The issue is that why should DR be raised at

11% when DA has been raised at 14%, when both are linked to

inflation index.

21. DA is paid to serving employees whereas DR is paid to

pensioners. The object of both DA and DR is common, which is to

enable the serving employees /pensioners meet the exigencies of

inflation. As the object of both DR/ DA is common, which is to

meet inflationary pressures, and the inflation index is common to

both the serving and the non-serving/ retired employees, qua the

measure, that is, the rate(s) of increase of DA/ DR, could serving

and retired employees be differentiated, is the issue which we shall

address.

22. Article 14 of the Constitution forbids class legislation but

permits reasonable classification which must satisfy twin tests: (1)

that the classification must be founded on an intelligible differentia

SLP (C) Nos. 11592-11593 of 2023 Page 18 of 23

which distinguishes those that are grouped together from others,

and (2) that differentia must have rational nexus with the object

sought to be achieved by the Act – The differentia which is the basis

of the classification and the object of the Act are distinct things

and what is necessary is that there must be a nexus between the

two.

13 Legislative and executive action may accordingly be

sustained if it satisfies the twin tests of reasonable classification

and the rational principle correlated to the object sought to be

achieved. The burden of proof lies on the State to affirmatively

establish that these twin tests have been satisfied. The State must

therefore not only establish the rational principle on which

classification is founded but correlate it to the objects sought to be

achieved

14. 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. In

fact, equality and arbitrariness are sworn enemies; one belongs to

the rule of law in a republic while the other, to the whim and

caprice of an absolute monarch. Where an act is arbitrary, it is

13

See: (1952) 1 SCC 1: 1952 SCC OnLine SC 1: State of West Bengal v. Anwar Ali Sarkar; (1954) 2 SCC 791: 1954

SCC OnLine SC 19: Bhudhan Choudhary & Others v. State of Bihar

14

(1983) 1 SCC 305: D.S. Nakara & Others v. Union of India, paragraphs 15 and 16

SLP (C) Nos. 11592-11593 of 2023 Page 19 of 23

implicit in it that it is unequal both according to political logic and

constitutional law and is therefore violative of Article 14, and if it

affects any matter relating to public employment, it is also violative

of Article 16. Articles 14 and 16 strike at arbitrariness in State

action and ensure fairness and equality of treatment. They require

that State action must be based on valid relevant principles

applicable alike to all similar situate and it must not be guided by

any extraneous or irrelevant considerations because that would be

denial of equality

15.

23. In Ajay Hasia and others v. Khalid Mujib Sehravardi and

others

16, this Court observed that doctrine of classification is the

judicial formula for determining whether the legislative or

executive action in question is arbitrary and therefore constituting

denial of equality. If the classification is not reasonable and does

not satisfy the two conditions referred to above, the impugned

legislative or executive action would plainly be arbitrary and the

guarantee of equality under Article 14 would be breached.

Wherever therefore there is arbitrariness in State action whether it

be of the legislature or of the executive or of an authority under

15

(1974) 4 SCC 3: E.P. Royappa v. State of Tamil Nadu and Another, paragraph 85.

16

(1981) 1 SCC 722, paragraph 16

SLP (C) Nos. 11592-11593 of 2023 Page 20 of 23

Article 12, Article 14 immediately springs into action and strikes

down such State action.

24. In State of Punjab & Ors. v. Davinder Singh & Ors

17, Dr.

D.Y. Chandrachud, C.J. (as His Lordship then was), while

explaining the contours of Article 14, wrote:

“85. The Constitution permits valid classification

if two conditions are fulfilled. First, there must

be an intelligible differentia which distinguishes

persons grouped together from others left out of

the group. The phrase “intelligible differentia”

means difference capable of being understood.

The difference is capable of being understood

when there is a yardstick to differentiate the

class included and others excluded from the

group. In the absence of the yardstick, the

differentiation would be without a basis and

hence, unreasonable. The basis of classification

must be deducible from the provisions of the

statute; surrounding circumstances or matters

of common knowledge. In making the

classification, the State is free to recognize

degrees of harm. Though the classification need

not be mathematical in precision, there must be

some difference between the persons grouped

and the persons left out, and the difference must

be real and pertinent. The classification is

unreasonable if there is little or no difference.

Second, the differentia must have a rational

relation to the object sought to be achieved by

the law, that is, the basis of classification must

have a nexus with the object of the

classification”.

(Emphasis supplied)

17

(2025) 1 SCC 1

SLP (C) Nos. 11592-11593 of 2023 Page 21 of 23

25. Now, applying the twin-tests principle, we shall test the

validity of the Government Order to the extent it provides a lower

rate of increase for DR than what it provides for DA. 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.

26. The issue here is not about entitlement to DR on pension.

Therefore, in our view, the decisions cited by the learned counsel

for the appellants are not applicable on the facts of the case on

hand. Besides, 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

SLP (C) Nos. 11592-11593 of 2023 Page 22 of 23

arbitrary. Therefore, in our view, the High Court was justified in

holding the same to be discriminatory and violative of Article 14.

27. The decisions cited by the learned counsel for the State as

well as KSRTC do not deal with a situation where there is no

dispute as regards entitlement to the benefit in question. Here, the

retired employees are not only entitled to pension but also

dearness relief, which is revisable from time to time, based on

inflation. Thus, the issue is not of entitlement to the benefit but

of differential rates at which those benefits are provided,

dependent on whether the recipient is a serving or a retired

employee. In our view, when those benefits serve a common

purpose and are linked to inflation, and inflationary pressures do

not discriminate between a serving employee and a pensioner,

fixing different rates of enhancement of dearness allowance and

dearness relief have no rational nexus to the object sought to be

achieved and is clearly discriminatory as well as arbitrary.

28. 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

SLP (C) Nos. 11592-11593 of 2023 Page 23 of 23

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.

29. As a result, we do not find any merit in these appeals. The

same are accordingly dismissed. Pending application (s), if any,

shall stand disposed of. There is no order as to costs.

.................................J.

(Manoj Misra)

.................................J.

(Prasanna B. Varale)

New Delhi;

April 10, 2026