Holding

Excluding retirees and legal heirs from the pay revision benefits, while granting them to existing employees, is discriminatory and violates Article 14; VRS employees are not entitled to the same benefit.

Summary

The Maharashtra State Financial Corporation (MSFC) adopted the Fifth Pay Commission recommendations but limited the benefit to employees who were on its payroll on 29 March 2010, fixing a retrospective cut‑off date of 1 January 2006. Retired employees and legal heirs of those who died between 1 January 2006 and the implementation date were excluded, prompting a writ petition alleging discrimination under Article 14 of the Constitution. The Supreme Court held that while the State may fix a cut‑off date, the exclusion of a class of employees who performed the same duties and were entitled to interim relief amounts to arbitrary classification and violates Article 14. However, employees who had taken voluntary retirement were held to be on a different footing and not entitled to the revision. The Court set aside the High Court’s order, directed MSFC to pay arrears with interest to the excluded retirees and their heirs, and partially allowed the appeal.

Issues considered

Whether limiting the Fifth Pay Commission pay revision to only those employees in service on the implementation date, excluding retirees and deceased employees, violates Article 14.
Whether the classification based on the cut‑off date has a rational nexus with the objective of pay revision.
Whether financial considerations of the corporation justify the exclusion.
Whether employees who opted for Voluntary Retirement Scheme are entitled to the same revision benefits.

Legislation cited

State Financial Corporations Act, 1951s. 39

Subjects

Pay revisionFifth Pay CommissionArticle 14DiscriminationRetrospective cut‑off dateVoluntary Retirement SchemePublic sector corporationEqualityCost of living

Judgment

[2023] 1 S.C.R. 1169 1169

MAHARASHTRA STATE FINANCIAL CORPORATION EX- A
EMPLOYEES ASSOCIATION & ORS.
v.
STATE OF MAHARASHTRA & ORS.
(Civil Appeal No. 778 of 2023) B
FEBRUARY 02, 2023
[ANIRUDDHA BOSE AND S. RAVINDRA BHAT, JJ.]
Service Law– Pay revision – Application of Fifth Pay
Commission to the employees of Maharashtra State Financial C
Corporation with effect from retrospective cut-off date, but limited
to only existing employees in service as on the date of
implementation – Former employees (including retirees, legal
representatives of those who had expired, and those who had availed
of voluntary retirement scheme) who were in service as on the D
retrospective cut-off date, but not on the date of implementation,
filed writ petition complaining of discrimination – Held: Decision
to grant pay revision from cut-off date cannot be faulted with, but
to not grant any revision to those who were not in service when the
order implementing the pay revision was issued and confining it to
E
those in employment, is clearly discriminatory – Limiting pay revision
only to existing employees has no rational nexus with the object of
pay revisions which is to mitigate rise in cost of living – Further
classification in the same class is violative of Article 14 – Those
who retired upon attaining superannuation or those who died while
in service are entitled to relief – VRS employees and those dismissed/ F
terminated from service not on same footing – Constitution of India
– Art. 14.

Constitution of India –Separation of powers – Policy
regarding fixation of pay, extent of revision, date of implementation G
– Exclusively within executive decision making powers – However,
jurisdiction of courts arises in questions of larger public interest –
On manner of implementation, timing of applicability of scheme,
impact, and especially where it results in exclusion or discrimination
of certain sections of public employees from the benefit –Art. 14.
H
1169
1170 SUPREME COURT REPORTS [2023] 1 S.C.R.

A Constitution of India – Rationale of pay revisions – Larger
public interest involved - State and public employers obligated to
periodically address ill-effects of rise in cost of living – Other
objectives include enthusing commitment and loyalty towards public
employment, to deter public servants from lure of gratification –
B Art. 43.

Partly allowing the appeal, the Court

HELD: 1.1 Framing a policy concerning fixation of pay for
the salaries of its employees, the extent of its revision, and even
C the date of its implementation, are undoubtedly exclusively within
executive decision making powers. However, the manner of its
implementation, the timing of applicability of a scheme, and its
impact, especially where it results in exclusion of a certain section
of public employees from the benefit, are subject matters of
D scrutiny by the court. Especially, when the complaint is of
discrimination and violation of Article 14 of the Constitution, as
is the present case. [Para 1][1175-B-C]

1.2 Maharashtra State Financial Corporation-MSFC did not
finalise whether to adopt Fifth Pay Commission (which had been
E given effect from 01.01.1996 by the State Government) for its
employees and sent the proposal to the State Government as per
Section 39 of the State Financial Corporations Act, 1951. Benefit
of interim relief of pay revision was granted to all existing
employees who were on pay rolls of MSFC between 01.01.1996
F and 29.03.2010. Only on 29.03.2010, based on communication
received from the State Government, MSFC implemented the
pay revision recommendations effective only in respect of existing
employees and limited the arrears payable from 01.01.2006. The
reason for the cut-off date (approved by the State Government)
G was “in order to motivate the present staff to recover maximum
amount in NPA Accounts”. Second justification for denying benefit
of pay revision was that fixation of cut-off date falls within state
policy domain, which involves among others - the state’s financial
concerns, which the courts should not interfere in. [Para 21-23,
H 26][1181-F-G; 1182-A-C; 1186-D]
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1171
ASSOC. v. STATE OF MAHARASHTRA

1.3 A larger public interest is involved, impelling revision A
of pay of public officials and employees. The rationale for periodic
pay revisions is to ensure that the salaries and emoluments that
public employees enjoy, should keep pace with the increased cost
of living and the general inflationary trends, and ensure it does
not adversely impact employees. Pay revisions also subserve B
other objectives, such as enthusing a renewed sense of
commitment and loyalty towards public employment. Another
important public interest consideration, is that such revisions
are meant to deter public servants from the lure of gratification;
of supplementing their income by accepting money or other C
inducements for discharging their functions. Article 43 of the
Constitution obliges the State to ensure all workers are provided
with living wage and assured of a decent standard of living. Need
for providing a mechanism to neutralize price increase, through
dearness allowance (which is to be on a “sliding scale”) has been
D
emphasized in past decisions of this court. As a measure of public
interest, the State and public employers, have an obligation to
periodically address ill-effects of rise in cost of living, on account
of price rise, which results in fall in real wages. However, there
is no straitjacket formula as to when, and to what extent pay
E
revision should take place. [Para 27-29][1186-E-H; 1187-A-B;
1188-C-D]

Hindustan Lever Ltd. v. B.N. Dongre [1994] 2 Suppl.
SCR 217 : (1994) 6 SCC 157 – relied on.
F
1.4 Whilst the fixation of cut-off date for the grant of benefits
cannot be questioned, what is within the domain of the court, is
to examine the impact of such fixation and whether it results in
discrimination. The State and MSFC decided not to implement
the pay commission recommendation from the date it came into
effect (01.01.1996), but with effect from a decade later G
(01.01.2006), because the benefit given to employees (or arrears)
on the rolls of MSFC as on 29.03.2010 were limited to arrears
payable from 01.01.2006. At the same time, fitment and fixation
of salary was with effect from 01.01.1996.The fitment formula
envisioned the fixation in the new scales, even if notionally, from H
1172 SUPREME COURT REPORTS [2023] 1 S.C.R.

A 01.01.1996. Arrears were made payable, based on that fitment
and fixation, with effect from 01.01.2006. Another significant fact
is that interim relief had been directed and was made payable, to
all employees, between 01.01.1996 and 29.03.2010, and it was
not to be recovered. This demonstrates that those who retired
B between these dates, and those who continued in service, form
part of the same class. Further, there is also no distinction between
those in service as on 01.01.2006 but retired before 29.03.2010,
and those who continued thereafter. [Para 30-31][1188-E, H; 1189-
A-B]
C 1.5 The question is whether the classification, excluding
employees who retired before 29.03.2010 and confining pay
revision benefits (albeit with effect from 01.01.2006) results in
discrimination. This court has struck down such instances in the
past: a condition making only graduates among those holding
D post of forest guard, eligible for a limited departmental exam,
amounted to creating a class within a class, which is impermissible
(Maharashtra Forest Guards & Foresters Union v. State of
Maharashtra); denying pay revisions to those teachers who had
retired during a specified period (i.e., discrimination on the basis
E of date of retirement) was arbitrary, as it resulted in discrimination
between teachers working in government colleges and in non-
governmental colleges which would mean treating equals
unequally (U.P. Raghavendra Acharya &Ors. v. State of Karnataka
&Ors.); classification caused by formula of pension whereby those
F retiring before a cut-off date were given lower rate of revised
pension, as compared to those retiring later held to be
discriminatory (All Manipur Pensioners Association by its Secretary
v. State of Manipur &Ors.). [Para 32-35][1189-C-D; 1190-E-F;
1192-A-B]
G State of J&K v. Triloki Nath Khosa [1974] 1 SCR 771:
(1974) 1 SCC 19; Maharashtra Forest Guards &
Foresters Union v. State of Maharashtra [2017] 14 SCR
446 : (2018) 1 SCC 149; U.P. Raghavendra Acharya
& Ors. v. State of Karnataka & Ors. [2006] 2 Suppl.
H SCR 582: (2006) 9 SCC 630; All Manipur Pensioners
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1173
ASSOC. v. STATE OF MAHARASHTRA

Association by its Secretary v. State of Manipur & Ors. A
[2019] 9 SCR 905 : (2020) 14 SCC 625 – relied on.

1.6 In the present case the employees who retired prior to
29.03.2010 discharged the same duties as in the case of those
who did thereafter. The quality and content of responsibilities
B
assigned to them were the same. The respondents’ decision not
to grant arrears prior to 01.01.2006 cannot be found fault with;
however, not to grant any revision to those who were not in
service when the order implementing the pay revision was issued
and confining it to those, in employment is clearly discriminatory.
The rationale that granting such pay revision only to existing C
employees would be to enthuse them to recover NPA amounts
payable to MSFC has no rational nexus with the object sought to
be achieved by the pay revision, which is to benefit employees
and protect them from the rise in the cost of living. There is no
distinction between those who retired (or died in service) before D
29.03.2010 and those who continued in service (and were given
pay revision). They fell in the same class and a further distinction
could not be made. The fact that the MSFC did not recover any
interim relief or amount disbursed towards the 5 th Pay
Commission reaffirms that these ex-employees belonged to the E
same class. The exclusion of the retired employees, who retired
between 01.01.2006 and 29.03.2010 on achieving their date of
superannuation, is violative of Article 14 of the Constitution of
India. [Para 36-37][1194-E-H; 1195-A-B]
F
1.7 However, employees who secured VRS benefits and
left the service of MSFC voluntarily during this period, stand on
a different footing. They cannot claim parity with those who
worked continuously, discharged their functions, and thereafter
superannuated. VRS employees chose to opt and leave the service
of the corporation; they found the VRS offer beneficial to them. G
Apart from the normal terminal benefits they were entitled to,
the additional amount each of them was given - was an ex-gratia
amount, equal to a month’s salary for each completed year of

H
1174 SUPREME COURT REPORTS [2023] 1 S.C.R.

A service. Other retired employees were never given such
amounts. [Para 38][1195-B-D]

A.K. Bindal v. Union of India [2003] 3 SCR 928: (2003)
5 SCC 563– relied on.
B 1.8 Those who retired from the services of MSFC between
retrospective cut-off date and date of implementation, and the
legal heirs/representatives of those who died during that period,
shall be entitled to arrears based on pay revision. VRS employees,
and those who were dismissed or terminated from service, cannot
C claim parity for benefit of pay revision. [Para 39, 40][1196-E-F]

Case Law Reference

[1994] 2 Supp. SCR 217 relied on Para 28

[1974] 1 SCR 771 relied on Para 32
D
[2017] 14 SCR 446 relied on Para 33

[2006] 2 Suppl. SCR 582 relied on Para 34

[2019] 9 SCR 905 relied on Para 35
E
[2003] 3 SCR 928 relied on Para 38, 39

CIVIL APPELLATE JURISDICTION : Civil Appeal No.778 of
2023.

F From the Judgment and Order dated 19.06.2018 of the High Court
of Judicature at Bombay at Nagpur in WP No.1420 of 2013.

Jay Savla, Sr. Adv., Satya Priya Rao, Nitin S.Tambwekar,
Seshatalpa Sai Bandaru, Jasdeep Singh Dhillon, Advs. for the Appellants.

G Santosh Paul, Sr. Adv., Maithreya Shetty, Vedant Mishra, Akshay
Kumar, M. J. Paul, Sachin Patil, Siddharth Dharmadhikari, Aaditya
Aniruddha Pande, Geo Joseph, Risvi Muhammed, Durgesh Gupta, Advs.
for the Respondents.

H
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1175
ASSOC. v. STATE OF MAHARASHTRA

The Judgment of the Court was delivered by A
S. RAVINDRA BHAT, J.
1. Special leave to appeal granted. With the consent of learned
counsel for the parties, the appeal was heard finally.
2. What is involved in this case, is the fixation of date for the B
implementation of the Fifth Pay Commission recommendations, when
applied to the respondent Corporation. That framing a policy concerning
fixation of pay for the salaries of its employees, the extent of its revision,
and even the date of its implementation, are matters of undoubted
exclusive executive decision making powers. However, the manner of
its implementation, the timing of applicability of a scheme, and its impact, C
especially where it results in exclusion of a certain section of public
employees from the benefit, are subject matters of scrutiny by the court,
especially, when the complaint is of discrimination and violation of Article
14 of the Constitution. This is one such case.
3. The appellant association (consisting of employees who had D
superannuated, opted for VRS, resigned, or legal heirs of expired
employees of the respondent corporation) challenge a judgment1 of the
Bombay High Court (Nagpur bench). In that proceeding, the appellants
had complained of discrimination against the decision dated 29.03.2010,
of the Industry, Energy and Labour Department, Government of E
Maharashtra (hereafter “the State”). That decision denied the benefit
of revision of pay scales, as recommended by the Fifth Pay Commission,
to the employees of the Maharashtra State Financial Corporation
(hereafter “MSFC”) who had retired or died during the period of
01.01.2006 to 29.03.2010. That decision of the State made the revision
of pay scale as a result of the Report of the Fifth Pay Commission F
applicable to 115 employees of MSFC who were working as on
29.03.2010. The revision, however, was given effect from 01.01.2006.
4. The appellants had urged before the High Court, that denying
them the benefit of pay scales was discriminatory and arbitrary, because
they were in continuous service, and had even received the benefit of G
interim revision, pending finalization of pay scales pursuant to the Pay
Commission Report. It was urged that those in employment on and after
29.03.2010, and those who continued in service after 01.01.2006 but
retired before 29.03.2010, belonged to the same category. The only
1
dated 19.06.2018 in W.P. No. 1420/2013 H
1176 SUPREME COURT REPORTS [2023] 1 S.C.R.

A difference between those who were in service after the latter date, was
that they had longer period of service. However, the crucial date for
grant of pay revision, was the date from which it was given effect to,
i.e., 01.01.2006. As all the appellants were in service as on that date, the
denial of pay revision, which was concededly for the period they had
worked, amounted to not only hostile discrimination, but also withholding
B
of pay revision benefits, legitimately and rightfully theirs.
5. By the impugned order, the High Court accepted the submissions
of MSFC and the State, that financial considerations were of importance
in regard to grant or denial of monetary benefits. The MSFC had also
urged before the High Court, that the benefit was granted to those
C employees on the rolls of the corporation, as of 29.03.2010, in order to
motivate and incentivise them for better performance.
6. After quoting the counter affidavit filed by the State Government,
which approved such revision, the High Court accepted MSFC’s
argument:
D ““…It was also considered that there were only 115 employees
working in the Respondent No.2 Corporation and the said
strength of said employees will further reduce in near future.
An expenditure of Rs.16.00 lakhs per month was being
incurred on the salary payable to the employees. It was also
E noted that the Respondent No.2 stopped sanctioning and
disbursing loan from the year 2005 and presently only the
work of recovery of loans already given is being done. It was
also considered that the strength of the employees existing is
necessary for carrying out the work of loan recovery.
Considering the target of loan recovery fixed for the years
F 2009-10, it was felt necessary to motivate the existing staff to
give benefit of pay revision to employees to work hard for
achieving the recovery target. Considering the financial
implications, keeping in view the number of employees it was
decided to implement 5th pay to the employees of Respondent
No.2. Accordingly, considering its income and considering
G
all relevant factors; it was decided that the pay revision based
on 5th Pay Commission recommendations should be given
only to the existing employees and that the revised pay scales
should be made applicable from 01.01.2006. After
considering the above fact, the Finance Department of the
H answering Respondent took decision to approve the revision
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1177
ASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.]

of pay scale and communicated decision to respondent No.2 A
vide Government GR No.SFC-2009 (422/Industries-7) dated
29/03/2010, as per the recommendations made by the Finance
Department. Accordingly, Government Resolution dated
20.03.2010 was issued.
16. It is specifically denied that the Government Resolution B
dated 29.03.2010 is discriminatory in nature and violets the
fundamental rights of the member of the Petitioner Union. It
is submitted that the answering Respondent has already taken
policy decision on 16.02.2010 not to extend any budgetary
support to any public sector Corporation in the State for the
purposes of granting pay revision to its employees. C
Considering the fact the Respondent No.2 is not a profit
making Corporation, the question of pay revision was
considered keeping in view the financial implications and the
capacity of Respondent No.2 which played development role
to bear the additional financial burden on account of such D
pay revision. At the same time it was noted that it was also
necessary to give existing employees pay revision to motivate
them to work hard for recovering the loans already disbursed.
The pay revision was made effective from 01.01.2006 again
keeping in view the financial implications. It is submitted that
the decision taken by the answering Respondent is based on E
objective and rational considerations.”
7. In the decisions relied upon by Shri Puranik, the learned
Counsel for the respondent - Corporation in the matter of
revision of pay scale, the Apex Court has clearly laid down
that financial implication is the relevant criteria for fixing F
the cut-off date. The other decisions relied upon by Shri
Dhole, the learned Counsel for the petitioners are on the
question of payment of pension and other benefits.
8. Keeping in view the justification furnished by the respondent
nos.1 and 2, we do not find that fixation of cut off date of 29/
G
3/2010 in the present case is arbitrary or irrational. We,
therefore, do not find any substance in the petition.”
The appellants’ contentions
7. Mr. Jay Salva, learned counsel for the appellants argued that
the last pay revision was made applicable to MSFC’s employees from
H
1178 SUPREME COURT REPORTS [2023] 1 S.C.R.

A 01.01.1986, which expired on 31.12.1989, and MSFC considered pay
revision to be made effective from 01.01.1990. Its proposal for pay
revision was submitted to the State Government by the Board of Directors
of MSFC. The revision of pay and emoluments was approved by MSFC’s
Board of Directors, and it was forwarded to the State of Maharashtra
for final approval in the year 1996. Pending approval of the said revision,
B
further five revisions were kept due. Instead of considering those
revisions, the MSFC’s Board of Directors arbitrarily implemented the
pay commission’s recommendations w.e.f. 01.01.1996. The benefits of
revised pay were passed on to the existing 115 employees working at
the relevant time only, and deprived 900 ex-employees of similar benefits,
C though the revision was applicable to them for the period of their service
time span, respectively.
8. It was submitted that the cut-off date, for granting benefits of
the pay revision, is arbitrary, because several employees had retired,
after long years of loyal service. They would be deprived of the benefit
D of any pay revision, merely because the MSFC chose to implement the
decision on a particular date, after their retirement.
9. It was also urged that the State and the MSFC cannot
discriminate between persons who worked during the same period, and
discharged their duties in accordance to its mandate, merely because
E some of them had retired. Thus, the fixation of date, in this case, is
arbitrary as it deprives the benefit of pay revision - which is otherwise
made applicable to all employees who worked during a particular period
- to those who ceased to be in employment, despite working in the said
period. It was submitted that those who worked for the period 2000-
2005 are in the same class of employees, who worked after the so called
F cut-off date, i.e., 01.01.2006.
10. It was submitted that all those in employment, including those
who were finally deprived of the pay revision on account of retirement,
were granted three interim reliefs by the MSFC from September, 1993
onwards (on 03.03.1994, 29.04.1996, and 07.09.1996) towards the
G recommendations of the Fifth Pay Commission, in line with directions of
the Maharashtra government.
11. It was further argued that no recoveries were made (under
the impugned GR dated 29.03.2010) of the amount paid towards interim
relief and ad hoc amount paid to existing employees from September,
H
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1179
ASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.]

1993 to July, 2001 which shows that the Fifth Pay Commission’s A
recommendations were implemented from 01.01.1996.
12. Mr. Salva further submitted that the total liability of the MSFC
is not more than ` 32 crores, in respect of past employees, including
those who had retired, sought VRS, or had died before the pay revision
was made effective. The figure of existing employees, as on the date of B
the issuance of the order was 114; 130 had retired and 631 had sought
voluntary retirement. However, all of them had benefited and secured
interim relief to the extent of 30%, through the orders of the MSFC
itself. In these circumstances, singling out existing employees from a
homogenous larger group, amounted to hostile discrimination against those
left out. C

13. It was submitted that those who had sought voluntary retirement
cannot be left out, on the ground that they had secured benefits and not
completed their tenure. In this regard, Mr. Salva placed reliance on the
following condition (Clause 5) of the VRS scheme2:
D
“The officers/employees whose request for voluntary
retirement is accepted by the Corporation will be entitled for
payment of arrears on account of revision of pay-scales and
allowances as also for the difference of voluntary retirement
benefits accruing to them on account of revision of pay-scales,
if and as may be made effective retrospectively to the E
employees of the Corporation by the Board and approved by
Govt. of Maharashtra and IDBI.”
14. Reliance was placed on the decisions of this court in Col B.J.
Akkara (Retd) v. Govt of India3 , D.S. Nakara v. Union of India4 to
urge that the employer cannot discriminate and divide a homogenous F
class of employees, and deprive one section of them by the artificial
device of a cut-off date.
Contentions of MSFC
15. Mr. Sachin Patil, learned counsel appearing for the respondents
G
– the State government, and MSFC, urged that the impugned judgment
does not call for interference. It was submitted that MSFC is an
autonomous corporation established under the State Financial Corporation
2
Introduced by the MSFC’s Office Order No. 14 dated 29.03.1996
3
[2006] 7 Suppl. SCR 58; (2006) 11 SCC 709
4
[1983] 2 SCR 165; (1983) 1 SCC 305 H
1180 SUPREME COURT REPORTS [2023] 1 S.C.R.

A Act. It is not bound to follow the terms and conditions applicable to
Maharashtra Government employees. In fact, it has to independently
generate its income from its own resources to meet any additional burden
or expenditure due to increased pay or increase in wages for its
employees. It was submitted that under Section 39 of the State Financial
Corporations Act, 1951 it has to seek guidance and directives of the
B
State Government in policy matters.
16. It was submitted that the MSFC was not bound by the decision
of the State to implement the decisions of the Fourth, Fifth and Sixth Pay
Commissions for its employees. In fact, the State never directed the
Corporation to implement such Pay Commission recommendations. It
C only approved a proposal to extend the benefit of Fifth Pay Commission
recommendations to the Corporation’s employees in terms of its letter
dated 23.09.2010. Before that, the State refused to grant approval to the
resolution passed by the Board of Directors on 24.07.1996.
17. It was further argued that the employees of the Corporation
D cannot claim, as a matter of right, any benefit of pay revision without
MSFC’s ability to bear the burden of such pay increase. Learned counsel
highlighted that the Corporation was running in losses as a result of
which there was no justification for granting the benefits in the terms
claimed by the appellants.
E 18. It was submitted that the fixation of cut-off date is a policy
matter, especially in respect of revision of salaries, allowances, and the
other benefits to employees of a State Corporation. These depend on
various considerations, including financial constraints and the number of
employees involved. It was urged that the paying capacity of an employer
F is an important and valid consideration of such an exercise. Granting
any benefit to employees normally involves fixing of cut-off date. If
these factors are kept in mind, devising a limited retrospective limit for
the employees who are on the rolls of the Corporation lessens the impact
of the financial burden. Thus, the fixation of cut- off date in the present
case was not arbitrary.
G
19. It was urged that the claim of those who retired from the
MFSC prematurely by opting for VRS was to benefit both the parties,
i.e., the Corporation and the retiring employee. The Corporation benefitted
by decreasing its liability towards salary dues; on the other hand, the
employee concerned was not bound by any scheme but exercised an
H
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1181
ASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.]

independent and voluntary option to seek severance from the A
employment. For these reasons, such employees were entitled to benefits
over and above what they would have earned if they had continued in
service by way of ex-gratia payment, in respect of a package which is
generally called a golden handshake. The payment of such amounts
along with other terminal dues led to cessation of employment;
B
consequently, the claim of such employees who have already secured
benefits by way of ex-gratia payouts towards pay revision was not
justified. It was submitted that the appellant association’s grievance
espouses the cause of 835 ex-employees, a large number of whom are
those who opted for voluntary retirement. There can be no complaint of
discrimination on their part. It was submitted that apart from financial C
constraints, the other independent justification for limiting pay benefits
to those 115 existing employees is sound, i.e., to motivate them to recover
maximum amounts from the Non-Performing Assets (NPA) accounts.
This rationale is relevant since the MSFC has incurred losses over the
years.
D
20. Mr. Patil, learned counsel relied upon some decisions of the
Court, A.K. Bindal & Anr. v. Union of India & Ors.5; State of Punjab
& Ors. v. Amar Nath Goyal & Ors.6 and State of Rajasthan & Anr. v.
Amritlal Gandhi & Ors.7, to urge that the financial implications upon
the employer is a relevant factor which the Court must weigh while
adjudging whether implementation of any policy is arbitrary. E

Analysis and conclusions
21. A close analysis of the facts would show that the question of
pay revision of employees of MSFC has been engaging attention for a
considerable period of time. Apparently, the recommendations of the F
Fifth Pay Commission had been made and were implemented by the
State Government with effect from 01.01.1996. However, the MSFC,
did not, finalise whether to adopt those scales for its employees and sent
the proposal to the State Government (as provided under S. 39 of the
State Financial Corporations Act). In the meanwhile, interim relief of
pay revision was granted to all existing employees. Some of these orders G
granting interim relief towards pay revisions have been placed on the
record. They are orders/decisions dated 03.03.1994 (Office Order
5
[2003] 3 SCR 928; (2003) 5 SCC 563
6
[2005] 2 Suppl. SCR 549; (2005) 6 SCC 754
7
(1997) 2 SCC 342
H
1182 SUPREME COURT REPORTS [2023] 1 S.C.R.

A No.191); 03.03.1994 (Office Order No. 19); 11.10.1995 (Office Order
No.73); and 07.09.1996 (Office Order No.66), which are part of the
appeal records. Those employees who were on the rolls of MSFC
between 01.01.1996 and 29.03.2010 concededly enjoyed the benefits of
these interim payments. On 29.03.2010, MSFC decided to implement
the pay revision recommendations of the Fifth Pay Commission.
B
22. The decision to make the pay revision effective in respect of
the employees who were existing employees and limit the arrears payable
from 01.01.2006, is based upon the State of Maharashtra letter dated
29.03.20108. That decision was placed on the record during the hearing
and reads as follows:
C
“Government of Maharashtra
Government Decision No. SFC 2009/(422) Ind-7
Industries, Energy & Labour Department,
Mantralaya, Mumbai-400032
D Dated 29th March, 2010
Introduction:
The proposal for implementation of 5th Pay Commission to
the employees of Maharashtra State Financial Corporation
was under consideration of the Government. The Government
E has taken following decision in this regard.
Government Decision:
The Government has given its consent vide this Order for
implementation of revised Pay Scales as per 5th Commission
F subject to the following terms to the employees/officers of
Maharashtra State Financial Corporation as shown in
Column No.5 of the enclosed Annexure ‘A’.
1. The revised pay as per 5th Pay Commission will be made
applicable w.e.f. 01.01.2006 to Officers/Employees on
G the rolls of the Corporation as mentioned in Column
No.3 of the Annexure ‘A’ of the Corporation.
2. No arrears on account of revised pay scales will be
made applicable prior to 01.01.2006.
8
Decision no. SFC 2009/ (422)/Ind-7.
H
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1183
ASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.]

3. Maharashtra State Financial Corporation will have to A
bear liabilities (Salary and Arrears) on account of above
revision in pay scales from its own income. The
Government will not make any financial provision for
the same.
4. As per revised pay scales, other eligible allowances will B
be payable to the employees as per rules.
5. The Corporation should obtain an undertaking in
respect of revised pay scales from Employees’ Union.
2. This Government decision is issued in terms of Finance
Department’s informal reference no.23/2010/PU dated C
05.02.2010.
In the name and Order of the Governor of Maharashtra.”
23. By Office Order dated 09.04.2010, the MSFC decided to
implement the decision of the Government of Maharashtra and grant
the benefits of the Fifth Pay Commission to employees of the Corporation
D
who were on its rolls on that date. That order9 itself contains a reason
why the cut-off date was resorted to as is evident from its express
terms, i.e., that the State Government approved that cut-off date, “in
order to motivate the present staff to recover maximum amount in
NPA Accounts”. Relevant para reads as follows:
“MAHARASHTRA STATE FINANCIAL CORPORATION E
HEAD OFFICE, MUMBAI
MSFC/HO/P&AD/PR/2010-11/28 9th April, 2010
OFFICE ORDER NO.1
Re: Implementation of Fifth Pay Commission to the Employees
of the Corporation F
1. The Govt. of Maharashtra in order to motivate the present
staff to recover maximum amount in NPA Accounts, vide its
GR No.SFC-2009/(422)/Industries-7 dated 29.03.2010 has
decided to implement Fifth Pay Commission to the employees
of the Corporation who are on the roll of the Corporation as G
on date of the issue of the Government GR subject to terms
and conditions as mentioned in the said GR.
xxxxxx xxxxxx xxxxxx”

9
Office Order No.1 dated 09.04.2010 H
1184 SUPREME COURT REPORTS [2023] 1 S.C.R.

A 24. The benefit of pay revision was made applicable to the
employees of the Corporation; the terms and conditions of fixation and
the grant of benefits to the extent they are relevant, are extracted below:
“TERMS AND CONDITIONS:
(i) The revised pay scale will be made applicable to the
B employees who are presently on the roll of MSFC as
mentioned in the Annexure ‘A’ attached to the Govt. GR
dated 29.03.2010.
(ii) The revised pay will be fixed w.e.f. 01.01.1996 as per
the formula of Fifth Pay Commission.
C (iii) The employees of the Corporation will not be held
eligible for arrears from 01.01.1996 to 31.12.2005.
xxxxxxx xxxxxx xxxxxx
(x) Interim Reliefs (IR) paid from 01.01.2006 to 31.03.2010
will be recovered from arrears to be paid to the
D employees. However, interim reliefs paid from 18.09.96
to 31.12.2005 will not be recovered.
(xi) Salary as per revised Pay Scale will be paid from
01.04.2010 and arrears for the period from 01.01.2006
to 31.03.2010 will be paid in two instalments on or before
E 31st May, 2010.”
The fixation of pay as per revised pay-scales condition, in the said
order, reads as follows:
“6. Fixation of pay as per revised pay scale:
F The revised pay of the employees of the Corporation
will be fixed with effect from 01.01.1996 as per the formula
of the Fifth Pay Commission as mentioned below:
Fixation Formula:
1. Old Basic Pay as on 01.01.1996
G 2. Add: applicable DA as on 01.01.1996
3. Add: Amount of 1st Interim Relief i.e. Rs.100/- only.
4. Add: Amount of 2nd Interim Relief i.e. 10% of old
Basic Pay (subject to minimum Rs.100/-).
H
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1185
ASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.]

5. Add: 40% of old Basic Pay as on 01.01.1996 as A
loading. =Total (1 to 5)”
25. The appellants have placed on record and relied upon the
minutes of MSFC’s Board Meeting dated 06.07.2017, which in Item
No.9 had discussed the question of pay revision. The note placed in
Item no.2 of the said note reads as follows: B
“2. The Corporation has granted interim relief from Sept. 1993
towards proposed revision in Pay Sale on line of the Govt. of
Maharashtra as under:
Date Amount (Rs.)
C
16.09.1993 100/- p.m.
01.06.1995 10% of basic pay p.m.
01.04.1996 10% of basic pay p.m.

Besides aforesaid interim relief, the Corporation also gave
lumpsum adhoc amount towards Revision of Pay Scale from D
September, 1996 to July, 2001 as under:
Category Amount (Rs.)
Class “A” employees 34,375/-
Class “B” employees 28,480/-
Class “C” employees 22,585/- E

The note also set out the number of employees concerned, as
follows:
“There were 950 employees on the roll of the Corporation as
on 01.01.1996. The Corporation has worked out arrears F
amount based on average basis of the amount of the arrears
paid to existing employees. The total net liability works out to
Rs.39.08 crore after deducting amount of interim relief and
ad-hoc payment, the details of which are as under:
(Rs. in crore)
G
Sr.No. Particulars No. of Estimated Amount of Net
employees arrears interim Arrears
amount on relief and amount.
average Ad-hoc
basis amount
paid
1. Employees 114 7.49 1.07 6.42
H
1186 SUPREME COURT REPORTS [2023] 1 S.C.R.

A existing as on date
of GR dtd.
29.03.2010
2. Retired 130 6.96 1.02 5.94
employees
3. VRS employees 631 29.02 4.65 24.37
4. Expired 21 0.66 0.11 0.55
B employees
5. Resigned 48 1.96 0.29 1.67
employees
6. Employees 4 0.12 0.01 0.11
dismissed
7. Employees 2 0.02 0.00 0.02
terminated
C Total 950 46.23 7.15 39.08

26. It is noticeable from the facts that two justifications were
provided by the MSFC to deny the benefit of pay revisions, in terms of
the Fifth Pay Commission recommendations. One, that it is “in order to
motivate the present staff to recover maximum amount in NPA
D Accounts…” and two, that the fixation of cut-off date falls within the
state’s policy making domain, involving among others - an important
consideration, which is the state’s financial concerns, which the court
should not interfere in.
27. That on whether, and what should be the extent of pay revision,
E are undoubtedly matters falling within the domain of executive policy
making. At the same time, a larger public interest is involved, impelling
revision of pay of public officials and employees. Sound public policy
considerations appear to have weighed with the Union and state
governments, and other public employers, which have carried out pay
revision exercises, periodically (usually once a decade, for the past 50
F
years or so). The rationale for such periodic pay revisions is to ensure
that the salaries and emoluments that public employees enjoy, should
keep pace with the increased cost of living and the general inflationary
trends, and ensure it does not adversely impact employees. Pay revisions
also subserve other objectives, such as enthusing a renewed sense of
G commitment and loyalty towards public employment. Another important
public interest consideration, is that such revisions are meant to deter
public servants from the lure of gratification; of supplementing their
income by accepting money or other inducements for discharging their
functions.
H
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1187
ASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.]

28. Article 43 of the Constitution10 obliges the state to ensure that A
all workers, industrial or otherwise, are provided with a living wage and
assured of a decent standard of living. In this context, the need for
providing a mechanism to neutralize price increase, through dearness
allowance has been emphasized, in past decisions of this court. In
Hindustan Lever Ltd. v. B.N. Dongre11, the court explained that if pay
packets are “frozen”, the purchasing power of the wage would shrink, B
and there would be a fall in real wages, which needs to be neutralized.
The court also noted neutralization of wages, through dearness allowance
is on a “sliding scale” with those at the lowest wage bracket, getting full
neutralization and those in the highest rungs being given the least of such
allowance: C
“Workers are therefore concerned with the purchasing power
of the pay- packet they receive for their toil. If the rise in the
pay-packet does not keep pace with the rise in prices of
essentials the purchasing power of the pay- packet falls
reducing the real wages leaving the workers and their families
worse off. Therefore, if on account of inflation prices rise D
while the pay- packet remains frozen, real wages will fall
sharply. This is what happens in periods of inflation. In order
to prevent such a fall in real wages different methods are
adopted to provide for the rise in prices. In the cost-of-living
sliding scale systems the basic wages are automatically E
adjusted to price changes shown by the cost-of-living index.
In this way the purchasing power of workers’ wages is
maintained to the extent possible and necessary. However,
leap-frogging must be avoided. This Court in Clerks & Depot
Cashiers of Calcutta Tramways Co. Ltd. v. Calcutta Tramways
Co. Ltd. [AIR 1957 SC 78], held that while awarding dearness F
allowance cent per cent neutralisation of the price of cost of
living should be avoided to check inflationary trends. That is
why in Hindustan Times Ltd. v. Workmen [AIR 1963 SC 1332]
Das Gupta, J. observed that the whole purpose of granting
10
“Article 43. Living wage, etc, for workers The State shall endeavour to secure, by
G
suitable legislation or economic organisation or in any other way, to all workers,
agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring
a decent standard of life and full enjoyment of leisure and social and cultural opportunities
and, in particular, the State shall endeavour to promote cottage industries on an individual
or co-operative basis in rural areas.”
11
[1994] 2 Suppl. SCR 217; (1994) 6 SCC 157 H
1188 SUPREME COURT REPORTS [2023] 1 S.C.R.

A dearness allowance to workmen being to neutralise the portion
of the increase in the cost of living, it should ordinarily be on
a sliding scale and provide for an increase when the cost-of-
living increases and a decrease when it falls. The same
principle was reiterated in Bengal Chemical and
Pharmaceutical Works Ltd. v. Workmen [AIR 1969 SC 360]
B and Shri Chalthan Vibhag Khand Udyog Sahakari Mandli
Ltd. v. G.S. Barot, Member, Industrial Court, Gujarat [(1979)
4 SCC 622] and it was emphasised that normally full
neutralisation is not given except to the lowest class of
employees and that too on a sliding scale.”
C 29. Therefore, the state and public employers have an obligation
to address – as a measure of public interest, the ill-effects of rise in the
cost of living, on account of price rise, which results in fall in real wages.
This obligation should be discharged on a periodic basis. Yet, there cannot
be any straitjacket formula as to when such pay revisions are to be
made and to what extent revisions should take place. As a general
D practice, the Union and state governments have been undertaking such
exercises each decade.
30. Returning to the facts of this case, it is evident that the
respondents have confined the grant of revised pay scales to employees
existing as on 29.03.2010. Whilst the fixation of cut-off date for the
E grant of benefits cannot be questioned, what is within the domain of the
court, is to examine the impact of such fixation and whether it results in
discrimination. In the present case, the Pay Commission’s
recommendations for pay revision were with effect from 01.01.1996.
However, the State and MSFC decided not to implement it from that
date, but with effect from 01.01.2006, i.e., a decade later, because the
F benefit given to employees (or arrears) on the rolls of MSFC as on
29.03.2010 were confined or limited to arrears payable from 1
January 2006. At the same time, fitment and fixation of salary was
with effect from 1 January 1996, in terms of Para 6 of the MSFC’s
circular dated 09.04.2010, which stipulated that revised salary “will be
fixed with effect from 01.01.1996 as per the formula of the Fifth
G Pay Commission as mentioned below”. The formula was: “Old Basic
Pay as on 01.01.1996 Add: applicable DA as on 01.01.1996 Add:
Amount of 1st Interim Relief, i.e., Rs.100/- only. Add: Amount of 2nd
Interim Relief, i.e., 10% of old Basic Pay (subject to minimum Rs.100/
-). Add: 40% of old Basic Pay as on 01.01.1996 as loading =Total
H (1 to 5)”. This fitment formula clearly envisioned the fixation in the
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1189
ASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.]

new scales, even if notionally, from 01.01.1996. Arrears were made A
payable, based on that fitment and fixation, with effect from 01.01.2006.
31. Another significant fact is that interim relief had been directed
and was made payable, to all employees, between 01.01.1996 and
29.03.2010. The order issued on 09.04.2010 stated that “interim reliefs
paid from 18.09.1996 to 31.12.2005 will not be recovered”. This B
demonstrates that those who retired between these dates, and those
who continued in service, form part of the same class. Further, there is
also no distinction between those in service as on 01.01.2006 but retired
before 29.03.2010 and those who continued thereafter.
32. This court held in State of J & K v. Triloki Nath Khosa12 that
“Discrimination is the essence of classification and does violence C
to the constitutional guarantee of equality only if it rests on an
unreasonable basis”. The question is whether the classification,
excluding employees who retired before 29.03.2010 and confining pay
revision benefits (albeit with effect from 01.01.2006) result in
discrimination. D
33. In Maharashtra Forest Guards & Foresters Union v. State
of Maharashtra13 there was no quota reserved for the graduate Forest
Guard for promotion to the post of Forester. Seventy-five per cent of the
posts were to be filled through the regular promotion channel based on
seniority and twenty-five per cent “by selection of suitable persons
from amongst the persons holding the post of Forest Guard, on the E
basis of common merit list prepared by the Additional Principal Chief
Conservator of Forests (Administration Subordinate Cadre),
Maharashtra State, Nagpur, on the basis of result of the “Limited
Departmental Competitive Examination…”. A further condition for
those attempting the limited departmental exam was imposed, i.e., that F
only graduates could apply and appear; that condition was challenged.
This court held that the condition was impermissible, as it amounted to
creating a class within a class:
“The challenge is on the further rigour put on the eligibility
to appear in LDCE. The whole purpose of LDCE is to
encourage and facilitate the Forest Guards to get accelerated G
promotion on the basis of merit. Since seniority is the criterion
for promotion to three-fourth of the posts, one- fourth is given
a chance to compete in a competitive examination. It is also
12
[1974] 1 SCR 771; (1974) 1 SCC 19
13
[2017] 14 SCR 446; (2018) 1 SCC 149 H
1190 SUPREME COURT REPORTS [2023] 1 S.C.R.

A to be noted that there is no quota prescribed on the basis of
higher educational qualification. The situation would have
been different if, in the first place, there had been a
classification wherein 75% of the posts have to be filled based
on seniority and 25% reserved for graduates and again
subject to inter se merit in the competitive examination. That
B is not the situation in the present case. The LDCE is meant for
selection for promotion from the entire lot of Forest Guards
irrespective of seniority but subject to minimum five years of
service. In that situation, introducing an additional restriction
of graduation for participation in LDCE without there being
C any quota reserved for graduates will be discriminatory and
violative of Articles 14 and 16 of the Constitution of India
since it creates a class within a class. The merit of the 25%
cannot be prejudged by a sub-classification. It violates the
equality and equal opportunity guarantees. The Forest
Guards, irrespective of educational qualifications, having
D formed one class for the purpose of participation in LDCE, a
further classification between graduates and non-graduates
for participating in LDCE is unreasonable. It is a case of
equals being treated unequally.”
34. In U.P. Raghavendra Acharya & Ors. v. State of Karnataka
E & Ors.,14 a notification dated 22.07.1999, issued by the State of
Karnataka, denied revised scales of pay to those teachers who had retired
during the period from 01.01.1996 to 31.03.1998. The High Court held
that the impugned notifications were arbitrary as these resulted in
discrimination between the teachers working in the government colleges
and the teachers working in the Non-Government Colleges, which would
F mean treating the equals unequally. It was further opined that, in any
event, the teachers of the Government Aided Colleges as also the
teachers of the Regional Engineering Colleges formed a class by
themselves and no discrimination could have been made between the
employees who retired prior to 31.03.1998 and those retiring subsequent
G thereto. This court held that the discrimination, brought about on the
basis of date of retirement, was invidious:
“The State while implementing the new scheme for payment
of grant of pensionary benefits to its employees, may deny
the same to a class of retired employees who were governed
14
H [2006] 2 Suppl. SCR 582; (2006) 9 SCC 630
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1191
ASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.]

by a different set of rules. The extension of the benefits can A
also be denied to a class of employees if the same is permissible
in law. The case of the appellants, however, stands absolutely
on a different footing. They had been enjoying the benefit of
the revised scales of pay. Recommendations have been made
by the Central Government as also the University Grant
B
Commission to the State of Karnataka to extend the benefits
of the Pay Revision Committee in their favour. The pay in
their case had been revised in 1986 whereas the pay of the
employees of the State of Karnataka was revised in 1993.
The benefits of the recommendations of the Pay Revision
Committee w.e.f. 1.1.1996, thus could not have been denied C
to the appellants.
The stand of the State of Karnataka that the pensionary
benefits had been conferred on the appellants w.e.f. 1.4.1998
on the premise that the benefit of the revision of scales of pay
to its own employees had been conferred from 1.1.1998, in D
our opinion, is wholly misconceived. Firstly, because the
employees of the State of Karnataka and the appellants, in
the matter of grant of benefit of revised scales of pay, do not
stand on the same footing as revised scales of pay had been
made applicable to their cases from a different date. Secondly,
the appellants had been given the benefit of the revised scales E
of pay w.e.f. 1.1.1996. It is now well settled that a notification
can be issued by the State accepting the recommendations of
the Pay Revision Committee with retrospective effect as it was
beneficent to the employees. Once such a retrospective effect
is given to the recommendations of the Pay Revision F
Committee, the concerned employees despite their reaching
the age of superannuation in between the said dates and/or
the date of issuance of the notification would be deemed to
be getting the said scales of pay as on 1.1.1996. By reason of
such notification as the appellants had been derived of a
vested right, they could not have been deprived therefrom G
and that too by reason of executive instructions.
The contention of the State that the matter relating to the
grant of pensionary benefits vis-à-vis the revision in the scales
of pay stands on different footing, thus, must be rejected.”
H
1192 SUPREME COURT REPORTS [2023] 1 S.C.R.

A 35. In All Manipur Pensioners Association by its Secretary v.
State of Manipur & Ors.15 the classification by which the formula of
pension, whereby those retiring prior to 01.01.1996 were given a lower
rate of revised pension, as compared to those retiring later (who were
given a higher rate of revision), was held to be discriminatory:
“The facts leading to the present appeal in a nutshell are as
B under : that the State of Manipur adopted the Central Civil
Services (Pension) Rules, 1972, as amended from time to time.
As per Rule 49 of the Central Civil Services Rules, 1972, a
case of a government employee retired in accordance with
the provisions of the Rules after completing qualifying service
of not less than 30 years, the amount of pension shall be
C
calculated at 50% of the average emoluments subject to a
maximum of Rs 4500 per month. It appears that considering
the increase in the cost of living, the Government of Manipur
decided to increase the quantum of pension as well as the
pay of the employees. That the Government of Manipur issued
D an office memorandum dated 21-4-1999 revising the quantum
of pension. However, provided that those Manipur
Government employees who retired on or after 1-1-1996 shall
be entitled to the revised pension at a higher percentage and
those who retired before 1-1-1996 shall be entitled at a lower
percentage.
E ********* ********** **********
Even otherwise on merits also, we are of the firm opinion
that there is no valid justification to create two classes viz.
one who retired pre-1996 and another who retired post-1996,
for the purpose of grant of revised pension. In our view, such
a classification has no nexus with the object and purpose of
F
grant of benefit of revised pension. All the pensioners form
one class who are entitled to pension as per the pension rules.
Article 14 of the Constitution of India ensures to all equality
before law and equal protection of laws. At this juncture it is
also necessary to examine the concept of valid classification.
G A valid classification is truly a valid discrimination. It is true
that Article 16 of the Constitution of India permits a valid
classification. However, a valid classification must be based
on a just objective. The result to be achieved by the just
objective presupposes the choice of some for differential
consideration/treatment over others. A classification to be valid
15
H [2019] 9 SCR 905; (2020) 14 SCC 625
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1193
ASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.]

must necessarily satisfy two tests. Firstly, the distinguishing A
rationale has to be based on a just objective and secondly,
the choice of differentiating one set of persons from another,
must have a reasonable nexus to the objective sought to be
achieved. The test for a valid classification may be summarised
as a distinction based on a classification founded on an
intelligible differentia, which has a rational relationship with B
the object sought to be achieved. Therefore, whenever a cut-
off date (as in the present controversy) is fixed to categorise
one set of pensioners for favourable consideration over
others, the twin test for valid classification or valid
discrimination therefore must necessarily be satisfied.
C
In the present case, the classification in question has no
reasonable nexus to the objective sought to be achieved while
revising the pension. As observed hereinabove, the object and
purpose for revising the pension is due to the increase in the
cost of living. All the pensioners form a single class and
therefore such a classification for the purpose of grant of D
revised pension is unreasonable, arbitrary, discriminatory and
violative of Article 14 of the Constitution of India. The State
cannot arbitrarily pick and choose from amongst similarly
situated persons, a cut-off date for extension of benefits
especially pensionary benefits. There has to be a classification
founded on some rational principle when similarly situated E
class is differentiated for grant of any benefit.
As observed hereinabove, and even it is not in dispute that
as such a decision has been taken by the State Government
to revise the pension keeping in mind the increase in the cost
of living. Increase in the cost of living would affect all the
pensioners irrespective of whether they have retired pre-1996 F
or post-1996. As observed hereinabove, all the pensioners
belong to one class. Therefore, by such a classification/cut-
off date the equals are treated as unequals and therefore such
a classification which has no nexus with the object and
purpose of revision of pension is unreasonable,
G
discriminatory and arbitrary and therefore the said
classification was rightly set aside by the learned Single Judge
of the High Court. At this stage, it is required to be observed
that whenever a new benefit is granted and/or new scheme is
introduced, it might be possible for the State to provide a cut-
off date taking into consideration its financial resources. But H
1194 SUPREME COURT REPORTS [2023] 1 S.C.R.

A the same shall not be applicable with respect to one and single
class of persons, the benefit to be given to the one class of
persons, who are already otherwise getting the benefits and
the question is with respect to revision.
In view of the above and for the reasons stated above, we
are of the opinion that the controversy/issue in the present
B appeal is squarely covered by the decision of this Court in
D.S. Nakara [D.S. Nakara v. Union of India, (1983) 1 SCC
305. The decision of this Court in D.S. Nakara shall be
applicable with full force to the facts of the case on hand.
The Division Bench of the High Court has clearly erred in
not following the decision of this Court in D.S. Nakara and
C
has clearly erred in reversing the judgment and order of the
learned Single Judge. The impugned judgment and order
passed by the Division Bench is not sustainable and the same
deserves to be quashed and set aside and is accordingly
quashed and set aside. The judgment and order passed by
D the learned Single Judge is hereby restored and it is held that
all the pensioners, irrespective of their date of retirement viz.
pre-1996 retirees shall be entitled to revision in pension on a
par with those pensioners who retired post-1996. The arrears
be paid to the respective pensioners within a period of three
months from today.”
E 36. In the present case, too, there is no denial that the employees
who retired prior to 29.03.2010 discharged the same duties as in the
case of those who did thereafter. The quality and content of responsibilities
assigned to them were the same. The respondents’ decision not to grant
arrears prior to 01.01.2006 cannot be found fault with; however, not to
grant any revision to those who were not in service when the order
F implementing the pay revision was issued and confining it to those,
in employment is clearly discriminatory. The rationale that granting
such pay revision only to existing employees would be to enthuse them
to recover NPA amounts payable to MSFC has no rational nexus with
the object sought to be achieved by the pay revision, which is to benefit
employees and protect them from the rise in the cost of living.
G
37. In the present case, therefore, applying the ratio in the above
decisions, it is clear that there is no distinction between those who retired
(or died in service) before 29.03.2010 and those who continued in service
- and were given the pay revision. Those who worked during the period
01.01.2006 to 29.03.2010 and those who continued thereafter, fell in the
H same class, and a further distinction could not be made. The fact that
MAHARASHTRA STATE FINANCIAL CORP. EX- EMPLOYEES 1195
ASSOC. v. STATE OF MAHARASHTRA [S. RAVINDRA BHAT, J.]

the MSFC did not recover any interim relief, or ad-hoc amount disbursed A
between 18.09.1996 to 31.12.2005 (towards recommendations of the
5th Pay Commission), also reaffirms that these ex- employees belonged
to the same class as those that received the benefit of the pay revisions.
The exclusion of the retired employees, who retired between 01.01.2006
and 29.03.2010 on achieving their date of superannuation, is violative of
Article 14 of the Constitution of India. B
38. However, in the opinion of this court, employees who secured
VRS benefits and left the service of MSFC voluntarily during this period,
stand on a different footing. They cannot claim parity with those who
worked continuously, discharged their functions, and thereafter
superannuated. VRS employees chose to opt and leave the service of
C
the corporation; they found the VRS offer beneficial to them. Apart
from the normal terminal benefits they were entitled to, the additional
amount each of them was given - was an ex- gratia amount, equal to a
month’s salary for each completed year of service. Other retired
employees were never given such amounts. This has been emphasized
in A.K. Bindal v. Union of India (supra): D
“The Voluntary Retirement Scheme (VRS) which is sometimes
called Voluntary Separation Scheme (VSS) is introduced by
companies and industrial establishments in order to reduce
the surplus staff and to bring in financial efficiency. The office
memorandum dated 5-5-2000 issued by the Government of
India provided that for sick and unviable units, the VRS E
package of the Department of Heavy Industry will be adopted.
Under this Scheme an employee is entitled to an ex gratia
payment equivalent to 45 days’ emoluments (pay + DA) for
each completed year of service or the monthly emoluments at
the time of retirement multiplied by the balance months of
service left before the normal date of retirement, whichever is F
less. This is in addition to terminal benefits. The Government
was conscious about the fact that the pay scales of some of
the PSUs had not been revised with effect from 1-1-1992 and
therefore it has provided adequate compensation in that
regard in the second VRS which was announced for all Central
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public sector undertakings on 6-11-2001. Clause (a) of the
Scheme reads as under:
(a) Ex gratia payment in respect of employees on pay scales
at 1-1-1987 and 1-1-1992 levels, computed on their existing
pay scales in accordance with the extant Scheme, shall be
increased by 100% and 50% respectively. H
1196 SUPREME COURT REPORTS [2023] 1 S.C.R.

A This shows that a considerable amount is to be paid to an
employee ex gratia besides the terminal benefits in case he
opts for voluntary retirement under the Scheme and his option
is accepted. The amount is paid not for doing any work or
rendering any service. It is paid in lieu of the employee himself
leaving the services of the company or the industrial
B establishment and foregoing all his claims or rights in the
same. It is a package deal of give and take. That is why in the
business world it is known as “golden handshake”. The main
purpose of paying this amount is to bring about a complete
cessation of the jural relationship between the employer and
the employee. After the amount is paid and the employee ceases
C to be under the employment of the company or the
undertaking, he leaves with all his rights and there is no
question of his again agitating for any kind of his past rights
with his erstwhile employer including making any claim with
regard to enhancement of pay scale for an earlier period. If
the employee is still permitted to raise a grievance regarding
D
enhancement of pay scale from a retrospective date, even after
he has opted for Voluntary Retirement Scheme and has
accepted the amount paid to him, the whole purpose of
introducing the Scheme would be totally frustrated.”
39. For the above reasons, it is held that VRS employees cannot
E claim parity with others who retired upon achieving the age of
superannuation. Likewise, those who ceased to be in employment, for
the reason of termination, or their dismissal, etc., would not be entitled to
the benefit of pay revision.
40. In view of the above findings, the impugned judgment and
order is hereby set aside. The appeal is accordingly allowed, to the extent
F that those who retired from the services of MSFC between 01.01.2006
to 29.03.2010, and the legal heirs/representatives of those who died during
that period, shall be entitled to arrears based on pay revision, accepted
by the Corporation. The Corporation is directed to pay interest @ 8%
p.a. on these arrears from 01.04.2010 till the date of this judgment. These
amounts shall be calculated and disbursed to those individuals within
G
eight weeks from today. The appeal is partly allowed, in the above terms.
There shall be no order on costs.

Nidhi Jain Appeal partly allowed.

H