Holding

The Court held that while no informal cap on funds exists, the delay in fund release constitutes a constitutional breach and directed timely release of funds, payment of compensation for delayed wages, and constitution of the required monitoring councils.

Summary

The Supreme Court heard a public‑interest petition filed by SwaraJ Abhiyan seeking proper implementation of the Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (MGNREGA). The petitioners alleged that the Union and State governments imposed an informal cap on the labour budget, delayed release of wage and material payments, and failed to constitute the Central and State Employment Guarantee Councils, thereby violating the constitutional right to livelihood. The Court examined whether such informal capping existed, whether the delay in fund release constituted a breach of Articles 23 and 14, and whether the government must pay compensation for wage delays under Schedule II. It held that no informal cap existed, but the delay in releasing funds was unconscionable and amounted to a constitutional breach. The Court directed the Union and State governments to present realistic budgets, release funds timely, pay compensation for wage delays beyond 15 days, and constitute the Central and State Employment Guarantee Councils within stipulated periods.

Issues considered

Whether there is an informal capping of funds under the MGNREGA labour budget.
Whether delayed release of wage and material payments under MGNREGA violates constitutional rights.
Whether the government is obligated to pay compensation for delayed wage payments under Schedule II of the Act.
Whether the Central Employment Guarantee Council and State Employment Guarantee Councils must be constituted as per the Act.

Legislation cited

Mahatma Gandhi National Rural Employment Guarantee Act, 2005s. 10, s. 11, s. 12, s. 14(6), s. 3(1), s. 3(3), s. 7, s. Schedule II

Subjects

MGNREGAbudgetary provisioninformal cappingdelayed wage paymentcompensation for delayCentral Employment Guarantee CouncilState Employment Guarantee Councilconstitutional rightspublic interest litigation

Judgment

[2016] 9 S.C.R. 311

SWARAJ ABHIYAN - (Ill) A
v.
UNION OF INDIA & ORS.
(Writ Petition (Civil) No. 857of2015)
MAY13,2016 B
(MADAN B. LOKUR AND N.V. RAMANA, JJ.]
Public interest litigation - Mahatama Gandhi National Rural
Employment Guarantee Scheme - Implementation of- Prayer sought
that Government of India and State Government to ensure adequate
budgetary provision is made for financial implementation of the
c
Scheme and that the State Government not to place any budgetary
limit under the Scheme if employment is sought over and above 100
days; that the informal capping of funds through labour budget
and agreed to budget process to be done away with; that there is
delayed release of payments both for wages and materials; and D
effective monitoring of the scheme - Held: There is no informal
capping of funds although it does appear that Government of India
is not prone to easily release funds for the projects under the Scheme
- There has been unconscionable delay on the part of the
Government of India in release of funds both under the wage and
E
material component - When rights of lakhs of people are affected
by delayed payment of the legitimate dues, there is clear
constitutional breach committed by the State - Further, not clear as
to existence of Centre Employment Guarantee Council and State
Employment Guarantee Council - In view thereof. issuance of
directions by this Court - State Governments to present a realistic F
budget and thereafter, Government of India to release to State
Governments. adequate funds under the Scheme in a timely manner
- Government of India to ensure that compensation for delayed
payment beyond 15 days made to workers - State Governments
and Government of India to make all efforts to encourage needy
G
persons to come forward and take advantage of the Scheme -
Government of India to constitute Central Employment Guarantee
Council and State Governments to establish State Employment
Guarantee Council within the stipulated period - NREG Act being
a social welfare and social justice legislation, Government of India
H
311
312 SUPREME COURT REPORTS [2016] 9 S.C.R.

A to ensure faithful implementation of its provisions - Constitution of
India - Art. 32 - Mahatama Gandhi National Rural Employment
Guarantee Act, 2005 - ss. 3(1), 3(3), 7, JO, JI, 14(6).
Sanjit Roy v. State of Rajasthan (1983) 1 SCC 525:
1983 (2) SCR 271 - referred to.
B Case Law Reference
.1983 (2) SCR 271 referred to Para 32
CIVIL ORIGINAL JURISDICTION: Writ Petition (Civil) No.
857of2015.
C Under Article 32 of the Constitution of India.
Prashant Bhushan, Roh it Kr. Singh, Govind Jee, 0. Kuttan, Advs.,
for the Petitioner.
P.S. Narasimha, Tushar Mehta, ASGs, Aj it Kumar Sinha, Sr. Adv.,
Anil Grover, Irshad Ahmad, AA Gs, Mukul Singh, lrhan George, Ajay
D
Sharma, Sridhar Potaraju, 8.K. Satija, Neeraj Kumar Sharma, Guntur
Prabhakar, Ms. Prerna Singh, Gopal Singh, Manish Kumar,A.P. Mayee,
Ms. Shashi Juneja, A. Selvin Raja, Ms. Hemantika Wahi, Kabir Hathi,
Ms. Puja Singh, Ms. Noopur Singhal, Manan, Dr. Monika Gusain, Tapesh
Kumar Singh, Kumar Anurag Singh, Mohd. Waquas, Shashank Singh,
E V. N. Raghupathy, C. D. Singh, Ms. Sylona Mahapatra, Udit Arora,
Nishant R. Katneshwarkar, Sibo Sankar Mishra, Umakant Mishra,
S. Udaya Kumar Sagar, Krishna Kumar Singh, Upendra Mishra, Vinay
Garg, Advs., for the Respondents.
The Judgment of the Court was delivered by
F MADAN B. LOKUR, J. I. In our judgment dated 11th May,
2016 we had considered the issue of the drought or drought-like conditions
prevailing in some parts of the country and had issued certain directions
for compliance. Subsequently, in a related matter in our judgment
pronounced today, we have dealt with the provisions of the National
G Food Security Act, 2013 and the Mid-Day Meal Scheme announced by
the Government of India and issued directions for the effective
implementation of the statute and the Mid-Day Meal Scheme to benefit
people (including children) particularly those affected by the drought or
drought-like conditions.

H
SWARAJ ABHIYAN - (III) v. UNION OF INDIA & ORS. 313
[MADAN B. LOKUR, J.]

2. In this judgment we deal with the implementation of the A
Mahatma Gandhi National Rural Employment Guarantee Act, 2005 and
the Mahatma Gandhi National Rural Employment Guarantee Scheme
framed under the provisions of Section 4 of the said Act. 1
Implementation of the MGNREG Scheme
3. The Mahatma Gandhi National Rural Employment Guarantee B
Act, 2005 (for short the 'NREG Act') has a very simple and
straightforward Preamble which says that it is:
"An Act to provide for the enhancement of livelihood
security of the households in rural areas of the country by
providing at least one hundred days of guaranteed wage c
employment in every financial year to every household
whose adult members volunteer to do unskilled manual work
and for matters connected therewith or incidental thereto."
For the effective implementation of the NREG Act, the Mahatma
Gandhi National Rural Employment Guarantee Scheme (for short 'the D
Scheme') has been announced and is implemented throughout the
country.
4. Learned counsel for the petitioner submits that the Scheme is
demand driven and in terms of Section 3(1) read with Section 3(3) of the
NREG Act, every rural household registered for employment is entitled E
as a matter of right to have one adult person provided with unskilled
1
4. Employment Guarantee Schemes for rural areas - (I) For the purposes of
giving effect to the provisions of Section 3, every State Government shall, within six
months from the date of commencement of th is Act, by notification, make a Scheme,
for providing not less than one hundred days of guaranteed employment in a financial
year to every household in the rural areas covered under the Scheme and whose adult
F
members, by application. volunteer to do unskilled manual work subject to the
conditions laid down by or under this Act and in the Scheme :
Provided that until any such Scheme is notified by the State Government. the
Annual Action Plan or Perspective Plan for the Sampoorna Grameen Ro=gar l'ojana
(SGRY) or the National Food for Work Programme (NFFWP) whichever is in force the
concerned areas immediately before such notification shall be deemed to be the action G
plan for the Scheme for the purpose of this Act.
(2) The State Government shall publish a summary of the Scheme made by it
in at least two local newspapers, one of which shall be in a vernacular language circulating
in the area or areas to which such Scheme shall apply.
(3) The Scheme made under sub-section (I) shall provide for the minimum
features specified in Schedule I.
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314 SUPREME COURT REPORTS [2016] 9 S.C.R.

A manual work and adequate wages under the Scheme for a minimum of
100 days in a_year.' In other words, if an adult member of a registered
rural household is voluntarily desirous of doing unskilled manual work,
he/she is guaranteed work for at least I00 days in a year.
5. The first submission of the petitioner in this context is that the
B Government oflndia and the concerned State Governments are obliged
to ensure that adequate budgetary provision is made for the financial
implementation of the Scheme. It is submitted that in addition to ensuring
adequate financial provision, the Government of India as well as the
concerned State Governments should not place any budgetary limit under
the Scheme if employment is sought over and above 100 days. The first
c prayer, therefore, is for issuing appropriate directions to the Union of
India in this behalf. While the guarantee. is for 100 days in a year, the
State should encourage employment for more than that.
6. The second prayer made in this context is that even ifthere is
no budgetary limit, there is an informal cap on funds under the Scheme
D and that should be done away with. To appreciate what is sought to be
conveyed by this prayer requires an understanding of the procedure
followed by the Governmentoflndia iri the implementation of the Scheme.
7. Reference is made by learned counsel to the "Operational
Guidelines for NREGA" issued in 2013 particularly paragraph 6.9
E thereof.l This paragraph provides that the Labour Budget (or LB) should

' 3. Guarantee of rural employment to households - (I) Save as otherwise
provided, the State Government shall, in such rural area in the State as may be notified
by the Central Government, provided to every household whose adult members
volunteer to do unskilled manual work not less than one hundred days of such work
F in a financial year in accordance with the Scheme made under this Act.
(2) Every person who has done the work given to him under the Scheme shall be
entitled to receive wages at the wage rate for each day of work.
(3) Save as otherwise provided in this Act, the disbursement of daily wages shall be
made on a weekly basis or in any case not later than a fortnight after the date on which
such work was done.
(4) The Central Government or the State Government may, within the limits of its
G economic capacity and development, make provisions for securing work to every adult
member of a household under a Scheme of any period beyond the period guaranteed
under sub-section (I), as may be expedient.
' 6.9. SUBMISSION OF LABOUR BUDGET TO MINISTRY OF RURAL
DEVELOPMENT AND ITS SCRUTINY
The MIS entry made in regard to the LB at GP level will get aggregated at different
levels. The aggregated LB at District level is required by the Ministry by 31" December
H
SWARAJ ABHIYAN - (lll) v. UNION OF INDIA & ORS. 315
[MADAN B. LOKUR, J.]

be finalized by each State by 31" December for all Gram Panchayats A
(or GP) in the State and placed before an Empowered Committee chaired
by the Secretary in the Ministry of Rural Development. This projected
Labour Budget is then slashed and an "agreed to" Labour Budget is
prepared which is only a percentage of the Labour Budget presented by
the State Government. It is submitted that in the financial year 2014-15
B
the "agreed to" Labour Budget was 78% of the Labour Budget and for
the financial year 2015-16 the "agreed to" Labour Budget was 75% of
the Labour Budget. This is the informal. cap on funds adverted to by
learned counse I.
8. It is submitted that the consequence of this informal cap is that
the State Governments do not have an adequate fund at their disposal c
and because of a lack of funds, they are unable to encourage voluntary
unskilled manual labour. Resultantly, they cannot reach the target of
100 days of employment per household per year. Since there is a shortage
of the 'workforce' caused by a lack of funds, the State Governments
are compelled to drop some development works. In other words, fiscal D
constraints result in a vicious cycle adversely impacting employment
and deyelopment.
9. The third prayer therefore relates to an additional consequence
of a shortage of funds and a depleted 'workforce'. The consequence,
as projected by learned counsel, is that due to fiscal constraints, the E
unskilled manual labour put in is not duly compensated by payment of
wages in time, the excuse of the State Governments being a lack of
funds. Consequently, the pending wage bill continues to rise and that
increasing liability actually makes a complete mockery of the Scheme
and the NREG Act since the dues are cleared much later than required
F
each year in format as per Annexure-10. Therefore, it needs to be ensured that all data
entry work for LB is completed in all respect by 31" December for all GP's in State.
The LB entered in the MIS (as given in para 6.6 above) will be analysed by the
Ministry and put up to the Empowered Committee chaired by Secretary, Ministry of
Rural Development. The Empowered committee will discuss the projected LB with
the Secretary of the Rural Development of the concerned State and a final LB for the
G
State as a whole will be agreed to. The implication of this is that district/Block/GP wise
LBs as prepared earlier and submitted to the Ministry are required to be revised by the
State Government and communicated to respective districts/blocks and GPs. The LB
agreed to, disaggregated district and month wise shall be entered at the State/District
level in the MIS appropriately. States are required to complete this exercise within 15
days from the date the decision regarding agreed to LB is conveyed to them.
H
316 SUPREME COURT REPORTS [2016] 9 S.C.R.

A by Jaw. This is a modern form of begar and is contrary to the spirit of
Article 23 of the Constitution.
10. The fourth prayer made under this heading is for the
Government of India to increase the minimum statutory obligation of
100 days employment per rural household by another 50 days for drought
B affected States for the year 2016-17 and to release the additional financial
requirements well in time.
11. Responding on behalf of the Union oflndia, the Joint Secretary
in the Ministry of Rural Development ably assisted us on facts on this
issue. She is extremely well-versed in the subject and we acknowledge
c her valuable assistance in understanding the point of view of the
Government oflndia.
12. The Government of India acknowledges that the minimum
guaranteed employment is 100 days in a year in terms of the NREG Act,
but that it is voluntaty. That apart, it is submitted that given the magnitude
D of the effort required, it is not easy to achieve the target. It is not denied
that job cards have been issued to about 13.26 crore households all over
the country and the number of active job cards is about 5.72 crores and
the total households that have worked in the financial year 2015-16 is
about 4.77 crores. The total number of households that have been
provided 100 days of employment in the year 2015-16 is said to be
E 47,06,129 (as on I 91hApril, 2016) and in the drought affected States the
number of such households is said to be 27,64,508 (as on l 9'h April,
2016). The petitioner has different figures as on a different date but it is
not necessary to decide which set of figures is correct since the
Government of India believes that in view of the large numbers, the
F implementation of the Scheme is dependent upon the efforts of the State
Governments. The Government of India can only persuade the State
Governments to reach the minimum statutory guarantee of I 00 days
employment. It is submitted that as a result of this persuasion,
employment provided per household at the national level is 4 7 days which
is the highest achieved in the last six years. As far as the drought affected
G States are concerned, the average days of employment provided per
household is 46.4 days. Based on this, it is submitted that all efforts are
being made to faithfully implement the Scheme in spirit and no effort is
spared in this regard. ·
13. With regard to the informal capping of the Labour Budget, it is
H
SWARAJ ABHIYAN - (III) v. UNION OF INDIA & ORS. 317
[MADAN B. LOKUR, J.]

submitted that in terms of Section 14(6) of the NREG Act• the District A
Programme Coordinator (who is usually the Collector in the district),
prepares a district specific budget in December for the coming financial
year. This budget contains the details of anticipated demand for unskilled
manual work in the district. The district budgets for the State are then
collated at the State level and the State Government prepares its Labour
8
Budget. This is then communicated and presented to the Government of
India in the Ministry of Rural Development which then examines it in
the Programme Division in the Ministry in consultation with the concerned
State Governments. Thereafter, the budget is finalized by an Empowered
Committee headed by the Secretary in the Ministry of Rural Development.
It is submitted that the Labour Budget is essentially a tool forthe financial c
management of funds released and is purely indicative. What the
Empowered Committee does is to prepare a budget based on the
performance of the State Government and other related criteria and
arrive at a somewhat more realistic budget, which too is indicative.
14. It is submitted that there is no cap on the expenditure and D
States may exceed the budget approved by the Empowered Committee
after seeking approval of the said Ministry. A comparative statement of
expenditure incurred over the last four financial years has been placed
before us and a perusal thereof does show that there has been a fluctuation
in expenditure over the years as follows:
E
YEAR BUDGET ACTUAL
PROVISION EXPENDITURE
(in crores)
(in crores)
2011- I 2 3 1,000.00 37,072.82
2012-13 30,28 7.00 39, 778.29
F
2013-14 33,000.00 38,601.59
2014-15 3 3,000.00 3 6,03 2 .4 8
2015-16 37,345.95 42,253 .7 5

15. With regard to the shortage of funds, it is submitted that the G

4
14. District Programme Coordinator - ( l) to (5) ~xx
(6) The District Programme Coordinator shall prepare in the month of December every
year a labour budget for the next financial year containing the details of anticipated
demand for unskilled manual work in the district and the plan for engagement oflabourers
in the works covered under the Scheme and submit it to the district panchayat.
H
318 SUPREME COURT REPORTS (2016] 9 S.C.R.

A .Ministry of Rural Development has been in touch with the Ministry of
Finance to ensure that there is no such shortage. While a request was
made for the release of Rs. 5,000 crores to the Ministry of Finance what
was in fact released is only Rs. 2,000 crores. There is therefore a tacit
admission that the Ministry ofFinance does not release funds in adequate
B amounts or in time for the effective implementation of the Scheme. In
her presentation, the Joint Secretary in the Ministry of Rural Development
submitted that efforts· are also being made through the Ministry of
Agriculture for the release of funds.
16. It is submitted that notwithstanding this, some States have in
fact exceeded the budget approved by the Empowered Committee. There
C is therefore no question of any informal capping of funds.
17. With regard to the pending wage bill under the Scheme, it is
admitted that till 31" March, 2016 there is a pending balance of about
Rs. 8,000 crores. However, it is stated in the fourth affidavit filed by the
Government of India on or about 11th April, 2016 that an amount of Rs.
D 11,030 crores will be released to the States within one week subject to
fulfillment of standard conditions by the States. This will take care of the
pending wage Iiability of Rs. 7,983 crores as on 31" March, 2016 for the
financial year 2015-16. This includes the wage liability of Rs. 2,723
crores in the ten drought affected States that we are concerned with
E where the Ministry of Rural Development has allowed additional SO
days of employment to the concerned households. It is further stated in
the affidavit that an amount of Rs. 3,047 crores will be released to the
States for implementing the Scheme in April 2016 (inclusive of wages
and material component). The pending liability of the material.component
of Rs. 4,359 crores·for the financial year 2015-16 (as on 31" March,
F 2016) will be released in June, 2016. In other words, it is admitted that
for the financial year 2015-16 there is an existing wage and material
component liability in excess ofRs.12,000 crores.
18. As far as the release of funds for 2016-17 is concerned, it is
submitted by learned counsel forthe petitioner that in terms of the Master
G Circular under the Scheme, funds are required to be released in two
tranches, the first tranche in the first week of April (for the period l st
April to 301h September) and the second tranche in the first week of
October (for the period l st October to 31" March). It is submitted that
therefore the release of Rs. 3,04 7 crores for implementing the programme
H only for April 2016 is contrary to the Master Circular.
SWARAJ ABHIYAN - (III) v. UNION OF INDIA & ORS. 319
[MADAN B. LOKUR, J.]

19. It is explained in the fourth affidavit of the Government of A
India that the first tranche is actually released in two parts. The first part
of the first tranche is released in the first week of April because of the
vote on account while the second part of the first tranche is released in
June after the regular budget is passed in Parliament. It is, therefore,
submitted that while there has been a delay in the release offunds, that B
has now been taken care at least for the financial year 2015-16 (with
regard to the wage bill) and for the month of April (both wage bill and
material component) in the financial year 2016-17.
20. With regard to implementing and extending the Scheme for an
additional 50 days in drought affected States (over and above the C
guarantee of JOO days) we are informed by the Joint Secretary that in
the drought affected States, employment is guaranteed for 150 days in a
year and funds will be made available to every household whose adult
members volunteer to do unskilled manual work under the Scheme. The
extension of the Scheme for a period of 50 days over and above 100
days is therefore now not an issue. D
Discussion and conclusions
21. A review of the NREG Act indicates that under Section 3(3)
thereof after the work is done, the disbursement of wages shall be on a
weekly basis and in any event within a fortnight after the date on which E
the work is done. However, ifno work is provided to an applicant within
15 days, then as per Section 7 of the NREG Act the applicant shall be
entitled to receive an unemployment allowance. Consequently, the NREG
Act provides for a guarantee of employment, payment for the work
within a week and in any event within a fortnight, and if employment is
not provided then a payment of unemployment allowance. What ifthe F
payment of wages is delayed in the first instance?
22. The Guidelines on Compensation for delayed wage payment
circulated by a letter dated J2•h June, 2014 by the Ministry of Rural
Development draws attention to paragraph 29 of Schedule II of the G
NREG Act which provides that the workers are entitled to receive 'delay
compensation' at a rate of0.05% of the unpaid wages per day for the
duration of the delay beyond the sixteenth day of the closure of the
Muster Roll. Guideline No.2 in this regard reads as follows:-

H
320 SUPREME COURT REPORTS [2016] 9 S.C.R.

A "2. Compensation due to delay in payment of wages
Para 29, Schedule II ofMGNREGA 2005 has laid down a
detailed procedure for establishing a delay compensation
system. As per the system MGNREGA workers are entitled
to receive delay compensation at a rate of 0.05% of the
B unpaid wages per day for the duration of the delay beyond
the sixteenth day of the closure of the MR."
The relevant part of paragraph 29 of Schedule II of the NREG
Act reads as follows:
~9. Wage payment ( 1) In case the payment of wages is
C not made within fifteen days from the date of closure of
the muster roll, the wage seekers shall be entitled to receive
payment of compensation for the delay, at the rate of0.05%
of the unpaid wages per day of delay beyond the sixteenth
day of closure of muster roll.
D (a) Any delay in payment of compensation beyond a period
of fifteen days from the date it becomes payable, shall be
considered in the same manner as the delay in payment of
wages.
(b) to (f) xxxx
E (2) Effective implementation of sub-paragraph ( 1) shall be
considered necessary for the purposes of the section 27 of
the Act.
23. The meat of the matter lies in three issues: (i) Informal capping
· of funds through the Labour Budget and the 'agreed to' budget process;
F (ii) Delayed release of payments both for wages and materials; and (iii)
Ineffective monitoring of the Scheme.
24. As far as the informal cap on funds is concerned, no doubt a
process has to be followed by the Government oflndia for the release
· of funds. The issue really is one of accepting a budget presentation as it
G is made by the State Government. The Government of India believes
that the budget presentation cannot be accepted as it is and the
Empowered Committee must consider the totality of facts and take a
final decision.
25. It seems to us that a comparative table on the annual demand
H made by the States and the final decision of the Empowered Committee
SWARAJ ABHIYAN - (III) v. UNION OF INDIA & ORS. 321
[MADAN B. LOKUR, J.]

must be available, but the relevant figures have not been placed before A
us. However, during the course of hearing, it was the admitted position
that there is a reduction from the demand made to the actual approval
and that is based, inter alia, on the performance of the State Government
in implementing the Scheme. This is also apparent from a reading of
paragraph 7.1.1 of the Master Circular (FY 2016-2017) Guidance for
B
Programme Implementation issued by the Ministry of Rural Development
of the Government of India.;
26. There is, therefore, a chicken and egg situation - the release
of funds by the Government oflndia is low because the performance of
the State Government is poor and the performance of the State
Government is poor because the release of funds by the Government of c
India is low. The suffering is of the unemployed unskilled manual labourer
as an individual and the society as a whole.
27. Regarding the informal cap on funds, learned counsel for the
petitioner sought to substantiate his contention by referring to the Minutes
of the meeting of the Empowered Committee held on 21" March, 2016 D
for the State of Madhya Pradesh for FY 2016-17. Paragraph 4 of the
Minutes is illustrative of the view of the Government oflndia and this
records: "Under no circumstances, the State will cross the approved
Labour Budget for 2016-17 without the prior approval of the Ministry."
28. It seems to us that the petitioner is perhaps reading too much E
into these Minutes. The reason we say so is because the learned Additional
Solicitor General has drawn out attention to a subsequent letter dated
IJ•h April, 2016 sent by the Secretary in the Ministry of Rural
Development to the Chief Secretary ofabout 10 States (including Madhya
Pradesh) wherein it is categorically stated that: "the agreed to Labour F
Budget for 2016-17 does not imply that work cannot be provided beyond
the Labour Budget ifthere is a genuine demand for work." Also, in the
fourth affidavit filed by the Union of India it is stated as follows:
"8. That there has been no restriction on registration of
demand for work and states have been allowed to go beyond G
estimated Jabour budget in FY 2015-16. The labour budget
is just a rough estimation of the demand and is one of the
tools for financial management.
' 7.1.1 Funds are released to the States/UTs normally in two tranches on the
basis of agreed to Labour Budget (LB) and the performance of the States/UTs
during the year till NEFS comes into effect. H
322 SUPREME COURT REPORTS [2016) 9 S.C.R.

A 9. That 13 States i.e. West Bengal, Uttarakhand, Odisha,
Meghalaya, Uttar Pradesh, Assam, Rajasthan, Nagaland,
Kerala, Sikkim, Gujarat, Punjab and Tripura have generated
persondays beyond the estimated labour budgets for FY
2015-16. These states include three drought affected states
namely Odisha, Uttar Pradesh and Rajasthan."
B
29. Keeping the above in mind and the submissions made, it appears
to us that there is no informal capping of funds although it does appear
that the Government oflndia is not prone to easily release funds for the
projects under the Scheme. This really takes us to the second issue
namely the delayed release of payments both for wages and materials.
c
30. According to the petitioner delayed release of payments has
an adverse impact in the sense that it acts as a disincentive to a person
taking on any work under the Scheme. If a person does some work
under the Scheme and is not sure when he or she is likely to get the
payment, there will definitely be some reluctance to seek employment
D under the Scheme. .
31. With reference to FY 2016-17 the Union oflndia states in the
fourth affidavit filed on or about 11 •h April, 2016 that an amount of
Rs.11,030 crore will be released to the States within one week subject to
certain conditions and the release will take care of the pending wage
E liability of Rs.7,983 crore (as on 31" March, 2016) pertaining to FY
2015-16. This is a clear admission on the part of Government of India
that huge amounts remain unpaid towards wages The unfortunate part
is that an amount ofRs.2, 723 crore from this is with respect to 10 drought
affected States where the unemployed perhaps need their wages the
F most.
32. In Sanjit Roy v. State of Rajllst/1an6 this Court held that
providing labour for less than the minimum wage amounts to forced
labour and as such violates of Article 23 of the Constitution. It was said
by Justice Bhagwati as follows:
G " ... where a person provides labour or service to another
for remuneration which is less than the minimum wage, the
labour or service provided by him clearly falls within the
meaning of the words "forced labour" and attracts the
condemnation of Article 23. Every person who provides
H • (1983) 1 sec 525
SWARAJ ABHIYAN - (Ill) v. UNION OF INDIA & ORS. 323
[MADAN B. LOKUR, J.]

labour or service to another is entitled at the least to the A
minimum wage and if anything less than the minimum wage
is paid to him, he can complain of violation of his
fundamental right under Article 23 and ask the court to direct
payment of the minimum wage to him so that the breach of
Article 23 may be abated."
B
What we are concerned with in the present case is not strictly
payment less than the minimum wage but delayed payment to crores of
people. We can understand delayed payment of a few days or weeks to
a few people, but in this case it is delayed payment of a few weeks (if
not more) to lakhs of people. Given the enormous number of persons
involved, this is really unfortunate. c
33. In S"njit Roy, a strange submission was made by the State. It
was submitted that it would not be possible to pay the minimum wage to
persons undertaking famine relief work and to persons affected by drought
and scarcity conditions since that would cripple the potential to provide
employment to the affected persons. Rejecting this contention, Justice D
Bhagwati held:
" ... when the State undertakes famine relief work with a
view to providing help to the persons affected by drought
and scarcity conditions, it would be difficult for the State to
comply with the labour laws, because if the State were E
required to observe the labour laws, the potential of the
State to provide employment to the affected persons would
be crippled and the State would not be able to render help
to the maximum number of affected persons and it was for
this reason that the applicability of the Minimum Wages F
Act, 1948 was excluded in relation to workmen employed
in famine relief work. This contention, plausible though it
may seem is, in my opinion, unsustainable and cannot be
accepted. When the State undertakes famine relief work it
is no doubt true that it does so in order to provide relief to
persons affected by drought and scarcity conditions but, G
nonetheless, it is work which enures for the benefit of the
State representing the society and if labour or service is
provided by the affected persons for carrying out such work,
there is no reason why the State should pay anything less
than the minimum wage to the affected persons. H
324 SUPREME COURT REPORTS [2016] 9 S.C.R.

A ...... Whenever any labour or service is taken by the State
from any person, whether he be affected by drought and
scarcity conditions or not, the State must pay, at the least,
minimum wage to such person on pain of violation ofArticle
23 .... "
B 34. Justice Pathak concurred with the view of Justice Bhagwati
but preferred to rest his decision on a breach of Article 14 of the
Constitution and not Article 23 thereof. Justice Pathak held:
"The circumstance that employment has been given to
persons affected by drought and scarcity conditions provides
c only the reason for extending such employment. In other
words, the granting of relief to persons in distress by giving
them employment constitutes merely the motive for giving
them work. It cannot affect their right to what is due to
every worker in the course of such employment. The rights
of all the workers will be the same, whether they are drawn
D from an area affected by drought and scarcity conditions
or come from elsewhere. The mere circumstance that a
worker belongs to an area effected by drought and scarcity
conditions can in no way influence the scope and sum of
those rights. In comparison with a worker belonging to some
E other more fortunate area and doing the same kind of work,
is he less entitled than the other to the totality of those rights?
Because he belongs to a distressed area, is he liable, in the
computation of his wages, to be distinguished from the other
by the badge of his misfortune? The prescription of equality
in Article 14 of the Constitution gives one answer only, and
F that is a categorical negative."
35. It is quite clear, therefore, that when the rights of tens of
thousands of people are affected by delayed payment of their legitimate
dues, there is a clear constitutional breach committed by the State - be
it the Government oflndia or a State Government.
G
36. As mentioned above, a worker is entitled to compensation@
0.05% per day for delayed payment of the wages due. We are quite
pained to note that the Government of India has made no provision for
this compensation while releasing the wages for 2015-16 of Rs. 7,983
crores. This is extremely unfortunate and certainly does not behove a
H
SWARAJ ABHIYAN - (III) v. UNION OF INDIA & ORS. 325
[MADAN B. LOKUR, J.]

welfare State in any situation, more so in a drought situation. Social A
justice has been thrown out of the window by the Government oflndia.
37. To make matters worse, the Union oflndia has admitted in
the fourth affidavit that the material component of FY 2015-16 (as on
31~March,2016) is Rs. 4,359 crore forthe entire country which includes
the material liability of Rs. 1,995 crore in the I 0 drought affected States. B
This amount, according to Government oflndia will be released in June
2016. Why should there be a delay in this?
38. We are unable to appreciate the unconscionable delay on the
part of the Government of India in the release of funds both under the
wage component as well as under the material component. It is quite c
clear, and there is no worthwhile justification forthcoming from the learned
Additional Solicitor General, that delay in payment of wages acts as a
disincentive to those persons who are intending to take the benefit of the
Scheme. We have not been given any explanation whatsoever why a
person would want to work without wages or at least work with an
uncertainty in timely receipt ofwages. ltjust does not stand to reason. D

39. The Union oflndia has also stated in the fourth affidavit that
an amount of Rs. 3,04 7 crore will be released to the States for
implementing the Scheme in April 2016 and that this amount would be
inclusive of both the wage and material components.
E
40. In terms of the Master Circular (2016-17) the first tranche of
the "agreed to" Labour Budget is required to be released in April 2016
{for the period ending in September). In terms of paragraph 7.1.2 of the
Master Circular the release would be made after adjusting for unspent
balance available with the Districts/States and considering the pending
liabilities if any. 7 As is apparent from the fourth affidavit filed by the F
Government oflndia the possibility of any unspent balance perhaps does
not exist but what does exist is the pending liabilities. Therefore, the
amount that is released in the first tranche would actually be much less
than the required amount for the first six months of the financial year
since the pending liabilities themselves are more than Rs. 12,000 crore. G
7
I" tranche is released to States/Districts in the month of April. The quantum of I"
tranche is based on the number of person days pr(\jected by the State/UT for the first
six months of the year (up to September) in the Labour Budget. However. it would
not exceed 50 percent of the total person days agreed to in the Labour Budget. The
first tranche is released after adjusting unspent balance available with the districts/States
and considering the pending liabilities. if any. H
326 SUPREME COURT REPORTS [2016] 9 S.C.R.

A Clearly the implementation of the Scheme in the first six months of the
financial year 2016-17 would begin with a deficit and the actual amount
required for the first six months of the financial year (even as per the
"agreed to" Labour Budget) would not be fulfilled. In our opinion, this is
hardly any encouragement to persons willing to take advantage of the
Scheme.
B
41. The fourth affidavit goes on to say that the first tranche will
be released in two installments - the first installment being released in
April 2016 which would apparently take care of the implementation of
the Scheme for the month of April and the second tranche would be
released in June 2016 after the regular budget is passed in Parliament.
c The reason given in the fourth affidavit for the release ofthe first tranche
in two installments is because of the vote on account. It is a matter of
common knowledge that the annual budget is presented every year on
the last day of February and it naturally takes time for the budget proposals
to be accepted by Parliament and hence the need for a vote on account.
D That being so it is rather odd that the Master Circular proceeds on the
basis that the entire quantum of the first tranche will be released in April
2016- something that is apparently not possible. There is no mention of
any vote on account in the Master Circular and to this extent an incorrect
picture of the release of funds is held out. All that we can say is that this
is an unfortunate way of implementing a social welfare Scheme intended
E for the benefit of unemployed persons.

42. We are informed by the Joint Secretary that the Labour Budget
for 2016-17 is calculated on 314 crore person days of employment. This
has been scaled down by the Empowered Committee and the "agreed
to" Labour Budge for 2016-17 is calculated on 217 crore person days of
F · employment. Therefore, (roughly) only 70% of the Labour Budget is
accepted by the Empowered Committee based on the past performance
of the States. On this basis, (roughly) about Rs. 20,000 crores ought to
be released by the Government of India in the first tranche towards
financial implementation of the Scheme. The amount actually released
G is only Rs. 304 7 crores. The implicit assurance is th11t the balance amount
of about Rs. 17,000 crores will be made over the States in June, 2016 in
the second installment of the first tranche after the annual -budget is
approved by Parliament. We can only wait and hope.
43. As far as the third issue of monitoring the Scheme is concerned
H the NREG Act makes adequate provision in this regard. Section 10 of
SWARAJ ABHIYAN • (III) v. UNION OF INDIA & ORS. 327
[MADAN B. LOKUR, J.)

the NREG Act provides for constituting a Central Employment Guarantee A
Council (for short 'the CEGC'). 8 As per Section 11 of the NREG Act,
the functions of the CEGC include, amongst others, establishing a central
evaluation and monitoring system; advising the Central Government in
all matters concerning the implementation of the NREG Act; monitoring
the implementation of the NREG Act; and preparing annual reports to
B
be laid before Parliament by the Central Government on the
implementation of the Act. It is not clear to us whether the CEGC is in
existence and whether any monitoring mechanism is in place. A visit to
the official website of the NREG Act9 indicates that as of now there is
no _CEGC in place.
44. Similarly, the State Government is required to constitute a c
• 10. Central Employment Guarantee Council - (I) With effect from such date
as the Central Government may, by notification specify, there shall be constituted a
Council to be called the Central Employment Guarantee Council to discharge the
functions. and perform the duties, assigned to it by or under this Act.
(2) The headquarters of the Central Council shall be at Delhi.
(3) The Central Council shall consist of the following members to be appointed by the D
Central Government, namely:-
(a) a Chairperson:
· (b) not more than such number of representatives of the Central Ministries
including the Planning Commission not below the rank of Joint Secretary to the
Government of India as may be determined by the Central Government:
(c) not more than such number of representatives of the State Governments as E
may be determined by the Central Government;
(d) not more than fifteen non-official members representing Panchayati Raj
Institutions, organisations of workers and disadvantaged groups:
Provided that such non-official members shall include two chairpersons of District
Panchayats nominated by the Central Government by rotation for a period of one year
atatime:
Provided further that not less than one-third of the non-official members nominated F
under this clause shall be women :
Provided also that not less than one-third of the non-official members shall be belonging
to the Scheduled Castes, the Scheduled Tribes, the Other Backward Classes and
Minorities;
(e) such number of representatives of the States as the Central Government
may, by rules, determine in this behalf;
(I) a Member-Secretary not below t~e rank of Joint Secretary to the Government
G
oflndia.
(4) The terms and conditions subject to which the Chairperson and other members of
the Central Council may be appointed and the time, place and procedure of the meetings
(including the quorum at such meetings) of the Central Council shall be such as may be
prescribed by the Central Government.
9
nrega.nic.in H
328 SUPREME COURT REPORTS [2016] 9 S.C.R.

A State Employment Guarantee Council under Section 12 of the Act. 10
The duties and functions of the State Council include advising the State
Government on all matters concerning the Scheme and its implementation
in the State, monitoring the implementation of the NREG Act and preparing
an annual report to be laid before the State Legislature by the State
Government. Again we have not been informed of the existence of any
B
such State Council or whether the NREG Act is being faithfully
implemented both by the Government of India and by the State
Government.
45. At this stage, we may mention that the Joint Secretary in the
'" 12. State Employment Guarantee Council - (I) For the purposes of regular
c monitoring and reviewing the implementation of this Act at the State level, every
State Government shall constitute a State Council to be known as the .......... (name
of the State) State Employment Guarantee Council with a Chairperson and such
number of official members as may be determined by the State Government and not
more than fifteen non-official members nominated by the State Government from
Panchayati Raj institutions, organisations of workers and disadvantaged groups :
D Provided that not less than one-third of the non-official members nominated under this
clause shall be women :
Provided further that not less than one-third of the non-official members shall be
belonging to the Scheduled Castes, the Scheduled Tribes, the Other Backward Classes
and Minorities.
(2) The terms and conditions subject to which the Chairperson and members of the
State Council may be appointed and the time, place and procedure of the meetings
E (including the quorum at such meetings) of the State Council shall be such as may be
prescribed by the State Government.
(3) The duties and functions of the State Council shall inc!ude-
(a) advising the State Government on all matters concerning the Scheme and
its implementation in the State;
(b) determining the preferred works;
(c) reviewing the monitoring and redressal mechanism from time to time and
F
recommending improvements;
(d) promoting the widest possible dissemination of information about this
Act and the Schemes under it:
(e) monitoring the implementation of this Act and the Schemes in the State
and coordinating such implementation with the Central Council;
(t) preparing the annual repc;>rt to be laid before the State Legislature by the
G State Government:
(g) any other duty or function as may be assigned to it by the Central Council
or the State Government.
(3) The State Council shall have the power to undertake an evaluation of the Schemes
operating in the State and for that purpose to collect or cause to be collected statistics
pertaining to the rural economy and the implementation of the Schemes and Programmes
in the State.
H
SWARAJ ABHIYAN - (III) v. UNION OF INDIA & ORS. 329
[MADAN B. LOKUR, J.]

Ministry of Rural Development infonned us that the Government of A
India has introduced a potentially exciting Scheme for prompt payment
of wages to the persons availing the benefit of the Scheme. A system
called the National Electronic Fund Transfer System orNe-FMS system
is in place in about a dozen States. The objective of this system is to
ensure that the wage component under the Scheme is released directly
B
to the account of the person concerned based on a Funds Transfer Order
to be generated by the implementing agencies of the States. The benefit
of the system is that the person will be assured of timely payment of
wages after the pay order generation. We have been informed that the
Ne-FMS system is in place in several States with effect from 12'h April,
2016. Although it is early days, we are told by the learned Additional c
Solicitor General thatthe system is working quite satisfactorily, although
this is disputed by the petitioner who says that the system was first
introduced in Kerala from I" January, 2016 but even then there are
huge delays in making the payment of wages.
Directions D
46. On the basis of the provisions of the NREG Act and the material
placed before us, it is appropriate that the following directions are issued:
1. The State Governments ought to present a realistic budget which
should then be pragmatically considered by the Empowered Committee.
This procedure will avoid any unnecessary controversy between the E
State Governments and the Government of India about the release of
funds under the Scheme.
2. The Government of India is directed to release to the State
Governments adequate funds under the Scheme in a timely manner so
that the 'workforce' is paid its wages well in time. It is regrettable that F
the pending wage bill for 2015-16 was cleared only during the pendency
of this petition. The Government oflndia must shape up in this regard.
3. The Government oflndia is directed to ensure that compensation
for delayed payment is made over to the workers whose wages have
been delayed beyond 15 days as postulated by paragraph 29 of Schedule G
II of the NREG Act and the Guidelines for Compensation fonnulated
pursuant thereto.
4. Both the State Governments and the Government of India are
directed to make all efforts to encourage needy persons to come forward
H
330 SUPREME COURT REPORTS (2016) 9 S.C.R.

A and take advantage of the Scheme. A success rate below 50% is nothing
to be proud of.
5. The Government of India is directed to ensure that the Central
Employment Guarantee Council is immediately constituted under Section
I0 of the NREG Act. In any event, the Central Employment Guarantee
B Council should be constituted within a maximum of 60 days from today.
6. The Government of India is directed to proactively request the
State Governments to establish the State Employment Guarantee Council
under Section 12 of the Act within a period of 45 days from today. The
effective implementation of the NREG Act will certainly not be possible
c unless these monitoring and reviewing authorities faithfully and urgently
established by the Government oflndia and the State Governments.
7. Since the NREG Act is a social welfare and social justice
legislation the Government oflndia must ensure that its provisions are
faithfully implemented by all concerned.
D
Nidhi Jain Directions issued.