LEGAL ISSUE: Whether a State Public Sector Undertaking (PSU) can implement revised pay scales without approval from the Administrative and Finance Departments.
CASE TYPE: Service Law.
Case Name: Odisha State Financial Corporation vs. Odisha State Financial Corporation Employees Union & Ors.
Judgment Date: April 5, 2022
Introduction
Date of the Judgment: April 5, 2022
Citation: (2022) INSC 362
Judges: Justice Ajay Rastogi and Justice Sanjiv Khanna
Can a public sector company unilaterally decide to implement revised pay scales for its employees? The Supreme Court of India recently addressed this question in a case involving the Odisha State Financial Corporation (OSFC). The core issue was whether the OSFC could grant its employees revised pay scales without the necessary approvals from the state government’s administrative and finance departments. The Supreme Court, in this judgment, clarified that such approvals are mandatory. This judgment was delivered by a two-judge bench comprising Justice Ajay Rastogi and Justice Sanjiv Khanna.
Case Background
The Odisha State Financial Corporation (OSFC), a statutory corporation, faced a demand from its employees for revised pay scales following the implementation of the 6th Central Pay Commission recommendations for state government employees. The Government of Odisha had issued a resolution on May 8, 2009, outlining the eligibility criteria for State Public Sector Undertakings (PSUs) to revise their pay scales. These criteria included the PSU being profitable, not defaulting on statutory dues or loan payments, and having completed statutory audits. Crucially, the PSUs were required to fund the revised pay scales from their internal resources without relying on government assistance.
The OSFC Board of Directors approved the revised pay scales on June 18, 2012, with effect from April 1, 2012. However, the administrative department, the Micro, Small and Medium Enterprises (MSME) Department, did not approve these recommendations in its meeting on August 10, 2016, citing the OSFC’s financial difficulties and defaults on loan payments.
Timeline
| Date | Event |
|---|---|
| September 9, 2008 | State Government constitutes a Fitment Committee to examine pay scale revisions. |
| December 16, 2008 | Revised pay scales introduced for State Government employees. |
| May 8, 2009 | Government of Orissa issues resolution for revision of pay scales of State PSUs, subject to eligibility criteria. |
| June 18, 2012 | OSFC Board of Directors approves revised pay scales for employees, effective from April 1, 2012. |
| August 10, 2016 | MSME Department does not approve the revised pay scales for OSFC employees. |
| April 10, 2018 | Single Judge directs OSFC to pay arrear benefits under revised pay scale. |
| January 31, 2019 | Division Bench of the High Court dismisses the appeal filed by OSFC. |
| April 5, 2022 | Supreme Court sets aside the order of the High Court and allows the appeal of OSFC. |
Course of Proceedings
The employees’ union filed a writ petition before a single judge of the High Court after the administrative department did not approve the revised pay scales. The single judge, based on a statement from the Corporation’s counsel that the Corporation would pay the arrear benefits, disposed of the writ petition on April 10, 2018, directing the payment of revised pay scales from April 1, 2012. The OSFC then appealed this order. The Division Bench of the High Court dismissed the appeal, stating that the financial condition of a state functionary is not a valid reason to deny legitimate dues to employees.
Legal Framework
The core of the legal framework in this case is the Government of Orissa’s Resolution dated May 8, 2009, which outlines the conditions for State PSUs to implement revised pay scales. This resolution was issued following the implementation of the Orissa Revised Scales of Pay Rules, 2008 (ORSP Rules, 2008) for state government employees. The resolution stipulated that PSUs must:
- ✓ Be a profit-making entity with cumulative profits for the last two consecutive years.
- ✓ Not have defaulted on statutory dues like Provident Fund and ESI.
- ✓ Not have defaulted on loan payments to any financial institution or the State Government.
- ✓ Have completed statutory audits up to date.
- ✓ Meet the expenditure for revised pay scales from internal resources without government financial support.
Additionally, the resolution mandated that eligible PSUs must first obtain approval from their Board of Directors, then submit the proposal to the administrative department for examination, and finally, obtain prior approval from the Finance Department for sanction.
The Supreme Court noted that the ORSP Rules, 2008, were specifically for State Government employees and could not be automatically extended to PSUs. Any extension required adherence to the conditions laid out in the government’s resolution and approval from the relevant departments.
Arguments
The Odisha State Financial Corporation (OSFC) argued that the revised pay scales could not be implemented because the administrative department, i.e., the MSME Department, did not approve the recommendations due to the Corporation’s poor financial condition and loan defaults. They emphasized that the Government of Orissa’s Resolution dated May 8, 2009, required both administrative and finance department approvals for the implementation of revised pay scales in PSUs.
The OSFC also contended that the High Court had overlooked the fact that the ORSP Rules, 2008, were meant for State Government employees and could not be automatically applied to PSU employees without fulfilling the specified conditions and obtaining necessary approvals.
The Odisha State Financial Corporation Employees Union argued that the Corporation had earned profits in the years 2005-2006 to 2008-2009, indicating that it was financially capable of implementing the revised pay scales. They contended that the financial condition of a State functionary should not be a ground to deny legitimate dues to its employees. They also asserted that the Board of Directors had approved the revised pay scales, and therefore, the employees were entitled to the benefits.
| Submissions | OSFC’s Arguments | Employees Union’s Arguments |
|---|---|---|
| Approval Requirement | The revised pay scales could not be implemented without the approval of the Administrative Department (MSME) and the Finance Department, as per the Government of Orissa’s Resolution dated May 8, 2009. | The Board of Directors had already approved the revised pay scales, making the employees entitled to the benefits. |
| Financial Condition | OSFC was not in a sound financial position due to loan defaults and was not meeting the eligibility criteria stipulated by the Government of Orissa. | OSFC had earned profits in the years 2005-2006 to 2008-2009, indicating financial capability for implementing the revised pay scales. |
| Applicability of ORSP Rules, 2008 | The ORSP Rules, 2008, were specifically for State Government employees and could not be automatically extended to PSU employees without fulfilling the conditions and obtaining approvals. | The financial condition of a State functionary should not be a ground to deny legitimate dues to its employees. |
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame specific issues in a dedicated section but addressed the core question of whether the High Court was correct in directing the implementation of revised pay scales without the necessary administrative and finance department approvals. The primary issue was:
- ✓ Whether the recommendations made by the Corporation in introducing the ORSP Rules, 2008 for the employees of the Corporation, in the absence of being approved by the Administrative Department and the Finance Department, were available for implementation.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the recommendations made by the Corporation in introducing the ORSP Rules, 2008 for the employees of the Corporation, in the absence of being approved by the Administrative Department and the Finance Department, were available for implementation. | The Court held that the recommendations were not available for implementation. | The Court noted that the Government of Orissa’s Resolution dated May 8, 2009, clearly stipulated that the revised pay scales for PSUs required approval from both the Administrative Department and the Finance Department, which was not obtained in this case. |
Authorities
The Supreme Court did not cite any specific cases or books in its judgment. However, it heavily relied on the Government of Orissa’s Resolution dated May 8, 2009, and the Orissa Revised Scales of Pay Rules, 2008 (ORSP Rules, 2008).
| Authority | Type | How it was used by the Court |
|---|---|---|
| Government of Orissa’s Resolution dated May 8, 2009 | Government Resolution | The Court used this resolution as the basis for determining the eligibility criteria and approval process for implementing revised pay scales in State PSUs. The Court emphasized that the resolution required both administrative and finance department approvals, which were not obtained in this case. |
| Orissa Revised Scales of Pay Rules, 2008 (ORSP Rules, 2008) | Rules | The Court clarified that these rules were specifically for State Government employees and could not be automatically extended to PSU employees. The Court highlighted that any extension required adherence to the conditions laid out in the government’s resolution and approval from the relevant departments. |
Judgment
| Submission | How it was treated by the Court |
|---|---|
| OSFC’s submission that the revised pay scales could not be implemented without the approval of the Administrative Department (MSME) and the Finance Department. | The Court upheld this submission, stating that the Government of Orissa’s Resolution dated May 8, 2009, clearly mandated these approvals. |
| Employees Union’s submission that the Board of Directors had already approved the revised pay scales. | The Court rejected this submission, noting that the Board’s approval was only the first step and was not sufficient without the subsequent approvals of the Administrative and Finance Departments. |
| Employees Union’s submission that OSFC had earned profits in the years 2005-2006 to 2008-2009, indicating financial capability for implementing the revised pay scales. | The Court observed that the balance sheet of the Corporation reflects accumulated financial losses in the preceding years. The Court also noted that this was not the only criteria for approval. |
The Supreme Court held that the High Court had erred in directing the implementation of revised pay scales without the necessary approvals from the administrative and finance departments. The Court emphasized that the Government of Orissa’s Resolution dated May 8, 2009, clearly stipulated that the revised pay scales for PSUs required approval from both the Administrative Department and the Finance Department, which was not obtained in this case.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the procedural requirements outlined in the Government of Orissa’s Resolution dated May 8, 2009. The Court emphasized that the resolution was clear in its requirement for approvals from both the Administrative Department and the Finance Department before any revised pay scales could be implemented in State PSUs. The Court’s reasoning focused on the necessity of adhering to these procedural safeguards to ensure financial prudence and accountability in the implementation of revised pay scales.
| Reason | Sentiment Score |
|---|---|
| Procedural Requirements of Government Resolution | 40% |
| Lack of Administrative Department Approval | 30% |
| Lack of Finance Department Approval | 20% |
| Financial Condition of the Corporation | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
The Court’s reasoning was primarily based on the legal requirements and procedures as laid down by the Government of Orissa. The factual aspects of the case, such as the financial condition of the Corporation, were secondary to the legal requirements for approvals.
The Court’s reasoning followed a logical progression, emphasizing the necessity of adhering to the prescribed procedures for implementing revised pay scales. The decision was not based on the financial condition of the Corporation alone but on the lack of adherence to the mandatory approval process.
The Supreme Court did not consider any alternative interpretations that would have allowed the implementation of the revised pay scales without the required approvals. The Court’s view was that the conditions stipulated by the Government of Orissa were clear and mandatory.
The Supreme Court stated, “Indisputedly, as already observed, the recommendations were neither approved by the Administrative Department nor the Finance Department, Government of Orissa. In the given circumstances, the recommendations made by the Corporation/Board of Directors to implement the ORSP Rules, 2008 to the employees of the Corporation were not available for its implementation and this has been completely overlooked by the Division Bench of the High Court while dismissing the appeal filed by the present appellant.”
The Supreme Court also observed, “It may be relevant to note at this stage that the revised scale of pay under ORSP Rules, 2008 could not have been implemented without being approved by the Administrative Department and the Department of Finance, Government of Orissa. Thus, the directions of the learned Single Judge under Order dated 10th April, 2018 in itself were not sustainable.”
The Court further noted, “the ORSP Rules, 2008 introduced for the State Government employees vide notification dated 16th December, 2008 could not have been extended to PSUs and particularly to the employees of the Corporation, unless recommendations made by PSUs being approved by the concerned administrative Department, i.e., MSME, in the instant case, and after getting approval of the Finance Department for sanction of the scheme.”
The decision was unanimous, with both judges concurring on the outcome. There were no dissenting opinions.
Key Takeaways
- ✓ State PSUs cannot implement revised pay scales without explicit approval from both the Administrative and Finance Departments of the state government.
- ✓ The financial condition of a PSU, including its profitability and loan repayment status, is a critical factor in determining eligibility for revised pay scales.
- ✓ The recommendations of the Board of Directors of a PSU are not sufficient for implementing revised pay scales; they must be followed by approvals from the relevant government departments.
- ✓ The Orissa Revised Scales of Pay Rules, 2008, are specifically for State Government employees and cannot be automatically extended to PSU employees.
Directions
The Supreme Court set aside the order of the Division Bench of the High Court dated January 31, 2019, and allowed the appeal of the Odisha State Financial Corporation. No specific directions were given other than setting aside the High Court’s order.
Development of Law
The ratio decidendi of this case is that State Public Sector Undertakings (PSUs) must adhere to the procedural requirements set by the government, including obtaining approvals from both the Administrative and Finance Departments, before implementing revised pay scales. This judgment clarifies that the financial health of the PSU and adherence to statutory obligations are key factors in determining eligibility for pay revisions. It also reinforces that decisions made by the Board of Directors are not final and are subject to government approvals. There is no change in the previous position of law, but this judgment clarifies the process for implementation of revised pay scales for State PSUs.
Conclusion
The Supreme Court’s judgment in Odisha State Financial Corporation vs. Odisha State Financial Corporation Employees Union & Ors. clarifies that State PSUs cannot implement revised pay scales without obtaining explicit approvals from both the Administrative and Finance Departments of the state government. The Court emphasized that the procedural requirements outlined in the Government of Orissa’s Resolution dated May 8, 2009, are mandatory and must be strictly followed. This decision underscores the importance of financial prudence and accountability in the implementation of revised pay scales in State PSUs.