Supreme Court Upholds Financial Stringency in Denying Revised Pay Scales to Cooperative Employees

Introduction

Date of the Judgment: July 9, 2021
Citation: 2021 INSC 390
Judges: Sanjay Kishan Kaul, J. and Hemant Gupta, J.

Can a cooperative society, facing financial difficulties, deny its employees revised pay scales equivalent to those of state government employees? The Supreme Court of India recently addressed this question in a case involving the Punjab State Co-operative Milk Producers Federation Ltd. The court examined whether the Federation’s decision to grant revised pay scales from 1994, instead of 1986 as claimed by the employees, was justified. The bench comprised Justices Sanjay Kishan Kaul and Hemant Gupta, with Justice Hemant Gupta authoring the judgment.

Case Background

The dispute arose from a claim by employees of the Punjab State Co-operative Milk Producers Federation Ltd. (the Federation) for pay scales equivalent to those of Punjab state government employees. The Federation is an apex body of milk producers’ cooperative societies at the village level, which are members of District Cooperative Milk Producers Unions, which in turn are members of the Federation. The employees sought revised pay scales effective from January 1, 1986, as per the Punjab Government Anomaly Committee’s recommendations. The Federation, however, granted revised pay scales only from January 1, 1994, citing financial difficulties.

The employees filed writ petitions before the High Court of Punjab & Haryana, which ruled in their favor, holding that the Federation was a “State” under Article 12 of the Constitution and that financial stringency could not justify denying the revised pay scales from 1986. The Federation then appealed to the Supreme Court.

Timeline:

Legal Framework

The case primarily revolved around the interpretation of Article 12 of the Constitution of India, which defines the term “State” for the purpose of enforcing fundamental rights. The employees argued that the Federation was a “State” and thus obligated to provide pay scales equivalent to state government employees. The Federation’s service conditions are governed by the Punjab State Co-operative Milk Producers Federation Services (Common Cadre) Rules, 1980. The Federation also issued a notice under Section 9-A of the Industrial Disputes Act, 1947, to effect changes in service conditions due to financial stringency.

Arguments

Federation’s Arguments:

• The Federation argued that it faced severe financial constraints, which necessitated the implementation of revised pay scales from 1.1.1994 instead of 1.1.1986.
• It contended that the High Court erred in holding that financial stringency was not a valid reason to deny the revised pay scales from 1986.
• The Federation highlighted that it had taken loans from the State Government and the National Dairy Development Board due to its financial difficulties.
• The Federation pointed out that the State Government itself had communicated that instructions regarding allowances/pay scale issued by the Punjab Government for its employees should not be automatically adopted by Public Sector Undertakings.
• The Federation also argued that a committee was constituted to examine the issue of pay revision and the committee recommended that pay scale be given w.e.f. 1.1.1994 on account of financial stringency being faced by the Federation.
• It was submitted that the decision of the Committee does not warrant any interference in exercise of the power of judicial review.
• The Federation also argued that the employees who filed the writ petition have no work of the post to which they were appointed and instead of abolishing the post, the Federation granted revised pay scale which was better than the pay scale recommended by the Pay Commission but less than the pay scale granted by the State Government.

Employees’ Arguments:

• The employees argued that the Federation, being a “State” under Article 12, was obligated to provide pay scales equivalent to those of Punjab state government employees.
• They contended that the financial stringency was not a valid reason to deny the revised pay scales from 1.1.1986.
• The employees argued that the revision of pay scale recommended by the Pay Commission after acceptance by the Government could not be denied to a category of employees as it would be an act of discrimination.
• The employees in Civil Appeal No. 7433 of 2011 argued that seven employees of the Federation have not been provided the benefit of recommendations of the Committee as was granted to the other employees of the Federation w.e.f. 1.1.1994.
• The employees also contended that the High Court has restricted the arrears consequent to its directions to grant arrears of the revised pay scale for a period of 3 years and 2 months from the date preceding the date of filing of respective writ petitions.
• The employees also submitted that though there were losses for some years, the information disclosed under the Right to Information Act on 22.7.2011 shows that the Federation has been in profit since 1996-1997.
• The employees in Civil Appeal No. 7432 of 2011 argued that the categorization of Milk Procurement Assistants as Grade-I & II is unconstitutional and they would be entitled to the same pay as is being paid to Milk Procurement Assistants Grade-I on the principle of equal pay for equal work.
• The employees in Civil Appeal No. 7434 of 2011 argued that they are entitled to parity in the matter of pay with the Area Officers including Deputy Manager (Procurement) and Dairy Extension Officer as the duties and functions of the employees and the other Area Officers are the same as such posts are interchangeable.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the following issues were addressed:

1. Whether the High Court was correct in holding that the date of implementation of revised pay scales as 1.1.1994 was unfair and that financial stringency was not an excuse for refusing to revise the pay scales from 1.1.1986.
2. Whether the High Court was correct in holding that the Federation was a State within the meaning of Article 12 of the Constitution.
3. Whether the employees are entitled to equal pay for equal work.
4. Whether the decision of the Committee to not grant the revised pay scale on the basis of the report of the Committee of the Federation w.e.f. 1.1.1994 was wholly arbitrary and discriminatory.

Treatment of the Issue by the Court

Authorities

Cases Relied Upon:

Legal Provisions Considered:

• Article 12 of the Constitution of India: Defines “State”.
• Section 9-A of the Industrial Disputes Act, 1947: Notice of change of service conditions.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Crown Aluminium Works v. Workmen [AIR 1958 SC 30]*: The Court used this case to support the idea that wage structures can be revised based on financial conditions.
• Standard Vacuum Refining Co. of India v. Workmen & Anr. [AIR 1961 SC 895]*: The Court referred to this case to discuss the three categories of wages (minimum, fair, and living wage).
• Hindustan Times Ltd., New Delhi v. Workmen [(1963) 1 LLJ 120]*: The Court referred to this case to highlight the complex factors that have to be borne in mind while fixing wage structure.
• Workmen v. Reptakos Brett. & Co. Ltd. [(1992) 1 SCC 290]*: The Court referred to this case to discuss the components of minimum wage.
• A.K. Bindal & Anr. v. Union of India & Ors. [(2003) 5 SCC 163]*: The Court relied on this case to support the argument that financial stringency can be a valid ground to deny higher pay scales.
• South Malabar Gramin Bank v. Coordination Committee of South Malabar Gramin Bank Employees’ Union. [(2001) 4 SCC 101]*: The Court distinguished this case, noting that financial viability cannot be the sole criterion for determining wage structure.
• Officers & Supervisors of I.D.P .L. v. Chairman & M.D., I.D.P .L. & Ors. [(2003) 6 SCC 490]*: The Court referred to this case to highlight that employees cannot claim revision of pay scales when the organization is making continuous losses.
• S.C. Chandra & Ors. v. State of Jharkhand & Ors. [(2007) 8 SCC 279]*: The Court referred to this case to highlight that fixation of pay scale is a delicate mechanism which requires various considerations including financial capacity.
• Mineral Exploration Corporation Ltd. v. Arvind Kumar Dixit & Anr. [(2015) 2 SCC 535]*: The Court relied on this case to support the argument that a cutoff date can be upheld in view of the financial constraints.
• State of Punjab & Ors. v. Amar Nath Goyal & Ors. [(2005) 6 SCC 754]*: The Court referred to this case to support the argument that financial and economic implications are very relevant for any policy decision touching the administration of the Government.
• State of Haryana v. Shri Des Raj Sangar & Anr. [(1976) 2 SCC 844]*: The Court relied on this case to support the argument that the decision to abolish the post was taken because of administrative reasons and to meet the financial stringency.
• Purshottam Lal & Ors. v. Union of India & Anr. [(1973) 1 SCC 651]*: The Court distinguished this case, noting that it was in the context of all Central Government employees.
• The Employees of Tannery and Footwear Corporation of India Ltd. & Anr. v. Union of India & Ors. [1991 Supp. (2) SCC 565]*: The Court distinguished this case, noting that it was in the context of parity in pay and allowances with that of the Central Government employees.
• Haryana State Minor Irrigation Tubewells Corporation & Ors. v. G.S. Uppal & Ors. [(2008) 7 SCC 375]*: The Court distinguished this case, noting that the employees of the Corporation have been treated on a par with those in Government at the time of revision of scales of pay on every occasion.
• Union of India & Anr. v. S.B. Vohra & Ors. [(2004) 2 SCC 150]*: The Court distinguished this case, noting that it was regarding pay scale of the employees of the High Court on recommendation of the Chief Justice.
• General Manager, Kisan Sahkari Chini Mills Ltd., Sultanpur, U.P . v. Satrughan Nishad & Ors. [(2003) 8 SCC 639]*: The Court distinguished this case as the counsel for the Federation did not raise any argument about the Federation being not a State.
• K.T. Veerappa & Ors. v. State of Karnataka & Ors. [(2006) 9 SCC 406]*: The Court referred to this case to highlight that fixation of pay and parity in duties is the function of the executive and financial capacity of the Government is also a relevant factor to be considered.
• Tata Cellular v. Union of India [(1994) 6 SCC 651]*: The Court referred to this case to highlight the principles of law applicable to the exercise of power of judicial review by the High Court in the administrative decisions of the State.
• Balco Employees’ Union (Regd.) v. Union of India & Ors. [(2002) 2 SCC 333]*: The Court referred to this case to highlight that wisdom and advisability of economic policies of Government are not amenable to judicial review.
• Jagdish Mandal v. State of Orissa & Ors. [(2007) 14 SCC 517]*: The Court referred to this case to highlight the scope of judicial review in the matter of award of a contract.
• West Bengal Central School Service Commission & Ors. v. Abdul Halim & Ors. [(2019) 18 SCC 39]*: The Court referred to this case to highlight the limits of the extraordinary power of judicial review.
• Municipal Council, Neemuch v. Mahadeo Real Estate & Ors. [(2019) 10 SCC 738]*: The Court referred to this case to highlight that an interference by the High Court would be warranted only when the decision impugned is vitiated by an apparent error of law.
• Harshit Agarwal & Ors. v. Union of India & Ors. [(2021) 2 SCC 710]*: The Court referred to this case to highlight that judicial review of administrative action is permissible on grounds of illegality, irrationality and procedural impropriety.

Decision

The Supreme Court allowed the appeals filed by the Federation and set aside the judgment of the High Court. The Court held that the Federation’s decision to implement revised pay scales from 1.1.1994 was justified due to the financial difficulties faced by the Federation. The Court also held that the principle of equal pay for equal work would not be applicable to Milk Procurement Assistants Grade-I & II as the educational qualifications and responsibilities of the two posts are quite different. The Court also held that the employees in Civil Appeal No. 7434 of 2011 are not entitled to the pay scale as claimed in the writ petition as the classification of different pay scales is permissible based upon educational qualifications, experience and nature of duties. The Court held that the decision of the Committee was not arbitrary or discriminatory as there were good reasons not to grant higher pay scale for the reason that there is no work of the post to which they were appointed but were given alternate assignments. The Court did not go into the question of whether the Federation was a State under Article 12 as the counsel for the Federation did not raise the issue.

Flowchart of the Decision

Ratio of Decision

Sentiment Analysis