Supreme Court Upholds Outsourcing Policy for Class IV Employees in Aided Institutions: State of Uttar Pradesh vs. Principal Abhay Nandan Inter College (2021)

Date of the Judgment: 27 September 2021
Citation: 2021 INSC 671
Judges: Justice Sanjay Kishan Kaul, Justice M.M. Sundresh
Can a state government mandate that aided educational institutions fill their Class IV employee positions through outsourcing, or do these institutions have the right to make permanent appointments? This question was at the heart of a recent Supreme Court of India judgment. The Supreme Court, in this case, addressed the validity of a policy decision by the State of Uttar Pradesh to mandate outsourcing for Class IV employees in aided educational institutions. The bench comprised of Justice Sanjay Kishan Kaul and Justice M.M. Sundresh, who authored the judgment.

Case Background

The State of Uttar Pradesh, through its government orders, decided to discontinue direct recruitment for Class IV employees in aided educational institutions, opting instead for outsourcing. This decision was influenced by recommendations from the Sixth Central Pay Commission in March 2008 and subsequent government orders on 08.09.2010 and 06.01.2011. These orders directed that any vacancies in Class IV positions were to be filled through outsourcing, not direct recruitment. Regulation 101 of the Intermediate Education Act, 1921, was amended multiple times to reflect this policy change.

The core issue arose when various aided institutions, despite the government orders, made appointments to Class IV positions, either with or without court orders and without prior approval from the Inspector, as required by the un-amended Regulation 101. These appointments were challenged, leading to the present appeals before the Supreme Court.

The Allahabad High Court had previously ruled that Regulation 101, as amended, was unconstitutional, violating Article 14 of the Constitution of India. The High Court also held that outsourcing for Class IV jobs was arbitrary and illegal. The State of Uttar Pradesh appealed this decision to the Supreme Court.

Timeline:

Legal Framework

The primary legislation in this case is the Intermediate Education Act, 1921. Key provisions include:

• Section 9(4) of the Intermediate Education Act, 1921: This section empowers the State Government to take immediate action, modify, or rescind any regulation without referring to the Board. The provision states:
  
  “Whenever, in the opinion of the State Government, it is necessary or expedient to take immediate action, it may, without making any reference to the Board under the foregoing provisions, pass such order or take such other action consistent with the provisions of this Act as it deems necessary, and in particular, may by such order modify or rescind or make any regulation in respect of any matter and shall forthwith inform the Board accordingly.”
• Section 16G of the Intermediate Education Act, 1921: This section deals with the conditions of service for employees in recognized institutions. It allows for regulations regarding probation, pay scales, transfers, leave, etc. Sub-section (1) states:
  
  “Every person employed in a recognized institution shall be governed by such conditions of service as may be prescribed by regulations and any agreement between the management and such employee insofar as it is inconsistent with the provisions of this Act or with the regulations shall be void.”
• Regulation 101 of the Regulations framed under the Intermediate Education Act, 1921: This regulation, as amended, mandates that Class IV vacancies in aided institutions be filled through outsourcing, except for dependents of deceased employees. The amended regulation states:
  
  “The appointing authority, except for the prior approval of the inspector, shall not fill any vacant post of non-teaching staff (clerical cadre) in any recognised or aided institution; with the restriction that the District Inspector of Schools shall make available the total number of vacancies to the Director of Education (Secondary Education) and also put forth justification for filling of the posts, showing the strength of the students in the institution. On receipt of the order from Director of Education (Secondary Education), the District Inspector of Schools shall give permission to the appointing authority for filling the said vacancies (except the vacancies of Class-IV posts) and while giving the permission, he shall ensure compliance of the reservation rules specified by the government as also of the prescribed norms in justification for the posts. With respect to the Class-IV vacancies, arrangements shall be made by way of outsourcing only; but the relevant rules, 1981, as amended from time to time, for recruitment of dependants of teaching or non-teaching staff of the nongovernment aided institutions dying in harness shall be applicable in relation to the appointments to be made on the vacant posts of Class-IV category.”

Arguments

Submissions of the Appellants (State of Uttar Pradesh):

• The State argued that the policy decision to outsource Class IV employees was a well-considered measure based on expert opinions, financial constraints, and recommendations from the Sixth and Seventh Central Pay Commissions.
• The State contended that aided institutions do not have a fundamental right to receive aid and are bound by the conditions attached to it.
• The State submitted that the amended Regulation 101 was a valid exercise of power under Section 9(4) of the Intermediate Education Act, 1921, which allows the government to modify or rescind regulations.
• The State argued that the High Court had overstepped its jurisdiction by questioning the wisdom of a policy decision.
• The State asserted that the appointments made by the institutions were illegal, being contrary to the government’s policy and without prior approval.
• The State argued that Article 162 of the Constitution of India has no relevance to the case as the posts were abolished.

Submissions of the Respondents (Aided Institutions and Employees):

• The respondents argued that Regulation 101, as amended, violated Article 14 of the Constitution by mandating outsourcing for Class IV employees alone.
• The respondents contended that the State lacked the authority under Section 16G of the Intermediate Education Act, 1921, to introduce the amended Regulation 101.
• The respondents submitted that the power under Section 9 of the Intermediate Education Act, 1921, could not be used to override Section 16G of the Intermediate Education Act, 1921.
• The respondents argued that the term “conditions of service” under Section 16G of the Intermediate Education Act, 1921, does not include “recruitment” and therefore the State cannot alter the method of recruitment.
• The respondents contended that the policy of outsourcing was arbitrary and illegal, as it would lead to exploitation of workers.
• The respondents argued that minority institutions have a right to manage their institutions, including the appointment of staff, and that this right was violated by the amended regulation.
• The respondents asserted that the recruited employees had a bona fide belief that their appointments were legal and should not be penalized.
• The respondents relied on the judgment in Catering Cleaners of Southern Railway vs. Union of India (1987) 1 SCC 700, arguing that outsourcing is akin to contract labor and is unconstitutional.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a numbered list. However, the core issues addressed by the Court were:

• Whether the State Government’s decision to mandate outsourcing for Class IV employees in aided institutions was a valid policy decision.
• Whether the amended Regulation 101 of the Regulations framed under the Intermediate Education Act, 1921 was constitutional and within the powers of the State Government under Section 9(4) of the Intermediate Education Act, 1921.
• Whether the High Court erred in holding that outsourcing was unconstitutional and violated Article 14 of the Constitution of India.
• Whether the aided institutions have a right to make appointments to Class IV posts contrary to the government policy.
• Whether the rights of minority institutions were violated by the amended regulation.
• Whether the employees recruited by the institutions should be protected.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

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

How each authority was viewed by the Court?

• The court relied on Federation of Railway Officers Association & Ors. vs. Union of India (2003) 4 SCC 289*, Directorate of Film Festivals & Ors. vs. Gaurav Ashwin Jain & Ors. (2007) 4 SCC 737*, State of Punjab & Ors. vs. Ram Lubhaya Bagga & Ors. (1998) 4 SCC 737*, Vasavi Engineering College Parents Association vs. State of Telangana & Ors. (2019) 7 SCC 172* and Union of India vs. Pushpa Rani (2008) 9 SCC 242* to emphasize that policy decisions are not amenable to judicial review unless they are manifestly arbitrary.
• The court followed Ramji Dwivedi vs. State of Uttar Pradesh (1983) 3 SCC 52* to interpret Section 9(4) of the Intermediate Education Act, 1921, as granting wide powers to the State Government.
• The court relied on SK Md. Rafique vs. Management Committee Contai Rahamania High Madrasah & Ors. (2020) 6 SCC 689* and T.M.A. Pai Foundation vs. State of Karnataka (2002) 8 SCC 481* to clarify that minority institutions are also subject to reasonable regulations in the national interest.
• The court cited Tamil Nadu Education Department Ministerial and General Subordinate Services Association & Ors. vs. State of Tamil Nadu & Ors. (1980) 3 SCC 97* to support the government’s power to make policy decisions affecting service conditions.
• The court used Dharani Sugars and Chemicals Ltd. vs. Union of India, (2019) 5 SCC 480* to support the principle of “always speaking” when interpreting old enactments.
• The court distinguished the case of Catering Cleaners of Southern Railway vs. Union of India (1987) 1 SCC 700*, stating it was not applicable to the present case.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Policy Decision: The court recognized that the decision to outsource Class IV employees was a policy decision based on financial constraints and efficiency, which is a valid consideration for the government.
• State’s Power: The court emphasized the State’s power under Section 9(4) of the Intermediate Education Act, 1921, to modify or rescind regulations, which was deemed sufficient to support the amended Regulation 101.
• Limited Judicial Review: The court reiterated the principle that courts should not interfere with policy decisions unless they are manifestly arbitrary, which was not found to be the case here.
• Uniform Application: The policy was applied uniformly across all government departments and aided institutions, indicating that it was not discriminatory.
• No Fundamental Right: The court noted that aided institutions do not have a fundamental right to receive aid and are bound by the conditions attached to it.
• Responsibility of Institutions: The court held that the institutions, having made the appointments, were responsible for continuing the employment of the recruited employees.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio Analysis:

The court’s reasoning was primarily based on legal considerations, particularly the interpretation of Section 9(4) of the Intermediate Education Act, 1921, and the principles of judicial review of policy decisions. While factual aspects were considered, the legal framework played a more significant role in the court’s decision.

Logical Reasoning

The following flowchart demonstrates the court’s logical reasoning for the main issue:

The court followed a similar logical process for each issue, examining the relevant legal provisions and principles before arriving at its conclusions.

Key Takeaways

• Policy Decisions: The Supreme Court reiterated that policy decisions of the government are not subject to judicial review unless they are manifestly arbitrary.
• State’s Power: The State Government has wide powers under Section 9(4) of the Intermediate Education Act, 1921, to modify or rescind regulations.
• Outsourcing: Outsourcing as a method of recruitment is not inherently unconstitutional and can be a valid policy choice.
• Aided Institutions: Aided institutions are bound by the conditions attached to the aid and cannot claim a right to make appointments contrary to government policy.
• Minority Institutions: Minority institutions are also subject to reasonable regulations in the national interest.
• Employee Protection: Institutions are responsible for the employees they have recruited, even if the recruitment was contrary to policy.
• Financial Considerations: The government can make policy decisions based on financial constraints and efficiency.

Directions

The Supreme Court issued the following directions:

1. The respondents/writ petitioners in Civil Appeal No 2753 of 2021 were directed to be confirmed as Class “IV” employees, having been given prior approval.
2. The respondents/writ petitioners and similarly placed persons who were recruited by the institutions were to be continued with the same scale of pay as if they were recruited prior to 08.09.2010, with the entire disbursement to be made by the institutions alone.
3. The appellants (State of Uttar Pradesh) were directed to create a mechanism for the proper implementation of outsourcing, with specific mechanism for the proper implementation of outsourcing, with specific reference to the number of employees required, the nature of work, and the method of payment.
4. The judgment of the High Court was set aside.

Impact

• Precedent: The judgment sets a precedent for the validity of outsourcing policies in aided educational institutions and reinforces the State’s power to make policy decisions in this regard.
• Policy Implications: The judgment has significant policy implications for the State of Uttar Pradesh and potentially other states that may consider outsourcing for Class IV employees in aided institutions.
• Financial Implications: The judgment clarifies the financial responsibility of the institutions for the employees they have recruited.
• Employee Rights: The judgment provides some protection to the employees who were recruited by the institutions, ensuring that their employment continues with the same pay.
• Judicial Restraint: The judgment reinforces the principle of judicial restraint in matters of policy, emphasizing that courts should not interfere with policy decisions unless they are manifestly arbitrary.
• Future Litigation: The judgment may reduce future litigation on the issue of outsourcing in aided educational institutions, as it provides a clear legal framework.