Background of the Case
The Kerala State Road Transport Corporation (KSRTC) employees and pensioners are governed by pensionary benefits authorised by the State Government. To offset rising inflation, the State of Kerala issued G.O. (Rt) No.98/2021/TRANS dated 25.02.2021. It enhanced Dearness Allowance (DA) for serving KSRTC employees by 14% (taking it to 112%) effective March 2021.
However, Dearness Relief (DR) for retired KSRTC pensioners was enhanced by only 11% (taking it to 109%) for the same period.
Retired employees challenged this disparity before the Kerala High Court, arguing that both DA and DR are meant to neutralise the same inflationary pressure, and therefore different rates of enhancement are discriminatory and violative of Article 14 of the Constitution.
- Single Judge dismissed the writ petitions, holding that serving employees and pensioners are distinct classes.
- Division Bench reversed the order and held the differential treatment discriminatory.
- State of Kerala and KSRTC approached the Supreme Court.
The Core Issue Before the Supreme Court
“If dearness allowance and dearness relief are to be added on salary and pension payable to serving employees and retired employees, respectively, whether there could be a higher rate for enhancement of DA than what it is for DR?”
Supreme Court’s Ruling (Key Holdings)
- DA and DR Serve the Same Purpose Both allowances are designed to mitigate the impact of inflation on the real income of employees and pensioners. Inflation affects serving and retired persons equally.
- No Rational Nexus for Differential Rates Once the Government/KSRTC decided to extend the benefit of enhanced DA/DR to both categories, there is no intelligible differentia that justifies granting a higher rate of increase to serving employees while giving a lower rate to pensioners. The classification fails the twin-test of Article 14.
- Financial Constraints Cannot Justify Unequal Rates While financial crunch may justify deferring implementation or fixing different cut-off dates for new schemes, once a decision is taken to grant the benefit and revise it on the basis of inflation, different rates of enhancement cannot be applied to serving and retired employees.
- Earlier Precedents Distinguished The Court clarified that judgments cited by the State/KSRTC (T.N. Electricity Board, State of Punjab v. Amar Nath Goyal, Himachal Road Transport, etc.) dealt with eligibility or cut-off dates for introducing new benefits. Those cases do not apply where there is no dispute about entitlement to DR — only the rate of enhancement is in question.
- High Court Judgment Upheld The Supreme Court dismissed the appeals and affirmed that the differential enhancement is arbitrary and violative of Article 14.
Important Takeaways for Government Employees, Pensioners & Administrators
- DA and DR are not independent benefits; they share the common objective of protecting purchasing power against inflation.
- Once an employer (Government or PSU) decides to grant/revise DA/DR, uniform rates must be applied to serving employees and pensioners.
- Financial hardship can be a valid ground for deferring benefits or choosing different implementation dates, but cannot justify unequal percentage increases for the same inflationary relief.
- This judgment will have far-reaching impact on all Central and State PSUs, autonomous bodies, and government corporations that follow similar DA/DR patterns.
Landmark Quote from the Judgment
“Indisputably, inflation hits both serving and retired employees with equal force, therefore, differentiating the two qua the rate of increase of DA and DR… has no rational nexus to the object sought to be achieved.” (Para 25)
Why This Judgment Matters
This is a significant pro-pensioner verdict that reinforces the principle of equality in economic benefits linked to inflation. It prevents arbitrary discrimination between serving and retired employees once the benefit is extended. The ruling will be crucial for pending and future disputes involving DA/DR parity across the country.
Case Details: State of Kerala & Anr. v. M. Vijayakumar & Ors. (Civil Appeal Nos. of 2026 arising out of SLP (C) Nos. 11592-11593 of 2023 & 18030 of 2023)
Date of Judgment: 10 April 2026
Bench: Justice Manoj Misra & Justice Prasanna B. Varale| 2026 INSC 352
Click HERE for full Judgment.
Lawcutor 