Financial Stringency can be treated as a ground to deny higher pay scales: SC

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Punjab State Co-operative Milk Producer Federation ltd. and ors V Balbir Kumar Waliya and ors

Civil Appeal No.7427 OF 2011 with Civil Appeal No. 7429, 7430. 7431, 7432, 7433, 7434, 7435 OF 2011 Decided on July 09, 2021

BENCH- Sanjay Kishan Kaul and Hemant Gupta, JJ.

FACTSThe present appeals are directed against an order passed by the Division Bench of the High Court of Punjab & Haryana at Chandigarh on 19.3.2009 whereby the writ petitions filed by the respondents herein were allowed holding that the Punjab State Co-operative Milk Producers Federation Ltd. is a State within the meaning of Article 12 of the Constitution of India and that the employees are therefore entitled to pay scale equivalent to their counterparts in the State of Punjab from 1.1.1986, though the revised pay scale was allowed by the Federation w.e.f. 1.1.1994. The milk producers in the State launched the setting up of Cooperative Societies at village level which are known as Primary Milk Producers Cooperative Societies. Such Primary Milk Producers Cooperative Societies are in turn members of The District Cooperative Milk Producers Union. These District Level Unions are ultimately the members of the Federation. The employees have claimed pay scale as revised by the Punjab Government Anomaly Committee w.e.f. 1.1.1986.

The main grievance of the Federation is regarding grant of revised pay scale w.e.f. 1.1.1986 though the Federation was suffering with acute financial stringency in those days and had therefore granted revised pay scales from 1.1.1994. It is pointed out that The Registrar of Cooperative Societies accorded approval for implementation of the report of the Third Pay Commission on 2.6.1989. The Federation granted revised pay scale and allowances w.e.f. 1.1.1986 as per the report of the Pay Commission. Thereafter, on 15.2.1990, the State Government revised pay scale of Veterinary Officers of the Animal Husbandry Department, Punjab Government and that after eight years of service, the pay scale of Veterinary Officers and after eighteen years of service with effect from 1.1.1986 on the basis of report of an Anomaly Committee constituted to consider the grievances of the employees of the State. It is the said pay scale which was claimed by the filing of writ petitions before the High Court.

It was argued that the Federation was facing acute financial crisis inasmuch as the State had granted a loan of Rs.8 crores on 9.5.1990 which the Federation could not repay and therefore, the said amount was converted into the share capital of the State Government with the Federation. In addition thereto, keeping in view the financial stringency, the National Dairy Development Board gave a loan of Rs.4 crores on 2.5.1990 to the Federation. After the loan was granted by the National Dairy Development Board, there was a change in the management which led to restructuring of the Federation.

The service conditions of the employees of the Federation are governed by the Punjab State Co-operative Milk Producers Federation Services (Common Cadre) Rules, 1980. The Common Cadre Rules were resolved to be amended on 10.8.1990 by the Board of Directors of the Federation. The same were approved by the Registrar (Co-operative Societies) on 30.10.1990. It is thereafter that the Federation issued a notice under Section 9-A of the Industrial Disputes Act, 1947 on 12.11.1990 to all the employees on the ground of financial stringency showing its intention to effect the changes specified in the annexure annexed with the said notice.


1.       Whether financial stringency be treated as a ground to deny higher pay scales?

Held:- The Supreme Court allowing the appeal held that the decision that the Federation was in financial difficulties is based upon relevant material before the Federation. The process to arrive at such decision can be said to be flawed only on the permissible grounds of illegality, irrationality and procedural impropriety. The Supreme Court finds that neither the decision-making process, nor the decision itself suffers from any such irregularity. Furthermore, it was noted by Supreme Court that it do not find that any information received under the Right To Information Act to show that the Federation was in profit in the year 1996-1997 is relevant to determine the financial condition for the period from 1.1.1986 to 1.1.1994. In view of the above, The Supreme Court find that the order of the High Court is unjustified and in excess of the power of judicial review conferred on the High Court therefore consequently, the appeals were allowed and the orders passed by the High Court are hereby set aside and the writ petitions are dismissed.

2.       Whether non-revision of pay scale also amount to a violation of the fundamental right guaranteed under Article 21 of Constitution of India?

Held- The Supreme Court held that non revision of pay scale also amount to a violation of fundamental right guaranteed under Article 21 would be stretching it too far and cannot be countenanced. The Supreme Court observed that even under the industrial law, the view is that the workmen should get a minimum wage or a fair wage but not that their wages must be revised and enhanced periodically. It is true that on account of inflation there has been a general price rise but by that fact alone it is not possible to draw an inference that the salary currently being paid to them is wholly inadequate to lead a life with human dignity. The Supreme Court observed that what should be the salary structure to lead a “life with human dignity” is a difficult exercise and cannot be measured in absolute terms.

The Central or State Government is empowered to levy taxes to meet out the expenses of the state. It is always a conscious decision of the government as to how much taxes have to be levied so as to not cause excessive burden on the citizens. But the Boards and Corporations have to depend on either their own resources or seek grant from the Central/ State Government, as the case may be, for their expenditures. Therefore, the grant of benefits of higher pay scale to the Central/State Government employees stand on different footing than grant of pay scale by an instrumentality of the State.

3.       Are employees entitled to pay scale equivalent to their counterpart?

Held- The Supreme Court states that firstly, the order passed by the High Court has not been challenged in appeal by the employees. Secondly, the classification of different pay scales is permissible based upon educational qualifications, experience and nature of duties. In view of the said facts, “we do not find that the employees are entitled to the pay scale as claimed in the writ petition.

We do not find any merit in the argument claiming equal pay for the alleged equal work. Consequently, the appeal is allowed. The orders passed by the High Court are hereby set aside.”


The sweep of power under Article 226 of the Constitution may be wide enough to quash unreasonable orders. If a decision is so arbitrary and capricious that no reasonable person could have ever arrived at it, the same is liable to be struck down by a writ court. If the decision cannot rationally be supported by the materials on record, the same may be regarded as perverse. However, the power of the court to examine the reasonableness of an order of the authorities does not enable the court to look into the sufficiency of the grounds in support of the decision to examine the merits of the decision, sitting as if in appeal over the decision. The test is not what the court considers reasonable or unreasonable but a decision which the court thinks that no reasonable person could have taken, which has led to manifest injustice. The writ court does not interfere, because a decision is not perfect.  


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