Case Name: THE STATE OF KERALA VERSUS M. VIJAYAKUMAR & ORS.
Petition Number: Special Leave Petition (C) Nos. 11592-11593 of 2023; Special Leave Petition (C) No.18030 of 2023
Neutral Citation: 2026 INSC 352
Date of Judgement: 10.04.2026
Coram: HON’BLE MR JUSTICE MANOJ MISRA & HON’BLE MR JUSTICE PRASANNA B. VARALE
INTRODUCTION
The appeals were filed by the State of Kerala and the Kerala State Road Transport Corporation (KSRTC), challenging a judgment of the Division Bench of the Kerala High Court. The High Court had ruled that applying a lower rate of enhancement for Dearness Relief (DR) to pensioners compared to the Dearness Allowance (DA) for serving employees is discriminatory and violative of Article 14 of the Constitution. The Supreme Court examined whether the State could legally differentiate between serving and retired employees when adjusting allowances linked to inflation.
FACTS
The State of Kerala and KSRTC decided to provide financial relief to their personnel to offset ongoing inflationary pressures. Effective March 2021, the authorities enhanced the Dearness Allowance (DA) for serving employees by 14% (bringing it to 112%). However, the Dearness Relief (DR) for pensioners was only enhanced by 11% (bringing it to 109%).
Retired KSRTC employees filed writ petitions challenging this disparity, arguing that there was no rationale for the different rates and that it was violative of Article 14. A Single Judge initially dismissed the petitions, ruling that serving employees and pensioners do not constitute a single class. The pensioners appealed to the Division Bench of the High Court, which reversed the Single Judge’s order. The Division Bench held it to be discriminatory and violative of Article 14 of the Constitution. The court observed that the primary objective behind granting DA and DR is to neutralise the adverse effects of inflation and ensure that both can maintain a reasonable standard of living, and therefore, any classification between employees and pensioners must have a rational nexus with this objective. It further observed that while the State may consider financial constraints in deciding whether to grant the benefit, once extended to both groups, it must be applied uniformly.
ISSUES
- Whether fixing a lower rate of enhancement for Dearness Relief (for pensioners) compared to Dearness Allowance (for serving employees) violates the guarantee of equality under Article 14 of the Constitution?
ARGUMENT OF THE PARTIES
The Appellants (State and KSRTC) argued that retired employees and serving employees constitute completely different classes, and therefore, applying different rates does not violate Article 14. They also claimed that financial and economic constraints are a valid reason to justify this difference.
The Respondents (Retired Employees) argued that the core objective of both DA and DR is identical: to balance the effects of ongoing inflation. Because inflation is a common index that financially impacts both active and retired employees with equal force, applying different rates of relief lacked any rational nexus to the objective sought to be achieved, amounting to arbitrary discrimination.
JUDGEMENT AND ANALYSIS
The Hon’ble Supreme Court dismissed the appeals filed by the State and KSRTC, upholding the High Court’s decision in favour of the pensioners. The Court analyzed the issue through the lens of the “twin-test” for reasonable classification under Article 14: the classification must be founded on an intelligible differentia, and that differentia must have a rational nexus to the object sought to be achieved.
The Court agreed that while active employees and pensioners are technically different groups, differentiating them for the specific purpose of inflation relief fails the rational nexus test. The sole object of enhancing DA and DR is to mitigate the hardship of inflation. Since inflation hits both groups with equal force, there is no logical justification for granting a 14% shield to one group and only an 11% shield to the other. Addressing the “financial constraints” argument, the Court clarified that while an economic crunch might justify an employer’s decision to defer the disbursement of benefits completely, it does not give the State a license to arbitrarily discriminate in the rates once a decision has been made to provide inflation-linked relief actively.
CONCLUSION
The Supreme Court emphasized that equality is a dynamic concept that cannot be confined within rigid or formalistic limits. It reiterated that arbitrariness is the very antithesis of equality, any arbitrary State action is inherently unequal and violative of Article 14, and in matters of public employment, may also offend Article 16.
Applying this principle, the Court held that where Dearness Allowance and Dearness Relief serve a common objective of neutralising inflation, which impacts both employees and pensioners alike, prescribing different rates of enhancement lacks a rational nexus with the object sought to be achieved. Accordingly, the differential rates were held to be arbitrary, discriminatory, and unconstitutional, and thus liable to be struck down under Article 14.
