The Supreme Court on Thursday delivered its verdict in a long-pending dispute over payments of Dearness Allowance (DA) between the years 2008-2019 to employees of the West Bengal government [State of West Bengal and anr v. Confederation Of State Government Employees, West Bengal & Ors.].

A Bench of Justices Sanjay Karol and Prashant Kumar Mishra held that the employees have a legally enforceable right to get DA payments that were calculated in line with the Centre's All-India Consumer Price Index (AICPI).

"To receive Dearness allowance is a legally enforceable that has accrued in favour of the employees of the State of West Bengal. Given its incorporation in ROPA rules, AICPI is the standard of to be followed by the appellant state of West Bengal for determining existing emoluments. The employees of the appellant state shall be entitled to receive the arrears in accordance with this judgement from 2008 till 2019," the Court held.

The Court also constituted a panel headed by retired Justice Indu Malhotra to ensure that the DA dues payable to the State employees are paid in a time-bound manner.

The Court reasoned that this method of calculating DA was already opted by the State in its West Bengal (Revision of Pay and Allowance) Rules, 2009 (ROPA).

In light of the same, the State could not have deviated from this method of calculating DA merely through the issue of a series of subsequent clarificatory memoranda, the Court held.

"In sum, it is hereby concluded that DA by its very nature is non-static, fluid and subject to change. How that change is to be carried out is through AICPI. The First Memorandum as also the subsequent memoranda fall prey to the fatal flaw that they do not make reference to the AICPI which is absolutely essential to the determination of DA which in turn is indispensable to the computation of the total amount of ‘existing emoluments’ ... the incorporation of the AICPI cannot be termed as a one-time measure and once DA was defined using it, to take a different path would be impermissible," the Court held.

However, it found merit in the State's stance that its employees were not entitled to get DA twice a year in line with similar benefits available to Central government employees.

"The RoPA Rules which we have extracted supra nowhere provide that DA will be or can be paid twice a year," the Court explained.

The case before the Court was tied to the State's decision to accept the 5th Pay Commission's recommendation to revise the calculation of emoluments, including DA, with reference to the cost-of-living index. The said method was incorporated in the 2009 ROPA (since then been replaced by the 2019 ROPA).

Employees in the State claimed that over time, the government failed to make DA payments in line with the cost-of-living index method adopted in ROPA. They approached the West Bengal Administrative Tribunal for relief in 2016. The tribunal dismissed their plea in 2017, ruling that DA payments are subject to the State's discretion.

The Calcutta High Court set aside this 2017 order and remanded the matter back to the tribunal. The High Court ruled that there was a legally enforceable right to receive DA payments and asked the tribunal to render findings on two limited questions (i) whether the employees are entitled to get DA payments at Central government rates (ii) whether there was discrimination in the payment of DA to State employees posted within West Bengal and such employees posted outside the State in Chennai and Delhi.

The tribunal ruled that State employees cannot claim DA on Central government rates, but held that there can't be any discrimination in DA payments to State employees posted within and outside West Bengal.

The tribunal also issued directions to the State to clear pending DA arrears calculated with reference to the cost-of-living index in a time-bound manner.

The State's appeal against this ruling was dismissed by the Calcutta High Court, which ruled that the DA payment was not only a legally enforceable right, but also a fundamental right.

This ruling was then challenged by the West Bengal government before the Supreme Court.

The apex court today held that the State's deviation from the AICPI method for calculating DA was manifestly arbitrary and capricious.

It rejected the State's defence that there were financial constraints to adopting the AICPI method for calculating DA. The Court reasoned that the AICPI method was chosen by the State itself in the ROPA.

"The least that is expected of a State in a democracy is that it honours its obligations and commitments … It is not open for the appellant-State to shirk away from its responsibility from paying DA on the count of financial difficulty that it may face in doing so. It is an obligation arising out of the statute of its own creation and it must be met," it said.

The West Bengal government's claim that such DA calculation could affect federalism and the separation of powers also did not persuade the Court either.

The Court acknowledged that the State could have used a different method by issuing new rules (a legislative exercise) under Article 309 (recruitment and conditions of service of persons serving the Union or a State) of the Constitution of India. However, the State chose not to do so and only issued clarificatory executive instructions, the Court observed.

“It is, therefore, not open for the State to take the defence of separation of powers as enumerated in the Constitution, for that would amount to having your cake and eating it too ... the Constitution envisions sufficient freedom upon the State to choose its path in financial matters. The choice had been made by the State itself. The Central Government has not imposed its definition of ‘existing emoluments’/ any condition upon the former," the Court concluded.

The Court added that with the issuance of ROPA, the State's employees also had a legitimate expectation that they would be paid DA that was calculated with reference to the AICPI.

However, it left open the question of whether to right to receive DA is a fundamental right, since this legal question was not pressed before the Court by any party.

The Court proceeded to constitute a panel comprising three retired judges and a senior government official to verify and ensure that the DA dues payable to the State employees are paid in a time-bound manner.

The panel comprises retired Supreme Court Justice Indu Malhotra, retired Jharkhand High Court Chief Justice Tarlok Singh Chauhan and retired Chhattisgarh High Court Justice Goutam Bhaduri, along with the Comptroller and Auditor General of India or a senior officer nominated by him.

The panel is to determine the amounts payable in consultation with the State and prepare a schedule for payments by March 6. The first instalment of payments is to be carried out by March 31, the Court added.

The Court added that its interim directive to pay 25 per cent of the DA amounts due must be complied with immediately.

 "It stands clarified that those employees of the State who have retired in dependency of this litigation shall also be entitled to benefits in accordance with law," it further said.

The case is posted next on May 15 to check on whether the Court's directions have been complied with.

Senior Advocates Kapil Sibal, Shyam Divan and Huzefa Ahmadi led the arguments for the State of West Bengal.

Senior Advocates Gopal Subramaniam, PS Patwalia, Bikash Ranjan Bhattacharya and Karuna Nundy led arguments for the respondents.

[Read Judgment]