Supreme Court: In a significant ruling on the rights of government employees, the Supreme Court has held that Dearness Allowance (DA) is a statutory and enforceable right, and not a discretionary benefit that a State can withhold citing financial constraints. The Bench of Sanjay Karol* and Prashant Kumar Mishra, JJ., made it clear that once Dearness Allowance becomes payable under the governing rules, the State is legally bound to release it, observing that denial of such dues directly impacts employees’ right to life and livelihood under Article 21 of the Constitution.
Background of Dearness Allowance Dispute
In the case at hand, the Court was dealing with the disbursement of arrears of DA as claimed by the employees of the State of West Bengal for the period 2008-2019. The employees sought payment of DA at rates equivalent to those granted to Central Government employees. The State, on the other hand, argued that payment of DA depended on financial capacity and budgetary constraints.
In 2022, the Calcutta High Court had passed Judgments and orders in favour of the employees, declaring DA as a facet of Article 21 of the Constitution of India and directing the State to pay to the respondents the said allowance at the rate prevalent in the Central Government in accordance with the All-India Consumer Price Index. Aggrieved by the same, the State approached the Supreme Court.
Key Issue before the Court
Whether a State Government can withhold payment of Dearness Allowance to its employees citing financial difficulties, despite DA being recognised under applicable rules and pay structures?
Court’s Analysis
DA is non-static, fluid and Linked to Cost of Living
The Court emphasised that DA is not a bounty but a mechanism to protect employees from erosion of wages due to inflation. It explained that DA is not intended to provide complete neutralisation of price rise for all employees, except in the case of the lowest paid categories.
“Its purpose is to offer partial compensation for increased living costs through a variable and flexible mechanism, usually linked to a cost-of-living index. This explains why DA is commonly structured on a sliding scale, rising alongside prices.”
It further explained that since DA is directly linked to the loss of real wages caused by inflation, imposing a uniform rate across such disparate regions would defeat its very purpose. It would confer undue benefit on employees in lower-cost centres while seriously disadvantaging those employed in high-cost metropolitan areas.
The Court also made clear that there is no legal obligation on State Governments to automatically adopt the rates of DA as fixed by the Central Government. Each State is entitled to assess its own financial position and determine appropriate rates accordingly. DA is a balanced and pragmatic instrument of wage policy, aimed at mitigating the impact of inflation while respecting regional diversity and economic feasibility.
Underscoring the dynamic nature of DA, the Court rejected any attempt to treat it as a fixed or frozen component of pay. The Court categorically observed 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 Court held that any mechanism for determining or revising DA must necessarily reference the All-India Consumer Price Index (AICPI), since it is the foundational benchmark for neutralising the impact of rising prices. The Court, hence, found the memoranda that ignored this essential index to be legally flawed, as DA directly affects the calculation of “existing emoluments” and, therefore, cannot be determined in isolation from its statutory and economic basis.
Financial Constraint Not a Legal Defence to Deny DA
While examining whether the State could deny payment of DA on the ground of financial burden, the Supreme Court firmly rejected the plea of paucity of funds as a defence against enforcement of a crystallised legal right.
The State had argued that granting DA as claimed would impose a massive financial liability and adversely affect its fiscal stability. The Court found this submission legally untenable once the right itself stood recognised and held that “Constitutional duties cannot be evaded on the ground of paucity of funds.”
The Court observed that:
“Once a legal right has been established… irrespective of whether it pertains to salary, pension, gratuity or other statutory benefits, it is not within the realm of permissible actions for the State to refuse payment of the same on account of financial inability/paucity of funds.”
It was, further, explained that once a legally enforceable right has been established, the defence of the State so as to its financial ability or rather inability has to be kept at bay. The only question that remains thereafter is, how such a right has to be enforced, and considering the nature of the right, at what rate i.e. in accordance with AICPI.
The Bench cautioned that accepting financial difficulty as a routine excuse would make enforceable rights meaningless:
“If such a ground of limited financial ability was readily available to the State Government… it would render these obligations illusory.”
Giving special weight to the nature of service benefits, clarifying that employee dues are not discretionary payouts, the Court held that,
“When it comes to employees’ dues, this proposition would be extremely dangerous and stifling since the amounts received thereby are not handouts or acts of charity but are earned compensation/consideration for services given.”
Linking the issue to constitutional values, the Court further noted:
“Denial of such consideration would have a direct impact on the right to life and livelihood enshrined in Article 21 of the Constitution.”
State Must Act as a Model Employer
In a strong observation on governance, the Court reminded the State of its constitutional responsibility:
“The least that is expected of a State in a democracy is that it honours its obligations and commitments, arising from a legislation or judicial decisions, for such obligations are not discretionary in any way, shape or form.”
Holding that it was not open for the State to shirk away from its responsibility from paying Dearness Allowance (DA) on the count of financial difficulty that it may face in doing so, the Court strongly observed that,
“State must set an example for other employers in the country by behaving as a ‘model employer’. Such a position should not be difficult to attain given all the advantages that it has. Its power lies in the volume of employment, its sovereign/constitutional authority to tax, ability to borrow and manage public finances. In embodying the ‘model employer’ the State not only fulfils its obligation but also instils and maintains public confidence in the rule of law, governance and administration of justice. Leading by example, fulfilling its financial duties in times of fiscal strain, gives it the moral authority to wield the sword of law against private entities, should they not do so.”
Supreme Court’s Directions on Payment of DA Arrears
The Supreme Court upheld the employees’ entitlement to Dearness Allowance and ruled that the State cannot deny or indefinitely withhold DA once it is payable under the governing rules or resolutions. The plea of financial incapacity was rejected as insufficient in law. Hence, the Court directed the State to release the arrears for the time 2008-2019.
Retired Employees Also Covered
The Court clarified that employees who retired during the pendency of the litigation will also be entitled to the DA benefits under the judgment.
High-Level Committee to Oversee DA Payments
While recognising both the huge financial burden on the State and the employees’ right to receive their lawful dues, the Supreme Court chose a balanced, structured approach for implementation of its directions on DA.
Instead of ordering an immediate lump-sum payout, the Court constituted a high-powered monitoring Committee to ensure phased and accountable compliance.
The Court appointed a three-member body comprising:
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Justice Indu Malhotra (Chairperson) — Former Judge, Supreme Court of India
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Justice Tarlok Singh Chauhan -Former Chief Justice of Jharkhand High Court
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Justice Goutam Bhaduri – Former Judge, Chhattisgarh High Court
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Comptroller & Auditor General of India (CAG) or a senior nominee
In consultation with the State Government, the Committee will:
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Determine the total amount payable to employees
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Fix a structured payment schedule that the State must strictly follow
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Periodically monitor and verify the release of funds
The Court fixed the following Timelines:
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The Committee must finalise the total liability and payment schedule by 06-03-2026
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The first instalment of payment must be released by 31-03- 2026, subject to the Committee’s determination.
After payment of first instalment, the State has to file a status report indicating the determination made by the Committee, the schedule adopted, the status of the first payment. The matter will be heard on 15-04-2026.
[State of West Bengal v. Confederation of State Government Employees, West Bengal, Civil Appeal Nos. of 2026 (Arising out of SLP (C) Nos. 22628—22630 of 2022), decided on 05-02-2026]
*Judgment Authored by: Justice Sanjay Karol
Advocates who appeared in this case:
For Petitioner(s): P.S. Patwalia, Sr. Adv. Ms. Bansuri Swaraj, Sr. Adv. Mr. Mrigank Prabhakar, AOR Mr. Uddyam Mukherjee, AOR Mr. Guddu Singh, Adv. Mr. Mr. Swapnil Pattanayak, Adv. Mr. Agnibha Chatterjee, Adv. Mr. Davesh Vashishtha, Adv. Ms. Kratika Kushwaha, Adv. Mr. Sidesh Kotwal, Adv. Ms. Ana Upadhyay, Adv. Mr. Kunal Mimani, AOR Mr. Shekhar Kumar, AOR
For Respondent(s): Mr. Bikash Ranjan Bhattacharyya, Sr. Adv. Mr. Rauf Rahim, Sr. Adv. Mr. Gopal Subramanium, Sr. Adv. Mr. Nachiketa Joshi, Sr. Adv Mr. P S Patwalia, Sr. Adv. Ms. Bansuri Swaraj, Sr. Adv. Ms. Karuna Nundy, Sr. Adv. Mr. Firdous Samim, Adv. Mr. Ali Asghar Rahim, Adv. Ms. Gopa Biswas, Adv. Mr. Mohsin Rahim, Adv. Ms. Tania Tamanna, Adv. Mr. Shekhar Kumar, AOR Mr. Uddyam Mukherjee, AOR Mr. Guddu Singh, Adv. Mr. Swapnil Pattanayak, Adv. Mr. Agnibha Chatterjee, Adv. Mr. Davesh Vashishtha, Adv. Ms. Kratika Kushwaha, Adv. Ms. Ana Upadhyay, Adv. Mr. Sidesh Kotwal, Adv. Mr. Prabir Chatterjee, Adv. Mr. Mrigank Prabhakar, AOR Mr. Shiv Mehrotra, Adv. Ms. Rishika Rishabh, Adv. Ms. Shivangshi Mitra, Adv. Ms. Sakshi Banga, Adv. Ms. Astha Singh, Adv.. Mr. Siddhartha Banerjee, Adv. Mr. Bikram Banerjee, Adv. Mr. Chandrashekhar A. Chakalabbi, Adv. Mr. Sudipta Dasgupta, Adv. Mrs. Somsubhra Ganguly, Adv. Ms. Debapriya Mitra, Adv. Ms. Adrita Dey, Adv. Ms. Sinjhoni Chakraborty, Adv. M/s Dharmaprabhas Law Associates, AOR
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