Supreme Court: In a batch of civil appeals arising out of separate orders passed by the Madras High Court, Delhi High Court, and Kerala High Court involving identical question of law regarding determination of creamy layer status for Other Backward Class (OBC) candidates in the Civil Services Examination based on income of parents employed in Public Sector Undertakings (PSUs), banks, or private organisations when such income was excluded from determination in the case of Government servants, the Division Bench of Pamidighantam Sri Narasimha and R. Mahadevan,* J., upheld the impugned judgments and affirmed the directions issued by the High Courts for reconsideration of the candidates’ claims under the Office Memorandum dated 08 September 1993.
The Court held that —
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The clarificatory letter dated 14 October 2004 cannot override or alter the substantive framework of the Office Memorandum dated 08 September 1993
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Creamy layer status among OBCs cannot be determined solely based on parental income.
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If PSU/private employees are treated differently from Government employees holding equivalent posts, it would amount to hostile discrimination, thereby violating Articles 14 and 16.
Factual Matrix
In the instant matter, the appeals arose from separate orders passed by the Madras High Court, Delhi High Court, and Kerala High Court, which had examined the eligibility of respondents’ claim for the benefit of OBC reservation in the Civil Services Examination conducted in different years. The controversy in all the cases was common that the respondents were successful in the examination but were denied allocation under the OBC category as they fall within the creamy layer based on their parents’ income. The Department of Personnel and Training had applied the Income / Wealth Test under Category VI of the Office Memorandum dated 08 September 1993 (1993 OM) read with the clarificatory letter dated 14 October 2004 (clarification letter), as the equivalence of posts in Public Sector Undertakings and other organisations vis-à-vis Government posts had not been determined. Aggrieved thereby, the candidates approached the Central Administrative Tribunal (the Tribunal) and the High Courts, which ruled in their favour and thus, the Union of India filed the present appeals.
Issues
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Whether the clarificatory letter had any overriding or superseding effect over the 1993 OM, which expressly lays down the criteria for exclusion from the benefit of reservation for OBCs by identifying the creamy layer namely, the socially advanced persons of sections among the Socially and Educationally Backward Classes (SEBCs)?
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Whether there can be hostile discrimination between employees of the Government and those working in PSUs or Private Sector Undertakings, when both occupy posts of the same grade or class?
Parties’ Contentions
The Union of India contended that exclusion of the creamy layer is a constitutional requirement flowing from Indra Sawhney v. Union of India, 1992 Supp (3) SCC 217 and that the Government is empowered to frame criteria to ensure that reservation benefits reach the truly backward sections. It was argued that the 1993 OM itself provides that in the absence of equivalence between PSU posts and Government posts, the income/wealth test must be applied, and the clarificatory letter merely explained how such test should be applied.
It was submitted that exclusion of salary income would lead to anomalous results, where children of highly paid PSU executives would still claim OBC benefits, thereby defeating the purpose of reservation. It was also argued that policy decisions relating to reservation should not be interfered with unless arbitrary, and the High Courts erred in treating the clarification as discriminatory.
However, the respondents contended that the 1993 OM had statutory force, which was issued pursuant to the directions in Indra Sawhney (Supra), after recommendations of an Expert Committee and parliamentary scrutiny. It was argued that the 1993 OM clearly excluded salary and agricultural income from the income/wealth test, and the 2004 letter, issued without proper consultation, could not override the earlier memorandum.
It was further contended that the clarification created an artificial distinction between children of Government servants and children of PSU/private employees, which resulted in hostile discrimination. It was submitted that OBC certificates issued by competent authorities after verification could not be lightly disregarded by the Department of Personnel and Training. Relying on R.P. Bhardwaj v. Union of India, (2005) 10 SCC 244, it was contended that an executive letter cannot amend or override an existing Office Memorandum.
Court’s Discussion and Findings
Constitutional and Statutory framework — Reservation in India
The Court noted that the Constitution of India embedded the principle of advancement of weaker sections through Articles 15(4), 15(5), 16(4) and 46 which enable the State to make special provisions for the advancement of SEBCs and for reservation in public employment. From its inception, Article 16(4) was conceived not as an exception to equality, but as an instrument to achieve it.
The Court traced the development of the law through decisions such as M.R. Balaji v. State of Mysore, AIR 1963 SC 649; State of A.P. v. P. Sagar, 1968 SCR (3) 595; K.C. Vasanth Kumar v. State of Karnataka, (1976) 3 SCC 730 and ultimately Indra Sawhney (Supra), in which the exclusion of the creamy layer was crystallised as a constitutional requirement. The Court emphasised that while a class may be backward, individuals within that class who have achieved higher social or economic status must be excluded so that the benefit of reservation reaches the truly backward. The Court noted that the above mentioned precedents collectively established three guiding propositions:
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“Caste may serve as an initial identifying marker but cannot be the exclusive determinant.
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Economic condition is a relevant and rational refining criterion.
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Reservation policy must balance social justice with broader societal interests.”
The Court noted that the Mandal Commission recommended reservation for OBCs and that the Government issued the Office Memorandum dated 13 August 1990 granting 27% reservation, which was upheld in Indra Sawhney (Supra), subject to exclusion of the creamy layer. Pursuant to the directions of the Court, the Government constituted an Expert Committee whose recommendations resulted in passing of 1993 OM prescribing detailed criteria for identifying the creamy layer.
The Court noted that under 1993 OM, several categories were specified, including the income/wealth test under Category VI. The 1993 OM clearly stipulates that until the posts in PSUs, banks, insurance organisations, universities and similar bodies are evaluated for equivalence or comparability with Government services, the exclusion of candidates cannot be made under Category II-C. In such a situation, only the Income/Wealth Test under Category VI is to be applied. The criteria contained in Category II-C, namely direct recruitment to a post equivalent to Class-I/Group-A service or promotion to such post before attaining the age of 40 years, remain inoperative as long as the exercise of determining equivalence is not undertaken. Consequently, in the absence of such determination, the entire Category II-C cannot be denied the benefit of reservation, and any exclusion can only be considered under Category VI.
The Court further explained that Category VI operates as a residual filter, and its scope is confined to the Income/Wealth Test. Explanation (i) under Category VI specifically provides that income from salaries and income from agricultural land shall not be clubbed with income from other sources while computing the gross annual income of the family. Explanation (ii) relates to the periodical revision of the prescribed income limit.
The Court noted that 1993 OM read with the clarificatory letter, preserved the primacy of status-based exclusion and confined the economic exclusion to Category VI. “Salary income cannot be mechanically aggregated in a manner that defeats the constitutional objective articulated in Indra Sawhney.”
Issue 1 — Can clarificatory letter override/modify 1993 OM
The Court observed that the 1993 OM was not a casual executive instruction but a policy framed after consideration of the recommendations of the Expert Committee, parliamentary scrutiny, and inter-ministerial consultation, and therefore carried binding force. It specifically laid down categories for exclusion from reservation and also provided the income/wealth test, while expressly excluding income from salary and agricultural land from computation for the purpose of determining creamy layer status.
The Court noted that the clarificatory letter was issued subsequently by the Department of Personnel and Training to explain the manner in which the income test should be applied in cases where the equivalence of posts in PSUs, banks and similar organisations with Government posts had not been determined.
The Court observed that a clarificatory executive instruction cannot override or supersede a substantive policy contained in an earlier Office Memorandum, particularly one issued in exercise of executive power under Article 162 of the Constitution. Any interpretation that substantially alters the criteria laid down in the 1993 OM would therefore be impermissible.
“A clarificatory instruction cannot introduce a substantive condition that does not exist in the parent policy. If it travels beyond explanation and alters rights or liabilities, it ceases to be clarificatory and assumes the character of an amendment.”
The Court found that a comprehensive reading of the 1993 OM along with the clarificatory letter showed that income from salaries alone cannot be the sole criterion for determining creamy layer status. The status and category of the post held by the candidate’s parent remains a crucial factor. The scheme of exclusion under the 1993 OM is primarily status-based rather than purely income-based, reflecting the policy understanding that advancement within the service hierarchy denotes social progression independent of fluctuating salary levels. Thus, determination of creamy layer status cannot be made solely on the basis of income.
The Court also referred to the 21st Report of the Parliamentary Committee on Welfare of Other Backward Classes (2018—19), which observed that the 2004 Letter had “done more to confuse the position than to clarify it.” The report recorded that determining exclusion from reservation solely on the basis of salary income would not be consistent with the original framework of the 1993 OM.
“Income is intended to operate only as a surrogate measure in the absence of such equivalence; it cannot supplant the primary status-based framework embodied in the 1993 OM.”
Accordingly, the Court held that para 9 of the clarificatory letter cannot be interpreted in isolation so as to dilute or override the substantive scheme of the 1993 OM and the determination of creamy layer status must be made strictly in accordance with the criteria contained in the 1993 OM.
Issue 2 — hostile discrimination between Government employees and PSU/private employees holding equivalent posts
The Court stated that “while caste may be an indicator of historical disadvantage, it cannot be treated as the sole determinant of backwardness.” The exclusion of the creamy layer is a constitutional requirement designed to ensure that the benefits of reservation reach those who are truly socially and educationally backward.
“The principle seeks to prevent relatively advanced segments within the backward classes from 58 siphoning off the advantages of affirmative action, so that the objective and purpose of the constitutional scheme of affirmative action, of which reservation is a reflection, are adhered to.”
The Court noted that the Tribunal and the High Courts had found that Group C and Group D employees who exceed the income threshold solely due to salary progression are not excluded from reservation under the 1993 OM, whereas children of employees in PSUs or private organisations were being denied the benefit merely because their parents’ salary exceeded the prescribed limit. The Court stated that such differential treatment results in similarly placed persons being treated differently without reference to the nature or status of the post held by their parents.
The Court held that treating the children of PSU or private sector employees as falling within the creamy layer solely on the basis of salary income, while the same principle is not applied to Government employees holding equivalent posts, would lead to hostile discrimination. Such a distinction amounts to treating equals unequally and therefore attracts the rigour of the equality doctrine under Articles 14, 15 and 16 of the Constitution.
The Court reiterated that a classification to survive scrutiny under Article 14 must satisfy the twin requirements of intelligible differentia and rational nexus with the object sought to be achieved. Referring to the principle laid down in Indra Sawhney (Supra), the Court emphasised that failure to identify the creamy layer in a rational and non-arbitrary manner may result in the illegal exclusion of genuine claimants from the OBC category.
The Court further explained that Article 16(4) is a structural reflection of the principle of substantive equality embodied in Article 16(1). The Court held that “any interpretation of the 1993 OM or the 2004 Letter that results in unequal treatment of similarly placed OBC candidates would not only be legally erroneous but constitutionally impermissible.”
The Court held that the reasoning adopted by the High Court that treating similarly placed employees of private entities and PSUs differently from Government employees and their wards, while deciding their entitlement to reservation, would amount to hostile discrimination, “is certainly one that inspires the confidence of this Court.” Therefore, the Court held that it found no infirmity in the impugned judgments of the High Court.
Court’s Decision
The Court dismissed the appeals filed by the Union of India and affirmed the directions issued by the High Courts for reconsideration of the candidates’ claims under the 1993 OM.
The Court directed the appellants to consider the claims of the respondent candidates and intervenors in accordance with the principles laid down in this judgment, and to implement the same within a period of six months from the date of this judgment.
[Union of India v. Rohith Nathan, Civil Appeal No(S). 2827 — 2829 of 2018, decided on 11-3-2026]
*Judgment by Justice R. Mahadevan