Financial Corporations Have Absolute Power To Fix Employee Pay, Prior State Govt Approval Not Required: Jharkhand High Court

"Section 23 of the Act, 1951 as it stands now, confers absolute power to the financial corporation to appoint its officers, advisers and employees and to determine their conditions of appointment and service as well as the remuneration payable to them." Jharkhand High Court, in a significant ruling dated April 2, 2026, held that State Financial Corporations possess the absolute autonomy to determine the remuneration of their employees without requiring prior approval from the State Government.

A Division Bench comprising Chief Justice M.S. Sonak and Justice Rajesh Shankar observed that following the statutory amendment to the State Financial Corporations Act in the year 2000, the power of the State Government to dictate terms regarding employee remuneration has been legally extinguished.

The dispute arose when the Board of Directors of the Bihar State Financial Corporation (BSFC) resolved in 2019 to extend the benefits of the 6th Pay Revision Commission to its employees, but later withdrew the decision in 2023 citing severe cumulative financial losses. The employees challenged this withdrawal before a Single Judge, who allowed their writ petition and directed the BSFC to implement the pay revision without waiting for State Government concurrence. Aggrieved by this decision, the BSFC preferred a Letters Patent Appeal (LPA) before the Division Bench.

The primary question before the court was whether the State Government had any jurisdiction regarding the implementation of the 6th Pay Revision for BSFC employees under the statutory framework. The court was also called upon to determine whether the Corporation's subsequent withdrawal of the pay revision benefits, citing financial constraints in a later year, was legally justified, and whether an LPA is maintainable against an order rejecting a review petition.

Statutory Autonomy Under Section 23

The court conducted a detailed analysis of Section 23 of the State Financial Corporations Act, 1951, which empowers the Corporation to appoint employees and determine their conditions of service. The bench noted that a prior proviso, which allowed the State Government to intervene in remuneration matters, was deliberately deleted by the Amendment Act 39 of 2000. The court emphasized that this omission was intended to grant absolute operational autonomy to financial corporations.

Amendment Aimed At Operational Flexibility

Placing reliance on a coordinate bench ruling of the Bombay High Court in Bhartiya Kamgar Karmachari Mahasangh, the court held that prior approval of the State Government is no longer a statutory requirement. The bench noted, "The Amendment Act 39 of 2000 was introduced with an object to provide the State Financial Corporation with greater autonomy and operational flexibility." Consequently, the power of the State Government to issue directions on employee appointments and regulations has been conclusively taken away.

State Policy Directives Do Not Govern Pay

The appellants argued that Section 39 of the Act, which empowers the State to issue policy instructions, bound the Corporation to seek state approval before implementing the pay revision. The court firmly rejected this argument, clarifying that Section 23 is an independent provision governing employment conditions. The bench observed that Section 23 is complete in itself and is not guided or restricted by the general policy provisions contained in Section 39 of the Act.

Withdrawal Of Pay Revision Lacked Bona Fides

Addressing the BSFC's decision to withdraw the pay revision, the court noted that the Corporation had initially admitted to an operational profit of Rs 18.58 crores in the financial year 2019-20. However, subsequent to the Single Judge's ruling, the BSFC cited a cumulative loss of Rs 506.27 crores in the 2020-21 balance sheet to revoke the benefits. The court took strong exception to this volte-face, remarking, "We are of the firm view that such decision of the appellants is not at all bonafide, rather, seems to have taken under undue pressure of the Department of Industries, Government of Bihar."

Financial Constraints Cannot Defeat Conscious Decisions

The court held that since the conscious decision to implement the 6th Pay Revision was taken during a profitable financial year, subsequent losses in a different financial year cannot be weaponized to deny employees their rightful dues. The bench distinguished the Supreme Court precedents cited by the appellants, including A.K. Bindal v. Union of India, noting that the BSFC's own sworn affidavits before the writ court confirmed the availability of adequate funds at the relevant time.

"Even after dismissal of the application seeking review, there is no merger of the original decree or order with the order passed under review jurisdiction as such rejection does not bring about any alteration or modification of the original decree or order."

No Appeal Lies Against Rejection Of Review Petition

The court then addressed the connected appeal (LPA No. 18 of 2024), which was filed against the Single Judge's dismissal of a review petition. Relying on Order XLVII Rule 7 of the Code of Civil Procedure (CPC) and Supreme Court precedents like Shanker Motiram Nale and Satheesh V.K., the bench held that such an appeal is strictly barred. The court explained, "It is no more res integra that an appeal is not maintainable against an order refusing to review any judgment. The reason behind it is that an order dismissing review petition is not an adjudicatory order."

Ultimately, the High Court dismissed the appeals filed by the Bihar State Financial Corporation. The Division Bench upheld the Single Judge's directive allowing the implementation of the 6th Pay Revision for the employees, while simultaneously dismissing the connected appeal against the review petition on the grounds of non-maintainability.

Date of Decision: 02 April 2026