Service Law | Financial Inability No Defense Against Statutory DA; State Bound By ‘Legislation By Incorporation’: Supreme Court

“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... if such a ground of limited financial ability was readily available to the State Government... it would render these obligations illusory.”— In a seminal ruling, the Supreme Court of India, comprising Justice Sanjay Karol and Justice Prashant Kumar Mishra, has directed the State of West Bengal to release arrears of Dearness Allowance (DA) to its employees for the period 2008-2019, rejecting the State's plea of financial paucity.

The judgment in State of West Bengal & Anr. v. Confederation of State Government Employees, West Bengal & Ors. (2026 INSC 123) settles a decade-long dispute regarding the calculation of DA. The Court held that once the State enacted the West Bengal Services (Revision of Pay and Allowance) Rules, 2009 (RoPA Rules), which incorporated the definition of "existing emoluments" based on the All-India Consumer Price Index (AICPI) identical to Central Government rules, it created a legally enforceable right. The State could not subsequently deviate from this statutory standard through executive memoranda or pleas of empty coffers.

The Statutory Trap: Legislation by Incorporation

The core of the dispute lay in the interpretation of the RoPA Rules, 2009. The State Government had defined "existing emoluments" in Rule 3(1)(c) by adopting the AICPI (1982=100) average of 536, effectively mirroring the Central Civil Services (Revised Pay) Rules, 2008. However, subsequent executive memoranda issued by the State sought to decouple the DA rate from the Central pattern, citing discretion and fiscal autonomy.

The Supreme Court termed this "Legislation by Incorporation." Justice Karol, writing for the Bench, explained that when a State "bodily lifts" a provision from another statute (here, the Central Rules) and places it into its own Rules, it is bound by that standard. The Court held that the RoPA Rules created a statutory right to DA calculated via AICPI.

“To say that the number that has been explicitly put there is nothing more than a starting point or reference point, after which the State is free to do as it wishes under the garb of financial and fiscal policy, cannot be countenanced.”

Executive Memoranda Cannot Override Statutory Rules

The Court came down heavily on the State’s attempt to alter the DA formula through executive instructions (Memoranda) issued under Article 162, while the parent RoPA Rules were framed under the proviso to Article 309. The Bench reiterated the settled legal principle that executive instructions cannot supplant or override statutory rules.

The Court observed that while the State had the competence to frame different rules initially, once it exercised its legislative power to incorporate the AICPI standard, any deviation required a formal amendment to the Rules, not merely an administrative order. The subsequent memoranda were thus declared ultra vires the substantive Rules.

“Manifest arbitrariness... is not a departure from legislative supremacy but its constitutional completion, for the very legitimacy of law in a democratic order lies in its reasoned foundation.”

The "Empty Coffers" Plea Rejected

Perhaps the most significant aspect of the ruling for service jurisprudence is the Court's refusal to accept "financial inability" as a valid defense against statutory dues. The State argued that paying DA at AICPI rates would impose a burden of over ₹41,000 crores.

The Court held that DA is not a bounty or a matter of grace but a pragmatic instrument to combat inflation and protect the "lived economic reality" of employees. Citing the "Model Employer" theory, the Bench ruled that salaries and their components (like DA) constitute rightful entitlements.

“When it comes to employees’ dues, this proposition [of financial inability] would be extremely dangerous and stifling since the amounts received thereby are not handouts or acts of charity but are earned compensation.”

Manifest Arbitrariness and Article 14

The Court applied the test of "Manifest Arbitrariness" under Article 14. It held that the State’s action of issuing memoranda that completely ignored the AICPI stipulation in its own substantive Rules lacked any "determining principle." This capricious deviation from the statutory text without any new study or rationale was held to be violative of the equality clause.

To ensure compliance, the Supreme Court has constituted a High-Powered Committee comprising Justice Indu Malhotra (Retd.), Justices Tarlok Singh Chauhan and Goutam Bhaduri (Former High Court Judges), and a nominee of the CAG. This Committee will determine the exact quantum of arrears and the schedule of payments, to be completed by March 2026.

Federalism & Fiscal Autonomy: The Nuance

The Court clarified a crucial point on federalism. It rejected the notion that States are automatically bound to follow Central Government pay scales. The Court affirmed that States possess financial autonomy and can devise their own pay structures. However, in this specific case, the State of West Bengal voluntarily chose to incorporate the Central standard into its own Rules. The State was bound not by the Centre's decision, but by its own legislative choice.

“It is not open for the State to take the defence of separation of powers... for that would amount to having your cake and eating it too.”

No Mandate for "Twice a Year" Payment

The employees had claimed a right to receive DA revisions twice a year, mirroring the Central Government's practice. The Supreme Court rejected this specific claim. The Bench noted that the RoPA Rules were silent on the frequency of payment. Since the Rules did not mandate a bi-annual revision, the Court refused to read such a condition into the statute, leaving the timing of disbursal to the State's discretion, provided the calculation remained based on AICPI.

Delay and Laches in Salary Matters

The State argued that the employees' claim for the period 2008-2019 was barred by delay as the litigation began in 2016. The Court rejected this, applying the principle of "Continuing Wrong." It held that non-payment of the appropriate rate of DA is a recurring cause of action. When a grievance relates to salary or pension, delay cannot defeat the claim, especially when the employees were relentlessly pursuing remedies.

Review Jurisdiction & Finality

The Court emphasized the sanctity of the "First Round of Litigation." The High Court had previously declared DA a legally enforceable right, and the State’s review petition against that judgment was dismissed. The Supreme Court held that once a review is dismissed and no further appeal is filed, the findings attain conclusive finality and operate as res judicata. The State could not re-argue the core entitlement in subsequent proceedings.

Legitimate Expectation

The Court held that the enactment of the RoPA Rules, which explicitly recognized AICPI as the determinative factor, gave rise to a Legitimate Expectation among the employees. The State’s subsequent arbitrary deviation violated this expectation, which was founded on the sanction of law.

Date of Decision: February 5, 2026