Govt Can’t Reduce Payscale Of Employee Upon Downgrading Of Co-Operative Society Classification: Kerala HC [Read Judgment]

“It is open for the Government fix the pay and allowances. But it cannot reduce such pay and allowances merely referring to the financial position of the society”.

The Kerala High Court has held that the government cannot reduce the pay scale of an employee upon re-classification of co-operative society resulting in its downgrading. The court was dealing with a batch of writ petitions filed by employees/pensioners who were facing the threat of recovery of excess payment consequent to reduction of their payscale by the government upon downgrading of their employer-society.

The classification of a society is made on the basis of its financial situation, and the government has the power to re-classify a society on the basis of its variance in financial situation. The Kerala Co-operative Societies Act and the Rules empower the government to classify and re-classify societies. Also, the government is conferred with the power to fix the payscale of employees. By using the power to fix payscale, the government ordered reduction of payscale of employees of those societies which were downgraded on reclassification and ordered recovery of excess payment made to such employees.

Delegated legislation cannot take away accrued right

Justice A Muhamed Mustaque, the single judge who dealt with the matter, noted that the government traced its power to reduce payscale to the Rules framed under Kerala Co-operative Societies Act, particularly on the basis of Note 6 of Appendix III to Kerala Co-operative Societies Rules.  The employee’s right to a particular pay scale on the basis of his service is an accrued or vested right. The principle that delegated legislation cannot take away accrued rights, as settled by the Supreme Court of India in Mahabir Vegetable Oils (P) Ltd and Another vs. State of Haryana and Others ((2006) 3 SCC 620) and in State of Haryana vs. Anil Pesticides Limited and Another ((2010) 12 SCC 606), was applied in the instant case.

The court also noted that at the relevant time, i.e., during 2010 when the writ petitions were filed, the parent Act only conferred the power to the government to fix the pay and allowances, as per Section 80(6). However, in 2013, Section 80(6) was amended giving power to the government to fix and “alter” pay and allowances. But since the matters related to pay reduction effected prior to 2013 amendment, the court did not express any opinion on the impact of the amendment to situations arising post-2013.

Against socialistic principles, which form part of basic structure of Constitution

The issue was dealt with from a wider constitutional angle, especially in the light of directive principles of state policy.  Noting that co-operative movement emanated out of the need to overcome economic distress, it was observed that constitutional court cannot consider the basic structure of the co-operative society in isolation of the principles cherished in the Constitution.

The very ideal of a welfare state is to embrace the elements of economic justice based on the socialist concept in which the concern of the State is public welfare and not profit maximisation. The pay and allowances to an employee, therefore, cannot be made dependent on profit of a cooperative society, the judgment observed.

The court also observed that socialistic principles formed basic structure of the constitution, and the government action negated it.

It is open for the Government to fix the pay and allowances. But it cannot reduce such pay and allowances merely referring to the financial position of the society. Such an action is repugnant to the goal of a welfare state based on socialist ideals. Socialist principles being part of basic structure of the Constitution must guide the State while evolving its economic policy and social welfare.

It was also observed that the career of employee could be linked with profit of society by providing him incentives.

Therefore, the court struck down Note 6 of Appendix III of Co-operative Societies Rules to the extent that it enabled the government to reduce pay and allowances of employees on reclassification of society.