Financial constraints can't act as 'talisman' to deny lawful regularisation to workers: Supreme Court

New Delhi: In a significant judgment, the Supreme Court on Tuesday said financial constraints cannot be invoked as a “talisman” to deny lawful regularisation to workers who have been performing perennial functions for decades.

A bench of Justices Vikram Nath and Sandeep Mehta overturned the Allahabad High Court’s refusal to grant relief to long-serving daily wage employees of the UP Higher Education Services Commission, setting a new benchmark in service and regularisation law.

The court emphasised the State (here referring to both the Union and the State governments) is not a mere market participant but a constitutional employer. It cannot balance budgets on the backs of those who perform the most basic and recurring public functions.

"Where work recurs day after day and year after year, the establishment must reflect that reality in its sanctioned strength and engagement practices. The long-term extraction of regular labour under temporary labels corrodes confidence in public administration and offends the promise of equal protection," the court said.

The court underscored financial stringency certainly has a place in public policy, but it is not a talisman that overrides fairness, reason and the duty to organise work on lawful lines. Moreover, it must necessarily be noted that “ad-hocism” thrives where administration is opaque.

"If “constraint” is invoked, the record should show what alternatives were considered, why similarly placed workers were treated differently, and how the chosen course aligns with Articles 14, 16 and 21 of the Constitution. Sensitivity to the human consequences of prolonged insecurity is not sentimentality. It is a constitutional discipline that should inform every decision affecting those who keep public offices running," Justice Nath wrote in the 22-page judgment for the bench.

The plea filed by Dharam Singh and others concerned six appellants who were engaged between 1989 and 1992 as peons and a driver. Despite more than thirty years of continuous service, their status remained that of daily wagers or fixed honorarium employees, receiving only Rs 1,500 to Rs 2,000 per month for years while performing the full functions of sanctioned posts.

Granting them the relief, the court set out the operative scheme comprising of creation of supernumerary posts, full regularisation, subsequent financial benefits, and a sworn affidavit of compliance, "as a pathway designed to convert rights into outcomes and to reaffirm that fairness in engagement and transparency in administration are not matters of grace, but obligations under Articles 14, 16 and 21 of the Constitution".

The employees had challenged the state government’s rejection of the Commission’s repeated proposals to create sanctioned posts.

In 1999 and again in 2003, the government turned down the requests citing financial constraints and a ban on new posts.

The High Court dismissed their writ petition in 2009 and a division bench affirmed the dismissal in 2017, holding that there were “no rules for regularisation” and “no vacancies". It also relied on the Supreme Court’s 2006 judgment in Secretary, State of Karnataka Vs Uma Devi to deny relief.

Advocates Rajesh G Inamdar and Shashwat Anand, appearing for the appellants, argued before the Supreme Court that this reliance on Uma Devi was wholly misplaced.

They submitted that the case was not about backdoor appointments but about the State’s arbitrary refusal to sanction posts despite the Commission itself recognising the need as far back as 1991.

They highlighted that similarly placed workers in the very same Commission had been regularised while the appellants were left in limbo, amounting to unconstitutional discrimination under Articles 14, 16 and 21.

Accepting the appellants’ submissions, the court declared that the High Court had misdirected itself by treating the matter as a bare plea for regularisation rather than adjudicating the arbitrariness of the State’s refusal to sanction posts.

The court noted that the Commission had passed resolutions and sent multiple recommendations since 1991 for creating posts. It also found the appellants had been continuously engaged on perennial work essential to the functioning of the Commission, and the State’s rejection on the generic plea of financial crisis was non-speaking and unreasonable.

The bench stressed that Uma Devi judgment cannot be used as a shield to perpetuate exploitation.

"Unlike in Uma Devi, where illegal appointments were under scrutiny, here the workers were kept on daily wages for decades despite acknowledged need and continuous service," the bench said.

The court relied upon the recent precedents such as Jaggo Vs Union of India (2024) and Shripal Vs Nagar Nigam, Ghaziabad (2025) to reinforce the view that long-term ad hocism in public employment is contrary to constitutional guarantees.

The court also relied on evidence that sanctioned vacancies did exist. An RTI reply of 2010 and an interlocutory application in 2020 had shown at least five Class IV posts and one driver’s post were lying vacant, and no rebuttal was filed by the State.

The fact that other similarly placed employees had already been regularised within the same establishment while the appellants continued as daily wagers further underscored the arbitrariness, the court noted.

In its directions, the court ordered that all appellants be regularised with effect from April 24, 2002, the date on which the High Court had first directed reconsideration of their case.

To implement this, the court directed the creation of supernumerary posts in Class III and Class IV cadres.

It also ordered the appellants are to be placed in the regular pay scale with increments and allowances. It further said, arrears of pay are to be calculated and paid within three months, and in case of delay, compound interest at six percent per annum will apply.

For appellants who have retired, pensions and terminal dues are to be recalculated on the basis of regularisation, and for those who died during the pendency of the case, their legal heirs will be entitled to arrears and terminal benefits. The court directed for filing a compliance affidavit by the Principal Secretary, Higher Education, within four months.

By striking down the Allahabad High Court’s reliance on Uma Devi and declaring that continuous service on perennial posts cannot be brushed aside by citing financial stringency, the Supreme Court has set a stellar precedent in service law. The ruling affirms that the State, as a constitutional employer, carries higher obligations of fairness, dignity and transparency in employment, the appellants counsel said.

They also said the judgment is expected to influence a wide array of pending disputes involving daily wage, contractual and outsourced employees across the country.

The judgment underscores that long-term extraction of labour without regularisation is not merely unfair but unconstitutional, and signals the court’s commitment to converting the promise of equal protection into tangible outcomes for workers who kept public institutions running for decades, they added.