Odisha State Financial Corporation vs. Odisha State Financial Corporation Employees Union: Supreme Court Ruling on Pay Scale Revision

The Supreme Court of India recently delivered a significant judgment in the case of Odisha State Financial Corporation vs. Odisha State Financial Corporation Employees Union. This case revolved around the dispute regarding the implementation of revised pay scales for employees of the Odisha State Financial Corporation (OSFC). The crux of the matter was whether OSFC employees were entitled to the pay revision benefits recommended by the Odisha Revised Scales of Pay (ORSP) Rules, 2008, in line with the recommendations of the 6th Central Pay Commission.

The OSFC had initially agreed to implement the pay revision, but the state government, citing financial constraints, refused to approve the recommendation. This led the OSFC Employees Union to approach the Odisha High Court, which ruled in their favor, directing the Corporation to implement the revised pay scales from April 1, 2012. Dissatisfied with this ruling, the OSFC appealed to the Supreme Court, arguing that without government approval, the revised pay scales could not be legally implemented.

Background of the Case

The Odisha State Financial Corporation (OSFC) is a statutory corporation tasked with financial support for small and medium enterprises in the state. The dispute arose when the employees of OSFC demanded that their pay scales be revised in accordance with the ORSP Rules, 2008, which were implemented for state government employees following the recommendations of the 6th Central Pay Commission.

To address this demand, the Odisha government issued a resolution on May 8, 2009, allowing public sector undertakings (PSUs) to revise pay scales provided they met certain eligibility conditions, including:

The PSU must be profit-making with a positive balance sheet for at least two consecutive years.
The PSU must not have defaulted on statutory dues such as provident fund and employee insurance contributions.
The PSU must not have defaulted on loan repayments to financial institutions or the state government.
The PSU must have completed statutory audits up to date.
The PSU must finance the pay revision from its internal resources without reliance on government funds.

Based on these conditions, OSFC conducted an internal review and recommended the implementation of the revised pay scales. The Board of Directors approved the proposal in its 368th meeting held on June 18, 2012. However, the government’s administrative department, after reviewing OSFC’s financial condition, refused to approve the revision. Consequently, OSFC employees filed a writ petition before the Odisha High Court.

High Court Judgment

The High Court ruled in favor of the employees, directing OSFC to implement the revised pay scales from April 1, 2012. The court reasoned that employees could not be denied legitimate dues merely because of the corporation’s financial difficulties. The court emphasized that a government entity must prioritize employee welfare and meet contractual obligations.

Supreme Court Appeal

OSFC, aggrieved by the High Court’s ruling, filed an appeal before the Supreme Court. The primary argument of OSFC was that the implementation of revised pay scales required the approval of the administrative department and the finance department. Since the Odisha government had declined approval due to OSFC’s financial constraints, the Corporation argued that it could not be compelled to implement the pay revision.

Key Arguments

Petitioner’s (OSFC) Arguments

The revised pay scales were subject to government approval, which was explicitly denied.
OSFC had defaulted on loan repayments and statutory dues, making it ineligible for pay revision under government guidelines.
Forcing OSFC to implement the revised pay scales without financial viability would further deteriorate its fiscal condition.

Respondent’s (Employees Union) Arguments

The pay revision had already been approved by OSFC’s Board of Directors.
Employees should not suffer due to the financial mismanagement of the Corporation.
Similar PSUs had implemented the revised pay scales despite financial difficulties.

Supreme Court Judgment

The Supreme Court, after considering both arguments, ruled in favor of OSFC and set aside the High Court’s judgment. The key observations of the Supreme Court were:

The ORSP Rules, 2008, were applicable to state government employees but required explicit approval for PSUs.
OSFC’s financial condition did not meet the eligibility criteria prescribed in the Odisha government’s resolution of May 8, 2009.
The implementation of revised pay scales could not be forced upon OSFC without the necessary administrative and financial approvals.
The High Court erred in directing OSFC to implement the revised pay scales without considering the government’s explicit refusal to approve the revision.

Accordingly, the Supreme Court allowed the appeal and set aside the High Court’s ruling.

Conclusion

This case highlights the complex interplay between employee rights, financial viability, and administrative approvals in public sector undertakings. While employee welfare remains a priority, financial prudence and government regulations play a crucial role in determining the feasibility of pay revisions. The Supreme Court’s decision reinforces the principle that financial obligations of PSUs must align with government policies and fiscal realities.

Petitioner Name: Odisha State Financial Corporation.
Respondent Name: Odisha State Financial Corporation Employees Union.
Judgment By: Justice Ajay Rastogi, Justice Sanjiv Khanna.
Place Of Incident: Odisha.
Judgment Date: 05-04-2022.

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