“Economic criteria cannot be the sole basis for determination of
“Economic criteria cannot be the sole basis for determination of ‘creamy layer’ within OBC reservation.”
Writ Petition (Civil) No. 60 of 2019
Date of Judgement: 24 August 2021
Author: Justice L Nageswara Rao
Bench: Justice L Nageswara Rao, Justice Aniruddha Bose
Background Facts:
The Mandal Commission recommended that other backward classes must also get reservation. The validity of such assertion was scrutinised by the Supreme Court in Indra Sawhney v. Union of India[1]. The Court while capping the total limit of reservation at 50%, also recommended constitution of a permanent body at both Central level and State level to deal with the inclusion, under-inclusion and over-inclusion of groups in the lists of other backward classes of citizens (OBC). The State Governments were directed to identify ‘creamy layer’ amongst the backward classes and exclude them from the purview of reservation.
Subsequent to it, the Government of India issued Guidelines for Identification of ‘Creamy Layer through the memorandum issued on 08 September 1993. The State of Uttar Pradesh and Bihar issued notifications to identify creamy layer within their states, which did not conform to the Guidelines laid down by the Government of India and the Indra Sawhney judgement. They were challenged on grounds of being arbitrary and subsequently struck down by the Supreme Court in the case of Ashok Kumar Thakur v. State of Bihar[2]. Directions were issued to States to follow the criteria laid down by the Government of India in the memorandum dated 08 September 1993.
The State of Haryana also took steps in this direction to implement the Indra Sawhney guidelines. The Haryana Second Backward Classes Commission was constituted on 12 October 1993 to identify the OBC and the basis for exclusion of the ‘creamy layer’ within the OBC list. On 16 May 1995, the Commission submitted its report recommending the criteria for excluding socially advanced persons/sections (creamy layer) from the backward classes. The State Government accepted the recommendations of the Commission and decided that the benefit of reservation shall not extend to persons/sections mentioned in Annexure ‘A’ to the circular dated 07 June 1995 issued by the Commissioner and Secretary to Government of Haryana, Welfare and Scheduled Castes and Backward Classes Department. The said Annexure ‘A’ included:
- the children of those who held Constitutional Posts, who were Class I Officers of the All India Central and State Services (Direct Recruits), Class II Officers of the Central and State Services (Direct Recruits), employees in Public Sector Undertakings etc., and personnel belonging to Armed Forces including Para Military Forces (excluding persons holding civil posts).
- Children of persons belonging to a family which owned more than the permissible land under the statute of Haryana pertaining to ceiling on land holdings were also covered under Annexure ‘A’.
- Another category specified in Annexure ‘A’ was with respect to the children of persons with gross annual income of Rs. 1 lakh or above or possessing wealth above the exemption limit as prescribed in the Wealth Tax Act, 1957 for a period of three consecutive years. This was later increased to Rs. 4.5 lakh through a notification on 31 August, 2010.
- Lastly, Annexure ‘A’ brought within its fold children of persons of all other listed categories who were not disentitled to the benefit of reservation but had income from other sources of wealth bringing them within the aforementioned income / wealth criteria.
Later, the Haryana Backward Classes (Reservation in Services and Admission in Educational Institutions) Act, 2016 was enacted to provide for reservation in services and admission in educational institutions to the persons belonging to backward classes in the State of Haryana. Section 5 of the 2016 Act stipulated that no persons belonging to ‘creamy layer’ amongst the backward classes shall be considered for admission in educational institutions against the seats reserved for backward classes nor be entitled to claim reservation for appointment in services under the State against posts reserved for backward classes. Section 5(2) of the Act postulates that the Government shall, by notification, after taking into consideration the social, economic and such other factors, as deemed appropriate, specify the criteria for exclusion and identification of persons belonging to the backward classes as ‘creamy layer’.
In exercise of the powers conferred by the 2016 Act, the State Government issued a notification on 17 August 2016 specifying the criteria for exclusion of ‘creamy layer’ within the backward classes. The notification stipulated:
- Children of persons having gross annual income up to Rs. 3 lakh shall get first priority to get the benefit of reservation in services and admission in educational institutions.
- The left-out quota shall go to that class of backward classes of citizens who earn more than Rs. 3 lakh but up to Rs. 6 lakh per annum.
- The sections of backward classes earning above Rs. 6 lakh per annum shall be considered as ‘creamy layer’ under Section 5 of the 2016 Act.
The notification was challenged through Writ petition in the High Court of Punjab and Haryana. The High Court by its judgement dated 07 August 2018 in CWP No. 15731 of 2018 set aside the notification dated 17 August 2016 on the ground that the sub-classification of the backward classes, with preference in reservation to a particular section within it, was arbitrary and violative of Article 14 of the Constitution. The petitioners who were MBBS aspirants were allowed fresh counselling on the basis of the earlier criteria existing prior to the 2016 Act. The State of Haryana questioned the correctness of the judgement of the High Court before the Supreme Court through a Special Leave Petition and requested a stay on the judgement of the High Court, which was refused on 28 August 2018.
On the same day, the State Government issued a new notification whereby the criteria for computing annual income for the purposes of the notification dated 17 August 2016 was fixed as ‘gross annual income’, which shall include income from all sources. The said notification dated 28 August 2018, also overruled all previous notifications and instructions which provided for a different mode of computing annual income.
The legality and validity of both notifications dated 17 August 2016 and 28 August 2018 was again challenged. However, this time the High Court upheld both the notifications. In its judgement dated 31 August 2018 in CWP No. 22055 of 2018, the High Court was of the opinion that fixing the criteria for ‘creamy layer’ was in the interests of persons belonging to the marginalised sections of backward classes who actually need the benefit of reservation. In so far as the notification dated 28 August 2018 is concerned, the High Court held that the State Government had jurisdiction under the 2016 Act to take into account the gross annual income from all sources for the purpose of arriving at the criteria for determining ‘creamy layer’. As both the notifications were in the larger interests of those backward classes who require the benefit of reservation, the High Court dismissed the writ petition.
As the judgment of the High Court dated 31 August 2018 whose ruling ran counter to its earlier judgement dated 7 August 2018 on the same issues, this matter was brought to the Supreme Court.
Writ Petition (C) No. 60 of 2019 was filed under Article 32 of the Constitution of India which pleaded the quashing of both these notifications on grounds of being arbitrary and violative of Articles 14, 15 and 16 of the Constitution of India. A further direction was sought for a fresh survey and verification of data for identification and specification of ‘creamy layer’ as per the provisions of the Haryana Backward Classes (Reservation in Services and Admission in Educational Institutions) Act, 2016
Judgement:
The Bench quashed both the notifications. It held that the notification dated 17 August 2016 was in flagrant violation of the directions issued in Indra Sawhney case and is at variance with the memorandum dated 08 September 1993 issued by the Government of India. Computation of gross income by including income from all sources is contrary to the Guidelines issued by the Government of India on 08 September 1993. Making the economic criteria as the sole determinant for creamy layer is violative of Section 5 of the 2016 Act itself which stipulated that social, economic and other factors must also be considered while determining the ‘creamy layer’ within the OBC list. The contention of the Haryana Government that the sub-classification amongst the backward classes was to ensure that people with lower income get more benefit of reservation therefore is arbitrary and violative of the Indra Sawhney judgement.
The Bench said: “In spite of Section 5(2) of the 2016 Act making it mandatory for identification and exclusion of ‘creamy layer’ to be on the basis of social, economic and other relevant factors, the State of Haryana has sought to determine ‘creamy layer’ from backward classes solely on the basis of economic criterion and has committed a grave error in doing so. On this ground alone, the notification dated 17.08.2016 requires to be set aside.”
Since the 17 August 2016 notification was quashed, the notification dated 28 August 2018 which was merely an addition to the 17 August 2016 notification, and had no independent life of its own, fell flat and automatically becomes void. The bench therefore did not proceed to adjudicate upon its merit and validity.
Key Law Positions established in the case:
1. Can there be sub-classification in the OBC reservation list on economic criteria?
NO.
Such a classification is arbitrary and contrary to the Indra Sawhney guidelines.
2. Can economic criteria be the sole determinant to identify the ‘creamy layer’ within the OBC reservation list?
NO.
The socio, economic and all appropriate and relevant factors must be MANDATORILY TAKEN INTO ACCOUNT for identification of socially advanced ‘creamy layer’ groups from within the OBC list.
The Bench quoted Justice Jeevan Reddy from the Indra Sawhney judgement in this context:
“792. In our opinion, it is not a question of permissibility or desirability of such test but one of proper and more appropriate identification of a class — a backward class. The very concept of a class denotes a number of persons having certain common traits which distinguish them from the others. In a backward class under clause (4) of Article 16, if the connecting link is the social backwardness, it should broadly be the same in a given class. If some of the members are far too advanced socially (which in the context, necessarily means economically and, may also mean educationally) the connecting thread between them and the remaining class snaps. They would be misfits in the class. After excluding them alone, would the class be a compact class. In fact, such exclusion benefits the truly backward. Difficulty, however, really lies in drawing the line— how and where to draw the line? For, while drawing the line, it should be ensured that it does not result in taking away with one hand what is given by the other. The basis of exclusion should not merely be economic, unless, of course, the economic advancement is so high that it necessarily means social advancement. Let us illustrate the point. A member of backward class, say a member of carpenter caste, goes to Middle East and works there as a carpenter. If you take his annual income in rupees, it would be fairly high from the Indian standard. Is he to be excluded from the Backward Class? Are his children in India to be deprived of the benefit of Article 16(4)? Situation may, however, be different, if he rises so high economically as to become — say a factory owner himself. In such a situation, his social status also rises. He himself would be in a position to provide employment to others. In such a case, his income is merely a measure of his social status. Even otherwise there are several practical difficulties too in imposing an income ceiling. For example, annual income of Rs 36,000 may not count for much in a city like Bombay, Delhi or Calcutta whereas it may be a handsome income in rural India anywhere. The line to be drawn must be a realistic one. Another question would be, should such a line be uniform for the entire country or a given State or should it differ from rural to urban areas and so on. Further, income from agriculture may be difficult to assess and, therefore, in the case of agriculturists, the line may have to be drawn with reference to the extent of holding. While the income of a person can be taken as a measure of his social advancement, the limit to be prescribed should not be such as to result in taking away with one hand what is given with the other. The income limit must be such as to mean and signify social advancement. At the same time, it must be recognised that there are certain positions, the occupants of which can be treated as socially advanced without any further enquiry. For example, if a member of a designated backward class becomes a member of IAS or IPS or any other All India Service, his status is society (social status) rises; he is no longer socially disadvantaged. His children get full opportunity to realise their potential. They are in no way handicapped in the race of life. His salary is also such that he is above want. It is but logical that in such a situation, his children are not given the benefit of reservation. For by giving them the benefit of reservation, other disadvantaged members of that backward class may be deprived of that benefit. It is then argued for the respondents that ‘one swallow doesn’t make the summer’, and that merely because a few members of a caste or class become socially advanced, the class/caste as such does not cease to be backward. It is pointed out that clause (4) of Article 16 aims at group backwardness and not individual backwardness. While we agree that clause (4) aims at group backwardness, we feel that exclusion of such socially advanced members will make the ‘class’ a truly backward class and would more appropriately serve the purpose and object of clause (4). (This discussion is confined to Other Backward Classes only and has no relevance in the case of Scheduled Tribes and Scheduled Castes).”
[1] AIR 1993 SC 477
[2] 1996 AIR 75
