Punjab and Haryana HC Strikes Down DA Liquidation Plan, Orders Payment Within a Fortnight
A Division Bench led by the Acting Chief Justice held that Punjab and PSPCL were bound by the Central DA pattern they had adopted and could not stagger accrued arrears over 42 instalments without interest.
The High Court of Punjab and Haryana, sitting as a Division Bench at Chandigarh, has dismissed four Letters Patent Appeals filed by the Additional Chief Secretary to the Government of Punjab and the Punjab State Power Corporation Limited (PSPCL), and upheld a Single Judge's ruling that struck down the State's structured Liquidation Plan for payment of Dearness Allowance and Dearness Relief arrears. Acting Chief Justice Ashwani Kumar Mishra, leading the Bench with Justice Rohit Kapoor, held on 3 August 2026 that once Punjab accepted the Sixth Punjab Pay Commission's recommendation to continue DA on the Central Government pattern, it incurred an enforceable obligation to release every accrued instalment. The Plan — which spread arrears for pensioners below 75 years over 42 monthly instalments without interest — was found to violate Article 14 of the Constitution. The State and PSPCL were directed to release all pending DA/DR instalments within a fortnight at the rates applicable to IAS/IPS/IFS officers serving within Punjab.
The Dispute Before the Division Bench
The litigation arose from the State's handling of pay revision flowing from the Sixth Punjab Pay Commission, whose report was submitted on 30 April 2021. The Commission recommended, in paragraphs 7.6 to 7.11, that DA should continue to be granted on the basis of the All India Consumer Price Index on the Central Government pattern. The Department of Finance, in its memorandum of 17 June 2021 placed before the Council of Ministers, recommended acceptance of this proposal. The Council of Ministers approved the proposals on 18 June 2021, and the decision was communicated on 21 June 2021. The Punjab Civil Services (Revised Pay) Rules, 2021 were notified on 5 July 2021. Policy instructions dated 7 September 2021 then released DA in successive rates — from 2% to 17% — described as being in pursuance of the Sixth Pay Commission recommendations. PSPCL adopted these instructions mutatis mutandis with Board approval on 17 November 2021.
By 13 February 2025, accumulated arrears of revised pay, pension, and DA/DR for the period 1 January 2016 to 31 March 2024 had grown to approximately Rs. 14,191 crore. The Council of Ministers approved a Liquidation Plan prepared by a Cabinet Sub-Committee, providing for phased payment over five financial years (2024–25 to 2028–29). For pensioners, the Plan created three tiers: two instalments for those above 85 years; 12 instalments for those between 75 and 85 years; and 42 monthly instalments for those below 75 years. A Government letter dated 18 February 2025 gave effect to this Plan. PSPCL adopted it vide Finance Circular No. 03/2025 dated 3 April 2025.
A separate speaking order dated 18 November 2025, passed by the Additional Chief Secretary (Finance) on a representation by retired PSPCL employees, recorded that “the Government has not yet taken any decision regarding the grant of four installments of DA/DR from 42% to 55%.” This order prompted the principal writ petition, CWP No. 7291 of 2026, filed by retired PSPCL employees. A Single Judge allowed three connected writ petitions on 8 April 2026, quashed the Liquidation Plan as violative of Article 14, and directed payment of all pending DA/DR instalments and pension arrears by 30 June 2026. The State and PSPCL preferred four Letters Patent Appeals under Clause X of the Letters Patent, along with which five connected writ petitions filed by serving and retired employees of the State Government were heard.
Principal Legal Issues
The Division Bench framed nine issues for determination. The core question was whether the State and PSPCL had accepted and acted upon the Sixth Pay Commission's recommendation to follow the Central DA pattern, and if so, whether they could indefinitely withhold accrued instalments and stagger admitted arrears through the Liquidation Plan. Subsidiary issues concerned: whether the Liquidation Plan violated Article 14; whether the Cabinet decision of 18 June 2021 could ground enforceable rights absent a formal order in the Governor's name under Article 166(1); whether PSPCL was condemned unheard; whether the Single Judge acted without roster jurisdiction (coram non judice); the effect of an earlier Division Bench contempt order and a co-ordinate Single Bench judgment; the limits of judicial review in fiscal matters; the relevance of higher aggregate pay in Punjab; and PSPCL's separate legal personality.
How the Bench Reasoned
Adoption of the Central pattern. The Bench examined the record of the Finance Department memorandum of 17 June 2021. It found a deliberate distinction within the same tabulation: the recommendation on the rate and pattern was accepted unconditionally, while the recommendation on simultaneity of release received only the guarded comment that the Government “may endeavour” to do so. This contradistinction, the Bench held, showed that the 'endeavour' comment qualified timing, not entitlement. Every DA instruction issued after the 2021 Rules — dated 7 September 2021, 2 November 2021, 21 October 2022, 1 December 2023, and 1 November 2024 — drew rates directly from the Central Seventh Pay Commission series without a single independent deviation. Even the freeze between 1 January 2020 and 30 June 2021 mirrored the Centre's own freeze. The speaking order of 18 November 2025 contained no repudiation of the pattern and no announcement of an alternative methodology. The Bench held that when the executive, for five years, uniformly construed and implemented its own decision as an adoption of the Central pattern, it was not open to the State to subsequently plead that no such pattern was ever adopted.
Relying on the Supreme Court's judgment in State of West Bengal v. Confederation of State Government Employees, West Bengal, 2026 INSC 123, the Bench held that while DA is a dynamic concept and the State is free to choose its rate, once it has exercised its discretion by adopting a standard, it cannot deny the benefit flowing from that standard. The appellants' argument that the West Bengal Rules explicitly tied DA to a specific price index whereas the Punjab 2021 Rules did not was rejected: the exercise of discretion may be located in a rule or in an accepted recommendation carried into effect by rules and repeated statutory instructions, and in the present case that discretion stood exercised by five years of uniform executive construction. The Bench also invoked the principle in Purshottam Lal v. Union of India, (1973) 1 SCC 651, that where the Government accepts Pay Commission recommendations, it binds itself to implement them and implementation can be compelled.
An additional Article 14 dimension was identified independently: All India Service officers — IAS, IPS, and IFS — serving in connection with the affairs of Punjab are paid DA at the full Central rates, drawn from the same Consolidated Fund. No intelligible differentia was shown to justify paying inflation neutralisation at the full Central rate to one class of public servants from the same exchequer while withholding accrued instalments from State employees and pensioners exposed to the identical inflation.
Invalidity of the Liquidation Plan. The Bench identified three distinct infirmities. First, Rule 9 of the 2021 Rules, which authorises staggered payment, applies only to arrears for the period 1 January 2016 to 30 June 2021. The Liquidation Plan swept within its fold DA/DR arrears from 1 July 2021 to 31 March 2024 as well. No statutory or other source of power was shown to permit deferment of post-June 2021 accruals. Second, even within the Rule 9 field, the discretion is not unfettered. Admitted arrears of pay, pension, and DA/DR are “property” within Article 300A, as held in State of Jharkhand v. Jitendra Kumar Srivastava, (2013) 12 SCC 210. A schedule which retains admitted dues — some accrued since 2016 — in the hands of the State until 2028–29, paid without interest, does not liquidate the debt but liquidates its value, since the very inflation that DA exists to neutralise steadily erodes each deferred instalment. Third, the age-tiered classification failed the test under D.S. Nakara v. Union of India, 1982 INSC 103. All pensioners form a homogeneous class for purposes of retirement benefits. The nexus between the differentia (age) and the object (inflation neutralisation) was absent: deferring the bulk of the class — those below 75 years — to 42 instalments stretching to 2028–29 left the largest cohort exposed to the same unmitigated inflation the longest, while the adopted DA standard otherwise applied uniformly. The fact that the State constituted yet another Sub-Committee on 7 April 2026 to re-evaluate “financial feasibility” of even the attenuated Plan placed the entire structure back in question, demonstrating that the Plan was provisional in its very promise.
Article 166 and the Cabinet decision. The Bench distinguished Bachittar Singh v. State of Punjab, 1962 INSC 88, on the ground that in that case the Revenue Minister's order remained an unexpressed file noting, subsequently reversed. The Cabinet decision of 18 June 2021, by contrast, was communicated to the Finance Department, forwarded to the Chief Minister and the Governor, publicly announced through a press note, translated into subordinate legislation — the 2021 Rules — notified on 5 July 2021 in the Governor's name under the proviso to Article 309, given effect through policy instructions issued in the Governor's name on 7 September 2021 and 2 November 2021, and implemented through actual payments over five years. The Bench further held that the provisions of Article 166 are directory, not mandatory, and non-compliance in form does not invalidate executive action otherwise shown to have been taken by the Government. The State could not approbate by invoking the Cabinet decision to limit the commitment on timing while simultaneously reprobating it to deny the commitment on the pattern.
Procedural and jurisdictional challenges. On the coram non judice plea, the Bench found from the applicable roster that writ petitions concerning statutory corporations and other statutory boards or bodies of the State of Punjab stood allocated to the learned Single Judge. PSPCL is a statutory corporation; the petitioners were its employees. The consequential directions against the State were inseverable from the adjudication of the Corporation's employees' grievance, since PSPCL's DA policy originated in State instructions. A roster overlap is an ordinary incident of judicial administration and furnishes no ground of nullity. In any event, Article 226 jurisdiction vests in the High Court, and a roster is an administrative arrangement; even an imperfect allocation does not produce a jurisdictional void comparable to a Judge acting in defiance of the Chief Justice's orders. The in rem operation of the relief was affirmed: quashing instruments of general application that affect a homogeneous class necessarily enures to the entire class, preventing discrimination between litigating and non-litigating members and avoiding multiplicity of proceedings.
On the non-joinder and natural justice plea, the Bench applied the prejudice test from State Bank of Patiala v. S.K. Sharma, (1996) 3 SCC 364. PSPCL's consistent position, recorded in the speaking order of 18 November 2025 and in its own affidavit of 27 April 2026, was that it follows the instructions of the Government of Punjab and has taken no independent decision on DA/DR. No material or defence was identified that could have altered the outcome. The comprehensive hearing before the Division Bench in any event effaced any deficiency of opportunity at the Single Judge stage.
On the contempt order of 21 February 2025 and the Surinder Singh Single Bench judgment, the Bench held that the Division Bench in contempt proceedings took the Liquidation Plan on record as a compliance mechanism; it did not examine its constitutional validity. A compliance order in contempt does not clothe the compliance mechanism with constitutional immunity against challenge by non-parties under Article 226. The judgment in Surinder Singh (CWP No. 23651 of 2024) directed implementation of the Plan in a case where its validity was never questioned or argued; a direction on a point not in issue is sub silentio and cannot conclude a subsequent challenge by different parties. The Bench added, however, that the formal per incuriam declaration by the Single Judge sat uneasily with the restraint counselled in Central Board of Dawoodi Bohra Community v. State of Maharashtra, (2005) 2 SCC 673; the proper course ordinarily would have been to distinguish the earlier decision on the footing that the challenge was never before that Bench. Any procedural infelicity in the mode of dealing with it stood cured by the Division Bench's independent examination.
On fiscal policy, the Bench held that the impugned directions did not formulate policy or fix a DA rate of the Court's choosing. They enforced the standard the State itself chose in 2021 and tested two executive instruments against Article 14. That is a classic exercise of judicial review, not an incursion into policy. On the comparative emoluments argument, the Bench held that a surplus in basic pay is no justification for confiscating the DA computed on the adopted pattern: basic pay and DA answer different questions. The Pay Commission that recommended the pay matrix also recommended continuation of the Central DA pattern, and the State accepted both together. Financial constraint may inform the making of a policy prospectively; it does not licence indefinite non-performance of a choice already made.
Outcome
The Division Bench dismissed LPA Nos. 1249, 1290, 1437, and 1767 of 2026 and affirmed the impugned judgments dated 8 April 2026 and 28 April 2026. The connected writ petitions — CWP Nos. 29408 of 2025 and 2006, 7021, 9953, and 10005 of 2026 — were disposed of in terms of the directions issued. Because the 30 June 2026 deadline fixed by the Single Judge had expired during the pendency of the appeals, the timelines were modified as follows:
(a) The State of Punjab and PSPCL are directed to grant and release all up-to-date pending instalments of DA/DR to all employees and pensioners, respectively, at the same rates as applicable to IAS/IPS/IFS officers serving within Punjab, within a fortnight from the date of the order.
(b) In default, unpaid amounts shall carry simple interest at 6% per annum from the date of expiry of the stipulated period until actual realisation.
(c) The Chief Secretary to the Government of Punjab is directed to file a compliance affidavit before the Registry by 31 August 2026. Until all dues are cleared, the State of Punjab shall not resort to unproductive expenditures such as large-scale advertising campaigns in print or social media.
The quashing of PSPCL's Finance Circular No. 03/2025 dated 3 April 2025, to the extent it adopted the Liquidation Plan, was also affirmed. All pending applications stood disposed of.