India

Supreme Court Rules OBC Creamy Layer Order Not Retroactive, Government Granted Time to Adjust Policies

By Abraham Thomas

The Supreme Court on Friday clarified that its March 11 judgment, which held that Other Backward Classes (OBC) candidates cannot be excluded from reservation benefits solely on the basis of their parents’ salary income, will not apply to past appointments after the government opposed a retrospective operation. The court said the decision was made in favour of the parties that approached it and that the ratio will not lead to reopening of appointments already made. The bench of Justices P.S. Narasimha and R. Mahadevan noted that the government is free to formulate its own policy. It held that the judgment will govern service allocation under the 2025 civil services examination, as the process was ongoing when the judgment was pronounced.

The government filed an application in August, arguing that applying the judgment to all past appointments and admissions would create complete administrative chaos. It requested a two‑year period to work out equivalent posts for Group A and B officers in public sector undertakings (PSUs) and private employment to identify the creamy layer. The March 11 judgment gave the government six months to implement it.

Solicitor General Tushar Mehta and Additional Solicitor General Aishwarya Bhati argued that the application does not question the judgment. Bhati said the Union government is only seeking a limited deferral of the operationalisation of the law for two years so that competing rights can be adjusted in line with administrative contingencies and an effective equivalence exercise can be carried out. She warned that applying the judgment to past and ongoing recruitments would prejudice the rights of persons who were not parties to the litigation and could lead to reopening of seniority, cadre allocation and administrative chaos.

Bhati noted that civil service exam recruitment rules for the past year and this year have been issued and that some candidates are citing the judgment to seek enhanced allocation opportunities. She said candidates whose parents earn over ₹1 crore annually could be considered OBC non‑creamy layer by virtue of the judgment.

The Supreme Court’s March judgment was issued on the Union government’s appeal against Madras High Court orders that had allowed an OBC candidate to be treated as a non‑creamy layer candidate, thereby improving his career prospects. The High Court had permitted a candidate recommended for the Indian Police Service under OBC reservation to be allocated to the Indian Foreign Service. The Supreme Court approved the High Court order, rejecting the government’s objection that the candidate’s father worked for a multinational and would fall under the creamy layer.

The March judgment also upheld a second case where a candidate was initially denied OBC reservation because his father’s PSU employment yielded a high income. Both candidates argued that their parents were excluded on income criteria and that creamy layer classification should be based on posts rather than income alone. The court held that treating children of those employed in PSUs or private employment as excluded from reservation solely on salary income, without reference to their posts, would amount to hostile discrimination and unequal treatment.

The creamy layer notification was issued in 1993 following the landmark Indra Sawhney judgment of 1992, which allowed 27% reservation for OBCs subject to exclusion of the creamy layer. The 1993 order identified five occupational categories as the creamy layer and a sixth category based on an income and wealth test. A 2004 clarificatory order explained that salary income and other sources (excluding salaries and agricultural land) are to be assessed separately and that exclusion would follow only if either component exceeds the prescribed limit for three consecutive years. The March judgment reaffirmed that the non‑creamy layer principle preserves the primacy of status‑based exclusion and confines economic exclusion to the sixth category, stating that salary income cannot be mechanically aggregated in a way that defeats the constitutional objective articulated in Indra Sawhney.