Parental income not sole test for OBC creamy layer, job status must count: Supreme Court

The Supreme Court rejected the Centre's argument that the income-and-wealth yardstick should remain the sole benchmark.

• Parental income alone can't decide OBC creamy layer status
• Consider social status and job nature for exclusion too.
• Court says treating PSU and govt employees differently is unequal

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The Supreme Court on Thursday said parental income alone cannot be used to determine whether a candidate from the Other Backward Classes (OBC) falls within the “creamy layer” and is therefore ineligible for reservation benefits.

The ruling underscores that the social status and nature of the parents’ employment must also be assessed, with income and wealth serving only as supplementary factors in the exclusion test.

Currently, people whose families earn more than Rs 8 lakh annually are generally classified as belonging to the creamy layer and are excluded from OBC quota benefits. However now, the Supreme Court judgment could significantly affect the children of employees working in public sector undertakings (PSUs) and private organisations.

Until now, authorities had largely relied solely on the income threshold to determine creamy layer status in such cases, unlike for government employees where the rank or category of the parent’s post plays a decisive role.

A bench comprising Justices P. S. Narasimha and R. Mahadevan explained that the children of Group A and Group B government officials are automatically excluded from reservation benefits because the higher rank of their parents’ posts indicates significant social advancement. By contrast, the offspring of Group C and Group D staff remain eligible for OBC reservation even if family income temporarily crosses the prescribed limit, as salary increases over time or promotions do not necessarily translate into comparable social mobility.

Rejecting the Centre's argument that the income-and-wealth yardstick should remain the sole benchmark, the court sided with petitioners—many of them children of PSU employees—who had challenged the rule for more than a decade.

The dispute stemmed from an office memorandum issued by the central government in 1993, which laid down the framework for identifying the creamy layer after the landmark reservation jurisprudence developed following the Indra Sawhney judgment. That policy had envisaged applying comparable standards to employees of PSUs, banks, insurance companies and universities occupying positions equivalent to those in government service. However, the equivalence of posts across sectors was never properly established.

Instead, a clarificatory communication issued in 2004 effectively made family income the only determining factor for children of PSU and private-sector employees. The Supreme Court said this approach distorted the original framework set out in the 1993 memorandum. According to the bench, relying excessively on the 2004 clarification—while ignoring the parent’s occupational status—undermines the structural basis of creamy layer exclusion.

While delivering the judgment, Justice Mahadevan observed that the policy framework under the 1993 memorandum places significant emphasis on the social standing attached to specific categories of employment.

The exclusion criteria under the first three categories of the schedule are primarily status-driven rather than purely income-oriented, reflecting the understanding that upward movement within the government hierarchy often signals broader social mobility irrespective of fluctuating pay levels. Consequently, the court concluded that identifying creamy layer status solely through income slabs, without examining the category of post and service background of the parents, is legally untenable.

The bench also warned that applying different yardsticks to children of government employees and those of PSU or private-sector staff would violate the principle of equality. Treating similarly placed members of the same backward class differently—without a rational basis—would amount to discrimination, the court said.

“Adopting an interpretation that disadvantages one segment of the same backward class without rational justification would amount to treating equals as unequals and would thus become the antithesis of equality... Having regard to the peculiar facts of the present cases, the reasoning adopted by HC that treating similarly placed employees of private entities and PSUs differently from govt employees and their wards, while deciding their entitlement to reservation, would amount to hostile discrimination, is certainly one that inspires the confidence of this court,” observed the court.