Can Children of PSU Employees Be Denied OBC Reservation Benefits? Supreme Court Answers

The Supreme Court has said that the purpose of excluding the “creamy layer” from OBC reservation is to ensure that socially advanced sections within the Other Backward Classes do not take away benefits meant for genuinely backward groups, and not to create artificial distinctions between people who are otherwise similarly placed.

A Bench of Justices P S Narasimha and R Mahadevan upheld judgments of the Delhi, Madras and Kerala high courts, which had held that treating employees of private entities and PSUs differently from Government employees and their children for deciding reservation benefits would amount to hostile discrimination.

Court was hearing a batch of appeals filed by the Union government against high court judgments that had directed successful OBC candidates in the Civil Services Examination to be treated as falling within the non-creamy layer category.

The bench held that deciding creamy layer status solely on the basis of income, without considering the categories of posts and status parameters laid down in the 1993 Office Memorandum (OM), is legally unsustainable.

It further said that giving excessive importance to a 2004 clarification letter, to the extent that income alone becomes the deciding factor without considering the parents’ status or category of service, would defeat the framework of exclusion envisaged under the 1993 OM.

To be noted, the 1993 OM is the central policy document issued by the Union government on September 8, 1993 for identifying the “creamy layer” among OBCs and excluding them from reservation benefits. It was issued following the Supreme Court’s ruling in the case of Indra Sawhney v. Union of India and others [1992 Supp (3) SCC 217]. 

The 2004 letter was a clarification issued on October 14, 2004 by the Department of Personnel and Training (DoPT), working under Ministry of Personnel, Public Grievances and Pensions, regarding application of the creamy layer test where equivalence of PSU/private sector posts with government posts had not been determined.

“Mere determination of the status of a candidate as to whether he/she falls within the creamy layer or the non-creamy layer of the OBCs cannot be decided solely on the basis of the income,” the Bench observed in the present matter.

Court said a combined reading of the 1993 OM and the October 14, 2004 clarification letter makes it clear that salary income alone cannot determine whether a candidate falls within the creamy layer. According to the Bench, the status and category of the posts held by a candidate’s parents are also important factors.

It explained that exclusion under Categories I to III of the Schedule is based on status rather than purely on income, since advancement in the government service hierarchy is considered a sign of social progression, irrespective of fluctuating salary levels.

“The evolution of the non-creamy layer principle demonstrates that the 1993 OM read with the 2004 Letter, preserves the primacy of status based exclusion and confines economic exclusion to the structured parameters of Category VI. Salary income cannot be mechanically aggregated in a manner that defeats the constitutional objective articulated in Indra Sawhney,” Court said.

The Bench also reiterated that any classification under Article 14 of the Constitution must satisfy two conditions: there must be a clear distinction between groups, and that distinction must have a rational connection with the objective sought to be achieved.

“If similarly situated persons are subjected to differential treatment without a constitutionally sustainable basis, such action would fall foul of Article 14,” Court said.

Court further emphasised that while caste may indicate historical disadvantage, it cannot be treated as the sole factor for determining backwardness.

“The exclusion of the creamy layer among the backward classes is not a matter of mere policy preference but a constitutional imperative intended to ensure that the benefits of reservation reach those who are socially and educationally backward in the true sense,” the Bench observed.

Court examined whether there could be discrimination between Government employees and employees working in PSUs or private sector organisations when both hold posts of the same grade or class. It also considered whether caste-based reservation benefits could be distorted by creating unreasonable distinctions between similarly placed persons.

In the present case, the respondent candidates had cleared the Civil Services Examination. However, since equivalence between PSU or bank posts and Government posts had not been formally determined, the DoPT applied the Income/Wealth Test under Category VI of the 1993 OM read with the 2004 Letter.

After assessing the parental income of the candidates for the preceding three financial years, the DoPT classified them as belonging to the creamy layer, making them ineligible for OBC non-creamy layer reservation benefits. Their cases were therefore not considered for service allocation under the reserved category.

The candidates then approached the Central Administrative Tribunal and obtained relief in their favour. The Union government’s challenges to those orders were later dismissed by the Madras, Delhi and Kerala high courts.

While upholding those judgments, the Supreme Court directed the Centre to create supernumerary posts, if required, to accommodate candidates who satisfy the non-creamy layer criteria clarified in the present judgment, subject to fulfilment of other eligibility conditions.

Court also directed the authorities to consider the claims of the respondent candidates and intervenors in line with the principles laid down in the judgment and complete the exercise within six months.  

Case Title: Union of India And Others Vs Rohith Nathan And Another Etc

Bench: Justices P S Narasimha and R Mahadevan

Date of Judgment: March 11, 2026