Supreme Court Rules: Children of PSU Employees Cannot Be Denied OBC Benefits Solely Based on Income

In a landmark judgment that brings significant relief to thousands of aspirants, the Supreme Court of India has ruled that the children of Public Sector Undertaking (PSU) and private sector employees cannot be denied Other Backward Classes (OBC) reservation benefits solely on the basis of their parents' income.

The Court emphasized that the "creamy layer" status must be determined by looking at the professional status and category of the parents' posts, rather than just their salary, ensuring parity with government employees.

The case, Union of India vs. Rohith Nathan, centered on a long-standing dispute regarding how the "creamy layer" (those excluded from reservation benefits due to social/economic advancement) is identified among children of PSU employees.

For years, the Department of Personnel and Training (DoPT) had been applying a strict "Income Test" for PSU employees because "equivalence" between PSU posts and government posts had not been officially established. This often led to a situation where a PSU employee’s child was labeled "creamy layer" due to high gross salary, while a government officer in a similar or higher rank was considered "non-creamy layer" because their salary was excluded from the calculation.

A Bench of Justices P.S. Narasimha and R. Mahadevan upheld previous rulings from the High Courts of Delhi, Madras, and Kerala. The Bench noted that treating PSU and private sector employees differently from government employees constitutes "hostile discrimination" and violates Article 14 of the Constitution (Right to Equality).

The Court observed:

"Mere determination of the status of a candidate as to whether he/she falls within the creamy layer... cannot be decided solely on the basis of the income."

Key Highlights of the Judgment

1. Primacy of Status: The Court reiterated that the 1993 Office Memorandum (OM) intended for exclusion to be based on "status" (rank/position) first. Income should only be the deciding factor when no other status parameters apply.
2. 2004 Clarification Overruled: The Court held that the government gave "excessive importance" to a 2004 letter which allowed income-only assessments for PSUs. This, the Court said, defeated the original purpose of the reservation policy.
3. Constitutional Imperative: The Bench clarified that the creamy layer exclusion is meant to ensure benefits reach the "truly backward" and not to create "artificial distinctions" between people who are in similar professional positions.
4. Direction to the Government: The Supreme Court has directed the Union Government to accommodate successful candidates who were previously excluded under these flawed criteria. The authorities have been given six months to complete this exercise, including the creation of "supernumerary posts" if necessary.

This judgment ends the "salary trap" for many PSU families. In many cases, candidates who cleared the Civil Services Examination (CSE) were denied service allocation because their parents' PSU salaries (including bonuses and allowances) crossed the ₹8 lakh threshold, even though their parents held mid-level positions not equivalent to "Group A" government officers.

By mandating that "status" must be the primary filter, the Supreme Court has ensured that children of PSU and private sector employees are judged by the same yardstick as the children of government servants.

The ruling is a victory for fairness in the reservation system. It reinforces the principle established in the famous Indra Sawhney case: that while the creamy layer must be excluded to help the needy, the process of exclusion must be rational, non-discriminatory, and based on social advancement rather than just a bank balance.