Supreme Court Rules Salary Cannot Determine OBC Creamy Layer Status

On March 11, the Supreme Court stepped in to fix a rule that was allegedly unfair to some UPSC aspirants from the Other Backward Classes (OBC) communities.

OBC reservation in India has been subject to the "creamy layer" condition since 1992, when the famous Indira Sawhney judgment was delivered by the apex court. Herein, some aspirants from the OBC communities recently alleged that the Central government had been using a flawed method to decide who was part of the "creamy layer"—one that counted a parent's salary even though the original rules clearly said it shouldn't be.

This meant that some OBC students — particularly those whose parents worked in government-owned companies like ONGC or SBI — were being told they didn't qualify for the reserved seats, even when students from very similar family backgrounds were qualifying without any trouble.

The Court, in a judgement delivered by Justices P.S. Narasimha and R. Mahadevan, threw out the government's attempt to defend this practice, called it discriminatory, and ordered that the roughly 100 students who had been wrongly denied their reserved seats over the past decade be accommodated in government service.

The concept of the creamy layer flows from the Court's own 1992 judgement in Indra Sawhney v. Union of India, which upheld OBC reservations but insisted that better-off OBC families be excluded. To operationalise this, the Department of Personnel and Training issued an Office Memorandum (OM) in 1993 laying out exactly who counted as creamy layer. Constitutional officeholders, children of senior directly-recruited government officers, and children of high-ranking military personnel were automatically excluded.

Everyone else was subject to an income and wealth test: if your parents earned above a threshold — originally Rs 1 lakh annually, revised several times, currently Rs 8 lakh — for three consecutive years, you were out.

But the 1993 OM was specific about what counted as income for this test. Salary income and agricultural income were explicitly excluded from the calculation. Only income from other sources — property, business, capital gains — was to be counted.

The logic was that a salaried person's income reflects their post and rank, not independently accumulated wealth.

To understand the problem the Court has now addressed, a distinction that is often glossed over in public discussion becomes important.

Government servants are directly employed by the Central or State government, their service conditions governed by government rules, their posts carrying clear designations — Group A, B, C, or D — that map directly onto the creamy layer framework. A child of a Group A government officer is automatically excluded from OBC reservation.

PSU employees are a different category. Public Sector Undertakings — ONGC, BHEL, SBI, NTPC, and hundreds of others — are owned wholly or partially by the government but operate as legally separate entities, with their employees working under the PSU's own service rules. Crucially, the equivalence between PSU posts and government service grades has never been formally established across the board, which meant that PSU employees' children couldn't be assessed the same way government servants' children were. The income/wealth test was meant to fill that gap.

In October 2004, the DoPT issued a letter intended to clarify the 1993 OM but ended up contradicting it. The letter suggested that for children of PSU employees, salary income should be included when calculating whether the family crossed the Rs 8 lakh threshold. This meant a PSU employee earning a decent salary could find their child excluded from OBC reservation purely on the basis of that salary, even though salary income was explicitly excluded from the income test under the original 1993 framework.

A government servant in a comparable position faced no such problem. A parliamentary House Committee had already flagged that the 2004 letter had obfuscated rather than clarified the issue. The Supreme Court agreed.

The Division Bench of Justices P.S. Narasimha and R. Mahadevan has now ruled that salary income cannot be the basis for excluding OBC candidates from reservation. The 1993 OM's plain language, the Court held, consciously kept salary and agricultural income outside the income/wealth test.

The 2004 letter's deviation from this created hostile discrimination between equally situated candidates, a violation of the constitutional guarantee of equality. The government has not yet formally matched PSU job positions to equivalent grades in government service. Until it does, OBC candidates whose parents work in PSUs must be assessed without counting salary income.

The immediate beneficiaries of this judgment are approximately 100 candidates who appeared in Civil Services Examinations from 2015 onwards and were denied OBC quota status on the basis of the flawed income calculation.

The Court has directed the government to create supernumerary posts to accommodate those who qualified under the corrected criteria but were placed at a lower rank or excluded altogether.

Going forward, children of PSU employees and those in private employment will be assessed under the income/wealth test without salary income counting against them.