Holding

The differentiated HRA policy for government licencees versus non‑licencees is reasonable, non‑arbitrary, and consistent with Article 14, so the Division Bench judgment is set aside.

Summary

The Supreme Court examined the West Bengal government's policy on House Rent Allowance (HRA) which differentiates between employees living in government‑provided accommodation (who pay a nominal licence fee) and those renting privately. The petitioners, government employees residing in government flats, claimed the policy violated Article 14 by granting them a lower HRA despite paying only a nominal fee. The Court held that the classification is based on an intelligible differentia – licencees versus non‑licencees – and is reasonably linked to the purpose of HRA, which is to compensate for actual rent paid. It further ruled that the State may revise its HRA policy in light of the Third Pay Commission’s recommendations and is not bound by earlier consent orders. Consequently, the Division Bench judgment was set aside, the Single Bench decision upheld, and the appeal allowed, with no order for refund of excess HRA to avoid hardship.

Issues considered

The classification of government employees for HRA under the 1990 ROPA Rules violates Article 14 of the Constitution.
Whether the State Government is bound by a prior consent order and can revise its HRA policy.
Whether the distinction between licencees (government‑premises occupants) and non‑licencees is a reasonable basis for differential HRA treatment.
Whether excess HRA paid to licencees must be refunded.

Legislation cited

Constitution of Indias. Article 14

Subjects

House Rent AllowanceArticle 14ClassificationGovernment accommodationLicensee vs tenantWest Bengal Services (Revision of Pay and Allowances) Rules, 1990Third Pay CommissionAdministrative lawDiscrimination

Judgment

THE STATE OF WEST BENGAL AND ORS. A
v.
RANBJNDRA NA TH SENGUPTA AND ORS.

MARCH 31, 1998

[G.N. RAY AND K. VENKATASWAMI, JJ.] B

Service Law-West Bengal Services (Revision of Pay and Allowances)
Rules, 1990-House Rent Allowance (HR.A.)-Dijferential Payment-
Classification for grant of HR.A.-Reasonableness of-HR.A. payable to
Govt. employees living in Govt. accommodation and paying assessed rent as c
licence fee limited to the extent of licence fee paid while HR.A. admissible
to a Govt. employee living in privately rented accommodations or in their
own accommodations paid 15% of basic pay subject to a maximum of Rs. 800
per month-Fairness of-Held, the two classes of Govt. employees stand on
a different footing and such distinction is fair and just having a reasonable D
basis on which HR.A. is to be paid-Accrual of unreasonable and unjust
profit if full amount of HR.A. paid to employees residing in Govt.
accommodation by paying nominal licence fee-Held, there is justification
that such Govt. employees are not given the full amount of HR.A. but they
will be reimbursed to the extent of licence fee paid by them-Constitution of
India, 1950-Article 14.-West Bengal Govt. Premises (l?.egulation of E
Occupancy) Act, 1984--Section 2(d), (k), (n), 3, 11, 24, 27-W.B. Govt. Premises
(Tenancy Regulation) Act, 1976-Sections 2(a), 3.

Administrative Law-Policy regarding rates of-House Rent
Allowance-Revision of-Validity-Formulation of the policy regarding
payment of HR.A. by the Govt. after considering the recommondations of the F
Third Pay Commission-Intelligible differentia between two groups of Govt.
Employees viz. Govt. Employees provided with accommodation in Govt. flats
and those not so provided-Held, such revision of policy cannot be held to
be arbitrary, capricious, or without any basis-interference with the policy
decision not called for. G
The occupation of housing estates belonging to the State Govt. was
regulated by the West Bengal Premises (Tenancy Regulation) Act, 1976
initially. The amount assessed for occupation of Govt. housing estates was
termed 'rent'. On 28th Jan. 1978, the department of Housing, Govt. of West
Bengal issued a memorandum providing an option to the Govt. employees H
599
600 SUPREME COURT REPORTS [ 1998] 2 S.C.R.

A occupying accommodation provided by the Housing Department of the State
Govt. to either pay "assessed rent" that may be fixed by the govt and to draw
the admissible house rent allowance or to pay a fixed percentage of their pay
as rent and forego the house rent allowance. The respondents had opted for
paying the assessed rent and drawing admissible house rent allowance. In
B 1984, the West Bengal Premises (Regulation of Occupancies) Act, 1984
came into force under which the occupation charge for such govt. flats was
termed as 'licence fee' instead of an 'assessed rent'. Pursuant to the
r~commendations of the Third Pay Commission, the West Bengal Services
(Revision of Pay and Allowances) Rules, 1990 (ROPA Rules) was published.
The ROPA Rules provided that the House Rent Allowance (H.R.A.) admissible
C to Govt. employees living in privately rented accommodations or in their own
accommodations would be 15% of basic pay subject to a maximum of Rs. 800
per month. On the other hand, the HRA payable to Govt. employees living in
Govt. accommodation and paying assessed rent as licence fee, was limited to
the actual assessed rent paid.

D The respondents who had been allotted govt. accommodation being
employees of the State Govt and who had been paying assessed amounts for
such occupation and were enjoying the House Rent Allowance challenged the
ROPA Rules by way of a petition before the High Court which was dismissed
by Single Judge and subsequently allowed by the Division Bench of the High
E Court. Aggrieved, the State preferred the present appeal.

On behalf of the appellant State it was contended that there was
intelligible differentia between two groups of govt. employees, namely, govt,
employees provided with accommodition in govt. flats and employees who have
not been provided. The H.R.A. was in lieu of accommodation not made available
F to the employees and was not a matter of right. Acceptance of govt.
accommodation as licensee was optional and the respondents had accepted
such govt. accommodation. It was further contended that it would not be just
and proper to allow the respondents the benefit of full amount of URA by
occupying govt. accommodation as licensees by paying nominal licence fee
G for such accommodation so as to make unreasonable profit. The privilege of
accommodation in govt. premises as licensee was co-tenminus with the govt.
service.

On behalf of the respondents it was submitted that from 1976 to 1990
all the govt. employees irrespective of the fact whether they had occupied
H govt. accommodation or not, were paid HRA at 8% of their salaries under
STATEv. R.N. SENGUPTA 601

the 1976 Act. After the enactment of the 1984 Act, the govt. premises were A
divided into two categories, namely, 'govt. premises' and 'public premises'.
It was further submitted that under the 1984 Act, the govt. employees residing
in govt. houses were deprived of their tenancy rights and became licensees.
On the other hand govt. employees residing in some, L.l.G./M.l.G./H.I.G. flats
termed as 'public premises' under the 1984 Act did not become licensees B
but retained their tenancey rights. It was thus contended that 1984 Act made
..; unreasonable and illegal distinction between 'govt. premises' and 'public
premises'. It was further submitted on behalf of the respondents that the
classificaiton between two sets fo employees, namely, the employees who had
been provided with govt. accommodation and those who had not been provided
with such accommodation and consequential differential treatment to those C
two types of govt employees in the matter ofHRA, was without any reasonable
basis and wholly unjust and improper.

Allowing the appeal, this Court
HELD : 1. The revised policy decision in the matter of payment of D
+ HRA is not only reasonable but also fair and just. It will be improper and
unjust if by virtue of being government employees they are favoured with
accommodation in 'government premises' as licensees and on such account,
are required to pay only nominal licence fee for such occupation, yet they
will be paid the full amount of HRA so that they can make profit out of HRA.
[615-B-CJ E
2. The government employees, who have been provided with government
accommodation qua government employees and licence in respect of such
government accommodation being co-terminus with the service, stand on a
different footing from the other government employees who have not been
,.. provided with such government accommodation. Therefore, the distinction F
between the two classes can not be said to be without nexus to the object of
grant of HRA. Under the 1984 Act, the status of government employees
occuying 'government premises' have been statutorily altered and such
employees have become licensees. Even if it is assumed that some government
employees have got tenancy rights under the State government in respect of G
public premises such tenancy right has not been given qua government
servant but as member of public. Under the 1984 Act, allotment of government
flat in 'government premises' can only be made as licensee, period of licence
being co-terminus with emp.loyment. Hence, occupation of a government
servant as a tenant under the State is not similar as the occupation as a
licensee in 'government premises'. It is the positive case of the State H
602 SUPREME COURT REPORTS [1998] 2 S.C.R

A government that the writ petitioners are occupying government premises as
defined under the 1984 Act holding the status of licensee. It is also the case
of the State government that nominal licence fee is required to be paid for
such occupation in 'goverment premises'. Since the writ petitioners and the
similarly circumstanced employees having accommodation in government
B premises qua government employees are licensees and the licence is co-
terminus with the service, they are required to pay only a nominal fee for
such occupation as found by the Pay Commission. Therefore, there is
justification that such government employees are not to be given the full
amount of HRA but they will be reimbursed to the extent of licence fee paid
by them. [614-A-H; 615-AJ
c
3.1. The respondents are not entitled to contend that the government
is precluded from revising its policy in respect of grant of HRA and once
a decision is taken, such decision will remain binding for ever. The Third
Pay Commission has considered various aspects of HRA and it has been
indicated by the said Commission that the payment of full HRA (subject to
D the extent of maximum limit) to the government employees who have been
allotted government accommodation qua government employees and paying
nominal licence fee should not be permitted to draw full HRA and the!eby
permitted to make profit. [615-F-G]
3.2. It is to be noted that barring one percent, all other government
E employees have not been provided with government accommodation and they
have been compelled to arrange for their own accommodation under competitive
market rent. Considering the recommendation of the Third Pay Commission,
the government has revised the policy regarding the payment of HRA. Such
revision of policy, therefore, cannot be held to be arbitrary, capricious without
any basis and taken on the ipsi dixit of the State Government. Since the
F
revised policy decision of the State Government is informed by reasons and
as the distinction between different sets of government employees is also
reasonable, no interference against that policy decision is warranted.
[615-H; 616-A-BJ

G 4. However, any excess amount paid to the writ petitioners-respondents
by way of HRA need not be refunded as otherwise it would cause great
hardship to them. [616-CJ

Director, Central Plantation Crops Research Institute, Kesaragod
and Ors., v. M. Purushothman and Ors., [1995) Suppl. 4 SCC 633 and MP.
H Oil Extraction and Anr. v. State of M.P. and Ors., (1997) 7 SCC 592,
STATE v. R.N. SENGUPTA [G.N. RAY, J.] 603

referred to. A
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1834 of
1998.

From the Judgment and Order dated 18.5.94 of the Calcutta High Court
in F.M.A.T. No. 11360 (w) of 1990. B
A.K. Mitter, Additional Solicitor General, Joydeep Kai, Rana Mukherjee
and Goodwill Indeevar for the Appellants.

M.C. Bhandare, Ranji Thomas and S. Menon for the Respondents.
c
The J~dgment of the Court was delivered by

G.N. RAY, J. Leave granted, Heard learned counsel for the parties.

This appeal is directed against Judgment dated 17. 5.1994 passed by the
Division Bench of Calcutta High Court in F.M.A. T. No. 1966 of 1992 allowing D
the appeal and setting aside the judgment of the Single Bench of the said
High Court in the Writ Petition being Civil Rule No. 11360 (W) of 1990.

The aforesaid writ petition was made by the respondents Rabindra Nath
Sengupta and other petitioners being employees of the State Government
who had been allotted government flats and had been paying assessed E
amounts for such occupation and were enjoying the House Rent Allowance.

In order to appreciate the rival contentions of the parties it will be
appropriate to note certain facts. After the submissions of Third Pay
Commission's Report, the West Bengal Services (Revision of Pay and F
Allowance) Rules, 1990 (hereinafter referred to as ROPA Rules) was published,
In the writ petition being CR No. 11360 (W) of 1997, the writ petitioners
challenged the provisions of House Rent Allowance in the ROPA Rules and
the Notification issued in this regard. The ROPA Rules provided for House
Rent Allowance to the following effect:-
G
,.
,
• I "House Rent Allowance: With effect from the 1st January, 1988
the House Rent Allowance admissible to a Government employee
shall be 15% ofbasic pay subject to a maximum ofRs.800 per month.
The ceiling of the House Rent Allowance drawn by husband and wife
taken together has also been raised to Rs. 800 per month. The allowance H
604 SUPREME COURT REPORTS [1998] 2 S.C.R

A may be drawn, without reference to quantum of rent paid, by all
Government employees (other than those provided with accommodation
owned/hired by Government) without requiring them to produce rent
receipt. They should however be required to furnish a certificate to
the effect that they are incurring some expenditure on rent/contributing
B towards rent. House Rent Allowance at the above rate shall also be
paid to Government employees living in their own houses, subject to
their furnishing a certificate that they are paying/contributing towards
house of property tax or maintenance of the house. Pending fixation
of licence fees according to the system recommended by the Pay
Commission, the drawal of House Rent Allowance by Government
c employees provided with accommodation owned/hired by Government
and recovery of licence fee from them shall be regulated as follows:-

(1) For those employees Jiving in flats for which assessment of rent
has been made and the occupier pays assessed rent as licence
D fee and draws usual house rent allowance the drawal of house
rent allowance shall be further limited to the actual assessed rent
paid.

(2) For those employees paying licence fee as percentage of pay,
the recovery shall be frozen at the level at which the licence fee
E was recovered from the pay bills for December, 1989 in the
unrevised scale.

All other conditions regarding drawal of House Rent
Allowance by Government employees and recovery of licence
F fee from them shall, in so far as they are not inconsistent with
these decisions, continue to hold good."

It may be stated here that till 1994, the occupation of housing estates
belonging to the State Government was regulated by the West bengal Premises
(Tenancy Regulation) Act, 1976. The amount assessed for occupation of
G Government housing estates was termed 'rent'. Previously, some dispute
about the House Rent Allowance for occupiers of Government flats were
raised in writ petition being CR No. 1527(W) of 1973. (Sri Deba Prasad
Mukherjee v. The Financial Commissioner as Secretary, etc.) Such Writ
Petition was disposed of by the Calcutta High Court by order dated 28.1.1996
H passed by consent of parties in the following terms:-
STATE v. R.N. SENGUPTA [G N. RAY J.] 605

"Upm1 the petitioner being agreeable to pay assessed rent A
calculated as per relevant principles for such occupation, the petitioners
will be entitled to compensatory house rent allowance in accordance
with Rules."

The department of housing. Government of West Bengal issued a B
memorandum on 28th January. 1978 laying down that the Government
employees occupying accommodation provided to them by the Housing
Department of State Government in the rental housing estate, meant exclusively
for the State government employees, should have option either to pay
"assessed rent" that may be fixed by the Government in accordance with the
accepted principles and to draw the admissible house rent allowance or to pay c
a fixed percentage of their pay as rent and forego the house rent allowance.
It is the case of the writ petitioners that they had availed the option of paying
the assessed rent and drawing admissible house rent allowance.

A second opportunity to exercise such option was given to the D
government employees occupying flats of the Government Housing Department
in 1984, the West Bengal Premises (Regulation and Occupancy) Act 1984
came into force. Under the said act, the occupation charge for such government
flats was termed 'licence fee' instead of an 'assessed rent'.

The contention raised in the writ petition (CR 11360 (w) of 1990 was E
inter alia that refusal by the government to grant house rent allowance to the
writ petitioners at per with government employees in occupation of private
rented houses or personal accommodations was not only contrary to the
decision rendered by consent in C.R, 1527 (W) of 1973 but also contrary to
the policy regarding house rent allowance being persistently followed by the F
State Government for at least the last decade. It was contended that the
government employees who had been living in privately rented
accommodations or in their own accommodations were entitled to 15% of their
pay as house rent allowance per month subject to the ceiling of Rs. 800
irrespective of whatever rent or expenses being incurred by them for such G
private or personal accommodation. Denial. of such privileges to the writ
petitioner in occupation of flats in government housing estates amounted to
hostile discrimination not being informed by any valid reason.

Such contentions of the writ petitioners were opposed by the State
Government by contending that government employees living in government H
606 SUPREME COURT REPORTS (1998] 2 S.C.R.

A accommodation had always been treated as a separate class distinct from
govenunPnt employees either living in privately rented accommodation or in
personal accommodations. Such distinction was not unreal but based on
reasonable criteria. It was also cont~nded that the Third Pay Commission had
gone into the question referred to it about the complications, bifurcations,
B division of payment and drawal of house rent allowance by government
employees living in government accommodation. The Pay Commission
addressed to itself such question and made its recommendation as to how 1
house rent allowance would be paid to government employees occupying
government flats. Such recommendation was accepted and ROPA rules were
framed. It was further contended that as a matter of fact, the policy adopted
c by the State Government for payment of house rent allowance is less rigid
than that of the Central Government where not only no house rent allowance
was allowed to these residing in government accommodation but such
employees were required to pay rent/licence fee. The State Government on the
contrary, has allowed the employees residing in Government accommodation
D to be paid house rent allowance to the extent of actual rent licence fee paid.
It was contended that the writ petitioner, as a matter of fact were residing in
rent free accommodations because they were entitled to reimbursement of
whatever amount of licence fee required to be paid for occupying flats in the
Government Housing Estates. It was also contended that licence fee for
E occupation of Government flats by the Government employees was not only
very reasonable but quite low compared to rent for similar accommodation in
private houses. Precisely for the said reason no government employee had
desired fo leave government accommodation for shifting to private
accommodation on the score of alternative cheaper accommodation.

F
The Single Bench of the High Court dismissed the writ petition by
holding inter alia that the writ petitioners did not controvert. the statement
on behalf of the State Government that the policy of house rent allowance
of the State Government was more liberal and beneficial to the employees than
the policy followed by Central Government and the impugned house rent
G policy of the State Government and the impugned house rent policy of the
State Government was not unreasonable. The learned Judge has specifically .'(,
indicated that the writ petitioners did not contend that they had been Jiving
in government accommodation, the rental of which, if in private accommodation,
would have been less than 15% of their emoluments. The learned Judge also
H held that the Government was competent to revise the policy decision regarding
STATE v. R.N. SENGUPTA [G.N. RAY. J.] 607
payment of house rent allowance and it was not bound by the earlier policy A
decision or by the decision in the earlier writ petition since disposed of by
consent of parties.

As aforesaid, such decision of the Single Bench was assailed before a
Division Bench of the High Court in FMAT No. 1966 of 1992 and by the B
impugned judgment, the Division Bench has allowed the Writ Petition by
holding inter alia that the State Government had also let out government flats
to priyate pers'Jns on rental basis and it was not disclosed what special
benefits were given to the government employees in service when allowed to
occupy government Hats which were not given to the members of public
when allowed to occupy government flats on rent. The Division Bench has C
held that in this case, the State Government has failed to make out any
reasonable basis for different treatment to government officer in occupation
of their personal accommodations or accommodations arranged with private
persons and the government employees occupying government flats on
payment of assessed licence fee. It has also been held that the factum of D
giving some concession in the matter of fixa~ion of licence fee to the
government employees occupying government flats is wholly irrelevant and
"if payability of the rent is not the factor for the purpose of granting house
rent allowances, in that event, making some concession in the matter of
assessment of rent payable by the second category of the State Government
employees is not at all a relevant consideration for the purpose of making a E
discrimination. If the object of granting house rent allowances was intended
to reimburse the house rent paid or payable by the employees wholly or in
part, in that even this classification could have been said to be reasonable
and such classification could have some nexus with the object sought to be
achieved. But those who have no liability to pay rent and those who pay a F
nominal amount as rent and on the contrary, get a lumpsum amount as house
rent allowances, which is not a compensation nor reimbursement, cannot be
said to be a different group from the other.". The Division Bench by allowing
the writ petition directed the State Government not to make any discrimination
between the government employees in the matter of payment of house rent G
allowances.
.t-
Mr. A.K. Mitter, learned Additional Solicitor General appearing for the
appellants, has submitted that for the purpose of house rent allowance, the
State Government employees have been classified into categories under ROPA
Rales, namely, H
608 SUPREME COURT REPORTS [1998] 2 S.C.R.

A (i) These emplovees who are provided with accommodation owned/
hired by the State Government will get House Rent Allowance (HR.A)
limited to the actual rent/licence fee.

(ii) Those employees who are not provided with the accommodation
in flats hired/owned by the State Government will get HRA at the rate
B of 15% of basic pay subject to maximum of Rs. 800 per month and will
have to bear the accommodation expenses.

The learned Solicitor has submitted that such classification was in
existence since 1948. For the first time in 1978, by an executive order it was
provided that the State Government employees will get full HRA out of which
c they would pay the charges for their accommodation. The Third Pay
Commission considered various aspects of HRA and came to the finding that
the principle of HRA as introduced by the executive order in 1978 had
introduced an element of unjust profit to the government employees who had
been provided with government accommodation and there had been great
D demand or government accommodation made available at very low rate.

The learned Solicitor has contended that in order to satisfy the test of
·reasonable classification, two conditions must be fulfilled as indicated by the
Division Bench of the High Court, namely, such classification must be founded
E on intelligible differentia and it would also have a rational nex'lls to the object
of the scheme of HRA.

The learned Solicitor has submitted that the HRA, is in lieu of
accommodation not made available to the employees and HRA is not a matter
of right. In support of such contention, reference has been made to the
F decision of this Court in Director, Central Plantation Crops Research
Institute, Kesaragod and Ors. v. M. Purushothaman and Ors., [1995] Suppl.
4 SCC 633. The learned Solicitor has contended that there is intelligible
differentia between two groups of government employees, namely, government
employees provided with accommodation in government flats and employees
G who have not been so provided.

The learned Solicitor has also submitted that the impugned principle of -\
A

HRA has been formulated on the basis of advice by an expert body like Pay
Commission which took into consideration various aspects of HRA. The
policy decision is in the domain of executive authority of the State Government.
H So long such policy decision is not arbitrary, capricious and based on no
STATE''· R.N. SENGUPTA IG.N. RAY J.] 609
reason thereby offending Article 14 of the Constitution, the Court should not A
outstep its limit and tinker with the policy decision of the State Government.
In this connection. reference has been made to the decision of this Court in
.\fP Oil E~traction a11d .~111'. v. State of M.F and Ors.. [1997] 7 SCC 592.

The learned Solicitor has further submitted that the writ petitioners have
alleged that some of the government employees who have not been provided
B
with government accommodation are paying less than the amount received as
HRA for their private accommodations. The learned Solicitor has contended
that particulars or instances in support such contention have not been given
by the writ petitioners. Even if in some cases, some government employees
are required to pay for their private accommodations at the rates less than the C
amounts receivable by way of HRA, such few instances cannot affect the
policy decision. The fortuitous circumstances, even in a few cases, under
which some government employees not being provided with government
accommodation may gain pecuniary advantage, cannot affect the HRA policy
. which is otherwise reasonable and not wholly capricious and arbitrary. D
The learned Solicitor has submitted that although the Division Bench
has correctly indicated the import of Article 14 of the Constitution in the
matter of hostile discrimination but it has failed to appreciate the fact situation
in this case and has proceeded erroneously on the footing that the government
employees being given full HRA for not being provided with government E
accommodation stand on advantageous position than the government
employees provided with government accommodation and therefore not bdng
paid the full HRA and such discriminatory treatment to two sets of government
employees offends Article 14 and such discrimination does not conforn1 to
reason. F
The learned Solicitor has contended that under the West Bengal
Government Premises (Tenancy Regulation) Act, 1976, the government premises
were defined as premises owned by the State Government or by the government
undertaking. The grounds of termination of tenancy were enumerated in
Section 3. Cessation of employment under the State Government was not a G
ground for termination of tenancy. The State buildings which were thrown
open to the public for residential accommodation, were not allotted to the
occupant qua government employees. Such position was substantially altered
by the West Bengal Government Premises (Regulation of Occupancy) Act,
1984. Section 24 of the 1984 Act given an overriding effect to the said Act H
610 SUPREME COURT REPORTS [1998] 2 S.C.R.

A and Sub-Section 2 of Section 2-1 expressly provides that the West Bengal
Government Premises (Tenancy Regulation) Act, l 978 shall not apply to the .-
government premises. The Preamble of the said 198.J Act indicates that there
are government premises meant for employees of State Government only and
it was necessary to prevent unlawful occupation of such premises. The 198.J
B Act is intended for regularisation of occupancy of government premises. The
·government premises' are di11erently defined under Section 2(1) and such
premises are not public premises. The ·state premises' means any premises
belonging to or taken on lease or licence or requisitioned by the State
Government. Under Section 2 (n) ·Public Premises' means State premises in
respect of which a declaration has been made under Sect10n 3 of the said Act
C and includes Lhese mentioned in Schedule II of the Act (Section 2 (k).

The learned Solicitor has submitted that ·government premises' are
earmarked only for the employees of the State government and a licence for
such occupation can be granted only to an employees of the State government
D under Section 4 of the 1984 Act. Evel)' licence in respect of government
premises will stand automatically terminated on constitution of employment
of the licenses under the State Government or on his death (Section 2(i). The
1984 Act provides for licence fees. The Third pay Commission has
recommend.ed for nominal rate of licence fee. The learned Solicitor has also
E submitted that there is distinction between licence and tenancy. While lease
or tenancy confers some interest on the land, licence gives only personal
privilege to the licensee with no interest in the land. The test of exclusive
possession is not conclusive. The Act of 1984 expressly provides for temlinator
of licence on cessation of employment. It is thus clear that no personal
interest in the accommodation has been created by such licensee. The privilege
.p
of accommodation in government premises as licensee is co-terminus with the
government seryice.

The learned Solicitor has also submitted that acceptance of government
accommodation as licensee is optional and the writ petitioners have accepted
G such government accommodation. It has been contended by the learned
solicitor that the writ petitioners l.ntend to take advantage twice over. The writ
.. >
A

petitioners only claim accommodation in government premises by paying at
a low rate of licence fee, but they also claim full amount of HRA so as to make
unreasonable profit. The learned Solicitor has also contended that the consent
H order passed in the earlier writ proceeding being binding between the parties,
STATE v. R.N. SENGUPTA [G.N. RAY J] 611

the order was implemented by the State Government by issuing Memorandum A
dated 20th January, 1978. Such consent was given on the basis of existing
policy of the state government in the matter of grant of HRA. When the Third
Pay Conimission recommended for change of policy regarding HRA, the
government framed ROPA Rules of 1990 under which the earlier policy about
grant of HRA was changed. The said 1984 Act was passed for regulating the B
licence in respect of the government premises allotted only to the government
.J employees in service making such licence co-terminus with the employment.
That apart, the State Government was within its rights to change the policy.,
The consent order on the basis of the earlier policy will not preclude the
government from revising the policy in the matter of HRA. The learned
Solicitor has informed in response to the qucrry that there are about 12000 c
employees of the State Government who have been provided with government
accommodation and the writ petitioners are only 134 in number. He has
SlJbmitted that it will be not just and proper to allow these 134 employees the
benefit of full amount of HRA by occupying government accommodation as
licensees by paying nominal licence fee for such accommodation. The learned D
Solicitor has, therefore, submitted that the impugned judgment of the Division
Bench should be set aside and the judgment passed by the learned Single
Bench dismissing the writ petition should be uphold by this Court.

Mr. M. C. Bhandare, learned senior counsel appearing for the writ E
petitioners-respondents, has submitted that the government employees going
to be affected by the revised decision of the State Government relating to
grant of HRA to the government employees given accommodation in
government premises, are only about 10,000 out of about total 10 lacs State
government it employees i.e. only 1% of the total strength of the government F
.. employees. Mr. Bhandare has also submitted that the government
accommodation allotted to the writ petitioners are not staff quarters. The
government premises are also let out to private individuals who are not
government employees. Initially, the government premises were governed by
the said West Bengal Premises, Tenancy Regulation Act, 1976 and from 1976
to 1990, all government employees irrespective of the fact whether they has G
occupied government accommodation or not were paid HRA at 8% of their
salaries. After the enactment of West Bengal Government Promises (Regulation
of Occupancies) Act, 1984, t3e government premises were divided into two
categories, namely, 'government' premises' and ·public premises' Under Section
2(d) of 1984, Act, Government promises means premises which has not public H
612 SUPREME COURT REPORTS (1998] 2 S.C.R

A premises and nnder Section 2 (k) public premises means State premises in
respect of which a declaration has been made under Section 3 and includes
the State government premises mentioned in Schedule IL Under Section 3(1)
of the said Act. the government may be Notification, declare any premises to
be public premises. Under Section 27, the State Government may dispense
B with or relax the requirement of any of the provision of this Act in respect
of any government premises. Under the 1984 Act, the government employees
residing in government houses have been deprived of tenancy rights and
such employees have become licensees. But government employees who are
residing in some LIG/MIG/HIG flats termed as ·public premises' under the
1984 Act have not become licensees but they retain their tenancy rights in
C the flats owned by the government. Mr. Bhandare has submitted that the 1984
Act has made unreasonable and illegal distinction between 'government
premises· and ·public premises·. The public premises have been taken out of
the regulation and control under the 1984 Act. The Writ Petitioners-respondents
after enactment of the said Act, became licenses of the premises and thus
D forfeited the tenancy right to continue occupation in government flats after
r
their retirement as well as their heirs loosing the right to inherit the right to
reside in such premises. Mr. Bhandare has submitted that the government
premises as defined under the 1984 Act is not correct. It is also contended
that the 'government premises' are not occupied exclusively by the government
E employees and government premises are also occupied by the private persons.
Mr. Bhandare has submitted that the classification between two sets of
employes, namely, the employees who have been provided with accommodation
owned or hired by the government and the employees who have not been
provided with such accommodation and consequential different treatment to
these two types of goYernment employees in the matter of HRA, are without
F any reasonable basis and the Division Bench has rightly struck down such '·
distinction as offending Article 14 of the Constitution.

Mr. Bhandare has submitted that even after the 1984 Act, in respect of
government premises and public premises, both government employees and
G the general members of public are residing. Mr. Bhandare has also submitted
that even if it is accepted that the status of the government employees living
in government premises after 1984 Act has changed from tenant to licensee,
such change has no relevance to the payment of HRA. Mr. Bhandare has
submitted that some LIG/MIG/HIG flats are treated as 'government premises'
while many other similar flats are treated as 'public premises'. No reasonable
H basis of such distinction has been made out by the State government.
STATE v. R.N. SENGUPTA [G.N. RAY, J.] 613

Mr. Bhandare has also submitted that it will be unjust and improper to A
allow the government employees living in LIG/MIG/HTG flats and enjoying the
status of a tenant to draw full HRA and not to allow such HRA to unfortunate
employees who hold the status of licensee in ·government premises' even if
they are occupying similar flats. As such distinction is wholly unjust, improper
having no reasonable basis on which HRA is to be paid. The Division Bench B
of the High Court has rightly he~d that such distinction offends Article 14 of
the Constitution and no interference against such judgment is called for.

Mr. Bhandare has also submitted that the policy decision may be the
prerogative of the State Government but such policy decision must conform
to. the mandate under Article 14 of the Constitution. If the policy decision C
being unjust and discriminatory offends the guarantee of equality under
Article 14, the State government is not permifled to contend that within its
prerogative, it has framed a policy and such revised policy should not be
tinkered with by the Court.
D
Mr. Bhandare has further submitted that the basic for the payment of
HRA is that nobody should be allov. ed to keep any money in excess of the
actual house rent paid. If 99% employees are allowed to retain HRA in excess
of the actual rent paid by them, only I% of the employees cannot be singled
out and treated with discrimination by limiting the quantum of HRA to the
extent of licence fee payable by such employees. E

Mr. Bhandare has also submitted that the flats in government premises
which have been allotted to the petitioners and similarly circumstanced
employees are not being properly maintained and considering the quality of
the accommodation and the amenities in such accommodation a low rate of F
I-.
licence fee has been assessed. It will be unjust and improper to disallow
payment of full HRA to the government employees who are occupying the
government flat as licensees under the 1984 Act only because they are to pay
comparatively low licence fee because of the inferior quality of accommodation
made available to them. Mr. Bhandare has submitted that in equity and justice
no interference is called for against the impugned judgment and this appeal G
should therefore be dismissed.

After giving our careful consideration to the facts and circumstances of
the case and the submissions made by the respective counsel for the parties,
it appears to us that distinction between two classes of government employees, H
614 SUPREME COURT RF.PORTS [1998] 2 S.CR.

A namely. those who have been provided with government accommodation qua
government employees and licence in respect of such government f
accommodation being co-terminus with the service, stand on a different footing
from the other government employees who hm·e not been provided with such
government accommodation. ln the instant case, it has not been demonstrated
B with relevant documents that in LIG/MJG/HIG flats belonging to the
government, the government employees are allowed to continue as tenant like
ordinary members of the public by virtue of being in government service.
Even if it is assumed that some government employees have got tenancy
rights under the State Government in respect of public premises such tenancy

c right has not been f)ven qua government servant but as member of public.
Under the 1984 Act, allotment of government flat in ·government premises'
can only be made as licensee, period of licence being co terminus with
employment. Hence, occupation of a government servant as a tenant under
the State is not similar as the occupation as a licensee in ·government
premises'. It has also not been demonstrated with supporting documents as
D to how many government employees have been given tenancy in government T

premises and how many members of public have also been allowed to remain
there as tenant. Under the 1984 Act, allotment of government flat in
'government premises' can only be made as licensee, period oflicence being
co-terminus with employment. Under the 1984 Act, the status of government
E employees occupying ·government premises' have been statutorily altered
and such employees have become licensees. Therefore, such licensees stand
entirely on a different footing. Such distinction has a reasonable basis and
it cannot be contended that such distinction is without any nexus to the
object of grant of HRA. It is the positive case of the State Government that
F the writ petitioners arc occupying government premises as defined under 1984
Act holding the status of licensee. It is the case of the State Government that
they have been provided such government accommodation as licensee in
·government premises" which are not meant for occupation by the members
of the public. Even if it is assumed that in government premises, non
government employee has been allowed to occupy as tenant, the grant of
G such tenancy is not a regular affair and such tenancy even if any in
·government premises· is against the scheme under the 1984 Act. It is also
the case of the State government that nominal licence fee is required to be
paid for such occupation in 'government premises'. Since the writ petitioners
and the similarly circumstanced employees having accommodation in
H government premises qua government employees are licensees and the licence
STATE 1•. R.N. SENGUPTA [G.N. RAY. J.] 615

is co-terminus with the service. they are required to pay only nominal fee for A
such occupation as found by the Pay Commission. Therefore. there is
justification that such government employees are not to be given the full
amount of HRA but they will be reimbursed to the extent of licence fee paid
by them.
B
In our view, the revised policy decision in the matter of payment of
HRA is not only reasonable but also fair and just It will be improper and
unjust if by 1·irtue of being government employees they are favoured with
accommodation in ·government premises· as licensees and on such account.
are required to pay only nominal licence for such occupation, yet they will
be paid the full amount of HRA so that they can make profit out of HRA. C
It is not the case that each and every government employee is offered
gO\·ernment accommodation as licensee subject to the option of the concerned
g01·ernment employee either to take such government accommodation or not.
It is an admitted position that such government accommodation is very D
limited and only 1% of the government employees have been provided with
such government accommodation. It has not been demonstrated that the writ
petitioners have been living in government accommodation. the rental of
which in similar private accommodation would have been less than the licence
fee payable by them. On the contrary, after considering relevant facts, the
Third Pay Commission has held that such government employees have been E
allowed to enjoy government accommodation on payment of nominal sum for
such occupation.

So long the previous policy continued, the State Government had given
effect to the consent order passed by the High Court. The respondents are F
not ~ntitled to contend that the government is precluded from revising its
policy in respect of grant of HRA and once a decision is taken, such decision
will remain binding for ever. The Third Pay Commission has considered
various aspects of HRA and it has been indicated by the said Commission
that the payment of full HRA (subject to the extent of maximum limit) to the
government employees who have been allotted government accommodation G
qua government employees and paying nominal licence fee should not be
permittee to draw full HRA and thereby permitted to make profit. It is to be
noted that barring one per cent, all other government employees have not
been provided with government accommodation and they have been compelled
to arrange for their own accommodation under competitive market rent. H
616 SUPTffME C01JRT REPORTS [1998) 2 S.C.R.

A Considering the reconuncndation of the Third Pay Commission. the government
has revised the policy regarding the pa~ment ofHRA. Such re1·ision of policy, r
therefore, cannot be held to be arbitrary, capricious without any basis and
taken on the ipsi di.xi! of the State Government. Since the rel'ised policy
decision of the State Government is informed by reasons and as the distinction
B bet\l'een different sets of government employees is also reasonable, in our
view. no interference against that policy decision is \l'arranted. We, therefore,
allow this appeal and set aside the impugned decision of the Division Bench
of the High Court and we uphold the decision of the learned single Bench.
In the facts and circumstances of the cast it, howe1•er, appears to us that it
would cause great hardship to the writ petitioners-respondents if they are
c asked to refund any excess HRA which have been paid to them. It is,
therefore, directed that any excess amount which have been paid to the said
respondents by way of HRA need not be refunded. The appeal is accordingly,
disposed of without any order as to costs.

D M.P. Appeal allowed.
T