The Bombay High Court has clarified a critical principle in service law: pay protection benefits extended to ex-servicemen cannot be arbitrarily withdrawn upon pay revision, and must form the basis for fitment in new pay structures. The judgment underscores that employers cannot create artificial distinctions between 'pay protection' and 'pay fixation' to deny legitimate benefits to employees transitioning from military to civilian service.
Background & Facts
The Dispute
The petitioner, Maharashtra State Power Generation Company Limited (MSPGCL), challenged an order dated 24 December 2025 passed by the Industrial Court, Pune. The Industrial Court had partly allowed a complaint filed by Respondent No.2 (hereinafter 'the Employee'), an ex-serviceman appointed as Technician-3, and directed MSPGCL to re-fix his pay as per Annexure-3 to Administrative Circular No.449 dated 5 October 2019. The Employee’s pay was initially fixed at Rs. 72,875 w.e.f. 1 April 2018 but was later reduced to Rs. 41,070 by order dated 24 October 2024, leading to recovery of excess payments.
Key Facts
- The Employee, an ex-serviceman, was appointed as Technician-3 on 25 November 2016 under the pay scale of Rs. 11,275-28,240.
- His last drawn military pay was Rs. 37,300 (basic pay Rs. 37,000 + class pay Rs. 300), certified by the Senior Record Officer on 6 November 2018.
- To protect his military pay, MSPGCL fixed his basic pay at Rs. 28,240 (the last stage in the pay scale) and granted a personal pay of Rs. 9,060, totaling Rs. 37,300.
- Administrative Circular No.449 dated 5 October 2019 revised the pay scale for Technician-3 to Rs. 29,035-72,875 w.e.f. 1 April 2018. The fitment table in Annexure-III provided for a revised basic pay of Rs. 72,875 corresponding to the old basic pay of Rs. 28,240.
- The Employee’s pay was initially revised to Rs. 72,875 w.e.f. 1 April 2018 vide order dated 22 September 2021, but this was later withdrawn by order dated 24 October 2024, reducing his pay to Rs. 41,070.
- The Employee filed Complaint (ULP) No.19 of 2025 before the Industrial Court, alleging unfair labour practice under Item 9 of Schedule IV of the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971 (MRTU & PULP Act).
Procedural History
- 12 September 2022: Employee submits application seeking details of pay re-fixation.
- 17 August 2022: Executive Engineer reduces Employee’s pay to Rs. 37,360 without intimation.
- 26 October 2023: High Power Committee holds hearing but does not communicate outcome.
- 24 October 2024: MSPGCL re-fixes Employee’s pay at Rs. 41,070 w.e.f. 1 April 2018, directing recovery of excess payments.
- 20 February 2025: Industrial Court grants interim stay on recovery.
- 24 December 2025: Industrial Court partly allows the complaint, setting aside the order dated 24 October 2024 and directing re-fixation of pay at Rs. 72,875.
- 7 July 2026: Bombay High Court dismisses the writ petition filed by MSPGCL.
The Parties' Positions
For the Petitioner (MSPGCL):
- Argued that the Employee’s basic pay of Rs. 28,240 was granted merely as pay protection, not as pay fixation, and thus could not form the basis for revised pay under the Administrative Circular.
- Contended that the Employee had acquiesced to the pay reduction by submitting a compromise proposal vide letter dated 1 January 2025.
- Relied on Clause 28(b)(ii) of MSPGCL Employees’ Service Regulations, which provides for pay protection but does not extend to fitment benefits in revised pay scales.
For the Respondent (Employee):
- Argued that the Administrative Circular dated 5 October 2019 provides for uniform fitment benefits to all employees, and the Employee’s protected pay of Rs. 28,240 entitled him to Rs. 72,875 in the revised scale.
- Submitted that the pay reduction was arbitrary, undertaken without notice, and violated principles of natural justice.
- Contended that the compromise proposal was made under duress to avoid litigation and was subsequently withdrawn.
Relief Sought
The Employee sought:
- Declaration of unfair labour practice under Item 9 of Schedule IV of the MRTU & PULP Act.
- Re-fixation of pay as per Administrative Circular No.449 dated 5 October 2019 and Government Resolution dated 30 August 2019.
- Refund of recovered amounts with 12% interest.
- Interim relief restraining recovery of excess payments.
The Legal Issue
The central question was whether the basic pay of Rs. 28,240 granted to the Employee as pay protection could form the basis for corresponding revised pay of Rs. 72,875 under Annexure-III to Administrative Circular No.449 dated 5 October 2019, or whether MSPGCL could ignore this protected pay and re-fix his pay based on his last drawn military pay of Rs. 37,300.
Arguments Presented
For the Petitioner
- The Employee’s basic pay of Rs. 28,240 was granted solely as pay protection to ensure his civilian pay did not fall below his military pay. This could not be treated as pay fixation for the purpose of fitment in the revised pay scale.
- The fitment table in the Administrative Circular was not intended to apply to ex-servicemen receiving pay protection, as this would result in a windfall gain.
- The Employee had acquiesced to the pay reduction by submitting a compromise proposal, which precluded him from challenging the order.
- Clause 28(b)(ii) of the MSPGCL Regulations and Government Resolution dated 30 August 2019 did not mandate fitment benefits based on protected pay.
For the Respondent
- The Administrative Circular dated 5 October 2019 provided for uniform fitment benefits to all employees, and the Employee’s protected pay of Rs. 28,240 entitled him to Rs. 72,875 in the revised scale.
- The pay reduction was arbitrary and illegal, undertaken without notice or opportunity of hearing, violating principles of natural justice.
- The compromise proposal was submitted under duress and subsequently withdrawn, and thus could not defeat the Employee’s rights.
- Denying fitment benefits would wipe out the effect of 20 years of military service, defeating the purpose of pay protection.
The Court's Analysis
The Court undertook a detailed examination of the legal framework governing pay protection and pay fixation for ex-servicemen, rejecting the Petitioner’s artificial distinction between the two concepts.
Applicable Legal Provisions
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Clause 28(b)(ii) of MSPGCL Employees’ Service Regulations: Provides that the pay of ex-servicemen on re-employment shall be fixed at a stage in the time scale equal to the last pay drawn in military service, ignoring pensionary benefits. This benefit is available only to ex-servicemen who complete their full tenure of military service.
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Government Resolution dated 30 August 2019: Mandates that the pay of ex-servicemen retiring after 1 January 2016 shall be fixed as per their pay under the 7th Pay Commission. If no corresponding stage exists in the civilian pay scale, the pay shall be fixed at the next higher stage, with the balance granted as personal pay.
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Administrative Circular No.449 dated 5 October 2019: Provides for fixation of initial pay in revised pay scales w.e.f. 1 April 2018. The fitment table in Annexure-III prescribes revised basic pay of Rs. 72,875 corresponding to the old basic pay of Rs. 28,240.
Key Observations
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The Court held that the distinction between 'pay protection' and 'pay fixation' was artificial and unsustainable. Once the Employee’s pay was fixed at Rs. 28,240, this became his basic pay, and the personal pay of Rs. 9,060 was the only element that could be ignored for fitment purposes.
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The fitment table in the Administrative Circular applied uniformly to all employees, and the Employee’s appointment prior to the pay revision was a fortuitous circumstance that could not be used to deny him benefits.
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The Court emphasized that pay protection is not a temporary benefit but a recognition of the Employee’s 20 years of military service. Denying fitment benefits would defeat the purpose of pay protection and penalize the Employee for transitioning to civilian service.
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The arbitrary reduction of pay without notice or hearing violated principles of natural justice. The Court noted that the Petitioner’s actions were hostile discrimination, as the Employee was singled out for pay reduction despite the uniform application of the fitment table to other employees.
"The artificial distinction sought to be drawn by the Petitioners in ‘pay fixation’ and ‘pay protection’ does not appeal to this Court. There is no Government Resolution or even any Circular of the Petitioners which provides that the pay protection would be available to the ex-serviceman only till pay-scales are revised and that they would not be entitled to corresponding pay fixation upon implementation of revised pay scales."
"Once his fixation is done in the Petitioners’ establishment, that fixation would form the basis for grant of all subsequent benefits. Petitioners’ action of restricting the benefit of pay protection only till a stage where Respondent No.2 crosses the last military pay by not extending him the benefit of new pay structure introduced vide Administrative Circular dated 5 October 2019 is clearly illegal."
The Verdict
The Court dismissed the writ petition, upholding the Industrial Court’s order dated 24 December 2025. The key directions are:
- Set aside the order dated 24 October 2024 reducing the Employee’s pay to Rs. 41,070.
- Re-fix the Employee’s pay at Rs. 72,875 w.e.f. 1 April 2018 as per Annexure-III, Sr. No.45 to Administrative Circular No.449 dated 5 October 2019.
- Grant all consequential benefits arising from the re-fixation.
- Refund any recovered amounts to the Employee.
- No order as to costs.
- The order to take effect after three months from the date of judgment.
What This Means For Similar Cases
Pay Protection Is Not Temporary
- Employers cannot limit pay protection to the period before pay revision. Once an ex-serviceman’s pay is fixed based on military service, this protected pay forms the basis for all future benefits, including fitment in revised pay scales.
- Actionable Takeaway: Ensure that pay protection clauses in service regulations or government resolutions are interpreted holistically to include fitment benefits in revised pay structures.
Arbitrary Pay Reduction Violates Natural Justice
- Unilateral reduction of pay without notice or opportunity of hearing is illegal and arbitrary, violating principles of natural justice.
- Actionable Takeaway: Employers must:
- Issue show cause notices before altering pay fixation.
- Provide opportunity of hearing to affected employees.
- Document justifications for pay adjustments to avoid allegations of hostile discrimination.
Fitment Benefits Apply Uniformly
- Fitment tables in pay revision circulars apply uniformly to all employees, including ex-servicemen. Employers cannot carve out exceptions for ex-servicemen based on artificial distinctions.
- Actionable Takeaway: Legal practitioners should:
- Argue for uniform application of fitment benefits, regardless of the source of protected pay.
- Rely on Government Resolutions and Circulars to counter employer attempts to deny benefits.
- Highlight hostile discrimination where similarly placed employees receive benefits denied to ex-servicemen.
