Regularisation of Contractual Employees by State: Supreme Court’s Model Employer Doctrine Explained

Case Summary

• Case name: Bhola Nath v. The State of Jharkhand & Ors. (Civil Appeal arising out of SLP (C) No. 30762 of 2024 etc.)

• Date of judgment: 30 January 2026

• Bench: Honourable Justice Vikram Nath and Honourable Justice Sandeep Mehta

• Advocates: Shri K. Parameshwar (Senior Counsel for the appellants); learned counsel for respondents (unnamed in the text)

• Relevant constitutional provisions and statutes: Constitution of India — Articles 14, 16, 136 and 142; Indian Contract Act, 1872 — Section 23

• Principal cited authorities: State of Karnataka v. Uma Devi (2006) 4 SCC 1; Chandra Singh v. State of Rajasthan (2003) 6 SCC 545; Basheshar Nath v. Comm. Income Tax (1958) SCC OnLine SC 7; Central Inland Water Transport Corpn. v. Brojo Nath Ganguly (1986) 3 SCC 156; Pani Ram v. Union of India (2021) 19 SCC 234; Army Welfare Education Society v. Sunil Kumar Sharma (2024) 16 SCC 598; Jaggo v. Union of India (2024) SCC OnLine SC 3826; Shripal v. Nagar Nigam (2025) SCC OnLine SC 221; Vinod Kumar v. Union of India (2024) 9 SCC 327; Dharam Singh v. State of U.P. (2025) SCC OnLine SC 1735

Constitutional limits of contractual employment by the State

This judgment presents a careful and context-sensitive attempt by the Supreme Court to reconcile two competing legal strands: the contractual autonomy of the State as employer and the constitutional duty of the State to act as a "model employer" free from arbitrariness. The panel — Honourable Justice Vikram Nath writing for the Bench with Honourable Justice Sandeep Mehta concurring — allowed the appeals and directed the respondent-State to regularise the services of long-serving contractual Junior Engineers (Agriculture) who were engaged against sanctioned posts for more than a decade.

Factual background and procedural history

The appellants were appointed in 2012 to 22 sanctioned posts by the Land Conservation Directorate on a one-year contractual basis, with express terms disclaiming any entitlement to regularisation. Their contracts were repeatedly renewed for about ten years. In late 2022–early 2023 the State issued a final extension and made clear that no further renewals would be given. The appellants filed writ petitions; the Single Judge dismissed them relying on the contractual terms, and the Division Bench affirmed. The Supreme Court granted leave and took up two central issues: (i) whether interference under Article 136 was warranted with the High Court’s concurrent findings; and (ii) whether the State’s refusal to recognise long continuous service for purposes of regularisation was arbitrary under Article 14.

Scope of interference under Article 136

On Article 136 the Court reaffirmed the settled principle that interference is discretionary and reserved for cases of perversity, breach of natural justice, or where grave injustice would otherwise follow (Chandra Singh). The Bench then turned to the substance under Article 14 and stressed the constitutional duty of the State as a model employer: it must act with probity, fairness and candour and cannot exploit unequal bargaining positions.

Constitutional supremacy over contractual disclaimers

Two related doctrinal pillars support the Court’s conclusion. First, fundamental rights — and hence protection against arbitrary State action — cannot be contracted away (Basheshar Nath). Acceptance of a contractual term that purports to bar constitutional review is not a waiver of constitutional immunities. Second, where there is clear structural inequality of bargaining power, courts will scrutinise and, if necessary, decline to enforce unconscionable contractual terms (Central Inland Water Transport Corpn.; Pani Ram). The Bench employs a stark but apt metaphor: where a lion contracts with a lamb, the inequality is structural and calls for judicial protection of the lamb. That image captures the Court’s sensitivity to socio-economic vulnerability and constitutional justice.

Legitimate expectation and the boundaries of Umadevi

The judgment carefully navigates the Umadevi principle. The Court notes that Umadevi does not operate as an absolute bar to protection for all temporary or contractual appointees; rather, it applies to contractual or temporary workers who were not engaged pursuant to a proper selection process. Where appointments were made following due selection, and the State repeatedly renewed the relationship for years, a legitimate expectation may arise that merits protection. The Court therefore distinguishes between ephemeral ad-hocism and protracted reliance created by the State’s conduct.

Relief granted and its administrative consequences

The relief granted was immediate regularisation of the appellants against the sanctioned posts and consequential service benefits "from the date of this judgment." The Court held that the State could not cloak long-term exploitation under the guise of contractual nomenclature. The order is significant: it imposes an administrative and fiscal consequence on the State and reaffirms judicial willingness to issue remedial directions to cure systemic ad-hocism.

Key judicial observations

• "The State, being a model employer, is saddled with a heightened obligation in the discharge of its functions."

• "Where a lion contracts with a lamb, the inequality is not incidental but structural, and it is precisely this disproportion that calls for judicial sensitivity."

• "Contractual stipulations purporting to bar claims for regularisation cannot override constitutional guarantees."

Practical guidance for legal practitioners

1. Fact-sensitive precedent: The ruling is anchored in sanctioned posts, regular selection, long continuous service and repeated renewals; it does not open the floodgates for blanket regularisation.

2. Umadevi remains relevant: Courts will continue to scrutinise the mode of appointment; constitutional protection strengthens where procedural fairness exists at entry.

3. Need for reasoned discontinuation: Abrupt termination after prolonged reliance requires cogent justification supported by a speaking order.

4. Fiscal realism: By limiting consequential benefits prospectively, the Court balances equity with public finance constraints.

Concluding reflections

This decision represents an important recalibration between contractual autonomy and constitutional guarantees. For legal practitioners advising governments, public authorities or long-serving contractual employees, the judgment underscores the necessity of transparent selection processes, reasoned administrative decisions when discontinuing long engagements, and careful drafting of contractual clauses that cannot immunise arbitrary State action. For courts, the ruling reiterates the constitutional duty to prevent the exploitation of vulnerable employees and to ensure that the State, as employer, lives up to the exacting standards of Article 14.

State as model employer and legitimate expectation

11. At the outset, we find it necessary to express our disapproval of the manner in which the High Court has approached the present lis. The controversy before the Court was not one of mere acquiescence or implied waiver of rights. The High Court, in our view, has proceeded on a mechanical application of precedents without engaging with the core constitutional issues involved, thereby reducing the dispute to one of acceptance of contractual terms, divorced from its larger constitutional context.

11.1. This Court has consistently held that the State, being a model employer, is saddled with a heightened obligation in the discharge of its functions. A model employer is expected to act with high probity, fairness and candour, and bears a social responsibility to treat its employees in a manner that preserves their dignity. The State cannot be permitted to exploit its employees or to take advantage of their vulnerability, helplessness or unequal bargaining position.

12. In Central Inland Water Transport Corpn. v. Brojo Nath Ganguly, this Court acknowledged the increasing imbalance in the bargaining power of contracting parties. The Court held thus:

". . . the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power."

12.2. At this juncture, the analogy of apples and oranges serves as a useful reminder that certain relationships are inherently incapable of being assessed on an equal plane. A contract between the State and an employee stands on a similar footing. The State, in such a relationship, assumes the role of a metaphorical lion, endowed with overwhelming authority, resources and bargaining strength, whereas the employee, who is yet an aspirant, is reduced to the position of a metaphorical lamb, possessing little real negotiating power.

13. Another facet requiring consideration in the case of contractual employees, such as the present appellants, is the doctrine of legitimate expectation. Where employees have continued to discharge their duties on contractual posts for a considerable length of time, as in the present case, it is but natural that a legitimate expectation arises that the State would, at some stage, recognize their long and continuous service.

13.4. We are unable to discern any rational basis for the respondent-State’s decision to discontinue the appellants after nearly ten years of continuous service. Such a decision must necessarily be a conscious and reasoned one. An employee who has satisfactorily discharged his duties over several years and has been granted repeated extensions cannot, overnight, be treated as surplus or undesirable.