THE SUPREME COURT UPHOLDS THE LEGALITY OF THE EMPLOYEES’ PENSION (AMENDMENT) SCHEME 2014

EMPLOYMENT LAW UPDATE

14th November 2022

Issue No.14/22-23

THE SUPREME COURT UPHOLDS THE LEGALITY OF THE EMPLOYEES’ PENSION (AMENDMENT) SCHEME 2014

A three judge bench of the Hon’ble Supreme Court of India (“SC”) in Employees Provident Fund Organization vs B Sunil Kumar and other connected cases on 4th September, 2022 has upheld the validity of the of the Employee Pension (Amendment) Scheme 2014 (“Amendment”) which had come into effect on 1st September 2014. Furthermore, the SC has provided another opportunity to members of the Employees’ Provident Fund Organisation (“EPFO”), who opted for the Employee Pension Scheme (“EPS”), to opt for higher annuity over the next four months. The SC has clarified that employees who were members of the EPS as on September 1, 2014 can contribute up to 8.33% of their ‘actual’ salaries — as against 8.33% of the pensionable salary capped at Rs 15,000 a month — towards pension.

The SC also clarified certain provisions concerning the current members of the EPS. It held that the Amendment which required members to contribute an additional 1.16 % of their salary exceeding Rs 15,000 a month as ultra vires of the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“Act”).

WHAT WAS THE EMPLOYEES’ PENSION SCHEME 1995?

The Act originally did not provide for any pension scheme for its members. In 1995, through an amendment, the EPS was framed, wherein the pension fund was to comprise a deposit of 8.33% of the employers’ contribution to be made towards provident fund corpus. At that point of time, maximum pensionable salary was Rs 5,000 per month which was later raised to Rs 6,500.

The EPS, which is administered by the EPFO, aims to provide employees with pension after the age of 58. Both the employee and the employer contribute 12% each of the employee’s basic salary and dearness allowance to the EPF. The employee’s entire part goes to EPF, while the 12% contribution made by the employer is split as 3.67% contribution to EPF and 8.33% contribution to EPS. Apart from this, the Government of India contributes 1.16% as well for an employee’s pension. Employees do not contribute to the pension scheme.

WHAT WAS THE EMPLOYEE PENSION (AMENDMENT) SCHEME 2014?

By the Amendment dated 22nd August 2014, the EPS raised the pensionable salary cap to Rs. 15,000 a month from Rs. 6,500 a month and allowed members along with their employers to contribute 8.33 % on their actual salaries (if it exceeded the Rs. 15000 cap) towards the EPS. It gave all EPS members as on September 1, 2014, six months to opt for the amended scheme. This was extendable by another six months at the discretion of the Regional Provident Fund Commissioner.

The Amendment however, required members (with actual salaries over Rs 15,000 a month) to contribute an additional 1.16 % of their salary exceeding Rs 15,000 a month towards the pension fund. Those who did not exercise the option within the stipulated period or extended period, were deemed to have not opted for contribution over the pensionable salary cap and the extra contributions already made to the pension fund were to be diverted to the Provident Fund account of the member, along with interest.

EARLIER JUDGMENTS OF COURTS ON THE AMENDMENT

Previously, the High Courts of Delhi, Kerala, and Rajasthan have passed judgments on the validity of the Amendment. The Kerala High Court in the case of P. Sasikumar & Others vs. Union of India (UOI) Represented by the Secretary to Govt. of India Ministry of Labour & Department of Employment and Others set aside the Amendment. The Delhi High Court in the case of Bhartiya Khadya Nigam Karamchari Sangh and Anr. vs. Union of India and Ors by its judgment dated 22nd May 2019 followed the view expressed by the Kerala High Court and quashed a circular issued by the provident fund authorities on 31st May 2017, precluding exempted establishments from the benefits of higher pension. The Rajasthan High Court in the case of Union of India and Others vs. Jale Singh and Others on August 28, 2019, also expressed the same opinion.

Almost 54 writ petitions have been filed by employees belonging to both exempt and unexempt establishment under Article 32 of the Constitution of India seeking invalidation of the Amendment.

FINDINGS OF THE SC

  1. The provisions brought by the Amendment were said to be legal and valid. Furthermore, the Amendment would apply to the employees of the exempted establishments (u/s 17 of the EPF & MP Act) in the same manner as the employees of the regular establishments;
  2. Employees who had exercised option under paragraph 11(3) of the EPS and remained in service as on 1st September 2014, shall now be subject to the amended provisions of paragraph 11(4) of the EPS;
  1. Members of the EPS, who did not exercise the option, as provided under paragraph 11(3) of the EPS prior to the Amendment, would now be entitled to exercise the option under Paragraph 11(4) of the EPS. The EPS as it was on 1st September 2014, did not provide within it any cut-off date and hence those members shall now be entitled to exercise option in terms of paragraph 11(4) of the EPS within four (4) months. The SC stated that was exercising its jurisdiction under Article 142 of the Constitution of India;
  1. Employees who had retired before 1st September 2014 without exercising option under paragraph 11(3) would not be entitled to the benefit of this judgment as they have already exited from the membership;
  1. Employees who retired before 1st September 2014 after exercising option under paragraph 11(3) shall be said to be covered by the provisions of the paragraph 11(3) of the EPS as it was prior to the Amendment;
  1. The SC furthermore held the additional contribution to be made under the Amendment at the rate of 1.16% of the member’s salary to the extent such salary exceeds Rs.15000/per month to be ultra vires under the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. However, the SC stated that that they would be suspending the operation of part of the order holding the additional contribution ultra vires, for a period of six months. This would be in order to enable the authorities to make such adjustments in the EPS so that the additional contribution as aforesaid can be generated from some other legitimate source within the scope of the Act, which could include enhancing the rate of contribution of the employers. For the said six months or till such time any amendment is made, whichever is earlier, the employees’ contribution shall be used as a stop gap measure.

A copy of the judgment may be accessed here.

 

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