Employees' Pension Scheme: Supreme Court holds revisions as legal and additional contribution as invalid

Employees' Pension Scheme: Supreme Court holds revisions as legal and additional contribution as invalid

Exercises its powers under the Constitution of India and extends the cut-off date

The Supreme Court has upheld the provisions of the Employees' Pension (Amendment) Scheme 2014 as legal and valid. It has read down certain provisions of the scheme of the present members of the fund.

A bench comprising Chief Justice Uday Umesh Lalit, Justice Aniruddha Bose and Justice Sudhanshu Dhulia provided relief to numerous employees and allowed the appeals filed by the Employees Provident Fund Organization (EPFO) and the Union Government.

The two had challenged the Kerala High Court, the Rajasthan High Court and the Delhi High Court judgments, which had quashed the amendment scheme

The court held that employees who had not exercised the option to join the pension scheme must be given an additional opportunity of four months. That is because there was a lack of clarity on the final date due to the high court judgments invalidating the provisions of the scheme.

The apex court exercised its powers under the Constitution of India and extended the cut-off date.

The court stated that the condition in the 2014 scheme wherein the employees were required to make a further contribution at the rate of 1.16 percent on the salary exceeding Rs.15,000, was invalid. It held the condition to be ultra vires the Employees Provident Fund Act 1952. However, this has been kept in suspension for six months to enable the authorities to generate funds.

The court agreed with the judgment in the RC Gupta vs Regional Provident Fund Commissioner case, wherein it was held that the dates specified in the pre-amended scheme for joining the scheme could not be construed as cut-off dates.

Justice Bose read out the operative portion of the judgment.

"The provisions contained in notification no. GSR 609E dated 22 August 2014 is legal and valid. As for the present members of the fund are concerned, we have read down certain provisions of the scheme.

Amendment to the pension scheme brought by notification no. GSR 609E shall apply to employees of exempted establishments as employees of regular establishments. The transfer of funds from the exempted establishments shall be in the manner directed by us.

Employees who exercised the option under paragraph 11 (3) of the 1995 scheme and continue to be in service as on 01 September 2014, will be guided by the amended provisions of the scheme.

The members of the scheme who did not exercise the option under proviso to para 11(3) under the pension scheme as it was before the 2014 Amendment, would be entitled to exercise the option under 11(4) of the pos- amendment schemes. Their right to exercise the option before 01 September 2014 is crystallized in the RC Gupta case judgment.

The scheme as it stood before 2014 did not provide any cut-off date. Thus, those members shall be entitled to exercise the option in terms of paragraph 11(4) of the scheme as it stands at present.

Their option shall be a joint option covered in the pre-amended para 11(3) and the amended para 11(4). There was uncertainty regarding the validity of the post-amendment scheme, which was quashed by the high courts. Thus, all employees who did not exercise the option but are entitled to do so, but could not due to interpretation of the cut-off date, ought to be given a further chance to exercise their option.

The time to exercise the option under para 11(4) of the scheme shall stand extended by a further period of four months. We are giving this direction in the exercise of our jurisdiction under Art 142 of the Constitution. The rest of the requirements as per the amended provision shall be complied with.

The employees who retired before 01 September 2014, without exercising the option under para 11(3) of the pre-amendment scheme, have already exited from the membership. They would not be entitled to the benefit of this judgment.

The employees who retired before 01 September 2014 and who exercised the option shall be covered by 11(3) of the pension scheme as it stood prior to the 2014 Amendment.

The requirement of members to contribute at 1.16 percent, if the salary exceeds Rs.15,000 as an additional contribution under the amended scheme, is held to be ultra vires of the 1952 Act. But this part of the order is suspended for six months to enable the authorities to make adjustments in the scheme so that additional contributions can be generated from other legitimate sources within the scope of the Act.

We are not speculating on what steps the authorities should take as it is for the legislature and framers of the scheme to make necessary amendments. For six months or till such time that any amendment is made, the contribution of the employees shall be a stop-gap measure. The sum shall be adjustable based on the alteration to the scheme that may be made."

The bench further observed, "We do not find any flaw in altering the basis of computation of pensionable salary. We agree with the view taken by the division bench in the RC Gupta case so far as the interpretation of proviso to the 11(3)-pre-amendment provision is concerned.

The fund authorities shall implement the directives contained in the judgment within eight weeks, subject to the earlier directions. All appeals which we have heard are allowed in the above terms and the judgments which are impugned are modified accordingly."

The Kerala High Court had set aside the 2014 amendment by holding that the threshold limit of Rs 15,000 monthly salary for joining the pension fund was unreasonable. It allowed a pension in proportion to the salary above the threshold limit and held there could be no cut-off date for joining the pension scheme.

Meanwhile, the 2014 amendment changes included:

• Limit the maximum pensionable salary to Rs.15,000 per month. Earlier, the maximum pensionable salary was Rs.6,500 per month. The proviso to the said paragraph permitted an employee to be paid on the basis of the actual salary drawn by him provided, the contribution was remitted by him on the basis of the actual salary drawn by him preceded by a joint request made for such purpose jointly with his employer. The proviso was omitted by the amendment, capping the maximum pensionable salary at Rs.15,000. The scheme was amended further by a subsequent notification, the Employee's Pension (Fifth Amendment) Scheme, 2016 to provide that the pensionable salary for the existing members who prefer a fresh option, shall be based on the higher salary.

• Confers an option on the existing members as on 01 September 2014 to submit a fresh option jointly with their employer to continue to contribute on salary exceeding Rs.15,000 per month. The employee would have to make a further contribution at the rate of 1.16 percent on the salary exceeding Rs.15,000, additionally. The fresh option would have to be exercised within a period of six months. The power to condone the omission to exercise the fresh option within the said period of six months by a further period of six months is conferred on the Regional Provident Fund Commissioner. If no such option is made, the contribution already made in excess of the wage ceiling limit would be diverted to the Provident Fund Account, along with interest.

• The monthly pension shall be determined on a pro-rata basis for pensionable service up to 01 September 2014 at the maximum pensionable salary of Rs.6,500, and for the period thereafter, at the maximum pensionable salary of Rs.15,000 per month.

• Provides for withdrawal of the benefits where a member has not rendered the eligible service as required.

The main argument raised by EPFO was that the pension fund and provident fund were distinct and membership in the latter would not automatically translate into membership in the former. It maintained that the pension scheme was intended for low-wage employees. If the person drawing the salary above the cut-off limit was allowed to draw a pension as well, it would create a huge imbalance within the fund. The 2014 amendments were brought to address the issue of cross-subsidization between the two funds.

The pensioners disputed the argument of the financial burden raised by the EPFO. They said that the corpus fund remained intact and the payments were made from the interest. They held that the stand of the EPFO was contrary to the statute that there had to be a separate option exercised within the cut-off period to join the pension scheme.