SC Judgement in EPF Pension Case

SC upholds EPS amendment in 2014

In the judgement delivered on 4th November 2022 in the EPFO v B Sunil Kumar & Connected Cases, the Supreme Court (SC) upheld the Employees’ Pension (Amendment) Scheme 2014.

The 2014 amendment fixed the maximum salary for joining the EPF Pension Scheme to be Rs 15,000 per month with effect from 1st September 2014. As per the 2014 amendment, the members whose monthly salary exceeded the threshold amount of Rs.15,000/- had to exercise a fresh option to join the scheme within a period of six months from 1st September 2014. But some members could not exercise the option because of the invalidation of 2014 amendment by the Kerala High Court and some other courts.

SC allows four months to join the scheme

In the judgement, the SC added a proviso to paragraph 11(3) thereto, giving an option to the employer and employee for contribution on salary exceeding the then ceiling of Rs. 6,500/- with effect from 16th March 1996, to retain the right to pension in accordance with the 1995 Scheme.

Therefore, the SC has allowed a four-month period to exercise option under amended provisions of the Scheme by those who were members of the scheme before the 2014 amendment, and whose salaries exceed the threshold amount of Rs 15,000 as on 1st September 2014.

The Supreme Court added that the employees who had exercised this option, and continued to be in service as on 1st September 2014 would be guided by the amended provisions of the Scheme.

Court invalidated contribution of 1.16 per cent

However, the court invalidated the condition that the employees, whose salary exceeded the cap of Rs 15000, had to make an additional contribution at the rate of 1.16 per cent on salary exceeding 15,000 Rupees.

This invalidation was based on the ground that the decision had no legislative backing in the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The judgement states that such a condition cannot be imposed on the employee without a legislative amendment.

However, the court suspended this part of the judgment from implementation for a period of 6 months to enable the government to explore the possibility of amending the legislation or some other adjustments.

No benefit to those retired before 2014

The court adds that the benefits or relaxations allowed by the judgment will not be available to employees who retired before 1st September 2014 but without duly exercising their option.

As per the 2014 amendment as it exists now, the employees who join service after 1st September 2014 are not eligible to join the EPF pension scheme if their monthly salary is above Rs.15,000/-.

Therefore, the benefit of the judgment will be available only to those who were members of the scheme as on 1st September, 2014 and not to those who retired earlier.

Government can categorise employees based on salary

In the judgement, the SC rejected the argument of the employees that the pension scheme considers employees as a homogenous group and no distinction can be made among different categories of employees based on their monthly salary.

The court held that it is well within the power and authority of the statutory authorities to reasonably classify different sets of employees and categorise them for the nature of benefits. Therefore, the classification of the employees made by the authorities on the basis of the salary drawn in the 2014 amendment meets the test of reasonable classification contemplated in Article 14 of the Constitution of India.

SC has no say in policy matters

The Kerala High Court had in its earlier judgement observed that Rs.15,000/- monthly income was a very low threshold.

The SC now clarifies in this judgement that such considerations are well within the policy domain and outside the scope of judicial review.

Computation of salary will be for 60 months

The SC allowed the computation of pensionable salary to be done based on average monthly pay of the period of 60 months preceding the exit of the employee as per the 2014 amendment.

Before the 2014 amendment, this span was 12 months preceding the employee’s exit.

Brief history of Employees’ Pension Scheme

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 originally did not provide for any pension scheme.

In 1995, through an amendment, a scheme was formulated for employees’ pension, wherein the pension fund was to comprise a deposit of 8.33 per cent 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 and subsequently to 15000 in 2014.

In the Employees’ Pension Scheme, both the employee and the employer have to contribute 12 per cent of the employee’s basic salary and dearness allowance, to the EPF. The employee’s entire part goes to EPF, while the 12 per cent contribution made by the employer is split as 3.67 per cent contribution to EPF and 8.33 per cent contribution to Employees Pension Scheme (EPS).

Apart from this, the Government of India contributes 1.16 per cent as well for an employee’s pension. Employees do not have to contribute any amount to the pension scheme.

The EPS amendment of 22nd August 2014 had raised the pensionable salary cap to Rs 15,000 a month from the then existing amount of Rs 6,500 a month, and allowed members along with their employers to contribute 8.33 per cent on their actual salaries, if it exceeded the cap, towards the EPS.

The amendment gave all EPS members, as on 1st September 2014, six months to opt for the amended scheme. The amendment, however, required such members (with actual salaries over Rs 15,000 a month) to contribute an additional 1.16 per cent 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.

The extra contributions already made to the pension fund were to be diverted to the Employees Provident Fund account of the member, along with interest.

SC Judgement was in appeal from HC orders

This SC judgement came in the appeals filed by the Employees Provident Fund Organization and the Union of India against the judgments of the Kerala, Rajasthan and Delhi High Courts which had quashed the 2014 amendments in the Employees’ Pension Scheme.

The Kerala High Court in its judgment delivered on 12th October 2018 set aside the EPS (Amendment) Scheme, 2014 wholly.

The Delhi High Court in its judgment on 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 also expressed the same opinion in its decision on 28th August 2019.

Additional reading

  1. EPFO v B Sunil Kumar & Connected Cases (SC Judgement on 4 – 11- 2022)
  2. R C Gupta & Others etc v Regional Provident Commissioner, EPFO & Others etc (SC judgment against Himachal Pradesh HC judgement)
  3. Bhartiya Khadya Nigam Karamchari Sangh v UoI & Ors (Delhi High Court)
  4. Sasikumar & Others v Union of India (UOI) [WP(C) No. 13120 of 2015]
  5. Anil Kumar Sharma & Ors v U O I And Ors (Rajasthan High Court)
  6. Union Of India v Jale Singh Meena & Other (Rajasthan High Court)
  7. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  8. EPFO: Employees’ Pension Scheme 1995