On 4th November 2022, the Hon’ble Supreme Court upheld the Employees’ Pension (Amendment) Scheme, 2014 (the “Amendment”) as valid (while reading down certain provisions) in the case of Employees Provident Fund Organization & Anr. etc. v. B. Sunil Kumar & Ors. Etc.
Table of Contents
Overview of the Amendment
The Amendment was introduced by Notification No. G.S.R. 609(E) dated August 22, 2014, with effective date as September 1, 2014. The primary changes brought by the Amendment are:
- Enhancement of the period for the calculation of average pensionable salary from 12 months to 60 months.
- Limiting the maximum pensionable salary at INR 15,000 per month, which was INR 6,500 per month prior to the Amendment.
- The employees who are members under the EPF Act whose salaries exceeded INR15,000 were required to exercise a fresh option to continue to contribute towards the pension schemes calculated on their actual salary. Additionally, per the Amendment, such employees had to make an additional contribution at the rate of 1.16 per cent on salary exceeding INR 15,000 as an additional contribution from and out of the contributions payable by the employees for each month under the provisions of the Act.
- The timeline stipulated for the execution of such a fresh option was 6 months from September 1, 2014, subject to extension by the concerned Regional Provident Fund Commissioner for a further period not exceeding 6 months on sufficient cause for delay shown by the member.
Among other things, validity of the Amendment was particularly challenged before the Supreme Court on the ground that the requirement for an additional contribution by employees contributing on salary exceeding INR 15,000 towards the pension scheme was ultra vires the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (the “EPF Act”).
Understanding the Judgment
While upholding the validity of the Amendment, the Court ruled the following:
- The Amendment requiring members to contribute an additional contribution at the rate of 1.16 per cent on salary exceeding INR 15,000 from and out of the contributions payable by the employees under the EPF Act is ultra vires the provisions of the EPF Act. The court opined that the EPF Act does not require payment to the pension fund by an employee. Since the EPF Act does not contemplate any contribution to be made by an employee to remain in the schemes, the Central Government cannot mandate such a stipulation under the scheme. However, the operation of this portion of the judgment has been suspended for a period of 6 months to enable to authorities to make adjustments to the scheme (if any);
- The members earning more than INR15,000 who have not yet exercised their option for contribution beyond the ceiling amount may be given an additional 4 months window to do so;
- The altered basis for the computation of salary is valid and binding;
- The Amendment shall apply to the employees of the exempted establishments in the same manner as the employees of the regular establishments. The exempted establishments are those who have framed their trusts to manage the provident fund; and
- The employees who retired before September 1, 2014, without exercising any option will not be entitled to the benefit of this judgment.
The Court has provided sufficient reasoning for upholding the Amendment while holding the additional contribution requirement as invalid and ultra vires the EPF Act. The Court determined that these amendments were not made whimsically as the Centre has the power to make such amendments under Section 7 of the EPF Act. Such policy considerations have a very limited scope of judicial review. It was also held that the employees could not be seen as a homogenous class. Hence, the authorities have the power to make classifications for pension contributions based on salary.
Employees Provident Fund Organization & Anr. etc. v. B. Sunil Kumar & Ors. etc., 2022 LiveLaw (SC) 912.