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The Supreme Court of India in its latest judgment dated November 4, 2022 upheld validity of the Employees’ Pension (Amendment) Scheme, 2014, whereas studying down sure provisions
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The 2014 modification to Employees’ Pension Scheme, 1995 (EPS) had inter alia revised the wage ceiling for contributing to pension fund from INR 6500 to INR 15000, conditionally allowing workers to contribute to pension fund above such wage ceiling
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The judgment inter alia offers EPS members who had missed the deadline to go for contributing to pension fund on wage exceeding INR 15000 one other alternative to train such possibility inside 4 months from November 4, 2022.
BACKGROUND OF EPS 2014 AMENDMENT
Employees’ Pension Scheme, 1995
Employees’ Pension Scheme, 1995 (“EPS”) was notified by pursuant to part 6-A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”). Section 6-A of the EPF Act offers for creation of a pension scheme and institution of a pension fund to obtain inter alia contributions for workers who change into members of the pension scheme- together with workers who’re exempted underneath part 17 of the EPF Act and are members of personal provident funds. Such contributions can be on salaries not exceeding 8.33% of a member worker’s fundamental wages, dearness allowance and retaining allowance.
The EPS additionally incorporates provisions on computation of pensionable wage for member workers contributing to the pension fund. Under EPS, as notified in 1995, the utmost pensionable wage was INR 5000 (approx. $62) which was later revised to INR 6500 (approx. $80) with impact from October 8, 20011. Clause 11(3)2 of the EPS permitted employers and workers to contribute to pension fund on salaries exceeding the utmost pensionable wage.
2014 Amendment
Subsequently, via an modification to EPS as per notification dated August 22, 2014 (“2014 Amendment”) which was made efficient from September 1, 2014, the utmost pensionable wage underneath EPS was revised to INR 15000 (approx. USD 185). The 2014 Amendment additionally restricted the protection of EPS wef September 1, 2014 to new members incomes salaries under INR 15000 (approx. $185) per 30 days. Accordingly, put up September 1, 2014,new membership of EPS was restricted to workers who turned members of the Employees’ Provident Fund Scheme, 1952 (“EPF Scheme”) or provident funds of institutions exempted underneath part 17 of EPF Act and whose month-to-month pay on the time of achieving membership was lower than or equal to INR 15000 (approx. 185).
Contributing Over the Wage Ceiling
For people who have been present members of EPS on September 1, 2014 contributing to the pension fund on salaries larger than INR 6500 (by exercising a joint possibility together with their employers as per erstwhile part 11(3) of EPS), the 2014 Amendment supplied a timeline of 6 months (extendable by one other 6 months on the discretion of the PF authorities) w.e.f. September 1, 2014 to collectively train an additional choice to proceed contributing to pension fund on larger salaries.
If a member didn’t train the choice inside the prescribed timeline, as per 2014 Amendment, it was to be deemed that the member had not opted to proceed such contributions. In such a case, the contributions of a member made to the pension fund on larger salaries previous to closing date could be diverted to their provident fund account with relevant curiosity.
Additional contribution
The workers exercising a joint choice to contribute to pension fund on larger salaries are additionally required to contribute a further 1.16 per cent of their salaries exceeding the wage ceiling.
Challenge to 2014 Amendment
The 2014 Amendment was challenged in a number of petitions filed throughout India. Before the matter reached Supreme Court of India (“SCI”) on an attraction, 44 writ petitions have been filed throughout completely different High Courts (specifically High Courts of Delhi, Rajasthan and Kerala) for placing down the 2014 Amendment. Prior to the SCI ruling in November 2022, 2014 Amendment was struck down by the Kerala High Court within the matter Sasikumar v. Union of India3. Eventually, the Employees Provident Fund Organisation (“EPFO”) moved an attraction earlier than the SCI.
SCI Judgment on November 4, 2022
The SCI judgment within the matter Employees’ Provident Fund Organisation v. Sunil Kumar B4 (“Judgment”) upheld validity of the 2014 Amendment to the extent it limits the membership of EPS and revises the computation technique of pensionable wage. Simultaneously, SCI has learn down some provisions of the 2014 Amendment which pertain to:
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the timeline for EPS members to go for contribution on larger salaries (exceeding extant wage ceiling)
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requirement to contribute to EPS a further 1.16 per cent of wage exceeding the wage ceiling for workers opting to contribute on larger salaries
KEY OBSERVATIONS OF SUPREME COURT
Limitation of EPS membership
SCI thought-about the Central Government (of India) to be effectively inside its rights to put down eligibility situations for participation in EPS by specifying a wage ceiling. Accordingly, restriction on EPS membership based mostly on a wage ceiling of INR 15000, was thought-about legitimate by SCI.
Contribution of an Additional 1.16% for Option Members
In the Judgment, SCI assessed legality of the proviso to paragraph 11(4) of EPS. In this context, the SCI thought-about the requirement to contribute a further 1.16 per cent quantity to pension fund on wage exceeding the pensionable wage illegal. This is in absence of any enabling provision underneath EPF Act for assortment of such further quantities.
However, this portion of the judgment has been stayed for six months wef November 4, 2022. During such interval, workers contributing to pension fund on larger salaries will proceed to make a further contribution of 1.16 per cent.
EPS Benefits to Members of Exempted Establishment
EPS contemplates retaining inside its fold workers of organisations exempted underneath part 17 of EPF Act. As per SCI, such workers are additionally built-in into EPS and entitled to proceed membership of the EPS whereas drawing salaries above the wage ceiling. Accordingly, to derive pension advantages underneath EPS on larger salaries, exempted workers alongwith their employers might want to train the choice to make a contribution to EPS above the wage ceiling. Additionally, an endeavor will must be submitted for transferring the employer’s contribution to the pension fund on the fee stipulated underneath the employer’s belief deed. As per SCI, switch of such quantities ought to happen instantly on train of the choice to contribute to pension fund on larger salaries.
Deadline to Opt for Coverage of EPS on Higher Salaries
SCI thought-about that eligibility for contributing to EPS on larger salaries can’t be restricted to workers who had exercised the choice to proceed their contributions as per part 11(3) of EPS (as soon as their salaries exceeded the wage ceiling of INR 6500). To make clear, whereas SCI agreed that an possibility needed to be exercised by workers underneath erstwhile paragraph 11(3) of EPS5, exercising of such possibility was not be topic to any time restrict.
In this context, SCI referred to its holding within the matter RC Gupta v. Regional Provident Fund Commissioner6. In the RC Gupta judgment, it was held that time-limit specified underneath paragraph 11(3) of EPS for persevering with contribution to EPS on larger salaries was not tenable.
Reading the RC Gupta judgment into EPS and the 2014 Amendment, SCI said that if employers and workers collectively go for protection of EPS past the wage ceiling of INR 15000 with out exercising such possibility earlier, they won’t be routinely disabled from exercising such possibility. The interval for exercising such an possibility has been prolonged till a interval of 4 months from the date of the Judgment. Once such possibility is exercised by the worker and employer collectively, the PF authorities will switch the suitable fund from the provident fund corpus to the worker’s pension fund.
Obviously, this doesn’t impression workers who should not eligible to change into members of EPS wef September 1, 2014 owing to 2014 Amendment.
EPF NOTIFICATION ON JUDGMENT
The EPFO has issued a notification dated December 29, 2022 (“Notification”)7 pursuant to the SCI judgment. The Notification offers the compliance necessities for sure pensioners who’re beneficiaries of the Judgment and are ready avail larger pension advantages. These pensioners are:
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pensioners who as workers had contributed to EPF Scheme on wage exceeding the extant wage ceiling
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pensioners who exercised a joint possibility underneath paragraph 11(3) of pre-amendment EPS
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pensioners whose train of such possibility was declined by PF authorities.
It is unclear whether or not such compliances will apply to workers who have been members of EPS on September 1, 2014 and who had not exercised their choice to contribute to pension fund on larger salaries. We perceive that as on date, the EPFO net portal is but to allow the aforesaid pensioners to use for larger pensions pursuant to the Notification.
The Notification was adopted by a corrigendum dated January 05, 20238. This stipulated further compliance necessities for pensioners who select to avail advantages of the Judgment.
NDA VIEWS
The Judgment offers a lot wanted readability on the 2014 Amendment. However, the Notification isn’t above criticism. A letter dated December 30, 2022 by National Legal Advisor, Employees Pension (1995) Coordination Committee9 has identified varied authorized infirmities within the Notification. It signifies that the Notification solely covers sure paragraphs10 of the Judgment with out coping with its holistic impression. The letter additional calls out non-alignment with inter alia the RC Gupta judgment. Recent information reviews counsel PF authorities and workers might search additional readability from EPFO on the Notification.11
Despite the confusion, the Judgment might lastly permit workers who paid contributions to EPS on larger salaries to obtain proportionate advantages. Clarity is required from PF authorities on the compliance necessities to realize this, particularly for people who haven’t exercised their choice to contribute on larger salaries previous to September 1, 2014 and for workers of exempted institutions. Whether all beneficiaries of the judgment can full the procedural necessities by March 4, 2022 – it stays to be seen.
FOOTNOTES
1 This bought later amended in 2014.
2 Subs. for “Rupees six thousand and five hundred” by G.S.R. 609(E), dt. 22-8-2014 (w.e.f. 1-9-2014).
3 Sasikumar & ors. v. Union of India (WP (C) No. 13120 of 2015).
4 The Employees Provident Fund Organisation & Anr. v. Sunil Kumar B. and Ors. (C.A. No.-008143-008144 / 2022, pronounced on 04.11.2022).
5 This paragraph has been amended via 2014 Amendment.
6 R.C. Gupta & Ors. v. Regional Provident Find Commissioner, Employees Fund Organisation & Ors. (C.A. No. 10013-10014 of 2016).
7 https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2022-2023/Pension-2022-54877-15149.pdf.
8 https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2022-2023/Pension202254877-15238.pdf.
9 https://labourlawreporter.net/opencontent.asp?id=10018029&uid=2262&atype=Article.
10 Para 44(ix) of the Judgment.
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Nishith Desai Associates 2023. All rights reserved.National Law Review, Volume XIII, Number 14
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