Published on: November 04, 2022 at 21:01 IST
The Employees’ Pension (Amendment) Scheme 2014’s provisions were upheld as legitimate and valid by the Supreme Court in a landmark decision. However, the Court has read down certain of the plan’s provisions with regard to the current fund members.
The Court read down some of the provisions of the Employee’s Pension (Amendment) Scheme, 2014, while granting the appeals brought by the Employees Provident Fund Organization and the Union Government in opposition to the rulings of the Kerala, Rajasthan, and Delhi High Courts that had invalidated the scheme.
The Court decided that employees who have not taken advantage of the opportunity to join the Employees’ Pension Scheme must be given a second chance of six months to do so, which was a comfort to several workers.
The court ruled that the employees who were eligible to join the pension plan but were unable to do so because they did not exercise their option by the deadline should be given another chance because the deadline was not clearly defined in light of the High Court rulings that declared the provisions of the Employee’s Pension (Amendment) Scheme, 2014, invalid.
In order to extend the deadline, the Court used its authority granted by Article 142 of the Constitution.
The 2014 scheme’s requirement that employees make an additional contribution at a rate of 1.16% on salaries beyond Rs. 15,000 was further declared illegal by the court.
The Court ruled that it was extra vires to require additional contributions be made on salaries that were beyond the threshold. To give the authorities time to raise money, this portion of the verdict has been put on hold for six months.
Further, the Court declared that it concurred with the ruling in Regional Provident Fund Commissioner vs. R.C. Gupta.
The decision had been reserved by a bench that included Chief Justice of India Uday Umesh Lalit and Justices Aniruddha Bose and Sudhanshu Dhulia.
The judgment’s extracts are listed below.
The following passage from the judgment’s operative part was read aloud by Justice Aniruddha Bose:
The clauses in notification no. GSR 609E from August 22, 2014, are legitimate and legal. We have read down some of the provisions of the scheme that pertain to the current members of the fund.
Employees of exempted establishments will be subject to the same changes to the Pension Scheme as employees of regular establishments as a result of notification number GSR 609E. Fund transfers from exempt establishments must follow the procedures we have outlined.
Employees who took their option under the proviso in paragraph 11(3) of the 1995 scheme and were still working as of September 1, 2014, will be governed by the modified requirements of that paragraph’s 11(4).
The participants of the plan who did not exercise their choice under the proviso to para. 11(3) of the pension scheme as it existed prior to the 2014 change would be eligible to do so under para. The ruling in the RC Gupta case codifies their right to exercise their option prior to September 1, 2014.
Since there was no cut-off date specified in the scheme’s original form before 2014, those members are now eligible to exercise their option in accordance with the current scheme’s paragraph 11(4).
Their option will be of the joint variety covered by the pre-amended para. 11(3) and the amended para (4). The post-amendment system, which the High Courts overturned, raised questions about its legality.
As a result, certain modifications should be made for all employees who did not exercise their options while being entitled to do so but were unable to do so due to how the cut-off date was interpreted.
Time to execute the option under paragraph 11(4) of the scheme will be given an additional four months in certain instances.
In accordance with the Constitution’s Article 142, we are exercising our authority by issuing this directive. The remainder of the amendment’s provisions must be followed.
Employees who retired prior to September 1, 2014, but did not exercise their choice under paragraph 11(3) of the pre-amendment system, have already left the membership. The benefits of this decision would not be theirs to enjoy.
Employees who retired before September 1, 2014, and who chose to exercise their option, are covered by Pension Scheme Section 11(3) as it was in effect before the 2014 Amendment.
The Amended Scheme’s demand that participants make an additional contribution at the rate of 1.16% if their salary exceeds Rs 15,000 is deemed to constitute ULTRA VIRES of the 1952 Act. However, this portion of the order was suspended for SIX MONTHS due to the aforementioned grounds.
We do this to give the authorities the flexibility to modify the plan and allow for the generation of additional contributions from other legal sources that fall under the purview of the Act.
Since it is up to the lawmakers and the plan’s creators to make the necessary changes, we are not commenting on the actions the authorities should take.
Employee contributions will serve as a stop gap measure for the aforementioned six months or until a change is made, whichever comes first. According to any potential changes to the plan, the aforementioned sum shall be modifiable.
We do not identify any problems with changing the methodology used to calculate pensionable salary.
Regarding the interpretation of the proviso to the 11(3) pre-amendment provision, we concur with the division bench’s position in the RC Gupta case.
Subject to earlier instructions, Fund Authorities must put the judgment’s orders into effect within eight weeks.
All appeals that we have heard are granted in the aforementioned terms, and the decisions that are being challenged are adjusted accordingly.
The Kerala High Court invalidated the 2014 amendment, ruling that the Rs 15,000 monthly wage requirement for pension fund membership was irrational.
The High Court ruled that there cannot be a deadline for signing up for the pension plan and permitted paying pensions in proportion to salaries beyond the Rs. 15,000 monthly level.
What modifications was the 2014 amendment responsible for?
The 2014 amendment introduced the adjustments listed below.
- Restricts the highest monthly pensionable wage to Rs. 15,000 only. Prior to the amendment, even though the maximum pensionable salary was only Rs. 6,500 per month, the proviso to the aforementioned paragraph allowed an employee to receive a pension based on the actual salary that he was receiving as long as his employer and himself jointly made a request for this purpose. The modification removed the aforementioned caveat, capping the highest pensionable wage at Rs. 15,000 instead. The Employee’s Pension (Fifth Amendment) Scheme, 2016, a subsequent announcement, further updated the Plan by stipulating that the pensionable salary for current members who choose a new option will be based on the higher pay.
- Confers the right to propose a new choice together with their employer to continue making contributions on salaries that are higher than Rs. 15,000 per month on the current members as of 1.9.2014. When choosing this option, the employee would additionally be required to contribute at a rate of 1.16% on any salary above Rs. 15,000/-. This new option would need to be activated within six months after January 1, 2014. The Regional Provident Fund Commissioner has the authority to excuse the failure to execute the new option within the allotted six-month window by an additional six-month window. In the absence of such a choice, the contribution already paid in excess of the pay ceiling limit and interest would be transferred to the Provident Fund Account.
- Specifies that the highest pensionable salary for service beginning on or after September 1, 2014, shall be Rs. 6,500 per month, with the maximum pensionable salary for the remainder of the period being Rs. 15,00 per month, to be decided on a pro rata basis.
- Enables the withholding of rewards in cases where a member has failed to provide the necessary eligible service.
The primary defence put forth by the EPFO is that the Provident Fund and the Pension Fund are separate entities, and participation in one will not necessarily imply membership in the other.
It was stated that the Pension Scheme was only intended for low-age employees and that allowing people earning incomes over the cut-off line to also get pension benefits would greatly unbalance the fund.
The issue of cross-subsidization between the pension and provident funds was addressed by the 2014 revisions.
The pensioners questioned the EPFO’s claim that they were under financial strain.
They contended that the corpus money is still in existence and that the interest has been used to pay the bills.
The pensioners also questioned the EPFO’s claim that a separate option had to be exercised within the cut-off period in order to join the pension system and claimed that the EPFO’s position violated the law.