Is there a cut-off date under Para 11(3) of the Employees’ Pension Scheme? Larger bench to decide. Read why RC Gupta verdict needs to be re-visited

Supreme Court: The bench of UU Lalit and Ajay Rastogi, JJ has referred the question as to whether there would be a cut-off date under paragraph 11(3) of the Employees’ Pension Scheme to a larger bench. The larger bench will also decide whether the decision in R.C. Gupta v. Regional Provident Fund Commissioner Employees Provident Fund Organization, (2018) 4 SCC 809 would be the governing principle on the basis of which all these matters must be disposed of.

What was held in RC Gupta case?

In R.C. Gupta v. Regional Provident Fund Commissioner Employees Provident Fund Organization, (2018) 4 SCC 809, the Court had held that

“… the reference to the date of commencement of the Scheme or the date on which the salary exceeds the ceiling limit are dates from which the option exercised are to be reckoned with for calculation of pensionable salary. The said dates are not cut-off dates to determine the eligibility of the employer-employee to indicate their option under the proviso to Clause 11(3) of the Pension Scheme.

In RC Gupta case, the Court was dealing with a matter where the employer had deposited 12% of the actual salary and not 12% of the ceiling limit of Rs 5000 or Rs 6500 per month, as the case may be. In such a case, the Court held that a beneficial scheme, in our considered view, ought not to be allowed to be defeated by reference to a cut-off date.

“We do not see how exercise of option under Para 26 of the Provident Fund Scheme can be construed to estop the employees from exercising a similar option under Para 11(3). If both the employer and the employee opt for deposit against the actual salary and not the ceiling amount, exercise of option under Para 26 of the Provident Scheme is inevitable. Exercise of the option under Para 26(6) is a necessary precursor to the exercise of option under Clause 11(3). Exercise of such option, therefore, would not foreclose the exercise of a further option under Clause 11(3) of the Pension Scheme unless the circumstances warranting such foreclosure are clearly indicated.”

The Court had explained that if both the employer and the employee opt for deposit against the actual salary and not the ceiling amount, exercise of option under Para 26 of the Provident Scheme s inevitable. Exercise of the option under Para 26(6) is a necessary precursor to the exercise of option under Clause 11(3). Exercise of such option, therefore, would not foreclose the exercise of a further option under Clause 11(3) of the Pension Scheme unless the circumstances warranting such foreclosure are clearly indicated.

It was, hence, noticed that all that the Provident Fund Commissioner is required to do is an adjustment of accounts which in turn would have benefited some of the employees. At best what the Provident Commissioner could do was to seek a return of all such amounts that the employees concerned may have taken or withdrawn from their provident fund account before granting them the benefit of the proviso to Clause 11(3) of the Pension Scheme. Once such a return is made in whichever cases such return is due, consequential benefits in terms of this order will be granted to the said employees.

Why is the decision required to be re-visited?

Senior Advocate C.A. Sundaram invited the Court’s attention towards the difference between the Provident Fund Scheme and the Pension Scheme.

Under Provident Fund scheme, the contributions made by the employer and the employees during the employment of the employee would be made over to the employee along with interest accrued thereon at the time of his retirement. Thus, the obligation on the part of the operators of the Provident Fund Scheme would come to an end, after the retirement of the employee; whereas the obligation under the Pension Scheme would begin when the employee retired. The liability was only to pay interest on the amount deposited and to make over the entire amount at the time of his retirement.

Under Pension scheme, it would be for the operators of the Pension Scheme to invest amount deposited in such a way that after the retirement of the concerned employee the invested amount would keep on giving sufficient returns so that the pension would be paid to the concerned employee not only during his life time but even to his family members after his death. If the option under paragraph 11(3) of the Scheme, was to be afforded well after the cut-off date, it would create great imbalance and would amount to cross-subsidization by those who were regularly contributing to the Pension Scheme in favour of those who come at a later point in time and walk away with all the advantages.

Hence, it was submitted that the emphasis on investment of the amount in both the funds would qualitatively be of different dimension.

This difference was enunciated in Krishena Kumar Vs. Union of India, (1990) 4 SCC 207 and was not noted in the subsequent decision in R.C. Gupta. Submitting that it would not be a mere adjustment of amount to transfer from one fund to another as stated in R.C. Gupta case, it was submitted before the Court that the decision in R.C. Gupta was required to be re-visited.

The Court, hence, noted that

“These, and the other submissions touching upon the applicability of the principle laid down in the decision in R.C. Gupta1 go to the very root of the matter. Sitting in a Bench of two Judges it would not be appropriate for us to deal with said submissions. The logical course would be to refer all these matters to a Bench of at least three Judges so that appropriate decision can be arrived at.”

The matter has hence, been referred to a larger bench.

[Employees’ Provident Fund Organisation v. Sunil Kumar B., 2021 SCC OnLine SC 630, decided on 24.08.2021]

One comment

  • The whole issue should be considered on the present situation ie price escalation.
    The amount paid is not considered with DA varying from to time or there is no review after certain time period.

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