Supreme Court upholds validity of amended Employees’ Pension Scheme but reads down certain provisions; Explains applicability of pre & post amendment Scheme

Supreme Court: The 3-judge bench of UU Lalit, CJ and Aniruddha Bose* and Sudhanshu Dhulia, JJ has upheld the legality of certain amendments and modifications to the Employees’ Pension Scheme, 1995 (1995 Scheme) but has read down certain provisions of the Scheme.

A brief overview of the Scheme

The Scheme in question was made in pursuance of, inter-alia, Section 6-A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, which was introduced in 1995.

The 1995 Amendment contemplated formulation of a scheme for employees’ pension and the pension fund was to comprise of deposit of 8.33 % of the employers’ contribution made towards provident fund corpus as per the prevailing Statue. It also dealt with determination of pensionable salary.

At that point of time, maximum pensionable salary was Rs.5000/-  and this sum had been enhanced subsequently to Rs.6500/-. Pensionable salary was raised to Rs.15000/- by a notification dated 22.08.2014, which was to be effective from 01.09.2014. This notification brought certain other modifications in the scheme mainly restricting its coverage.

As per paragraph 3(ii) of the pension scheme, the Central Government was to contribute to the fund at the rate of 1.16 % of the pay of the members. Employees within the changed pension regime drawing more than Rs.15000/- per month have to also contribute at the rate of 1.16 % on salary   exceeding Rs.15000/- as additional contribution each month under the amended provisions.

Further, fresh option was to be exercised by the member within a period of six months from the 1st day of September 2014, which was extendable up to about 6 months on sufficient cause shown by the member.

The fourth proviso to sub-clause (4) of paragraph 11 specifies that if no option is exercised by a member within the aforesaid period, it would be deemed that the concerned member has not opted for contribution over the wage ceiling. In such a case, the contributions to the pension fund made beyond the wage limit in respect of such a member is to be diverted to the provident fund account of the member along with interest, as declared under the provident fund scheme from time to time.

Challenge to the scheme

44 writ petitions were filed in different writ petitions in different High Courts seeking invalidation of this notification on the ground that a set of employees had approached the provident fund authorities much beyond such perceived specified date, mostly on the eve of their retirement, seeking to be included in the pension scheme.

Supreme Court’s findings

  • The provisions contained in the notification dated 22.08.2014 are legal and valid but some provisions of the scheme have been read down.
  • Amendment to the pension scheme brought about by the notification dated 22.08.2014 shall apply to the  employees of the  exempted establishments in the same manner as the employees of the regular establishments. Transfer of funds from the exempted establishments shall be in the manner as we have already directed.
  • The employees who had exercised option under the proviso to paragraph 11(3) of the 1995 scheme and continued to be in service as on 01.09.2014, will be guided by the amended provisions of paragraph 11(4) of the pension scheme.
  • The members of the scheme, who did not exercise option, as contemplated in the proviso to paragraph 11(3) of the pension scheme (as it was before the 2014 Amendment) would be entitled to exercise option under paragraph 11(4) of the post amendment scheme. The scheme as it stood before 01.09.2014 did not provide for any cutoff date and thus those members shall be entitled to exercise option in terms of paragraph11(4) of the scheme, as it stands at present. Their exercise of option shall be in the nature of joint options covering pre-amended paragraph 11(3) as also the amended paragraph 11(4) of the pension scheme. There was uncertainty as regards validity of the post amendment scheme, which was quashed by the judgments of the three High Courts. Thus, all the employees who did not exercise option but were entitled to do so but could not due to the interpretation on cut-off date by the authorities, ought to be given a further chance to exercise their option. Time to exercise option under paragraph 11(4) of the scheme, under these circumstances, shall stand extended by a further period of four months.
  • The employees who had retired prior to 01.09.2014 without exercising any option under paragraph 11(3) of the pre-amendment scheme have already exited from the membership thereof. They would not be entitled to the benefit of this judgment.
  • The employees who have retired before 01.09.2014 upon exercising option under paragraph 11(3) of the 1995 scheme shall be covered by the provisions of the paragraph 11(3) of the pension scheme as it stood prior to the amendment of 2014.
  • The requirement of the members to contribute at the rate of 1.16 per cent of their salary to the extent such salary exceeds Rs.15000/- per month as an additional contribution under the amended scheme is held to be ultra vires the provisions of the 1952 Act. The operation of this part of the order will, however, be suspended for a period of six months in order to enable the authorities to make adjustments in the scheme so that the additional contribution can be generated from some other legitimate source within the scope of the Act, which could include enhancing the rate   of contribution of the employers. For the aforesaid period of six months or till such time any amendment is made, whichever is earlier, the employees’ contribution shall be as stop gap measure. The said sum shall be adjustable on the basis of alteration to the scheme that may be made. The Court observed,

“we cannot ignore the fact that the pension amount to be paid has been calculated on projections that the corpus would include the option employees’ additional contribution of 1.16 per cent. We also cannot mandate the Central Government to contribute to a pension scheme, in absence of a legislative provision to that effect. It would be for the administrators to readjust the contribution pattern within the scope of the statute and one possible solution could be to raise the level of the employer’s contribution in the   scheme.”

  • No flaw found in altering the basis for computation of pensionable salary.
  • The fund authorities shall implement the directives contained in RC Gupta v. Regional Provident Fund Commissioner, Employees Provident Fund Organisation, (2018) 14 SCC 809, within a period of eight weeks, subject to our directions contained earlier in this paragraph. The Court has agreed with the Division Bench’s interpretation of the proviso to paragraph 11(3) (pre-amendment) pension scheme in the said judgment.

[EPFO v. Sunil Kumar B., 2022 SCC OnLine SC 1521, decided on 04.11.2022]

*Judgment by: Justice Aniruddha Bose

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  • Those employees who were EPS members since inception of EPS 95 scheme contributing to @ 15000 salary limit prior to 01.09.2014 working under exempted epf trusts have not opted for higher pension then , if they are eligible now to opt for depositing higher contribution in order to get higher pension post SC verdict 4.11.2022 and EPFO circular dated 29.12.22 ?
    may pl be clarified

  • Myself retired before 1.9.2014 and covered under eps 95 pension scheme
    Wether elgible for higher pension against actual salary had during my employment.

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