Karnataka High Court: While considering a bunch of petitions questioning the validity of Para 83 introduced in the Employees Provident Fund Scheme, 1952 (“EPF Scheme”) and Para 43A in Employees’ Pension Scheme, 1995 (“Pension Scheme”), on the ground that these provisions are arbitrary and unconstitutional, the Bench of K.S. Hemalekha, J.*, struck down the impugned provisions reasoning that the legislature arbitrarily and unreasonably enacted para 83, the introduction of the impugned provisions violated Art. 14 of the Constitution and the classification made under them was unreasonable and defeated the very intent of the Employees Provident Fund and Miscellaneous Provisions Act, 1952.
The Court pointed out that a legislation cannot run beyond the parameters of the Parent Act and there must always be some principles to guide the exercise of discretion.
Background: The Union of India, vide notification dated 01-10-2008, introduced Para 83 in the EPF Scheme and Para 43A under the Pension Scheme, covering international workers with effect from 01-10-2008.
Contentions: The petitioners stated that, under para 83 of the EPF Scheme, “international workers” are covered under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and Scheme, irrespective of the salary drawn by them. The employees other than the international workers, who draw salary exceeding Rs.15,000/- per month, are outside the purview of the Scheme.
It was stated that the international workers do not work till retirement, they work only for a limited period. Thus, requiring them to pay PF contribution on their entire global salary would cause irreparable injury. According to the petitioners, requirement of international workers to pay EPF contributions is arbitrary and violates Art. 14 of the Constitution.
The petitioners contended that in the impugned provisions, there is no salary ceiling limit for international workers which is in contravention to the EPF Act. These provisions further put a burden on the employers. It was contended that there is no cap on the salary on which the contribution is payable by the employer as well as the employee; furthermore, there is no cap on the salary to which the employee’s share of contribution has to be diverted to the EPF Scheme.
The petitioners thus knocked the doors of the Court seeking to declare para 83 of the EPF Scheme and para 43A of the Pension Scheme, as unconstitutional and illegal for opposing the very object of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act)
Per contra, the respondent argued that it had affected changes to the Act by making special provisions for different types of workers. It was contended that the EPF Act was duly amended in 2008 under which, Para 83 was inserted into the EPF Scheme to extend the coverage of international workers; furthermore, the amendment also introduced para 43A under the Employees’ Pension Scheme which was given effect from 11-09-2010, insofar as it relates to international workers.
The respondent further submitted that the Government of India finalized a bilateral Social Security Agreement (“SSA”) with Belgium, Germany, Switzerland, Denmark, Luxemburg, France, South Korea, and the Netherlands. As a result of the reciprocal agreements with these countries, the Government of India extended the provisions of the EPF Act, and the Schemes to international workers.
The respondent further contended that the intention of the Parliament to amend the Scheme was to ensure that no person can be deprived of social security benefits and no Indian deputed to work outside the country, should be deprived of the benefits.
Court’s Assessment and Findings: The Court had to consider whether the introduction of para 83 of EPF Scheme and para 43A of EP Scheme is unconstitutional and hit by Art. 14 of Constitution.
Taking note of Art. 14 of the Constitution, the Court noted that it encompasses the general principles of equality before the law and prohibits unreasonable discrimination between the two persons. It incorporates the idea of equality as expressed in the Preamble. Relying on several precedents elucidating the characteristics of Art. 14; considering the impugned provisions, and Sections 5 and 7 EPF Act the Court pointed out that on reading of Section 7 of the EPF Act, the modification of the Scheme is a statutory power which the Central Government initially exercises and then the notification is placed before each of the houses of the parliament for its ratification. In the instant case, the Court noted that Government of India has the power under Section 7(1) of the EPF Act to modify the Scheme from time to time and the competence of the Central Government to introduce or modify the Scheme is apparent from Section 7 of the EPF Act.
Taking note of the Statement of Objects and Reasons of the EPF Act, the Court pointed out that the EPF Act is a social welfare legislation meant for the protection of industrial workers to enable them to have an alternative to the pension. The Act is also meant to inculcate savings for their future, especially for the period after their retirement. It is nowhere mentioned in the objects of the EPF Act regarding covering employees irrespective of the salary drawn by them.
Elucidating the aforementioned point, the Court stated that in the beginning, only those employees who drew a salary of Rs. 3,500 or less were to be covered under EPF Act; later on, it was raised to Rs 6,500 per month and then to Rs.15,000 per month indicating that, the EPF Act was enacted with a view to see that those in lower salary brackets get retirement benefits and by no stretch of imagination, could it be said that the employees who draw lakhs of rupees per month, should be given the benefit under the enactment.
Coming onto Para 83 of the EPF Scheme, the Court noted that the objective of introducing this impugned provision could be seen as protecting Indian employees going abroad to work from being subjected to the social security and the retirement clause of that foreign country.
The Court pointed out that Para 83 of the EPF Scheme is in the nature of subordinate legislation and therefore, the subordinate legislation cannot travel beyond the scope of the Parent Act. The Court pointed out that when a ceiling amount of Rs 15,000 per month has been placed as a threshold for an employee, Para 83 of the EPF Scheme ought not to have placed an unlimited threshold for international workers while denying the same benefit to Indian workers.
The Court further noted that an Indian employee working in a foreign country with Social Security Agreement, who is covered under EPF Act, 1952 continues to contribute a meagre sum of Rs.15,000 whereas, a foreign worker from SSA country, without a certificate of coverage, is made to contribute PF on his entire salary, although both these group of employees have been defined as international workers. The Court stated that the respondents were unable to substantiate any nexus with the object sought to be achieved, therefore, para 83 is clearly discriminatory in treating the international workers of Indian origin and foreign origin differently and thus violative of Art. 14 of the Constitution.
The Court found that distinction in the amount of contribution between an employee going to a non-SSA country and an employee from a non-SSA country coming to India is clearly discriminatory and violative of Art. 14.
Furthermore, the Court found that there is discrimination between the Indian employees working in a non-SSA country (who are not international workers as per definition) and foreign employees from a non-SSA working in India who are classified as international workers. There is no rational basis for this classification nor there is reciprocity that compels to classify foreign employees from non-SSA countries as international workers. In the absence of parity and also in the absence of reciprocity, there is no justification to demand a contribution on the entire pay of a foreign employee from a non-SSA country.
The demand for contribution on global salary, which should also be computed for the purpose of the contribution, is on the face of it arbitrary and is hit by Art. 14 of the Constitution.
This with the afore-stated assessment, the Court allowed the petitions and declared para 83 of EPF Scheme and para 43A of EP Scheme as violative of Art. 14 of the Constitution and held all orders passed thereof to be unenforceable.
[Stone Hill Education Foundation v. EPFO, 2024 SCC OnLine Kar 49, decided on 25-04-2024]
*Order by Justice K.S. Hemalekha
Advocates who appeared in this case :
For petitioners- S.N. Murthy, senior counsel along with Somashekar, counsel; Udaya Holla, senior counsel along with Rajendra M.S., counsel; Dhyan Chinnappa, senior counsel along with M.V. Sundararaman and Krishar Somaiah, counsel; Lakshmi Iyengar, senior counselalong with Revathy Adinath Narde and K.S. Mahadevan, counsel; H. Srinivasa Rao and Deepthi C.R., counsel; K.N. Vasuki, counsel and C.K. Subrahmanya for B.C. Prabhakar, counsel; Sri Anand K.R., counsel; Sri Santosh Narayan S., counsel; Adithya Vikram Bhat, counsel
For respondents- M.N. Kumar, Central Government Senior Panel Counsel for respondent No.1; Nandita Haldipur, counsel for respondent No.2 and 3 (EPF), Shwetha Anand, counsel for respondent No.2 (in W.P.Nos.22507/2015 and 19464/2021) and BV Vidyulata, Advocate
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