Supreme Court upholds Employees Pension Amendment Scheme of 2014

► Date : Nov 03, 2022


On Friday, November 4, 2022, the Supreme Court upheld the Employees' Pension (Amendment) Scheme, 2014 as "legal and valid," while reading down certain provisions of the scheme affecting current members.


The decision by a three-judge Bench led by Chief Justice of India U.U. Lalit came in an appeal filed by the Employees Provident Fund Organisation challenging decisions of the Kerala, Rajasthan, and Delhi High Courts quashing the 2014 amendments to the Employees Pension Scheme (EPS) of 1995 on "determination of pensionable salary."


The court ruled that the pension scheme amendments notified on August 22, 2014 would apply to employees of "exempted establishments" on the Employees Provident Fund Organisation (EPFO) list, which includes over 1300 companies and entities, in the same way that they would to employees of regular establishments.


The legal dispute centred on the contentious amendments to paragraph 11 of the EPS-1995.


Prior to the amendments, any employee who became a member of the Employees Provident Fund Scheme of 1952 on November 16, 1995, was eligible for the EPS. The maximum pensionable salary cap in the pre-amended version of EPS-1995 was $6,500. Members whose salaries exceeded this cap, on the other hand, could choose to contribute up to 8.33% of their actual salaries along with their employers.


The 2014 amendments to the EPS raised the cap from 6,500 to 15,000 by changing paragraph 11(3) and inserting a new paragraph 11(4). According to paragraph 11(4), only existing EPS members as of September 1, 2014, could continue to contribute to the pension fund in accordance with their actual salaries. They were given a six-month window to choose the new pension system.


Furthermore, 11(4) imposed an additional obligation on members whose salaries exceeded the $15,000 limit. They were required to contribute 1.16% of their salary.


Once again, the pensionable salary was an average of 12 months' pay prior to the employee's departure from the EPS. The amendments raised the calculation period for average pensionable salary from 12 to 60 months.


"We find no flaw in changing the basis for calculating pensionable salary," the court concluded.


However, using its extraordinary powers under Article 142 of the Constitution, the court overturned the September 1, 2014 deadline.


"Till recently, there was uncertainty about the amendment scheme which was quashed by the three High Courts. Thus, all employees who did not exercise the option (of joining the amended pension scheme) when they were entitled to do so, but could not do it due to the interpretation of the cut-off date should be given a further chance to exercise their option. Under these circumstances, the time to exercise the option shall stand extended by four months," the court directed.


The court, in this regard, referred to the R.C. Gupta case, which had said that a "beneficial scheme" like EPS-1995 "ought not to be allowed to be defeated by reference to a cut-off date like September 1, 2014”.


But the judgment, authored by Justice Aniruddha Bose for the Bench, found the additional requirement on members to contribute 1.16% of their salary as ultra vires.


"The requirement of the members to contribute at the rate of 1.16% of the salary to the extent that such salary exceeds ₹15000 per month as an additional contribution made under the amendment scheme is held to be ultra vires to the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952," Justice Bose held.


The court however suspended the implementation of this part for six months.


"We suspend the operation of this part of our order for six months. We do so to enable the authorities to make adjustments in the scheme so that the additional contribution can be generated from other legitimate sources within the scope of the Act, which could include enhancing the rate of contribution of the employers," the judgment said.


‘Don’t want to speculate’


It added that it did not want to speculate on how the authorities would find the money for the payment of the additional contribution and said it would be left to the legislature and the scheme framers to make the necessary amendments.


The court further held that employees who retired prior to September 1, 2014 without exercising any option would not be entitled to benefit of this judgment


Justice Bose further said that employees who had retired before September 1, 2014 upon exercising the pension scheme option under 11(3) of the 1995 scheme shall be covered by the provisions of paragraph 11(3) as it stood prior to the amendment of 2014.


► Tags : #supremecourt #pensionscheme #employees

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