Nikhil Thomas and Ronak Lodha
The Supreme Court two-judge bench headed by Justice U.U. Lalit, by an order dated 24 August, 2021, referred the petitions challenging the Kerala High Court’s 2018 decision to set aside the Employees’ Pension (Amendment) Scheme 2014 to a larger three-judge bench for adjudication.
WHAT NEEDS TO BE DECIDED BY THE LARGER BENCH?
The bench of Justices U.U. Lalit and Ajay Rastogi, JJ has referred two questions to the larger bench to decide upon:
- Whether there would be a cut-off date under paragraph 11(3) of the Employees’ Pension Scheme?
- 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?
THE EMPLOYEES’ PENSION SCHEME AND ITS RELEVANCE
The Employees Provident Fund and Miscellaneous Provisions Act was passed in 1952 wherein 10% or 12% of the basic wages was to be deposited in the employee’s provident fund account as the employers’ share.
The 1952 Act however, did not have a provision for pension, which was subsequently added via an amendment in 1995 which led to the establishment of the Employees’ Pension Scheme.
Under Clause 11(3) of the Pension Scheme, the maximum pensionable salary was limited to Rs.5,000/-, which was subsequently enhanced to Rs.6,500/- per month in 2001.
A proviso was added to the EPS in 1996, allowing employees and employers who were part of the scheme to make contributions to the pension fund on salaries which were more than the existing ceiling of 5000/- pm (or raised at 6500/- pm). Under this option, 8.33% of the actual salary (which was exceeding the prescribed limit) needed to be remitted to the pension fund.
WHAT HAS BEEN CHALLENGED BY EPFO?
The order by a Division Bench of the Kerala High Court on 12.10.2018 that set aside the Employees’ Pension (Amendment) Scheme, 2014 effecting various changes that have drastically reduced pension eligibility of employees.
The high court had held the amendments to the scheme which capped the maximum pensionable salary to Rs 15000 per month to be arbitrary.
With the amendments to the Employee Pension Scheme, a six-month opt in window was placed from a cut-off date to exercise the option of drawing pension from the maximum pensionable salary amount which was Rs. 15,000 per month. The cut-off date, as per the amendments, could either be the date of the commencement of the scheme or the date on which the salary exceeds the maximum ceiling limit of pensionable salary.
However, the judgement stuck down the amendment of having a six month opt in window and allowed the employees retired after September 1, 2014 as well as serving employees to get higher pension by exercising fresh option for payment of higher contribution to pension fund. It further held that employees shall be entitled to exercise the option stipulated by the scheme without being restricted in doing so by the insistence on the cut-off date.
The verdict also made it clear that employees can contribute to pension from their actual salary after making a joint request with the employer rather than having a cap on the pensionable salary. This benefit of exercising the option of drawing pension from the actual salary was omitted by the amendment.
Also, one of the grounds of the Kerala HC order was on the basis of the judgement of the SC in the RC Gupta case.
WHAT WAS HELD IN THE RC GUPTA CASE?
The appeal in the R.C. Gupta case was raised in the year 2005 by the appellant- employees on the eve of their retirement claiming that they did not have knowledge of the proviso included in 1996 and particularly since the employer in the present case had been making contributions based on the actual salary and not the established wage ceiling.
However, this request was turned down by the Provident Fund Authority on the grounds that there existed a cutoff period to exercise the option and since the request came after the expiry of the set cut-off date, the same could not be considered.
The division bench of the Himachal Pradesh High Court upon appeal by the employees had held that there did exist a cutoff date under the proviso to Clause 11 (3). This was overturned by the Supreme Court and the reasoning provided for the same was that under Clause 11, the cutoff date mentioned was to be the date from which the calculation for the decided option had to begin and were not to determine the eligibility of the employer to make the choice with regard to the available options.
The court further held that a beneficial scheme such as the EPS should not be defeated by an insistence on a date – more so since the contributions on the actual salary had already been made.
CONCLUSION
The verdict in the R.C. Gupta Case was given by a two-judge bench. The two-judge bench headed by Justice U.U. Lalit in the present case reasoned that since the submission made before them touch upon the applicability of the principle laid down in the R.C Gupta verdict, thus it was logical for the present dispute to be referred to at least a larger 3-judge bench for the final decision.
CLL
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