The Employees' Pension (Amendment) Scheme, 2014 of the Employees' Provident Fund Organization was affirmed as "legal and valid" by the Supreme Court on Friday while reading down a few clauses.
Most importantly, the court made use of its unusual authority granted by Article 142 of the Constitution to permit qualified workers who had not previously chosen increased pension coverage to do so in conjunction with their employers within the next four months.
A three-judge bench presided over by Chief Justice U.U. Lalit held that the requirement to contribute 1.16% of the salary to the extent that it exceeds 15,000 per month as an additional contribution made under the amendment scheme is ultra vires to the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.
The court put a six-month hold on the application of this clause.
“We suspended 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 judgement said. The court held that the amendments to the pension scheme notified in August 2014 would apply to the employees of “exempted establishments” in the list of the EPFO, which number over 1,300 companies and entities.
The main topic of contention was the contentious changes made to EPS-1995 clause 11. The EPFO appealed the Kerala, Rajasthan, and Delhi High Court rulings invalidating the 2014 changes to "calculation of pensionable wage" under the EPS of 1995, and Justice Aniruddha Bose wrote the 51-page opinion.
Prior to the introduction of the changes, the EPS was available to all employees who joined the Employees Provident Fund Scheme of 1952 as of November 16, 1995. The highest pensionable salary in the pre-amended EPS-1995 was Rs. 6,500. However, participants whose earnings surpassed this ceiling could choose to contribute up to 8.33% of their actual salaries to the pension fund along with their employers.
The EPS was amended in 2014, increasing the ceiling from 6,500 to 15,000 thanks to modifications to Clause 11(3) and the addition of paragraph 11(4). Only employees who were current EPS members as of September 1, 2014, were permitted to continue making contributions to the pension fund in line with their real wages, according to paragraph 11(4). They have a six-month window to choose the new pension system.
The court did, however, remove the deadline from the 2014 modifications. A "beneficial scheme" like EPS-1995 "needs not to be allowed to be defeated by reference to a cut-off date like September 1, 2014," the court stated in this regard, citing the R.C. Gupta case.
It was also paragraph 11(4) which created the burden on employees to cough up 1.16% of their salary.
Once more, the pensionable wage was equivalent to an average of 12 months of pay prior to the employee's departure from the EPS. The average pensionable wage calculation term was increased from 12 to 60 months as a result of the 2014 revisions. The court, however, stated that "we do not perceive any mistake in revising the foundation for computation of pensionable wage" in this regard.
According to the court, employees who retired without exercising any options before September 1, 2014, would not be eligible to benefit from this ruling.
