The Supreme Court’s Opinion on the Employees’ Pension (Amendment) Scheme, 2014

The Government of India is empowered by Section 6A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“Act“), to frame a scheme called the Employees’ Pension Scheme for the purpose of providing for the: (i) superannuation pension, retiring pension or permanent total disablement pension to the employees of establishments governed by the Act; and (ii) widow/widower’s pension, children pension or orphan pension payable to the beneficiaries of such employees. This has long been a crucial contributor to the post-employment stability of Indian citizens and afforded them the much necessary safety-net through the turbulence of the 20th century.

Accordingly, the Government of India issued notification no. G.S.R. 609(E) dated August 22, 2014; framing the Employees’ Pension (Amendment) Scheme, 2014 (“Scheme“). This acted as an amendment to the then extant pension scheme, and brought forth several noteworthy changes thereto, including: (i) limiting the maximum pensionable salary to Rs. 15,000/-; (ii) requiring employees within the amended regime to contribute at the rate of 1.16% on the salary exceeding Rs. 15,000/-; (iii) requiring fresh options to be exercised by members within six months from September 1, 2014 (extendable up to six months on sufficient cause shown); and (iv) stipulating that in the event no option is exercised by a member within the period specified, it would be deemed that the member in question has not opted for contribution over the wage ceiling and therefore, the contributions made beyond the wage limit (for such a member) would be diverted to the provident fund account along with interest pursuant to the provident fund scheme.

Several writ petitions were filed in different High Courts across the country seeking invalidation of the aforesaid Scheme; and the Scheme was consequently quashed by the Kerala High Court, the Rajasthan High Court, and the Delhi High Court for being unconstitutional in nature. Thereafter, the Employees’ Provident Fund Organisation (“EPFO“) filed appeals before the Supreme Court challenging the judgements of the various High Courts. The Supreme Court, vide its judgement dated November 4, 2022 in EPFO & Anr. v. Sunil Kumar B. & Ors.1, upheld the validity of the Scheme as well as read down certain provisions thereof.

The Supreme Court held that the employees that were members of the Employees’ Pension Scheme on September 1, 2014 who were unable to join the Scheme for failing to exercise the option within the cut-off date (and contribute on a monthly pay exceeding Rs. 15,000/- per month) due to the lack of clarity resulting from the High Court judgements quashing the Scheme, ought to be given a further opportunity of four months to do so.

On the flipside, the Supreme Court stated that it was invalid to require employees to make a further contribution at the rate of 1.16% on salaries exceeding Rs. 15,000/- i.e. the threshold limit, as it was ultra vires the Act and outside of the contemplation of Section 6A of the Act. However, in order to allow the legislature to consider the necessity of bringing appropriate legislative amendment on this count, this portion of the judgement has been kept in suspension for six months.

The Apex Court went on to clarify that the judgement would not stand to benefit employees who had retired prior to September 1, 2014 without first exercising any option under paragraph 11(3) of the pre-amendment scheme (“1995 Scheme“) and exited from the membership thereof prior to the introduction of the Scheme.

Paragraph 11 of the aforesaid 1995 Scheme laid down the manner in which pensionable salary was to be determined. With effect from March 16, 1996, a proviso was added to paragraph 11(3) thereto, giving an option to the employer and employee for contribution on salary exceeding the then ceiling of Rs. 6,500/- to retain the right to pension in accordance with the 1995 Scheme. The Supreme Court, in the current case, held that the employees who had exercised this option, and continued to be in service as on September 1, 2014 would be guided by the amended provisions of the Scheme; and the members of the Scheme who did not exercise the aforesaid option of the 1995 Scheme, on the other hand, would be entitled to exercise option under amended provisions of the Scheme.

This nuanced approach of the Supreme Court is simultaneously balanced in favour of updating the Scheme to the changing times and ensuring that the remit of the Act continues to be adhered to. The vacuum surrounding the Scheme has now been addressed and a clear path chalked out for all stakeholders—ranging from the legislators to the pensioners.

1 C.A. No.-008143-008144 / 2022