EPF Act | Employees Of Exempted Establishments Entitled To Higher Pension If PF Contributions Were On Actual Wages: Karnataka High Court

The Karnataka High Court has held that employees belonging to exempted establishments could still claim higher pensions post-2014 under the Employees' Pension Scheme, 1995 [Scheme, 1995], through a joint option, provided that they have been contributing on actual wages to the provident fund, even when the contribution is paid on capped wages to the pension scheme.

The single-judge bench of Justice Anant Ramanath Hegde, while quashing multiple EPFO rejection orders, held that members of the Provident Fund Trusts of the exempted establishments, who have contributed to the Provident Fund on actual wages (not on capped wages), but contributed to the Pension Fund only on the capped pensionable wages (not on actual wages), can rightly claim a higher pension.

This is permissible under Paragraph 11(4) [Determination of Pensionable Salaries] of the Employees' Pension Scheme, 1995, by exercising a joint option for a higher pension along with the employer, even after the supposed cut-off date in September 2014 to opt for higher pension options, the court added.

“The petitioners, in this case, have contributed to the Provident Fund on actual salary in excess of ceiling wages. Therefore, the law in R.C.Gupta (supra), will come to their aid to exercise the joint option, to claim pension on higher salary by exercising the joint option as the Apex Court in R.C. Gupta (supra), has held that there is no time limit to exercise the option and in Sunil Kumar (supra) the Apex Court endorsed the view in R.C. Gupta (supra), and further fixed the time to exercise the joint option”, the court noted in the order.

The court opined that the rejection orders issued by EPFO were not in line with the apex court precedents. The court was hearing over two dozen writ petitions filed by employee associations and other stakeholders from many public sector undertakings like HAL, BEML, BHEL, ITI etc.

Before the High Court, the issue to be adjudicated was whether Paragraph 11(4) of the Employees' Pension Scheme, 1995, as amended in 2014, would allow employees who have not contributed to the Pension Fund on actual wages before the cut-off date of 01.09.2014, to be entitled to a higher pension.

Prior to Sept 1, 2014, under paragraph 11(3), employees had the option to contribute to the Pension Fund based on their actual wages. It did not stipulate a specific time limit for employees to exercise this option during this period.

Post 2014, paragraph 11(4) was inserted, which retained the option for higher contribution on actual salary, for the members who were exercising the option for higher pension before 01.09.2014. In addition, the clause also fixed a time frame of six months, extendable by another six months, for sufficient cause to be shown, to exercise the joint option for a higher pension.

In Sunil Kumar, the apex court had refixed the timeline for availing the joint option for such employees by four months in November 2022 by reasoning that many High Courts had previously quashed the amended paragraph 11(4) of the EPS Scheme that mandated timelines. The aforesaid paragraph was ultimately held constitutional by the apex court except the provision mandating the contribution of 1.16% from members

Court's Further Observations

“The law in R.C. Gupta (supra) (for those who have contributed on higher side to the provident fund) which held that there is no time limit to exercise the joint option under paragraph 11(3), has been affirmed as good law in Sunil Kumar (supra). In other words, the employees who contributed on higher wages to the provident fund are enabled to exercise the option under paragraph 11(3) of the Scheme, 1995, sans any time frame in view of the law declared in R.C. Gupta in 2016…the apex court…has concluded that what is required is adjustment of accounts as higher contribution is already made to the provident fund if not to the pension fund”, the court further observed in the order.

The court, relying on apex court precedents, also iterated that even if an employee had not exercised any option under the old Paragraph 11(3) pre-amendment, they would not be automatically excluded from exercising the fresh option under Paragraph 11(4) post-amendment.

“…The employees who had contributed on higher side to the provident fund, who had not exercised the option under the unamended Paragraph 11(3) are not precluded from exercising option under Paragraph 11(4) of the Scheme, 1995…”, the court clarified.

The EPFO had also refuted the arguments levelled by the employees from exempted establishments on the ground that the Trust Rules of their respective establishments disallowed such higher contributions to the pension fund.

However, the court refused to accept EPFO's contentions and noted as below:

“The contention that the Trust Rules do not provide for contribution on wages exceeding the ceiling cannot, by itself, defeat the statutory right recognised under the Scheme, 1995…In the event of conflict between the Trust Rules and Scheme, 1995, one which is favourable to the employee will prevail. Since the Scheme, 1995 provides for contribution on actual wages to the pension fund, on establishing the contribution to the provident fund, on actual wages, the right will be available to the employee to exercise joint option, subject to any other eligibility criteria”, the court opined.

The court concluded that Paragraph 39 of the Scheme, 1995, permits exemption only when the alternative pension arrangement is equally or more beneficial.

Accordingly, while quashing the EPFO's rejection orders, the court directed EPFO to accept the joint options exercised by the employers and employees, and to determine the pension payable on actual wages, within 90 days. However, it has been clarified that the order will be applicable only to those employees who were members of the pension scheme on 09.14.2014 and not those who retired before the said date.

Case Title: Bharath Earth Movers Employees Association & Ors. v. Union of India & Ors.

Case No: Writ Petition No. 19885 of 2025 (clubbed with WP Nos. 15749 & Other Connected Matters)

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