EPF Pension Case : 2014 Amendment Not Whimsical, Classification Based On Salary Reasonable - Reasons Cited By Supreme Court

In a significant judgment impacting lakhs of workers across the country, the Supreme Court on Friday upheld the Employees' Pension (Amendment) Scheme 2014, which, among other things, capped the maximum salary for joining the EPF Pension Scheme as Rs 15,000 per month with effect from September 1, 2014. However, the Court has allowed an additional window of four months period for those who were members of the scheme before the 2014 amendment and whose salaries exceed the threshold introduced in 2014 to join the scheme by exercising the higher option. As per the 2014 amendment, members whose monthly salary exceeded Rs.15,000/- had to exercise a fresh option to join the scheme within a period of six months from September 1, 2014. Also, such employees had to make an additional contribution at the rate of 1.16 per cent on salary exceeding fifteen thousand rupees. This condition for additional contribution has also been invalidated by the Court on the ground that it is ultra vires the Employees Provident Fund and Miscellaneous Provisions Act 1952.On all other counts, the Court has approved the 2014 amendments, including the changes brought to the method of computation of pensionable salary. The Court clarified that the relaxations allowed by it in the judgment will not be available to employees who retired before September 1, 2014 without exercising the option. As per the 2014 amendment, employees who join service after September 1, 2014 are not eligible to join the pension scheme if their monthly salary is above Rs.15,000/-. Since this clause has not been interfered with by the Court, the benefit of the judgment will be available to only those who were members of the scheme as on September 1, 2014.Here are the reasons given by the bench of Chief Justice of India UU Lalit, Justice Aniruddha Bose and Justice Sudhanshu Dhulia while allowing the appeals filed by the Employees Provident Fund Organization and the Union of India against the judgments of the Kerala, Rajasthan and Delhi High Courts which had quashed the 2014 amendments.Centre has power to make amendments; amendments made not whimsicallyThe Court noted that Section 7 of the EPF Act gives power to the Central Government to modify the pension scheme prospectively or retrospectively. Also, Paragraph 32 of the Pension Scheme authorises the Centre to make alterations."We find that the amendment was made in exercise of power otherwise vested in the authority making such amendment and the amendments were made on the basis of certain relevant materials and not whimsically", the judgment authored by Justice Bose stated.The EPFO told the Court that the provident fund and pension fund are distinct. While provident fund scheme entails a onetime settlement in favour of the member, the pension scheme carries, by its very nature, benefits for an unspecified time, which has to be based on actuarial calculation. The EPFO produced an actuarial report of December 2018 in which the net liability of the fund is projected to be Rs.5,75,918.88/ crores for the pension fund, exclusive of the provident fund balance that might be transferred. Employees of pension scheme not a homogeneous class; authorities can make classifications based on salaryThe Court rejected the argument of the employees that the pension scheme considers employees as a homogenous group and no distinction can be made among different categories of employees based on their monthly salary."It is well within the power and authority of the statutory authorities to reasonably classify different sets of employees and categorise them for the nature of benefits they might get from an existing scheme", the Court observed."In our view, classification of the employees made by the authorities on the basis of the salary drawn in the 2014 amendment meets the test of reasonable classification contemplated in Article 14 of the Constitution of India", the Court held.The Court highlighted that when the scheme was launched in 1995, it was made applicable to only those drawing wages upto Rs.5000/. The provision relating to exercising option for those drawing salary above the threshold was introduced later, in the year 1996.The EPFO had argued that the pension fund was introduced for the benefit of low-scale employees and if employees drawing higher salaries are allowed to draw pension in proportion to their salaries, it will create huge imbalance within the fund.Limited scope of judicial reviewThe Kerala High Court, in coming to its finding that the amendment was arbitrary, based its reasoning on macroeconomic factors like general increase in salary, addition to the base of the fund and the negative impact on denial of pension benefits for a large number of employees. The High Court had observed that Rs.15,000/- monthly income was a very low threshold as a manual labourer will also get at least Rs 500 as daily wages. Therefore, the High Court expressed the concern that...

EPF Pension Case : 2014 Amendment Not Whimsical, Classification Based On Salary Reasonable - Reasons Cited By Supreme Court

Manu Sebastian

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EPF Pension Case : 2014 Amendment Not Whimsical, Classification Based On Salary Reasonable - Reasons Cited By Supreme Court

Manu Sebastian

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