Analysis of the Supreme Court Judgement on Monthly Pension Under the Employees’ Pension Scheme, 1995 By S. Sensharma

A three-judge Bench of the Supreme Court in SLP (Civil) Diary No. 9610/2019 on 01.04.2019 dismissed the appeal filed by EPFO against Sunil Kumar & ors on the ground that there is no merit in the Special Leave Petition.

The EPFO had filed the SLP against the judgment dated 12.10.2018 in Writ Petition (C) No. 602/2015 & Writ Petition (C) No. 13120/2015 passed by the High Court of Kerala at Ernakulam.

The Employees’ Provident Fund Act, 1952 provides for the formulation of a scheme for the creation of a Provident Fund Account in the name of each employee of a covered establishment. The fund was to be constituted by depositing an employee’s share @10% or 12% of the basic wages plus DA. The employer is also required to contribute an identical amount. Section 6A authorized the creation of a scheme for the purpose of providing pension to the employees. Accordingly, the Employees’ Pension Scheme, 1995 was framed.

The corpus of the pension fund was to be constituted by transferring 8.33% out of the employers’ contribution under Section 6 of the EPF & MP Act, 1952. As per the Scheme, the maximum pensionable salary was initially fixed as Rs. 5000.00 per month which was enhanced to Rs. 6500.00 per month vide GSR No. 774 (E) dated 08.10.2001  w.e.f 01.06.2001.

In the year 1996, a proviso to paragraph 11(3) of the Pension Scheme was incorporated vide Notification No. GSR No. 134 dated 28.02.1996 w.e.f. 16.03.1996. The proviso read as under:

“Provided that if at the option of the employer & employee, contribution paid on the salary exceeding Rs. 6500.00 per month from the date of commencement of the scheme or from the date salary exceeds Rs. 6500.00 per month whichever is later, & 8.33% share of employers thereof is remitted into the Pension fund, pensionable salary shall be based on such higher salary.”

This proviso granted an option to the employer & the employee to contribute amounts towards the Pension Fund @ 8.33% of the actual salary drawn by the employee where the salary exceeds Rs. 6500.00 per month.

However, the Provident fund authorities were of the view that under the proviso to the paragraph 11(3) of the Pension Scheme, there was a cut-off date of 01.12.2004 and on this basis; they had rejected the options exercised by some of the employees. This issue was finally decided by the Supreme Court vide its judgment dated 04.10.2016 in Civil Appeal Nos. 10013-10014 of 2016 R C Gupta & ors vs. RPFC. The Supreme Court observed that the reference to the date of commencement of the scheme or the date on which the salary exceeds the ceiling limit of Rs. 6500.00 per month are dates from which the option exercised are to be reckoned with the calculation of pensionable salary. The said dates were not cut off dates to determine the eligibility of the employer-employee to indicate their option under the proviso to paragraph 11(3) of the Pension Scheme.

The Court was also of the view that how exercise of option under paragraph 26 of the EPF Scheme can be construed to estop the employees from exercising a similar option under paragraph 11(3). If both the employer & employee opt for deposit against the actual salary and not the ceiling amount, the exercise of option under paragraph 26 of the Provident fund scheme is inevitable. Exercise of such option, would not foreclose the exercise of further option under paragraph 11(3) of the Pension scheme.

Finally, the Court directed that the appellant-employees would be entitled to the benefit of deposit of 8.33% of their actual salary in the Pension fund irrespective of the ceiling limit. The Court also took note that a similar petition SLP (C) No. 7074 of 2014 against the judgment dated 05.03.2013 in Writ appeal No. 1135 of 2012 passed by Kerala High Court at Ernakulam between EPFC vs A. Majeed Kunju has been dismissed by another bench of the supreme Court vide order dated 31.03.2016.

The resultant position after the aforesaid two judgments is that a joint application made by the employer-employee cannot be rejected for the reason that, the same was not made before the stipulated date.

Now, coming back to the present issue, it is stated that an amendment to the Pension Scheme was made vide Notification No, GSR 609(E) dated 22.08.2014 w.e.f. 01.09.2014. As per the said amendment, the pensionable salary was altered to mean average monthly pay drawn in any manner, including on piece rate basis, during the contributory period of service comprising of a span of 60 month preceding the date of exit from the membership of the pension fund. The pensionable salary shall be determined on pro-rata basis for the pensionable service upto the first day of September 2014, subject to a maximum of Rs. 6500.00 per month and for the period thereafter at the maximum of Rs. 15000.00 per month. It is stipulated that the maximum pensionable salary shall be limited to Rs. 15000.00 per month.

Paragraph 11(4) of the Pension Scheme has been amended to confer an option on the existing members as on 1.9.2014 to submit a fresh option jointly with their employer to continue to contribute on salary exceeding Rs.15000.00 per month. Upon such option, the employee would have to make a further contribution at the rate of 1.16% on the salary exceeding Rs.15000.00, additionally. Such fresh option would have to be exercised within a period of six months from 1.9.2014. A power to condone the omission to exercise fresh option within the said period of six months by a further period of six months is conferred on the Regional  Provident Fund Commissioner. If no such option is made, the contribution already made in excess of the wage ceiling limit would be diverted to the Provident Fund Account, along with interest.
The proviso to paragraph 11(3) of the Pension Scheme, mentioned herein above, was omitted vide this amendment. As per the amendments, the maximum pensionable salary has been fixed at Rs.15,000/- thereby disentitling the persons who have contributed on the basis of their actual salaries to any benefits on the basis of the excess contributions made by them.
This amendment was challenged in Writ Petition (C) No. 13120 of 2015 by P. Sasikumar & ors vs UOI before the Kerala High Court. The main issue before the High Court was whether the Employees’ Pension (Amendment) Scheme, 2014 was valid & sustainable or not?

The High Court after analyzing the law was of the view that to limit the maximum salary at Rs.15000.00 for pension would deprive most of the employees of a decent pension in their old age. Since the pension scheme is intended to provide succour to the retired employees, the said object would be defeated by capping the salary. The duty of the trustees of the Fund is to administer the same for the benefit of the employees - by wise investments and efficient management. They have no right to deny the pension legitimately due to them on the ground that the fund would get depleted. The demand of additional payment of 1.16% of their salaries exceeding Rs.15000.00 is unsustainable for the reason that, Section 6 A does not require the employees to make any additional contribution to constitute the Pension Fund. Nor does it empower the authorities to demand additional contribution. In the absence of any statutory backing, the said provision in the Pension Scheme is ultra vires. The amendment in so far as it stipulates the average monthly pay drawn over a span of 60 months preceding the date of exit as the pensionable service is also arbitrary for the reason that it deprives the employees of a substantial portion of the pension to which they would have been eligible had it not been for the amendment. There is no provision in the Act that stipulates the pension payments to commensurate with the amounts actually remitted by an employee and his employer. It is also a fact that the administrators of the Fund invest the amounts and generate profit from such investments.
The High Court allowed the Writ Petitions as follows:
i) The Employee's Pension (Amendment) Scheme, 2014 brought into force by Notification No. GSR 609(E) dated 22.8.2014 is set aside;
ii) All consequential orders and proceedings issued by the Provident Fund authorities/respondents on the basis of the impugned amendments shall also stand set aside.
iii) The various proceedings issued by the Employees Provident Fund Organization declining to grant opportunities to the petitioners to exercise a joint option along with other employees to remit contributions to the Employees Pension Scheme on the basis of the actual salaries drawn by them are set aside.
iv) The employees shall be entitled to exercise the option stipulated by paragraph 26 of the EPF Scheme without being restricted in doing so by the insistence on a date.
As mentioned above, this judgment has been upheld by the Supreme Court.
However, this does not mean that employees are in for a big windfall. They will have to forego a significant chunk of their provident fund balance if they opt for higher pension. Employees covered by Employees’ Provident Fund will now be eligible for pension as per their full last drawn salaries.  The readers may note that the cap of Rs 15,000 on the basic wages was removed by the Kerala High Court, which was affirmed by the Supreme Court, employees would be eligible to get pension based on their actual basic wages plus DA.  Nevertheless, to get this higher pension, he will have to deposit more in the Employee’s Pension Scheme to make up for the shortfall in the previous years. Employees desiring a higher pension will have to divert this amount from their Employees’ Provident Fund corpus to the Employee’s Pension Scheme.

Those who contribute to PF on a salary higher than Rs 15000, that higher amount will be the Pensionable Salary. Since the average pensionable salary for the 12 months preceding the date of retirement is the base salary for calculation of pension, he will get pension based on the actual monthly contribution. At the same time, if his Provident Fund is capped to Rs 15000, only Rs 15000 will be taken as base for Pension calculation. In order to get higher pension, he should have contributed to PF on higher salary. Since the Pensionable salary is the average of 12 months’ pay preceding the date of retirement, any increase in PF contributing salary during this period would also benefit the employee.

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