SC begins hearing of EPFO appeal against Kerala High Court judgment
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SC begins hearing of EPFO appeal against Kerala High Court judgment

By Hindu.

Posted Date:   2nd  August 2022

Relating to which  Act:  The  Employees Provident Funds & Miscellaneous Provisions Act, 1952

Type: Judgement

Pertains to Employer or Employee or both 

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Subject:   SC begins hearing of EPFO appeal against Kerala High Court judgment


SC begins hearing of EPFO appeal against Kerala High Court judgment

The Kerala HC set aside amendments on ‘determination of pensionable salary’ under the Employees’ Pension Scheme of 1995 as ‘ ultra vires’

A three-judge Bench of the Supreme Court on Tuesday began the much-awaited hearing on an appeal filed by the Employees Provident Fund Organisation (EPFO) against a decision of the Kerala High Court setting aside amendments on the “determination of pensionable salary” under the Employees’ Pension Scheme (EPS) of 1995 as “ ultra vires”.

Appearing before a Bench of Justices U.U. Lalit, Aniruddha Bose and Sudhanshu Dhulia, the EPFO, represented by senior advocate Aryama Sundaram and advocate Rohini Musa, argued that these amendments which came in September 2014 were meant to grant a “minima of guaranteed retiral benefits” to the most socio-economically vulnerable members of the Employees Provident Fund Scheme (EPFS).

Mr. Sundaram explained that from the arrival of the EPS in 1995 till the introduction of amendments on September 1, 2014, membership of the EPFS had entailed membership of the EPS. Both mandatory members and options members became entities to the EPS for reckoning pensionable salary up to the wage threshold.

From September 1, 2014, the Centre prospectively confined the membership of the EPS to only mandatory members of the EPFS. This decision was arrived at after observing membership of EPS annually since its inception in 1995.

“The rationale behind this decision is that while EPFS must remain inclusive and grant provident funds to as many employees who wish to opt for it, EPS must ensure that a minimum of guaranteed retiral benefits must remain available to socio-economically most vulnerable members of EPFS,” Mr. Sundaram submitted.


‘Pension to vulnerable class’

He said the EPS had discharged this role by guaranteeing pension to a vulnerable class of employees even when the contributions received for them were inadequate.

“EPS acts as a bulwark against inadequacies of the EPFS for its most vulnerable members,” the senior advocate said.

He contended that the Kerala High Court judgment of 2018 had “destroyed this role of EPS by deciding that benefits under it must become available to all members of EPFS homogeneously”. The judgment had ignored the dissimilarity between the EPFS and the EPS in their structures and roles.


‘HC had erred’

The EPFO argued that the High Court had erred in concluding that the amendments disturbed the rights of incumbent members. Mr. Sundaram said this could not be as membership to the EPS was amended only prospectively.

He said the High Court made the mistake of treating the EPFS as a homogeneous class.

“The EPFS does not constitute a homogeneous class. Those earning below the wage threshold are identified as socio-economically weak and are mandatory members of the EPFS. Those earning above it have the option to become members of the EPFS or choose other retiral benefits outside the Employees Provident Fund and Miscellaneous Provisions Act,1952,” the senior lawyer for the EPFO submitted.


Controversial amendments

The dispute revolves around the controversial amendments made to Clause 11(3) of the EPS-1995.

Challenges to the EPS amendments said they were skewed. The people who challenged the amendments came from all walks of life and work. They sought a more secure life with a decent pension.


Pensionable salary cap

In the earlier version of EPS-1995, the maximum pensionable salary cap was ₹ 6,500. However, members whose salaries exceeded this cap could opt, along with their employers, to contribute up to 8.33% of their actual salaries.

The amendments have raised the cap from ₹6,500 to ₹15,000. But the amendments said only employees, who were existing EPS members as of September 1, 2014, could continue to contribute to the pension fund in accordance with their actual salaries. They were given a window of six months to opt for the new pension regime.

However, the changed pension regime introduced through the amendments meant that someone who became an EPS member after September 1, 2014, would not get a pension on par with his or her actual salary.

“That is, even if your salary is ₹1 lakh, you will get a pension only for a salary of ₹15,000,” advocate Nishe Rajen Shonker, the advocate for the pensioners, explained.

The case concerns thousands of employees and pensioners who draw merely ₹2,000 or ₹3,000 as pension.

In a judgment in the R.C. Gupta case, the Supreme Court had said that a “beneficial scheme” like EPS-1995 “ought not to be allowed to be defeated by reference to a cut-off date like September 1, 2014.

Besides, the amendments created additional obligations for members whose salaries exceeded the ₹15,000 ceilings. They had to contribute at the rate of 1.16% of the salary in addition to their EPF contribution.

Again, the pensionable salary was an average of 12 months’ pay before the date of the employee’s exit from the EPS. The amendments have extended the period of calculation of average salary from 12 months to 60 months.

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