Supreme Court upholds Employees Pension Amendment Scheme of 2014 but reads down provisions, extends deadline to join

The Supreme Court on Friday upheld the validity of the 2014 Employees' Pension (Amendment) Scheme and set aside a judgment of the Kerala High Court which had quashed the scheme [EPFO vs Sunil Kumar and ors]..However, a bench of Chief Justice of India Uday Umesh Lalit and Justices Aniruddha Bose and Sudhanshu Dhulia read down certain provisions of the scheme by allowing employees in service to avail the benefit of the option under the Employees Pension Scheme (EPS), which permits the employer and employee to make uncapped pension contribution.Employees who did not exercise the option to join the scheme due to lack of clarity will be given another 4 months to exercise the same, the bench ruled.Pertinently, the bench upheld that its 2016 judgment in RC Gupta vs Regional Provident Fund Commissioner in which it was held that there can be no cut-off date to to avail benefit of the option under the scheme.However, employees who retired before the amendment on September 1, 2014 without exercising the option under para 11(3) of the unamended EPS, will not be eligible to the exercise option under the scheme. The Court also held that exempted and unexempted establishment are to be treated equally. However, and importantly, the Court in upholding the amendment scheme validated the ₹15,000 ceiling for computation of pension instead of actual salary. This part of the ruling will be in effect after six months so as to enable authorities to make adequate financial adjustments in the interim. .In a nutshell- Employees Pension (Amendment) Scheme of 2014 upheld but read down to benefit employees; - Employees who exercised option under para 11(3) of the unamended scheme and who were in service as on September 1, 2014 will be governed by amended para 11(4) of the scheme;- Employees in service who were not allowed to exercise option under proviso to 11(3) of the pre-2014 amendment shall be entitled to exercise the option under amended para 11(4). They have been given a deadline of 4 months to exercise the option under the Article 142 (Supreme Court's plenary powers to do complete justice); - Thus, the ruling in RC Gupta that there can be no cut-off date is upheld;- Employees who retired before September 1, 2014 without exercising the option under para 11(3) cannot avail the benefit of the judgment;-Employees who retired before September 1, 2014 after exercising the option under para 11(3) will be governed by pre-amendment scheme; - Ceiling of ₹15,000 for computing pension upheld..The judgment came in a batch of appeals, filed by the Employees Provident Fund Organisation (EPFO), challenged orders of the Kerala, Rajasthan and Delhi High Courts setting aside the 2014 Employees' Pension (Amendment) Scheme.The EPS was amended in 2014 to increase the maximum pensionable salary to ₹15,000 from ₹6,500.However, it excluded new members who earned above ₹15,000 and joined after September 2014 from the scheme completely. Existing members had to decide within six months from September 2014 on whether they wanted to exercise the option to make uncapped contributions.The amendments were then challenged before various High Courts leading to the present batch of appeals before the top court.The Kerala High Court in 2018 had, while setting aside the 2014 amendments to the scheme, allowed paying pension in proportion to the salary above the threshold limit of ₹15,000 per month. The Court had held that there can be no cut-off date for joining the pension scheme."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," the High Court had held.The Supreme Court in 2019 had dismissed the EPFO's appeal against the same. But in the review petition, the dismissal order was recalled and the case was reheard by a division bench. In August last year, the division bench of the apex court referred the appeals to a 3-judge bench in view of the 2016 decision in RC Gupta vs Regional Provident Fund Commissioner. The Court said that the following questions would be considered by the three-judge bench:Whether there would be a cut-off date under paragraph 11(3) of the Employees' Pension Scheme Whether the decision in RC Gupta would be the governing principle on the basis of which all these matters must be disposed.In the RC Gupta case, the issue before the Court was whether there was a cut-off date for employees to avail benefit of the option under the Employees Pension Scheme (EPS), which permits the employer and employee to make uncapped pension contribution.Initially, when the EPS was introduced in 1995, clause 11(3) of the scheme mandated that the maximum pensionable salary was limited to ₹5,000, which was subsequently enhanced to ₹6,500 per month in 2001.However, a couple of months after the EPS was framed, a proviso was added to Clause 11(3) with effect from March 16, 1996 permitting an option to the employer and an employee for contribution on salary exceeding ₹5,000 or ₹6,500 per month. 8.33 per cent of such contribution on full salary was required to be remitted to the Pension Fund.The appellant-employees in the RC Gupta case had, on the eve of their retirement i.e. sometime in the year 2005, taken the plea that the proviso brought in by the amendment of 1996 was not within their knowledge and, therefore, they may be given the benefit of the same, particularly, when the employer's contribution under the Act has been on actual salary and not on the basis of ceiling limit of either ₹5,000 or ₹6,500 per month.This contention was negatived by the Provident Fund Authority on the ground that the proviso visualized a cut-off date for exercise of option, namely, the date of commencement of scheme or from the date the salary exceeded the ceiling amount of ₹5,000 or ₹6,500 per month. As the request of the appellant-employees was subsequent to either of the said dates, the same cannot be acceded to, it was argued.The Supreme Court in RC Gupta had, however, turned down this argument holding that reference to the date of commencement of the scheme or the date on which the salary exceeds the ceiling limit, are dates from which the option exercised are to be reckoned with for calculation of pensionable salary."The said dates are not cut-off dates to determine the eligibility of the employer-employee to indicate their option under the proviso to Clause 11(3) of the Pension Scheme," the top court had said in RC Gupta verdict.Pertinently, the top court in that judgment had held that exercise of option under para 26 of the Provident Fund Scheme cannot be construed to estop the employees from exercising a similar option under para 11(3) of the pension scheme. .In the instant case, counsel for the EPFO argued that the pension and provident funds are distinct, and the former is not guaranteed by having claims over the latter. It was submitted that pension retirees and provident fund retirees did not form a homogeneous class and that the rules governing the Provident Fund Scheme were entirely different from the Rules governing Pension Scheme.Under the former scheme, the contributions made by the employer and the employees during the employment of the employee would be made over to the employee along with interest accrued thereon at the time of his retirement. Thus, the obligation on the part of the operators of the Provident Fund Scheme would come to an end, after the retirement of the employee; whereas the obligation under the Pension Scheme would begin when the employee retired. Under the former scheme, the liability was only to pay interest on the amount deposited and to make over the entire amount at the time of his retirement. On the contrary, in the latter scheme, it would be for the operators of the Pension Scheme to invest amount deposited in such a way that after the retirement of the concerned employee the invested amount would keep on giving sufficient returns so that the pension would be paid to the concerned employee not only during his life time but even to his family members after his death, it was argued.Thus, it was contended that if the option under paragraph 11(3) of the Scheme, was to be afforded well after the cut-off date, it would create great imbalance and would amount to cross-subsidization by those who were regularly contributing to the Pension Scheme in favour of those who come at a later point in time and walk away with all the advantages..[Read judgment]