2018 (10) TMI 1659 - HC - Indian Laws

Employees' Pension Scheme amendments deemed arbitrary & set aside, granting employees contribution flexibility.

MR P. SASIKUMAR AND OTHERS Versus UNION OF INDIA (UOI), SUB REGIONAL PROVIDENT FUND COMMISSIONER, MALAPPURAM DISTRICT CO-OPERATIVE BANK AND REGIONAL PROVIDENT FUND COMMISSIONER EMPLOYEES PROVIDENT FUND ORGANISATION (EPFO)

The court found the Employees' Pension (Amendment) Scheme, 2014, to be arbitrary, ultra vires, and unsustainable. The amendments were set aside, allowing ... Refusal of the respondents to extend the provisions of the Employees Pension Scheme, 1995 to them - changes brought about by the Employees' Pension (Amendment) Scheme, 2014 - Whether the provisions of the Employees Pension Scheme, 1995 and the Employees' Pension (Amendment) Scheme, 2014 are valid and sustainable or not? Held that:- Considering the fact that, the pension fund is created for the purpose of providing succour to the employees in the their old age, taking into account the further fact that the fund is created by collecting contributions from the employers and employees, casting no financial burden on the State, it follows that no scheme that defeats the purpose of the enactment by reducing the pension payable to the employees in their old age to a ridiculously low amount, which is not sufficient even for ensuring a decent life to them, cannot be sustained. There is no justification for stealing bread from the mouths of the pensioners to secure the Pension Fund. Though the Fund is replenished by the present workers, its beneficiaries are the old and infirm former workers; the pensioners. The Fund is meant for their sustenance. The stated objective of the amendments is to prevent depletion of the fund. The said apprehension is absolutely baseless. The number of persons who are contributing to the Provident Fund as well as the Pension Fund have only grown over the years. The work force in our country would only grow further in the future. It has to be stated here that in view of the increase in the number of workers over the years, the contributions would also grow. The phenomenon is only bound to continue in future. Therefore, even when payments of pension are made to the retired employees, the pension fund would continue to get replenished with the contributions of the new entrants. The said ongoing process would maintain the Fund in a stable condition. If at all, a situation where the Fund base gets eroded occurs, the situation could be remedied at that time by enhancing the rates of contributions of persons contributing to the Fund through a legislative exercise. The attempt to maintain the stability of the fund by reducing the pension would only be counter productive and would defeat the very purpose of the enactment. The object sought to be achieved is stated to be prevention of depletion of the Pension Fund, which cannot be accepted as a justification to support the classification. Inasmuch as the statutory scheme is to make the Pension Fund enure to the benefit of the homogeneous class of the totality of employees covered by the Provident Fund, a further classification of the said class by formulating a Scheme is ultra vires the power available to the Central Government under Sections 5 and 7 of the EPF Act. Therefore, it has to be held that, the impugned amendments are arbitrary, ultra vires the EPF Act and unsustainable. Petition allowed. Issues Involved:1. Validity of the Employees Pension Scheme, 1995 and the Employees' Pension (Amendment) Scheme, 2014.2. Stipulation of a cut-off date for exercising the option to contribute on actual salary.3. Capping of the maximum pensionable salary at Rs. 15,000.4. Requirement for additional contribution of 1.16% by employees.5. Calculation of pensionable salary based on the average salary over 60 months.Detailed Analysis:1. Validity of the Employees Pension Scheme, 1995 and the Employees' Pension (Amendment) Scheme, 2014:The petitioners, employees of various establishments covered by the EPF Act, challenged the validity of the Employees Pension Scheme, 1995, and the amendments made in 2014. The court noted that the EPF Act was designed to provide terminal benefits to employees, with the pension fund constituted by transferring 8.33% of the employer's contribution under Section 6 of the Act. The amendments were scrutinized to determine if they aligned with the legislative intent and statutory provisions.2. Stipulation of a Cut-off Date for Exercising the Option:The court found that the stipulation of a cut-off date for exercising the option to contribute on actual salary was unsustainable. It was held that the proviso to paragraph 11(3) of the Pension Scheme did not stipulate a cut-off date, and any such stipulation would classify employees arbitrarily. The Supreme Court had also dismissed the stipulation of a cut-off date in similar contexts, reinforcing that such dates should not limit the employees' rights to opt for higher contributions.3. Capping of the Maximum Pensionable Salary at Rs. 15,000:The amendment capping the maximum pensionable salary at Rs. 15,000 was deemed arbitrary and unrealistic. The court highlighted that the cap would deprive employees who contributed based on their actual salaries from receiving benefits proportional to their contributions. The court emphasized that a cap of Rs. 15,000 was not reflective of current wage realities, where even manual laborers earn more, thus failing to ensure a decent pension for retirees.4. Requirement for Additional Contribution of 1.16% by Employees:The court held that the requirement for an additional contribution of 1.16% by employees on salaries exceeding Rs. 15,000 was unsustainable. Section 6A of the EPF Act did not contemplate any additional payment by employees beyond the stipulated contributions. Therefore, the demand for extra contributions lacked statutory backing and was ultra vires.5. Calculation of Pensionable Salary Based on the Average Salary Over 60 Months:The amendment changing the calculation of pensionable salary from the average of the last 12 months to the average of the last 60 months was found to be arbitrary. The court noted that this change would significantly reduce the pension payable to employees, which was against the objective of providing adequate support to retirees. The court rejected the justification that this amendment was necessary to prevent fund depletion, citing the lack of supporting evidence and the presence of substantial unclaimed funds.Conclusion:The court concluded that the Employees' Pension (Amendment) Scheme, 2014, was arbitrary, ultra vires, and unsustainable. The amendments were set aside, and all consequential orders and proceedings based on the amendments were also nullified. The court allowed employees to exercise the option to contribute based on their actual salaries without being restricted by any cut-off date. No costs were awarded.Orders:1. The Employees' Pension (Amendment) Scheme, 2014, is set aside.2. All consequential orders and proceedings based on the amendments are nullified.3. The proceedings denying employees the opportunity to exercise a joint option for higher contributions are set aside.4. Employees are entitled to exercise the option under paragraph 26 of the EPF Scheme without any date restrictions.5. No order as to costs.