TaxTMI 
TaxTMI 
TaxTMI 
2018 (10) TMI 1659
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....10, 30470, 32590, 33137, 33150, 33936, 35815, 36731, 37041, 37236, 37487, 37748, 38994, 39439, 6941, 13222, 13223, 16214, 23583, 26349, 661, 13194, 16605, 34180, & 24465 of 2015 & 31276, 3111, 4934, 4959, 4968, 4969, 5937, 5938, 5945, 5946, 5950, 10416, 11468, 12458, 13138, 14694, 17985, 17999, 18167, 18287, 18289, 18423, 18451, 18549, 18934, 19028, 19058, 19136, 19263, 19652, 20334, 20401, 20643, 20895, 20952, 21614, 21704, 21815, 22510, 22876, 23662, 24239, 24277, 24283, 26005, 26373, 26380, 26406, 26423, 26666, 26704, 26968, 27090, 27093, 27089, 27288, 27313, 27483, 27577, 27707, 27834, 28003, 28009, 28039, 28206, 28232, 28249, 28491, 28492, 28495, 28673, 28761, 28890, 29056, 29057, 29058, 29059, 29155, 29175, 29233, 29234, 29253, 29359, 29475, 29517, 29547, 29524, 29546, 29554, 29557, 29558, 29748, 29763, 29795, 29831, 29888, 30009, 30081, 30083, 30086, 30266, 30399, 30727, 30904, 30990, 31088, 31130, 31165, 31166, 31175, 31275, 31279, 31301, 31322, 31441, 31484, 31539, 31594, 31604, 31606, 31643, 31739, 31760, 31762, 31767, 31791, 31806, 31850, 32005, 32093, 32184, 32380, 32461, 32523, 32532, 32557, 32788, 32797, 32815, 32900, 32919, 32975, 33032, 33048, 33051, 33070, 33122, 3....
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.... have been challenged. Since the legal issues that arise for consideration are common, these cases have been heard together and are all disposed of by this common judgment. 2. The main question that arises for consideration here is whether the provisions of the Employees Pension Scheme, 1995 and the Employees' Pension (Amendment) Scheme, 2014 are valid and sustainable or not? 3. The bare facts necessary to be taken note of before the questions of law are addressed, are the following. As already noticed above, the petitioners are all employees of various establishments covered by the provisions of the EPF Act. The Act 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 at the rate of 10% or 12% of the basic wages including Dearness Allowance. The employer has also to contribute an identical amount, which together would constitute the Provident Fund. Initially, the Act did not provide for the creation of a Pension Fund or for the payment of pension. Later on, Section 6A was inserted, authorizing the creation of a scheme ....
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....gment unsuccessfully before a Division Bench of this Court in W.A.No.568 and 569 of 2012 and connected cases. Exhibit P3 is the appellate judgment. A special leave Petition filed against the said judgment was also dismissed. The resultant position is that a joint application made by the Employer and employee cannot be rejected for the reason that, the same was not made before the stipulated date. 6. In the above circumstances, the pension scheme was amended with effect from 01.09.2014. As per the said amendment, the pensionable salary has been altered to mean the average monthly pay drawn in any manner, including on piece-rate basis, during the contributory period of service comprising of a span of sixty months 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 up to the first day of September, 2014, subject to a maximum of Rs. 6500/- per month and for the period thereafter at the maximum of Rs. 15,000/- per month. The maximum pensionable salary shall be limited to Rs. 15000/- per month. Consequently, it is pointed out by the petitioners that the pension that is to be drawn by....
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....ct of the same. Therefore, it is contended that the Writ Petitions are only to be dismissed. 8. According to Advocate P.N.Mohanan, the Pension Scheme had come into force on 16.11.1995. Initially Rs. 6,500/-was stipulated as the salary. Later on, an option was given to employees drawing higher pay to contribute on the basis of their actual salaries, irrespective of the limit. However, a cut off date was stipulated for the purpose of exercising such option, which was 01.12.2004. The stipulation of the cut off date was challenged in W.P.(C) No.6643 of 2007 and connected cases. As per exhibit P2 judgment dated 04.11.2011 evidenced in W.P.(C) No.1312 of 2015 by exhibit P2, this Court held that the stipulation of a cut off date was unsustainable. Though the matter was carried in appeal before the Division Bench, W.A.No. 1137 of 2012 was also dismissed by exhibit P3 judgment. A Special Leave Petition filed before the Supreme Court was also dismissed. Therefore, according to the learned counsel, no stipulation regarding a cut off date is permissible. Reliance is placed on exhibit P12 judgment of the Supreme Court to point out that stipulation of a similar cut off date was held to be unsus....
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....Scheme, 1952 (hereinafter referred to as the 'EPF Scheme' for short), no further option under the pension scheme is necessary and cannot be insisted upon. Reliance is placed on the decision of the Apex Court in Mafatlal Group Staff Association v. Regional Commissioner Provident Fund [(1994) 4 SCC 58)] particularly paragraph 10 to contend that the pension scheme is essentially a social welfare measure that should serve the social purpose for which it is brought into force. As per the present scheme, the pension payable to the employees would be drastically cut. They do not get any benefit that is commensurate with the contribution paid by them. Therefore, they stand to lose the benefit of their contribution. It is contended that, the authorities have no power to limit the pension payable by prescribing a limit on the pensionable salary. The manner of computing the pensionable service of an employee is also unsustainable. The counsel places reliance on the decision in Amrit Lal Berry v. Collector of Central Excise, New Delhi [(1975) 4 SCC 714] and Kunj Behari Lal Butail v. State of H.P. [(2000) 3 SCC 40] to contend that, the impugned provisions of the Scheme are ultra vires t....
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....f a ceiling limit is violative of the said provision. According to the learned counsel, an employee retiring on 31.08.2014 would draw a higher pension than a person retiring after 01.09.2014. Reliance is placed on the decision in State of Jharkhand v. JitendraKumar Srivastava [AIR 2013 (4) SC 3383] to contend that, pension is the benefit earned by an employee during his service. The same is property of which he cannot be deprived of, other than in accordance with the due process of law. Therefore, it is contended that the amendments are unsustainable and liable to be set aside. 13. Advocate Ajith Joy points out that, the amendments create different categories of employees with some drawing higher amounts of pension while the other draw only much lesser amounts. Thus, the employees are treated differently without any rational basis leading to discrimination that is unsustainable under Article 14 of the Constitution. The employees are also being burdened with the liability to make an additional contribution of 1.16% on the salary exceeding Rs. 15,000/-. There is no justification for the fresh option that is contemplated by the amendment. There is no cut off date in paragraph 26(6) o....
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....nd what has been done is only to shift the same to the employees. No liability to pay any amount on the enhanced salary was ever assumed by the Government. According to the learned Senior Counsel, if the employees who are contributing to the fund on the basis of their actual salaries are paid pension computed on the basis of the average pay drawn by them during the period of twelve months preceding their retirement, they would draw pension in excess of their contribution. In other words, pension computed on the said basis would not be commensurate with the contribution received from them. What the amendments have envisaged is only to make available to the employees pension that is commensurate with the contribution received from them. Any other course would result in depletion of the pension fund itself to the prejudice of a large section of employees who are low paid and under privileged. Reliance is placed on various decisions of the Apex Court to contend that the decision on the quantum of benefits made available to the employees was a policy decision taken by the Central Government after considering various inputs. For the above reason, it is contended that the Courts would be ....
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....es, with no contribution from the State Exchequer. 17. As noticed above, the EPF Act was enacted by the Parliament with the object of providing certain terminal and other benefits to the employees of factories and other establishments, that were to be notified under the Act. The contributions are to be compulsorily extracted with no option available to the employees to decide whether to join the fund or not. Thus a stipulated percentage of the monthly wages of each employee is directed to be deducted and credited to the Employees Provident Fund. The employer is also liable to contribute an equal amount to the fund. Section 5 of the EPF Act reads as under. "5. Employees' Provident Fund Schemes.-(1) The Central Government may, by notification in the Official Gazette, frame a Scheme to be called the Employees' Provident Fund Scheme for the establishment of Provident Funds under this Act for employees or for any class of employees and specify the establishments or class of establishments to which the said Scheme shall apply and there shall be established, as soon as may be after the framing of the Scheme, a Fund in accordance with the provisions of this Act and the Scheme. ....
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....shall apply. Therefore, it is under the said provision that the Central Government has to specify the employees or class of employees and the establishments and class of establishments to which the Scheme shall apply. Sub Section (3) of Section 1 that stipulates the extent of application of the EPF Act being relevant in the context, is extracted hereunder. "[(3) Subject to the provisions contained in Section 16, it applies-- (a) to every establishment which is a factory engaged in any industry specified in Schedule I and in which twenty or more persons are employed, and (b) to any other establishment employing twenty or more persons or class of such establishments which the Central Government may, by notification in the Official Gazette, specify in this behalf: Provided that the Central Government may, after giving not less than two month's notice of its intention so to do, by notification in the Official Gazette, apply the provisions of this Act to any establishment employing such number of persons less than twenty as may be specified in the notification." The above provision refers to the power of the Central Government to notify an establishment employing less than....
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....shall cease to operate and all assets of the ceased Scheme shall vest in and shall stand transferred to, and all liabilities under the ceased Scheme shall be enforceable against, the Pension Fund and the beneficiaries under the ceased Scheme shall be entitled to draw the benefits, not less than the benefits they were entitled to under the ceased Scheme, from the Pension Fund. (4) The Pension Fund shall vest in and be administered by the Central Board in such manner as may be specified in the Pension Scheme. (5) Subject to the provisions of this Act, the Pension Scheme may provide for all or any of the matters specified in Schedule III. (6) The Pension Scheme may provide that all or any of its provisions shall take effect either prospectively or retrospectively on such date as may be specified in that behalf in that Scheme. (7) A Pension Scheme, framed under sub-section (1), shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the succ....
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....he amounts already available as part of the provident fund. 21. Paragraph 26 of the EPF Scheme specifies the classes of employees entitled and required to join the fund. The said provision reads as under:- "26. Classes of employees entitled and required to join the Fund.-(1)(a) Every employee employed in or in connection with the work of a factory or other establishment to which this Scheme applies, other than an excluded employee, shall be entitled and required to become a member of the Fund from the day this paragraph comes into force in such factory or other establishment. (b) Every employee employed in or in connection with the work of a factory or other establishment to which this Scheme applies, other than an excluded employee, shall also be entitled and required to become a member of the fund from the day this paragraph comes into force in such factory or other establishment if on the date of such coming into force, such employee is a subscriber to a provident fund maintained in respect of the factory or other establishment or in respect of any other factory or establishment (to which the Act applies) under the same employer: Provided that where the Scheme applies to ....
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....ce. No employee has any other option. However, Sub paragraph 6 of the above provision gives an option to an employee to make contributions to the provident fund on the basis of the actual salary drawn by him. 23. Paragraph 26A that deals with retention of membership in the fund reads as follows:- "26-A. Retention of membership.-(1) A member of the Fund shall continue to be member until he withdraws under paragraph 69 the amount standing to his credit in the Fund or is covered by a notification of exemption under section 17 of the Act or an order of exemption under paragraph 27 or paragraph 27-A. (2) Every member employed as an employee other than an excluded employee, in a factory or other establishment to which this Scheme applies shall contribute to the fund, and the contribution shall be payable to the fund in respect of him by the employer. Such contribution shall be in accordance with the rate specified in paragraph 29: Provided that subject to the provisions contained in sub-paragraph (6) of paragraph 26 and in sub-paragraph (1) of paragraph 27, or sub-paragraph (1) of paragraph 27-A, where the monthly pay of such a member exceeds fifteen thousand rupees the contributi....
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....ons, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the notification, or both Houses agree that the notification should not be issued, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that notification." 26. The effect of the above provisions is that, a scheme has to be framed under Sub section 1 of Section 5 of the EPF Act. Such scheme as already noticed above, is for establishing a provident fund for the employees of the establishment to which the scheme shall apply. Such scheme has been made subject to the provisions of the EPF Act by Section 5(1D) of the Act. Therefore, there cannot be any doubt that the scheme to be framed by the Central Government and the modification to be effected thereto by Section 7 shall be subject to the provisions of the EPF Act. In view of the above, it has next to be examined whether the provisions of the impugned pension scheme have exceeded the ....
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....oyers and employees of establishments covered by the provisions of the said enactment. The Pension fund is constituted by transferring 8.33% of the contributions made by the employers to the Provident Fund, with no additional contribution from the employees. Thus, the scheme ensures that the State Exchequer would not be burdened with any financial liability while at the same time ensuring that the employees are assured of a decent pension in their old age. Therefore, it is necessary to consider the effect of the amendments that are impugned in the light of the object of the enactment and to ascertain whether the amendments would subserve an attainment of the said objective. 29. As per the impugned amendments, the following changes have been effected: (i) Paragraph 11 of the Pension Scheme limits the maximum pensionable salary to Rs. 15,000/- per month. Prior to the amendment, though the maximum pensionable salary was only Rs. 6,500/- per month, the proviso to the said paragraph permitted an employee to be paid pension on the basis of the actual salary drawn by him provided, contribution was remitted by him on the basis of the actual salary drawn by him preceded by a joint reques....
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....p; .................. 39. It is submitted that various benefits envisaged under the Employees' Pension Scheme, 1995 are actually conceived by adopting a fair actuarial process of assets/liability match. The annual valuation is carried out by a professional Actuary and assesses the long term viability of the EPS given its current and projected earnings, assets and liabilities. The valuation reports as on 31/03/2012, 31/03/2013 and 31/03/2014 revealed that the benefits liability of the members contributing on higher wages is disproportionately higher than those contributing below the wage ceiling. It can be seen from the report for the year ending 31.03.2014 that the percentage of members contributing on wages higher than the wage ceiling is only 0.41% whereas the benefit obligation is 7.31%. Accordingly, the said proviso has now been omitted with effect from 01/09/2014 vide Ext.P-6 Notification dated 22/08/2014. The amendment is....
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....le. The above contention cannot be accepted as a legal and valid ground for scaling down the quantum of pension that the employees are entitled to receive, as per law. We have noticed that, as per the Scheme of the Act, the Pension Fund is constituted by transferring 8 1/3% of the employer's contribution remitted to the Employees Provident Fund under Section 6 of the EPF Act, without making the employees liable for any further contribution. We have found that the Pension Scheme was to enure to the benefit of all the employees who were covered by the Employees Provident Fund Scheme. Since an option was given to employees to make contributions in excess of the ceiling limit, and on the basis of the actual salaries drawn by them, no other restriction can be imposed on their right to receive pension. No additional payment by the employees is also contemplated by Section 6A of the EPF Act. Therefore, the insistence on payment of additional 1.16% of their salary towards the Pension Fund by amending the Pension Scheme also cannot be sustained. The Apex Court has considered an allied aspect in Civil Appeal Nos. 10013-10014 of 2016 (arising out of SLP (C)Nos. 33032-33033 of 2015) and he....
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....graph 11 of the Pension Scheme does not stipulate a cut off date at all. Any such stipulation of a cut off date for conferring benefits under the Pension Scheme would have the effect of classifying the employees into persons who have retired before or after the said date. 33. 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. The said provision is arbitrary and cannot be sustained. The employees, who have been making contributions on the basis of their actual salaries after submitting a joint option with their employers as required by the Pension Scheme, are denied the benefits of their contributions by the said amendments without any justification. Apart from the above, to cap the salary at Rs. 15,000/- for quantifying pension is absolutely unrealistic. A monthly salary of Rs. 15,000/- works out only to about Rs. 500/- per day. It is common knowledge that, even a manual labourer is paid more than the said amounts as daily wages. Therefore, to limit the maximum salary at Rs. 15,000/- for....
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....tors of the Fund invest the amounts and generate profit from such investments. 34. Apart from the above it is common knowledge that, the salary of all employees have gone up to such an extent that, at present even a Class-IV employee or a person employed in Menial jobs would be drawing salaries far in excess of the celing limit of Rs. 6500/-. Therefore, to cap the salary at Rs. 6500/- for the purpose of contributions is unrealistic. The authorities are turning a blind eye to the realities in the society by doing so. The further contention that the ceiling limit was intended to cater to the lower wage earners also has to be rejected for the reason that no such intention is discernible from the provisions of the Act. There would be no employee below the said ceiling limit, at present. Consequently, the allegation that there would be reverse subsidization is ill conceived. 35. It cannot be disputed that, the work force in our country has only been growing in numbers with more and more establishments springing into existence and getting covered by the provisions of the EPF Act. The contributions paid by them on the basis of the actual salaries drawn by the employees are constantly ad....
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....es 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. 38. As rightly contended by the counsel appearing for the petitioners, the effect of the amendments to the Pension Scheme is to create different classes of pensioners on the basis of the date, 1.9.2014, the date on which the amended Scheme came into force. Consequently, there would be - (i) employees who have exercised option under the proviso to paragraph 11(3) of the 1995 Scheme and continuing in service as on 1.9.2014; (ii) employees who have not exercised their option under the proviso to paragraph 11(3) of the 1995 Scheme, and continuing in service as on 1.9.2014; (iii) employees who have retired prior to 1.9.2014 without exercising an option under paragraph 11(3) of the 1995 Scheme; (iv) employees who have retired prior to 1.9.2014 after exercising the option under paragraph 11(3) of 1995 Scheme. The rationale in so classifying the employees covered by the Pension Scheme on the basis of the above date is not forthcoming. Th....