Supreme Court Upholds Validity Of Employees Pension (Amendment) Scheme Of 2014, Quashes Rs 15,000 Salary Limit [Read Judgment]

A Supreme Court Bench of Chief Justice Uday Umesh Lalit, Justice Aniruddha Bose, and Justice Sudhanshu Dhulia has held the provisions of the Employee's Pension (Amendment) Scheme 2014 to be valid and legal and quashed the salary limit of Rs. 15,000.

In this case, judgments of the High Courts of Kerala, Rajasthan, and Delhi were assailed, which had quashed the Employee's Pension (Amendment) Scheme, 2014. The 2014 notification had increased pensionable salary to Rs. 15,000/-, among other modifications that restricted the scheme's coverage.

Making an observation regarding the post-amendment context, the Supreme Court said "the maximum pensionable salary was to be kept to Rs.15000/­ per month, raising the earlier ceiling of Rs.6500/­ per month. It was also provided that an existing member who, at the option of the employer and employee as on 1st September 2014, had been contributing on a salary exceeding Rs.6500/­ per month could exercise fresh option jointly with the employer to continue to remain in the fund even if the salary went beyond Rs.15000/­ per month and the pensionable salary for the existing member exercising such an option was to be based on the higher salary."

The main submission of the employees in support of the judgments under appeal was that there was no additional burden imposed on the provident fund authorities or the Central Government if the earlier system continued and no cut­off date was factored in, as entry into the hybrid regime of provident fund plus pension beyond the ceiling limit only entailed switching of funds.

The Supreme Court noted the concern expressed by the Kerala High Court with regard to the impact on the economic stability of retired employees being suddenly deprived of pension. In that regard, the Court observed that "based on such macro­level social disparities, we do not think in exercise of judicial power we can require the State to operate a pension scheme in a particular manner. These factors would be for the policy makers to examine and prescribe. We cannot issue directions on the Central Government to work out statutory scheme in a particular fashion. So far as fixing of cut­off date is concerned, the 2014 amendment specifically provides for that."

The scheme's requirement for employee's contribution to the extent of 1.16 per cent for option members was held to be illegal by the Apex Court. In that context, the Court said that "There is nothing in the 1952 Act which requires payment to the pension fund by an employee. Section 6A of the Act also does not have any such stipulation. Since the Act does not contemplate any contribution to be made by an employee to remain in the scheme, the Central Government under the scheme itself cannot mandate such a stipulation. What is to be considered here is that for the mandatory members, the Central Government continues to contribute the requisite 1.16 per cent of their salary. For option members, additional contribution by them is contemplated in order to remain in the scheme. In such a situation, in our opinion, a legislative amendment of the Act would have been necessary, providing for contribution to be made by an employee." Therefore, the Court suspended the operation of the mentioned part of the judgment for a period of 6 months to allow the legislature to consider necessity of bringing appropriate legislative amendment and ordered that the scheme will continue for the period. Further, the Court ordered that if no amendment to the scheme was made in the specified period of time, then the administrators of the fund will have to operate the pension fund for the option members from out of the existing corpus.

With regard to the change in the method of computing the pensionable salary, the Court held that there was a reasonable basis for effecting change in the computation methodology, and it did not find any illegality or unconstitutionality in effecting the amendment.

Addressing the question as to whether the members from an exempted establishment under the 1952 Act would be entitled to the benefits of enrolling in the scheme beyond the ceiling limit, the Court noted that "The employees of exempted establishments are integrated into the pension scheme and we are of the opinion that the employees of an exempted establishment should not be deprived of the benefit of getting option to remain in the pension scheme while drawing salary beyond the ceiling limit, in situations where similarly situated employees of unexempted establishments can exercise such option. In the event the scheme is construed in a way which would exclude them, that would lead to artificial classification of otherwise same categories of employees. Thus, the pension scheme ought to apply to the employees of the exempted establishments in the same manner as this scheme applies to the employees of unexempted or regular establishments." and made the observation that "in order to be entitled to the benefits of the pension fund, the employer and the employee, simultaneously with exercising option in terms of the order of this Court, shall also have to give an undertaking of transferring the employers' contribution at the stipulated rate maintained by the trusts, which shall be equivalent to and not lower than the sum which would have been transferable, had such fund been maintained by the provident fund authorities. Such transfer shall take place, immediately after exercise of such option, within such period as may be directed by the administrators of the pension fund."

It had also been argued that no vested legal right of the employees had been encroached upon by the 2014 amendment, in response to which the Court observed that "the eligibility for enhancement cannot be restricted to those employees only who had exercised the option to remain in the scheme once their salary went beyond the capping of Rs. 6500/-­ per month.", and also held that "the interpretation given to the proviso to paragraph 11(3) prior to 2014 amendment does not require any reconsideration. We agree with the reasoning of the two­judge Bench of this Court on this point, as expressed in the said judgment. As there was no cut­off date to be contemplated prior to the 2014 amendment, limiting the entitlement of enhanced pension coverage to those employees only who had already exercised an option under Clause 11(3) of the unamended scheme would be contrary to the ratio of the decision of this Court held in the case of R.C. Gupta."

Making an observation on the dual option contemplated in paragraph 11(4) of the post-amendment pension scheme, the Court held that the dual option must be merged into one, and clarified that in the event the employer and employee jointly opt for coverage beyond the salary limit of Rs. 15000/­, without giving an earlier option under the unamended Clause 11(3) of the pension scheme, they would not be automatically excluded from their right to exercise option under paragraph 11(4) of the scheme, post amendment.

Further, the Court took the view that the time limit for coverage beyond the ceiling amount should be extended by a further period of four months from today to enable all the members of the pension fund drawing more than Rs.6500/­- to exercise the joint option as contemplated in paragraph 11(4) of the post-amendment pension scheme. The Court further specified that once such joint option is exercised, the transfer of fund from the provident fund corpus to the pension fund shall be effected in terms of the scheme.

The Apex Court issued directions accordingly, and disposed the petitions. No orders were passed as to costs.

Cause Title: The Employees Provident Fund Organisation & Anr Etc vs Sunil Kumar B & Ors Etc.

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