The Employees Provident Fund Organisation & Anr. etc. vs Sunil Kumar B. & Ors. etc.

12 and 14 of the 1995 scheme, whereby s. 6A was introduced to the said Act, which contemplated formulation of a scheme for employees’ pension and the pension fund was to comprise of deposit of 8.33 per cent of the employers’ contribution made towards provident fund corpus and determination of pensionable salary; that the maximum pensionable salary was enhanced from Rs.5000/- to Rs.6500/- by a notification G.S.R. 609(E) dated 22nd August 2014, to be effective from 1 st September 2014; that the Central Government was to contribute to the fund at the rate of 1.16 per cent of the pay of the members, the employees within the changed pension regime drawing more than Rs.15000/- per month have to also contribute at the rate of 1.16 % on salary exceeding Rs.15000/- as additional contribution each month under the amended provisions; fresh option was to be exercised by the member within a period of six months, and if not, it would be deemed that the concerned member has not opted for contribution over the wage Ceiling – Several writ petitions filed in different High Courts seeking invalidation of this notification – Writ petitions also filed u/Art. 32 challenging the Notifications – Held: Provisions contained in the notification no. G.S.R. 609(E) dated 22nd August 2014 are legal and valid – Amendment to the pension scheme brought about by the notification would apply to the employees of the exempted establishments in the same manner as the employees of the regular establishments – Employees who had exercised option under the proviso to paragraph 11(3) of the 1995 scheme and continued to be in service as on 1st September 2014, would be guided by the amended provisions of paragraph 11(4) of the pension scheme – Members, who did not exercise option, as contemplated in the proviso to paragraph 11(3) of the pension scheme (as it was before the 2014 Amendment) would be entitled to exercise option under paragraph 11(4) of the post amendment scheme – Scheme as it stood before 1st September 2014 did not provide for any cutoff date and thus those members shall be entitled to exercise option in terms of paragraph 11(4) of the scheme, as it stands at present – Time to exercise option under paragraph 11(4) of the scheme, under these circumstances, shall stand extended by a further period of four months – Employees who had retired prior to 1st September 2014 without exercising any option under paragraph 11(3) of the pre-amendment scheme have already exited from the membership thereof, thus, they would not be entitled to the benefit of this judgment – Employees who have retired before 1st September 2014 upon exercising option under paragraph 11(3) of the 1995 scheme shall be covered by the provisions of the paragraph 11(3) of the pension scheme as it stood prior to the amendment of 2014 – Requirement of the members to contribute at the rate of 1.16 per cent of their salary to the extent such salary exceeds Rs.15000/- per month as an additional contribution under the amended scheme is held to be ultra vires the provisions of the 1952 Act – Operation of this part of its order is suspended for a period of six months – No flaw is found in altering the basis for computation of pensionable salary – View taken by the Division Bench in the case of R.C. Gupta’s case so far as interpretation of the proviso to paragraph 11(3) (preamendment) pension scheme is concerned, is upheld – Fund authorities to implement the directives contained in the said judgment within the stipulated period – Impugned judgment modified accordingly – Constitution of India – Arts. 14 and142. Constitution of India: Art. 14 – Reasonable classification – Provident Funds Employees’ Pension Scheme, 1995 – Employees of the pension scheme – Held: Cannot be considered as a homogenous group – No distinction can be made among different categories of employees based on their monthly salary to determine for whom the scheme shall operate in a particular manner – It is within the power and authority of the statutory authorities to reasonably classify different sets of employees and categorise them for the nature of benefits they might get from an existing scheme – Classification of the employees made by the authorities on the basis of the salary drawn in the 2014 amendment meets the test of reasonable classification contemplated inArt. 14.

Allowing the appeals, the Court

HELD : 1. The provisions contained in the notification no. G.S.R. 609(E) dated 22nd August 2014 are legal and valid. So far as present members of the fund are concerned, this Court has read down certain provisions of the scheme as applicable in their cases. The amendment to the pension scheme brought about by the notification no. G.S.R. 609(E) dated 22nd August 2014 shall apply to the employees of the exempted establishments in the same manner as the employees of the regular establishments. The employees who had exercised option under the proviso to paragraph 11(3) of the 1995 scheme and continued to be in service as on 1st September 2014, will be guided by the amended provisions of paragraph 11(4) of the pension scheme. The members of the scheme, who did not exercise option, as contemplated in the proviso to paragraph 11(3) of the pension scheme (as it was before the 2014 Amendment) would be entitled to exercise option under paragraph 11(4) of the post amendment scheme. Their right to exercise option before 1st September 2014 stands crystalised in the judgment of this Court in the case of R.C. Gupta . The scheme as it stood before 1st September 2014 did not provide for any cutoff date and thus those members shall be entitled to exercise option in terms of paragraph 11(4) of the scheme, as it stands at present. All the employees who did not exercise option but were entitled to do so but could not due to the interpretation on cut-off date by the authorities, ought to be given a further chance to exercise their option. Time to exercise option under paragraph 11(4) of the scheme, under these circumstances, shall stand extended by a further period of four months. The employees who had retired prior to 1st September 2014 without exercising any option under paragraph 11(3) of the pre-amendment scheme have already exited from the membership thereof. They would not be entitled to the benefit of this judgment. The employees who have retired before 1st September 2014 upon exercising option under paragraph 11(3) of the 1995 scheme shall be covered by the provisions of the paragraph 11(3) of the pension scheme as it stood prior to the amendment of 2014. The requirement of the members to contribute at the rate of 1.16 per cent of their salary to the extent such salary exceeds Rs.15000/- per month as an additional contribution under the amended scheme is held to be ultra vires the provisions of the 1952 Act. This Court suspends operation of this part of its order for a period of six months. This Court does so to enable the authorities to make adjustments in the scheme so that the additional contribution can be generated from some other legitimate source within the scope of the Act, which could include enhancing the rate of contribution of the employers. This Court does not find any flaw in altering the basis for computation of pensionable salary. This Court agrees with the view taken by the Division Bench in the case of R.C. Gupta so far as interpretation of the proviso to paragraph 11(3) (pre-amendment) pension scheme is concerned. The fund authorities shall implement the directives contained in the said judgment within a period of eight weeks, subject to directions contained earlier in this paragraph. The judgments impugned are modified accordingly. [Paras 44 and 45][997-F-H; 998-A-H; 999-A-H]

2.1 The employees’ argument is that the obligation is only on the employer to remit the sum from one fund to the other. There is no ceiling limit and the remittance required to be made is of 8.33 per cent of the employee’s pay. But this point also, does not aid the employees. While paragraphs 3 and 6 of the scheme have laid down what the fund would be constituted of and who would be the members of the pension scheme, paragraph 11, which is an integral part of the pension scheme, specifies the criteria for those who become mandatory members and, from among the existing members, who may be permitted to exercise option to remain in the scheme in spite of drawing salary beyond the ceiling limit. It is a fact that those who are covered by paragraph 26(6) of the provident fund scheme automatically enters into the pension scheme as well. But this provision cannot be held to have precluded the Central Government from laying down conditions to remain eligible for the pension scheme and specify wage or salary ceiling for individual employees beyond which the scheme may not operate. The submission that the pension scheme considers employees as a homogenous group and no distinction can be made among different categories of employees based on their monthly salary to determine for whom the scheme shall operate in a particular manner cannot be accepted. It is well within the power and authority of the statutory authorities to reasonably classify different sets of employees and categorise them for the nature of benefits they might get from an existing scheme. In fact, the scheme, at its inception was made applicable to those drawing wages upto Rs.5000/-. The provision relating to exercising option was introduced later, in the year 1996. [Para 30][990-D-H; ]

2.2 The amendment was made in exercise of power otherwise vested in the authority making such amendment and the amendments were made on the basis of certain relevant materials and not whimsically. The scope of judicial scrutiny to test the constitutionality of the amendment provisions becomes narrow. Classification of the employees made by the authorities on the basis of the salary drawn in the 2014 amendment meets the test of reasonable classification contemplated in Article 14 of the Constitution of India. This Court is alive to the concern expressed by the High Court as regards impact on the economic stability of retired employees suddenly being deprived of pension. But, based on such macro-level social disparities, this Court does not think in exercise of judicial power this Court 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. This Court cannot issue directions on the Central Government to work out statutory scheme in a particular fashion. So far as fixing of cut-off date is concerned, the 2014 amendment specifically provides for that. In the case of R.C. Gupta’s case, the wording of the scheme in paragraph 11(3) was different. Thus, the ratio of that judgment cannot be applied to the changed provision of the scheme. Fixing of cut-off date was considered in the case of Mafatlal Group Staff Association and held to be permissible. [Paras 32 and 33][991-G-H; 992-A-B; 992-F-H]

2.3 The requirement in the scheme for employee’s contribution to the extent of 1.16 per cent for option members is illegal. 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 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. A legislative amendment of the Act would have been necessary, providing for contribution to be made by an employee. To that extent, the provision of the scheme requiring contribution by an individual employee is ultra vires the parent act. At the same time, it cannot be ignored the fact that the pension amount to be paid has been calculated on projections that the corpus would include the option employees’ additional contribution of 1.16 per cent. This Court also cannot mandate the Central Government to contribute to a pension scheme, in absence of a legislative provision to that effect. It would be for the administrators to readjust the contribution pattern within the scope of the statute and one possible solution could be to raise the level of the employer’s contribution in the scheme. The operation of this part of judgment is suspended for a period of six months so that the legislature may consider the necessity of bringing appropriate legislative amendment on this count. For the said period, the scheme as it stands shall continue. Till such time, if no such legislative exercise is undertaken, the duty to contribute 1.16 per cent of the salary shall apply on option members as well. This contribution shall be adjusted depending on any amendment that may be brought. For the period of six months, however, the opting employees shall make payment of

1.16 per cent contribution as stop gap measure. In the event no amendment to the statute or the scheme is made within such extended time, then the administrators of the fund will have to operate the pension fund for the option members from out of the existing corpus.[Para 35][993-D-H; 994-A-C]

2.4 The change of methodology comes within the power of the Central Government to modify a scheme under Section 7 of the 1952 Act read with item 10 of the Schedule III to the Act as also paragraph 32 of the scheme. This alteration of computation is ancillary to determination of scale of pension along with pensionary benefits and paragraph 32 of the pension scheme specifically authorises the Central Government to alter the rate of contribution payable under the Scheme or the scale of any benefit admissible under the scheme. There is a reasonable basis for effecting change in the computation methodology for determining pensionable salary and there is no illegality or unconstitutionality in effecting this amendment. [Para 36][994C-F]

2.5 Clause 1(3) of the pension scheme contemplates keeping within its fold the establishments to which the 1952 Act applies. These establishments would include exempted establishments as well. The employees of exempted establishments are integrated into the pension scheme and 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. [Para 38][995-D-E]

2.6 One of the arguments against their inclusion into the scheme by exercising option is that the corpus of the contribution for exempted establishments have been kept in separate coffers maintained by the trust created for such purpose and not with the authorities specified under the Act. Taking that factor into account, 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. [Para 39][995-F-H; 996-A]

2.7 The paragraph 11(4) provides for extending the pension coverage in respect of individual employees drawing salary more than Rs. 15000/- per month. This paragraph however, is subject to two conditions: The first one is that to be eligible for the benefits of extended coverage, the existing members as on 1 st September 2014 must contribute at the rate of 1.16 per cent on salary exceeding Rs. 15,000/- per month. The second one is that a fresh option should be exercised within a period of six months from the first day of September 2014. The scheme contemplates that those members of the fund who had exercised option to remain in the scheme as per the requirement of proviso to paragraph 11(3) of the scheme, as it stood prior to the 2014 amendment, would be able to give fresh option with the employer if their salary cross the ceiling limit. In respect of that provision, this Court in the R.C. Gupta’s case had held that the said proviso did not contemplate a cut-off date. So far as the first condition is concerned, viwes are expressed as regards legality of having such a provision. In relation to the second condition, 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. In case of R.C. Gupta’s case, it has been specifically held that there was no cut-off date in proviso to paragraph 11(3) as it stood before the 2014 amendment. The interpretation given to the proviso to paragraph 11(3) prior to 2014 amendment does not require any reconsideration. The reasoning of the two-judge Bench of this Court on this point , is accepted. As there was no cut-off 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’s case. It is not held that no option was required to be exercised as per proviso to paragraph 11(3) of the scheme, as it stood prior to 2014 amendment. As held in the case of R.C. Gupta’s case, there was no time-limit for exercising such option. [Para 40, 41][996-B-H; 997-A-B]

2.8 The dual option, as is contemplated in paragraph 11(4) of the pension scheme (post 2014 amendment), has to be merged into one. 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. [Para 42][997-B-C]

2.9 The other condition for enhanced coverage relates to the date within which such fresh option is to be exercised by a member, which is stipulated to be within a period of six months from 1st September 2014. It would be legitimate to proceed on the basis that several members did not exercise such option earlier because of the stand taken by the Provident Fund authorities that option under proviso to paragraph 11(3) of the scheme (prior to 2014 amendment) has to be exercised within a specified date, which stand was negated in the decision of R.C. Gupta’s case. 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 pension scheme (post 2014 amendment). 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. [Para 43][997-C-F]

R.C. Gupta and Others vs. Regional Provident Fund Commissioner, Employees Provident Fund Organisation and Other (2018) 14 SCC 809 – affirmed.

Bengal Immunity Company Limited v. State of Bihar and Others (1955) 2 SCR 603; Union of India and Another v. Raghubir Singh (Dead)by Lrs. Etc. (1989)

2 SCC 754 : [1989] 3 SCR 316; Keshav Mills Co. Ltd. v. Commissioner of Income Tax Bombay North,

Ahmedabad (1965) 2 SCR 908; Waman Rao and Others v. Union of India and Others (1981) 2 SCC 362 : [1981]

2 SCR 1 – held inapplicable.