REFERENCE ORDER
Dated this the 21st day of December, 2020 [W.A Nos.811, 937, 940, 944, 952, 963, 993, 1058, 1095, 1098, 1120, 1129, 1170, 1244, 1250, 1256, 1288, 1289, 1299, 1303, 1304, 1310, 1313, 1319, 1325, 1326, 1327, 1328, 1331, 1332, 1333, 1344, 1349, 1356, 1358, 1588 & 1590/2020]This Judgment was affirmed by a Division Bench in W.A No. 569 of 2012 and a Special Leave Petition filed by the Provident Fund Organization before the Supreme Court was rejected on 31.3.2016.
EPS 95 HIGHER PENSION CASE DATE IN SUPREME COURT
Gopinath, J:
These appeals filed by the Employees Provident Fund Organization / its Officers arise from a common Judgment of a learned single Judge of this Court in W.P. (C) No. 3846/2019 and connected cases. The petitioners in the various Writ petitions claimed, that they are entitled, in terms of the provisions contained in The Employees’ Pension Scheme, 1995 (hereinafter referred to as ‘the Pension Scheme’ or as ‘the scheme’) to a pension calculated without reference to any ceiling limit upon further contributions being remitted to their pension fund. The Learned Single Judge has allowed the claim relying on the Judgment of a learned single Judge of this Court in W.P. (C) Nos.6643 of 20071 , the Judgment of a Division Bench of this Court in Sasikumar.P and others v. Union of India and others; 2018 KHC 906 & the Judgment of the Supreme Court in R.C Gupta and others v. Regional Provident Fund Commissioner, Employees ProvidentFund Organization and others; (2018) 14 SCC 809. The Learned Single Judge directed the Employees Provident Fund Organization to allow the employees concerned to remit the additional contributions either by adjustment of amounts available in the Provident Fund Account (maintained under the Employees Provident Fund Scheme which, is distinct from the pension fund) or by permitting the employees to now remit the shortfall. Therefore, these appeals by the Employees Provident Fund Organization / its officers.
2. We have heard the submissions of Sri. N.N Sugunapalan, Learned Senior Counsel instructed by Smt. Nita N.S, Sri. Sajeevkumar K Gopal and Sri. S. Prashant for the Employees Provident Fund Organization and that of Sri.P.N.Mohanan as well as other learned counsel representing the contesting respondents (writ petitioners).
3. The Counsel for the Provident Fund Organization would contend, inter alia, that the pension scheme is a contributory scheme and that the entire corpus of the scheme will be affected if the Judgment of the learned single Judge is implemented. They would submit that where the contributions under the pension scheme have been paid only with reference to the maximum pensionable salary, a member has no option to remit the contribution on actual salary at any point of time and claim that he/she should then be provided with the pension calculated with reference to actual salary and not with reference to the maximum pensionable salary provided for in the scheme. They submit that periodic contribution over a period of time is a sine qua non for providing a pension and by offering to now remit, in one go, the contributions payable with reference to actual salary, the employees cannot get a pension with reference to such actual salary. Periodic contributions are invested in the manner prescribed by the Central Government and the growth in the corpus on account of such investment alone is the basis for grant of pension is their submission. They place reliance on (i) Union of India v. Deoki Nandan Aggarwal; 1992 Supp (1) SCC 323; for the proposition that the Court should not enlarge the scope of the legislation when the language of the provisions are plain and unambiguous; (ii) Jeewanlal Ltd. v. Appellate Authority; (1984) 4 SCC 356; for the proposition that while construing a social welfare legislation, the Court should no doubt adopt a beneficent rule of construction and if the section is capable of two constructions, the construction which fulfills the policy of the Act should be adopted however that when the language is plain and unambiguous, the Court must give effect to it whatever be the consequence; (iii) Regional Director, ESI Corpn. v. Ramanuja Match Industries; (1985) 1 SCC 218; where it was held: - “We do not doubt that beneficial legislations should have liberal construction with a view to implementing the legislative intent but where such beneficial legislation has a scheme of its own there is no warrant for the Court to travel beyond the scheme and extend the scope of the statute on the pretext of extending the statutory benefit to those who are not covered by the scheme”; (iv) State of U.P. v. Subhash Chandra Jaiswal; (2017) 5 SCC 163; for the proposition that a Court cannot take steps for framing a policy; (v) Maharashtra State Coop. Bank Ltd. v. Provident Fund Commr.; (2009) 10 SCC 123; regarding the power of the PF authorities in the recovery of contributions; and (vi) Pawan Hans Limited and Others v. Aviation Karmachari Sanghatana and Others; 2020 SCC OnLine SC 43 where the Supreme Court has considered the working of the Provident Fund Scheme.
4. The learned counsel appearing on behalf of the writ petitioners have placed reliance on the Judgment of a learned single Judge of this Court in W.P. (C) Nos.6643 of 2007, the Judgment a Division Bench of this Court in W.A No. 569 of 2012, the Judgment of a Division Bench of this Court in Sasikumar.P (supra), the Judgment of the Supreme Court in R.C Gupta (supra), the Judgment of a learned Single Judge of the Madras High Court in ONGC Retired Employees' Welfare Association v. Union of India and Others; 2019 SCC OnLine Mad 12379 : (2019) 2 LLJ 672 and on the Judgment of the High Court for the State of Telangana and the State of Andhra Pradesh at Hyderabad in W.P (C) Nos.33804/2012 and connected cases to establish that the issues stand covered in their favor and further to contend that even in the case of exempted establishments (exempted from the operation of the Employees' Provident Fund Scheme) the benefit of option to pay contribution to the pension fund on actual salary and to receive higher pension on that basis cannot be denied.
5. We have perused the records and have anxiously considered the submissions of either side.
6. The pension scheme is one framed under Section 6A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as ‘the Act’). As an introduction, it may be mentioned that contributions to the pension fund would be collected on salary when the salary is below the maximum limit fixed by the scheme or with reference to a maximum where the salary was above the maximum limit fixed by the scheme (See the proviso to Clause 3(2) of the Scheme). Pension would be calculated under Clause 12 of the scheme with reference to a ‘pensionable salary’ determined in the manner provided under Clause 11 of the scheme. The pensionable salary also has a maximum limit which meant that pension would also be calculated only with reference to such maximum limit. The maximum amount for which contribution would be collected under the proviso to Clause 3(2) and the maximum pensionable salary determined in accordance with Clause 11 are set at the same limit.
7. The writ petitioners claimed that they should be permitted to remit to their pension account a sum equivalent to the amount of contribution that should have been remitted to the pension fund under the pension scheme calculated with reference to the actual salary drawn by them either through adjustment of the amounts lying to their credit in the respective Provident fund accounts or by permitting them to now remit the said amount to their respective accounts under the pension scheme.
8. The Act did not originally contain any provision for the framing of a scheme for providing pension. However, the Act was amended with effect from 16.11.1995 by inserting Section 6A into the Act. Section 6A (2) deals with payment of contributions to the pension fund. It reads as follows: -
“6A (2) Notwithstanding anything contained in section 6, there shall be established, as soon as may be after framing of the Pension Scheme, a Pension Fund into which there shall be paid, from time to time, in respect of every employee who is a member of the Pension Scheme: -
(a) such sums from the employer’s contribution under Section 6, not exceeding eight and one-third per cent, of the basic wages, dearness allowance and retaining allowance, if any, of the concerned employees, as may be specified in the Pension Scheme; (b) such sums as are payable by the employers of exempted establishments under sub-section (6) of section 17;
(c) the net assets of the Employees’ Family Pension Fund as on the date of the establishment of the Pension Fund;
(d) such sums as the Central Government may, after due appropriation by Parliament by law in this behalf, specify.
The Central Government accordingly framed the pension scheme which came into force on 16-11-1995. Under clause 3 of the pension scheme, it was provided that from and out of the contributions payable by the employer under Section 6 of the Act, an amount representing 8.33 % of the employees’ pay shall be paid into the employees’ pension fund. The Central Government would also contribute at the rate of 1.16 % of the employees’ pay. It was provided that where the pay of the member (employee) exceeds a certain limit, the contribution as above will be limited to the amount specified as the limit in the proviso to clause 3(2) of the pension scheme. The limits specified were Rs.5000/- till 31.05.2001, Rs.6500 from 01-06-2001 to 31-08-2014 and Rs.15,000 from 01-09-2014. Clause 11 of the pension scheme deals with the determination of pensionable salary. Clause 12 of the pension scheme deals with determination of the monthly pension of a member. As already noticed, the pensionable salary determined in accordance with clause 11 of the pension scheme has a direct bearing on the amount of monthly pension payable to a member.
9. In February 1996, through G.S.R 134 dated 28-02-1996, a proviso was added to clause 11(3) of the pension scheme which reads as follows: -
“Provided that if at the option of the employer and employee, contribution paid on salary exceeding Rs. 5000 per month from the date of commencement of the scheme or from the date salary exceeds Rs. 5000 whichever is later and 8.33% share of the employers thereof is remitted into the pension fund, pensionable salary shall be based on such higher salary”
The addition of this proviso had the effect of permitting the employer and the employee to make an option to pay contributions to the pension fund on the basis of the actual salary and not in accordance with the limits prescribed in the pension scheme (the limits noticed above). On 01-12-2004, a circular was issued by the Provident Fund Organization providing that the option to pay contribution on the actual salary would not be available beyond that date. This circular was challenged before this Court through W.P. (C) Nos.6643 and 9929 of 2007. This Court through Judgment dated 04-11-2011 held that the benefit of the proviso cannot be limited in the above manner and that the Provident Fund Organization had no power to do so in terms of any provision in the Act or in the pension scheme. The Judgment of the learned single Judge was affirmed by a Division Bench in an intra-Court appeal through Judgment dated 05-03-2013 in W.A No. 569 of 2012. A Special Leave Petition filed by the Provident fund Organization before the Supreme Court was rejected on 31-03-2016 (see Regl. Provident Fund Commissioner v. A.Majeed Kunju; 2016 SCC OnLine SC 1744)
10. On 22-08-2014, the Employees’ Pension (Amendment) Scheme, 2014 was notified and brought into force with effect from 01-09-2014. For the purpose of this order the following amendments to the principal scheme may be noticed: -
i. In the Employees Pension Scheme, 1995, (hereinafter referred ‟ to as the principal Scheme). in paragraph 3, in sub-paragraph 2, in the proviso, for the words “Rupees six thousand and five hundred”, wherever they occur, the words “fifteen thousand rupees” shall be substituted.
ii. In the principal Scheme, in paragraph 6, in clause (a), after the words. figures and letter “or 27A of the Employees Provident ‟ funds Scheme, 1952″, the words “and whose pay on such date is less than or equal to fifteen thousand rupees”, shall be inserted.
iii. In the principal Scheme, in paragraph II,-
(a) for sub-paragraph (1) and the proviso thereto, the following shall be substituted, namely:- (1) The pensionable salary shall be the average monthly pay drawn in any manner including on piece rate basis during contributory period of service in the span of sixty months preceding the date of exit from the membership of the Pension Fund and the pensionable salary shall be determined on pro-rata basis for the pensionable service up to the 1st day of September, 2014, subject to a maximum of six thousand and five hundred rupees per month and for the period thereafter at the maximum of fifteen thousand rupees per month: Provided that if a member was not in receipt of full pay during the period of sixty months preceding the day he ceased to be the member of the Pension Fund, the average of previous sixty months full pay drawn by him during the period for which contribution to the pension fund was recovered, shall be taken into account as pensionable salary, for calculating pension;
(b) in sub-paragraph (2), for the figures and word “12 months”, wherever they occur, the words -sixty months” shall be substituted;
(c) in sub-paragraph (3),- (i) for the words, letters and figures “rupees six thousand and five hundred/Rs, 6500″, the words “fifteen thousand rupees” shall be substituted; (ii) the proviso shall be omitted.
(d) after sub-paragraph (3), the following sub-paragraph shall be inserted, namely:- “(4) The existing members as on the 1st day of September, 2014, who at the option of the employer and employee, had been contributing on salary exceeding six thousand and five hundred rupees per month, may on a fresh option to be exercised jointly by the employer and employee continue to contribute on salary exceeding fifteen thousand rupees per month:
Provided that the aforesaid members have to contribute at the rate of 1.16 per cent on salary exceeding fifteen thousand rupees as an additional contribution from and out of the contributions payable by the employees for each month under the provisions of the Act or the rules made thereunder: Provided further that the fresh option shall be exercised by the member within a period of six months from the 1st day of September, 2014:
Provided also that the period specified in the second proviso may, on sufficient cause being shown by the member, be extended by the Regional Provident Fund Commissioner for a further period not exceeding six months:
Provided also that if no option is exercised by the member within such period (including the extended period), it shall be deemed that the member has not opted for contribution over wage ceiling and the contributions to the Pension Fund made over the wage ceiling in respect of the member shall be diverted to the Provident Fund account of the member along with interest as declared under the Employees‟ Provident Fund Scheme from time to time,
iv. In the principal Scheme in paragraph 12, in sub-paragraph (2), the following proviso shall be inserted. namely:- “Provided that the members monthly pension shall be determined on a ‟ pro-rata basis for the pensionable service up to the 1 st day of September, 2014 at the maximum pensionable salary of six thousand and five hundred rupees per month and for the period thereafter at the maximum pensionable salary of fifteen thousand rupees per month”. In short, the effect of the amendment in 2014 was that: -
(i) The maximum pensionable salary was increased from Rs.6,500/- to Rs.15,000/-
(ii) The provision of clause 11 (1) regarding the determination of pensionable salary was amended by providing for such determination by taking into account the average monthly pay in the span of 60 month preceding the date of exit from the membership of the pension fund in the place of 12 months period prescribed earlier;
(iii) The proviso to sub-clause (3) of clause 11 enabling members to contribute in excess of the contributions due on the maximum pensionable salary was deleted; &
(iv) A new sub-clause (4) was added to clause 11 to deal with cases of persons who had been contributing on actual salary as on 01-09-2014 by providing them an option (to be exercised in the manner prescribed) to continue to pay contributions with reference to their actual salary.
11. These amendments were subject matter of challenge before this Court through W.P. (C) No. 13120 of 2015 and connected cases. These matters were placed before a Division Bench upon a reference. The Division Bench found the amendments brought in through the Employees’ Pension (Amendment) Scheme, 2014 to be illegal and as a consequence they were set aside [vide Sasikumar.P and others v. Union of India and others; (supra)]. A Special Leave Petition filed before the Supreme Court challenging this Judgment of the Division Bench was dismissed on 01-04- 2019. It is however submitted before us that a Special Leave Petition filed by the Union of India challenging the Judgment of the Division Bench and a review petition filed by the Provident Fund Organization against the dismissal of its Special Leave Petition through order dated 01-04-2019 is pending before the Supreme Court.
12. The batch of Writ petitions out of which these appeals arise came to be filed on account of the failure of the Provident Fund Organization to accept contributions on salary beyond the ceiling limit i.e., the actual salary and to pay enhanced pension on the basis of the actual salary. These cases fall into the following broad categories: -
(i) The first category comprises persons who along with the employer have exercised a joint option in terms of clause 26 (6) of the EPF Scheme made applicable to the pension scheme on account of clause 38 of the pension scheme. In respect of such categories of persons the contribution with the provident fund has been made on the actual salary. However, only 8.33% of the employers' contribution corresponding to the maximum limit of pensionable salary has been credited to the pension fund. (In such cases by virtue of the Judgment of the Supreme Court in R.C. Gupta (supra) it has been found that the amount can be transferred from the Provident Fund account to the pension fund account and as far as the provident fund is concerned it is only a book adjustment.
(ii) The second category of persons are those who are either inservice or retired from service or who have not made any joint option with their employer agreeing to contribute above the ceiling limit or the maximum limit of pensionable salary. Such persons claim that they should now be permitted to remit any shortfall to make up 8.33% of the employers' contribution on actual salary and that they must be allowed pension on that basis and as distinct from first category cases the contribution on the basis of actual salary is not even available in the PF account.
(iii) The third category of persons are those who are employees of exempted establishments governed by their own provident fund scheme. They become members of the pension fund on account of the stipulation in Section 17 (6) of the EPF Act. The contribution to the pension fund in respect of such category of persons is only on the ceiling limit or the maximum limit of pensionable salary and again as distinct from first category cases the contribution on the basis of actual salary is not even available in the PF account.
13. On 04-10-2016, the Supreme Court decided R.C Gupta (supra). A reading of the Judgment shows that Supreme Court was concerned with the effect of providing a cut-off date for exercise of option under the proviso to sub-clause (3) of clause 11 of the pension scheme and also noticed that the view taken by this Court regarding the validity of the cut-off date was practically confirmed by the Supreme Court through the dismissal of S.L.P (C) No. 7074/2014 - Regl. Provident Fund Commissioner v. A.Majeed Kunju (supra). It was found that in respect of employees who had already contributed on their actual salary without reference to the ceiling limit under the provisions of the pension scheme, the amount lying to the credit of the employee in their Provident fund account could be easily transferred to the pension fund. It is evident that in R.C Gupta (supra) the Supreme Court was not concerned either with those who had not made remittance with reference to actual salary (the second category mentioned above) or with persons who were serving under exempted establishments having their own Provident fund scheme (the third category mentioned above) and where again the remittance to the pension scheme was only with reference to the ceiling limit and not with reference to the actual salary.
14. In R.C. Gupta (supra), the Supreme Court did not go into the question relating to the validity of the amendments brought in through the Employees' Pension (Amendment) Scheme, 2014.
15. The Division Bench, in Sasikumar (supra), struck down all the amendments brought in through the 2014 amendment. As already noticed, by virtue of these amendments the option to contribute on actual salary came to be limited to those who had earlier opted to do the same in terms of the proviso to sub-clause (3) of clause 11 and had actually paid such contributions. Most importantly it is to be noticed that after the 2014 amendment, the scheme was not to have any proviso enabling members to opt for payment on actual salary instead of the maximum pensionable salary in so far as the pension fund is concerned. The effect of Sasikumar (supra) is that the pension scheme retains the maximum pensionable salary at Rs.6,500/- and the proviso to sub-clause (3) of clause 11 which was deleted through the 2014 amendment is still in force. Further by virtue of the Judgment of this Court striking down the circular dated 01-12-2004 which fixed a cut-off date for exercise of option in terms of proviso to sub-clause (3) of clause 11 of the pension scheme, the option provided for in the proviso can now be exercised at any point of time.
16. Following the Judgment of the Supreme Court in R.C. Gupta (supra) the Provident Fund Organization had issued a circular dated 23-03- 2017 which reads as follows: -
CIRCULAR
No:Pension-I/33/EPSAmendment/96/VoI.II
Dated: 23-03-2017
To,
All Regional P.F. Commissioner,
Regional Office/Sub Regional Office.
Subject:- Allowing members of the Employees Pension Scheme, 1995 the benefit of the actual salary in the Pension Fund exceeding wage limit of either Rs. 5000/- or Rs. 6500 per month from the effective date respectively as per the Hon’ble Supreme Courts order in SLP No.33032 & 33033 of 2015 -Regarding.
Sir,
The matter of determination of pensionable salary exceeding statutory wages ceiling and exercise of option under deleted proviso to Para 11(3) of the EPS, 95 was examined in the light of the Hon’ble Supreme Courts Order in SLP No.33032 & 33033 of 2015.
2) The Hon’ble Apex court in SLP No.33032 & 33033 of 2015 observed that the 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 pensionable salary. The said dates are not cut-off dates to determine the eligibility of the employeremployee to indicate their option under the proviso to Clause 11(3) of the Pension Scheme. It has further been observed that a beneficial Scheme, ought not to be allowed to be defeated by reference to a cut-off date, particularly, in a situation where (as in the present case) the employer had deposited 12% of the actual salary and not 12% of the ceiling limited of Rs. 5000/-; or Rs. 6500/-; per month, as the case may be.
In a situation where the deposit of the employers share at 12% has been on the actual salary and not the ceiling amount, the Provident Fund Commissioner could seek a return of all such amounts that the concerned employees may have taken or withdrawn from their Provident fund Account before granting them the benefits of the proviso to Clause 11(3) of the Pension Scheme. Once such a return is made in whichever cases is due, consequential benefits in terms of this order will be granted to the said employees.
Thus a member contributing to the Provident Fund on the wages exceeding the statutory ceiling or who had contributed to the Provident Fund on wages exceeding the Statutory ceiling cannot be debarred from exercising the option to contribute on such higher wages to the pension fund. (Copy of the order of the Hon'ble Supreme Court enclosed).
3) Accordingly, a proposal was sent to MOL&E to allow members of the Employees Pension Scheme, 1995 who had contributed on higher wages exceeding the statutory wage ceiling of 6500/-; in the Provident Fund to divert 8.33% of the salary exceeding Rs 6500/-; to the Pension Fund with up to date interest as declared under EPF Scheme, 1952 from time to time to get the benefit of pension on higher salary on receipt of joint option of the Employer and Employee.
4) The MOL&E vide letter dated 03.2017 has conveyed its approval to allow members of the Employees Pension Scheme, 1995 who had contributed on higher wages exceeding the statutory wage ceiling of Rs. 6500/- in the Provident Fund to divert 8.33% of the salary exceeding Rs.6500/- to the Pension Fund with up to date interest as declared under EPF Scheme, 1952 from time to time to get the benefit of pension on higher salary on receipt of joint option of the Employer and Employee. (copy enclosed for ready reference)
5) The officers in charge of all field offices are directed to take necessary action accordingly in accordance with the order of the Hon'ble Supreme Court in SLP No.33032 & 33033 of 2015 as approved by the Government and as per the provisions of the EPF & MP Act, 1952 and Schemes framed there under. (This issues with the approval of CPFC.)
Yours faithfully,
(Dr. S.K. Thakur)
Addl. Central PF Commissioner,
HQ(Pension)”
This circular was followed by another Circular dated 31-05-2017 whereby it was clarified that the above circular will extend only to employees who had actually exercised the option to pay the provident fund contributions on actual salary. The Circular dated 31-05-2017 reads as under: -
“CIRCULAR
No.Pension-I/12/33/EPS Amendment/96Vol.II
Dated : 31.05.2017
To
All Accs (Zonal Offices)
All Regional PF Commissioner (In-charge of Regions),
All Officers in -charge of SROs.
Subject : Allowing members of the EPS'95 the benefit of the actual salary in the pension fund exceeding wage limit of either Rs.5000/- or Rs.6500/- per month from the effective dated respectively as per the Hon'ble Supreme Court' order in Civil Appeal No (S) 10013- 10014 of 2016 arising out of SLP No.3302-33033 of 2015-Reg.
Sir,
Please arrange to refer this office letter No.Pension 1/12 (33/EPF/Amendments /96/Vol.I dated 23.03.2017 on the above cited subject. Many references have been received from field officers to confirm to the aforesaid circular dated 23.03.2017 is applicable to employees of EPF exempted establishment in the context, it is informed as under.
i. Approval to comply with the order of the Hon'ble Supreme Court in the matter of Shri R.C.Gupta and others is only in respect of the Provident Fund & Pension members whose accounts are maintained by EPFO and whose PF contribution on higher wages has been received by EPFO.
ii. All the appellant employees in resaid case before the Hon'ble Supreme Court were from unexempted establishment i.e., an establishment making P.F. Contributions in the statutory Provident Fund managed by EPFO. The employer's contribution of 12% under the Act in respect of the said employees was on actual salary and not on the ceiling limit of either Rs.5000/- or Rs.6,500/-
iii. Exercise of option under para 26(6) of the EPF scheme, 1952 is a precursor to exercise of opinion under proviso to clause 11 (3) of the pension scheme. The appellant employees in the aforesaid case had exercised option under para 26(6) of the EPF scheme and contribution on full salary was received in the statutory Provident Fund.
iv. Employee's pension scheme remittances are being made by the establishments and not by the exempted Trusts. As such if establishments with exempted trusts are allowed to make balance remittance on full salary to the Employees pension scheme afresh, the same will have to be considered for unexempted establishments also. It is not contemplated in the Judgment.
v. In the case of exempted establishments the Provident Fund and Pension Fund are managed by separate legal entitles. The Provident Fund of employees of exempted establishments are managed by exempted Trusts and pension fund is managed by EPFO. As such, adjustment of contribution from Provident Fund Account to Pension Accounts as contemplated in the Judgment is not possible.
The matter was placed in the 40th PEIC meeting. As decided in the 40th meeting of the PEIF the matter will be placed before the CBT. In the interim is a advised that no member of EPS 95 whose contribution of full salary has not been received on the account of the IPCO at the respective periods of contribution shall be eligible for the benefits contemplated in the Judgment as per the aforesaid Hon'ble Supreme Court.
This issues with the approval of CPFC
The benefit of higher pension was therefore restricted to those persons who had actually contributed on higher salary “…..at the respective periods of contribution…”. In other words, employees / employers who had not exercised option to pay contributions on the actual salary including employees of exempted establishments2 were denied the option of receiving
2 There are several establishments who are exempted from the provisions of the Employees' Provident Fund Scheme under Section 16 & 17 of the Employees Provident Fund Act. The terms and conditions of exemption under Section 17 of the Act is to be fund in Appendix A to Clause 27AA of the Employees' Provident Fund Scheme, 1952.
pension calculated with reference to actual salary. The Circular dated 31-05- 2017, in so far as it understands the legal position flowing from the Judgment of the Supreme Court in R.C. Gupta (supra) is, in our view the correct one, in law.
17. In Pawan Hans (supra) the Supreme Court was essentially concerned with the non-extension of the Provident Fund Scheme of the company (Pawan Hans) to its contract employees. The company (Pawan Hans) was exempted from the provisions of the Act by virtue of Section 16 being a Government Company. It had its own Provident Fund Scheme. While deciding the issue, the Supreme Court has succinctly explained the working of a Provident Fund Scheme by extracting an earlier interim order passed in the very same case, the relevant portion of which is extracted below: -
“Provident Fund is normally managed on actuarial basis; the contributions received from employer and the employee are invested and the income by way of interest forms the substantial fund through which any pay-out is made. For all these years the Fund in question was subsisting on contributions made by the other employees and, if at this stage, the benefit in terms of the Judgment of the High Court is extended with retrospective effect, it may create imbalance. Those who had never contributed at any stage would now be members of the fund. The fund never had any advantage of their contributions and yet the fund would be required to bear the burden in case any pay-out is to be made. Even if concerned employees are directed to make good contributions with respect to previous years with equivalent matching contribution from the employer, the fund would still be deprived of the interest income for past several years in respect of such contributions.”
This Court either while striking down the Circular fixing the cut-off date for exercise of option under the proviso to Clause 11(3) or while deciding Sasikumar (supra) did not have the occasion to consider the effect of directing the Provident Fund Organization to extend the option to pay contributions to the pension fund on the actual salary and the effect that it may have on the fund as explained by the Supreme Court in Pawan Hans (supra). The Judgment in R.C. Gupta (supra) dealt only with the case of employers/employees who had already contributed on actual salary but the pension fund had been credited only with an amount equivalent to 8.33% of the maximum pensionable salary under the pension scheme. This Court also did not consider the fact that the Central Government which would contribute an amount equivalent to or representing 1.16% of the salary (in terms of the Pension Scheme) would do so only up to the maximum limit under the proviso to Clause 3(2) of the scheme which in turn will have an effect on the corpus.
18. Sri.Sajeev Kumar K Gopal has placed before us the figures in relation to one K.B. Prakasan who is the sole petitioner in W.P (C) No.57/2020 out of which W.A No.944/2020 arises (Please see Annexure A-6 filed along with I.A No.3 of 2020 in W.A No.944/2020). We are extracting the details only to demonstrate the effect of permitting contributions to be made belatedly and without reference to the maximum limit / pensionable salary in terms of the pension scheme. In the case of the aforesaid K.B. Prakasan the relevant details and the figures are as follows: -
Date of birth 26-05-1958 Date of joining the scheme 16-11-1995 Date of leaving the scheme 25-05-2016 Total contribution to the pension scheme Rs.1,39,262/- Monthly Pension payable as per scheme on the above contribution Rs.2,573/- Pension liability for the next 10 years on monthly pension of Rs.2,573/- Rs.3,70,512/- Total amount to be contributed to make the contribution equivalent to 8.33% of the actual salary Rs.9,63,401/- Monthly Pension payable if pension is to be paid on actual salary Rs.19,692/- Pension liability for the next 10 years on monthly pension of Rs.19,692/- Rs.28,35,648/-
Important Note: - In the above case, on payment of Rs. 9,63,401/- as arrears of contribution now (say on 01-12-2020), the employee will get arrears of pension from June 2016 to November 2020 (4 years and 5 months). The arrears will be Rs.17119/- for each month (Rs.19692-Rs.2573) and for 53 months the arrears will be Rs.9,07,307/-. Therefore, if he remits Rs.9,63,401/- on 01-12-2020 he will immediately get Rs.9,07,307/- back as arrears of pension and a pension of Rs.19,692/- every month thereafter. This shows that the amount of monthly pension payable (with arrears) will have no reference whatsoever to the contributions made and such pension will have to be paid even if the fund was not having the benefit of regular contributions over the years and the benefit of returns on such investment.
19. A Learned Single Judge of the Madras High Court in ONGC Retired Employees' Welfare Association (supra), upon which considerable reliance was placed by the learned counsel representing the writ petitioners has no doubt taken the view that the circular of 31-05- 2017 which we have extracted herein above is illegal and that upon necessary contribution being made, the provident fund organization is liable to pay pension on the actual salary without reference to the maximum pensionable salary under the scheme notwithstanding the fact that the employees concerned may have been employees of exempted establishments or establishments which were not so exempted and whose contribution had been with reference to the maximum pensionable salary. However, we are informed that the decision of the learned Single Judge of the Madras High Court has been stayed by a Division Bench of that Court.
20. The Pension Scheme is without doubt a contributory pension scheme. However, pension was to be paid not with reference to the available corpus on the date of retirement but with reference to a maximum pensionable salary. To further understand the issue, we have studied the working of the National Pension Scheme (NPS). The NPS is also a contributory pension scheme. It is a defined contribution pension system in which the contributions are invested in a mix of assets and the retirement corpus is dependent on the returns from those assets. The returns in NPS are market-linked. Dedicated pension fund managers are entrusted with the task of managing the funds. The Subscriber contributes periodically and regularly towards NPS during the working life to create the corpus for retirement. On retirement or exit from the scheme, the Corpus is made available to the Subscriber with the mandate that some portion of the Corpus must be invested in to Annuity to provide a monthly pension post retirement or exit from the scheme. The amount of pension is determined by the following factors.
(a) Age – the total years for which contribution is payable will depend on the age at which one becomes a subscriber to the National Pension Scheme. For example, a person born on 01-01-1995 will contribute for about 35 years till he attains the age of 60;
(b) Amount of contribution per month;
(c) Return on the investment;
(d) The amount or percentage of the corpus which is to be used for purchase of annuity (on attaining the pensionable age of 60 years); and
(e) Percentage of return on the annuity.
The amount collected by way of monthly subscription by National Pension Scheme is invested through Fund Managers and in respect of each scheme data is available including the average growth rate being achieved by each of the Fund Managers. In the website of the National Pension Scheme (there are different schemes under NPS -the details given below relate to the scheme for Central Government Employees), the following details are given: -
The table extracted above shows that since inception there has been an average growth rate of about 10%. Using the pension calculator on the NPS website we have determined the case of a person whose date of birth is 01-01- 1980 and is willing to contribute Rs.10,000/- per month to the National Pension Scheme. His total contribution will, therefore be Rs.24,00,000/- for 20 years (age of joining is 40 and age of exit is 60). If the contribution where to achieve a growth of 10% over the years and the person concerned would opt to purchase annuity for 100% of the corpus after attaining the age of 60 and expected rate of return on annuity is 6%, he/she would receive a monthly pension of Rs.38,285/- on a contribution of Rs.24 lakhs and a corpus of Rs.76,56,970/-. The corpus has grown to Rs.76,56,970/-only on account of dedicated investment and on account of the power of compound interest. We have also calculated the case of a person who becomes a member of the National Pension Scheme at the age of 25, and contributes Rs.15,000/- per month for 35 years. Such a person would have contributed a total of Rs.63,00,000/- lakhs over 35 years and the fund would have grown to Rs. 5,74,24,151/- at the end of 35 years, if the fund achieves a return of about 10% on investment. If such a person opts to purchase an annuity for 100% of the corpus and expects a return of 6% on such annuity, the monthly pension will be Rs.2,87,121. We have tried to determine the working of a contributory pension scheme only to highlight the fact that in almost all contributory pension schemes the amount of pension will be determined with reference to the value of the corpus fund on attaining the age of superannuation. On the other hand, in respect of Employees’ Pension Scheme, 1995 the monthly pension was determined with reference to salary determined in the manner set out in the scheme (see clauses 11 & 12) however that the maximum pensionable salary was fixed as already noticed.
21. Noticing the working of the Provident Fund Scheme as explained by the Supreme Court in Pawan Hans (supra) and upon our own understanding of the working of a contributory pension scheme (we have taken the National Pension Scheme as a case study) we feel that this Court has not, while holding that no cut-off date can be fixed for exercise of option under the proviso to sub-clause (3) of Clause 11; or while deciding Sasikumar (supra) held that an employee who makes an option to contribute a higher salary either at the fag end of his career or after retirement will be immediately entitled to pension calculated with reference to such higher salary. Of course, the case of employees who have actually contributed on higher salary but in whose case the remittance to the pension fund was only with reference to the maximum pensionable salary fixed under the scheme would be covered by the Judgment of the Supreme Court in R.C. Gupta (supra). The Supreme Court did not deal with any other situation in that case. It did not deal with the question of employees of exempted establishments where contribution of pension fund was also only with reference to the maximum limit of salary under the proviso to Clause 3(2) of the scheme. It also did not consider the case of covered establishments where again the remittance of the pension fund was also with reference to the said maximum limit of salary. In other words, the Supreme Court in R.C. Gupta (supra) dealt only with the case of persons who had regularly remitted amounts with reference to their actual salary.
22. In the totality of the facts and circumstances of the case we are of the opinion that the decision in Sasikumar.P and others v. Union of India and others; 2018 KHC 906 requires reconsideration to the extent that it strikes down the provisions of the Employees’ Pension (Amendment) Scheme, 2014 and permits persons who have not made regular periodic contributions on actual salary at least to the provident fund account [as in R.C. Gupta (supra)] to now make the remittance and claim pension with reference to such actual salary. Permitting such a course of action would, in our view, go against the basic principle on which the provident fund scheme works as explained by the Supreme Court in Pawan Hans (supra). Such a course of action would also be against the interests of those who had actually made regular contributions on actual salary. Those who had regularly contributed to the fund and consequently aided the growth of the corpus fund over the years would be placed on the same pedestal as those who did not. We cannot permit the corpus fund to erode, for that will have a deleterious effect on thousands of employees who are now contributing to the fund. While saying this we are not oblivious of the fact that the pension payable with reference to the maximum pensionable salary seems totally insufficient to be of any sustenance to the retired employees who are members of the pension scheme. We are also conscious of the submission of the learned counsel for the contesting respondents/writ petitioners that huge amounts are available in the corpus which is more than sufficient to meet the demands. However, we are of the opinion that this is a matter requiring attention at the hands of the Central Government (after appropriate actuarial valuation) and it is not for the Courts to direct that the Provident Fund Organization must now accept contributions with reference to actual salary without having had the benefit of regular contributions and growth on account of investments as explained by the Supreme Court in Pawan Hans (supra). Whatever be the size of the corpus we (the Courts) neither have the expertise nor the relevant facts and figures to reach a conclusion that the corpus will be sufficient to sustain a demand not only by the persons who have approached the Court but also the demands of thousands of employees similarly placed.
23. We are mindful of the fact that a Special Leave Petition filed against the Judgment of the Division Bench in Sasikumar (supra) was dismissed by the Supreme Court. We are also mindful of the fact that a Review Petition filed by the Provident Fund Organization seeking review of the order dismissing the Special Leave Petition and another Special Leave Petition filed by the Union of India against the judgment in Sasikumar (supra) are pending consideration of the Supreme Court. However, we do not think that this will in any way constitute a bar for consideration of this matter by the Full Bench upon this order of reference (see Khoday Distilleries Ltd. v. Sri Mahadeshwara Sahakara Sakkare Karkhane Ltd.; (2019) 4 SCC 376). We therefore adjourn these matters for consideration of a Full Bench of this Court.
The Registry shall place the files before Hon'ble the Chief Justice for appropriate orders.
Posts
0 Comments