EPF Pension Case : What Is RC Gupta Case Verdict? Why EPFO Wants It Reconsidered?

The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 was constituted for welfare of employees by way of the institution of provident funds, pension funds and deposit-linked insurance fund for employees in factories and other establishments.

Time and again amendments have been made to these funds by the Government by way of new schemes, amendments to existing ones, and issuance of circulars, which have been challenged before Courts. One important judgement with regard to pension and its computation is the Apex Court's 2016 verdict in the case of R.C. Gupta and Ors. v Regional Provident Fund Commissioner, Employees' Provident Fund Organization and Ors.

At present, the Supreme Court is hearing a batch of appeals filed by Employees Provident Fund Organization and the Union of India challenging the judgments of various High Courts which quashed the Employee's Pension (Amendment) Scheme, 2014 being heard by the Supreme Court of India.

In the said batch of cases, the applicability of the RC Gupta verdict has been questioned leading to, a Bench of Justice UU Lalit and Justice Ajay Rastogi to consider if the matter needs to be heard by a three-judge Bench, since the RC Gupta verdict was delivered by a coordinate bench of 2 Judges.

In the RC Gupta case, the Supreme Court had struck down the six-month opt-in window from 1 September 2014, for employees to continue making uncapped pension contributions.

The Court had held that no cut-off date was applicable under proviso to Clause 11(3) of the Pension Scheme to determine if employer and employee could make higher contribution towards salary exceeding the wage ceiling limit. The Court had also directed the return of all Employee Provident fund accumulations withdrawn by the employee and its diversion towards the Pension scheme.

Before delving into details of the RC Gupta judgement, it is important to have a look at the Employees Provident and Pension Schemes, provisions, and amendments relevant to the case. The amendments made in 2014 specifically were not well received and criticized by many stake holders since they led to a reduction in the pension payable to employees. This had resulted in chains of litigation before the High Courts and the Apex Court.

Schemes Relevant to the Case:

The EPF Act 1952 did not contain any provision for pension. Later in 1995, Sub-section 6A was inserted by an amendment providing for the Employees' Pension Scheme 1995 to be framed for payment of pension to retiring employees.

The corpus of the pension fund was to be constituted by deposit of 8.33% of the employer's contribution under Section 6 of the Act. Clause 11 of the Pension scheme deals with determination of pensionable salary and under Clause 11(3) of the Pension Scheme, the maximum pensionable salary was limited to Rs.5,000/-, which was subsequently enhanced to Rs.6,500/- per month w.e.f. 08.10.2001.

Subsequently, a proviso was added to paragraph 11(3) of the Pension Scheme with effect from 16.03.1996 granting an option to the employer and the employee to contribute amounts towards the pension fund at the rate of 8.33% of the actual salary drawn by the employee, where the salary exceeded Rs.5,000/- or Rs.6,500/- (w.e.f. 08.10.2001). 8.33% of such contribution on full salary was required to be remitted to the Pension Fund.

Amendment to the scheme in 2014:

The following amendments were made under EPS, with effect from 1 September 2014:

Wage ceiling for the purpose of contribution and maximum pensionable salary for the purpose of calculating monthly pension was increased from 6,500 to 15,000 per month.

The proviso to clause 11(3) for uncapped contributions towards higher salary was deleted.

Short window of 6 months to members:

While new members who joined after September 2014 and were drawing salary exceeding limit had no option to contribute at all, those who were the members had to exercise the option to contribute to pension on higher wages within six months from 1 September 2014.

The Government's share of contribution i.e. 1.16 per cent per month was to be paid by the employee now on the salary exceeding the statutory limit if member employee opted to contribute towards pension fund over and above the wage ceiling.

The amendment therefore resulted in exclusion of new members who earned above 15000 from the pension completely and the 8.33% of employer's contribution in their case was to go to EPF fund instead. Even the existing members only had a 6 month window to opt for making uncapped contributions.

Details of the RC Gupta Case:

In the case of RC Gupta, appeals were filed challenging decision of a Division Bench of the Himachal Pradesh High Court which reversed the order of the Single Judge directing that the appellant-employees would be entitled to the benefit of deposit of 8.33% (out of the total of 12%, which constitutes the employer's share under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952) of their actual salary in the Pension Fund irrespective of the ceiling limit.

The appellant-employees on the eve of their retirement in the year 2005 argued that the proviso brought in by the amendment of 1996 (Proviso to Clause 11(3) of the Pension Scheme) was not within their knowledge and they should be given the benefit, particularly, when the employer's contribution under the Act has been on actual salary and not on the basis of ceiling limit.

According to the respondent Provident Fund Authority, the proviso to Clause 11(3) of the Pension Scheme visualized a cut-off date for exercise of option, which would be, the date of commencement of Scheme or the date the salary exceeded the ceiling amount of Rs.5,000/- or 6,500/- per month, whichever is later. However since the request of the appellant-employees was subsequent to either of the said dates, their request cannot be acceded to.

The Single Judge of the High Court had decided in favor of the appellant-employees, the Division Bench reversed the said decision upholding the view of the Provident Fund Authority that under the proviso to Clause 11(3) of the Pension Scheme there was a cut-off date.

The Provident Fund Commissioner had argued that the appellant-employees had already exercised their option under paragraph 26(6) of the Employees' Provident Funds Scheme an therefore similar option under 11(3) of the Pension scheme cannot be exercised. Paragraph 26(6) of the Provident fund scheme allows contribution by employee more than the capped limit on joint request of employer and the employee.

Supreme Court's Decision in RC Gupta case

Proviso to Clause 11(3) of the Pension Scheme Provides No Cut Off Date:

The Bench had held that the reference to the date of commencement of the Scheme or the date on which the salary exceeds the ceiling limit in the proviso are dates from which the option exercised are to be reckoned with for calculation of pensionable salary and ARE NOT cut-off dates to determine the eligibility of the employer-employee to indicate their option under the proviso.

The Bench had taken a view that a beneficial Scheme ought not to be allowed to be defeated by reference to a cut-off date, particularly, in a situation where the employers had deposited 12% of the actual salary and not 12% of the ceiling limit of Rs.5,000/- or Rs.6,500/- per month.

"A beneficial Scheme, in our considered view, 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 limit of Rs.5,000/- or Rs.6,500/- per month, as the case may be"- SC in RC Gupta case

The Bench had held that the exercise of option of uncapped contribution under paragraph 26 of the Provident Fund Scheme cannot be construed to estop the employees from exercising a similar option under paragraph 11(3) of the Pension scheme.

"If both the employer and the employee opt for deposit against the actual salary and not the ceiling amount, exercise of option under paragraph 26 of the Provident Scheme is inevitable", the Bench had held

Further, according to the Bench, the exercise of the option under paragraph 26(6) is a necessary precursor to the exercise of option under Clause 11(3) and its exercise would not foreclose the exercise of a further option under Clause 11(3) of the Pension Scheme unless the circumstances warranting such foreclosure are clearly indicated.

According to the Bench, all that the Provident Fund Commissioner was required to do in the case was an adjustment of accounts which in turn would have benefitted some of the employees. The Bench had thereby asked the Provident Commissioner to 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 benefit of the proviso to Clause 11(3) of the Pension Scheme.

Kerala High Court's Reliance on the RC Gupta verdict:

In 2018, the Kerala High Court, while setting aside the 2014 amendment, had held that the stipulation of a cut-off date for conferring the benefits under the Pension Scheme cannot be sustained.

The High Court had relied on verdict in the RC Gupta case which held that no cutoff date is stipulated in Clause 11(3) and noted that any such stipulation of a cutoff 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.

Further, the condition imposed on an employee to make the 1.16% contribution towards the Pension fund which was earlier made by the Central Government was also found to not have sustained

Applicability of RC Gupta in Present Batch of Pleas:

In the present batch of appeals filed by the EPFO and the Centre against the High Court verdicts invalidating the 2014 amendments, the EPFO has questioned certain aspects of the RC Gupta case and how the case in its entirety cannot be relied on in the present matter.

Senior Advocate Aryama Sundaram appearing for EPFO argued before a Bench headed by Justice UU Lalit, that the Court in RC Gupta's case neither considered nor decided on the issue of reimttace being a pre-condition under Clause 11(3) of the Pension scheme. It has been argued that only the relevance of cutoff date was considered by the Court, and non remittance was never an issue before the Bench.

Further, regards the Court's direction of transferring funds from the provident fund to the pension scheme, it has been argued that the Court did not consider that pension scheme was completely different from the provident fund.

Against the Court's verdict in RC Gupta holding that no cutoff date is applicable, it has been argued that the Court did not consider if cutoff date will continue to not apply even in case of two different funds.

The EPFO has argued that even if the Court relies on RC Gupta's case to a limited extent to say that employees could exercise option of contribution even post the cutoff date, the argument would be that Court did not decide if the same ratio will apply to two different funds.

Sundaram argued that the High Courts lost sight of the fact that the employees who drew salary in excess of the stipulated limit had to exercise the option of making the joint contribution along with the employer in order to become eligible to Employees Pension. The EPFO's counsel argued that the High Courts assumed that employees would be automatically covered by the EPS scheme, even without making the option for joint contribution.

The bench said that it was of the prima facie view that EPFO has made out a case. However, the bench wondered if it will be proper on its part to consider the issue in variance with the decision in RC Gupta. If any doubt is raised regarding the said decision, the bench said the proper course might be to refer it to a larger bench.

The bench will pronounce its order on whether to refer the matter to larger bench on August 24.

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