EPF Pension Case : Why Annual Reports Don't Reflect Potential Financial Burden? Supreme Court Asks Union, EPFO [Day 6 Hearing]

A bench of Justices UU Lalit, Sudhanshu Dhulia and Aniruddha Bose posed the question while hearing a batch of appeals moved by the Employee Provident Fund Organisation challenging the Kerala, Rajasthan and Delhi High Court judgements quashing the Employee Pension (Amendment) Scheme, 2014. 

In 2018, the Kerala High Court, while setting aside the Employee's Pension (Amendment) Scheme, 2014 [2014 Amendment Scheme], allowed paying pension in proportion to the salary above the threshold limit of Rs 15,000 per month. 

On February 25, 2021, the division bench of Justice UU Lalit and Justice KM Joseph restrained the High Court of Kerala, Delhi and Rajasthan from initiating contempt proceedings against the Central Government and the EPFO over the non-implementation of the HC verdicts.

In August 2021, a 2-judge bench of the Supreme Court had referred the appeals to a 3-judge bench to consider the following issues:

1. Whether there would be a cut-off date under paragraph 11(3) of the Employees' Pension Scheme and
2. Whether the decision in R.C. Gupta v. Regional Provident Fund Commissioner (2016) would be the governing principle on the basis of which all these matters must be disposed.

Here's what happened during the hearing yesterday:

Implementing HC judgement would mean paying every private sector employee beyond the ceiling

During the hearing, Senior Advocate Aryama Sundaram appearing for the EPFO apprised the bench that the pertinent questions in the matter is:

"Whether the persons contributing to the PF scheme would ipso facto be members of the pension scheme."

"This is for people above the statutory limit?", Justice UU Lalit asked.

"Milord, nothing has changed for people below the statutory limit except the statutory limit has changed from Rs 6,500 to 15,000", the senior advocate clarified.

The other questions which consideration would include:

Whether such people would be allowed to retrospectively contribute and would they be put on par with those who had opted and contributed to the pension scheme as on date of the 2014 Amendment.

Whether permitting such retrospective contribution to the provident fund would be merely a book adjustment as suggested in RC Gupta or would it have serious financial ramifications.

"I personally believe, this is the hub. All that's going to happen is that the government has to bear an extra 5000 crores, 10,000 crores. Why not give these people the benefit? It will definitely have a bearing on the provisions. RC Gupta is saying, if it's merely book adjustment, in which case a beneficial view should be taken in the matter. Or, is that wrong, in which case a stricter interpretation ought to be given. This would be my submission, milords", Sundaram told the Court.

Answering the abovementioned questions, Sundaram submitted that there are people who contribute large sums of money to the PF scheme, on a monthly basis.

Sundaram said the implementing the Kerala High Court judgment would essentially mean that every private sector employee should be paid a pension irrespective of his salary limit. Every private sector employee would opt for pension and claim it based on the last drawn salary that yields 50% of the pensionable salary, despite the fact that he did not contribute to the fund.

"There are people who are contributing 12 Lakhs per month to the PF scheme. Just imagine the salary, milords. Those persons will now also come into this bracket."

"You can learn from your mistakes. Just like you have a minimum level, you can have a maximum level as a ceiling", the bench commented.

"There is a maximum level", Sundaram said.

The level of contribution, the court explained.

"Isn't this an isolated case?", was the bench's next question.

"In this scheme, the fight is not between the government and its employees. They are covered. This is actually for the private sector."

"Yes, we understood", said the Bench.

"That's why the idea was there must be protection even for the private sector", Justice Lalit averred.

Net effect is financial burden for the State government

During the earlier hearings, the pensioners had pointed out that the pension is being paid out of the interest accrued on the Provident Fund and that the Corpus remains untouched. therefore, there's no question of financial burden for the Centre. 

Countering this, Sundaram argued,

"What is the net effect – because the other side said that the monetary effect is nothing at all. 21,229 people actually didn't pay. How does it affect financially? I can't do anything better but to show your Lordships 21,200 cases which have been settled as per the impugned judgement and what is the financial implication. And project it to the fact that there is a total of 18.2 lakhs whom I have to give the benefit to. So, the numbers can go up proportionately….."

"So, what you are saying is that in every case (examples given by EPFO), the contribution is actually be lesser than what he walks away with at the end?", the Bench queried.

"Yes….All I'm saying is it is not a book transfer (between the PF scheme and Pension Scheme), said Sundaram.

Sundaram further showed the court that the 21,200 people would pay about 461.19 crores towards the PF fund and walk away with 718 crores as pension.

"The Total will be 1.47 lakh crore for the 18.2 lakhs", he added.

This was cross questioned by the court while adding that it wanted to ensure the magnitude claimed is the real impact.

"We just want to see whether the magnitude, which is projected, whether it is correct or not."

Why Annual Reports Don't have these figures? Court Asks

Additional Solicitor General Vikramjit Bannerjee, appearing for the Union of India submitted that the 2014 Amendment should be allowed to survive as it is a guaranteed benefit scheme only for poor workers.

He also furnished copies of EPF annual reports to the Court.

While perusing the reports, the court asked,

"You are presenting a theory based on facts and figures. We will also go to the extend of saying that perhaps the projection of that viewpoint which you are now trying to place is something which is a logical deduction. Accepted. But in that, today you are presenting and people were allied to that situation. How is it that your annual reports don't even reflect that?"

"The Annual reports very specifically say to refer back to the actuarial reports", the ASG said.

"If you think that the Kerala High Court judgement impact is going to be of almost 1.47 lakh crore down the drain, if I can use that expression, the fund will be wiped out, that kind of impact, why is it that none of the communications addressed to the government or interdepartmental communications don't even refer to it", the court further queried.

Shortly after, the bench proceeded to reserve its judgement in the matter.

During the previous hearing, the pensioners told the Supreme Court that the verdict in R.C. Gupta v. Regional Provident Fund Commissioner, which held that there is no cut-off for opting for pension, is correct and applies to them in the present case. 

Case Title: EPFO vs Sunil Kumar and Ors