Summary
The Kerala, Rajasthan and Delhi High Courts had struck down the 2014 amendment to the Employees' Pension Scheme, 1995. A three-judge bench of the Supreme Court largely upheld it. The salary-based classification, the Rs 15,000 ceiling, the cut-off date and the 60-month average were held valid. The requirement that option members contribute 1.16% of salary above Rs 15,000 was ultra vires the 1952 Act, but that ruling was suspended for six months. R.C. Gupta was affirmed: the unamended scheme set no cut-off date. Members in service who had not exercised the old option may now opt under amended paragraph 11(4), and the Court extended the time by four months under Article 142. Exempted establishments' employees are covered alike. Those who retired before 1 September 2014 without opting get no benefit.
Issues
- Whether the Employees' Pension (Amendment) Scheme, 2014 notified by G.S.R. 609(E) dated 22.08.2014 was valid, including its salary ceiling, fresh-option requirement with a cut-off date and changed method of computing pensionable salary.
- Whether option members could be required to contribute 1.16% of salary above Rs 15,000 to the pension fund.
- Whether R.C. Gupta's holding that the unamended proviso to paragraph 11(3) fixed no cut-off date needed reconsideration, and whether employees of exempted establishments could opt for higher pension.
Provisions considered
- Sections 6A and 7, and item 10 of Schedule III, Employees' Provident Funds and Miscellaneous Provisions Act, 1952The Central Government's power to frame and amend the pension scheme, prospectively or retrospectively, and to prescribe the scale and conditions of pension supported the amendment, including the change in computing pensionable salary. (¶¶ 8, 12, 23, 32, 36)
- Paragraph 11(3) proviso (pre-2014) and paragraph 11(4) (post-2014), Employees' Pension Scheme, 1995The unamended proviso fixed no cut-off date for the option; the dual option under amended paragraph 11(4) was merged into one and members who had not opted earlier were allowed to opt. (¶¶ 40, 41, 42, 43, 44)
- Paragraph 11(4), first proviso (1.16% employee contribution), Employees' Pension Scheme, 1995Neither the Act nor Section 6A requires employees to contribute to the pension fund, so the scheme could not mandate it; the ruling was suspended for six months to allow legislative or scheme adjustment. (¶¶ 35, 44)
- Paragraphs 11(1) and 32, Employees' Pension Scheme, 1995Averaging pensionable salary over 60 months instead of 12 is ancillary to fixing the scale of pension and within the power to alter benefits. (¶¶ 27, 36)
- Section 17(6), Employees' Provident Funds and Miscellaneous Provisions Act, 1952Employees of exempted establishments are integrated into the pension scheme and must be treated like employees of unexempted establishments, subject to the trusts transferring the employer's contribution. (¶¶ 37, 38, 39)
- Articles 14 and 142, Constitution of IndiaClassification by salary was reasonable under Article 14; time to exercise the option under paragraph 11(4) was extended by four months under Article 142. (¶¶ 32, 44)
Held
- The amendment was made in exercise of vested power on relevant material and not whimsically, so judicial scrutiny is narrow; classifying employees by salary is reasonable, employees are not a homogeneous class for this purpose, and a cut-off date is permissible. (¶¶ 30, 32, 33)
- The High Court erred in invalidating the amendment on macro-economic grounds such as wage levels and growth of the fund; how a pension scheme should operate is for the policy makers, and a newspaper report is no guide to the fund's position. (¶¶ 32, 33)
- R.C. Gupta concerned the unamended scheme and does not govern the amended provisions, but its reading that the proviso to paragraph 11(3) fixed no cut-off date does not require reconsideration and is affirmed. (¶¶ 29, 33, 41)
- Requiring option members to contribute 1.16% of salary above Rs 15,000 is ultra vires the 1952 Act, as the Act contemplates no employee contribution to the pension fund; the ruling is suspended for six months, during which the contribution continues as a stop-gap measure. (¶ 35)
- Changing the computation of pensionable salary to the average over 60 months is within the Central Government's power and has a reasonable basis; existing members' right to pension is protected because they may opt to remain above the ceiling. (¶¶ 34, 36)
- Eligibility for enhanced coverage cannot be confined to those who had already opted under the unamended paragraph 11(3); the two options merge into one, and because members were misled by the authorities' cut-off stand and the High Court rulings created uncertainty, they get four more months to opt. (¶¶ 41, 42, 43, 44)
- Employees of exempted establishments are entitled to opt as employees of regular establishments can, on an undertaking to transfer the employer's contribution held by the trust at no less than the sum that would have been transferable from the provident fund authorities. (¶¶ 38, 39, 44)
- Employees who retired before 1 September 2014 without exercising the option had already exited and get no benefit, while those who retired after opting are governed by the unamended paragraph 11(3). (¶ 44)
Result
Appeals allowed and the High Court judgments modified; G.S.R. 609(E) dated 22.08.2014 upheld save that the 1.16% employee contribution is ultra vires (operation suspended for six months); time to exercise the joint option under paragraph 11(4) extended by four months; R.C. Gupta to be implemented within eight weeks; writ petitions and contempt petitions disposed of in the same terms; no order as to costs.