EPF Rewind: Equality Before Law and Class Legislations

In a recent ruling, the Karnataka High Court struck down the introduction of para 83 of the Employees’ Provident Fund Scheme, 1952 (“EPF Scheme”), and para 43A of the Employees’ Pension Scheme, 1995 (“EP Scheme”) as arbitrary, unenforceable and violative of Article 14 of the Constitution.[1]

The petitioners in the instant case, employees and employers including notable names such as Mantri Developers Private Limited, Sobha Developers Ltd., etc. questioned the vires of Para 83 of the EPF Scheme and Para 43A of the EP Scheme, which were introduced more than a decade ago. These amendments were introduced by the respondent, Union of India vide notification dated October 1, 2008, which covered ‘international workers’. The relief sought by the employees and the employers was to declare the said Schemes unconstitutional as these were contrary to the objectives of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (“Act”). One of the grievances included the fact that international workers were covered under the Act and the Schemes irrespective of their salaries.

International Workers under the EPF and EP Schemes

As per the Schemes, an international worker means an Indian employee working or going to work in a country with which India has entered into a Social Security Agreement (“SSA”) or a foreign employee working for an establishment in India to which the Act applies.

An Indian employee attains the status of an international worker when he becomes eligible to avail benefits under the social security programme of another country by virtue of eligibility gained or going to gain under the said agreement on account of employment in a country with which India has signed SSA. Consequently, Indian employees working in non-SSA countries are not categorised as international workers under the Schemes and will be governed by the host country’s legislation instead.

However, foreign workers from a non-SSA country are classified as international workers. While foreign workers from SSA countries with a certificate of coverage are excluded employees and need not be members of the Fund, those without a certificate of coverage are required to contribute PF on their entire salary.

Contentions of Parties

The petitioners urged that the impugned provisions were discriminatory, especially in light of the absence of a cap on salary on which contribution was payable by international workers; as per the EPF Scheme, an employee whose pay exceeded Rs.15,000 per month was termed as an excluded employee but this limit did not apply to international workers. It was also pointed out that international workers did not work till retirement, but only for a limited period. The said paras were assailed for bringing foreign nationals with significantly higher pay within the purview of the Scheme and hence, it was maintained that these were contrary to the object of the Act which provided for coverage of weaker sections. The petitioners also asserted that there was no intelligible differentia in drawing a distinction between Indian employees and foreign workers not covered under the SSA.

On the other hand, the respondent referred to the special provisions made for different types of workers such as cine-workers, persons with disabilities, etc. It was contended that the provisions of the Act and the Scheme were extended to international workers pursuant to bilateral SSAs with Belgium, Germany, Switzerland, Denmark, Luxemburg, France, South Korea, and the Netherlands. The amendments were considered necessary to protect the rights of international workers; Indian workers could not reap any social security benefits out of the contributions made by them in the host countries as such benefits generally become payable on completion of the minimum qualifying period of contribution or residence, which usually stretched to ten years or more.

Decision of the Karnataka High Court

The Hon’ble High Court of Karnataka considered the contentions of both the parties and the question “Whether introduction of para 83 of the EPF Scheme and para 43A of the EP Scheme is unconstitutional hit by Article 14 of the Constitution of India?”  The Court extensively referred to the provisions of Article 14 of the Constitution – Equality before law.

The observations made by the High Court vide order dated April 25, 2024, are summarised below:

  • Benefits Available to Workers Covered under SSA

Rejecting the respondent’s claim of reciprocity, the High Court pointed out that the impugned provisions also applied to international workers from non-SSA countries who were not conferred with the benefits enjoyed by international workers from non-SSA countries. While an international worker from a non-SSA country was not allowed to withdraw accumulation until he reached the age of 58 years, a member covered under the SSA could withdraw the amount on ceasing to be an employee in the establishment. Further, if an international worker covered under SSA had not rendered the eligible service of 10 years even after including the totalisation benefit (i.e., totalising periods of service rendered in both countries) as provided in the agreement, such a worker was eligible for a withdrawal benefit under the EP Scheme.

  • Membership of the Fund – No Cap on Salary

Stating that the Act was a social welfare legislation, the Court remarked that no mention was made in its objects “with regard to covering employees irrespective of the salary drawn by them”. Referring to the revisions made to the salary threshold from time to time since the Scheme was framed, the Court held that the same indicated that the Act was enacted “with a view to see that those in lower salary brackets get retirement benefits and by no stretch of imagination, could it be said that the employees who draw lakhs of rupees per month should be given the benefit under the enactment”. The Court expressed that subordinate legislation could not go beyond the scope of the parent legislation and as the Act provided for a cap on the salary amount for employees to be members of the Fund, para 83 of the EPF Scheme “ought not to have an unlimited threshold for international workers while denying the same benefit to Indian workers”.

  • Amount of Contribution Payable

The Court held that the impugned provisions were discriminatory in treating the international workers of Indian origin and foreign origin differently. It was noted that there was no “rational basis” for classifying foreign employees from non-SSA countries as international workers requiring them to contribute PF out of their global salary. Whereas, Indian employees working in a non-SSA country did not fall within the scope of international workers and were hence governed by the legislation of the host country. Such distinction in the amount of contribution was considered to be discriminatory and violative of Article 14 of the Constitution.

The classification made was held to be unreasonable and without intelligible differentia, and it was observed that there was no nexus between the object of the Act and the basis of classification. With this, the Court struck down para 83 of the EPF Scheme and para 43A of the EP Scheme as unconstitutional and arbitrary.

After this order was pronounced, the Ministry of Labour and Employment released a statement asserting that the Employees’ Provident Fund Organisation acknowledged the decision and was evaluating the next course of action.[2]

As mentioned earlier, special provisions have been made for different types of workers including newspaper employees, cine-workers, and persons with disabilities. While cine-workers and persons with disabilities with wages and pay exceeding the prescribed amount are included in the category of excluded employees, the same does not hold true for newspaper employees.

However, as the Karnataka High Court pointed out in the above case, there’s a significant amount of risk involved in a working journalist’s role and the special provisions made for working journalists could not be equated with those introduced for international workers. Moreover, a challenge to the constitutional validity of para 80(2) of the EPF Scheme concerning newspaper employees was dismissed by the Supreme Court in the year 2004, with the Court holding that the same was not violative of Article 14 as it singled out the newspaper industry by excluding the income test only in regard to the said industry.[3]

Comments

Although the Union of India introduced provisions in the Schemes to protect the interests of international workers and to honour bilateral agreements with foreign countries, and the Schemes aimed to ensure that no one is deprived of social security benefits and that no Indian posted abroad is denied such benefits, however, these provisions exceeded the scope of the parent Act being the Employees Provident Fund and Miscellaneous Provisions Act, 1952, and as a result, violated Article 14 of the Constitution.

References:

[1] Stone Hill Education Foundation v. Union of India & Ors. (WP No.18486/ 2012) and 22 other writ petitions; Order available here.

[2] https://pib.gov.in/PressReleasePage.aspx?PRID=2019888

[3] Exp. Publications (Madurai) Ltd. & Anr. v. Union of India & Anr. [WP(C) 59 of 2001]; Judgment available here.

Image Credits:

Photo by SvetaZi on Canva

The Court held that the impugned provisions were discriminatory in treating the international workers of Indian origin and foreign origin differently. It was noted that there was no “rational basis” for classifying foreign employees from non-SSA countries as international workers requiring them to contribute PF out of their global salary. Whereas, Indian employees working in a non-SSA country did not fall within the scope of international workers and were hence governed by the legislation of the host country. Such distinction in the amount of contribution was considered to be discriminatory and violative of Article 14 of the Constitution.

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