In a recent seminal judgment titled Stone Hill Education Foundation and Ors. vs. Union of India and Ors.[1], the Hon’ble Karnataka High Court (“HC”) has struck down the controversial para 83 of the Employees Provident Fund Scheme (“EPF”) and para 43A of the Employees’ Pension Scheme (“EPS”) related to “International Workers”. While holding these provisions unconstitutional, the Hon’ble HC observed that requiring mandatory Provident Fund (“PF”) contributions for International Workers without any wage ceiling is arbitrary and violative of Article 14 of the Indian Constitution.
Background:
The EPF is a social security legislation which requires both the employer and the employee to contribute a percentage of the employee’s monthly salary to a separate fund. However, the contribution is calculated on a wage ceiling of ₹ 15,000 per mensem, — meaning PF deduction applies only up to this upper limit.
The Union of India, in 2008, introduced para 83 in EPF and 43A in the EPS in order to provide special treatment to International Workers. This newly introduced para defines International Workers as:
(a) an Indian employee having worked or going to work in a foreign country with which India has entered into a social security agreement and being eligible to avail the benefits under a social security programme of that country, by virtue of the eligibility gained or going to gain, under the said agreement;
(b) an employee other than an Indian employee, holding other than an Indian Passport, working for an establishment in Indian to which the Act applies;[2]
Post-amendment, International Workers were covered under the provisions of the Employees’ Provident Fund and Miscellaneous Act, 1952 (“EPF Act”), regardless of their wages. This meant that both the International Worker and their Employer were required to make contributions based on the worker's total wages. In contrast, all other workers and their employers were only required to make contributions on a maximum wage of ₹15,000 per month.
The Petitioners argued that the impugned provisions do not impose a wage ceiling for International Workers, which contradicts the EPF Act. They claimed that these provisions place an additional burden on employers since there is no limit on the wage subject to contributions by both the employer and the employee. Additionally, there is no cap on the portion of the employee’s salary that must be allocated to the EPF Scheme. In this background, the Petitioner challenged the constitutionality of the impugned provisions.
The Respondent opposed the Petition by contending that the government has finalized a Bilateral Social Security Agreement (“BSSA”) with Belgium, Germany, Switzerland, Denmark, Luxemburg, France, South Korea, and the Netherlands, resulting in the extension of EPF benefits to International Workers from these nations.
Court’s Observation:
While adjudicating the constitutionality of the impugned provisions, the Hon’ble HC has made the following observations:
a. There is clear discrimination between Indian employees working in a non-BSSA country, not being an International Worker, and foreign employees from a non-BSSA country working in India who are classified as International Workers. There is no reasonable ground for this discrimination, nor is there any compulsion to classify foreign employees from non-BSSA countries as International Workers.
b. The unequal treatment of foreign employees working in India, and Indian employees working in India violates Article 14 of the Constitution. The HC also observed that the Respondent failed to substantiate any nexus with the aim sought to be achieved by the amendment i.e., providing retirement benefits to those in the lower salary brackets. Therefore, impugned provisions are clearly discriminative in treating International Workers of Indian origin differently from International Workers of foreign origin and thus violative of Article 14 of the Constitution.
c. Para 83 of the EPF Scheme, being subordinate legislation, cannot exceed the scope of the main EPF Act. Given that the main Act sets a wage ceiling of Rs. 15,000 per month for employees, para 83 should not impose an unlimited threshold for international workers while denying Indian workers the same benefit. Since para 83 of the EPF Scheme and para 43A of the EP Scheme do not align with the aims and objectives of the EPF Act, 1952, they are deemed incompatible, arbitrary, unconstitutional, and ultra vires.
Implication of the Decision:
The HC, in its order, has explicitly ruled that all orders passed under the now invalidated provisions shall become unenforceable. Therefore, any act/omission carried out under these provisions shall be treated unenforceable in any court of law. Further, the Hon’ble Supreme Court, at various previous rulings, has held that a declaration of law made by a court would always have a retrospective effect unless specifically stated under the judgment. Therefore, this decision by the Karnataka High Court will have a retrospective effect.
Given this context, it is possible that International Workers across India may be eligible for a refund of their Provident Fund (PF) contributions made under the now-invalidated provisions.
Furthermore, regarding the applicability of this judgment across other states, it is a clear and settled provision of law that an order passed on a writ petition questioning the constitutionality of a parliamentary Act, will have effect throughout the territory of India.[3] Therefore, employers and International Workers in other states may also cease making PF contributions on full wages in accordance with this ruling.
In the light of the above legal discussion, the said order of the Karnataka HC will have a huge impact on the contributions made by International Workers across India, and further, it may also impact international labour relations because the impugned provisions were introduced based on the reciprocity terms under social security agreements entered by India with reciprocating countries.
Author
Gyanendra Mishra, Partner, Dentons Link Legal
Disclaimer
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[1] 2024 SCC OnLine Kar 49
[2] Para 2(ja) of the EPF Scheme.
[3] Kusum Ingots & Alloys Ltd. v. Union of India and Anr. (2004 SCC 6 254); Sundaraja V. v. The Registrar General (2023 SCC ONLINE MAD 3777)