Karnataka High Court cancels extension of EPFO schemes to international workers

The Karnataka High Court recently struck down Central government's 2008 decision to extend Employees Provident Fund (EPF) Scheme and Employees Pension (EP) Scheme to international workers in India, as unconstitutional and arbitrary [Stone Hill Education Foundation vs The Union of India]..Justice KS Hemalekha said that while the Employees Provident Funds and Miscellaneous Provisions Act (EPF & MP Act) empowers the Central government to modify the schemes, the power has to be exercised only to meet the objects of the enactment.“The EPF & MP 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 said while referring to the foreign workers..The Court added that the EPF & MP Act has strict provisions under which the employees of EPF Organisation or EPFO can impose heavy costs in case of non-compliance.Such personnel cannot be diverted to cater to the needs of rich international workers who earn huge amounts of money, the Court said..The Court passed the ruling in a batch of petitions challenging para 83 of the EPF Scheme and para 43A of the EP Scheme under which they were extended to international workers in 2008.The petitions filed by both employers and employees said the international workers in India work only for a limited period and requiring them to make PF contributions would cause irreparable injury. It was also submitted that the foreign workers were a separate class..After examining the aim of introducing para 83 in the EPF Scheme, the Court said the objective was actually to protect Indian employees deputed outside India, from being subjected to any unfair social security scheme of that country.It was also to motivate foreign countries to enter into agreements with India under which their nationals could also be provided reciprocal treatment while they work in India.However, the Court noted that while the EPF & MP Act places a wage ceiling limit of 15,000 per month for an employee to be a member of the EPF Scheme, there was no salary limit for international workers..Thus, it said that while an Indian employee working in a foreign country with Social Security Agreement (SSA) with India continues to contribute on a meagre sum of ₹15,000, a foreign worker is made to contribute PF on his entire salary even though both are international workers.“The Government of India is unable to substantiate any nexus with the object sought to be achieved, para 83 is clearly discriminatory in treating the international workers of Indian origin and foreign origin differently and thus violative of Article 14 of the Constitution of India,” said the Court.The Court also noted that an international worker from a country which does not have SSA with India is not allowed to withdraw his accumulated contributions until he reaches the age of 58 years..It was further informed that only 20 only twenty countries have entered into SSA agreement since introduction of para 83 in 2008. “There is no rational basis for this classification nor there is reciprocity that compels to classify foreign employees from non-SSA countries as international workers. The respondents neither have stated whether the Indian employees working in non-SSA countries [are] required to contribute their entire pay without statutory limit towards PF of that country. In the absence of parity and also in the absence of reciprocity, there is no justification to demand a contribution on the entire pay of a foreign employee from a non-SSA country," the Court noted. .Thus, the Court said the decision to extend the schemes to foreign employees in India was violative of Article 14.“The legislation cannot run beyond the parameters of the Parent Act and always there must be some principles to guide the exercise of discretion,” it ruled..Meanwhile, the Ministry of Labour and Employment through Employees' Provident Fund Organisation today reacted to the High Court’s ruling and said it was actively evaluating the future course of action. “The Employees' Provident Fund Organisation (EPFO) acknowledges the recent judgment issued by the esteemed High Court of Karnataka. The judgment pertains to the specific provisions for International Workers outlined in Paragraph 83 of the Employees' Provident Fund Scheme, 1952 and Paragraph 43A of the Employees' Pension Scheme, 1995, which were deemed to be inconsistent with Article 14 of the Constitution. The EPFO is actively evaluating the course of action in response to this judgement.”The Ministry also said that India presently has social security agreements with 21 countries and these agreements ensure continued social security coverage for employees from these nations on a mutually reciprocal basis. “These agreements aim to guarantee the uninterrupted social security coverage of employees during international employment. These agreements are very important for India for promoting International mobility and leverage the demographic dividend. The EPFO serves as the operational agency in India for such social security agreements,” the press release said..List of Lawyers.Advocates KN Vasuki, CK Subrahmanya and BC Prabhakar represented Stone Hill Education Foundation, Arm Embedded Technologies, Sobha Developers, Ozone Propex, Value and Budget Housing Corporation.Senior Advocate Dhyan Chinnappa, Advocates MV Sundararaman and Krishar Somaiah represented UE Development India.Senior Advocate Lakshmi Iyengar, Advocates Revathi Adinath Narde and KS Mahadevan represented Deccan Cargo & Express Logistics. Senior Advocate Uday Holla and Advocate Rajendra MS represented Canadian International School. Senior Advocate SN Murthy and Advocate Sri Somashekar represented CPG Consultants India, Toyota Tsusho India, Toyotetsu India Auto Parts, Toyota Kirloskar Motor, Toyota Kirloskar Auto Parts, Transystem Logistics International, Toyoto Logistic Kishore India, Toyota Techno Park (I), Mahindra Reva Electric Vehicles and Gokaldas Images.Advocates H Srinivas Rao and Deepthi CR represented Mantri Developers.Advocate Aditya V Bhat represented Metro Cash & Carry India.Advocate Anand KR represented Sunchirin AutopartsAdvocate S Santosh Narayana represented Recaero IndiaAdvocates Girish GN and SM Chandrashekar represented NAFL's Trust.Advocate MN Kumar represented the Centre.Advocates Naninda Haldipur and BV Vidyalatha represented the Employees Provident Fund Organization (EPFO). .[Read Judgment]