BACKGROUND

The Employee Provident Fund Organization (EPFO) by way of an amendment to the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) and the notification dated October 1, 2008, introduced Paragraph 83 in the Employees’ Provident Funds Scheme, 1952 (EPF Scheme) and Paragraph 43A under the Employees’ Pension Scheme, 1995 (Pension Scheme) to govern international workers with effect from October 1, 2008 (Impugned Provisions). As per Para 83 of the EPF Scheme, an “international worker” is: 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; or an employee other than an Indian employee, holding other than an Indian passport, working for an establishment in India to which the EPF Act applies”.

Pursuant to the Impugned Provisions, provident fund contribution in respect of international workers was payable on the total gross wages and was uncapped.

The Regional Provident Fund Commissioner-I, Bengaluru, Karnataka, issued notices to various companies seeking contributions in relation to Provident Fund and Pension Scheme on the total wages of the international workers without any cap. Several writ petitions were filed by the employers across various industries before various courts in India including the High Court of Karnataka contesting the constitutionality of the said provision. The High Court of Karnataka consolidated the petitions filed before it, and delivered a unified judgment[1] on April 25, 2024.

BRIEF FACTS OF THE CASE

The petitioners’ main grievance was that para 83 of the EPF Scheme encompasses “international workers” within its scope, regardless of their salary level unlike other employees (not being international workers) who are outside the purview of the EPF Scheme if they earn more than INR 15,000 per month. Another grievance raised was that international workers typically have shorter work tenures and do not work until retirement. Thus, requiring them to contribute provident fund based on their entire salary would cause significant harm and would be opposed to the very object of the EPF Act.

The petitioners argued that provisions mandating EPF contributions from international workers are unjust, arbitrary and discriminatory and violate Article 14 of the Constitution of India and accordingly sought to declare para 83 of the EPF Scheme and 43A of the Pension Scheme as unconstitutional and sought quashing of all orders passed by the Regional Provident Fund Commissioner-I, Bengaluru, Karnataka seeking payment of contributions and charges under the Impugned Provisions.

JUDGEMENT

The Karnataka High Court struck down the Impugned Provisions for being arbitrary, unconstitutional, and violative of Article 14 of the Constitution of India and declared that all orders passed thereof are unenforceable.

The court observed that the EPF Scheme, being subordinate legislation, cannot exceed the boundaries set by the EPF Act.  The court further observed that when a ceiling amount of INR 15,000 per month has been placed as a threshold for an employee to be a member to the EPF Scheme, para 83 of the EPF Scheme ought not to have an unlimited threshold for international workers while denying the same benefit to Indian workers.

The court, inter alia, held that:

• The distinction in the amount of contribution between an employee going to a non-SSA country and an employee from a non-SSA country coming to India is clearly discriminatory and violative of Article 14 of the Constitution of India;
• The demand for contribution on global salary is arbitrary and hit by Article 14 of the Constitution of India.

In summary, the Court concluded that there was no nexus between the object of the EPF Act and the classification made through the Impugned Provisions.

CONCLUSION

The judgement of High Court of Karnataka, provides relief to employers from financial obligations stemming from unlimited provident fund contributions for their international workers. With the special provisions removed, international workers would be treated on par with other employees.

In light of the decision, all orders and directions issued by the Provident Fund authorities in the State of Karnataka demanding provident fund contributions in respect of international workers under the Impugned Provisions will be invalidated. Accordingly, employers who have already paid contributions based on the Impugned Provisions may have an opportunity to seek refunds for the excess amounts paid.

However, since the judgement does not provide any guidance regarding the process to be followed, any reimbursements / recoveries may only occur once the EPFO issues guidance on the same.

Given this decision has been passed by the Karnataka High Court, it would be binding in the State of Karnataka unless its operation is stayed or set aside by a larger bench of the High Court of Karnataka or by the Supreme Court of India. It remains to be seen if courts in other States in India also adopt a similar approach in the matters presently pending before them on this issue.

EPFO is currently evaluating the course of action in response to this decision[2] and may elect to challenge this decision before appropriate authorities.

[1] Stone Hill Education Foundation and Others v. Union of India and Others (W.P. No.18486/2012)

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