Pensionable salary for higher-wage members under Paragraph 11(4) must be based on higher salary, not pro rata.

The petitioners challenged the EPFO circular dated 14 February 2024, which directed that pension for members who had contributed on salaries exceeding the statutory wage ceiling be computed pro rata by bifurcating pensionable service before and after 1 September 2014.

The petitioners’ employees had contributed on actual salaries substantially above the applicable ceiling and contended that the bifurcation method substantially reduced their pension.

In one illustrative case, the EPFO calculated pensionable salary at ₹47,973 instead of ₹76,125, resulting in a reduction of ₹28,152.

During the proceedings, pension payment orders were issued to several members using the impugned methodology.

Whether the EPFO could, through its circular dated 14 February 2024, apply the pro-rata formula under Paragraph 12(2) of the EPS to members covered by Paragraph 11(4), who had exercised the option to contribute on higher salaries.

Whether the pensionable salary of such higher-wage members was required to be calculated on the basis of the average salary for the preceding 60 months, subject to the statutory ceiling, or on a pro-rata basis by separately calculating service before and after 1 September 2014.

Whether the impugned circular was contrary to the 2016 amendment to Paragraph 11(4), which provided that the pensionable salary of eligible existing members would be based on the “higher salary”.

The Court applied Paragraphs 11(1), 11(4) and 12(2) of the EPS, 1995, as amended by G.S.R. 609(E) dated 22 August 2014 and G.S.R. 657(E) dated 1 July 2016.

Paragraph 11(4), as amended with effect from 1 July 2016, specifically provides that the pensionable salary of existing members who opt to contribute on higher salaries shall be based on the “higher salary”.

The Court also considered Employees’ Provident Fund Organisation v. Sunil Kumar B., (2023) 12 SCC 701, and the decision of the Punjab and Haryana High Court in Surinder Kumar v. Union of India.

The governing principle was that the specific provision governing higher-wage members under Paragraph 11(4) could not be diluted by applying the general pro-rata proviso under Paragraph 12(2).

The Court held that the EPFO’s circular improperly extended the pro-rata methodology in the proviso to Paragraph 12(2) to members governed by Paragraph 11(4).

Although the 2014 amendment introduced pro-rata computation for pensionable service before and after 1 September 2014, the expression “and the pensionable salary … shall be based on the higher salary” was inserted into Paragraph 11(4) only by the subsequent 2016 amendment.

This later and specific amendment demonstrated a conscious legislative distinction between ordinary members subject to wage ceilings and existing members who had opted to contribute on higher wages.

Consequently, the Court found that the EPFO could not rely on the general proviso to Paragraph 12(2) to impose a pro-rata reduction on members whose pensionable salary was expressly required to be based on the higher salary.

The circular therefore travelled beyond the authority conferred by the EPS and ignored the legal effect of the 2016 amendment.

The EPFO circular dated 14 February 2024 was quashed and set aside as being beyond the powers and scope of the authorities.

The respondents were directed to pay all consequential arrears together with interest at the statutory rate.

The writ petition was allowed, and connected applications were disposed of.