Special provision for international workers under EPF and EPS is unconstitutional and arbitrary- Karnataka High court ​

Introduction

With regard to the International Workers, the Government of India had made fundamental changes in the Employees Provident Fund Scheme, 1952, and the Employees’ Pension Scheme, 1995. The concept of international workers was introduced, which included expatriates working for an employer in India and Indian employees working overseas. This Amendment was effective from 1^st October 2008.

Definition of an International Worker

“International Worker” means

1. 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 program of that country, by virtue of the eligibility gained or going to gain, under the said agreement;
2. An employee other than an Indian employee, holding other than an Indian passport, working for an establishment in India to which the Act applies:

Provided that the worker who is a Nepalese national on account of the Treaty of Peace and Friendship of 1950 and the worker who is a Bhutanese national on account of the India-Bhutan Friendship Treaty of 2007 shall be deemed to be an Indian worker.

The reasoning for this change in the Employees’ Provident Fund Scheme, 1952, and the Employees’ Pension Scheme, 1995

Indian employees are often deputed by their employers to different countries. These international assignments are usually on a short-term basis. The Indian assignees and their employers are required to contribute to the social security schemes of the host country. These contributions only add to the cost of the assignment without any corresponding benefit, as neither the employee nor the employer is able to withdraw the contributions on completion of the assignment. Further, the employee is also not entitled to any benefits under the scheme on return to India due to the short period for which contributions have been made to the overseas schemes.

Correspondingly, the expatriates working in India are generally not required to contribute to the Indian social security schemes (i.e., the Employee Provident Fund and the Pension Scheme), as their salaries exceed the threshold limit of INR 6,500 (now INR 15,000).

Subsequently, there were Social Security Agreements entered by India with other countries. Currently, there are 19 such agreements. These agreements provide for contribution in the home country, based on the Certificate of Coverage / Detachment Certificate. These agreements also provide for detachment, totalization, portability, and equality of treatment.

Context

Some of the employers and employees, through various writ petitions, had challenged the constitutional validity of Para 83 of the Employees’ Provident Funds Scheme, 1952, and Para 43-A of the Employees’ Pension Scheme, 1995.

The contention of the petitioner was that these provisions are unconstitutional and hit by Article 14 of the Constitution of India, and also as illegal as opposed to the very object of the Employees Provident Fund and Miscellaneous Provisions Act, 1952.

Article 14 of the Constitution of India reads as follows:

Equality before law– “The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.”

Article 14 of the Indian Constitution guarantees the right to equality for every citizen of the country. It encompasses the general principles of equality before the law and prohibits unreasonable discrimination between two persons.

Outcome

The Honourable High Court of Karnataka, in its landmark judgment delivered on 25^thApril 2024, has struck down the special provisions for international workers under Para 83 of the Employees’ Provident Funds Scheme, 1952, and under Para 43-A of the Employees’ Pension Scheme, 1995, as being unconstitutional and arbitrary.

Our comments

The above-mentioned judgment is passed by a single bench. It could be challenged by EPFO before the larger bench of the High Court, as a comparison of foreign citizens with Indian citizens may not be the test of equality before the laws of the land.

Hence it is not recommended to take the above judgement as conclusive for making any decision on compliance.