Madras HC Quashes EPFO Circular Restricting Higher Pension Claims by Exempted Establishments

On September 2, the Madurai Bench of the Madras High Court struck down a circular issued by the Employees’ Provident Fund Organisation (EPFO) dated January 18, which had barred companies managing their own provident fund (PF) trusts from amending their internal rules retrospectively to allow employees to claim higher pensions. This circular had followed a landmark Supreme Court ruling in November 2022 that permitted eligible employees to opt for higher pensions.

In its judgment, the High Court observed, “The circular issued by the respondents [EPFO] on January 18 stands in violation of the Supreme Court’s ruling in the Sunil Kumar case and is therefore liable to be set aside.”

Supreme Court Ruling on Higher Pensions

The Supreme Court’s 2022 verdict had allowed employees who were in service as of September 1, 2014, to opt for pensions based on their actual salaries—exceeding the statutory wage ceiling of ₹15,000—by contributing 8.33% of their full salary to the pension fund.

B.N. Agrawal, Secretary of the SAIL-BSP Pensioners’ Association, criticised the EPFO for rejecting numerous joint applications submitted by employees and employers, citing "unfounded technicalities," such as the wage ceiling stipulated in the trust rules of many exempted establishments. These exempted entities manage their own PFs under the EPF Act. Interestingly, joint applications from other exempted establishments, without such ceilings, were reportedly accepted by EPFO.

With this ruling, the High Court has now directed that any joint option applications for higher pension submitted on or before January 31, 2025, must be accepted by the EPFO. The court emphasised that trust rules under the EPF Scheme cannot be used as grounds to deny benefits under the Employees’ Pension Scheme (EPS), 1995.

Clarification on Exemptions: PF vs Pension Scheme

The court clarified that exempted establishments are not exempt under Paragraph 39 of the EPS 1995. “Exemptions granted under the PF Scheme cannot be misused to deprive employees of their rightful entitlements under the statutory pension scheme,” Agrawal stated. “The exemption applies only to the provident fund component, not the pension fund. Employees continue to be part of the statutory EPS, which is distinct and independent of the rules of exempted PF trusts.”

The court was responding to a petition filed in October 2024 by 86 retired employees of Bharat Heavy Electricals Limited (BHEL), Trichy. These petitioners had contested EPFO’s March 21, 2024, orders that rescinded earlier demand notices requiring payment of EPS contributions with interest, payments necessary to qualify for higher pension benefits.

The retirees also challenged the subsequent EPFO circular that barred retrospective amendments to the PF trust rules.

In its defence, the EPFO had argued that exempted establishments operate under their own trust rules and that employees had voluntarily chosen to prioritise higher provident fund accumulation over higher pensions. It also claimed that allowing such higher pension payouts would cause financial strain on the EPFO.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.