Karnataka High Court Invalidates Extension of EPFO Schemes to Foreign Workers

08 May, 2024

In a recent ruling, the Karnataka High Court declared the Central government's decision from 2008 to extend the Employees Provident Fund (EPF) Scheme and Employees Pension (EP) Scheme to international workers in India unconstitutional and arbitrary. The decision was made in the case of Stone Hill Education Foundation vs The Union of India.

Justice KS Hemalekha emphasized that while the Employees Provident Funds and Miscellaneous Provisions Act (EPF & MP Act) grants the Central government the authority to modify the schemes, this power must be exercised solely to fulfill the objectives of the enactment.

The Court highlighted that the EPF & MP Act was enacted to ensure that those in lower salary brackets receive retirement benefits, and it could not be justified to provide benefits under the enactment to employees earning substantial salaries, such as those of foreign workers.

Furthermore, the Court noted that the EPF & MP Act contains stringent provisions allowing EPF Organisation or EPFO employees to impose significant penalties for non-compliance, and resources cannot be diverted to cater to the needs of affluent international workers.

The ruling was issued in response to a series of petitions challenging the extension of para 83 of the EPF Scheme and para 43A of the EP Scheme to international workers in 2008. These petitions, filed by both employers and employees, argued that requiring PF contributions from international workers in India, who typically work for a limited period, would cause irreparable harm.

Examining the aim of introducing para 83 in the EPF Scheme, the Court concluded that its objective was primarily to protect Indian employees deputed abroad and to encourage foreign countries to enter into agreements with India for reciprocal treatment of workers.

However, the Court observed that while the EPF & MP Act imposes a wage ceiling limit of ₹15,000 per month for EPF Scheme membership, there is no salary limit for international workers. This disparity led the Court to conclude that para 83 is discriminatory and violates Article 14 of the Constitution of India.

Moreover, the Court noted that international workers from countries without Social Security Agreements with India are not allowed to withdraw their accumulated contributions until they reach the age of 58 years. Given these inconsistencies, the Court deemed the decision to extend the schemes to foreign employees in India as violative of Article 14.

The Ministry of Labour and Employment, through the Employees' Provident Fund Organisation, responded to the High Court’s ruling by stating that they are actively considering the next steps. They emphasized the importance of social security agreements with foreign countries and highlighted the EPFO's role as the operational agency in India for such agreements.

In summary, the High Court's decision underscores the need for alignment with the objectives of the EPF & MP Act and the principles of fairness and equality in extending benefits to international workers in India.

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