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Introduction: The recent judgement passed by the hon’ble Karnataka High Court on 25.4.2024, in the batch of 23 petitions (including some big names of Toyota group of companies) with lead case being the ‘Stone Hill Education Foundation and the Union of India’, in W.P. No. 18486/2012, holding the coverage of the ‘international workers’, within the ambit of the EPFO Act, without any wage ceiling limit, as unconstitutional and arbitrary, has caught the interest and attention of many quarters.

Before we delve further into the intricacies and finer aspects of this popular judgement of the hon’ble Karnataka High Court and more importantly the missing piece of the EPFO’s ‘Reciprocity’ plea before the hon’ble Court, it will be worthwhile to first have a little understanding of the backdrop of this entire issue.

It is pertinent to mention here that uptill September 30, 2008, there was no specific enabling provision in the Indian Employees Provident Fund & Miscellaneous Provisions Act, 1952 (EPFO Act), in respect of the coverage of the foreign nationals working in India, more specifically referred to as the ‘international workers’ in the legal parlance.

The enabling provisions for the coverage of the ‘international workers’ in the Indian EPFO Act, 1952, were first brought in by the Legislature on October 1, 2008, by the insertion of paragraph 83 in the EPFO Scheme, 1952, and paragraph 43A in the Employees’ Pension Scheme, 1995.

What is there in Para 83 of the EPFO Scheme, 1952?

The para 83 of the EPFO Scheme, contains the enabling provisions concerning the definition, coverage, exclusion and membership criteria of ‘international workers’, in the Indian EPFO Act.

Definition of International Worker:

An ‘International Worker’ may be an Indian worker or a foreign national, namely:

i) 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 social security programme of that country, by virtue of the eligibility gained or going to gain, under the said agreement;

ii) An employee other than an Indian employee, holding other than an Indian Passport, working for an establishment in India to which the EPF & MP Act, 1952 applies.

Coverage:

Every International Worker (as defined above), other than an 'excluded employee’ is required to be a member of the Employees' Provident Fund from the date of joining of the EPF covered establishment.

‘Excluded Employee’ in case of International Workers are of two categories, namely:

• National of a foreign country with which India has entered into a ‘Social Security Agreement’ (SSA) duly issued with a ‘Certificate of Coverage’ (COC) by his/her home country;

• Singapore Nationals who are contributing to the Social Security system of their home country, in accordance with India Singapore CECA 20050.

What is a ‘Social Security Agreement’?

With a view to protect the rights of Indian nationals working abroad, the Government of India has entered into bilateral Social Security Agreements (SSAs), with 20 foreign countries, at present. A Social Security Agreement (SSA) coordinates the social security schemes of two contracting states in order to ensure continuity of social security coverage and facilitate extension of benefits to migrant workers, on reciprocal basis.

A SSA generally covers four important provisions namely, ‘Detachment’, ‘Totalisation’, ‘Portability’ and ‘Equality of treatment’.

(i) Detachment: Indian employees working in countries with which India has Social Security Agreements are exempted from contributing to their Social Security System, provided they are complying with the Indian Social Security System. This exemption is available for a specified period stipulated in the agreement.

(ii) Totalisation: The period of service rendered in SSA country is counted for determining eligibility for pension. The actual pensionary benefits, however, are payable only for the period of contributory service in India on pro-rata basis.

(iii) Portability: Pension benefits are payable without reduction, direct to the beneficiaries choosing to reside in the home country or in any other country.

(iv) Equality of Treatment: Indian Nationals are to be treated equal to Nationals of the host country with regard to applicability of legislations covered under the SSA.

At present, India has signed SSA’s with twenty (20) countries. The various benefits available under these 20 SSAs are mentioned in the table below:

Is there any Wage Ceiling Limit for Coverage & Contribution by International Workers in the EPFO Act, 1952?

Unlike the specified wage ceiling limit (current limit of Rs, 15,000) for the purpose of coverage and contribution to provident fund of the domestic Indian workers, no such wage ceiling limit has been prescribed in respect of the international workers. The contribution in respect of all such international workers is payable @ 12% on their full salary (basic salary plus dearness allowance plus special allowances), without any wage ceiling limit.

What is the Age Limit for Withdrawal of PF Contributions in case of International Workers?

The international workers other than the excluded international worker, can withdraw their provident fund accumulations only after attaining the age of 58 years.

The Karnataka High Court Judgement:

The hon'ble Karnataka High Court has held that the paragraph 83 of the EPFO Scheme and the paragraph 43A in the Employees’ Pension Scheme, 1995, containing the provisions for the coverage of the international workers in the EPFO Act, 1952 as unconstitutional, arbitrary and violative of Article 14 of the Constitution of India, primarily on account of two reasons.

First is the absence of any wage ceiling limit for international workers for coverage under the EPFO Act, 1952, in comparison with the wage ceiling limit of Rs. 15000 for domestic Indian workers. The hon’ble Court has held that this discrimination in the coverage and eligibility criteria of the international workers vis-à-vis the domestic Indian workers, defeats the very objective of the EPFO Act, of providing retirement benefits to low-income workers.

Secondly, unlike Indian workers who can withdraw their provident fund accumulations, at any time after leaving their jobs, the international worker can do so, only after attaining the age of 58.

The hon’ble Karnataka High Court in its judgement has observed that,

“Para 83 of the EPF Scheme is in the nature of subordinate legislation and therefore, the subordinate legislation cannot travel beyond the scope of the mother Act. Keeping in view the aims and objects of the main EPF & MP Act, when a ceiling amount of Rs.15,000/- per month has been placed as a threshold for an employee to be a member to the 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. There being no commonality of interest of the aims and objectives of EPF & MP Act, 1952 and para 83 of EPF Scheme, para 43A of EP Scheme to be struck down as incompatible, arbitrary, unconstitutional and ultra vires.”

The Missing Piece of the EPFO’s Reciprocity Plea before the Karnataka HC:

Before the hon’ble Karnataka High Court, the EPFO authorities had tried to contend that para 83 has been introduced as a measure of reciprocity in order to honour social security agreements between India and other countries. The aim and object of introducing para 83 of the EPF Scheme was to protect the Indian employees going abroad to work from being subjected to the social security and the retirement clause of their post-country which are prejudicial to their interest and to motivate these countries for entering into such agreements with India and to make it happen is to provide for reciprocal treatment to the nationals of these countries while they work in India.

However, the hon’ble Court has observed that the claim of reciprocity falls flat and has no legs to stand in respect of international workers from non-SSA countries. The hon’ble Court has also observed that para 83 eventually applies to international workers from countries with which the Government of India does not have SSA, and therefore, the claim of reciprocity does not arise and thus the claim of the Government that the obligation of reciprocity has made the Government of India to enact para 83 is unsustainable.

More Plausible Explanation of the “Reciprocity” Argument:

A more convincing, detailed and plausible explanation of the ‘Reciprocity’ contention of the EPFO authorities before the hon’ble Court, could have been on these lines.

In appreciating and understanding the real purport of the insertion of para 83 in the EPFO Scheme, for coverage of the international workers under the Indian EPFO Act, the underlying guiding objective of providing the level playing field between the Indian Nationals working abroad and the foreign nationals working in India, needs to be understood.

The comparison, if at all is to be done, has to be done between the much worse plight of the Indian Nationals working abroad in non SSA countries like that of US, UK and China and forced to contribute substantial amounts of their salaries in the foreign social security schemes of these countries, and of the foreign nationals working in India, and not between the domestic Indians and foreign workers working in India.

It is pertinent to mention here that the terms and conditions of the social security schemes in the countries like US, UK and China, with which currently there is no social security agreement, are much stringent and harsher than those provided in para 83 of the Indian EPFO Scheme. In India, the foreign nationals are required to make contributions to provident fund only till the period of continuity of their service in Indian company, and not after that. The only restriction is in respect of withdrawal of such accumulated provident fund balance, after the foreign nationals attain the age of 58 years.

However, in countries like US and UK, the Indian Nationals working there are compelled to make their social security contributions for a stipulated time period which typically spreads out for more than ten years, even if they have stopped worked for the foreign companies, before that period. The stipulated age limit for withdrawal is more or less similar to 58 or even more.

Further, the terms of the social security schemes in the countries like US and UK don’t allow the portability or the transfer of the social security accumulations/pensions of the Indian nationals to India, even after these nationals return to India.

The Ministry of External Affairs (MEA), in response to a question regarding the number of foreigners residing in India for employment, has informed that as per the information available with the Bureau of Immigration, there are 24,844 foreigners residing in India on employment visa as on 1.2.2024.

As compared to this paltry 25,000 odd foreign nationals working in India, the number of Indian nationals currently working in foreign countries, as per the MEA, is the staggering 13 million.

Therefore, the comparison if at all is to be done, has to be done between the para 83 norms for these 25000 odd foreign nationals working in India and the much harsher and stringent norms prescribed in the foreign social security schemes for the 13 million Indian nationals working in foreign countries majority of which are non SSA countries.

Thus, the real purport of the ‘reciprocity’ argument which needs to be appreciated is that if the Indian nationals working in the countries like US, UK and China with which there is no SSA, are being compelled to compulsory contribute substantial chunks of their salaries in the respective social security schemes of these foreign countries with invariably much stringent and harsher terms and conditions and withdrawal criteria, then there is no justifiable reason to impart any softer or liberal treatment to the foreign nationals of these countries working in India.

Reciprocity is between the stringent terms and conditions of the social security schemes of such non SSA countries imposed on the Indian Nationals working in such countries and the conditions imposed by para 83 of the EPFO Scheme, on the foreign nationals of such countries working in India. Apples can be compared with Apples only and not with Oranges. So, comparison can’t be drawn between domestic Indian workers and foreign workers.

Therefore, the entire perspective of the argument of the ‘violation of Article 14 of the Constitution of India’ needs to be reconsidered and revisited, in the light of above discussion.

Way Forward:

Various media reports suggest that the EPFO authorities are soon going to challenge the said judgement of the hon’ble Karnataka High Court before the hon’ble Supreme Court. So, it may not be advisable to rely upon this Karnataka HC judgement with immediate effect and it will be more prudent to wait till the final disposal and adjudication of this intriguing issue by the hon’ble Supreme Court.

In any case, instead of a complete scrapping of para 83 of the EPFO Scheme, a more sustainable legal solution to remove this disparity would be to put in place a similar/commensurate wage ceiling limit, say 15000 USD, in the Indian EPFO Act, for the coverage and contribution by the international workers. This will provide a long-lasting and legally sustainable solution to this problem, even at the Supreme Court level.

[This Article has also been published in Taxmann website with the citation [2024] 162 taxmann.com 525 (Article)]