Reaffirming Pension Equity For Exempted Establishments: The Madras High Court's Landmark Judgment In D. Chandirasegar & Ors. v. Union Of India & Ors.

INTRODUCTION

In a significant pronouncement dated 2 September 2025, the Madurai Bench of the Madras High Court in D. Chandirasegar & Others v. Union of India & Others¹ delivered a crucial verdict that redefined the contours of pension equity for employees of exempted establishments under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 ("EPF Act").

The judgment addressed six writ petitions filed by eighty-six retired employees of Bharat Heavy Electricals Limited (BHEL), Trichy, seeking to quash the Employees' Provident Fund Organisation ("EPFO") circular dated 18 January 2025 and its consequential rejection orders dated 6 February 2025, which had denied them the option of receiving a higher pension under the Employees' Pension Scheme, 1995 ("EPS").

The ruling holds deep implications for thousands of employees across India working in public and private sector establishments operating under exempted provident fund trusts, particularly following the Supreme Court's landmark rulings in R.C. Gupta Vs. Regional Provident Fund Commissioner< and Employees' Provident Fund Organisation and another Vs. Sunil Kumar B and Others³.

BACKGROUND AND LEGAL FRAMEWORK

BHEL, being an "exempted establishment" under Section 17⁴ of the EPF Act, manages its own provident fund through a private trust approved by the EPFO. This exemption, however, applies only to the Employees' Provident Fund Scheme, 1952 ("EPF Scheme") and not to the EPS, which continues to govern all employees, exempted or otherwise, unless a separate exemption has been granted.

The pension entitlement issue gained prominence after the introduction of Paragraph 26(6)⁵ of the EPF Scheme and the proviso to Paragraph 11(3) of EPS 95, which permitted employers and employees to contribute based on "actual wages" instead of the statutory ceiling (INR15,000).

In R.C. Gupta, the Supreme Court clarified that there was no cut-off date for exercising this option, holding that where contributions were already made on actual wages, diverting the pension portion (8.33%) was merely an accounting adjustment. Later, in Sunil Kumar B, the Court read down restrictive provisions of the 2014 amendment and allowed eligible employees, including those from exempted establishments, to exercise the joint option within a four-month window, which was later extended by the EPFO up to 31 January 2025.

Against this backdrop, BHEL retirees who had contributed on actual wages sought to avail of higher pension benefits by filing their joint options within the extended timeline. The EPFO, however, rejected their applications citing two reasons:

1. Rule 11(b) of BHEL's Provident Fund Trust Rules, limiting employer contributions to wages of INR 15,000 per month; and
2. the EPFO circular dated 18 January 2025, which stated that eligibility for higher pension in exempted establishments must align with their trust rules. The petitioners challenged these rejections, arguing that trust rules cannot override statutory entitlements under the EPS.

CORE LEGAL ISSUES

The case presented three fundamental legal questions:

1. Can the trust rules of an exempted establishment restrict employees' rights under a statutory pension scheme?
2. Are employees who retired after 1 September 2014 but before the Supreme Court's Sunil Kumar B decision still eligible to exercise the joint option?
3. Is the EPFO circular dated 18 January 2025, which ties pension eligibility to trust rules, legally sustainable?

COURT'S ANALYSIS AND FINDINGS

The High Court undertook a meticulous examination of the statutory scheme and its interplay with trust regulations. It observed that Section 17 exemption applies only to the EPF Scheme, not to the EPS. Therefore, BHEL's trust rules govern provident fund contributions but do not extend to pension entitlements, which are regulated solely by the statutory EPS.

Relying on Paragraph 39 of the EPS, the Court noted that an exemption from the pension scheme requires a separate notification, which BHEL never obtained. Accordingly, the EPS overrides any conflicting provisions in the trust rules.

The Court placed significant reliance on Condition No. 10 of Appendix "A" to Paragraph 27-AA of the EPF Scheme, which mandates that any beneficial statutory amendment "shall be made applicable automatically pending formal amendment of the Trust Rules." Hence, beneficial provisions like Paragraph 26(6) and Paragraph 11(3) extending contributions on actual wages automatically applied to BHEL employees, even if their trust rules were not updated.

In an emphatic observation, the Court declared: "The conditions imposed while granting exemption to one scheme cannot be kaleidoscope into another scheme for which no exemption has been granted under the statute."

This reasoning dismantled the EPFO's attempt to blend trust-specific restrictions into the statutory pension framework. The Court further rejected the argument that petitioners had "exited membership" or opted for a higher provident fund instead of a higher pension, recognizing that a state of legal uncertainty prevailed between 2014 and 2022 due to evolving judicial interpretations.

THE COURT'S RULING

The Madras High Court set aside the EPFO's circular dated 18 January 2025 and the rejection orders dated 6 February 2025, holding them contrary to the Supreme Court's binding directions in Sunil Kumar B. It directed that:

1. All joint option applications submitted by 31 January 2025 must be accepted.
2. Upon the deposit of the differential contribution with interest, EPFO shall compute and disburse enhanced pension based on actual salary from the month following the remittance.

IMPLICATIONS FOR EMPLOYERS AND EMPLOYEES

This decision carries profound implications for both employers and employees of exempted establishments:

1. For Employees: The ruling opens the door for thousands of retirees from exempted entities public or private to claim higher pensions if they have contributed on actual wages.
2. For Employers: Trust rules must be aligned with the statutory schemes to avoid inconsistencies and potential litigation. Employers cannot rely on unamended trust provisions to deny statutory rights.
3. For the EPFO: The judgment underscores the need for uniform, legally compliant circulars consistent with Supreme Court directives. Any administrative instruction that restricts statutory entitlements is ultra vires and unenforceable.

CONCLUSION

The D. Chandirasegar decision stands as a reaffirmation of pension equity and statutory supremacy. It ensures that employees of exempted establishments are not unfairly deprived of benefits available under the EPS merely due to outdated trust rules.

By rejecting the EPFO's restrictive interpretation, the Madras High Court has restored parity and reinforced the principle that statutory rights cannot be overridden by administrative circulars or contractual instruments. The judgment reaffirmed that contractual or trust-based limitations cannot dilute statutory pension entitlements, and any contrary clause is void in law.

footnotes

1 W.P(MD)Nos.29573 to 29578 of 2024

2 (2018) 14 SCC 809

3 (2023) 12 SCC 701

4 Section 17 - Power to exempt

EMPLOYEES' PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952

5 Para 26(6)- THE EMPLOYEES' PROVIDENT FUNDS SCHEME, 1952

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