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I ntroduction

Recently, the Employees Provident
Fund Organization (EPFO) issued a
communication dated May 27, 2014,
directing all Regional PF Commissioners
not to force employers to contribute over
and above the statutory wage ceiling in
respect of their employees. The said
communication has been widely reported
in leading newspapers.

The tersely worded communication in
effect, appears to reiterate what is already
provided in the EPF Scheme.

Para 26-A(2) of the EPF Scheme
provides that where the monthly pay of a
Member exceeds Rs.6,500/-, the
contribution payable by the employer will
be limited to the amount payable on a
monthly pay of Rs.6,500/-. Rule 29
separately provides that an employee may
make EPF contribution exceeding 12% of
this monthly pay, however, the employer
shall not be under an obligation to pay any
contribution over and above his
contribution payable under the Act.

So what then, was the purpose of the
above communication by EPFO? In the
said letter, EPFO has separately stated that
it will not be going in for review against
the judgement of the Honble Supreme
Court of India in the matter of
Marathwada Gramin Bank Karamchari
Sangathan & Ors. Vs. Management of
Marathwada Gramin Bank (2011).

The curious case of Marathwada Gramin
Bank Employees Union

Facts of the case

In the above case, the employer was a
bank which once had its own PF Trust for
the benefit of employees. Subsequently,
the permission granted to the employer to
operate its own PF Trust was withdrawn.
Thereupon, the employer started making
contributions as per the EPF Scheme.

Pertinently, in both the above
situations, the employer was voluntarily
making its PF contributions, in excess of
the statutory limits.

Owning to losses, the employer sought
to discontinue payment of provident fund
in excess of its statutory liability. The
workers contested the action taken by the
employer before the Industrial Tribunal
under the Industrial Disputes Act, 1947.

One important argument taken by the
employees was that the employer was
prohibited from reducing the amount of PF
contribution under Section 12 of the EPF
Act. Section 12 of the EPF Act provides
as under:

No employer ... shall, by reason only
of his liability for the payment of any
contribution to the Fund ... reduce,
whether directly or indirectly, the wages of
any employees to whom the Scheme or the

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Insurance Scheme applies or the total
quantum of benefits in the nature of old
age pension, gratuity provident fund or life
insurance to which the employee is entitled
under the terms of his employment, express
or implied.

Based on the provisions of Section 12,
the Industrial Tribunal ruled in favour of
the employees, and directed that the
employees shall continue to draw equal
amount of contribution from the employer
towards provident fund without any ceiling
on their wages.

Courts rule in favour of the employer

On examination of Section 12, the
Bombay High Court observed that the
employer would be barred from reducing
its PF contribution, only if the same were
contrary to the terms of employment of the
employees. In the present case, the terms
of employment of the banks employees
expressly provided that the provident fund
contributions would be in accordance with
the EPF Act. In other words, there was no
provision in the terms of employment
which required the employer to make PF
contributions beyond its statutory

The Supreme Court on appeal,
concurred with the judgement of the
Bombay High Court and observed that the
employer cannot be compelled to pay PF
contributions in excess of its statutory
liability just because it started making PF
contributions in excess of its statutory
liability for some time.


It appears that EPFO had internally
examined the feasibility of filing a review
petition against the above Supreme Court
judgement. Ultimately, EPFO has taken a
call not to go in for a review, and this has
been communicated vide EPFOs letter
dated May 27, 2014 discussed above.


To conclude, employers always had
the right to limit their provident fund
contributions to the limits laid down under
the EPF Act. Subject to anything to the
contrary in the terms of employment, if the
employers are making provident fund
contributions above the statutory limits,
there is no bar on them from reducing the
same to the limits under the EPF Scheme.
The EPFO now appears to be in agreement
with this position.

On a different note, the above
discussion would not be relevant in case of
PF contributions of international workers.
So far as international workers are
concerned, their provident fund
contributions are calculated on their total
monthly pay. In other words, the
contribution of the employer is not limited
to the amounts payable on a monthly pay
of Rs.6500/-.