The Supreme Court of India agreed to examine whether foreign employees working in India must contribute to the Employees’ Provident Fund Scheme, 1952, while issuing notice to the Centre in a plea by LG Electronics challenging EPF rules for international workers.
NEW DELHI: The Supreme Court agreed to consider whether foreign employees working in India must contribute to the Employees’ Provident Fund (EPF) under the Employees’ Provident Fund Scheme, 1952.
A Bench comprising Justices PS Narasimha and Alok Aradhe issued notice to the Central government on LG Electronics’ challenge to the validity of paragraph 83 of the EPF Scheme, which deals with provident fund contributions by “international workers.”
The Court also ordered that no final orders be passed in ongoing proceedings under Section 7A of the EPF Act against the petitioners while the matter is pending before it.
The controversy concerns Paragraph 83, introduced via notifications in 2008 and 2010, which established distinct rules for provident fund contributions by “international workers.”
Those provisions were adopted after India began signing Social Security Agreements (SSAs) with several countries to coordinate social security coverage for cross-border workers. These SSAs aim to prevent duplicate social security payments, enable benefit portability, and protect employees temporarily posted abroad.
Under the EPF regime, an “international worker” generally refers to foreign nationals employed in establishments in India to which the EPF Act applies. Such workers must contribute to the provident fund unless they are “excluded employees,” for instance individuals covered under their home country’s social security scheme pursuant to an SSA with India.
If no SSA exists, foreign employees in India must contribute to the EPF regardless of their salary level, unlike Indian employees who are mandatorily covered only up to the statutory wage ceiling.
Employers of expatriates have challenged these rules, contending they impose mandatory contributions on foreign staff even for short assignments in India and restrict withdrawal of accumulated funds until retirement.
In November of last year, the Delhi High Court upheld the 2008 and 2010 notifications and dismissed petitions filed by SpiceJet and LG Electronics. The High Court held that the Central government had authority to extend the EPF Scheme to foreign nationals and that classifying international workers separately for provident fund purposes was constitutionally valid.
LG Electronics then appealed to the Supreme Court.
At today’s hearing, LG’s counsel argued that different High Courts have reached conflicting conclusions on the matter, and that the Supreme Court should resolve the inconsistency.
EPFO’s counsel explained that the organization is the nodal authority for implementing India’s SSAs and warned that invalidating paragraph 83 could have broader international consequences, potentially constituting a “material breach” under the Vienna Convention on the Law of Treaties, since the provision is part of India’s mechanism for giving effect to SSAs.
He added that India has entered into nearly twenty SSAs and recently concluded an agreement with the United Kingdom, and that litigation over EPF provisions had been raised during treaty talks.
The Court directed the EPFO to file a compilation of relevant treaties and related materials to assist the Bench in adjudicating the matter.
Counsel for the petitioners also raised concerns about Section 7A proceedings that assess provident fund liabilities. The Court accordingly directed that final orders in those Section 7A matters should not be passed while the litigation is pending.
LG Electronics was represented by Senior Advocate Jamshed P. Cama, supported by a team from Cyril Amarchand Mangaldas: Partners Anuradha Mukherjee, Rashmi Pradeep, Sharan Kukreja, and Vikash Kumar Jha; Principal Associates Soumya Dasgupta and Krithika Radhakrishnan; Senior Associate Twinkle Chadwa; Senior Associate Shivam Tiwari; Associate Mukesh Seju; and Associate Aviral Singhal.
EPFO was represented by Advocate Siddharth.
Case Title: LG Electronics v. Union of India.
FOR MORE LEGAL UPDATES FOLLOW US ON YOUTUBE
