Punjab & Haryana HC Quashes EPFO's Pro-Rata Formula for Higher-Wages Pension Cases, Orders Recalculation Within 12 Weeks
Justice Harpreet Singh Brar held that the pro-rata methodology introduced by EPFO's 2024 internal e-mail and 2025 circular has no basis in the Employees' Pension Scheme, 1995 and cannot override statutory rules.
The High Court of Punjab and Haryana at Chandigarh has quashed an internal EPFO e-mail dated 14 February 2024 and a circular dated 18 January 2025 to the extent they applied a pro-rata formula to the computation of pensionable salary in “Higher Wages” cases under the Employees' Pension Scheme, 1995. Justice Harpreet Singh Brar, sitting singly, decided 75 connected writ petitions by a common judgment pronounced on 27 May 2026. The court held that Paragraph 11(4) of the 1995 Pension Scheme, which governs members who contributed on wages above the statutory ceiling, contains no pro-rata stipulation and that executive instructions cannot amend or override statutory rules. The respondents have been directed to recalculate pensionable salary, ensure wage parity, and pay interest on delayed pension arrears, all within twelve weeks.
The Dispute Before the Court
The lead petitioner, Surinder Kumar, joined the Punjab Water Resources Management and Development Corporation Limited as a Clerk on 9 October 1980, was promoted over the years, and retired as Divisional Accounts Officer on 31 August 2019. He had been a member of the 1995 Pension Scheme since its inception.
Following the Supreme Court's judgment in Employees Provident Fund Organisation v. Sunil Kumar B., 2022(4) SCT 674, eligible employees were given a belated opportunity to exercise a joint option under Paragraph 11(4) of the Scheme. Surinder Kumar exercised this option on 11 March 2023. The EPFO sanctioned his pension at ₹24,511 per month with effect from 12 August 2019 vide letter dated 23 December 2024.
The petitioner's grievance was threefold. First, the EPFO had applied a pro-rata formula while computing his pension, even though his entire 60-month window for determining pensionable salary fell after the 1 September 2014 amendment. Second, the EPFO had recovered interest on the differential contribution up to the date of actual payment rather than up to the date of retirement, contrary to the EPFO's own clarification in the circular dated 18 January 2025. Third, there was a mathematical inconsistency: the EPFO had used higher wages (including DA arrears and pay revision benefits) when computing the differential contribution it demanded from him, but used a lower wage figure when determining his pensionable salary.
Seventy-four other petitioners, all similarly placed employees or retirees, raised the same or overlapping issues. Their cases were clubbed and decided together.
The Statutory Framework
The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 provides the parent framework. Under Section 6A of that Act, the Employees' Pension Scheme, 1995 was notified on 16 November 1995 to provide monthly post-retirement pensions.
The maximum pensionable salary under the Scheme was originally ₹5,000 per month, later raised to ₹6,500, and then, by notification dated 22 August 2014, to ₹15,000 with effect from 1 September 2014. The 2014 amendment also inserted Paragraph 11(4), which allows members who were already contributing on wages above ₹6,500 to exercise a fresh joint option to continue contributing on wages above ₹15,000, with their pensionable salary to be “based on the higher salary.”
Paragraph 11(1) governs the ordinary, wage-ceiling category. It explicitly mandates pro-rata computation: pensionable salary is determined separately for service up to 1 September 2014 (capped at ₹6,500) and for service thereafter (capped at ₹15,000). The proviso to Paragraph 12(2), which prescribes the monthly pension formula, similarly refers to pro-rata pensionable service only in the context of wage-ceiling cases.
Paragraph 11(4) contains no such pro-rata stipulation. It says only that pensionable salary for members exercising the higher-wage option “shall be based on the higher salary.”
How the EPFO Introduced the Pro-Rata Method
The EPFO's own circular dated 1 June 2023 had set out the methodology for higher-wages cases. For members whose pension commenced after 1 September 2014, it directed that pension be calculated on the basis of the average monthly pay drawn during the contributory period of service in the 60 months preceding exit from the Pension Fund. That circular made no reference to any pro-rata computation.
On 14 February 2024, the EPFO's Head Office circulated an internal e-mail marked “for Internal Circulation only” to all Regional Offices. The e-mail stated that since there was “no separate formula in EPS, 1995 for calculation of pension on higher wages,” the pro-rata formula applicable to ordinary members should be applied to higher-wages cases as well. It directed that service be bifurcated into pre- and post-1 September 2014 segments, with a separate “highest monthly salary” figure adopted for each segment.
The circular dated 18 January 2025 then sought to formalise this position, stating that the Ministry of Labour and Employment had approved pro-rata computation for higher-wages cases and that the Supreme Court had not found such treatment ultra vires.
The petitioners challenged both instruments.
The Court's Reasoning
Justice Brar identified a fundamental distinction between the two categories of members. Members under Paragraph 11(1) contributed only up to the statutory wage ceiling for the pre-2014 period; applying a pro-rata cap for that period prevents an unfunded windfall and preserves actuarial balance. The logic is one of quid pro quo: contributions were made on a lower figure, so the pension for that segment is capped accordingly.
Members under Paragraph 11(4) are in a different position. They either contributed on actual higher wages throughout, or have retrospectively remitted the differential contribution with interest. The Scheme itself says their pensionable salary shall be based on the actual higher salary. Paragraph 11(4) contains no reference to pro-rata computation or wage-ceiling bifurcation, and the proviso to Paragraph 12(2) refers to pro-rata service only in the wage-ceiling context.
The court rejected the EPFO's argument that the Supreme Court in Sunil Kumar B. had upheld the pro-rata methodology for higher-wages cases. A careful reading of that judgment showed that the issue was neither raised before nor adjudicated by the Supreme Court. The pro-rata methodology for higher-wages cases was introduced for the first time through the February 2024 e-mail, which post-dated the Supreme Court's consideration of the matter.
On the broader legal point, the court reiterated that executive or administrative instructions cannot amend or override statutory rules. The 1995 Pension Scheme is framed under Section 6A of the 1952 Act and carries statutory force. An internal e-mail and a policy circular cannot introduce conditions — such as a pro-rata bifurcation — that find no place in the Scheme. The court relied on several Supreme Court judgments, including Yash Charitable Trust v. Union of India, 2026 INSC 96, and Paluru Ramkrishnaiah v. Union of India, AIR 1990 SC 166, for this proposition.
The court also drew on the Constitution Bench judgment in D.S. Nakara v. Union of India, 1983(1) SCC 305, which held that pension is a measure of socio-economic justice and that beneficial statutes must receive a liberal construction. Courts should not interpret pension provisions in a manner that renders them inane.
On the interest question, the court held that pension is a vested right, not a bounty. Where a statutory benefit is withheld for reasons not attributable to the employee, the authority is under a legal obligation to pay interest. The court found the EPFO's argument — that the petitioner had already benefitted from interest on the differential amount while it remained in his Provident Fund account — to be self-defeating. The EPFO had itself recovered the differential contribution with interest precisely to neutralise that imbalance. Having charged the petitioner interest at compound rates for the period the funds remained with him, the EPFO could not use the same logic to deny him interest for the period his pension arrears were retained by the department. The court described this as a matter of reciprocity and equity.
The court noted that the EPFO's own affidavit filed on 14 May 2026 confirmed that interest had been charged on the differential contribution at compound rates, varying from 12% per annum in 1995–96 to 8.25% per annum for 2023–24 to 2025–26. Accordingly, the petitioners were held entitled to interest on delayed pension arrears computed on the same compound basis and at the corresponding applicable rates.
On the wage-disparity issue, the court held that a contributory pension scheme must maintain parity between the wages on which contributions are collected and the wages used to determine the pension. The EPFO had included DA arrears and pay revision benefits when computing the differential contribution demanded from the petitioner, but excluded those same elements when determining his pensionable salary. The petitioner's total salary for the relevant 60-month period was ₹49,91,902, but the EPFO had reckoned it as ₹48,99,902 — a discrepancy of approximately ₹92,000 arising from the failure to apportion arrears to the months to which they related.
The EPFO's defence — that it was bound by the member ledger as maintained by the employer and had no month-wise bifurcation of arrears — was rejected. The court held that the EPFO, as a statutory body administering a social security fund, could not shelter behind bookkeeping oversights. Having verified the higher wages for the purpose of collecting money from the petitioner, the EPFO was estopped from claiming those wages could not be verified for the purpose of paying the pension.
Scope of the Judgment
Justice Brar expressly declared the judgment to be one in rem, intended to benefit all similarly situated persons whether or not they had approached the court. Relying on the Supreme Court's judgment in State of Uttar Pradesh v. Arvind Kumar Srivastava, 2014(4) SCT 648, the court directed the respondent authorities to extend the benefit of the judgment to all similarly situated persons without compelling them to file separate petitions. Such persons may submit representations to the respondents within three months from the date of the order.
Order
All 75 writ petitions were disposed of with the following directions:
The EPFO's internal e-mail dated 14 February 2024 and the circular dated 18 January 2025 are quashed to the extent they prescribe the pro-rata methodology for calculation of pensionable salary in higher-wages cases. The respondents are directed to recalculate pensionable salary on the basis of the average monthly pay drawn during the contributory period of service in the 60 months preceding exit from the Pension Fund, without applying any pro-rata formula or bifurcating the service period.
The respondents must ensure complete parity between the wages used for recovery of differential contribution and those adopted for determination of pensionable salary, including due apportionment of DA arrears and pay revision benefits to the respective months. Consequential arrears are to be recalculated and released.
Simple interest at 8% per annum is to be paid on arrears arising from the recalculation and from the rectification of wage disparities, calculated from the expiry of 15 days from the date of submission of the joint option forms until actual disbursement.
Interest on the delayed release of arrears representing the difference between the higher-wages pension and the pension originally sanctioned upon retirement is to be paid on a compound basis at the same rates at which interest was charged from the petitioners, calculated from the expiry of two months from the date of retirement of each petitioner until actual disbursement. In the lead case, this concerns ₹13,33,882 released in January 2025 without any interest, more than five years after the petitioner's retirement.
The entire exercise of recalculation, release of arrears, and payment of interest is to be completed within twelve weeks from the date of receipt of a certified copy of the order.