A Tale of Two Laws: The Judicial Split on PF for International Workers (Karnataka vs. Delhi/Bombay)
India's employment law landscape is currently witnessing a rare and complex phenomenon: a "Judicial Fracture" across state lines. The issue at the heart of this conflict is the mandatory Provident Fund (PF) contribution for "International Workers" (IWs).
While the Karnataka High Court has recently declared the mandate unconstitutional, the Delhi and Bombay High Courts have taken a contrary stance, upholding the validity of Paragraph 83 of the EPF Scheme. For Multinational Corporations (MNCs) with offices in Bangalore, Gurgaon, and Mumbai, this creates a compliance nightmare.
The Core Conflict: Who is Right?
- Karnataka High Court (Stone Hill Judgment, 2024): Ruled that Para 83 is discriminatory and violates Article 14 because it imposes no salary cap on foreign workers while Indian workers have a ₹15,000 cap. Verdict: Unconstitutional.
- Delhi High Court (Spice Jet Ltd Judgment, 2025) & Bombay High Court (Sachin Vijay Desai, 2019): Both courts dismissed petitions challenging Para 83. They held that International Workers form a distinct class and the classification is based on intelligible differentia (duration of employment and lack of "economic duress"). Verdict: Constitutional & Enforceable.
1. The Karnataka View: Striking Down "Arbitrariness"
In Stone Hill Education Foundation vs. Union of India (2024), the Karnataka High Court focused on the arbitrary nature of the "International Worker" definition.
The Court found that compelling foreign workers to contribute on their full global salary without a cap—while Indian counterparts enjoy a cap—bears no nexus to the object of the EPF Act, which is social security for lower-income groups. It termed this distinction based solely on nationality as violative of the Right to Equality.
2. The "Age 58" Trap: A Critical Point of Contention
A central grievance in these petitions was the withdrawal restriction. Under Paragraph 83, an International Worker cannot withdraw their PF accumulation until they reach 58 years of age.
The Practical Implication: An expat who works in India for just 3 years (e.g., from age 30 to 33) is forced to leave their money locked in the Indian EPFO for 25 years until they turn 58. This effectively confiscates their capital for decades in a foreign jurisdiction.
The Karnataka High Court found this restriction unreasonable, noting that it defeats the purpose of social security for short-term workers. However, the Delhi High Court justified it, stating that social security is inherently an old-age benefit, and the rule aligns with global standards where retirement savings are locked until retirement age.
3. The Delhi & Bombay View: The "Economic Duress" Rationale
The Delhi High Court, in its recent 2025 judgment (Spice Jet Ltd vs. Union of India), explicitly disagreed with the Karnataka High Court's reasoning. It aligned with the Bombay High Court's earlier view in Sachin Vijay Desai.
The Logic: These courts argued that Indian employees generally work for a lifetime and face "economic duress" if forced to contribute on their full salary. Foreign workers, however, typically work in India for short stints (2-5 years) and do not suffer the same duress. Thus, the classification is valid. The courts also emphasized that Social Security Agreements (SSAs) are a sovereign function, and Para 83 is a tool to ensure reciprocity with other nations.
4. The Compliance Nightmare for Multi-State MNCs
This judicial split creates a precarious situation for companies with a pan-India presence. The law effectively changes depending on the PIN code of your office.
- Bangalore Office: Covered by the Karnataka HC ruling. Technically, the mandate is struck down.
- Mumbai/Gurgaon Office: Covered by the Bombay/Delhi HC rulings. The mandate is fully active and enforceable.
The Risk: If a company applies a uniform "No Deduction" policy nationally based on the Karnataka judgment, they risk contempt of court and severe penalties in Delhi and Maharashtra.
The Supreme Court: The Final Arbiter
Given the conflicting judgments on a central statute, the Supreme Court of India will be the final authority. The Employees' Provident Fund Organisation (EPFO) is aggressively appealing the Karnataka verdict.
Crucial Warning: If the Supreme Court stays the Karnataka High Court order, the liability to pay PF will retroactively apply to the Bangalore office as well. Employers cannot assume the battle is won.
Strategic Roadmap for Businesses
Until the Supreme Court resolves this dichotomy, we advise a conservative approach:
- "Under Protest" Compliance: Continue deducting and depositing PF for International Workers in all jurisdictions but explicitly mark these payments as "Paid Under Protest" pending the Supreme Court outcome. This safeguards against interest/penalties while keeping the option for refunds open.
- Review Expat Contracts: Ensure employment contracts contain clauses accounting for potential retroactive liabilities or refunds based on the final SC verdict.
- Jurisdictional Segregation: If stopping deductions in Karnataka, ensure robust documentation to prove the employee is strictly based in Karnataka, avoiding any "centralized payroll" ambiguity.
Office of M S Sulthan Legal Associates
For specialized advisory on navigating this multi-jurisdictional conflict and structuring expat compensation, please refer to the contact details below.
