Landmark Madras HC ruling to speed up EPFO recoveries

Written by Raj Kumar Ray | New Delhi | Updated: Jul 19 2013, 23:16pm hrs
The Employees Provident Fund Organisation (EPFO) is set to speed up recovery of dues from defaulting companies after a landmark judgment of the Madras High Court cleared the haze over the first charge over the assets of a firm that goes for liquidation.

In an internal circular, additional central provident commissioner PK Udgata directed all officials to utilise the court order while defending similar cases pending in various courts and locking of crores of rupees in provident fund (PF) dues.

The move assumes importance as faster recovery of dues can unlock up to R2,800 crore and enable the EPFO to offer a higher return to its 9 crore subscribers. In 2012-13, the fund offered an interest of 8.6% against 8.25% in 2011-12, but there is apprehension that the rate could be lowered to 8.5% or less this year.

EPFO, source said, is on a aggressive drive to pursue cases pending in various courts. It has even urged some of the high courts to set up special benches or separate courts to clear PF-related cases as the fund faces difficulties in generating higher return from its investment following a drop in bond yields in the first quarter of 2013-14.

EPFOs arrears have risen to R2,383 crore at the end of March 2011 from R1,838 crore as pendent PF-related cases piled up in various courts. The number of pending cases in Supreme Court alone was 125 at the end of March 2011, while it was 8,933 in high courts, 16,262 in district courts and 3,335 in consumer forums.

The EPFO has faced difficulty in recovering dues from defunct companies after an amendment in the Companies Act in 1985 blurred the definition of workers dues even though the EPF Act clearly states that PF, pension fund and gratuity dues of workers are payable in priority to all other debts.

The confusion arose after the insertion of a Section 529 A(1) in the Companies Act that does not specifically state that workers dues as the first charge on the sale proceeds of the defaulting companies assets. This loophole was used by lenders to demand that the proceeds be divided equally to repay their debt and pay off PF dues. However, the Supreme Court had clarified that after the PF dues are recovered, the other dues of workers will be treated on par with the debts due to secured creditors.

The Madras High Court, in the recent verdict in the Murugan Mills case, cleared the haze further by directing the official liquidator to give priority to EPF dues (PF contribution, interest and penal charges and other compensations) over other debts after the firms sale of assets.