The Employees? Provident Fund Organisation?s drive to speed up recovery and clean up its books has got a booster dose from a recent Supreme Court order clarifying that provident fund dues should get ?priority? over other dues of a company going for liquidation.
While dismissing a petition in Maharashtra State Cooperative Bank vs Kannad Sahakari Sakhar Karkhana in July, the Supreme Court upheld the priority of EPF dues and observed that the dues include not only provident fund contributions, but also interest and damages assessed.
In an internal circular, EPFO regional commissioner (legal) Anita S Dixie directed regional offices: “The (Supreme Court) order must be brought to the notice of High Courts while defending similar cases or your region in counter affidavits as well as in oral pleadings.”
The move assumes importance as faster recovery of dues can unlock up to R2,800 crore and enable EPFO to offer higher returns to its 9 crore subscribers. In 2012-13, the fund offered an interest rate 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?s 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 the 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 reason behind EPFO facing difficulties in recovering dues from defaulting companies in lower courts is the interpretation of various legislations. The recovery process got lengthy after an amendment in the Companies Act in 1985, which 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 Section 529 A(1) in the Companies Act, which does not specifically state workers’ dues as the ?first charge? on the sale proceeds of the defaulting company?s assets. This loophole was used by lenders to demand that the proceeds be divided equally to repay their debt and pay off PF dues.
A few months ago, the Madras High Court delivered a landmark judgment clarifying that EPFO has ?first charge? over assets of a firm that goes for liquidation.
EPFO has already 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 high returns from its investments following declining returns in recent years.