Delhi High Court Rules against Government Liability for EPF Interest Beyond 36 Months

Delhi High Court Rules against Government Liability for EPF Interest Beyond 36 Months

The Delhi High Court has emphasised that an unscrupulous employee/member should not be allowed to benefit from deliberately refraining from filing a claim application under paragraph 69 of the Employees' Provident Fund Scheme, 1952 (EPF Scheme). Such behaviour could lead to them exploiting the system and unjustly claiming interest on their inoperative account beyond the prescribed period of 36 months.

The Division Bench, consisting of Justices Yashwant Varma and Dharmesh Sharma, underlined that the interest yielded on the provident fund is only marginally higher than the prevailing financial market rates. Hence, there was no justification to prolong the academic discussion on the matter.

In summary, the Court found that the present case fell squarely under the decision in the case of Dr. Arun Gopal Aggarwal v Union of India. As per that decision, it was categorically held that when a member of EPF retires from employment and chooses not to withdraw the amount in their account, no interest shall be payable on that amount after a period of 36 months from the date it becomes payable, as evident from the combined reading of paragraph 72(6) and 60(6).

The Bench concluded that there were no legal defects in the impugned judgment. However, they quashed the order concerning the imposition of costs amounting to ₹1,00,000. The reason for this decision was that the imposed costs were deemed unfair, harsh, and excessive.

In this particular case, the appellants had filed a cross-appeal, challenging the judgment delivered by the Single Judge of the Delhi High Court. While the petition itself was dismissed, the appellant authorities were burdened with the imposition of costs.

The respondent began his employment with the Centre for Railway Information System (CRIS) in November 1990, holding the position of Deputy Chief Engineer. Subsequently, he transitioned to the private sector in 1996 and eventually retired as Chief Operating Officer from Business Standard Limited on October 31, 2014. Throughout his extensive service, both the respondent and his employer contributed to the Employees Provident Fund (EPF) until November 2014.

The respondent's grievance arose when he realized that he had not withdrawn his EPF amounting to ₹1,41,62,650 even after his retirement, and this remained unclaimed until December 2018.

The respondent pointed out that his online EPF account status did not provide any information about whether his provident account was inoperative or closed on any specific date. As a result, the interest for the financial year 2017-18 was not updated until November 2018, leaving him unaware of whether interest after November 2017 had been halted or if his account had become inoperative.

Despite having his email address, mobile number, and address details, as well as valid KYC information according to his UAN card, the appellants (EPF authorities) did not seek any information from him.

The respondent later discovered that interest charging had been stopped starting from December 2017. Upon noticing these facts, he promptly applied for a final withdrawal in December 2018. Only then, he was informed that his account had become inoperative in December 2017.

The petitioner contended that he was entitled to interest on the outstanding EPF amount of ₹1,41,62,650 from December 1, 2017, to December 28, 2018. He proposed three options for the interest calculation:

• Interest at EPF rate (8.55% per annum) from December 1, 2017, to March 31, 2018.

• Interest at EPF rate (8.65% per annum) from April 1, 2018, to December 28, 2018.

• Alternatively, interest at the applicable bank rate.

However, the respondent declined the petitioner's claim, stating that the EPF account had become inoperative in December 2017, and therefore, no interest was payable. The petitioner's subsequent application to the Central Provident Funds Commissioner, New Delhi, made on May 26, 2020, through the Grievance Management System (GMS), was also declined. The reason provided was the applicability of the provisions of paragraph 72(6) of the Employees' Provident Fund Scheme, 1952 (EPF Scheme) framed under the Employees' Provident Funds & Miscellaneous Provisions Act, 1952 (EPF Act).

In the Impugned judgment, the Court extensively examined the provisions of paragraph 60(6) and paragraph 72(6) of the EPF Scheme. Based on this analysis, the Court concluded that interest beyond the period of 36 months was not required to be paid to the petitioner. As a result, the writ petition was dismissed.

The Bench rejected the argument that paragraph 72(1) obligated the Commissioner to promptly make payment of the provident fund amount to a member regardless of the member's act or omission in claiming the funds within a reasonable time. The basis for this rejection was derived from the provisions of paragraph 69 of the EPF Scheme, which outlined specific situations where a member could withdraw the full amount standing to their credit in the fund. These situations included retirement from service after attaining the age of 55 years, termination of services due to permanent or mental incapacity, retrenchment, voluntary retirement, migration to a foreign country for permanent settlement, closure of a factory or establishment, and various other enumerated circumstances.

The Court also observed that a harmonious construction of sub-Section (1) with (5)(d) of paragraph 72 of the EPF Scheme indicated a duty on the part of the employee/member to directly send the claim application to the Commissioner if the employer failed to do so, regardless of the reasons for the employer's failure.

Furthermore, the Court referred to paragraph 72(6) of the EPF Scheme, which clearly stated that if a claim under paragraph 69 or 70 was not forwarded within 36 months, the entire amount in the employee/member's credit would be transferred to an inoperative account.

Regarding the claim for interest, the mechanism for assessment and payment of interest on pending EPF amount/account was laid down in paragraph 60 of the EPF Scheme.

The Court upheld the Single Judge's decision, affirming that no error was committed in finding that sub-paragraph (6) to paragraph 60 of the EPF Scheme was initially introduced through a notification dated January 15, 2011. Later, it was amended by a notification dated November 11, 2016, specifically stating that no interest would be payable on the transfer of the amount standing to the credit of an employee/member to the 'inoperative account'.

“We are not impressed with the submissions of the learned Counsel for the appellant/petitioner/employee that transfer of the fund to inoperative account is only for the purposes of accounting or financial discipline, and in case of failure of the Commissioner to pay interest promptly, interest shall remain liable to be paid on the funds de hor paragraph 60(6) of the EPF Scheme,” the Bench stated.

The Court made the following observations regarding the EPF Scheme provisions:

• The provision for payment of interest on the transfer of the fund to the inoperative account was not in existence before the amendment introduced by the notification dated January 15, 2011.

• The Court agreed with the submissions made by the counsel for the respondent authorities/appellant in LPA no. 486/2021, stating that burdening the authorities/government with the liability to pay interest beyond thirty-six months would be unfair and impractical. The Commissioner of EPF may not have the necessary information about when an employee/member decided to retire or leave their service/employment.

• The Court disagreed with the argument that the Press Release dated March 29, 2016, regarding the proposed amendment to paragraph 60(6), caused any confusion leading to the allowance of interest beyond 36 months. The Court clarified that such Press Release was merely an advisory on a policy decision and did not have any legally binding effect, considering the existing law on the subject.