As per the provisions of Employees’ Provident Fund and Miscellaneous Provisions Act, in case of delay in remittance of monthly contributions, the employer is liable to pay interest. In addition, the authority can levy damages also for such a delay.
However, considering the difficulties faced by the establishments in the timely deposit of contributions during the period of lockdown due to operational and economic reasons, the PF department has issued a circular not to levy penal damages in case of delay in remittance for lockdown period.
While it is a welcome note for the employers, naturally a question arises as to whether the interest too can be waived off in the absence of mens rea.
So, it becomes important to understand the idea of levying interest and the damages. The damages are levied to deter the employer from recurrence of belated remittance. Whereas, interest is levied for making good the loss incurred by the fund. So, the PF department before proceeding for levying damages, it is imperative for the department to ascertain is there is mens rea. If yes, in order to discourage such act by the employer, the damages are levied.
Whereas, levy of interest is automatic irrespective of whether it is intentional or not as there is a loss.
This is very evident from the phraseology used in the relevant Sections and the same are extracted below:
Section 7Q. Interest payable by the employer: The employer shall be liable to pay simple interest at the rate of twelve per cent. per annum or at such higher rate as may be specified in the Scheme on any amount due from him under this Act from the date on which the amount has become so due till the date of its actual payment.
Section 14B. Power to recover damages.—Where an employer makes default in the payment of any contribution to the Fund, the Pension Fund or the Insurance Fund or in the transfer of accumulations required to be transferred by him under sub-section (2) of section 15 or subsection (5) of section 17 or in the payment of any charges payable under any other provision of this Act or of any Scheme or Insurance Scheme or under any of the conditions specified under section 17, the Central Provident Fund Commissioner or such other officer as may be authorised by the Central Government, by notification in the Official Gazette, in this behalf may recover from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme:
Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard
As per Section 14B, the employer shall be provided with an opportunity to explain the cause of delay. PF dept. only after ascertaining the reason for such delay and only if there is a mens rea in delay in payment of contribution, the department may proceed for recovery of damages. Of course, the authority prescribed under the Act or the court may even reduce the PF rate of damages considering the reason for such delay. Levy of damages is not justified as in the absence of mens rea on the part of the employer as held in the case of the south Indian Mines and Minerals Industries Ltd. Vs EPF appellate Tribunal 2020 LLR 90 Mad HC.
Whereas in case of interest payable by the employer, the competent authority has no discretion to waive the interest or reduce the interest, however, a reasonable opportunity may be provided to the employer of being heard only with reference to the computation as held in the case of Arcot Textile Mills Ltd vs Reg. Provident Fund Commissioner, Supreme Court 18.10. 2013.
COVID 19 is declared as an epidemic. Precious human lives are lost. India is no exception. Complete lockdown is announced in order to contain the spread of the deadly virus. The industrial establishments are non-operational. Cash flow is completely squeezed. The situation is beyond Industries’ control. Under the circumstances, won’t it support the industrial houses if the ‘interest’ too is waived off?
We at Aparajitha, are pioneers in the compliance industry and with our in-depth knowledge and experience in Labour, Employment and Industrial Law, we provide Regulatory compliance services to corporates across the country and support them to be compliant across 100+ industries.
To understand more and know the latest update on Provident Fund, kindly post your query in the comment column or mail to us.
Associate Business Manager
Disclaimer: “The article represents the opinions of the author and the author is solely responsible for the facts, cases, and legal or otherwise reproduced in the article”