Banks and financial institutions should ensure compliance of PF rules before advancing loans to the companies failing which they can be sued by the authorities for recovery of PF dues payable to the employees of the defaulting company.
The banks may be under the impression that their loans are secure as the borrower has mortgaged the assets of the company in favour of the bank.
The bank could stake a claim on the assets, when the borrower fails to repay the loan, only after recovery of the EPF dues.
The defaulting company could either be a running establishment or the one that has gone into liquidation. The bank/financial institution, that fails to pay the default amount, shall be declared a deemed defaulter.
The Central PF Commissioner or the officer authorised to recover the EPF dues, can initiate legal proceedings against the authorities of the banks or financial institutions concerned, when he/she fails to pay the default amount even after receipt of notice from the EPFO, according to Regional PF Commissioner Ajeet Kumar.
Landmark judgment
The Supreme Court has pronounced the landmark judgment in the matter of M/s Maharastra State Cooperative Bank Limited Vs EPFO in 2009, upholding the priority of EPF dues over all other debts in terms of Section 11 (2) of the EPF and Miscellaneous Provisions Act, 1952.
The court had ruled that the “Priority clause given in Section 11 (2) of EFP and MP Act would operate against all statutory as well as non-statutory and secured as well as unsecured debts including mortgage and pledge. Section 11 (2) of the Act shall create the first charge on assets of the establishment and priority given to the amount due from the employer by virtue of Section 11 (2) shall operate against all types of debts. Further, the amount of interest payable under Section 7 Q and damages leviable under Section 14 B also form part of the amount due from the employer for the purpose of Section 11 (2) of the Act and accordingly the same shall be paid in priority over all other debts.”
