Workers' provident fund dues to get priority under company liquidation

The Supreme Court has ruled that workers' provident fund dues would get priority over payments to secured creditors from companies under liquidation.

The ruling is welcome. It would put money where the mouths that need it really are.

The court has interpreted conflicts arising from two laws — Employees' Provident Fund and Miscellaneous Provisions Act and the Companies Act — to protect workers’ interests.

It says “the mere ranking of dues of workers on par with debts due to secured creditors cannot lead to an inference that Parliament intended to create the first charge in favour of secured creditors and give priority to debts due to secured creditors over the amount due from the employer under the EPF Act”.

A liberal interpretation is in order, even if it is open to debate and questions the sanctity of legal contracts. A quarter of workers’ earnings are mandatorily diverted to the EPFO.

But they are not responsible for decision-making in a company. EPF dues are a source of their livelihood when the company goes bust.

Also, workers, as the apex court has rightly held, contribute to human capital and growth of the industry. Of course, secured creditors such as banks and financial institutions also contribute to the capital of a company.


However, these institutions are in a position to assess the credentials of a company before sanctioning a loan. Due diligence is needed to ensure that they do not lend to unviable companies.

Hence, giving first priority to banks and financial institutions when the assets of a sick company are sold is not logical.

However, other dues of employees will have to wait till secured creditors are paid their dues. That is fair. The EPFO should also be proactive in initiating action against companies that fail to pay their dues under the EPF Act.

It should also trace workers whose accounts have become inoperative and pay them their dues. The EPFO should also allow them to freely migrate to the National Pension System that generates higher returns.

That is the best way to protect workers and help build their retirement nest.