Employer cannot demand interest on PF on termination: Court

NEW DELHI: An employer cannot demand interest on the provident fund paid upon termination of an employee in case of his reinstatement by a judicial order, a Delhi Court has ruled while holding that such practice is "illegal".

The court said such a demand can be made only when the money is withdrawn as loan or advance by employee while in service.

The verdict came on the case filed by a Delhi Transport Corporation (DTC) employee who had challenged the demand for interest on provident fund amount paid upon termination by the corporation. Later, he was reinstated by the order of the Industrial Tribunal and the Delhi High Court.

"The employer is liable to charge interest when there is a withdrawal by the employee and not when the same is given to him in pursuance to his termination," senior civil judge Amit Kumar said.

Nem Pal, who was with the DTC since 1979, had challenged the demand made by the corporation for an interest on the general provident fund (GPF) amount paid to him at the time of his termination.

He was terminated from service in 1993 but was reinstated in the year 2002 with full back wages on the orders of the Industrial Tribunal and the High Court.

Though he had deposited the GPF amount of Rs 23,372 paid to him on his termination, he was also asked to pay an interest of Rs 36,696 on the employer share in it, which was challenged before the court.

As per service rules, an employee is liable to pay interest on the GPF amount taken as advance or loan during his tenure and cannot be held liable if the same has been handed over to him on his termination from the services which subsequently was not approved by the Industrial Tribunal as required under rules and thereafter by the High Court, the court said.

"In view my findings, the demand of defendants (DTC) for payment of a sum of Rs 36,646 is declared unlawful, illegal and void abnitio and the plaintiff (Nem Pal) is not required to deposit this amount with the defendants," Kumar said.