Damages and interest for delayed PF dues are not provable debts in the winding up of a company until adjudicated by the authorities under the PF Act.

The Company Application taken out by the Applicant – Regional Provident Fund Commissioner - challenges an adjudication order of the Official Liquidator, by which a claim filed by the Applicant in respect of PF dues was rejected. The controversy in the matter mainly pertains to damages and interest payable by the employer – Zadona Electronics Ltd. (in liquidation) – respectively under Sections 14B and 7Q of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (“PF Act”) on delayed payments of PF dues.

2. Zadona Electronics Ltd. (in Liqn.) (“Company”) was wound up by an order passed by this Court on 20 June 2007. The Applicant lodged a claim before the Liquidator of the Company for payment of PF dues of employees of the Company in the aggregate sum of Rs. 22,35,38,083/-. These dues included employer's contribution (12% of wages), employees' contribution (12%), administrative charges and insurance charges as well as damages and interest towards delay in payment of PF dues. By his order dated 6 August 2013, the Official Liquidator admitted an amount of Rs. 8,34,90,485/- towards the dues of 423 employees of the Company (417 workmen and 6 supervisors or officers). This amount included employer's contribution worked out at 12% (i.e. 3.67% + 8.33%) on PF wages and interest on total contribution for 169 months. The Official Liquidator did not admit any amount towards employees' contribution since it was not deducted from arrears of salary. So also, neither were damages admitted under Section 14B (since no such damages were levied prior to the event of winding up) nor interest beyond the date of winding up (since there was no surplus). Rejection of this part of the claim, aggregating to Rs. 14,00,47,598/-, is challenged by the Applicant.

3. It is submitted by learned Counsel for the Applicant that in addition to the employer's contribution and interest admitted by the OL, the OL must be directed to pay to the Applicant not only the employees' contribution, but also damages under Section 14B of the PF Act occasioned by default of the Company in payment of contribution to the Fund, and interest at the lending rate of interest charged by Scheduled banks from the date the amount was due till the date of actual payment, under Section 7Q of the PF Act.

4. It is now a settled position of law, as held by the Supreme Court in Employees Provident Fund Commissioner Vs. Official Liquidator of Esskay Pharmaceuticals Ltd., (2011) 2 Comp LJ 465 (SC) that by virtue of Section 11(2) of the PF Act, provident fund dues have priority over all other dues including the dues of secured creditors. So also, it is not in dispute that such priority needs to be accorded not only to provident fund dues computed under Section 7C, but also, to interest due under Section 7Q and damages adjudicated under Section 14B. (See Maharashtra State Co-operative Bank Ltd. Vs. Asst. P.F. Commissioner, Supreme Court judgment in Civil Appeal No.6893 of 2009 dt.8.10.2009.) The question is whether any of these other amounts claimed are actually due as of the date of the winding up order or at the time of payment of the PF dues.

5. Since the salaries payable to the employees for the relevant period have been paid in full, i.e. without deducting any employees' contributions to the Fund, there is no question of paying the Applicant the component of employees' contribution on behalf of the employees. These amounts have been directly received by the employees in winding up, and are not claimable separately by the Applicant.

6. Section 14B of the PF Act provides as follows:

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 sub-section (5) of section 17 or in the payment of any charges payable under any other provision of this Act or of any Scheme or I