M/S Kerala Industrial Infrastructure Development Corporation vs Central Board Of Trustees

Reportable


IN THE SUPREME COURT OF INDIA
2026 INSC 990
CIVIL APPELLATE JURISDICTION

Civil Appeal No.7724 of 2023


M/s Kerala Industrial Infrastructure
Development Corporation
...Appellant (s)


Versus


Central Board of Trustees and Anr.
...Respondent (s)

With

Civil Appeal Nos.1467-1496 of 2024
Civil Appeal No.2462 of 2024
Civil Appeal No.6677 of 2024
Civil Appeal Nos.14954-14955 of 2024
Civil Appeal Nos.634-636 of 2025


O R D E R
The appeals call in question the impugned orders,
passed at the instance of the Central Board of Trustees (under
the Employees’ Provident Funds and Miscellaneous
1
Provisions Act, 1952 ), which imported the finding of this
Court that ‘the share of workmen dues’ shall be kept outside
the liquidation as such and concerned workmen/employees
Signature Not Verified
Digitally signed by
CHANDRESH
Date: 2026.09.15
18:13:21 IST
Reason:
shall have to be paid the Provident Fund (PF) or Gratuity

1
Hereinafter referred to as ‘EPF & MP Act’
Page 1 of 14

Fund (GF) to the resolution plan implementation; mulcting
the same liability on the Successful Resolution Applicant
(SRA), the appellants in the respective appeals.
2. The respondente EPFO asserts the application of the
dictum in Maharashtra State Cooperative Bank Limited v.
2
Assistant Provident Fund Commissioner and Others , to the
Provident Fund (PF) dues, even when a Resolution Plan (RP)
is in operation, as approved by the Tribunal in Jet Aircraft
Maintenance Engineers Welfare Association v. Ashish
Chhawchharia, Resolution Professional of Jet Airways
3
(India) Ltd. and Others . The impugned order clearly found
that the said decision was upheld by this Court and in that
context, PF is to be paid in full as per the provisions of the EPF
& MP Act.
3. We also notice the decision of a Co-ordinate Bench in
Jalgaon District Central Coop. Bank Ltd. v. State of
4
Maharashtra and Others (authored by one us, KVC, J.),
wherein the statutory charge, as created under the EPF & MP
Act, was found to prevail over a non-obstante clause;
overriding the provisions of any law in force at the time of the

2
(2009) 10 SCC 123
3
2022 SCC OnLine NCLAT 418
4
2025 SCC OnLine SC 2513

Page 2 of 14

enactment. The statutory first charge under EPF & MP Act was
found to override the non-obstante clause in the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act)
and we extract Paragraph 27 of the said decision as under:

‘ 27. Undisputedly, SARFAESI Act is the latter act
and if the question was solely of the non-
obstante clause giving it overriding effect from
any law for the time being in force, the SARFAESI
Act would prevail. However, in the EPF&MP Act,
Section 11(2) creates a statutory first charge on
the assets of the establishment for any amount
due from an employer, be it the employers' or
employees' contribution, which would include
any interest or damages also as has been held in
Maharashtra State Co-operative Bank
(2009) 10 SCC 123
Limited . In that circumstance, the
effect of the non obstante clause giving
precedence over any other law for the time
being in force pales into insignificance, as held
(2009) 4 SCC 94
in Central Bank of India . There being
a clear first charge created under the EPF&MP
Act, it overrides the priority under Section 35
and Section 13 as also that conferred under
Section 26-E since a priority cannot be equated
with a first charge and cannot be given
prevalence over the first charge statutorily
created.’

4. Jet Aircraft Maintenance Engineers Welfare
3
Association held that provident fund has to be paid to
workmen and employees in full and that cannot be made
subject of distribution under the waterfall mechanism of
Section 53(1) of the IB Code. It was concluded that the
Page 3 of 14

workmen and employees are entitled to payment of full
amount of the provident fund and gratuity till the date of the
commencement of insolvency, since they are not part of the
liquidation estate under Section 36(4)(b)(iii). It was
categorically indicated that the claim admitted by the
Resolution Professional includes the payment of provident
fund, gratuity and leave encashment also. The above view
has been approved by this Court by rejection of Civil Appeal
No.407 of 2023, Jalan Fritsch Consortium v. Regional
Provident Fund Commissioner and Civil Appeal Nos.465-
469 of 2023, Jalan Fritsch Consortium v. Jet Aircraft
Maintenance Engineers Welfare Association by common
order dated 30.01.2023.
5. This Court further in State Bank of India v. Murari Lal
5
Jalan & Florian Fritsch (Consortium) held so in paragraph
148:
‘148. According to the SRA, the dues relating to the
provident fund would be paid upfront in compliance
with Section 11 of the Employees' Provident Fund and
Miscellaneous Provisions Act, 1952. However, the
gratuity dues could be paid in tranches since neither the
order dated 21-10-2022 [Jet Aircraft Maintenance
Engineers Welfare Assn. v. Jet Airways (India) Ltd.
(Resolution Professional), 2022 SCC OnLine NCLAT 418]
of N CLAT nor the order dated 30-1-2023 [Jalan Fritsch
(Consortium) v. EPFO, (2023) 237 Comp Cas 204 : 2023

5
(2025) 4 SCC 354
Page 4 of 14

SCC OnLine SC 106] of this Court had imposed any
timelines for the payment of the gratuity dues.
Furthermore, it was submitted that the provisions of the
Payment of Gratuity Act, 1972 were not so stringent.
However, such a proposal cannot be allowed especially
in light of the fact that the order dated 21-10-2022 [Jet
Aircraft Maintenance Engineers Welfare Assn. v. Jet
Airways (India) Ltd. (Resolution Professional), 2022 SCC
CLAT
OnLine NCLAT 418] of N is unambiguous in its
declaration that both provident fund and gratuity dues
have to be paid by the SRA in order to save the
resolution plan from being hit by Section 30(2)(e) IBC.’

The liability of the SRA to satisfy the dues under the
EPF & MP Act, including that levied under Section 7Q as
interest and Section 14B as penalty for damages, is beyond
cavil, as evident from the underlining above, supplied by us
for emphasis.
6. We cannot but also notice the Second Proviso to
Section 11B which clothes the Central Board with the power
to reduce or waive the damages under Section 14B, in
relation to an establishment, which is a Sick Industrial
Company and in respect of which, a scheme for rehabilitation
has been sanctioned by the Board for Industrial and Financial
Reconstruction (BIFR) under Section 4 of the Sick Industrial
6
Companies (Special Provisions) Act, 1985 (SICA). The SICA
is no more in force having been repealed by Act of 2003,

6
Hereinafter referred to as ‘SICA’
Page 5 of 14

made effective from 2016 and the Insolvency and Bankruptcy
Code, 2016, took over the rebuilding of companies facing
insolvency by an elaborate procedure delineated
thereunder. Though, a statutory amendment has not been
brought correspondingly in the EPF & MP Act, we are of the
opinion that the Central Board could consider the application
of waiver or reduction, which the SRA could make before it,
considering the fact that the resolution plan sought to be
implemented, is akin to a plan of rehabilitation as sanctioned
by the BIFR under the SICA. One of the impugned orders
specifically provides for that remedy before the Central
Board.
7. Be that as it may, we cannot but notice that Section 14B
was held to be mandatory in Horticulture Experiment
Station Gonikoppal, Coorg v. Regional Provident Fund
7
Organization . It was held that the imposition of damage for
delayed payment is automatic since it is a breach of civil
obligations/liabilities comitted by an employer and there is
no further requirement to examine the existence of an
element of actus reus or mens rea , or to examine the issue of
justification for imposing damages. Though, we fully agree

7
(2022) 4 SCC 516
Page 6 of 14

with the Co-ordinate Bench that there is no reason to find
actus reus or mens rea , we are of the opinion, with abiding
respect to the Co-ordinate Bench, that Section 14B even after
its amendment confers a discretion on the authority to decide
on whether the circumstances justify a complete absolution
from penalty.
8. In this context, we have to notice the provisons of
Section 14B, before and after its amendment, which
amendment was occasioned by Act 33 of 1988, brought into
force w.e.f. 01.09.1991. Section 14B before amendment is as
follows:
‘S. 14-B. Power to recover damages- Where
an employer makes default in payment of any
contribution to the Fund the Family 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
provisions 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 such damages, not
exceeding the amount of arrear, as it may
think fit to impose:
Provided that before levying and recovering
such damages, the employer shall be given a
reasonable opportunity of being heard.’

Page 7 of 14

9. Organo Chemical Industries and Another v. Union of
8
India and Others , found that the words employed ‘may
recover’ confers a discretion on the authority to either
impose or not to impose any damages, and if imposed, then
the authority had a further discretion to decide on the
quantum, as is evident from the words employed ‘may think
fit to impose’. This Court in the cited case held that the
Commissioner’s power under Section 14B is a quasi-judicial
function, subject to observance of principles of natural justice
and that the order should be a speaking one. The penalty for
default in payment of the dues under the Act by Section 14B,
takes within its ambit the compensation of the loss sustained
by the employee. It was categorically held that after setting
off the interest granted to the employee from the quantum
levied under Section 14B, the balance is to be deposited in
the Fund and not to the coffers of the Government,
considering the spirit of the socio-economic context and the
policy under which the welfare legislation was enacted. This
Court further clarified that the damages imposed under
Section 14B, takes it both the interest component accrued in

8
(1979) 4 SCC 573
Page 8 of 14

favour of the employee by reason of default, as also the
aspect of deterrent penalty. However, it was held that
disputes between partner’s, powercut and other financial
problems would not enable a discretion to be exercised in
favour of the employer.
10. After amendment, by Act 33 of 1988, the provision
reads as under:
‘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 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:

Provided further that the Central Board may
reduce or waive the damages levied under this
section in relation to an establishment which is a
sick industrial company and in respect of which
a scheme for rehabilitation has been sanctioned
by the Board for Industrial and Financial
Reconstruction established under Section 4 of
Page 9 of 14

the Sick Industrial Companies (Special
Provisions) Act, 1985 (1 of 1986), subject to such
terms and conditions as may be specified in the
Scheme.’

11. Together with the amendment of Section 14B, Section
7Q was also incorporated by the Amendment Act, which is
extracted hereunder:
‘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:

Provided that higher rate of interest
specified in the Scheme shall not exceed the
lending rate of interest charged by any
scheduled Bank.’


12. The interest under Section 7Q, thus, became statutory
and was carved out of the discretion conferred on the
Commissioner or the Authorized Officer. The compensatory
aspect of interest on delay, thus, was taken out of Section 14B,
as is also evident from the words ‘recover from the employer
such damages’ , as available in the pre-amended Section 14B
and the change brought in as ‘recover from the employer by
way of penalty such damages’ , after amendment. Section 14B,
after amendment, was only concerned with penalty and the
Page 10 of 14

compensatory aspect of interest was made statutorily
leviable under Section 7Q.
13. Further change brought in by the amendment was that
pre-amendment, penalty was not to exceed the amount of
arrears, but after amendment, though, the rigour of not
exceeding the amount of arrears was retained, the quantum
leviable was as specified in the Scheme, which was
prescribed under the scheme by Paragraph 32A, which is
also extracted hereunder:
‘32A. Recovery of damages for default in
payment of any contribution:-(1) Where an
employer makes default in the payment of any
contribution to the 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 of the Act or in the
payment of any charges payable under any
other provisions of the Act or Scheme or under
any of the conditions specified under Section
17 of the Act, the Central Provident Fund
Commissioner or such 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, damages at the rates given below:

Period of Default Rates of damages
(0% of arrears per annum)

(a) Less than two months 17
(b) Two months and above 22
but less than four months
(c) Four months and above 27
but less than six months
(d) Six months and above 37’
Page 11 of 14

14. Here, we have to pertinently observe that the words
employed under the amended Section 14B, is to the effect
that the Commissioner or the Authorized Officer, ‘ may
recover ’ by way of penalty such damages. Hence, the
discretion is still left with the authority to decide as to
whether there should be an imposition of penatly at all. If the
Authorized Officer is satisfied that the imposition of penalty
has to be made in the facts and circumstances, then the levy
shall be under the scheme; which alone is outside the
discretion of the authority.

15. In other words, the Authorized Officer could waive the
penalty as such in extenuating circumstances, necessarily
not solely of financial difficulties and in the event of finding
justification in imposing the penalty, the quantum would be
regulated by the Scheme, as coming out from the Paragraph
32A.
16. We are, hence, in doubt of the proposition laid down
7
in Horticulture Experiment Station Gonikoppal by a Co-
ordinate Bench; with due respect to the learned Judges.
While directing the deposit of the dues as computed under
the EPF & MP Act including that levied under Section 7Q of
Page 12 of 14

that Act, we refer the question as to whether there is a
discretion under Section 14B on the Authorized Officer to
levy or not to levy the penalty.
17. We, therefore, direct the Registry of this Court to place
the matter before the Hon’ble the Chief Justice of India for
consideration by a larger Bench.
18. We make it clear that the reference would not impair
the right of the appellants herein, SRAs, to approach the
Central Board under the Second Proviso of Section 14B.
19. On the request made by the learned Counsel
appearing for the respective appellants, we also deem it fit
to direct the appellants to pay the due amounts under the EPF
& MP Act, along with Section 7Q interest, in four quarterly
th
instalments, the first instalment starting on 15 December,
th th
2026 and then falling on 15 March, 2027, 15 June, 2027 and
th
15 September, 2027. The interest accrued under Section 7Q
due to the deferred instalments, would also be levied and
communicated by the Authorized Officer to the SRA after the
th
last instalment is paid, which would be satisfied before 15
October, 2027. If any single default is committed, the EPFO
can proceed for recovery.
Page 13 of 14

20. With the above directions, the matter is referred to a
larger Bench.



.......…….……………………. J.
(J. B. PARDIWALA)


....……….……………………. J.
(K. VINOD CHANDRAN)
NEW DELHI;
SEPTEMBER 09, 2026.
Page 14 of 14