Quantified reserve and surplus transferred from an exempted fund must be credited to entitled employees.

The petitioner-association, comprising superannuated, voluntarily retired and resigned officers of Hindustan Cables Limited (“HCL”), challenged orders dated 29 May 2019 and 27 June 2019 by which the Provident Fund authorities refused to distribute the “Reserve and Surplus” amount maintained in HCL’s erstwhile exempted/relaxed provident fund trust.

HCL’s exemption/relaxation was withdrawn with effect from 17 October 2011, requiring transfer of the provident fund accumulations to the Central Board of Trustees, EPFO.

After settlement of the members’ provident fund claims, an amount of approximately Rs. 12,83,73,634 remained under the head “Reserve and Surplus” and was transferred to the EPFO along with a past accumulation statement quantifying the amounts attributable to individual employees.

The authorities rejected distribution on the ground that, upon transfer, the amount formed part of the common EPFO corpus and could not be distributed exclusively to HCL’s employees under paragraph 28(2) of the Employees’ Provident Funds Scheme, 1952.

Whether the Reserve and Surplus amount transferred from HCL’s erstwhile provident fund trust to the EPFO formed part of the common EPFO corpus or remained payable to the employees to the extent quantified in the past accumulation statement.

Whether paragraph 28(2) of the EPF Scheme, 1952 authorised the Provident Fund authorities to refuse distribution of the quantified Reserve and Surplus amount to HCL’s former employees.

Whether the impugned orders dated 29 May 2019 and 27 June 2019 were legally sustainable.

The Court applied paragraph 28 of the Employees’ Provident Funds Scheme, 1952, which governs the transfer of accumulations from an existing provident fund upon cancellation of exemption or application of the statutory scheme.

Paragraph 28(2) requires transfer of the accumulations, including applicable interest and investment returns, to the Fund; paragraph 28(4) mandates that the transferred accumulations be credited to the accounts of individual members to the extent to which they are entitled according to the statement furnished by the transferring authority.

The Court treated paragraph 28 as regulating transfer rather than extinguishing individual members’ entitlement, and rejected the interpretation that vesting in the Central Board converts specifically quantified employee-related accumulations into an unrestricted common fund.

It also relied on the statutory scheme concerning separate provident fund accounts and the restricted use of Fund monies, as discussed with reference to paragraphs 49–53 and 72 of the EPF Scheme.

The Court considered Employees Provident Fund Organisation v. Sunil Kumar B, (2023) 12 SCC 701, and reconsidered the earlier decision in Dilip Kumar Chowdhury v. Regional Provident Fund Commissioner, WPA 27817 of 2023, in light of documents showing separate quantification of the Reserve and Surplus component.

The Court found that the past accumulation statement did not show an undifferentiated consolidated fund; rather, it separately quantified each employee’s entitlement under various heads, including Reserve and Surplus.

Since paragraph 28(4) required transferred accumulations to be credited to individual members according to the statement, the transfer to the Central Board did not deprive the employees of their accrued entitlement.

The Court held that the authorities had incorrectly relied on paragraph 28(2), which deals with the mechanism and form of transfer, to deny distribution altogether.

The fact that provident fund dues had already been paid did not establish that the separately quantified Reserve and Surplus amount had also been paid; instead, the documents demonstrated that the surplus remained distributable to the concerned employees.

The Court also treated the Hyderabad Unit’s distribution of a similar surplus as supporting the petitioners’ interpretation.

The earlier decision in Dilip Kumar Chowdhury was distinguished and reconsidered because it had proceeded on the understanding that no separate Reserve and Surplus fund existed.

The orders dated 29 May 2019 and 27 June 2019 were quashed and set aside as contrary to law.

Respondent authorities were directed to pay each employee the amount quantified against that employee under the Reserve and Surplus head, together with interest at the statutory rate, within two months from the date of the judgment.

The writ petition was accordingly allowed.