Delayed EPF dues for 2 years? HC slaps Rs 77,000 penalty on employer under EPFO rules
Mar 6, 2026
Synopsis
The Karnataka High Court has penalized an employer ₹77,000 for delaying provident fund contributions for two employees over two years. The court ruled that the penalty under EPFO rules cannot be less than 25% of the unpaid amount, including interest. This decision adjusted a previous tribunal order, emphasizing adherence to PF regulations.
On February 10, 2026, the Karnataka High Court ruled that penalty imposed on an employer by the EPFO for delay in payment of employees’ provident fund contribution can’t go below 25% of the unpaid amount under the Employees Provident Fund Act . As a result, the high court reduced the penalty imposed on the employer from Rs 3.28 lakh to Rs 77,000.
Under the Employees’ Provident Fund Scheme, 1952, the penalty rate has been fixed under Para 32A. The maximum penalty for delay of six months and above has been fixed at 25% per annum.
The Karnataka High Court said that while it is acknowledged that the arrears of provident fund (PF) contribution amount to Rs 2,04,440 and with interest of Rs 1,06,094, the total arrears come to Rs 3,10,534, according to law, the penalty can’t be more than 25% of the above amount, which comes to Rs 77,633.50, rounded off to Rs 77,633.
What led to this EPF dispute?
On December 5, 2016 ,the Assistant Provident Fund Commissioner, K.R. Puram, Bangalore, imposed a penalty of Rs 3,28,083 on an employer under Section 14B of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 on ground of belated payment of contributions for two international workers between March 20, 2014 and March 31, 2016.
The employer is a private limited company and is registered with the EPF Organization and was allotted a PF Code number also. They employed many people, including the two foreign workers. After these workers left the company, the Commissioner obtained the list of the foreign/international workers working with the company from the Foreigner Regional Registration Office.
From this list, the Commissioner came to know that the names of these two international workers appointed by the company were not found in the International Worker-1 Returns filed by the company.
So, the Commissioner sought clarification from the company regarding the two international workers. The commissioner also saw that no PF contribution from these two international workers was deposited by the company. In its clarification to the show-cause notice, the company had stated that these two foreign nationals were working with them but had left the company.
Taking into account that the company had failed to make the PF contributions for two international workers, the Commissioner determined the company’s liability to be Rs 2,04,440 with interest of Rs 1,06,094, and issued an order on December 5, 2016. The penalty under Section 14B of the EPF Act was set at Rs 3,28,083, which included a 100% penalty for the shortfall in PF payments along with interest.
The company challenged this order by filing the appeal, EPF No.388/2017, and the Central Government Industrial Tribunal-cum-Labour Court, Bengaluru, reduced the penalty to Rs 25,000. This Order dated September 7, 2020 passed by the Central Government Industrial Tribunal-cum-Labour Court, Bengaluru in Appeal, EPF No.388/2017 filed by the company, was challenged before the Karnataka High Court.
On February 10, 2026 EPFO partly won the case.
Karnataka High Court analysis and discussion
Karnataka High Court gave this judgement (WP No. 23372 of 2021) on February 10, 2026.
The Karnataka High Court said that Section 14B of the EPF Act empowers the Central Provident Fund Commissioner or an Officer authorised by the Central Government in this behalf to recover damages, wherein an employer makes default in the payment of any contribution to the Provident Fund. Section 14B empowers to recover damages by way of penalty not exceeding the amount of arrears, as may be specified in the Scheme.
Thus, Karnataka High Court said that Section 14B of the EPF Act empowers to recover damages up to 100% of the amount of arrears which would also include the interest.
However, under the Employees’ Provident Fund Scheme, 1952, the rate of penalty has been fixed under Para 32A.
Karnataka High Court said: “The maximum penalty for delay of six months and above has been fixed at 25% per annum. The CGIT, however, reduced the penalty to Rs 25,000 by the impugned order against Rs 3,28,083 as imposed by the Assistant Provident Fund Commissioner, Bengaluru, vide order dated 05.12.2016.”
The Karnataka High Court said that in a case decided by their court (Writ Petition No.6617/2023), the provisions of Section 14B of EPF Act was considered and it was held that the penalty for not depositing the PF contribution for more than six months cannot be reduced to less than 25% of the arrears, which would include the interest.
The Karnataka High Court said that in this case, the arrears were deposited after more than two years from the due date and therefore, the penalty should be 25% of the arrears of the contribution, including the interest.
The Karnataka High Court judgement:
It is not in dispute that the arrears of PF contribution would come to Rs.2,04,440/- and interest thereon was assessed as Rs 1,06,094/-. Thus, total arrears including the interest would be Rs 3,10,534/-. 25% of the above amount, which comes to Rs 77,633.50 ps., rounded off to Rs 77,633/-, should have been the damages in the nature of penalty.
As a result, the Karnataka High Court modified the impugned order dated 07.09.2020 in EPF No.388/2017 passed by the Central Government Industrial Tribunal-cum-Labour Court, Bengaluru, and assessed the damages by way of penalty at Rs.77,633/-.
If the petitioner has already paid Rs 25,000, following the order passed by the CGIT, the balance amount of Rs 52,633 is to be paid within two weeks from today. With the aforesaid modification, the writ petition is disposed of.
[The Economic Times]
