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SC nod to first right for employees on company's funds

SC nod to first right for employees on company's funds

Supreme Court has ruled in a verdict delivered on 8 November, 2011, that if a company goes bust, its employees will have the first claim on it assets for their employee provident fund dues.

Employees' Welfare
Working for companies has become safer now. If a company goes bust, its employees will have the first claim on it assets for their employee provident fund (EPF) dues. Arrears payable to financial institutions and the government will be paid only after EPF dues are cleared using the liquidated assets of the company.

"All revenues, taxes, cesses and rates due from the company to the Central or state government or to a local authority, all wages or salary or any employee...and all sums due to any employee from provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the employees maintained by the company are payable in priority to all other debts," the Supreme Court has ruled in a verdict delivered on 8 November 2011.

"Of course, after the amount due from an employer under the EPF Act is paid, the other dues of the workers will be treated on a par with the debts due to secured creditors," the court added.

The court was interpreting the conflict arising due to provisions of the Employees Provident Funds and Miscellaneous Provisions Act and the Companies Act. The Employee Provident Fund Organisation had challenged verdicts by the Company Law Board and the Bombay High Court that said secured creditors and government would get priority in the dues collected from a liquidated company's assets.

"The EPF Act is a social welfare legislation intended to protect the interest of a weaker section of the society, i.e., the workers employed in factories and other establishments, who have made significant contribution in economic growth of the country. Therefore, a legislation made for their benefit must receive a liberal and purposive interpretation keeping in view the directive principles of state policy contained in Articles 38 and 43 of the Constitution," the court said.