Telangana High Court
M/S. Pennar Industries Limited vs Regional P.F. Commissioner-Ii on 5 March, 2026
Author: Nagesh Bheemapaka
Bench: Nagesh Bheemapaka
IN THE HIGH COURT FOR THE STATE OF TELANGANA AT
HYDERABAD
HON'BLE SRI JUSTICE NAGESH BHEEMAPAKA
WRIT PETITION No. 25455 OF 2024
05.03.2026
Between:
M/s Pennar Industries Limited,
IDA, Patancheru,
Rep. by its Chief Human Resources Officer-cum-
Authorised Signatory Dr. O. Satyanarayana Rao
& another
.. Petitioners
And
Regional P.F. Commissioner-II,
Regional Office & others.
..Respondents
O R D E R:
Petitioners contend that the 1st petitioner is a company deemed to be registered under the Companies Act and is engaged in the business of manufacturing various engineering and allied products in its units situated all over India. The 1st petitioner is a 45-year-old company and has been running its own Provident Fund Trust through its Trustees under the name and style of NSL PF Trust No.6330, which is the 2nd petitioner herein, duly approved by the EPF authorities. Since its inception, the 2nd petitioner - Trust has maintained its 2 activities with due diligence, without any issues whatsoever, and has served all its members to their satisfaction without any complaint of any nature.
1.1. Petitioners submit that in accordance with the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, the Trustees of the 2nd petitioner Trust passed Resolution dated 10.02.2023 deciding to surrender the exemption granted to the Trust and hand over the same to the Provident Fund authorities, namely the Regional Provident Fund Commissioner, Patancheru. It is stated, pursuant thereto, vide letter dated 16.02.2023, all details were transferred to the said Authority and it was informed that surrender would take effect from 01.03.2023. From 01.03.2023 onwards, the 1st petitioner started remitting Provident Fund subscriptions of all NSL Trust members directly to the Provident Fund authorities continuously and without any default.
1.2. After deciding to surrender the Trust, the 2nd petitioner approached the authorities concerned seeking guidance regarding the process for surrendering the Trust's past accumulations of its members and also sought clarification regarding the procedure for surrendering and liquidating invested funds of NSL PF Trust in various government bonds 3 and mutual funds. It is stated, the 1st respondent provided the necessary information vide letter dated 09.03.2023 detailing the required documentation and procedures. Accordingly, the 2nd petitioner submitted the relevant Resolution of the Trustees and other required documents vide letter dated 10.03.2023. The 1st respondent issued another letter dated 29.03.2023 furnishing further details regarding the surrender of the Trust and its properties.
1.3. According to petitioners, after gathering the information and understanding the procedures and formalities, it took approximately two to three months to complete the process, as the Provident Fund Department authorities advised the 2nd petitioner to take back all invested amounts from various government and other banks and securities and thereafter deposit the consolidated amount into the account of the Provident Fund authorities. Petitioners state that meanwhile, the PF authorities issued another letter dated 09.05.2023 requiring the 2nd petitioner to provide the statement of past accumulations within 30 days and deposit 100% of the past accumulations within 15 days thereafter. They submitted reply dated 30.05.2023 enclosing all the statements of past 4 accumulations along with the minutes of the Trustees' meeting dated 27.05.2023.
1.4. It is contended, the above processes and statutory formalities consumed about three and a half months, and ultimately, the 2nd petitioner Trust surrendered the past accumulated funds amounting to Rs.5,09,32,844/- towards PF contributions together with interest from April 2023 to July 2023 by way of Demand Draft dated 21.07.2023. Petitioners state that the said Demand Draft along with all details and balance sheet was submitted to the PF authorities, Patancheru on 04.08.2023 and that they sought cancellation of the exemption granted to the Trust in view of compliance with all procedures.
1.5. Petitioners contend that out of the amounts deposited in various banks, Rs.70,00,000/- had been invested in YES Bank Bonds in 2016 with the expectation of higher returns. Due to financial and technical issues, the Reserve Bank of India placed YES Bank Ltd. under moratorium on 05.03.2020 and prohibited all transactions in YES Bank. The issue was thereafter, taken to the Bombay High Court, where the Hon'ble Court quashed the action of the Administrator in writing off AT-1 Bonds, and that the matter has been carried to the Hon'ble 5 Supreme Court and is pending for hearing. Under these circumstances, the 2nd petitioner could not encash the said YES Bank Bonds along with other investments of the Trust. 1.6. Petitioners state that in 2022, one of the PF members stopped payment of PF contributions and subsequently, in April 2023, sought settlement of his PF amount. The said member, Sri J Nrupender Rao, who was also one of the Trustees of the 2nd petitioner Trust, claimed Rs.3,42,30,504/-; out of the said amount, Rs.2,50,33,577/- was paid by way of cheques and the balance amount of Rs.91,96,927/- was adjusted by allotting the bond amount deposited in YES Bank to the said member by agreement, thereby treating the member's account as fully settled. Such adjustment was necessitated as the YES Bank Bond amount was struck due to the orders of the RBI and pendency of proceedings before the Hon'ble Supreme Court, which are yet to be finalized.
1.7. The aforesaid facts regarding adjustment and settlement were duly informed to the PF Department vide letter dated 20.06.2023 and thereafter, the balance past accumulations amounting to Rs.5,09,32,844/- were deposited by Demand Draft dated 21.07.2023. The said amount was 6 accepted by the PF Department without any objection and without any communication rejecting the adjustment made in respect of Sri J Nrupender Rao.
1.8. The 1st respondent was aware of the above facts throughout, as per their communications, and that whenever audit queries were raised, the 2nd petitioner Trust clarified the position vide letter dated 02.04.2024. At no point of time did the PF Department demand deposit of any further amount or communicate any rejection of the adjustment made to the concerned PF member, contends petitioners.
1.9. According to petitioners, to their shock and surprise, the 1st respondent unilaterally issued recovery proceedings under Section 8-F of the EPF & MP Act, 1952 vide proceedings dated 02.09.2024 and 04.09.2024 to three banks of Petitioners, directing the 2nd to 4th respondent banks, wherein Petitioners maintain accounts, to freeze the accounts and remit amounts from and out of the said bank accounts. It is also contended, there was no order rejecting the payment adjustment made to the PF member by way of the Trust Resolution, which had become final and binding and in respect of which the concerned PF member had no subsisting claim of any nature.
71.10. Petitioners state that pursuant to the prohibitory order dated 02.09.2024, Rs.5,35,000/- was recovered from an account of the 2nd petitioner maintained with the 4th respondent bank and appears to have been deposited into the PF Department towards the total recovery amount of Rs.1,03,90,483/-. Another prohibitory order dated 04.09.2024 was issued against the 1st petitioner's bank account maintained with Axis Bank, Begumpet, Hyderabad for Rs.98,55,483/-. These recovery proceedings were initiated without any prior notice or demand and are self-contradictory, whimsical, illegal and in gross violation of principles of natural justice. After having accepted the final amount of Trust funds amounting to Rs.5,09,32,844/- towards past accumulations, the 1st respondent thereafter imposed damages for alleged delay in deposit of the said amount vide order dated 04.01.2024 amounting to Rs.13,76,583/- under Section 14B of the EPF Act. The said order was challenged before the CGIT under Section 7-1 of the EPF Act and the CGIT granted stay of further proceedings vide order dated 02.04.2024 subject to deposit of 10% of the damages imposed, which amount has been deposited, and the appeal is pending adjudication. 8 1.11. Petitioners are stated to have approached the 1st respondent seeking withdrawal of the impugned prohibitory orders by way of representation dated 09.09.2024, but the same was not considered and no response was given. Freezing of the 1st petitioner's bank account has had a drastic effect on the day-to-day operations of the company, which employs about 2800 employees and has various financial obligations, and that the action has crippled the company's operations, causing severe hardship, loss and injury. Aggrieved by the prohibitory orders dated 02.09.2024 and 04.09.2024 issued under Section 8-F of the EPF & MP Act, 1952 read with Section 8F(3)(i) and Rule 26(1)(iii) of the Second Schedule to the Income Tax Act, 1961, directing Respondents 2 to 5 banks not to permit operation of the accounts and to remit Rs.98,55,483/- from the bank accounts of Petitioners, they have filed the present Writ Petition.
2. By order dated 13.09.2024, this Court granted interim suspension of the impugned prohibitory orders issued by Respondent No.1 for two weeks; further Respondent No.2 was directed to allow petitioners to operate their bank account keeping lien for Rs.98,55,484/- in the said account. 9
3. Respondent No. 1 filed counter contending that Petitioners approached this Court by suppressing material facts and with unclean hands and that Writ Petition is liable to be dismissed on that ground alone. It is stated, the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 and the Schemes framed thereunder are enacted to provide social security in the form of Provident Fund, Pension and Insurance to employees covered under the Act, and that Respondent organization is charged with the statutory duty of enforcing the Act for the benefit of employees of private and public undertakings. M/s NSL Limited EPF Trust has surrendered exemption with effect from 01.03.2023 and that as per Paragraph 28(1)(ii) of the EPF Scheme, 1952, upon surrender of exemption, the Trust is required to transfer to the Fund, in the manner specified, the total accumulations standing to the credit of subscribers within ten days in the case of liquid cash and within thirty days in the case of securities, and also to transfer all pass books, books of account and other documents relating to the accumulations.
3.1. Respondent No. 1 states that vide letter dated 08.05.2023, the Trust was informed to deposit 100% of the past 10 accumulations. Out of total past accumulations amounting to Rs.8,51,98,967/-, the Trust transferred only Rs.5,09,32,844/- in cash by Demand Draft dated 21.07.2023 along with interest from 01.04.2023 to 31.07.2023, while retaining Rs.91,96,927/-. The Trust informed that Rs.70,00,000/- (face value) bond was held in YES Bank and that encashment was pending due to ongoing sale proceedings awaiting a buyer, and further informed that the Trust had resolved to settle the said pending amount to one of the senior members, Sri J Nrupender Rao, bearing PF No. AP/PTC/6330/2266, whose settlement was supposed to be paid in June 2023, i.e., after surrender of exemption, as per establishment letter dated 02.04.2024.
3.2. Respondent No. 1 submits that out of Rs.3,42,30,504/- payable to Sri Nrupender Rao, Rs.2,50,33,577/- has been paid as stated in establishment letter dated 10.09.2024 and the remaining amount was to be paid from the pending YES Bank Bonds. a Third Party Audit was assigned to an empanelled auditor, which is a mandatory requirement for considering surrender of exemption, and that the Third Party Audit report received on 27.08.2024 clearly recorded that the Trust had yet to repay PF amount due to the said inactive employee amounting to Rs.91,96,927/-. The 11 auditor noted that the Trust had entered into a mutual resolution with the employee to repay the dues by liquidating YES Bank Bonds having face value of Rs.70,00,000/-, but that sale of such security could not be effected as on the report date for want of buyer, and that under the EPF Act such amount cannot be retained by the Trust after surrender of exemption and therefore Rs.91,96,927/- along with up-to-date statutory interest was required to be deposited by the Establishment. 3.3. Respondent No. I contends that since the Trust failed to deposit the total past accumulations within ten days of surrender of exemption as mandated, damages under Section 14B of the Act were levied to the tune of Rs.13,76,573/- vide order dated 01.01.2024, against which the Establishment has filed an appeal before the Hon'ble CGIT. Even after lapse of 18 months from the date of surrender of exemption, the amount due to Sri J Nrupender Rao was not settled in full and the proposal for surrender of exemption could not be forwarded to the Head Office, and that upon submission of the Third Party Audit Report it was noticed that an amoun of Rs.92,32,525/- was still payable by the Employer to EPFO. Respondent No.1 contends that the Employer has been stating one reason or 12 another and has not complied with the statutory procedure for surrender of exemption.
3.4. Respondent No. 1 states that Petitioners failed to disclose the locking of a substantial amount with YES Bank until the Respondent pressed for remittance of dues in terms of the Third Party Audit Report. The Trust had never informed that any case was pending before the Hon'ble Supreme Court with regard to the YES Bank Bond during the 18 months of correspondence, and that only after issuance of the prohibitory orders were details furnished about blocking of the amount due to orders of the Hon'ble Supreme Court. Irrespective of the pendency of proceedings or the bond being held up for any reason whatsoever, it is the statutory responsibility of the Trust/Establishment to deposit the entire past accumulations to EPFO upon surrender of exemption, and that as per EPFO guidelines applicable, all bonds are required to be redeemed and transferred in cash within ten days from the date of surrender. 3.5. Vide letter dated 02.04.2024 the Trust informed that Bond No. INE528GO8352 amounting to Rs.70,00,000/- is held in YES Bank pending encashment due to ongoing sale proceedings awaiting a buyer, and that settlement to Sri J. Nrupender Rao, which was to be made in June 2023 after 13 surrender of exemption, had not been effected even after allowing a period of 18 months. In these circumstances, having no other option and in view of the Third Party Audit Report, the office initiated recovery proceedings as the Trust cannot hold any amount or securities after surrender of exemption. 3.6. Respondent No. 1 states that prohibitory orders dated 02.09.2024 were issued to State Bank of India, ICRISAT Branch, Patancheru and Union Bank of India, Somajiguda for recovery of Rs.1,03,90,483/- inclusive of interest up to 31.08.2024, and that only Rs.5,35,000/- was recovered from Union Bank of India, Somajiguda Branch. On 04.09.2024, prohibitory orders were issued to Axis Bank, Begumpet for Rs.98,55,483/- after excluding the amount already recovered. As Petitioner was adopting delay tactics and the office was unable to submit a comprehensive proposal for surrender of exemption to the Zonal Office/Head Office within stipulated timelines, recovery action was taken strictly as per the Rules and the provisions of the EPF & MP Act, 1952.
3.7. Petitioners are providing incorrect information by stating that the office accepted the final amount of Rs. 5,09,32,844/-towards past accumulations. Under Paragraph 28(1)(ii) of the EPF Scheme, 1952, total 14 accumulations are to be transferred within ten days in case of liquid cash and within thirty days in case of securities, and since the Establishment failed to deposit the past accumulations within the prescribed time, penal damages of Rs. 13,76,573/- were levied. Respondent No. 1 states that the representation dated 09.09.2024 submitted by Petitioners were suitably replied to vide letter dated 17.09.2024. Respondent No.1 contends that even after lapse of 18 months from surrender of exemption, the Employer has neither settled the amount in full to Sri J. Nrupender Rao nor deposited the entire amount to EPFO and therefore, issuance of prohibitory orders under Section 8-F of the Act is legal, valid and justified. Respondent No. 1 states that the Third Party Audit Report confirmed that the balance dues must be remitted to EPFO along with interest and that the action taken is not only in accordance with law but also in the best interests of the workers of the Establishment.
4. Heard Sri V. Hariharan, learned Senior Counsel assisted by Sri V. Srikanth Hariharan, learned counsel for petitioners, Sri Vijay K. Punna, learned Standing Counsel for Respondent No.1.
15
5. The principal issue that arises for determination is whether the prohibitory orders dated 02.09.2024 and 04.09.2024 issued by the 1st respondent under Section 8-F of the 1952 Act for recovery of Rs.1,03,90,483/- (inclusive of interest up to 31.08.2024) are liable to be interfered with in exercise of the extraordinary jurisdiction of this Court under Article 226 of the Constitution.
6. It is an admitted position that the 2nd petitioner Trust surrendered its exemption with effect from 01.03.2023 pursuant to the Resolution dated 10.02.2023 and communication dated 16.02.2023. It is also not in dispute that upon such surrender, the statutory consequences are governed by Paragraph 28(1)(ii) of the EPF Scheme, 1952. The said provision mandates that upon cancellation or surrender of exemption, the Trust shall transfer to the statutory Fund the total accumulations standing to the credit of the subscribers in relation to the establishment within ten days in case of liquid cash in bank and within thirty days in case of securities. The provision is couched in imperative language and does not vest any discretion in the Trust to retain any portion of the accumulations beyond the prescribed period. The legislative intent is manifest: once exemption ceases, the private trust 16 cannot continue to hold employees' provident fund accumulations and the entire corpus must be transferred to the statutory authority to ensure continuity of social security benefits.
7. Petitioners contend that they initiated the process of surrender in consultation with the 1st respondent, sought procedural guidance, furnished required documentation vide letters dated 10.03.2023 and 30.05.2023, and ultimately, transferred Rs.5,09,32,844/- by Demand Draft dated 21.07.2023 together with interest from April 2023 to July 2023. They assert that the delay occurred due to the time taken in liquidating investments and complying with statutory formalities. They further contend that Rs.70,00,000/- was invested in YES Bank Bonds in 2016 and that due to the moratorium imposed by the Reserve Bank of India on 05.03.2020 and the pendency of proceedings before the Hon'ble Supreme Court relating to the said bonds, encashment was not possible. Petitioners also assert that the balance amount of Rs.91,96,927/- payable to Sri J. Nrupender Rao was adjusted by allotting the bond amount to him by agreement and that this fact was communicated to the Department.
17
8. On the other hand, Respondent No. 1 contends that the total accumulations were Rs.8,51,98,967/- and that only Rs.5,09,32,844/- was transferred, leaving a shortfall. It is further contended that under Paragraph 28(1)(ii), the entire accumulations were required to be transferred within the stipulated time and that the Trust cannot retain securities after surrender of exemption. The Third Party Audit report dated 27.08.2024 recorded that Rs.91,96,927/- remained payable and recommended deposit of the same with statutory interest. Respondents assert that even after lapse of 18 months, the balance amount was not deposited and therefore recourse to Section 8-F was taken to recover Rs.1,03,90,483/- inclusive of interest up to 31.08.2024.
9. It is to be seen that the statutory position under Paragraph 28(1)(ii) is unambiguous. The transfer of "total accumulations" is mandatory. The expression admits of no exception or qualification. The Scheme does not provide that if securities cannot be liquidated due to regulatory action, litigation, or market constraints, the Trust may retain such securities or defer transfer indefinitely. Petitioners' plea that encashment of YES Bank Bonds was not possible due to external circumstances may explain the practical difficulty, but 18 cannot override the statutory mandate. The investment decisions of the Trust and the attendant risks remain matters internal to the Trust and cannot be projected as a defence against compliance with a statutory obligation owed to the EPFO and, more importantly, to the beneficiaries of the Fund.
10. Petitioners have also contended that the adjustment made in favour of Sri J. Nrupender Rao by allotment of bond value was accepted and that there was no specific order rejecting the same. However, once exemption is surrendered, the Trust ceases to be the competent authority to effect settlements outside the statutory framework. Any internal adjustment between the Trust and a member cannot substitute the statutory requirement of transferring the total accumulations to the EPFO. The audit findings dated 27.08.2024 clearly recorded that the said amount remained payable and that the same should be deposited with statutory interest. The Petitioners have not produced material to demonstrate that the audit findings are erroneous or perverse.
11. The contention regarding violation of principles of natural justice has also been considered. The record reveals continuous correspondence between the parties, including the communication dated 09.05.2023 requiring deposit of 100% 19 past accumulations, subsequent clarifications, and the audit process. Petitioners were aware of the statutory requirement and of the shortfall. The action under Section 8-F was not preceded by a fresh adjudication but was founded upon the admitted non-transfer of the entire accumulations. In matters of recovery of admitted statutory dues, the requirement of elaborate prior hearing stands substantially attenuated, particularly where liability flows directly from statute and prior communications. In the present case, it cannot be said that Petitioners were taken by surprise or that there was total absence of notice regarding the deficiency.
12. Section 8-F of the EPF & MP Act, 1952 empowers the authorized officer to recover any amount due from an employer by issuing notice to any bank from whom money is due or may become due to the employer. The provision is a statutory mode of recovery analogous to garnishee proceedings and is intended to secure prompt realization of dues under the Act. Once the Authority forms a reasonable basis that an amount is due under the Act or the Scheme, invocation of Section 8-F is within jurisdiction. In the present case, the liability arises directly from the non-transfer of the entire past accumulations mandated by Paragraph 28(1)(ii), and therefore, 20 the jurisdictional foundation for invoking Section 8-F cannot be faulted.
13. At the same time, this Court is conscious that freezing of operational bank accounts of an industrial establishment employing about 2800 employees has significant repercussions. The EPF Legislation is a beneficial social welfare enactment designed to protect employees. Its enforcement must therefore advance, and not undermine, the larger objective of securing employees' welfare, while statutory compliance cannot be diluted, the manner of enforcement should not be so disproportionate as to cripple the functioning of the establishment, thereby potentially jeopardizing the employment and financial stability of the workforce.
14. The jurisdiction under Article 226 is equitable and discretionary. This Court cannot nullify statutory liability or substitute its view for that of the statutory authority where the action is within jurisdiction and supported by law. However, this Court is empowered to regulate the manner of enforcement to ensure fairness, proportionality and orderly compliance. Petitioners do not dispute the fact of shortfall; their defence rests primarily on practical difficulty in liquidation and alleged communication of the same. In such circumstances, the ends of 21 justice would not be served by either mechanically dismissing the writ petition or by setting aside the recovery proceedings in entirety. A balanced approach that upholds the statutory mandate while granting a reasonable opportunity for compliance would meet the requirements of justice and equity.
15. Therefore, taking into consideration the admitted shortfall of Rs.91,96,927/-, the calculation of total recoverable amount at Rs.1,03,90,483/- inclusive of interest up to 31.08.2024, the amount of Rs.5,35,000/- already recovered, pendency of Appeal under Section 7-1 in respect of damages under Section 14B, and the operational impact on an establishment employing approximately 2800 employees, this Court is of the considered view that structured directions are warranted to ensure compliance within a defined timeframe, failing which the statutory authority shall be at liberty to proceed in accordance with law.
16. In view of the above discussion, this Court holds that,
(i) the obligation under Paragraph 28(1)(ii) of the EPF Scheme, 1952 to transfer total past accumulations upon surrender of exemption is mandatory and absolute;
(ii) Petitioners have not transferred the entire past accumulations within the prescribed period and that an amount 22 of Rs.91,96,927/- remained unpaid, resulting in a quantified recovery of Rs.1,03,90,483/- inclusive of interest upto 31.08.2024;
(iii) The 1st respondent was legally justified in invoking Section 8-F of the EPF & MP Act, 1952 to recover the said dues.
17. However, in exercise of equitable jurisdiction under Article 226 of the Constitution and in order to ensure compliance without disproportionate hardship, the Writ Petition is disposed of with the following directions:
(a) Petitioners shall remit the balance amount of Rs.1,03,90,483/- after giving credit to Rs.5,35,000/- already recovered, together with statutory interest accruing till the date of actual payment, within a period of four weeks from the date of receipt of a copy of this order.
(b) During the said period of four weeks, the impugned prohibitory orders dated 02.09.2024 and 04.09.2024 shall remain in abeyance and Respondent authorities shall permit operation of Petitioners' bank accounts, subject to maintenance of lien to the extent of the outstanding recoverable amount.
(c) Upon full remittance within the stipulated period, the prohibitory orders shall stand lifted and no further coercive steps shall be taken in respect of the said amount.
(d) In the event of default in compliance within the stipulated time, it shall be open to the 1st respondent to revive and proceed with recovery in accordance with law, including by invoking Section 8-F and other permissible modes of recovery.23
(e) It is clarified that adjudication of the Appeal pending before the CGIT in respect of damages levied under Section 14B shall proceed independently and shall not be influenced by any observations made in this order. No costs.
18. Pending miscellaneous applications, if any, shall stand closed.
-------------------------------------
NAGESH BHEEMAPAKA, J 05th March 2026 ksld 24