India: Latest Directions By The Employees Provident Fund Department Governing Inspection / Investigation Notices To Establishments

Last Updated: 4 September 2019
Article by Manishii Pathak and Poonam Das


The Hon'ble Supreme Court of India, (the "Supreme Court") in its judgment dated February 28, 20191 (the "Surya Roshni Judgment") had reiterated the aspect pertaining to allowances which should be taken into account for the purpose of determination of 'wages' and payment of provident fund contributions.

It was reconfirmed that where an allowance is universally, necessarily and ordinarily paid to all employees across the board, then such allowances would qualify to be 'basic wages' for the purpose of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (the "EPF Act"). The ruling, however, did not touch upon whether this would apply prospectively or retrospectively.

Since no limitation period is prescribed under the EPF Act, the employees provident fund ("EPF") authorities (citing the Surya Roshni Judgment), had started issuing notices, without any basis or prima facie evidence, to several establishments covered under the EPF Act and started undertaking enquiries and ascertaining liabilities retrospectively.


On August 28, 2019, the EPF department, in view of the pendency of the review petition in the Surya Roshni Judgment, issued a notice (the "Notice") to all Additional Central Provident Fund Commissioner (Zones) and Regional Provident Fund Commissioners (Regional Offices).

In the Notice, the EPF department took cognizance of the fact that pursuant to the Surya Roshni Judgment, the field officers of EPF department had issued inspection notices to employers under the EPF Act inter alia to inspect records for the past 3 (three) to 5 (five) years, examine the wage structures, and ascertain whether any allowance, which was a part of basic wages, had been omitted for the purposes of compliance (under the EPF Act).

The EPF department also acknowledged that there was no justification or reason for such roving inquiries into the wage structure just on the surmise that certain allowances may have been omitted for the purpose of payment of provident fund contributions.

In the Notice, the EPF department has also issued the following directions:

(a) Where such notices by EPF authorities have been issued without any prima facie evidence about bifurcation of the wages, with an intent to avoid EPF liability, they should not be pursued further.

(b) Any such roving inquiries/investigations are impermissible in law and any officer found to be indulging in such enquiry may face administrative action.

(c) All the inspections/investigations will be conducted after prior permission of the appropriate authority, i.e. the Central Analysis Intelligence Unit (CAIU) in accordance with the administrative guidelines. Further, such inspections/investigations will be conducted only in those cases where there is credible basis/evidence to conclude that the employer has prima facie indulged in the illegal practice of splitting the basic wages for avoiding provident fund liability.

(d) Regarding ongoing cases under Section 7A of the EPF Act, the EPF department directed that the assessing officer may assess the dues after taking into consideration the facts of each case.

(e) No coercive action should be taken for recovery of dues till the disposal of the review petition filed by the concerned employers pending before the Hon'ble Supreme Court.


The Notice came as a respite since the officers of the EPF department had initiated inspections/investigations against several establishments, without having any prima facie evidence and raised demands for large amounts in several cases. However, the review petition was dismissed by the Hon'ble Supreme Court on August 28, 2019, i.e., on the same day when the EPF department issued the Notice.

Given that the review petition has been dismissed, the Notice cannot be said to have become totally irrelevant. The relevant directions issued with regard to conducting fresh enquiries should still hold good as the EPF department has categorically mentioned that roving inquiries/investigations stand impermissible in law. However, the direction that no coercive action should be taken for the recovery of dues until disposal of the review petition filed has become infructuous.

Regarding ongoing cases under Section 7A of EPF Act, the Notice does not give any specific relief except that the assessing officer may assess the dues, after taking into consideration the facts of each case. Therefore, establishments that have undergone inspection/investigation would have to pay the ascertained dues.

Given the dismissal of the review petition before the Hon'ble Supreme Court, it is to be seen whether the concerned officials of EPF department will continue to issue similar inspection/investigation notices or the concerned EPF authorities will now adopt a different strategy while issuing a notice and demand for inspection/investigation such that it is not considered to be involved in undertaking a roving enquiry.


1 Surya Roshni Ltd.& Ors. v. State of Madhya Pradesh RPFC and Ors. and other batch appeals, Civil Appeal No. 3965-66 of 2013

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