ICICI Bank Limited & Anr. vs Regional Provident Fund Commissioner & Anr.

The petitioners have invoked the writ jurisdiction of this Court under Article 226 of the Constitution of India. They are aggrieved by the orders dated 18 July 2018 and 19 December 2018 passed by respondent No.1 under Section 8F of the Employees Provident Funds and Miscellaneous Provisions Act, 1952. They also challenge the notices issued from time to time, particularly the notice dated 28 November 2018, by which the petitioner was wrongly declared as a defaulter under Section 8F(3) (x) of the said Act.

The facts leading to the filing of the present writ petition are thus. From the year 2016, respondent No.2 invested the provident fund contributions of its employees with petitioner No.1 by opening a fixed deposit account which did not permit premature closure. Before making such investment, respondent No.2 was expressly informed by an email dated 1 October 2016 that the fixed deposit would not carry any facility of premature withdrawal.

On 11 April 2018, respondent No.1 issued a letter to respondent No.2 stating that the exemption earlier granted under the said Act stood cancelled. Respondent No.2 was directed to comply with the provisions of the Act as an unexempted establishment with effect from April 2018. Thereafter, on 13 July 2018 and 15 July 2018, respondent No.2 was again informed that as per the agreed terms, no interest would be payable in case of premature closure of the fixed deposit.

In May 2018, respondent No.2 addressed an undated letter to petitioner No.1. In the said letter, respondent No.2 recorded the cancellation of exemption and requested premature withdrawal of the provident fund amounts invested with petitioner No.1. On 18 July 2018, respondent No.1 passed the impugned order under Section 8F of the said Act, directing petitioner No.1 to remit all amounts lying to the credit of respondent No.2. In compliance, petitioner No.1 processed the premature withdrawal of the non callable fixed deposit and, on 21 July 2018, remitted a sum of Rs.37,56,54,983 by demand draft.

Thereafter, correspondence ensued between the petitioners and respondent No.1 on the question whether any accrued interest was payable on a fixed deposit which did not permit premature withdrawal.

On 16 August 2018, respondent No.1 recorded that the details of interest accrued till date had not been furnished and directed petitioner No.1 to remit the accrued interest by demand draft. On 6 September 2018, petitioner No.1 furnished details of interest accrued up to March 2017 and March 2018 along with particulars of tax deducted at source. On the same date, respondent No.1 again called upon petitioner No.1 to pay the accrued interest. Upon refusal by the petitioners, respondent No.1 issued a show cause notice dated 31 October 2018 calling upon petitioner No.1 to explain non compliance with the order dated 18 July 2018 within five days. It was stated that failure to comply would result in the petitioner being treated as a deemed employer in default and further legal action would follow.

On 19 November 2018, petitioner No.1 addressed letters to respondent No.1 clarifying that in cases of premature withdrawal of fixed deposits which do not permit such withdrawal, no interest is payable. It was pointed out that the employer could not claim interest contrary to the agreed terms.

On 28 November 2018, respondent No.1 issued a notice under Section 8F(3)(x) of the said Act and declared the petitioners as defaulters for an amount of Rs.4,34,50,159 along with interest and recovery costs. Being aggrieved thereby, the petitioners have approached this Court by filing the present writ petition challenging the said orders and notices.

Mr. Firoz Bharucha, learned Advocate for the petitioners, drew my attention to the terms and conditions accepted by respondent No.2. He relied upon clause 7, which provides for deduction of tax at source on interest on fixed deposits held by a resident, where the interest paid or payable in a financial year exceeds the limit prescribed under the Income Tax Act, 1961, which at the relevant time was Rs.10,000. He pointed out that the same terms clearly stipulate that the fixed deposit did not carry any facility of premature withdrawal and could not be closed before expiry of its tenure. He submitted that premature withdrawal was permissible only in limited and exceptional situations, such as directions issued by a statutory or regulatory authority or in cases of settlement of claims on death. The terms further make it clear that where premature withdrawal is permitted pursuant to a statutory or regulatory direction, no interest is payable on the principal amount and any interest already accrued or paid till the date of such closure is liable to be recovered from the deposit. He further submitted that the sum of Rs.43,45,017 represents tax deducted at source. He contended that the fixed deposit was issued in accordance with the Reserve Bank of India Master Circular dated 9 July 2014-2015, which authorises petitioner No.1 to prohibit premature withdrawal of term or fixed deposits. He submitted that petitioner No.1 has already transferred the entire amount of Rs.37,56,54,983 to the account of respondent No.2 and that no further amount remains payable by petitioner No.1 on behalf of respondent No.2. Placing reliance on the judgments of the Supreme Court in Rajasthan State Industrial Development and Investment Corporation and another v. Diamond and Gem Development Corporation Limited and another, reported in (2013) 5 SCC 470, and Bank of India and another v. K. Mohandas and others, reported in (2009) 5 SCC 313, he submitted that no party can claim anything beyond what is expressly provided under the contract. He urged that a contract is entered into with full knowledge of its terms and consequences and binds the parties accordingly. He submitted that such a contract must be construed by giving plain and literal meaning to its terms, unless any ambiguity is shown. On this basis, he prayed that the impugned order be set aside.

On the other hand, Shehnaz V Bharucha, learned Advocate appearing for respondent No.1, contended that the petitioners failed to comply with the attachment order issued under Section 8F of the said Act. She submitted that the petitioners did not transfer provident fund dues amounting to Rs.4,34,50,159, which included interest under Section 7Q of the said Act. According to her, these amounts represented provident fund dues, arrears and interest belonging to the employees. Since the said funds were deposited with the petitioner Bank by respondent No.2, who was a defaulter, the petitioners had no authority in law to withhold such provident fund dues. She further relied upon Section 17A of the said scheme, particularly the explanation to sub section (2). She submitted that the explanation makes it clear that provident fund accumulations include interest thereon. It further casts an obligation on the authority in charge of the fund to transfer in cash any balance of interest on investments which remains undistributed on the date of transfer, or which is realised or realisable for the period prior to registration of securities in the name of the Central Board of Trustees, Employees Provident Fund. On these grounds, she prayed that the writ petition be dismissed.

I have considered the rival submissions in the light of the statutory scheme and the undisputed factual background. The controversy lies in a narrow compass. It concerns the obligation of the petitioners, as a Bank holding provident fund investments, to transfer accumulations upon cancellation of exemption, and the extent of such obligation under Clause 28 of the Employees’ Provident Fund Scheme, 1952.

It is not in dispute that respondent No.2 was enjoying exemption under the Act and was maintaining provident fund accumulations of its employees through investments made with petitioner No.1. It is equally undisputed that the exemption stood cancelled by respondent No.1 with effect from April 2018. The moment exemption stood cancelled, Clause 28 of the Scheme became operative. The clause mandates transfer of “accumulations” to the statutory fund within prescribed timelines.

The core issue is the meaning of the expression “accumulations” in the context of a fixed deposit which does not permit premature withdrawal and which expressly excludes payment of interest upon such withdrawal, even when closure is directed by a statutory authority.

For the purpose of deciding issue involved it is necessary to set out Clause 28 of the Employees’ Provident Fund Scheme, 1952 which reads as under :

Clause 28, read as a whole, imposes duties on the authority in charge of the provident fund. It requires such authority to transfer all accumulations standing to the credit of subscribers. Sub clause (2) clarifies that accumulations, howsoever invested, must be transferred in cash. The Explanation states that accumulations include interest thereon and that any undistributed interest on investments must also be transferred. The Explanation, however, does not operate in isolation. It must be read harmoniously with the nature of the investment and the governing contractual terms under which the investment was made. The statute does not create interest by a legal fiction where none accrues in law. It only requires transfer of interest that has accrued, is realised, or is realisable.

In the present case, the fixed deposit was a non callable deposit. This fact is admitted. The terms and conditions, accepted by respondent No.2 with full knowledge, clearly provide that no interest is payable on premature closure, even when such closure is pursuant to a statutory or regulatory direction. The same terms further provide that any interest already accrued or paid till the date of premature closure would stand recovered.

These terms are not shown to be illegal, arbitrary, or contrary to any statutory prohibition. On the contrary, they are consistent with the Reserve Bank of India Master Circular which authorises banks to disallow premature withdrawal of term deposits. Respondent No.2 consciously chose this mode of investment. The consequences of such choice cannot be avoided after exemption is cancelled.

The submission of respondent No.1 proceeds on the assumption that Clause 28 compels payment of interest irrespective of the governing investment terms. Such an interpretation stretches the clause beyond its plain meaning. Clause 28 ensures that employees do not lose what has accrued to them. It does not rewrite contracts or create an entitlement to interest where the investment itself denies accrual upon premature termination.

The reliance placed on Section 17A and its Explanation does not advance the case of respondent No.1. That provision, like Clause 28, includes interest as part of accumulations. It presupposes existence of interest. It does not deem interest to accrue contrary to binding contractual terms. The law protects employees’ dues. It does not penalise a custodian for acting strictly in accordance with agreed terms which were known to the employer at inception.

The petitioners have already transferred the principal amount of Rs.37,56,54,983 within days of the order dated 18 July 2018. This fact is not disputed. The amount of Rs.43,45,017 relates to tax deducted at source on interest which had accrued earlier. There is no material to show that any further interest had accrued or was realisable after cancellation of exemption and before premature closure. In absence of accrual, there is nothing to transfer.

The attachment power under Section 8F is a strong power. It must operate within the confines of law. It enables recovery of amounts “due” from the employer. It cannot be used to compel a third party to pay amounts which are not legally payable under the governing transaction. Declaring the petitioners as deemed defaulters for refusing to pay non existent interest amounts amounts to overreach.

The judgments relied upon by the petitioners correctly state the governing principle. A contract freely entered into binds the parties. Its terms must be given their plain meaning. Courts and authorities cannot add obligations which the contract does not contemplate, unless the statute expressly so provides. No such statutory override is shown here.

Viewed thus, the action of respondent No.1 in insisting upon payment of interest despite clear contractual exclusion, and in declaring the petitioners as defaulters under Section 8F(3)(x), cannot be sustained. Clause 28 of the Scheme requires transfer of accumulations that exist in law. It does not mandate creation of interest by assumption.

The impugned orders and notices proceed on an erroneous understanding of the scope of Clause 28 and the expression “accumulations”. They fail to appreciate the nature of the fixed deposit and the binding terms governing it. The petitioners have complied with their legal obligation. No further liability can be fastened upon them.

Accordingly, the impugned order dated 18 July 2018, the consequential proceedings, and the notice dated 28 November 2018 declaring the petitioners as defaulters are liable to be set aside. The writ petition deserves to be allowed.

Rule is made absolute in terms prayers clauses (b) and (c).

No order as to costs.

At this stage, learned Advocate for respondent No.1 requests for stay of the effect of judgment and order. However, for the reasons stated in the judgment, the request for stay is rejected.

The disputed amount deposited in this Court is permitted to be withdrawn by the petitioners along with accrued interest, if any.