Delayed EPF Contribution? Penalty Can't Be Less Than 25 Per Cent Of Arrears, Says Karnataka HC

When an employer deducts money from an employee’s salary towards the Employee's Provident Fund (EPF) and matches it to pay to the Employees’ Provident Fund Organisation (EPFO), the payment must be made by the 15th of every month. Any delayed payment is subject to interest payment and a penalty for the employer. In one of the EPF-related cases recently, the Karnataka High Court clarified the limits up to which a penalty can be reduced on delayed EPF payment.  

The bench comprising Justice D. K. Singh and Justice S. Rachaiah addressed the practice of Tribunals drastically reducing the penalty imposed by EPFO on employers, and held that a penalty is a credible deterrent and needs to remain so.

The EPF conflict became legal when the Assistant Provident Fund Commissioner, Bengaluru, found a delay in EPF contribution payment by M/S. Enchanting Travels, a travel assistance firm. The firm had not paid EPF contributions for its two foreign national workers (Nina Loges and Ms. Gonser Rebecca Anne). Their names were missing from the company's International Worker-1 Returns.

Realising the discrepancy, the EPFO in December 2016, put a penalty of Rs 2,04,440 and an additional penal interest of Rs 1,06,094, making the total payment of Rs 3,10,534, for the period between March 2014 and March 2016, reported LiveLaw. Notably, under Section 14B of the EPF Act, the penalty was originally assessed at Rs 3,28,083.

Arguments

The company challenged the EPFO’s penalty order in 2017 before the Central Government Industrial Tribunal (CGIT). In 2020, the CGIT drastically reduced the penalty from over Rs 3 lakh to a mere Rs 25,000.

Then, the EPFO approached the Karnataka High Court to file a petition against the company. It argued that the tribunal arbitrarily reduced the penalty, ignoring the statutory framework for penalties for delayed payments.  

Court Observation

The High Court noted 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 a default in the payment of any contribution to the Provident Fund.”

It also noted the rates under Para 32A of the Employees’ Provident Fund Scheme, 1952. The Court also referred to a January 2026 judgment, according to which for defaults of more than six months, the penalty cannot be less than 25 per cent of the total arrears, including the interest.

Observing that the arrears in this case were deposited two years after the due date, and thus, the penalty should be 25 per cent of the arrears, including the interest, the court noted that the reduction to Rs 25,000 by CGIT is legally unsustainable.  

Court Judgment

The court calculated that the total arrears and the interest, which comes out to be Rs 3,10,534, applied a mandatory 25 per cent penalty for long-term delay, and assessed the appropriate damage to be Rs 77,633 (Rs 3,10,534*25 per cent). As the company has already paid Rs 25,000, the court directed the company to pay the remaining Rs 52,633 within two weeks. It modified the CGIT order and disposed of the writ petition.