The Gujarat High Court (Ahmedabad Bench) has held that wrongful withholding of provident fund automatically attracts the liability to pay interest, and this liability cannot be defeated by relying on precedents concerning recovery of dearness allowance or other allowances, as the nature of provident fund is distinct. The municipality, having been the entity at whose instance the provident fund was withheld, must bear the liability to pay interest at 9% per annum for the period during which the 10% provident fund amount or any other provident fund amount was withheld.
The Division Bench comprising Justice N.S. Sanjay Gowda and Justice J. L. Odedra observed that the judgment in LPA 1094/2022, which pertained to the grant of interest on dearness allowance that had been unlawfully recovered, can have no application to the present case. A claim for refund of dearness allowance recovered unlawfully cannot be equated with the withholding of a provident fund, even though the withholding of the provident fund was on the ground that some excess amounts had been paid to the employees.
The Court further observed that it is a mandate of the law that whenever a provident fund is wrongfully withheld, the liability to pay interest would automatically accrue. Since the respondents had admittedly requested the authorities not to disburse the provident fund in full, and this action was found to be improper, it was obvious that the authorities would be liable to pay interest on the provident fund amount that had been withheld.
Briefly, the appellants retired from service in the year 2018. Upon retirement, 10% of their provident fund was withheld by the authorities on the ground that certain sums had been paid to them in excess of their entitlement. The respondent municipality had specifically called upon the Provident Fund authorities to withhold this 10% portion of the provident fund, and accordingly, the same was withheld from the appellants’ dues.
The appellants approached the High Court contending that the withholding of their provident fund was illegal. The Court held that the respondents were not entitled to recover any amount from the provident fund of the appellants. The Court further observed that it was open for the appellants to approach the competent authority by way of a representation in respect of their claim for interest on the withheld amount. Pursuant to this direction, the appellants approached the Regional Commissioner, who rejected the claim for interest on the ground that there was no provision for payment of interest.
