New Delhi: The Employees’ Provident Fund Organisation (EPFO) may gain the first right to assets of a company that goes bankrupt, according to an amendment proposed by the labour ministry.

The move comes as the pension fund struggles to recover nearly ₹1,800 crore of its subscribers’ money from companies including crisis-ridden shadow lender Infrastructure Leasing and Financial Services Ltd (IL&FS) and troubled mortgage lender Dewan Housing Finance Corp. Ltd (DHFL).

The proposal says that during recovery or liquidation process, the pension fund money should receive priority over other debts.

“Priority of payment of contribution over other debts: Notwithstanding anything contained in any other law for the time being in force, any amount due under this (EPF) Act shall be the first charge on the assets of the establishment and shall be paid in priority to all other debts," according to the proposal, a copy of which was reviewed by Mint.

The proposal has been circulated for consultations among various stakeholders including the relevant ministries and experts. It will be later forwarded to the cabinet. If approved, the proposal may be tabled in the winter session of Parliament.

There are two categories of firms that may fall under this priority payment to EPFO in case they go bankrupt. The first are those companies where EPFO has invested such as IL&FS and DHFL, while the second are those that owe employees money as part of their EPFO obligations.

The second category of firms has two subgroups—those which collect the EPF contribution from their employees and submit it to the retirement fund manager, and those that collect and keep it in their company trust under the overarching rules of EPFO, two government officials said, requesting anonymity.

EPFO is seeking to recover ₹574 crore from IL&FS and ₹700 crore from DHFL. It is also trying to recover around ₹500 crore from some other companies that have collected but not deposited EPF contributions of their workers for months, said one of the two officials cited earlier. The official did not disclose the names of the other companies.

On 14 August, Mint reported how the retirement fund body was seeking early redemption of about ₹700 crore worth of bonds of DHFL to safeguard workers’ savings.

“Right now, EPFO does not have any structured provision on how it will go for recovery of its dues from a troubled firm. The fresh proposal will make it part of the EPF Act and make detailed notes on ways ahead in case its money is fixed in a bankrupt firm," said the second official cited earlier.

EPFO covers all formal sector establishments employing 20 or more employees.

Every month, an EPF subscriber pays 12% of his or her basic salary as mandatory EPF deductions and a matching contribution is made by the employer. Currently, EPFO has around 60 million active subscribers.

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