The Employees Provident Fund Organisation (EPFO) has recently issued Guidelines for Initiation of Inquiries under Section 7A (“Guidelines”) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”). Section 7A is the provision under which PF commissioners (who are vested with the powers of a civil court), can initiate an inquiry, by order, to determine (i) the applicability of the EPF Act to an establishment in case of a dispute; and (ii) to determine amounts due from any employer under the EPF Act and its schemes.
The EPFO has recognised that currently, assessing officers are following different yardsticks for initiating inquiries under Section 7A, which often leads to inquiries being initiated for wholly insufficient and untenable grounds, causing general resentment among the employers on one hand and prolonged pendency of inquiries on the other. The Guidelines have been issued to prevent such deleterious effect.
With a view to bring uniformity in the procedure for initiating inquiries under Section 7A, the Guidelines have set out certain important facets, which are to be followed by the PF commissioners and other officials, as summarised below –
Limited grounds for initiation of inquiry
Inquiries should only be initiated for matters coming under the scope of Section 7A i.e., disputes relating to applicability and determination of dues. Therefore, grounds such as non-submission of returns, non-production of records, non-cooperation in inspections, cannot be the basis for initiating inquiry under Section 7A;
Existence of a prima facie case is a must
There has to be a prima facie case, to initiate an inquiry or legal proceeding else such a process would be in the nature of a ‘fishing and roving’ inquiry, which is not permissible under law. Assessing officers will be required to record reasons on file, regarding the existence of a prima facie case, on the basis of evidence available on record, before initiating any inquiry under Section 7A;
Mere complaint not sufficient
A mere complaint in itself will not constitute prima facie evidence and will have to be investigated by an enforcement officer under Section 13(1) of the EPF Act (which deals with inspections) and substantiated on the basis of the admissible evidence gathered during investigation;
Time period of inquiry cannot be arbitrary
The period or duration for which the inquiry is intended to be held, should have a nexus with the evidence of default available on record. Therefore, inquiries initiated for periods beyond 5 (five) years, without any evidence of such prolonged default would be legally untenable;
Reasons for initiation of inquiry to be recorded
Reasons for initiation of an inquiry must be recorded in writing and a copy of all documents forming the basis for such initiation must be supplied to the concerned parties, along with a notice under Section 7A;
Notices should bear a computer generated number
The notice initiating an inquiry should be assigned a computer generated diary number from the Compliance e-Proceedings portal and any notice issued without a case number will be treated as non-existent;
Scope of existing inquiry cannot be extended, new reason requires separate notice
Once an inquiry is initiated for specific reasons and period, its scope cannot be extended beyond the fact-in-issue. For any new reason or period, a separate notice must be issued. The records summoned from the employer, therefore, must have a reasonable linkage with the subject matter of determination and the period. The practice of summoning unrelated records for prolonged period will amount to conducting a ‘fishing and roving’ inquiry.
The Guidelines will provide much needed relief to employers, many of whom are still in the midst of analysing the impact of the Vivekananda Vidyamandir Case , whereby the Hon’ble Supreme Court, in its judgment dated February 28, 2019, has reiterated the principle that emoluments which are universally, necessarily and ordinarily paid to all employees across the board, will form part of ‘basic wages’ for the purpose of PF contribution.
Pursuant to the Vivekananda Vidyamandir Case, there has been a sharp rise in the number of inquiries that have been initiated against employers under Section 7A, quoting the aforesaid Supreme Court case for the determination of amounts due from employers, on account of shortfall in PF contributions made for and on behalf of the employees.
In order to curb such practices, soon after the Supreme Court order, the EPFO issued a notice in August 2019 (“Notice”) to all additional central and regional PF commissioners, whereby it criticised unwarranted `roving’ practices and warned of administrative action in case of any deviation.
The Guidelines supersede the instructions set out in the Notice and deal with some of the typical issues that employers are facing as a result of inquiries under Section 7A.
One of the important aspects of the Guidelines is the reiteration that existence of a prima facie case is a must for initiating an inquiry. It also lays stress on following principles of equity and natural justice (such as seeking only those documents which are directly related to the alleged non-compliance and period of default, recording reasons for initiating an inquiry etc.) This will allay fears of employers, of being prosecuted on arbitrary grounds and give them an opportunity to defend their case in an efficient manner. This will also lead to speedy disposal of matters.
The Guidelines also frowns upon inquiries initiated for periods beyond 5 (five) years, without any evidence. Since there is no limitation period specified for initiation of inquiries under the EPF Act, this provides some clarity on the approach that is likely to be taken by the PF commissioners to determine the time period for which an inquiry will be conducted.
We anticipate that the Guidelines will also have a positive bearing on ongoing inquiries under Section 7A, whereby employers will be able to point out inconsistencies, if any, with the instructions provided under the Guidelines.
In conclusion, these Guidelines have introduced certain checks and balances on the sweeping powers of the authorities under the EPF Act. This will also lead to uniformity in practices across the country, increased transparency and an element of predictability in the inquiry process, which is definitely the need of the hour.
 No C-11/20/76/Misc./2020/CBE/TN/1027 dated February 14, 2020
 Regional Provident Fund Commissioner (II) West Bengal v. Vivekananda Vidyamandir and Others 2019 LLR 339 [Civil Appeal no. 6221 of 2011]
 No.C-I/1(33)2019/ Vivekanand Vidyamandir/717 dated August 28, 2019