"Deliberate Wage Splitting to Evade Provident Fund Dues Is Illegal": Bombay High Court Restores PF Authority's 7A Order Against Saket College and Centrum Direct

“Statutory contributions must reflect real wages, not artificial salary components designed to defeat the law” —  In a decisive ruling reinforcing the protective spirit of social welfare legislation, the Bombay High Court set aside the order of the Provident Fund Appellate Tribunal that had absolved two employers of their statutory PF liability. Justice Amit Borkar, sitting in civil writ jurisdiction, restored the original Section 7A determination passed by the Provident Fund Authority, holding that the employers had deliberately manipulated salary structures to avoid contributing to the Provident Fund.

The petitions, filed by the Employees’ Provident Fund Organisation (EPFO) through its Assistant Commissioner, challenged the Tribunal’s order dated 19.10.2016, which had quashed a Section 7A determination dated 30.10.2014 imposing ₹2,91,765 as provident fund dues on Saket College of Arts, Commerce and Science and Centrum Direct Ltd.

Justice Borkar emphasized that “PF is not a charity – it is deferred wages earned by the employee,” and courts must be alert to “any creative accounting or artificial wage design” that seeks to undermine the purpose of the EPF Act, 1952.

“Splitting Salary to Keep Basic Pay Low Is a Conscious Device to Evade Law”

The High Court held that the EPFO had rightly found a “uniform and long-standing pattern” in which the employers artificially capped the Basic + Dearness Allowance (D.A.) at ₹6,500, while paying employees higher total wages under various other heads. This manipulation was held to be not a genuine structuring of salary, but an intentional effort to reduce the base on which PF contributions were to be calculated.

Quoting the detailed analysis in the Section 7A order, the Court noted:

“The Authority examined original records, compared real wages with declared Basic plus D.A., and found consistent artificial capping across multiple years and employees. This squarely meets the ‘substance over form’ test recognised by law.”

Rejecting the employer’s defence that the PF liability was inapplicable since basic wages did not cross the ₹6,500 threshold, the Court held that form cannot be allowed to defeat statutory substance. It ruled that any uniform and recurring payment that forms part of normal remuneration is liable for PF contribution, irrespective of how it is labeled in payrolls.

“PF Act Must Be Interpreted to Favour Employees – Not Allow Employers to Escape Through Drafting Tricks”

The Court reminded that the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 is a social welfare statute, and its provisions must be interpreted purposively, not narrowly.

Justice Borkar stated: “Provident fund is deferred wage. The interpretation of the Act must promote its protective purpose. Any practice that seeks to defeat the object of the law, while appearing to comply in form, must be judicially frowned upon.”

The Tribunal, in contrast, had taken what the Court called a “numerical approach” — mechanically observing that declared basic pay was below ₹6,500, and concluding that no contribution was payable. The High Court termed this reasoning superficial and legally untenable, holding that “such an approach completely misses the real point in issue — whether the declared basic wages genuinely reflect the actual remuneration.”

“Artificial Structuring Clearly Proven Through Documentary Records – PF Tribunal Ignored Binding Precedents”

The Court took note of the EPFO's reliance on Form 11, PF challans, professional tax records, Form 16, and salary registers — all official records furnished by the employer. These, when examined together, clearly demonstrated that:

• Basic + D.A. were intentionally held at ₹6,500, year after year,

• While gross salaries steadily increased,

• And the number of employees and wage trends remained constant — exposing a deliberate pattern of evasion.

Referring to Regional Provident Fund Commissioner (II) v. Vivekanand Vidyamandir, (2020) 17 SCC 641, the Court noted that the Supreme Court has settled the law that uniformly paid allowances, forming part of normal remuneration, must be treated as part of basic wages unless they fall under specific statutory exclusions.

“The Tribunal failed to apply binding precedent and ignored the settled law that labels cannot override statutory substance,” observed the High Court

“Liability Cannot Be Escaped Simply Because Employees Left – Evasion Occurred During Service”

On the employer’s argument that PF dues could not be recovered for employees who had already left service, the Court rejected the contention, stating:

“The liability arises from the wage structure itself. It does not disappear merely because the employee has left. The Act casts an obligation to deposit contributions for the period of service, not future employment.”

The Court endorsed the Section 7A Authority’s method of separate tabulation for current and past employees, covering financial years from 2009–10 to 2014–15, with account-wise, employee-wise, and year-wise calculations, showing that ₹2,91,765 was the precise amount evaded through structuring.

Statutory Contribution Cannot Be Outsmarted Through Salary Design

In restoring the 7A determination, Justice Amit Borkar emphasized: “An employer cannot unilaterally design wage structures to defeat a welfare statute. Statutory dues under the Provident Fund Act are payable on real remuneration. Any artificial splitting designed to circumvent this is legally impermissible.”

The Court accordingly allowed the writ petitions, quashed the Tribunal’s order, and restored the PF Authority’s original 7A order dated 30.10.2014.

Date of Decision: 16 December 2025