SC Directs Payment of 6% Interest on Delayed Salary Arrears, 12% on EPF Dues for Employees of Defunct Bihar Corporations

"The rationale underlying the award of interest lies in compensating for the deprivation of the use of money lawfully due to a person." Supreme Court, in a judgment dated September 28, 2026, has directed the States of Bihar and Jharkhand to ensure payment of 6% simple interest per annum on delayed salary and wage arrears, and 12% per annum on delayed Employees’ Provident Fund (EPF) dues, to employees of five defunct State-owned corporations.

A bench comprising Justice Vikram Nath and Justice Sandeep Mehta observed that the extraordinary delay in discharging these liabilities, extending over decades, mandates such compensation to prevent the denial of fundamental rights.

The proceedings emanate from the reorganization of the erstwhile State of Bihar under the Bihar Reorganization Act, 2000, which led to the creation of the State of Jharkhand. This re-shaping of state boundaries caused significant administrative failure regarding the discharge of liabilities, dues, and service-related claims of employees belonging to five State-owned corporations, namely, Bihar State Construction Corporation Ltd., Bihar State Industrial Development Corporation Ltd., Bihar State Electronic Development Corporation Ltd., Bihar State Forest Development Corporation Ltd., and Bihar State Panchayati Raj Financial Corporation Ltd.

The primary legal issues before the Court were whether the identification and verification of remaining employees should be closed, the entitlement of daily-wage workers to lump-sum compensation for prolonged wage stagnation, and the determination of appropriate interest rates on the delayed payments of salary, wages, and retiral dues.

Court Rejects Indefinite Verification Process

The Court noted that out of a verified workforce of 2,274 employees, the majority had already received their principal dues. Addressing the remaining 200 cases involving untraceable claimants, the bench held that the State cannot be required to continue the verification exercise indefinitely. Consequently, the court ordered that this phase of the process shall stand closed, while granting the claimants or their legal heirs liberty to approach the designated Nodal Officer within 12 months with requisite documents for processing.

Daily-Wagers Entitled to Additional Compensation

Regarding the daily-wagers, the Court examined the historical flat rate of Rs. 42.50 per day applied for computation. The bench held that such a rate, remaining static over decades despite changes in the cost of living and statutory wage structures, is neither fair nor reasonable. To balance the equities and avoid a further protracted round of verification, the Court directed the States to pay a one-time sum of Rs. 1,00,000 to each of the concerned daily-wage workmen, in addition to amounts already disbursed.

Statutory Interest on EPF Dues

The Court clarified that interest on EPF dues stands on a different footing than salary arrears, being governed by the statutory mandate of Section 7-Q of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Relying on the precedent in Arcot Textile Mills Ltd. v. Regl. Provident Fund Commissioner & Ors., the Court reaffirmed that Section 7-Q provides for 12% simple interest per annum as a statutory consequence of delay. The bench held that this liability arises by operation of law and cannot be defeated on the ground that the underlying liability was subsequently discharged.

Interest as Recompense for Deprivation - Court Emphasizes Nature of Interest

In analyzing the interest on salary arrears where no uniform statutory rate exists, the Court emphasized that interest represents compensation for the unjust deprivation of money. Referring to the Constitution Bench judgment in Central Bank of India v. Ravindra & Ors., the Court noted that a person deprived of the use of money to which they are legitimately entitled has a right to be compensated. The bench ruled that the separate juristic personality of the defunct corporations cannot be used by the welfare States of Bihar and Jharkhand to deprive workmen of dues that have remained unpaid for decades.

Awarding Reasonable Interest

The Court concluded that an award of 6% interest per annum on salary and other non-EPF arrears is a fair and proportionate recompense for the financial prejudice suffered by the employees. This interest is to be computed from the date the amounts became due until the date of actual payment. The Court underscored that these directions are tailored to the peculiar facts of this case and are intended to bring finality to the longstanding litigation, serving as a public-law remedy for the constitutional deprivation of rights under Article 21.

Directions for Transparency

To ensure future transparency, the Court directed the States to compile and publish updated particulars of all employees and the status of their claims in the public domain. This information must be hosted on official websites of the concerned Administrative Departments and updated periodically. The States are required to complete this publication within four weeks, with all payments, including interest, to be disbursed within three months from the date of the order.

Date of Decision: 28 September 2026