Nominee vs legal heirs: Who will have an upper hand in EPFO fund distribution?

The Employees' Provident Fund Organization (EPFO) is a retiral body which provides retiral benefits like provident fund, employee pension or family pension to the dependents of the employee in case of death. The Employees’ Provident Fund scheme provides that the employer is required to deduct 12% of the aggregate basic wages & dearness allowance and contribute a matching amount. EPFO declares the annual interest on the provident fund accumulations. Employees can withdraw the provident fund accumulations at the time of superannuation.

Employees at the time of taking membership of the EPF or EPS Scheme are required to provide nomination details to the employer and after verification, the employer shall submit the same to EPFO.

In the event of the death of the member, the amount standing to his credit becomes payable to the nominee(s). Here are five legal challenges/issues:

Where a nomination not provided by the member or nominee has no title?

In the event of death, where no person is declared as nominee or the person declared as nominee has no title, the accumulations standing to the credit of the member shall be paid to the legal heirs of the member in accordance with the applicable succession laws.

In Anonio Joao Fernandes V. Assistant Provident Fund Commissioner (2010) 127 FLR 849 (Bom), the Bombay High Court held that a person entitled to succeed as a legal heir under the law of succession shall be entitled to the entire amount of provident fund of the deceased.

Where nomination relates only to part of the amount standing to the credit of the member?

In case the member declares nomination only in respect of certain part of the total provident fund accumulations, the amount to which nomination does not relate shall be paid to the members of the family in equal shares.

Who is entitled to a family pension in the event of the death of the member?

According to the Employee Pension Scheme, family comprises of wife, in case of male member; husband in case of female member and sons and daughters of the family including the ones legally adopted by the member. The members of the family only shall be entitled to family pension.

How is nomination by a person not having family is done?

If the member at the time of making the nomination has no family, nomination may be given in favour of any person. Subsequently, if the member acquires a family previous nomination shall be invalid and the member shall make a fresh nomination in favour of one or more persons belonging to his/her family.

What happens in the case of multiple nominations?

The EPFO will consider the latest nomination submitted by the member. No limit is prescribed under the Act with respect to the number of nominees. The member in his nomination has the flexibility to state the distribution of the amount amongst the nominees.

The rights of nominees versus the rights of the successor have been settled by the Hon’ble Supreme Court recently in the case of Shakti Yezdani v. Jayanand Jayant Salgaonkar (2023 INSC 1076), wherein it was held that even if a nomination has been made, succession laws shall take precedence over the nomination process under the Companies Act. Though the decision was rendered in the context of the Companies Act, it does have relevance for other general nominations including EPF nominations.

Noorul Hassan, Partner at Lakshmikumaran & Sridharan Attorneys