Can State Avoid Employees’ Dues Because Its Corporations Became Defunct? Supreme Court Protects Workers and Orders Interest on Long-Delayed Payments
Bihar–Jharkhand Reorganisation Leaves State Corporation Employees’ Dues Unpaid for Decades; Supreme Court Orders Interest and Additional ₹1 Lakh for Daily-Wagers
Facts
The proceedings arose from the reorganisation of the erstwhile State of Bihar under the Bihar Reorganisation Act, 2000, which resulted in the creation of Jharkhand. The reorganisation generated disputes concerning apportionment and discharge of liabilities, service dues and other claims of employees/workmen of five State-owned inter-State corporations. BIHAR STATE
The five corporations were:
- Bihar State Construction Corporation Ltd. (BSCCL);
- Bihar State Industrial Development Corporation Ltd. (BSIDC);
- Bihar State Electronic Development Corporation Ltd. (BSEDC);
- Bihar State Forest Development Corporation Ltd. (BSFDC); and
- Bihar State Panchayati Raj Financial Corporation Ltd. (BPRFC). BIHAR STATE
The litigation had continued for years and included the earlier proceedings in Kapila Hingorani v. State of Bihar. Eventually, a Committee chaired by Justice Dinesh Maheshwari (Retd.) examined the outstanding liabilities. BIHAR STATE
By an earlier order dated 29 May 2026, the Supreme Court accepted substantial portions of the Committee’s Final Report dated 30 April 2026. Bihar and Jharkhand subsequently filed compliance affidavits reporting disbursement of principal dues. BIHAR STATE
Out of a verified workforce of 2,274 employees/workmen, 2,074 had been paid, while approximately 200 cases remained unresolved because employees/legal heirs were untraceable or documentation remained incomplete. BIHAR STATE
Three issues had expressly been left open by the Court:
- identification and verification of remaining employees/workmen and legal heirs;
- entitlement of daily-wage workers and legal heirs to compensation or other welfare/monetary relief; and
- entitlement to and appropriate rate of interest on delayed salaries, wages, retiral dues, provident fund and other emoluments. BIHAR STATE
The present judgment finally determined those issues.
Issues
The Supreme Court considered:
- What should happen to dues belonging to employees/workmen or their legal heirs who remained untraceable or unverified despite repeated attempts?
- Whether daily-wage employees were entitled to further monetary relief when their dues had been calculated uniformly at ₹42.50 per day from 1992 onwards, irrespective of later wage changes.
- Whether the daily-wage workers or legal heirs of deceased employees were entitled to lump-sum or welfare compensation.
- Whether employees were entitled to interest on delayed EPF contributions and, if so, from what date and at what rate.
- Whether interest should also be awarded on salary, wages and other monetary dues withheld for decades.
- Whether Bihar and Jharkhand could resist such interest on the ground that the corporations were separate juristic entities and that the States themselves had not deliberately withheld the money.
Petitioners’ Arguments
The employees argued that an entitlement already found payable cannot disappear merely because an employee or legal heir is presently untraceable or has not completed documentation.
They proposed that amounts relating to such persons should be separately earmarked or kept in an escrow/designated corpus so that they could eventually be disbursed once the claimant established identity and completed formalities. BIHAR STATE
Daily-Wage Workers
The petitioners strongly opposed application of the principle of “no work, no pay.”
They argued that the daily-wage workers had not abandoned work. BSCCL had itself ceased functioning, and formal termination orders were issued only in October 2015. Therefore, absence of work was attributable to the Corporation’s non-functioning rather than any unwillingness of the workers to work. BIHAR STATE
They also challenged the use of ₹42.50 per day as a uniform wage rate across decades. According to them, entitlement should reflect the actual period of employment, retirement or cessation of service and statutory wage rates prevailing during the corresponding period. BIHAR STATE
The petitioners invoked Article 21, arguing that decades-long deprivation of legitimate wages implicated the workers’ right to life and dignity and justified monetary compensation in public law. BIHAR STATE
Interest
They sought interest from the date each salary, wage, retiral benefit or provident-fund amount actually became payable, rather than from some later administratively selected date.
For EPF dues, they specifically relied upon the statutory interest requirement under Section 7-Q of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. BIHAR STATE
Respondents’ Arguments
Bihar and Jharkhand submitted that they had already undertaken extensive efforts to trace the remaining employees and legal heirs, including:
- special messengers to last-known addresses;
- registered/speed-post communications;
- coordination with district authorities and labour unions; and
- repeated notices in regional and national newspapers. BIHAR STATE
They argued that the remaining approximately 200 cases could be closed administratively, leaving the claimants free to pursue remedies if they subsequently surfaced. BIHAR STATE
Daily-Wagers
The State of Bihar argued that daily-wage employees had no vested right to subsequent minimum-wage revisions and that calculation at ₹42.50 per day was proper.
An aggregate liability of ₹17.92 crore had been determined for 598 daily-wage employees, and principal dues of 467 had already been disbursed. BIHAR STATE BIHAR STATE
The States opposed lump-sum death compensation because the applicable service rules contained no such entitlement. They also argued that any allegation of death due to starvation would require proof of the actual cause of death. BIHAR STATE
Interest
The States opposed the Committee’s recommendation of 7.5% on salary arrears and 12% on EPF dues, contending that this would impose a substantial burden on the public exchequer.
They argued that the corporations were independent juristic entities, and their liabilities could not automatically be transferred to the States merely because of State ownership or control. BIHAR STATE
Bihar further claimed that payments were made voluntarily on humanitarian grounds rather than in discharge of a legally enforceable State liability. BIHAR STATE
Analysis of the Law
1. Untraceable Employees Do Not Lose Their Underlying Entitlement
The Court accepted that Bihar and Jharkhand had made reasonable and repeated attempts to trace the approximately 200 remaining employees/workmen or their heirs.
It therefore held that the States could not be required to continue the tracing exercise indefinitely. BIHAR STATE
However, administrative closure would not extinguish the underlying monetary entitlement.
The employees or their legal heirs were given 12 months from the date of the judgment to approach the concerned Nodal Officer with the required documents. Upon verification, the amounts found due must be disbursed. BIHAR STATE
2. Daily-Wage Status Does Not Permit Arbitrary Treatment
The Supreme Court made an important observation concerning daily-wage employment.
Although daily-wage workers do not automatically possess the same service rights as regular employees, their status cannot justify arbitrary or inequitable treatment or disregard of services actually rendered. BIHAR STATE
The authorities had calculated dues at ₹42.50 per day from 1992 until retirement, death or cessation of service. On that basis, ₹14.21 crore had already been paid to 467 workers. BIHAR STATE
The Supreme Court held that using ₹42.50 as a fixed wage for several decades was neither fair nor reasonable.
Such an approach unrealistically assumed that the value of labour remained unchanged despite changes in cost of living and statutory wage structures. BIHAR STATE
Yet, because the dispute had already continued for decades, the Court refused to reopen individual wage calculations, which would generate another lengthy round of adjudication.
Instead, to balance equities and achieve finality, it ordered Bihar and Jharkhand to pay an additional one-time amount of ₹1,00,000 to every concerned daily-wage employee/workman. BIHAR STATE
Precedent Analysis
Kapila Hingorani v. State of Bihar
The present litigation formed part of the long-running aftermath of Kapila Hingorani, concerning employees of Bihar’s State-owned corporations who had remained unpaid amid financial collapse and governmental inaction.
The Supreme Court treated those earlier proceedings as part of the litigation history leading to the present final determination of outstanding monetary claims. BIHAR STATE
Arcot Textile Mills Ltd. v. Regional Provident Fund Commissioner
This precedent was important to the Court’s treatment of EPF interest.
The Supreme Court reiterated that provident-fund legislation is beneficial social-welfare legislation and that employers have a statutory obligation to make the required deposits.
Section 7-Q interest compensates employees for delayed payment and secures just and humane conditions of work. BIHAR STATE
The present Court therefore distinguished Section 7-Q interest from discretionary compensation: the liability arises by operation of statute once payment is delayed. BIHAR STATE
Central Bank of India v. Ravindra
The Constitution Bench decision was relied upon to explain the juridical nature of interest.
Interest is not confined to the price paid for borrowing money. It also represents compensation for being deprived of money that should lawfully have been available to the person entitled to it. BIHAR STATE
The Court applied that principle to employees whose salaries and wages had remained unpaid for years or decades.
Court’s Reasoning
EPF: 12% Interest Is a Statutory Consequence
The Court treated provident fund differently from ordinary salary arrears because EPF is a statutory social-security benefit, not merely an ordinary debt. BIHAR STATE
Section 7-Q mandates simple interest at 12% per annum, or such higher rate as may be prescribed, from the date the amount became due until actual payment. BIHAR STATE
Accordingly, where Section 7-Q applied, Bihar and Jharkhand were directed to ensure payment of:
12% simple interest from the date the respective EPF amount became due until the date of actual payment. BIHAR STATE
The Court made clear that subsequent payment of the principal does not wipe out the statutory liability for interest generated by the earlier delay. BIHAR STATE
Salary and Wages: 6% Interest
Salary and other monetary dues stood differently because there was no uniform statutory provision prescribing interest.
Nevertheless, salary, retiral benefits and other emoluments are the employee’s rightful monetary entitlements. Keeping an employee out of that money for years causes real financial prejudice. BIHAR STATE BIHAR STATE
The Court described interest as recompense for being deprived of money which ought to have been available when due. BIHAR STATE
Separate Corporate Personality Did Not Defeat the Workers’ Claims
The Court accepted the general proposition that State-owned corporations possess a juridical personality separate from the State and that their liabilities cannot automatically be imposed upon the government merely because of ownership or control.
But the Court held that this dispute could not be approached purely through corporate personality.
Bihar and Jharkhand were welfare States, and the corporations operated within their exclusive domain. The subsequent failure or closure of State-owned instrumentalities could not render employees’ legitimate entitlements illusory. BIHAR STATE
The Court therefore held that, in the peculiar circumstances, corporate personality could not be invoked to leave workers without lawful dues that had remained unpaid for decades.
At the same time, interest was not to become a punitive levy on the public exchequer. It had to remain reasonable and compensatory. BIHAR STATE
The employees were not responsible for the extraordinary delay. They had been kept out of money lawfully belonging to them for decades through no act or omission of their own. BIHAR STATE
The Court therefore fixed interest on salary, wages and other non-EPF dues at:
6% simple interest per annum from the date each amount became due and payable until actual payment. BIHAR STATE BIHAR STATE
Conclusion
The Supreme Court substantially brought the decades-long dispute concerning employees of the five defunct corporations to a close.
It issued the following principal directions:
- The remaining identification exercise was closed, but untraced/unverified employees or their legal heirs were given 12 months to approach the concerned Nodal Officer and establish their claims. BIHAR STATE
- Bihar and Jharkhand were directed to publish detailed information concerning paid and pending employee claims on official government websites and periodically update it. BIHAR STATE
- Every concerned daily-wage worker was awarded an additional one-time ₹1,00,000. BIHAR STATE
- Delayed EPF dues would carry 12% simple interest per annum.
- Delayed salary, wages and other monetary dues would carry 6% simple interest per annum.
- In both cases, interest runs from the date the respective amount became due and payable until actual payment. BIHAR STATE
The judgment therefore establishes a significant principle: closure or failure of a State-owned corporation does not, in the peculiar circumstances of such prolonged deprivation, permit lawful employee entitlements to disappear; interest compensates the employee for being kept out of money when it was due.
Case Details
Case: Bihar State Ardh Sarkari Arajpati Karamchari Maha Sangh & Ors. v. State of Bihar & Ors.
Court: Supreme Court of India
Case Number: Writ Petition (Civil) No. 932 of 2022
Citation: 2026 INSC 1061 BIHAR STATE
Judge: Justice Sandeep Mehta (judgment authored by Mehta, J.) BIHAR STATE
Result: Bihar and Jharkhand directed to pay ₹1 lakh additional compensation to each concerned daily-wage worker, 12% interest on delayed EPF dues and 6% interest on delayed salary/wages and other monetary dues, besides completing residual claims and public disclosure of their status. BIHAR STATE
