Legal Opinion regarding Provident Fund account.

Mr. Z


Dear Sir,

RE:     Legal Opinion regarding Provident Fund account.

We refer to your letter dated 22 January 2007 and our opinion no. … ………………..dated January 05, 2004 on the same subject.

In your letter, you have stated that according to your understanding there have been some change in the law regulating investments by Provident Fund since 2004 i.e. Provident Funds can now maintain account with banks.

In these circumstances, you have sought an updated opinion on the investment allowed by Provident Funds


In our previous opinion we stated that, according to section 399(2) of the Companies Act, 1994, where a provident fund has been constituted by a company for its employees, all moneys contributed to such fund whether by the company or by the employees or accruing by way of interest or otherwise to such fund shall be either deposited in a Post Office Saving Bank account or invested in securities mentioned in clauses (a) to (e) of section 20 of the Trusts Act, 1882.

We have reviewed the relevant law and have found that no amendment have been made to section 399(2) of the Companies Act 1994 since the act came into force.  Neither has any amendment been made to clauses (a) to (e) of section 20 of the Trusts Act, 1882 since 2004.

Please be informed that, in our previous opinion, we stated that, for BANK 1 to open term deposit accounts as requested by the customers may not be in accordance with the provisions of law. We gave our opinion in that manner because in our opinion term deposit accounts may be held to be a form of investment and investments could only be made in accordance with clauses (a) to (e) of section 20 of the Trusts Act, 1882.

However, there are no legal restriction restraining Provident Funds from opening and maintaining savings bank account or current account with banks. The operation of a provident fund bank account is allowed, by some or all the trustees, if the instrument of trust provides specifically for such operation or confers general authority on the trustees to delegate their powers to some or one of them.

Before opening a savings/current bank account for any Provident Fund, BANK 1 should ask the trustees to furnish them with a copy of the Deed of Trust of that Provident Fund and BANK 1 should thoroughly acquaint themselves with the provided Deed of Trust. BANK 1 may only open a Provident Fund bank Account if the procedure for opening a bank account mentioned in the Deed of Trust has been complied with by the trustees.

Other than a savings/current bank account, we are still of the opinion that, BANK 1 should not allow any Provident Fund to open any other kind of account with BANK 1.

If you have any further query, please do not hesitate to contact the undersigned.

Thanking you.

Yours faithfully,


For: “The Lawyers & Jurists”