PPF account declared irregular after 12 years: What happens to your interest? High Court ruling explained

The Karnataka High Court ruled that postal authorities could not deny PPF interest after allowing an irregular HUF account to operate for 12 years. The decision highlights the authorities' responsibility for irregularities they permitted.

A Public Provident Fund (PPF) account being declared irregular does not automatically mean that a depositor must forfeit all interest. In a case involving an account opened in the name of a Hindu Undivided Family (HUF), the Karnataka High Court ruled that postal authorities could not deny interest after accepting deposits for 12 years when the irregularity arose from their own failure to follow the rules.

The ruling is relevant to savers whose accounts have been allowed to operate by the authorities before being declared irregular. However, it does not mean that interest must be paid on every irregular PPF account. The outcome depends on the circumstances of the case and the applicable rules.

What happened in the PPF account case?

The Karnataka High Court ruling dated 31 March 2023 in K. Shankarlal v. The Postmaster HSG I, Malleshwaram Post Office and others, Writ Petition No. 2042 of 2023, concerned a depositor who opened a PPF account in the name of his HUF despite a rule change that had discontinued such accounts.

The depositor opened the account on 3 September 2009 through an agent at the Malleswaram Post Office in Bengaluru. He intended to build savings for his daughter's marriage. The PPF Scheme had been amended on 13 May 2005 to discontinue the opening of accounts in the name of HUFs.

Despite the amendment, the postal authorities allowed the account to operate for 12 years. When they subsequently discovered the irregularity, they informed the depositor in September 2021 that the account would be closed without interest.