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Section 119: Investment of funds

The Code on Social Security, 2020 (Act No. 36 of 2020) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter X: Finance and Accounts
Competent Labour Forum
Act No. 36 of 2020
Section 118 All 163 Sections of Code on Social Security, 2020 Section 120

Legal Commentary & Landmark Judgments: Section 119

Section 119 of the Code on Social Security, 2020 regulates the investment of social security funds, imposing strict statutory restrictions that prohibit speculative market exposures and mandate compliance with the prudent investment patterns notified by the Central Government.

  • Statutory Pattern of Investment Compliance: Mandates that all moneys belonging to the funds administered by Social Security Organisations (including EPF, ESIC, and Welfare Funds) shall be invested strictly in accordance with such pattern and subject to such conditions as may be notified by the Central Government from time to time.
  • Absolute Prohibition on Speculative and Unrated Securities: Statutorily prohibits the deployment of worker social security funds in speculative financial instruments, penny stocks, unrated corporate debentures, or high-risk derivatives, enforcing the classic 'Prudent Investor Rule'.
  • Authorized Asset Classes and Allocation Bands: Restricts investments strictly to designated sovereign and investment-grade categories: (a) Government Securities and Treasury Bills; (b) Debt securities issued by Public Financial Institutions and AAA-rated PSUs; (c) Short-term bank deposits with scheduled commercial banks; and (d) Capped allocations to approved Exchange-Traded Funds (ETFs) tracking benchmark indices.
  • Custody, Dematerialization, and Periodic Disclosures: Requires all securities to be held in dematerialized form with the Reserve Bank of India or authorized depository custodians, with monthly reporting of portfolio mark-to-market valuations.
Key Landmark Precedents:
  • Navinchandra Mafatlal v. CIT (1955) 1 SCR 829: The Supreme Court observed that the investment of statutory trust funds must be governed by strict legislative guidelines rather than speculative commercial discretion.
  • Maharashtra State Financial Corporation v. Suvarna Cabs (2004) 5 SCC 568: Affirmed that public statutory authorities are fiduciaries of public money and cannot expose statutory assets to avoidable financial hazards.
  • Regional Provident Fund Commissioner v. Shiv Kumar Joshi (2000) 1 SCC 98: The Supreme Court held that the administration of provident fund investments is an essential statutory duty, and any negligence or violation of investment guidelines constitutes a breach of statutory trust.
Courtroom Practice & Strategic Litigation Guidance:

Investment Committees and Portfolio Managers of EPFO, ESIC, and exempted corporate PF trusts must review their investment allocations monthly to ensure 100% adherence to the Ministry of Finance / Ministry of Labour investment notifications. Never breach the approved sectoral or asset-class caps (e.g., maximum 15% in equity ETFs, minimum 45% in Government securities). Maintain real-time portfolio monitoring to trigger immediate divestment if any corporate debt instrument is downgraded below AA rating.

Section 118 All 163 Sections of Code on Social Security, 2020 Section 120