Judgement of 2023 LLR 81 – Eagle Hunters Private Limited (Respondent) Versus Regional Provident Fund Commissioner (Petitioner)
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Judgement of 2023 LLR 81 – Eagle Hunters Private Limited (Respondent) Versus Regional Provident Fund Commissioner (Petitioner)
Some Clarifications with Case Laws Reference Before Analysing the Eagle Hunters Judgement
Applicability of Act to New Employer
Whether the Employees’ Provident Fund and Miscellaneous, Provisions Act be applicable to an establishment, which has since been closed down but started by a new employer?
Not necessary. In one case, a person took on lease a hospital that was closed down two years prior to the lease and started a new, of course, in the same name and style. The earlier hospital was not covered by the Act and there was no allegation that it continued with change in management. It has been held that the new owner will be entitled to infancy protection from the date of starting new hospital
Dr. Jyoce Mammen vs. RPFC 1988 Lab. IC 1111 (Ker HC)
(Ii) Applicability of E.P.F. To Educational Institutions
Is Provident Fund Act applicable to the educational institutions? If so since when?
Yes. The provisions of the E.P.F. and M.P. Act apply to, the educational institutions w.e.f. 1st March, 1982. The Management of D.A.V. College and some other institutions had challenged the notification on 1st March, 1982 about the applicability of the Act to the educational institutions but the Supreme Court dismissed the petitions in 1988.
D.A.V. College and another vs. Regional Provident Fund Commissioner and others, 1988(56) FLR, 513 (Supreme Court)
(Iii) Advantage of Forming a Trust
What are the advantages to the employer and employees when the employer chooses to form a trust for the purpose and applicability of Employees Provident Fund Act?
(a) He has to pay inspection charges wages instead of administrative charges. Of course he has to bear all the expenses of the Trust including its operational staff. Thus the Trust with larger number of employees and higher wages are benefited.
(b) The visits of the Inspector are less frequent.
(c) The employer can bargain with the employees in giving better service conditions.
(d) In case of belated payment, incidence of damages under section 14-B of E.P.F. Act is reduced.
(Iv) Basic Wages for E.P.F.
Can the employer and the employees agree to exclude a particular sum from the purview of basic wages to attract E.P.F. contribution?
Yes. The term ‘basic wages’ is defined in section 2(b) of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 meaning ‘all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of emolument’. It clearly states ‘in accordance’ with the terms of the ‘contract of employment.’ Therefore, if in accordance with the terms of the contract of employment, the parties agree that a particular sum should be excluded, it cannot be held that it should be treated as ‘basic wages’. In one case, terms of settlement entered into between the employer and the workman, a flat ad hoc allowance of Rs. 15 per month was extended to each workman. It was also provided that such allowance shall ‘not be reckoned for purposes of provident fund, bonus, gratuity and E.S.I. etc. Therefore, such ad hoc allowance cannot be treated as falling within the term ‘basic wages’ for the purposes of the Act.
E.I.D. Parry (India) Ltd.vs. Regional Commissioner Employees Provident Fund, 1985 (66) FJR .205 (Madras HC); 1984 LLN 527.
(Vi) Casual Employees and E.P.F.
Whether casual employees will be considered as employees in order 10 count 20 or more than 20 employees 10 attract the applicability of Employees Provident Fund Act to an establishment?
According to, the Scheme of the Act, an employee. In order to, avail the benefit of the scheme of the Act, must be a regular employee ‘of the establishment. The test of regular employment would not be on the nature of business carried on by the establishment and its commercial norms. Unless and until the employees are on the regular employment of the establishment and are willing to’ make their own monthly contribution, it is impossible to conceive that the employer alone ‘can be called upon to make its contribution for those employees who are casual and not in the regular employment.1 In one case, the Allahabad High Court has held that employment of an employee for short duration when the regular employee has gone on leave or fallen sick or incapacitated would not amount to employment as contemplated by section 1 (3)(b) of the Act.2
2.M/s Keens Bar & Restaurant, Meerut vs. The Regional Provident Fund Commissioner, 1992 LLR 906.
(Viii) E.P.F. And Employees Engaged by The Contractor
Are the employees engaged/ employed through the contractor coverable under the Employees Provident Fund and Miscellaneous Provisions Act?
By the amendments to the scheme in 1958 and 1960, the persons employed by or through a contractor in or in connection with an establishment to which the Act applied were brought within the purview of the scheme and principal employer was made responsible for compliance with the provisions of the Act and the scheme in _respect of such employees. The amendments to the scheme were struck down as unconstitutional by the Supreme Court which held insofar as no provision had been made in the scheme for the recovery by the employer of the contributions to be made by him on behalf of contractor’s employees, the amendments operated harshly and unfairly on person, who employed contract labour, and it resulted in discrimination between those who were employed as direct labour. The defect pointed out by the Supreme Court has now been removed by the Amending Act 28 of 1963. Accordingly, contractor’s employees have also become eligible for the provident fund benefits w.e.f. 31.11.1963.
Orissa Cement Ltd. us. Union of India, AIR 1962 SC page 1402; 1962-I LLJ 400.
Gopalan (K) vs. U.O.I. 1973 Lab. IC 287; 40 FJR 546 (Delhi High Court DB).
Goel Textiles industries & another vs. U.O.I. and another. 62 FLR 436 (All. High court DB).
(Ix) EPF Contributions as Arrears of Wages
Whether arrears of wage, paid to the employees by virtue of an award will attract the payment of Employees Provident Fund’s Contributions?
Yes. In one case the Supreme Court has held that the EPF contributions will be payable on the arrears of wages given to the employees on the basis ‘of an award. The facts of the case were that the pay scales of the employees were revised with retrospective effect by an award of Arbitrator and therefore the employees were given arrears of wages w.e.f. April 1, 1980 whereas the Award was given in the year 1985. The Division Bench of Rajasthan High Court has held that provident fund contributions were not payable on the arrears paid to the employees arising out of the award. ‘While setting aside the judgment of the Division Bench of the High Court, the Supreme Court ruled that the expression “basic wages for the time being payable to each of the employees” under section 6 of the Act meant the “basic wages” at the relevant time. When the existing pay scales arc revised with effect from back date then the revised wages posterior to that dale are the ‘back wages’ for the time being payable.
Prantiya Vidyut Mandal Mazdoor Federation etc. etc. vs. Rajasthan State Electricity Board & Drs., etc. etc., 1992 LLR 401; 1993 (I) LLJ 222 (Supreme Court).
(Xxiv) Liability of Principal Employer
Whether the principal employer will be liable for the payment of contribution in regard to the employees engaged by a contractor?
The workers employed through a contractor are the ’employees’ under the E.P.F. Act and the principal employer is responsible for contribution of provident fund in regard to such employees. The employees engaged by the contractor in connection with the work of the principal employer will be employees as defined under the E.P.F. and Miscellaneous Provisions Act.
Malwa Vanaspati and Chemical Co. Ltd. vs. Regional Provident Fund Commissioner, Indore and others, 1976-1 LLN 148 (M.P. HC); 1976 Lab. LJ 299
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 01st DAY OF FEBRUARY, 2022
THE HON’BLE MS. JUSTICE JYOTI MULIMANI
WRIT PETITION NO.43868 OF 2011 (L-PF)
THE REGIONAL PROVIDENT FUND COMMISSIONER…………. PETITIONER
M/S EAGLE HUNTERS PVT. LTD……………………………………RESPONDENT
The facts are stated as under: –
It is stated that the respondent is an establishment covered under the provisions of The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (for short the Act) under code No.KN/19947. The respondent failed to pay Provident Fund contributions on House Rent Allowances payable to its employees. Hence, the petitioner vide order dated 27.10.1999 exercising powers conferred under Section 7A of the Act determined a sum of Rs.41,90,572/- (Rupees Forty One Lakhs Ninety Thousand Five Hundred and Seventy Two only) payable by the respondent for the period from May 1997 to June 1999.
Aggrieved by the action of the petitioner in determining contributions on House Rent Allowances, the respondent questioned the validity of the said order before the EPF Appellate Tribunal in Appeal No.ATA-1(6)/2001. The petitioner entered appearance and filed objections.
The Tribunal after hearing both sides, allowed the appeal on 06.09.2010.
It is stated that respondent vide letter dated 21.02.2011 requested the petitioner for refund of a sum of Rs.20,21,254/-(Rupees Twenty Lakhs Twenty-One Thousand Two Hundred and Fifty-Four only) stated to have been remitted by them in pursuance of the order of the Tribunal and requested to refund the said amount in view of the order dated 06.09.2010.
It is said that the petitioner requested counsel for the appellant to furnish the certified copy of the order and the same was forwarded by letter dated 20.06.2011.
it is averred that the order passed by the Tribunal was not furnished to the petitioner by their counsel. After the receipt of the order, the petitioner took necessary steps to challenge the said order dated 06.09.2010. Hence, there is any delay in filing the writ petition the same is due to the above said bona fide reason and the same is liable to be condoned.
Aggrieved by the order dated 06.09.2010 passed by the EPF Appellate Tribunal in Appeal No.ATA-1(6)/2001, the petitioner has filed this writ petition under Articles 226 and 227 of the Constitution of India.
Smt. B. V. Vidyulatha, learned counsel for petitioner submits that the order of the Tribunal is arbitrary, illegal and contrary to law. The order of the Tribunal is a non-speaking order.
Next, she submitted that the Tribunal has grossly erred in holding that House Rent Allowances are not basic wages and therefore, no contributions can be deducted from the same.
A further submission was made the Apex Court in Bridge Roof and Manipal Academy of General Education cases, has observed that if any allowances are paid to all the employees in pursuance of contract, the same is liable for deduction towards Provident Fund contributions since it forms part of basic wages. However, the Tribunal without considering the said decisions has grossly erred in holding that the House Rent Allowances are not basic wages and therefore, no Provident Fund contributions can be deducted on the same.
Counsel vehemently contended that the House Rent Allowances paid to all employees in pursuance of contract forms part of basic wages. It is also submitted that in the present case, it is not the case of the respondent that the House Rent Allowances are paid in lieu of not providing staff quarters. Once it is paid to all the employees the same becomes basic wages and therefore, determination of Provident Fund contributions on the same is in accordance with law and cannot be called in question.
Lastly, she submitted that the Tribunal has erred in quashing the well-reasoned order passed by the petitioner in exercise of powers conferred on it under Section 7A of the Act. Accordingly, she submitted that the writ petition may be allowed.
The respondent – M/S Eagle Hunters Private Limited, Bangalore is a covered establishment under the purview of The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952. The respondent establishment is engaged in the business of supply of Labours to Industries and establishments and is also called as Contractor. It is a mere name lender who procure labours from open market and supply to the Industries and Establishments. The said Labours / employees are eligible to get minimum wages as applicable to the Industries and establishments to which they are engaged. Taking into consideration of the minimum wages applicable to the concerned, the Principals are paying salary to the labours / employees through the Contractor. The Contractor is required to make payment so received by him from the Principal employer who is affecting payment with reference to wages applicable to the said amount.
In the present, it is significant to note that the Contractor bifurcated the salary actual to basic, HRA, Conveyance etc., The Provident Fund was paid only to the amount showing as Basic.
While addressing argument, learned counsel Smt.Vidyulatha, has drawn the attention of the Court to Section 12 of the Act and contended that Section does not permit the employer to reduce wages.
It is necessary to refer to Section 12 of the Act, which reads as follows:-
“12. Employer not to reduce wages, etc.– No employer in relation to an establishment to which any Scheme or the Insurance Scheme applies shall, by reason only of his liability for the payment of any contribution to the Fund or the Insurance Fund or any charges under this Act or the Scheme or the Insurance Scheme, reduce, whether directly or indirectly, the wages of any employee to whom the Scheme or the Insurance Scheme applies or the total quantum of benefits in the nature of old age pension, gratuity Provident Fund or Life Insurance to which the employee is entitled under the terms of his employment, express or implied.”
In the present case, the Contractor has split the wages.
It is significant to note that as per Section 12 of the Act, the Employer cannot reduce the wages.
The splitting up of the pay by the Employer to its Employees as has been done in the present case is only to avoid payment of contribution to the Provident Fund. It is needless to say that the same has been done to subterfuge to reduce the Provident Fund contribution.
In my considered opinion, the Assistant Provident Fund Commissioner, Karnataka justified in determining the dues payable by the respondent- Establishment.
The Tribunal has failed to appreciate that the splitting up is not permissible under law. I may venture to say that the Tribunal has failed to have regard to relevant considerations and disregarded relevant matters.
In my considered opinion, the order passed by the Tribunal is unsustainable in law.
In the result, the writ petition is allowed. The order dated 06.09.2010 passed by the Tribunal in Appeal No. ATA 1 (6) /2001 at Annexure-‘D’ is quashed.
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