Principal Employer Is Liable for Pf of Contractors in Some Cases Like Sarabahi Institute and in Other Cases, Not Liable, All Depending On Factual Situations, How, Why and What of It, Karma Global Takes at Varying Levels of Judgement Peek
Karma Management Global Consulting Solutions Pvt. Ltd. one of the top 5 labour law consulting firms in the country, has recently hit upon yet another significant milestone in the journey of tying up SUNDEEP PURI ASSOCIATES AND ADVOCATE, where both these Firms Have Formally joined hands together to collaborate and create a bigger alliance by up scaling its business on pan India basis and Internationally to give greater reach of its services together, to its hundreds of clients all over.
Sundeep Puri & Associates (SD Puri & Co.) with 55+ years of existence and helmed by Adv. Sundeep Puri & Adv Ravi Paranjpe is one of the largest retainer firms in India specializing in “Employment Laws” advising the Corporate Sector. The Firm boasts of some clients being associated since the last 55+ years and majority since last 30-40 years. They have extensive experience in counselling Foreign MNCs & Indian MNC Clients having multi-locational Factories &/or offices Pan-India on a daily basis on a wide range of “Employment & Labour” issues, keeping in view the cultural diversity of the workforce such as Acquisitions, Mergers, Consolidations, Reductions in work force, Maintaining union free environment by not undermining the principles of collective bargaining & also preserving operational flexibility in unionized settings, providing tailor made models for conflict free, productivity conducive Industrial Environment, as also in respect to Applicability of the various labour laws. They believe in Solution oriented Practical Advice backed by Law.
On the other hand, Karma Management Global Consulting Solutions Pvt. Ltd. since 2004 is backed by 25 years of prior experience since 1979 , operating on pan India basis and Internationally in America and EMEA, helmed by Pratik Vaidya , is a leading giant in payroll management, compliance and governance, human resource services, professional Employment staffing and on boarding, recruitment and talent acquisition, advisory and consultations thereby offering a plethora of services with quick turn-around solutions including in-house flagship AI/ML based tech solutions so as to help organizations of different types and stature to perform better in Human Resource ensuring Risk Management, Compliance and Governance across Environmental, Social and Corporate laws and grow bigger.
So in this regard, besides the business profile of Karma Global relating to labour laws, it will now focus whole time also on legal and para legal issues and matters with the collaboration of Sundeeep Puri & Associates who are already into legal matters such as disputes, litigation, and court cases.
Karma Global Analyses Threadbare On What Grounds It Is Payable and On What Grounds It Is Not Payable ……. As Per Varying Judgements Based On Circumstances
Principal employer is liable to remit EPF dues in respect of labour engaged through contractors either by itself or through concerned contractors who was even having independent EPF Code number. – The Employees Provident Funds and Miscellaneous Provisions Act, 1952
Ansal Housing & Construction Limited vs. Regional Provident Fund Commissioner-Il, Delhi. 2019 (Delhi H.C)
Once default takes place on the part of employer, EPF Authority would be in its power to initiate proceedings under the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, irrespective of any arrear exists or not-exists on the date of notice. If the principal employer does not take objection at the initial stage of enquiry or before the EPF Appellate Tribunal that contractors were having their independent PF Code numbers and deposited the assessed amount partly or fully, without protest or reservation, on his own or under the threat or pressure of EPF Authority, it cannot be accepted at a later stage that he is not liable to deposit EPF dues in respect of employees even engaged through independent contractors. Once the principal employer signs the list of employees engaged through different contractors, he cannot say later on that beneficiaries were not identified. Principal employer and contractors both are liable to maintain registers of employees engaged through contractors.
Employees engaged through contractors are to be treated as employees of the principal employer since as per Section 2 (f) of the Act, an employee, employed by or through contractor in or in connection with work of an establishment, is included within the definition of an ’employee’. To avoid liability of the principal employer regarding EPF dues in respect of employees engaged through different contractors, the principal employer has to maintain and preserve the records, including registration under Contract Labour (Regulation and Abolition) Act, 1970, contract with contractor regarding supply of manpower, to ensure that contractor is having independent PF Code number, maintaining records of employees including complete required personal bio-data of employees so engaged, attendance and payment of wages records, EPF dues paid by the contractors in the accounts of the respective employees, documents including correspondence showing control and supervision of the contractor, preserving the same for a long time since there is no, limitation for the EPF Authority to inspect the records for applicability of the Act, levy QL damages and interest etc., objections, if any, be taken from the initial stage of enquiry at each level of proceedings, particularly before the EPF Appellate Tribunal. any amount if deposited under the pressure of the EPF Authorities be shown as deposited under protest on the concerned challans itself, to keep updated with the changes made by circulars/notifications issued by the EPF Authorities or Central Government, filing Returns etc. in time.
Calcutta Constructions Company versus Regional Provident Fund Commissioner
In Calcutta Constructions Company versus Regional Provident Fund Commissioner and others, 2015, LLR 1023, the Punjab & Haryana High Court has held so long as the code number is not allotted to the contractor, it is the liability of the establishment to pay the provident fund on account of the employees employed by the contractor, and thus in essence, it is the liability of the establishment to pay and not that of the contractor to pay the contributions. Reference has also been made to para 30 of the scheme interalia, stating that the pith and substance of the language of para 30 ex facie reveal that it is the employer who has to make the contribution at the first instance.
This Court also had an occasion to deal with this situation in the judgement in Regional Provident Fund Commissioner versus Ropar Thermal Plant, 2013, LLR 243, where the contractor had not been given the code number. It is till such time till the code number was not allotted, it is the establishment who shall pay.
Letter released by Addl Central PF Commissioner in 2017
Addl. Central P.F. Commissioner (Compliance) has released a letter to all employers and reiterated the important rules again and reminded the Principal Employer their responsibility to deposit the EPF of all employees (including employed through contractor) working Under his organisation. It has been noticed that in many cases, contract employees are not being provided
Social Security benefits under the EPF & MP Act, 1952 which they are entitled to by Contractors engaged by organisations including Government Departments, PSUs, Autonomous Organizations, Financial Organizations etc.
Main Highlights of the letter is an under
1.The Employees’ Provident Fund Organization is entrusted to administer the Act, and in case of default, the Principal Employer is liable to penal action.
2.Principal employer is responsible to pay both the contribution payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor (Para 30(3) of the EPF Schemes)
3“Employees” includes casual, contractual and regular employees.
4.The Principal Employer should ensure that the contractor is registered with EPFO before awarding any contract. After award of the contract, the contractor details should be entered in the EPFO Portal.
5. Payments due to the contractor should be made only after verifying that the statutory PF payments have been made to EPFO. This can be verified either directly from the EPFO Portal or insisting on a payment receipt obtained by the contractor from the EPFO portal while making payment.
6.even if the contractors are having separate PF code number, the overall responsibility of ensuring the compliance under the EPF& MP Act, 1952 for the employees working through the contractors by deposit of dues with the EPFO regularly, rests with the Principal employer.
7 “establishment search option” to verify whether the contractors are regularly depositing Provident Fund contribution in respect of their employees.
What the court has said earlier and what are the settled laws especially in the light of the case of
2022 LLR 1276
KERALA HIGH COURT
Hon’ble Mr. Amit Rawal, J.
WP (C) No. 26789/2022, Dt/- 24-8-2022
Sarabahi Institute of Science and Technology Uriakode, Vellanad
vs.
The Assistant Provident Fund Commissioner, Employees Provident Fund Organization
IMPORTANT POINTS
- Settled law is that if contractor is not registered under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, EPF contributions are to be paid by principal employer in respect of employees engaged through contractor.
- Principal employer is liable to pay EPF contributions unless it is proved that it does not have an effective appropriate control over the payment of salary and other benefits payable to employees.
- If the principal employer fails to place documents on record to prove that it does not have an effective appropriate control over the payment of salary and other benefits payable to employees, it would be liable to remit EPF contributions in respect of employees engaged through contractor.
JUDGMENT
- Amit Rawal, J.–1. Order dated 20.12.2021 of the Appellate Tribunal dismissing the appeal preferred by the petitioner bearing No. 547/2019 against the order dated 15.01.2010, assessing dues of Rs. 4,12,536.65 under section 7A of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter called ‘EPF & MP Act, 1952) has been assailed in the present writ petition.
- Petitioner is a self-financing Engineering College functioning under the Space Engineer’s Welfare Society Limited. This is an establishment covered under the provisions of the Act. Summons under section 7A was received from the respondent for appearance on 03.12.2008, on the basis of the enquiry by the Enforcement Officer wherein it was alleged that there was non-enrolment of 26 employees for the period 04/2006 to 09/2008, eight canteen employees for the period 07/2006 to 09/2008 and of 8 drivers from 07/2007 to 09/2008 and evasion of eight employees for a period of 08/2008 to 09/2008, which entailed into the assessment order dated 15.01.2010.
- Learned counsel appearing on behalf of the petitioner submitted that before passing the order of 2010 as well as at the time of pendency of appeal, they were not provided with the report of the Enforcement Officer. There were so many employees as trainees who have been exempted from the ambit of the Act. The employees of the canteen would not be employees of the petitioner as there is no relationship of employer and employee and in view thereof petitioner was not under obligation to deposit their dues. Drivers were also engaged by the contractors for commutation of the students. In support of the contention, the judgment of Supreme Court rendered in Civil Appeal Nos. 10264-10266 of 2013 titled as Balwant Rai Saluja & Another v. Air India Limited & Others, 2014 LLR 1009.
- I have heard the learned counsel for the petitioner and appraised the paper book and am of the view that there is no force and merit in the submissions.
- Petitioner has not been able to place on record any evidence with regard to the employment of the employees alleged to be working with them under the establishment or indirectly employed by the contractor. It is settled law that if the contractor is not registered under the Employees Provident Fund Act, the contributions are to be paid by the principal employer as per the provisions of section 2(f) of the EPF & MP Act, 1952. The same reads as under:
“(f) “employee” means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of [an establishment], and who gets his wages directly or indirectly from the employer, [and includes any person—
- There is no dispute to the ratio decidendi culled out in the judgment cited above but the matter pertains to regularisation of the services of the employees employed by the contractor in the canteen premises of Air India. Supreme Court found that since Air India did not have an effective appropriate control, payment of the salary could not be granted to the employees. Here the situation is different, in view of definition of section 2(f) employment may be directly or indirectly. The order of the appellate authority does not suffer from any illegality or perversity to form a different opinion than the one arrived at. Writ petition sans merit and accordingly dismissed.
PRINCIPAL EMPLOYER NOT LIABLE FOR P.F. DUES OF CONTRACTOR
Food Corporation of India verus the Provident Fund Commissioner and others
In a landmark judgment Food Corporation of India vs. The Provident Fund Commissioner and others., 1990 LLR 64 the Supreme Court has observed that “it is indeed a large amount for the determination of which the Commissioner has only depended upon the lists furnished by the workers Union. It is no doubt true that the employer and contractors are both liable to maintain registers in respect of the workers employed. But the Corporation seems to have some problems in collating the lists of all workers engaged in depots scattered at different places. It has requested the Commissioner to summon the contractors to produce the respective lists of workers engaged by them. The Commissioner did not summon the Contractors or the lists maintained by them. He has stated that the Corporation has failed to produce the evidence. While allowing the appeal that the powers of the Civil Court under section 7A of the Act to be the determining authority under Provident Fund Act was given by law. This power was given to the Commissioner to decide not abstract questions of law, but only to determine actual concrete differences in payment of contribution and other dues by identifying the workmen. Despite above, the Provident Fund Authorities keep on fastening the liability for the default of the contractors upon the principal employer.
Group 4 Securitas Guarding Ltd. & Another vs. Employees’ Provident Fund Appellate Tribunal & Ors
In Group 4 Securitas Guarding Ltd. & Another vs. Employees’ Provident Fund Appellate Tribunal & Ors., 2012 LLR 22 the Delhi High Court has held that where the contractor, being employer providing services of man-power, is having control over the personnel being supplied by him to the establishments by way of issuance of appointment letters, making payment of wages and other allowances, taking disciplinary actions, effecting their placement, transfer and termination of services, the relationship between such a contractor and the establishment where the man-power is supplied by him would be of ‘principal to principal’ and not that of employer-contractor.
Madurai District Central Co-operative Bank Ltd. vs. Employees’ Provident Fund Organisation
In the Madurai District Central Co-operative Bank Ltd. rep. by its Special Officer vs. Employees’ Provident Fund Organisation, 2012 LLR 702, the Madras High Court has held that when a separate code number was allotted, the employees of the contractor, by no stretch of imagination can be treated to be employees of the principal employer. After hearing the arguments on behalf of the parties (Employees’ Provident Fund Organization as respondent), the Court held as under:
“With respect to the contractors, who are registered with the Provident Fund Department, having independent code number, they are to be treated as ‘independent employer’. The petitioner, therefore, cannot be treated to be ‘principal employer’ for the purposes of those contractors”.
Brakes India Ltd. (Brakes Division), vs. Employees’ Provident Fund Organization
In Brakes India Ltd. (Brakes Division), Sholinghur-631 102, rep. by its Vice-President (Pers. & HRD) vs. Employees’ Provident Fund Organisation, Vellore rep. by its Regional Provident Funds Organization, 2015 LLR 635, the Madras High Court buttressed the same point in holding that the Employees’ Provident Fund Authority is not entitled to recover either Provident Fund contribution or damages from the principal employer in respect of employees engaged through contractors, registered with the PF Department, having independent code number. The Hon’ble Court concluded:
“In the case on hand, the Contractor was allotted with EPF allotment number vide No.TN/VLR/38789/SDC.2013 in the year 2003 itself. As per the ratio laid down in the judgment of this Court, the Contractor viz., Mr. A. Govindaraj should be treated as an independent employer.”
Pradeep Kumar versus Presiding Officer and another
In Pradeep Kumar versus Presiding Officer and another , 2015, LLR 726, the Punjab and Haryana High Court has held that employer – employee relationship , in respect of principal employer , would not exist if the contractor , engaged in supply of man power , is having a valid licence under the Contract Labour (Regulation & Abolition) Act, 1970, records of payment of wages, and attendance show payments made by the contractor, EPF Employee code number allotted to the workman is through the Firm of the Contractor
Conclusion
LIABILITIES OF THE PRINCIPAL EMPLOYER UNDER THE NEW LABOUR CODES
BACKGROUND
The four new Labour Codes introduce a plethora of changes to India’s regulatory framework. Their impact on various domains such as IT/ITes companies, payroll and salaries are bound to happen as and when the rules get implemented.
Like other Codes, the Code on Social Security, 2020 imposes the liability to pay certain benefits such as contributions towards EPF and ESI on the employer. The definition of employer includes contractors; however, certain provisions indicate that principal employers are liable to pay contributions. For example, Section-17 relating to payment of both employer and employee contributions towards EPF specifically allows employers to recover the same from the contractor. The same is observed under Section-31(6) relating to payment and recovery of ESI contribution.
For further clarity on the above, we must await regulations from the relevant authorities. For example, Entry-II under the Fifth Schedule of the Code on Social Security empowers the Provident Fund Scheme to make regulations on the time and manner in which contributions shall be made to the fund by employers. And by, or on behalf of, employees, (whether employed by him directly or by or through a contractor), the contributions which an employee may, if he so desires, make under section 16, and the way such contributions may be recovered.
Changes in the draft Rules may also clarify the way liabilities are shared between a principal employer and a contractor and in this regard, we may have to wait for new developments on this front and for further clarity and / or suggested changes to be taken a note of by the authorities.
Karma Global who have been in the forefront of rendering yeomen services to its hundreds of clients, often make it a point to sound them on the various acts especially on the latest various codes where it has offered a number of suggestions, some of its own and some directly from Industry stalwarts and Associations, Agencies, Chambers, etc.
Karma Global are professionals who have rich experience in their field of over 18 years since its inception in 2004, and the experts in Karma Global have a deeper understanding of the field that they are in, who provide quick and easy solutions to all the challenges faced by its clients of over 10 years. Based on the queries of the clients, it offers expertise, and provide expert opinion, analysis and recommendations to a specific type of clients relating to the industry that they come from, who may be an individual, an organization or a group of people or a small and medium enterprise, or to institutions, Government bodies, Agencies, Associations, etc. to help them improve their business performance or activities that they are into.
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This blog has been collated and compiled by the internal staff of Karma Global with the knowledge and expertise that they possess, for its monthly newsletter Issue 06 of December 2022 and in case of specific or general information or compliance updates for that matter, kindly reach out to the ……….
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