Can benefits under the Provident Fund Act be extended to workers working on a contractual basis?
Adopting a liberal view in extending social security benefits to contractual employees, the Supreme Court (“SC”), recently, in the matter of M/s Pawan Hans Limited & Ors. (“Appellant-Company / Company”) Vs. Aviation Karmachari Sanghatana & Ors. (“Respondent-Union / Respondents”) [Civil Appeal No. 353 of 2020] has held that contractual employees engaged by the Company, who by any direct or any indirect means draw their wages or salary from the company are entitled to all the benefits of provident fund under the rules and procedures as laid down under the Employee’s Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act).
Facts in brief:
The Appellant-Company is a Government company incorporated under the Companies Act, 1956, having its business in providing helicopter support services to the oil sector for its offshore exploration operations, and charter services for promotion of tourism. The Government of India holds 51% shareholding in the Appellant-Company and the remaining 49% is held by Oil and Natural Gas Company Ltd. (ONGC). Out of a total workforce of 840 employees, 570 employees were engaged on regular basis and the rest 270 were employed on a contractual basis. However, the Appellant-Company drafted its PF Trust Regulations only with respect to employees engaged on regular basis and excluded the contractual working people from this benefit claiming exemption from the applicability of the EPF Act under Section 16 of the EPF Act*.
In the meantime, the Central Government (“CG”) issued a Notification (“Notification”), making the provisions of the EPF Act applicable to aircraft or airlines establishments employing 20 / more persons, excluding aircraft or airlines establishments owned or controlled by the Central or State Government. Alongside, the members of the Respondent filed representations to the Company to extend the benefit of the PF Trust Regulations since they were directly engaged by the Company on contractual basis, some of whom were working for almost 20 years. The Company failed to respond to the representations. The matter was moved to the High Court (“HC”), where the Respondent-Union filed a Writ Petition seeking extension of benefits under the EPF Act. The HC directed the Company to enroll all eligible contractual employees under the EPF Scheme and deposit their contribution with the Regional Provident Fund Commissioner.
Aggrieved, the Appellant-Company filed the present Civil Appeal before the SC.
Arguments by Parties:
The Appellant-Company argued that the Company is excluded from the applicability of the EPF Act, since it is not covered under the provisions of the EPF Act nor is it covered under the Notification issued by the CG, since the Notification excludes airline companies “owned or controlled by the Central Government” from the purview of the EPF Act. The reason being, the Central Government holds 51% of the shareholding in the Appellant-Company, and the Board of Directors of the Company have been appointed by the Ministry of Civil Aviation. The Company is thus an establishment owned and controlled by the Central Government. Even after the EPF Act became applicable to the airlines industry, the Appellant-Company being an establishment owned and controlled by the Central Government, was excluded from the purview of the EPF Act.
The Respondent-Union on the other hand, referred to the definition of ‘employee’ under the PF Trust Regulations, where it covered all employees, including those engaged on contractual basis, who are in the direct or indirect employment of the Company. It was further argued that the members of the Respondent-Union were in direct employment of the Company since they have not been engaged through any contractor. The contractual workers are paid directly as evidenced by the pay slips issued by the Company. Also, the Company is not controlled by the Central Government since its affairs are managed and controlled by a Board of Directors. The Notification specified certain establishments including the airlines industry, other than airlines owned or controlled by the Central or State Government, to be covered under the EPF Act. Consequently, the Company was obligated to extend the benefits under the EPF Act to all its employees.
Considering the arguments placed by both the parties, the SC analyzed the provisions of the EPF Act on the ground of applicability and exemption of the provisions of establishments under the provisions of the EPF Act. The SC also referred to a precedent, i.e., in the case of Regional Provident Fund Commissioner Vs. Sanatan Dharam Girls Secondary School [(2007) 1 SCC (L&S) 167] where, this Court laid down a twin test for an establishment to seek exemption from the provisions of the EPF Act. The twin conditions are:
- The establishment must be either “belonging to” or “under the control of” the Central or the State Government. The phrase “belonging to” would signify “ownership” of the Government, whereas the phrase “under the control of” would imply superintendence, management or authority to direct, restrict or regulate.
- The employees of such an establishment should be entitled to the benefit of contributory provident fund or old age pension in accordance with any scheme or rule framed by the Central Government or the State Government governing such benefits.
On satisfying both the above conditions, an establishment can claim exemption under Section 16(1)(b) of the EPF Act.
Since the Central Government had a 51% ownership in the Company, while the balance 49% was owned by ONGC, a Central Government PSU, the Appellant-Company was termed as a Government Company under the Companies Act, 1956. Therefore, the first test was satisfied. With respect to the second test, it is relevant to note that the Company had its own Scheme i.e., the PF Trust Regulations in force. The PF Trust Regulations of the Company were not framed by the Central or State Government, nor were they applicable to all the employees of the Company.
Therefore, the SC took the view that the Company does not satisfy the second test, since the members of the Respondent-Union and other similarly situated contractual workers were not getting the benefits of contributory provident fund under the PF Trust Regulations framed by the Company, or under any Scheme or any rule framed by the Central Government or the State Government. Consequentially, the exemption under Section16 of EPF Act would not apply to the Appellant-Company.
In view of the above, the SC observed as follows:
- The Company has failed to make out a case of exclusion from the applicability of the provisions of the EPF Act.
- Members of the Respondent-Union have been in continuous employment with the Company for a period of 20 years. They have been receiving wages / salary directly from the Company without the involvement of any contractor since the date of their engagement.
- Further, the work being of a perennial and continuous nature, the employment cannot be termed to be ‘contractual’ in nature.
- Clause 2.5 of the PF Trust Regulations would undoubtedly cover all contractual employees who have been engaged by the Company and draw their wages/salary directly or indirectly from the Company.
- As per Section 2(f) of the EPF Act, the definition of an ‘employee’ is an inclusive definition and is widely worded to include “any person” engaged either directly or indirectly in connection with the work of an establishment and is paid wages.
In view of the above findings, the SC held that the members of the Respondent-Union and all other similarly situated contractual employees, are entitled to the benefit of provident fund under the PF Trust Regulations and /or the EPF Act.
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*Section 16. Act not to apply to certain establishment.
(1)This Act shall not apply-
- a) to any establishment registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State relating to cooperative societies employing less than fifty persons and working without the aid of power; or
(b) to any other establishment belonging to or under the control of the Central Government or a State Government and whose employees are entitled to the benefit of contributory provident fund or old age
pension in accordance with any Scheme or rule framed by the Central Government or the State Government governing such benefits; or
(c) To any other establishment set up under any Central, Provincial or State Act and whose employees are entitled to the benefits of contributory provident fund or old age pension in accordance with any scheme or rule framed under that Act governing such benefits;
(2) If the Central Government is of opinion that having regard to the financial position of any class of establishment or other circumstances of the case, it is necessary or expedient so to do, it may, by notification in the Official Gazette, and subject to such conditions, as may be specified in the notification, exempt, whether prospectively or retrospectively, that class of establishments from the operation of this Act for such period as may be specified in the notification.”
Source: Supreme Court of India
