IN THE HIGH COURT OF DELHI AT NEW DELHI
SUBJECT : PROVIDENT FUND
W.P. (C) 508/1982
Reserved on: 3.7.2006
Date of Decision: 04.09.2006
M/s Suppliers, New Delhi
Petitioner
Through : Mr. Suryakant Singhla,
Advocate
versus
Regional Provident Fund Commissioner, New Delhi and Anr.
Respondents
Through: Mr. R.C. Chawla,
Advocate
Judgment
1. This writ petition is directed against the order dated 29.9.81 passed by the Central
Government under section 19A of the Employees Provident Funds and Miscellaneous
Provision Act 1952 as well as quashing the order dated 5.3.81 passed by the Regional
Provident Fund, Commissioner.
2. The facts necessary for disposal of this petition are that petitioner was a partnership
firm having partners Smt. Raj Kumari Bahl and Smt. Sunayana Bahl. The partnership
firm came into existence on 28.2.1973. Prior to this, this firm was being run as a
proprietorship firm by Ram Sahai Bahl. Petitioner was engaged in the business of interior
design, consultants and Manufacturing of wooden furniture. It is stated by petitioner that
firm never employed more than 19 persons. The strength of the employee of the
petitioner varied from 9 to 18 during the years 1974-81. The establishment got closed
with effect from 31.7.81. The petitioner firm was not having enough business of interior
designing, consultancy and manufacturing of wooden furniture to sustain itself, the
petitioner therefore accepted contract work outside its business. The contract was for
manufacturing of T.V cabinets, T.C. back covers, upholstery, sanitary and masonry work.
The petitioner accepted this work during the period May 1976 to September 1976. As a
passing necessity, the petitioner firm engaged some independent contractors who worked
either individually or in association of one or two employees either at the workshop or
site. In May and June 1976 four contractors were employed and in July 1976 five such
contractors were employed. In November 1976 only two contractors remained there.
Thereafter, no contractor was employed by the petitioner. These contractors did not work
exclusively for the petitioner and they worked for other persons also. Documents to this
effect have been annexed with the petition and were also given to the Asstt. Provident
Fund Commissioner. The contractors worked for different persons at the same time.
3. On 4.9.1980 Mr. U.C. Tewari, Inspector, from the squad No.1 from the office of
Central Provident Fund Commissioner, visited the establishment of the petitioner and
subsequently sent a letter dated 27.10.80 to the petitioner asking the petitioner to produce
following records:-
“1. Attendance and wages register from January 1976 to date.
2.Cash Book/ ledger for the year 1969.
3.Copies of the partnership Deed dated 28.1.1972 and January 1969.
4.Photostat copies of the Ist year Income Tax Assessment order.
5.Photostat copies of the local and Central Sales Tax Registration No.”
4. Petitioner produced agency”s attendance and wages record from 1974 to 1979.
Agency”s register of 1980, Cash and ledger book for the year 1969 were offered for
inspection. Partnership deed, Ist year income tax assessment order, Central and local
taxes record were provided. After going through the record U.C. Tewari, Inspector, told
the petitioner that it had not maintained attendance and payment of wages register in
prescribed form, therefore, the same cannot be looked into. On 7.3.1981 petitioner
received a letter dated 5.3.1981 from Mr. S.P. Jain, Provident Fund Commissioner,
alleging that the petitioner establishment satisfied the conditions for applicability of the
Act as on 1.5.76 and directed that petitioner should comply with all the requirements of
the Act and the scheme w.e.f. 1.5.76 provisionally. No reasons were given for arriving at
this conclusion. Since order of the respondent No.1 vitally affected petitioner”s right, the
order should have been a speaking order. However, petitioner made a representation on
20.3.1981 to the Central Government under Section 19-A of the Act and submitted that
basic condition for the applicability of the Act was that the petitioner ought to have
employed 20 or more employees in the preceding year while the petitioner had never
employed more that 18 persons in the establishment. Respondent No.1 did not agree with
the contention of the petitioner and enclosed the report of U.C. Tewari, Inspector, who
visited the petitioner”s site along with its reply. Petitioner then learnt about the report of
the U.C. Tewari, Inspector. It was stated in the report that from May 1976 to November
1976 the petitioner had employed some contractors. Counting contractors and their
employees as part of the establishment, the employees strength exceeded 20 and therefore
petitioner”s
establishment was covered under the Act. After the report of Inspector U.C. Tewari, was
made available to the petitioner, petitioner filed rejoinder and objected to the counting of
the contractors as employees on strength of the petitioner' establishment. The petitioner
specifically submitted that contractors were not on the strength of its establishment.
Contractors were employed casually, as passing necessity. They were not working
exclusively for the petitioner and they should not be counted as employees of the
petitioner. It is also pleaded that the petitioner was not given an opportunity to show that
the contractors or their employees were never part of the establishment of the petitioner
and principles of natural justice were breached.
5. By order dated 29.9.81 legal adviser of the Central Government while rejecting the
petitioner's representation, took the view that the mere fact that a person was working
with more than one employer will not mean that there was no employer- employee
relationship and if an establishment is engaging casual labour as a normal feature, such
person would be counted in the establishment.
6. Petitioner's Counsel argued that the petitioner had engaged contractors only from May
1976 to November 1976 during its entire existence and the employment of these
contractors was not a normal feature of the establishment's business. Jai Prakash, the
contractor, examined by inspector, had stated that he worked as and when needed.
Number of contractors engaged also fluctuated. The contractors were employed only
temporarily to meet the emergent necessity. Reliance has been placed on T.S. Hariharan
case, wherein it was held that only an employee which is employed in the regular course
of the business having close nexus with the business can be considered as employee. It is
further argued that neither the order of Provident Fund Commissioner nor that of Central
Government had considered the casual and temporary nature of employment of the
contractors employed only for a short period by the petitioner and the fact that this was
not the normal feature of the business of establishment.
7. In the counter affidavit the facts about constitution of the firm and the business have
not been denied. However, it has been denied that the employees strength of the
petitioner”s firm varied between 9 to 18. It was submitted that employees strength was
more than 20. It was denied that the contractors were engaged by the petitioner as a
passing necessity. However, it was submitted that contractors and their associates were
covered by the definition of employee under section 2 (f) of the Act. It was denied that
respondent was not given an opportunity to present its case. The order of the Central
Government and the Additional Provident Fund Commissioner were justified and correct.
8. The counsel for the petitioner has made out detailed submissions on following points:-
1.The principles of natural justice were not followed by the Provident Fund
Commissioner. Petitioner was not given opportunity to present his case and only an
inspector called some records which were produced.
2.the authority did not consider the applicability of the Act. The order of the Central
Government suffers from inherent defects as it was solely based on the report of the
Inspector.
3.even on merits the petitioner would not come under the purview of the Act as there was
no employer employee relationship between the petitioner and the contractors.
9. The Counsel for the respondent on the other hand submitted that petitioner had
employed contractors who used to work with two to three helpers. It is now well settled
that the employees of the contractor were to be considered as employees of the petitioner/
employer for whom the contractors work. Therefore, there was no illegality in the order
of the Central Government or in the order of Provident Fund Commissioner. Even as per
the definition of the employee under section 2 (f) of the Act person employed through
Contractor were included. I have heard learned counsel for the parties and perused the
record.
.
10. It is apparent from the letter dated 5.3.81 written by the Provident Fund
Commissioner to the petitioner that the petitioner firm was brought under the purview of
the Provident fund without any proceeding under section 7A of the Act merely on the
basis of the report of Mr. U.C. Tewari, Inspector. The very first line of the letter shows
that this order of applicability of Employees Provident Fund and Miscellaneous Provision
Act 1952, was passed on the basis of information available with the Regional Provident
Fund Commissioner which in turn was provided by its inspector. No show cause notice
was given to the petitioner to represent its case under section 7A of the Act. The Regional
Provident Fund Commissioner on the basis of the report submitted by U.C. Tewari,
Inspector, decided to cover the establishment of the petitioner under so, the Act and the
petitioner was directed to deposit P.F. contribution separately under the provisions of
Employees' Provident Fund, 1952 and Family Employees' Pension Scheme, 1971 at the
prescribed rates w.e.f. 1.5.76. No calculation of the amount was done by the Regional
Provident Fund Commissioner. Regional Provident Fund Commissioner himself had not
conducted proceedings under Section 7A of the Act either to determine applicability of
act or the dues payable under the Act. Against this letter, the petitioner moved Central
Government under Section 19-A. On behalf of the Central Government legal adviser,
passed the impugned order. Even in the order of the Legal Adviser the basis of bringing
the petitioner firm into fold of EPF Act is the report of U.C. Tewari, Inspector, squad
from the office of the Regional Provident Fund Commissioner, who visited the premises
on 4.9.1980. The order shows that petitioner had paid an amount of Rs.600/- to one Ram
Babu Sharma, Rs. 1400/- to Sunder Singh, Rs. 400/- to Sarvan Kumar and Rs. 1105/- to
Jai Prakash, contractors out of manufacturing account between June 1976 to November
1976. In June 1976 four contractors were paid total sum of Rs.1815/- and in July five
contractors were paid an amount of Rs.2380/-. In August 1976 these five contractors
were paid an amount of Rs.3410/-. Since petitioner had contended that these contractors
either used to work independently or with their labour ranging from two to three,
therefore, the inspector and authority increased employees strength of the establishment
by 10-15 persons.
11. As far as determination under section 7A of the Act is concerned, the provision
comprises of two parts; i) authority has to decide whether the Act applies to the
establishment concerned and ii) authority has to determine amount due from the
employer. For this purpose the authority has to make such enquiry as deemed necessary.
A bare reading of sub-section (2) of
section 7A of the Act shows that officer conducting enquiry has to decide the issue as if
he was trying a suit as a civil court with powers under the Code of Civil Procedure. The
inquiry is in the nature of a quasi judicial proceedings. Sub- section 3 provides that no
order shall be made under sub-section (1) unless employer concerned is given a
reasonable opportunity of representing his case. This provision also empowers the officer
to compel the attendance of the persons concerned to ensure a fair and proper enquiry to
decide the applicability of the Act or determination of the amount due from the employer.
It is apparent that no order can be passed under section 7A without conducting a full
fledged inquiry following the procedure laid down and the officer determining the
question has to determine both coverability as well as amount payable. In the present case
U.C. Tewari, Inspector, visited the factory some time in 1980 and all records were called.
After checking the records from 1969-80 it was found that only between the months of
May 1976 to November 1976 some contractors were engaged for additional work which
the establishment had secured for making T.V cabinets and covers. Additional Provident
Fund Commissioner on the basis of engaging contractors during this period, brought
petitioner establishment under the cover of Provident Fund Act. Strangely the Assistant
Provident Fund Commissioner had not conducted any inquiry to find out the names,
addresses, salary and period of work of those workers for whose benefit the establishment
was being covered under the Act.
12. Supreme Court in FCI Vs. Provident Fund Commissioner and Ors- 1990 (1) SCC 68
held that the Commissioner while conducting an inquiry under 7A of the Act has the
same powers as are vested in a Court trying a suit under CPC. This power under section
7A given to the Commissioner is 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. The Commissioner should exercise all his powers to collect all
evidence and collate all material before coming to proper conclusion. This is the legal
duty of the Commissioner.
13. Though the employer and the contractors, both were liable to maintain registers in
respect of workers employed but the issue is not whether the registers were maintained or
not. The issue is whether the Commissioner, a statutory authority, has exercised powers
vested in him to collect the relevant evidence before determining the convertibility of the
petitioner under the said Act. In my view Commissioner has failed to exercise his
jurisdiction conferred under section 7A of the Act before determining the question
whether the petitioner was covered under the Provident Fund or not. He failed to consider
even the fact that during the entire existence of the firm from 1969 to 1981, the
contractors were employed only for a period of seven months, for additional work which
the establishment had got. These contractors were not providing labour to the petitioner
but they were doing job work of producing T.V. cabinets on contract basis.
14. These facts were in the notice of the Commissioner since petitioner had produced all
documents and accounts but the Asstt. Commissioner instead of conducting an inquiry,
decided of bringing the establishment in the fold of the Act, only because an inspector
functioning under the Act had furnished information to him in a report about engaging
contractors. The order was passed in a mechanical manner.
15. The order passed by the Regional Provident Fund dated 5.3.1981 shows that there
was no independent determination under section 7A of the Act. It is a cyclo-styled order
where some blanks have been filled. No inquiry as contemplated under section 7A of the
Act, had preceded. The contractors were not called upon to furnish the name of the
helpers which were employed by them, the wages paid to them and the period for which
wages had been paid. No determination of dues was done or explained. I have no
hesitation in holding that the illegality of the order was apparent on the face of it.
16. Considering the case on merits, even if it is considered that during the functioning of
the establishment from 1969-80, the inspector visited the premises in 1980 and found
some payments were made to four/five contractors in the year 1976, can it be said that
there were 20 or more persons employed in the establishment of the petitioner.
Employment of requisite number of persons in establishment must be 20 or more to
attract the Act and this employment should be normal regular requirement of the
establishment reflecting its financial capacity and stability. I consider that the number of
persons employed by an establishment for the purpose of this Act has to be determined
by taking into consideration the general requirements of the establishment for its regular
work which reflects its general financial capacity and stability. Where an establishment
regularly employs for its business 20 or more number of persons for a major part of the
year, merely because the employment of the required number does not extend to one full
year, it cannot be said that the establishment was excluded from the application of the
Act. However, where in an establishment, a few extra persons are employed on account
of some exigency, for a short period necessitated by abnormal contingency which is not
regular feature of the business of the establishment, once in a span of eleven years, it can
reasonably be concluded that the establishment does not have financial capability and
stability to bear the burden towards Provident Fund under the Act. The word
'employment' must be construed as employment in the regular course of business of the
establishment, obviously, such employment would not include employment of a few
persons for short period on account of some passing necessity. This view gains support
from Tiptop Dry Cleaners and Dyers Vs. UOI “ 1975 Labour Lab IC 674; Kumar Brother
(Bidi) P. Ltd. Vs. R.P.F.Commissioner 1968 Lab. IC 1578. Madras and Mysore High
Courts had also taken the view that if an establishment had 20 or more persons in a single
day in a year that would not be sufficient for the purpose of determining the number of
persons employed as contemplated under section 1(3) of the Act and attracting the
provisions of the Act (Ramanujam Press Vs. Regional Provident Fund- AIR 1970
MADRAS 224; East India Industries (Madras) P. Ltd. Vs. Regional Provident Fund
Madras AIR (1964) Madras 371). However, the matter has been sufficiently clarified by
Supreme Court in the case of Regional Provident Fund Vs. T.S. Hariharan AIR 1971 SC
1519 wherein Supreme Court has observed “the employment of requisite number of
persons must be dictated by normal regular requirement of the establishment reflecting its
financial capacity and stability. It, therefore, follows from this that the number of persons
to be considered to have been employed by an establishment for the purpose of this Act
has to be determined by taking into account the general requirement of the establishment
for its regular work which also have a commercial nexus with its general financial
capacity and stability.
17. While making representation before Central Government against the order of
Provident Fund Commissioner, petitioner had clearly brought out the facts showing the
general business of the petitioner and the fact that the four contractors were employed
only from May 1976 to November 1976 and also the fact that the establishment was
closed down in June 1981. All these facts were not considered by the Central
Government while passing order dated 29.9.1981 Another aspect which was not
considered by Commissioner or by the Central Government was that section 2 (f) covers
only those employees which are employed by or through a contractor in, or in connection
with, the work of the establishment. It postulates that such persons (employees) must be
employed by or through a contractor as “ contract labour”. The contractor for purposes of
Sec. 2 (f) is purely a labour contractor and not an independent contractor who contracts to
deliver “ finished product” to the establishment. A Division Bench of the Andhra Pradesh
High Court in Karachi Bakery Vs. Regional Provident Fund Commissioner 1999 (III)
LLJ (Supp) 151 observed:-
“ The view of the Provident Funds Commissioner was that if the appellant was having 6
regular and 5 part-time employees (in all 11), and if the appellant had entered into
contracts with Devandas Bakery and Ram Bakery for supplying certain bakery products
to the appellant, the employees of the said two firms- who are 18 in number- should be
treated as employees of the appellant-firm inasmuch as the said contracts are in
connection with the business of the said firm and fell within Sec. 2 (f) of the Act. At the
relevant time, the Act was applicable to establishments having twenty or more
employees.”
The High Court disagreed with the view of the Provident Fund Commissioner.
18. There can be three category of contract employees (i) those who are engaged directly
by an establishment (ii) those who are employed through the agency of a contractor, the
said contractor being purely labour contractor who contracts to bring the labour, to be
engaged by or on behalf of the employer, in such a case, the contractors brings a
relationship of master and the servant between employer and the employee brought by
him (iii) Those labour who are engaged by a contractor who is not an ordinarily labour
contractor but is an independent contractor himself is the master for the of employees he
engages. In Chintaman Rao Vs. State of M.P. 1958 (11) LLJ 252, the Supreme Court had
held that where the contractor known as sattedar with whom manufacturing contract for
supply of bidis were recorded as independent contract and therefore the kulis employed
by the sattedar could not be treated as employee of the manufacturer for the purpose of
factory Act. This distinction
between the labour employed by the manufacturing and employed by independent
contractor was also brought out in Orissa Cement Ltd. Vs. UOI 1962 (1) LLJ 400 and
D.C. Dewan Mohideen Sahib and Sons Vs. Union of UB Workers (1964) 2 LLJ 633. The
law as laid down by Supreme Court took a major shift in Silver Jublee Tailoring House
Vs. Chief Inspector of Shops and Establishment Hyderabad 1973 (2) LLJ 495, wherein
Mathew J. had reviewed the entire law and pointed out that test of “control” was not an
exclusive test and there can be no magic formula for all cases and the court must perform
a balancing operation weighing up factors which point in one direction and balancing
them against those pointing in an opposite direction. The control test is not decisive. The
degree of control would be different in different cases. The Supreme Court in Mangalore
Ganesh Beedi Works and others Vs. UOI 1974 (1) LLJ 367, observed as under:-
“ 19. The relationship between the proprietor, middlemen and out workers came up for
consideration in this Court in Chintaman Rao and another Vs. The State of Madhya
Pradesh( 1958-II LLJ 252): (1958) SCR 1340. The proprietor of a beedi factory was
prosecuted under the Factories Act for non-compliance with the provisions of that Act.
The proprietor pleaded that the workers were not under his employment. The contention
was that the sattedars who were found in the factory were independent contractors and
not workers. The management issued tobacco and sometimes beedi leaves to sattedars
who manufactured beedis in their own factories or by an arrangement with a third party.
The sattedars collected the beedis thus made and supplied to the factories for a
consideration. It was held that the sattedars were independent contractors and not the
agents. The enforcement of factory and labour legislation could be rendered impossible
by adopting the simple device of disintegrating what normally will be a factory.
20. The Legislature wanted to regulate the contract system. The legislation did not want
to stop the contract system. The provisions in the Act recognized the contractor as a part
and parcel of the beedi industry. The contractor is referred to where the terms “ contract
labour” or “ principal employer” or “ employer” have been defined. Several functions
which the employer has to perform are also performed by the contractor. He delivers
tobacco and leaves to the home worker and collects the rolled beedis after application of
chhat. He makes payment to them. therefore, the contractor has been retained as an
integral part though the attempt is to eliminate the vices which crept into the industry.
37.Therefore, the manufacturers or trade mark holders have liability in respect of workers
who are directly employed by them or who are employed by them through contractors.
Workers at the industrial premises do not present any problem. the manufacturer or trade
mark holder will observe all the provisions of the Act by reason of employing such
labour in the industrial premises. When the manufacturer engages labour through the
contractor the labour is engaged on behalf of the manufacturer, and the latter has,
therefore, liability to such contractor labour (sic). It is only when the contractor engages
labour for or on his own behalf and supplies the finished product to the manufacturer that
he will be the principal employer in relation to such labour and the manufacturer will not
be responsible for implementing the provisions of the Act with regard to such labour
employed by the contractor. If the right of rejection rests with the manufacturer or trade
mark holder, in such a case the contractor who will prepare beedis through the contract
labour will find it difficult to establish that he is the independent contractor. If it is a
genuine sale transaction by the contractor to the manufacturer or trade mark holder it will
point in the direction of an independent contractor.
45. In the present case, it is not material to find out as to who can be called an
independent contractor. It can be said that independent contractors are those who employ
labour for and on behalf of themselves in so far as the present Act is concerned. The only
scope for inquiry is whether a person has employed labour for and on his own behalf. If
the answer be in the affirmative then such a contractor would be principal employer
within the meaning of S. 2 (g) (a).
46. It appears that the principal employer or the employer, as the case may be, is liable on
the ground that the labour is employed for and on behalf of the principal employer or the
employer. In relation to contract labour the principal employer is the person for whom or
on whose behalf any contract labour is engaged in any establishment. An employer in
relation to other labour is the person who has the ultimate control over the affairs of any
establishment or has a substantial interest in the control of the affairs of any
establishment as defined in S. 2 (g) (b) of the Act. There is no vicarious liability in the
case of the principal employer. The act does not define an independent contractor. The
act does not prevent an independent contractor from being the principal employer in
relation to contract labour. It will be a question of fact in each case as to who is the
person for whom or on whose behalf contract labour is engaged. If such a contractor who
is referred as an independent contractor employees labour for himself the liability will
attached to him as the principal employer and not to the manufacturer or trade mark
holder. There is no restriction on the right of the manufacturer or the trade mark holder
to carry on business. They are liable under the act for contract labour employed for or on
behalf of them.
19. From the aforesaid observation of the Supreme Court, it is clear that unless there is
material that the labour engaged by the contractors is engaged for the private employer it
cannot be said that they are labour through a contractor within section 2(f) of the Act. In
the present case contractors were employed for manufacturing T.V cabinets/ covers etc
and the payment as stated above was made to the contractors depending upon the product
supplied by them. It is the contractor who took help of the others in executing the work.
The petitioner had no dealing with the helpers neither petitioner knew whether they were
skilled or unskilled and on what terms and conditions they were working with the
contractor. Neither any inquiry was conducted by the Provident Fund Commissioner to
bring out the distinction whether the contractor employed had merely brought labour for
and on behalf of employer or they were contractor who employed their own labour for
manufacturing and delivering a furnished product i.e T.V. cabinets/ covers etc.
20. The learned counsel for the respondent has relied upon a judgment delivered in writ
petition No. 165/78 by this Court on 15.4.2004 titled M/s Auto Crat Tours Vs. Regional
Provident Fund Commissioner . In this case the petitioner was carrying transport
business. He had a fleet of cars and utilized the services of the drivers. He contended that
strength of his employees was less than 20. The petitioner was maintaining two registers.
One for the regular drivers and other of the casual drivers and he took the stand that he
was taking services of the casual drivers only when regular drivers were not available or
were on leave or there was increase in the work due to tourist seasons. This Court has
turned down the plea of the petitioner on the ground that the casual drivers were engaged
in the establishment in the regular course of business and they are to be considered the
employees of the establishment. The facts of the case are altogether different from the
present case. In the present case no casual workers were employed by the petitioner. In
fact from 1969-1980 petitioner had employed contractors only between May 1976 to
November 1976. I therefore, consider that neither the contractors nor the helpers of the
contractors engaged by them for the work could not be termed as employees of the
petitioner and could not be counted on the strength of establishment.
21. In the result, this petition is allowed and the order of the RPF Commissioner dated
5.3.1981 and order dated 29.9.1981 of the Central Government are hereby set aside.
Sd./-
SHIV
NARAYAN
DHINGRA, J.
