Contractual employees are also eligible to receive the Social security benefits

Ronita Biswas | National Law University, Orissa | 18th February 2020

M/s. Pawan Hans Limited & Ors. v. Aviation Karamchari Sanghatana (Civil Appeal No. 353 of 2020)

Facts

The Company was incorporated under the Companies Act, 1956 and was registered as a Government of India (GOI) company. The GOI held 51% shareholding in the Appellant-Company and the remaining 49% was held by the ONGC. The Appellant-Company had framed and notified the Pawan Hans Employees Provident Fund Trust Regulation (PF Trust Regulations) for giving provident fund benefits to all of the employees of the said Company. Subsequently, the Company instituted the Pawan Hans Employees Provident Fund Trust (PF Trust), wherein the management started depositing its share with respect to employees on the regular cadre of the Company. The regular employees started depositing the matching contribution with the PF Trust.

The Company had engaged 270 employees on ‘contractual’ basis. The Company had implemented the PF Trust Regulations only with respect to the regular employees, even though the term ‘employee’ had been defined to include ‘any person’ employed ‘directly or indirectly’ under the PF Trust Regulations. Having framed its own PF Trust Regulations, the Company was claiming exemption from the EPF Act and the EPF Scheme under s.16 of the EPF Act. 

The Central Govt. issued a notification, making provisions of the EPF Acct applicable to aircraft or airlines establishments employing 20 or more persons, excluding aircrafts or airlines established, owned or controlled by the Central or State Government. Consequently, amendments were made to the EPF Scheme under s.5 of the EPF Act. The members of the Respondent-Union made several representations to extend the benefit of the PF Trust Regulations since they were directly engaged by the Company on contractual basis (some of them were working for almost 20 years). The Company did not respond to the representations. 

Appeal before SC/HC

Aggrieved by the inaction of the Company, the Respondent-Trade Union filed a writ petition against the Company. The HC held that a liberal view must be taken in extending social security benefits to the contractual employees. The HC directed to enrol all eligible contractual employees under the EPF Scheme and deposit their contributions to the Regional Provident Fund Commissioner. The Company filed an appeal before the SC, challenging the impugned judgement.

Appellant’s contention

The following submissions were made for the Appellant-Company:-

a) The Company was excluded from the applicability of the EPF Act since it neither fell under Schedule I of the EPF Act, nor it is covered by the aforementioned notification. The notification clearly states airline companies “owned or controlled by the Central Government” from the scope of the EPF Act.

b) The EPF Act cannot be made applicable retrospectively. The extension of benefits under the EPF Act to contractual employees irrespective of their status of employment with the Company was wholly illegal and arbitrary.

Respondent’s contention

The counsel on behalf of the Respondent-Union made the following submissions:-

a) The term ‘employee’ as defined in clause 2.5 of the PF Trust Regulations covers all employees, including those engaged on contractual basis, who are in direct or indirect employment of the Company.

b) The Company was not controlled by the Central Government since its affairs were managed and controlled by a Board of Directors. Consequently, the company was obligated to extend the benefits under the EPF Act to all its employees. The denial of statutory benefits and entitlements like PF is ex-facie illegal, arbitrary, discriminatory and in violation of the provisions of the EPF Act and the Constitution of India.

c) The EPF Act is a beneficial piece of legislation, which has to liberally interpreted.

Issues Raised

Whether the Appellant-Company was under a statutory obligation to provide benefit of PF to its contractual employees under the PF Trust Regulations or the EPF Act?

Held

The Court relied on the judgement of Regional Provident Fund Commissioner v. Sanatan Dharam Girls Secondary School (2007 1 SCC 268) wherein the SC laid down a twin test for an establishment to seek exemption from the provisions of the EPF Act, 1952. The twin conditions are:-

1) 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. 

2) The employees of such an establishment should be entitled to the benefit of contributory PF or old age pension in accordance with any scheme or rule framed by the Central or State Government governing such benefits.

If both the tests are satisfied, an establishment can claim exemption under s.16(1)(b) of the EPF Act. In the present case, the Court observed that as per s.2(45) of the Companies Act, 2013, a ‘Government Company’ means any company in which not less than 51% of the paid-up share capital is held by the Central Government. Since, 51% of the shares of the Appellant-Company belonged to the Central Government, the first test was satisfied. The Appellant-Company can be called as a Government Company.

In case of the second test, the Company had restricted the application of the PF Trust Regulation only to ‘regular’ companies. The said regulation was not framed by the Central or State Government, nor were they applicable to all the employees of the Company, so as to satisfy the second test. Consequentially, the exemption under s.16 of the EPF Act would not be applicable to the Appellant-Company.

The Court observed that the Respondent-Union had submitted appointment letters which indicates than they were ‘contractual’ employees even though they were not engaged through any contractor. They were being paid directly by the Company, and were eligible to be included as beneficiaries under the PF Trust Regulations. The Court held that all the members of the Respondent-Union and other similarly situated contractual employees should be granted the benefit of PF under the said Regulations so that there was uniformity in the service condition of all the employees.