Article (March-2017)


Principal Employer is not responsible for contractors workers PF dues

H.L. Kumar

Designation : -   Advocate, Supreme Court

Organization : -  New Delhi


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Any employer employing 20 or more workers whether eligible for coverage under provident fund or not is required to get itself covered under the Employees Provident Funds & MP Act (hereinafter referred to as EPF Act or Provident Fund Act). While engaging the contractor, a question always arises as to whether the principal employer is liable to pay employees provident fund contributions for the employees/workers of the contractors. Large number of cases are pending and also the Provident Fund Authorities have been invariably holding the principal employer liable for the default of the contractors. The Provident Fund Authorities hold the principal liable for the following reasons:

The definition of an employee under section 2(f) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 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 employed by or through a contractor or in connection with the work of the establishment.

While relying upon the definition of employee under section 2(f) of the Act read with para 30 of the Employees Provident Fund Scheme, the provident fund authorities always insist upon the principal employers to ensure that the contractors as engaged must pay the provident fund contributions and in case of non-payment, the principal employers are held liable. The Provident Fund Act was enacted in 1952 when there was no contractors and if at all any contractor was there, there were only a few having less than 20 employees. Even when the contractor had 20 or more employees, the Provident Fund Authorities did not allot Provident Fund Code number, when applied for since it was not enlisted in the Schedule-I in the Employees Provident Fund Scheme till 22.03.2001. However, neither the definition of employee nor the paragraph 30 of the Employees Provident Fund Scheme has been amended. Needless to reiterate that every enlightened employer those contractors who are covered under the Provident Fund Act and have independent code number. In this context, it is pertinent to mention that the code number to every establishment including contractor is granted by the EPFO by complying with the following amongst other:

1.Application Proforma for Coverage duly complete. (on Company letter head)

2.Copy of Memorandum / Partnership Deed etc., whatever applicable.

3.List of present Employees with salary break-up details and dates of appointment and parentage etc.

4.Chart showing number of employees, month wise from the date of start of business.

5.Chart showing number of employees, month wise, engaged through contractor(s).

6.Date of commencement of business.

7.Copy of first invoice, if any.

8.List of Directors / Partners, i.e., Names, parentage, addresses, etc.

9.Proof of residences of Directors.

10.Identification document of Directors.

11.Particulars of the Bank Account of the Company.

12.One blank cancelled cheque leaf.

13.Pan number of the Company.

14.Pan numbers of Directors/Partners/Proprietor.

15.Proof of ownership / tenancy, etc. of the premises.

16.Board Resolution / Authority.

17. Copy of Aadhar card (though not required immediately, but start obtaining from employees). On allotment of independent code number, a contractor acquires the status of establishment (may it be a Company, firm, society or sole proprietorship) and becomes responsible for deposit of Employees Provident Fund contributions. Besides that administrative charges are paid to the EPFO by such establishments.The establishment of contractor maintains records of employees, submit nomination forms, returns and complies with other formalities like maintenance of inspection book etc. While holding the principal employer liable for the default of the contractor (s) the provident fund authorities overlook the Form 5A under paragraph 36A of the Employees Provident Fund Scheme stipulating that every employer is require to furnish in duplicate to the Regional Commissioner with particulars of all the branches and departments, owners, occupiers, directors, partners, manager or any other person or persons who have the ultimate control over the affairs of the factory or the establishment and also to send intimation of any change of such particulars. It is intriguing as to why a principal employer should be held liable for the default in payment of contributions or delaying the same by the establishment of the contractor. Merely that the term principal employer is not defined in the Employees’Provident Funds & MP Act or the Scheme, but it is matter of common sense and also too well settled that when an employer engages contractor, then that employer is called as ‘principal employer.

The Scheme of the Contract Labour (Regulation & Abolition) Act stipulates that the principal employer will not be supervising the workers of the contractor otherwise the contract labour system will be rendered as sham, ruse and camouflage as held in in Steel Authority of India Ltd. vs National Union Water Front Workers, 2001 LLR 961 (SC).

In Pardeep Kumar vs. 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 and 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.

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 manpower, 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, affecting their placement, transfer, and termination of services, the relationship between such a contractor and the establishment where the manpower is supplied by him would be of principal to principal and not that of employer-contractor.

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 Organisation as respondent), the Court held as under:

With respect to the contractors, who are registered with the Provident Fund Department, having the 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.

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 Organisation, 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.

In Calcutta Constructions Company vs. Regional Provident Fund Commissioner and ors., 2015 LLR 1023 the Punjab & Haryana High Court has held that so long so 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 contribution. Reference has also been made to Para 30 of the Scheme inter alia 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 judgment in Regional Provident Fund Commissioner vs. M/s. Ropar Thermal Plant (GGSTP) PSEBs, 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. In all the above cases before the Supreme Court and High Courts, the Regional Provident Fund Commissioners have been parties to the appeal or the writ petitions and as such the lame excuse of ignorance of the judgments will not be accepted by even a lay man.

Strange are the ways of the Employees Provident Fund Organisation. It shows swiftness in issuing those circulars, which have possibility to be misinterpreted but it becomes slack and lethargic in conveying those decisions, which are succinct and contain no ambiguity. It will, thus, be seen that as and when there is a favourable judgment for the Employees Provident Fund Organisation, the circular or clarification is issued without any loss of time but if the position is otherwise, no such clarifications are circulated. While the circulars are meant to bring about clarity and remove the mist but the EPFO that has been issuing circulars on the drop of the hat to create more confusions among the employers and employees. Mr. Anil Kaushik, Chief Editor of Business Manager has rightly stated: By issuing circulars one after another, they create psychological pressure on employers to be fearful and abide by circulars, be it blatantly against the spirit of judicial verdicts or interpretation of provisions beyond their scope. This mindset of the Organisation need not only to be deprecated but also to be cured and rectified. The Organisation needs to be reoriented, overhauled. There should not be any hesitation in its surgical operation even if some heads roll in the process.