Supreme Court clarifies definition of “Excluded Employee” under Employees’ Provident Funds Act: Modern Transportation vs. EPFO (26 March 2019)

Date of the Judgment: 26 March 2019
Citation: 2019 INSC 293
Judges: Abhay Manohar Sapre, J. and Dinesh Maheshwari, J.
Can retired employees who have withdrawn their full provident fund benefits from their previous employer be considered “excluded employees” when re-employed by a new company? The Supreme Court of India addressed this question in a case concerning the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The core issue was whether retired railway employees, who had received all their retirement benefits, including their full provident fund, should be exempt from joining the Employees’ Provident Fund Scheme, 1952 when re-employed. The judgment was delivered by a two-judge bench consisting of Justice Abhay Manohar Sapre and Justice Dinesh Maheshwari, with the majority opinion authored by Justice Dinesh Maheshwari.

Case Background

Modern Transportation Consultation Services Pvt. Ltd. (appellant No. 1) was contracted by Damodar Valley Corporation (DVC) to provide personnel for manning railway cabins and gates. These personnel were retired employees of the Indian Railways, engaged on a lump sum honorarium basis. The Employees’ Provident Fund Organisation (EPFO) contended that the appellant’s establishment was covered under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (the Act) and its employees were required to be members of the Employees’ Provident Fund Scheme, 1952 (the Scheme). The appellants argued that since the employees had already withdrawn their full provident fund from the Railways, they should be treated as “excluded employees” under the Scheme.

Timeline:

Course of Proceedings

The Assistant Provident Fund Commissioner, Circle-IV, Calcutta, informed the appellant company on 18.02.2002 that their establishment was covered under the Act of 1952 with effect from 01.05.1999. The appellant company contested this, stating that their employees were retired railway employees who had already received their full superannuation benefits. The competent authority under the Act of 1952 initiated proceedings under Section 7A to determine the money due from the appellants, and by its order dated 31.12.2004, ruled against the appellants. Aggrieved, the appellants filed a writ petition before the High Court at Calcutta [W.P. No. 2982(W) of 2005]. The Single Judge of the High Court allowed the writ petition on 07.04.2006, holding that the retired employees were “excluded employees.” However, the Division Bench of the High Court reversed this decision on 07.05.2008, leading to the current appeal before the Supreme Court.

Legal Framework

The Supreme Court examined the following legal provisions:

• Section 2(f) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: Defines “employee” as any person 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.
• Section 2(ff) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: Defines “exempted employee” as an employee to whom a Scheme or the Insurance Scheme would have applied, but for the exemption granted under Section 17.
• Section 2(fff) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: Defines “exempted establishment” as an establishment granted an exemption under Section 17 from the operation of all or any provisions of any Scheme or the Insurance Scheme.
• Section 2(h) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: Defines “Fund” as the provident fund established under a Scheme.
• Section 2(l) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: Defines “Scheme” as the Employees Provident Fund Scheme framed under Section 5.
• Section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: Empowers the Central Government to frame the Employees’ Provident Fund Scheme for the establishment of provident funds.
• Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: Grants the appropriate Government the power to exempt establishments from the operation of the Scheme under certain conditions.
• Paragraph 2(f) of the Employees’ Provident Funds Scheme, 1952: Defines “excluded employee” as:
  • An employee who, having been a member of the Fund, withdrew the full amount of his accumulations in the Fund under clause (a) or (c) of sub-paragraph (1) of paragraph 69.
  • An employee whose pay at the time he is otherwise entitled to become a member of the Fund exceeds fifteen thousand rupees per month.
  • An apprentice.
• Paragraph 26 of the Employees’ Provident Funds Scheme, 1952: Specifies the classes of employees entitled and required to join the Fund.
• Paragraph 69(1) of the Employees’ Provident Funds Scheme, 1952: Specifies the circumstances under which a member may withdraw the full amount standing to his credit in the Fund, including retirement after attaining 55 years of age.

The Court noted that the Act of 1952 aims to provide compulsory contributory provident funds for the financial security of industrial workers. The Scheme of 1952 is the primary scheme under the Act, but the Act also allows for exemptions under Section 17 for establishments with equivalent or more advantageous schemes.

Arguments

Appellants’ Submissions:

• The appellants argued that the retired Railway employees, who were covered under the General Provident Fund (GPF) Scheme while in service and had withdrawn all superannuation benefits, including their PF, should be considered “excluded employees” under Paragraph 2(f)(i) of the Scheme of 1952.
• They contended that Paragraph 26 of the Scheme of 1952 applies to all employees other than “excluded employees.”
• They submitted that an “excluded employee” is one who, having been a member of a provident fund, has withdrawn the full amount of his accumulations under clause (a) or (c) of sub-paragraph (1) of Paragraph 69.
• The appellants argued that not treating these employees as “excluded employees” would lead to their unjust enrichment, which was not the intention of the Act of 1952 or the Scheme.
• They also argued that the Division Bench of the High Court erred in holding that Paragraph 69 of the Scheme does not apply to retired Railway employees.
• They contended that the High Court erred in interpreting the definitions of “Fund” and “Scheme” and in restricting the definition of “Fund” under Section 2(h) of the Act.

Respondents’ Submissions:

• The respondents argued that the Act of 1952 envisions two different sets of provident fund schemes: one under Section 5 (the Scheme of 1952) and others under Section 17.
• They submitted that coverage under the Scheme of 1952 is the rule, and employees are generally covered by it unless they receive benefits under another scheme that are not less favorable.
• The respondents contended that only specific classes of employees are treated as “excluded employees” under Paragraph 2(f) of the Scheme of 1952.
• They argued that only an employee who was previously a member of the Fund under the Scheme of 1952 and had withdrawn all benefits thereunder could be considered an “excluded employee.”
• They submitted that the Railway employees, who were not covered under the Scheme of 1952, do not fall within the definition of “excluded employees,” even if they had withdrawn amounts from other provident funds.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for determination:

1. Whether the retired employees of Railways, who had withdrawn all the superannuation benefits, including full amount of accumulations in their provident fund accounts, are to be treated as “excluded employees” in terms of Paragraph 2(f) of the Scheme of 1952?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Supreme Court referred to N.K. Jain and Ors. v. C.K. Shah and Ors. [(1991) 2 SCC 495]* to highlight the framework of the Act and the Scheme of 1952, particularly regarding the obligations of exempted establishments.
• The Court relied upon Section 2(f) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952* to define “employee” under the Act.
• The Court relied upon Section 2(ff) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952* to define “exempted employee” under the Act.
• The Court relied upon Section 2(fff) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952* to define “exempted establishment” under the Act.
• The Court relied upon Section 2(h) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952* to define “Fund” under the Act.
• The Court relied upon Section 2(l) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952* to define “Scheme” under the Act.
• The Court relied upon Section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952* to highlight the power of the Central Government to frame the Employees’ Provident Fund Scheme.
• The Court relied upon Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952* to highlight the power of the appropriate Government to grant exemption from the Scheme.
• The Court relied upon Paragraph 2(f) of the Employees’ Provident Funds Scheme, 1952* to define “excluded employee” under the Scheme.
• The Court relied upon Paragraph 26 of the Employees’ Provident Funds Scheme, 1952* to specify classes of employees entitled and required to join the Fund.
• The Court relied upon Paragraph 69(1) of the Employees’ Provident Funds Scheme, 1952* to specify circumstances under which a member may withdraw the full amount standing to his credit in the Fund.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the plain and literal interpretation of the relevant provisions of the Employees’ Provident Funds Act, 1952 and the Employees’ Provident Funds Scheme, 1952. The Court emphasized that the term “Fund” as used in the definition of “excluded employee” under Paragraph 2(f) of the Scheme specifically refers to the Fund established under the Scheme of 1952, and not any other provident fund. The Court also highlighted the intent of the Act to provide financial security to employees, which would be undermined if employees could avoid contributing to the Fund by claiming to be “excluded employees” based on withdrawals from other funds.

Fact:Law Ratio: The Supreme Court’s decision was more heavily influenced by legal considerations (70%) than factual aspects (30%). The Court’s analysis focused on the interpretation of specific provisions of the Act and the Scheme, rather than the specific factual circumstances of the case.

Logical Reasoning:

The Court rejected the argument that the term “Fund” should be interpreted broadly to include any provident fund, emphasizing the specific language of the Scheme of 1952. The court also rejected the argument that not treating the retired railway employees as excluded employees would lead to unjust enrichment of the employees, stating that the purpose of the Act is to provide financial security to the employees.

The Court stated, “The determiner “the”, as occurring in Paragraph 2(f) as also Paragraph 69 before the expression “Fund” makes it clear that the reference therein is only to the Fund which is created under the Scheme of 1952 and it is not a general reference to any Fund.”

The Court also observed, “In fact, there was no occasion for them to make any withdrawal from the Fund established under the Scheme of 1952 because they were never the members of the said Fund.”

Further, the Court clarified, “The concept of exclusion from the Scheme of 1952 is limited to the class/es of employees mentioned in Paragraph 2(f) only; and the area of operation of this exclusion clause cannot be expanded by way of an assumption about the alleged extra advantage likely to be driven home by an employee.”

There was no minority opinion in this case. The judgment was delivered by a two-judge bench, and both judges were in agreement.

The Court’s decision clarifies that the definition of “excluded employee” under the Scheme of 1952 is to be strictly construed and that the benefit of exclusion is not available to employees who have withdrawn from other provident funds, but not the fund under the Scheme of 1952.

Key Takeaways

• The term “excluded employee” under the Employees’ Provident Funds Scheme, 1952, applies only to those who were members of the Fund established under the Scheme and withdrew their full accumulations from that Fund.
• Retired employees who have withdrawn their provident fund from other schemes, such as the General Provident Fund, are not considered “excluded employees” under the Employees’ Provident Funds Scheme, 1952, when re-employed.
• The provisions of the Employees’ Provident Funds Act, 1952, and the Employees’ Provident Funds Scheme, 1952, are mandatory and apply to all eligible employees, irrespective of age or prior provident fund benefits, unless an exemption is granted under Section 17 of the Act.
• Employers cannot avoid their obligations under the Act by claiming that their employees are “excluded employees” based on withdrawals from other provident funds.
• The intention of the Act is to provide financial security to employees, and this intent must be considered when interpreting the provisions of the Act and the Scheme.

Directions

The Supreme Court did not give any specific directions in this case. The Court dismissed the appeal and upheld the Division Bench of the High Court’s decision, which means that the appellant company is liable to make contributions towards the Provident Fund of the re-employed retired railway employees.

Development of Law

The ratio decidendi of this case is that the term “Fund” in Paragraph 2(f) of the Employees’ Provident Funds Scheme, 1952, refers specifically to the Fund established under that Scheme and not to any other provident fund. This judgment clarifies the scope of the term “excluded employee” and reinforces the mandatory nature of the Employees’ Provident Funds Act, 1952, and the Scheme of 1952. There is no change in the previous position of law, but this case provides a clear interpretation of the existing provisions.

Conclusion

The Supreme Court dismissed the appeal, holding that retired railway employees who had withdrawn their full provident fund from the Railways were not “excluded employees” under the Employees’ Provident Funds Scheme, 1952, when re-employed by the appellant company. The Court emphasized that the definition of “excluded employee” is specific to those who were members of the Fund established under the Scheme of 1952 and withdrew their accumulations from that Fund. This decision reinforces the mandatory nature of the Act and Scheme to provide financial security to employees.

Category:

• Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  • Section 2(f), Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  • Section 2(ff), Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  • Section 2(fff), Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  • Section 2(h), Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  • Section 2(l), Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  • Section 5, Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  • Section 17, Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
• Employees’ Provident Funds Scheme, 1952
  • Paragraph 2(f), Employees’ Provident Funds Scheme, 1952
  • Paragraph 26, Employees’ Provident Funds Scheme, 1952
  • Paragraph 69(1), Employees’ Provident Funds Scheme, 1952
• Labour Law
• Provident Fund
• Excluded Employee
• Retirement Benefits

FAQ

Q: Who is considered an “excluded employee” under the Employees’ Provident Funds Scheme, 1952?
A: An “excluded employee” is someone who was a member of the Employees’ Provident Fund Scheme, 1952, and withdrew their full amount from that fund, or an employee whose pay exceeds ₹15,000 per month, or an apprentice.

Q: If I have withdrawn my provident fund from my previous employer, am I exempt from joining the fund with my new employer?
A: No, only if you withdrew your full amount from the Employees’ Provident Fund Scheme, 1952, you are exempt. If you withdrew from any other fund, you are required to join the Employees’ Provident Fund Scheme, 1952, with your new employer.

Q: Does the age of an employee matter for joining the Employees’ Provident Fund Scheme, 1952?
A: No, there is no age limit for an employee to become a member of the Employees’ Provident Fund Scheme, 1952.

Q: What is the main purpose of the Employees’ Provident Funds Act, 1952?
A: The main purpose of the Act is to provide financial security to employees through a contributory provident fund scheme.

Q: Can an employer avoid contributing to the Employees’ Provident Fund Scheme, 1952, if their employees have other provident fund benefits?
A: No, unless the employer has obtained an exemption under Section 17 of the Act, which requires that the employees have benefits that are not less favorable than those provided under the Act and Scheme.