Supreme Court mandates Provident Fund for Contractual Employees of Pawan Hans: Pawan Hans Ltd. vs. Aviation Karmachari Sanghatana (2020)

Date of the Judgment: 17 January 2020

Citation: (2020) INSC 26

Judges: Uday Umesh Lalit, J., Indu Malhotra, J.

Can a company deny provident fund benefits to its contractual employees, even if they are directly employed and not through a contractor? The Supreme Court of India recently addressed this critical question in a case involving Pawan Hans Limited, a government-owned aviation company. The court had to determine whether these employees were entitled to benefits under the company’s own trust regulations or the Employees’ Provident Funds Act, 1952. This judgment has significant implications for contractual workers across India, clarifying their rights to social security benefits. The bench comprised Justices Uday Umesh Lalit and Indu Malhotra, with Justice Indu Malhotra authoring the judgment.

Case Background

Pawan Hans Limited was incorporated on 15 October 1985, as a Government of India company. The company’s primary objective was to provide helicopter support services to the oil sector, remote areas, and for tourism. On 1 April 1986, Pawan Hans established the Pawan Hans Employees Provident Fund Trust Regulations, intended to provide provident fund benefits to all its employees. The regulations defined an “employee” as any person employed for wages, directly or indirectly, excluding those employed through a contractor. In 1987, the company instituted the PF Trust, where the management and regular employees started depositing their respective contributions. However, out of 840 employees, 270 were engaged on a contractual basis, and the PF Trust Regulations were only applied to the 570 regular employees, despite the definition of “employee” including those employed “directly or indirectly”. The company claimed exemption from the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) under Section 16, as it had its own PF Trust Regulations.

The Ministry of Labour issued a communication on 8 January 1989, stating that while casual staff would be covered under the EPF Act, regular employees with provident fund benefits should be excluded. Subsequently, on 22 March 2001, the Central Government issued a notification making the EPF Act applicable to aircraft or airlines establishments employing 20 or more persons, excluding those owned or controlled by the Central or State Government. This notification was brought into force on 1 April 2001. The Employees’ Provident Fund Scheme, 1952 was also amended to include aircraft or airlines establishments. The members of the Aviation Karmachari Sanghatana (Respondent Union) made multiple representations between 2012 and 2014, seeking the extension of PF Trust Regulations benefits to contractual employees, some of whom had worked for almost 20 years. When the company failed to respond, the Respondent Union filed a writ petition in 2017, seeking either the extension of EPF Act benefits or the amendment of the PF Trust Regulations to include contractual workers. During the pendency of the petition, the Regional Provident Fund Commissioner stated that social security benefits must be provided to all employees, regardless of their employment status.

Timeline:

Arguments

Appellant’s Arguments (Pawan Hans Limited):

• The company argued that it is excluded from the applicability of the EPF Act because it is owned and controlled by the Central Government, and the notification of 22 March 2001, specifically excludes airline companies owned or controlled by the Central Government.
• It contended that Section 16(1)(b) of the EPF Act excludes establishments owned or controlled by the Central Government from the scope of the Act.
• The company stated that the Central Government holds 51% of its shareholding, and its board of directors is appointed by the Ministry of Civil Aviation, making it an establishment controlled by the Central Government.
• The company claimed that the High Court erred in giving retrospective application to the EPF Act, especially since many contractual employees had already left the company’s employment.
• The company also argued that the contractual employees had already received their full monthly financial benefits, and contributing to their provident fund would result in double liability.

Respondent’s Arguments (Aviation Karmachari Sanghatana):

• The Respondent Union argued that the term “employee” under Clause 2.5 of the PF Trust Regulations is broad enough to include all employees, including those on a contractual basis, who are directly or indirectly employed by the company.
• The union argued that its members are directly employed by the company, as they are not engaged through any contractor, and their pay slips are issued by the company.
• The union contended that the company is not controlled by the Central Government, as its affairs are managed by a Board of Directors, and therefore, it is not exempt from the EPF Act.
• The union submitted that the EPF Act is a beneficial piece of legislation and should be liberally construed, and the denial of provident fund benefits to its members is illegal and discriminatory.

Submissions of the Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the Appellant-Company is under a statutory obligation to provide the benefit of provident fund to its contractual employees under the PF Trust Regulations or the EPF Act?
2. If so, the date from which the aforesaid benefit is to be extended to the contractual employees.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases

• Regional Provident Fund Commissioner v. Sanatan Dharam Girls Secondary School, (2007) 1 SCC 268, Supreme Court: This case laid down the twin-test for an establishment to seek exemption from the EPF Act. The court held that the establishment must either belong to or be under the control of the Central or State Government, and its employees must be entitled to contributory provident fund benefits under a scheme or rule framed by the government.
• Shamrao Vithal Coop. Bank Ltd. v. Kasargode Panduranga Maliya, (1972) 4 SCC 600, Supreme Court: This case defined the phrases “belonging to” and “under the control of” in the context of government-owned entities.
• Sub-Regional Provident Fund Office v. Godavari Garments Ltd., (2019) 8 SCC 149, Supreme Court: This case emphasized the inclusive definition of “employee” under Section 2(f) of the EPF Act, which includes any person engaged directly or indirectly in connection with the work of an establishment.
• M/s P.M. Patel & Sons and Ors v. Union of India and Ors, (1986) 1 SCC 32, Supreme Court: This case also discussed the broad definition of “employee” under the EPF Act.

Legal Provisions

• Section 1(3) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: This section specifies the establishments to which the EPF Act applies, including those with 20 or more employees and those notified by the Central Government.
• Section 16 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: This section enlists the establishments that are excluded from the applicability of the EPF Act, including those belonging to or under the control of the Central or State Government, whose employees are entitled to contributory provident fund benefits under government schemes or rules.
• Section 2(45) of the Companies Act, 2013: This section defines a “Government Company” as one in which not less than 51% of the paid-up share capital is held by the Central Government.
• Section 2(f) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: This section defines “employee” to include any person engaged directly or indirectly in connection with the work of an establishment and is paid wages.
• Section 7Q of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: This section provides for the payment of interest on delayed contributions.

Treatment of Authorities by the Court

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court followed the ratio in Regional Provident Fund Commissioner v. Sanatan Dharam Girls Secondary School [(2007) 1 SCC 268]* to determine the twin conditions for exemption under Section 16 of the EPF Act, holding that the company failed to satisfy the second condition.
• The Supreme Court relied on Shamrao Vithal Coop. Bank Ltd. v. Kasargode Panduranga Maliya [(1972) 4 SCC 600]* to interpret the phrases “belonging to” and “under the control of” in the context of government ownership.
• The Supreme Court cited Sub-Regional Provident Fund Office v. Godavari Garments Ltd. [(2019) 8 SCC 149]* and M/s P.M. Patel & Sons and Ors v. Union of India and Ors [(1986) 1 SCC 32]* to support its interpretation of the inclusive definition of “employee” under Section 2(f) of the EPF Act.
• The Supreme Court considered Section 1(3), Section 16, and Section 2(f) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and Section 2(45) of the Companies Act, 2013 to determine the applicability of the EPF Act and the definition of “employee” and “Government Company”.

What weighed in the mind of the Court?

The Supreme Court’s decision was significantly influenced by the following factors:

• Social Justice: The Court emphasized the need to extend social security benefits to contractual employees, who are often vulnerable and lack job security.
• Interpretation of “Employee”: The Court adopted a broad and inclusive interpretation of the term “employee,” recognizing that contractual workers who are directly employed by the company should not be excluded from provident fund benefits.
• Failure to Satisfy Exemption Criteria: The Court found that the company did not meet the twin tests for exemption under Section 16 of the EPF Act, as the contractual employees were not receiving benefits under any government scheme.
• Uniformity in Service Conditions: The Court aimed to ensure uniformity in the service conditions of all employees by extending the benefits of the PF Trust Regulations to contractual employees.
• Financial Imbalance: The Court considered the financial implications of retrospective application from the date of joining and modified the High Court’s order to avoid creating an imbalance in the fund.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

Logical Reasoning:

The Court considered that the company was a government company, but it did not satisfy the second test under Section 16 of the EPF Act. The Court also noted that the definition of “employee” under the PF Trust Regulations and the EPF Act was inclusive enough to cover the contractual employees. The Court also considered the financial implications of the retrospective application of the EPF Act.

The Court rejected the argument that the company was exempt from the EPF Act under Section 16. The Court also rejected the argument that the contractual employees were not covered under the PF Trust Regulations. The Court reasoned that the definition of “employee” was broad enough to include contractual employees who were directly employed by the company. The Court also considered the social justice aspect of the case and the need to extend social security benefits to contractual employees.

The Supreme Court held that the contractual employees were entitled to the benefit of provident fund under the PF Trust Regulations. The Court modified the High Court’s order to provide the benefit from January 2017, instead of the date of joining. The Court also directed the company to pay simple interest at 12% p.a. on the amount payable towards the contribution of the provident fund for the past period. The Court also directed the employees to deposit their matching contribution for the past period along with interest at 6% p.a.

The court stated, “In our considered view, 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.”

The court further stated, “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.”

The court also stated, “The interests of justice would be best subserved if the benefit of Provident Fund is provided to the members of the Respondent-Union, and other similarly situated contractual employees, from January 2017 when the Writ Petition was filed before the High Court.”

Key Takeaways

• Inclusion of Contractual Employees: The judgment clarifies that contractual employees who are directly employed by a company, and not through a contractor, are entitled to provident fund benefits under the company’s own regulations or the EPF Act.
• Broad Definition of “Employee”: The Supreme Court has reinforced a broad interpretation of the term “employee” under both the EPF Act and company-specific regulations, ensuring that social security benefits reach a wider range of workers.
• Uniformity in Service Conditions: The judgment promotes uniformity in service conditions by directing that contractual employees be included under the same provident fund scheme as regular employees.
• Financial Implications: Employers must contribute to the provident fund of their contractual employees from January 2017, along with interest on past dues.
• Retrospective Application: While the court did not grant retrospective application from the date of joining, it did order that benefits be extended from January 2017, when the writ petition was filed.
• Future Impact: This judgment will have a significant impact on labor law, setting a precedent for the inclusion of contractual employees in social security schemes. It is likely to lead to greater protection and benefits for contractual workers across various industries.

Directions

The Supreme Court issued the following directions:

1. The benefit of Provident Fund is to be provided to the members of the Respondent Union and other similarly situated contractual employees from January 2017.
2. The Regional Provident Fund Commissioner is directed to determine and compute the amount to be deposited by the Company and the employees for the period from January 2017 to December 2019.
3. The Company is liable to pay simple interest at 12% p.a. on the amount payable towards the contribution of provident fund for the period from January 2017 to December 2019, as per Section 7Q of the EPF Act, 1952.
4. The statement of computation made by the Regional Provident Fund Commissioner will be placed before the Court within 12 weeks.
5. The employees are obligated to deposit their matching contribution for the period from January 2017 to December 2019 within 12 weeks, along with interest at 6% p.a., after the Company’s contribution has been remitted to the PF Trust.
6. For the period from January 2020 onwards, the Company and the employees will make their respective contributions as per the PF Trust Regulations.
7. The benefit will not be extended to those employees who have superannuated, expired, resigned, or ceased to be in the employment of the Company on the date of the judgment.
8. The Respondent Union is awarded costs of Rs. 5,00,000 towards litigation expenses.
9. The balance amount lying deposited in the Court will be refunded to the Company after the above amounts are disbursed.

Development of Law

Ratio Decidendi: The ratio decidendi of this case is that contractual employees who are directly employed by a company, and not through a contractor, are entitled to provident fund benefits under the company’s own regulations or the EPF Act. The Court emphasized that the definition of “employee” should be interpreted broadly to include such workers, and that companies cannot deny social security benefits to contractual employees by claiming exemptions under Section 16 of the EPF Act if they do not meet the necessary conditions.

Change in Previous Positions of Law: This judgment reinforces the inclusive interpretation of “employee” under the EPF Act and clarifies that the twin test for exemption under Section 16 of the EPF Act must be strictly satisfied. It also clarifies that even if a company has its own PF Trust Regulations, it cannot deny benefits to contractual employees if the definition of “employee” under those regulations is broad enough to include them. This judgment builds on previous cases that have interpreted the definition of “employee” broadly but specifically addresses the issue of contractual employees in the context of the EPF Act and company-specific regulations. The Court has also taken a proactive stance in protecting the interests of contractual employees, who are often vulnerable and lack job security. The judgment has a positive impact on the labour law by extending the social security benefits to the contractual employees. The judgment also clarifies that the companies cannot deny the benefits of the PF Trust Regulations to the contractual employees by claiming that they are not covered under the definition of “employee”.