Supreme Court Upholds EPF Applicability to Security Agencies: Panther Security vs. EPFO (2020)

Date of the Judgment: 02 December 2020

Citation: 2020 INSC 951

Judges: Navin Sinha, J., Surya Kant, J.

Can a private security agency, which provides security guards to its clients, be considered as an establishment rendering ‘expert services’ and thus be covered under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act)? The Supreme Court addressed this question in a recent case, clarifying the obligations of such agencies. The Court held that the security agency was indeed providing expert services and was liable to comply with the EPF Act. The judgment was delivered by a two-judge bench of Justices Navin Sinha and Surya Kant, with Justice Navin Sinha authoring the opinion.

Case Background

M/s. Panther Security Service Private Limited (the appellant) is in the business of providing private security guards to clients on a payment basis. The appellant is registered under the Private Security Agencies (Regulation) Act, 2005. The Employees’ Provident Fund Organisation (EPFO) initiated proceedings against the appellant, holding them liable under the EPF Act. The Assistant Provident Fund Commissioner, Kanpur, on 28.07.2008, ordered the appellant to comply with the EPF Act and deposit statutory dues. The dues were quantified on 15.04.2009, at Rs. 42,01,941, along with interest of Rs. 30,44,224 under Section 7Q of the EPF Act. The appellant challenged this order, but the High Court upheld the decision. The appellant then approached the Supreme Court.

Timeline

Course of Proceedings

The Assistant Provident Fund Commissioner initiated proceedings under Section 7A of the EPF Act after the appellant objected to the initial assessment. The appellant failed to submit necessary documents like attendance and wage registers. Based on seized balance sheets, the Commissioner concluded that the appellant had more than 20 employees and was covered under the notification dated 17.05.1971, which includes establishments rendering “expert services” such as providing personnel. The Commissioner also noted that clients paid the appellant, who then disbursed wages to the security guards. The appellant bypassed the appeal process before the Tribunal under Section 7I of the EPF Act and directly filed a writ petition in the High Court, which was dismissed. A subsequent review petition was also rejected.

Legal Framework

The core of the dispute revolves around the interpretation of G.S.R. No. 805, dated 17.05.1971, issued under Section 1(3)(b) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (the EPF Act). This notification specifies that the EPF Act applies to establishments rendering expert services, including the supply of personnel, and employing twenty or more persons. The notification reads as follows:

“G.S.R. No. 805 : In exercise of the powers conferred by clause (b) of sub-section (3) of Section 1 of the Employees’ Provident Funds and Family Pension Fund Act, 1952 (19 of 1952), the Central Government hereby specifies that with effect from the 31st May, 1971, the said Act shall apply to every establishment rendering expert services such as supplying of personnel, advice on domestic or departmental enquiries, special services in rectifying pilferage, thefts and payroll, irregularities to factories and establishments on certain terms and conditions as may be agreed upon between the establishment and the establishment rendering expert services and employing twenty or more persons.”

Additionally, the Private Security Agencies (Regulation) Act, 2005, defines a private security agency under Section 2(g) as an organization engaged in the business of providing security services, including training and providing security guards. Section 15 of the Act mandates that these agencies maintain a register with details of their security guards, including their salaries. The Private Security Agencies Central Model Rules, 2006, further detail the responsibilities of security agencies, including verification and training of security personnel.

Arguments

Appellant’s Submissions:

• The appellant argued that it was not covered by G.S.R. No. 805 dated 17.05.1971, as it did not render any expert services. It merely facilitated the provision of Chowkidars to its clients.
• The appellant only levied a service charge for facilitation, and the salary was paid to the Chowkidars by the client, who had ultimate control over them. Therefore, the appellant was not the employer of the security guards.
• Relying on Section 2(e)(ii) and (f) of the EPF Act, the appellant contended that since the salary was paid by the client, and the client had control over the security guards, the appellant was not the employer, and the guards were not its employees.
• The appellant cited Krantikari Suraksha Rakshak Sanghatana vs. Bharat Sanchar Nigam Limited and others, (2008) 10 SCC 216 and Saraswath Films vs. Regional Director, Employees’ State Insurance Corporation, Trichur, (2010) 11 SCC 553, to support its argument that it was not the employer.
• The appellant stated that it had only 5 persons on its rolls and therefore, the EPF Act was not applicable to it.

Respondents’ Submissions:

• The respondents argued that the appellant provides expert services by supplying trained security personnel and is covered by the notification dated 17.05.1971.
• Despite repeated notices, the appellant failed to furnish wage and salary registers.
• Balance sheets seized during a raid revealed large amounts paid towards salaries, which could not be for only five employees.
• A letter dated 03.04.2001 from the appellant to the New India Assurance Company Limited, seeking insurance for 79 security personnel, was presented as evidence.
• The respondents submitted that the appellant did not approach the Tribunal under Section 7I of the EPF Act, which could have examined disputed facts, and instead filed a writ petition directly.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the primary issue before the Court was whether the appellant, a private security agency, was covered under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, specifically regarding the interpretation of “expert services” as mentioned in G.S.R. No. 805 dated 17.05.1971.

Treatment of the Issue by the Court

Authorities

Cases:

• Krantikari Suraksha Rakshak Sanghatana vs. Bharat Sanchar Nigam Limited and others, (2008) 10 SCC 216 – The Court held that this case was not relevant as it concerned the Maharashtra Private Security Guards (Regulation of Employment and Welfare) Act, 1981, and not the EPF Act.
• Saraswath Films vs. Regional Director, Employees’ State Insurance Corporation, Trichur, (2010) 11 SCC 553 – The Court stated that this case was not relevant as it dealt with the term “immediate employer” under the Employees’ State Insurance Act, 1948, which is different from the EPF Act.
• Group 4 Securitas Guarding Ltd. vs. Employees Provident Fund Appellate Tribunal & Ors., 184 (2011) DLT 591 – This case was cited to show that the EPF Act is applicable to private security agencies.
• G4S Secure Solutions India Pvt. Ltd. vs. The Regional Provident Fund Commissioner-I and Ors., ILR 2018 Karnataka 2527 – This case was cited to show that the EPF Act is applicable to private security agencies.
• Orissa State Beverages Corporation Limited vs. Regional Provident Fund Commissioner & Ors., 2016 LLR 413 – This case was cited to show that the EPF Act is applicable to private security agencies.
• Roma Henney Security Services Private Limited vs. Central Board of Trustees, EPF Organisation, 2012 SCC OnLine Del 3597 – This case was cited to show that the EPF Act is applicable to private security agencies.
• Sarvesh Security Services Private Limited vs. University of Delhi, 2017 SCC OnLine Del 12209 – This case was cited to show that the EPF Act is applicable to private security agencies.

Legal Provisions:

• Section 1(3)(b) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 – This section empowers the Central Government to apply the Act to specific establishments.
• G.S.R. No. 805 dated 17.05.1971 – This notification specifies that the EPF Act applies to establishments rendering expert services, such as supplying personnel, and employing twenty or more persons.
• Section 2(g) of the Private Security Agencies (Regulation) Act, 2005 – This section defines a private security agency.
• Section 15 of the Private Security Agencies (Regulation) Act, 2005 – This section requires security agencies to maintain a register with details of their security guards.

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 Court distinguished Krantikari Suraksha Rakshak Sanghatana vs. Bharat Sanchar Nigam Limited and others, (2008) 10 SCC 216* and Saraswath Films vs. Regional Director, Employees’ State Insurance Corporation, Trichur, (2010) 11 SCC 553* stating that these cases were not relevant to the present controversy. The Court relied upon Group 4 Securitas Guarding Ltd. vs. Employees Provident Fund Appellate Tribunal & Ors., 184 (2011) DLT 591*, G4S Secure Solutions India Pvt. Ltd. vs. The Regional Provident Fund Commissioner-I and Ors., ILR 2018 Karnataka 2527*, Orissa State Beverages Corporation Limited vs. Regional Provident Fund Commissioner & Ors., 2016 LLR 413*, Roma Henney Security Services Private Limited vs. Central Board of Trustees, EPF Organisation, 2012 SCC OnLine Del 3597*, and Sarvesh Security Services Private Limited vs. University of Delhi, 2017 SCC OnLine Del 12209* to establish that the EPF Act is applicable to private security agencies engaged in providing expert services.

The Court stated, “We have no doubt in our mind that the appellant is engaged in the specialised and expert services of providing trained and efficient security guards to its clients on payment basis.” It further added, “The provisions of the Act of 2005 make it manifest that the appellant is the employer of such security guards and who are its employees and are paid wages by the appellant.” The Court also observed, “Merely because the client pays money under a contract to the appellant and in turn the appellant pays the wages of such security guards from such contractual amount received by it, it does not make the client the employer of the security guard nor do the security guards constitute employees of the client.”

What weighed in the mind of the Court?

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

• Nature of Services: The Court emphasized that the appellant was engaged in providing specialized and expert services by supplying trained security guards, which falls under the ambit of “expert services” as per G.S.R. No. 805.
• Employer-Employee Relationship: The Court highlighted that the appellant is the employer of the security guards, who are its employees and are paid wages by the appellant, irrespective of the contractual arrangements with clients.
• Documentary Evidence: The Court relied on the appellant’s balance sheets, which showed substantial wage payments, and a letter seeking insurance for 79 security personnel, to conclude that the appellant had more than 20 employees.
• Withholding of Documents: The Court noted that the appellant withheld statutory registers under the Act of 2005, which further strengthened the conclusion that the appellant was trying to evade its obligations.

Sentiment Analysis Ranking

Fact:Law Ratio

Logical Reasoning

Key Takeaways

• Private security agencies providing trained security personnel are considered to be rendering “expert services” under G.S.R. No. 805.
• These agencies are the employers of the security guards they deploy and are responsible for paying their wages, regardless of contractual arrangements with clients.
• Private security agencies with 20 or more employees are required to comply with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
• The judgment clarifies the applicability of the EPF Act to private security agencies, ensuring social security benefits for security personnel.
• Security agencies must maintain proper records and registers as required by the Private Security Agencies (Regulation) Act, 2005, and the EPF Act.

Directions

The Supreme Court vacated the interim order dated 12.05.2009, which had restrained coercive steps for the enforcement of the demand notice dated 15.04.2009. This means that the EPFO is now free to enforce the demand notice against the appellant.

Specific Amendments Analysis

There is no discussion of any specific amendment in the judgment.

Development of Law

The ratio decidendi of this case is that private security agencies providing trained security guards are considered to be rendering “expert services” and are thus covered under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. This clarifies the legal position and reinforces the applicability of the EPF Act to such agencies, ensuring social security for their employees. There is no change in the previous positions of law, but the judgment clarifies the application of the existing law to private security agencies.

Conclusion

The Supreme Court dismissed the appeal, holding that M/s. Panther Security Service Private Limited is covered under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, as it provides expert services by supplying trained security guards. The Court emphasized that the appellant is the employer of the security guards and is liable to comply with the EPF Act. This judgment reinforces the social security obligations of private security agencies towards their employees.

Category

Parent Category: Labour Law

Child Categories:

• Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
• Section 1(3)(b), Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
• Private Security Agencies
• Expert Services

FAQ

Q: Does the EPF Act apply to private security agencies?

A: Yes, the Supreme Court has clarified that private security agencies providing trained security guards are considered to be rendering “expert services” and are covered under the EPF Act if they employ 20 or more persons.

Q: Who is considered the employer of the security guards?

A: The security agency that hires and deploys the guards is considered the employer, not the client who engages their services.

Q: What does “expert services” mean in this context?

A: “Expert services” refers to the specialized service of providing trained and efficient security guards to clients.

Q: What are the obligations of private security agencies under the EPF Act?

A: Private security agencies are required to contribute to the provident fund of their employees, ensuring their social security benefits.

Q: What if a security agency does not comply with the EPF Act?

A: Non-compliance can lead to penalties and legal action by the Employees’ Provident Fund Organisation.