Shiv Narayan Dhingra, J.@mdashThis writ petition is directed against the order dated 29.9.81 passed by the Central Government u/s 19A of the Employees Provident Funds and Miscellaneous Provision Act 1952 as well as quashing the order dated 5.3.81 passed by the Regional Provident Fund, Commissioner.
2. The facts necessary for disposal of this petition are that petitioner was a partnership firm having partners Smt. Raj Kumari Bahl and Smt. Sunayana Bahl. The partnership firm came into existence on 28.2.1973. Prior to this, this firm was being run as a proprietorship firm by Ram Sahai Bahl. Petitioner was engaged in the business of interior design, consultants and Manufacturing of wooden furniture. It is stated by petitioner that firm never employed more than 19 persons. The strength of the employee of the petitioner varied from 9 to 18 during the years 1974-81. The establishment got closed with effect from 31.7.81. The petitioner firm was not having enough business of interior designing, consultancy and manufacturing of wooden furniture to sustain itself, the petitioner Therefore accepted contract work outside its business. The contract was for manufacturing of T.V cabinets, T.C. back covers, upholstery, sanitary and masonry work. The petitioner accepted this work during the period May 1976 to September 1976. As a passing necessity, the petitioner firm engaged some independent contractors who worked either individually or in association of one or two employees either at the workshop or site. In May and June 1976 four contractors were employed & in July 1976 five such contractors were employed. In November 1976 only two contractors remained there. Thereafter, no contractor was employed by the petitioner. These contractors did not work exclusively for the petitioner and they worked for other persons also. Documents to this effect have been annexed with the petition and were also given to the Asstt. Provident Fund Commissioner. The contractors worked for different persons at the same time.
3. On 4.9.1980 Mr. U.C. Tewari, Inspector, from the squad No. 1 from the office of Central Provident Fund Commissioner, visited the establishment of the petitioner and subsequently sent a letter dated 27.10.80 to the petitioner asking the petitioner to produce following records:
1. Attendance and wages register from January 1976 to date.
2. Cash Book/ ledger for the year 1969.
3. Copies of the partnership Deed dated 28.1.1972 and January 1969.
4. Photostat copies of the 1st year Income Tax Assessment order.
5. Photostat copies of the local and Central Sales Tax Registration No.
4. Petitioner produced agency''s attendance and wages record from 1974 to 1979. Agency''s register of 1980, Cash and ledger book for the year 1969 were offered for inspection. Partnership deed, 1st year income tax assessment order, Central and local taxes record were provided. After going through the record U.C. Tewari, Inspector, told the petitioner that it had not maintained attendance and payment of wages register in prescribed form, Therefore, the same cannot be looked into. On 7.3.1981 petitioner received a letter dated 5.3.1981 from Mr. S.P. Jain, Provident Fund Commissioner, alleging that the petitioner establishment satisfied the conditions for applicability of the Act as on 1.5.76 and directed that petitioner should comply with all the requirements of the Act and the scheme w.e.f. 1.5.76 provisionally. No reasons were given for arriving at this conclusion. Since order of the respondent No. 1 vitally affected petitioner''s right, the order should have been a speaking order. However, petitioner made a representation on 20.3.1981 to the Central Government u/s 19-A of the Act and submitted that basic condition for the applicability of the Act was that the petitioner ought to have employed 20 or more employees in the preceding year while the petitioner had never employed more that 18 persons in the establishment. Respondent No. 1 did not agree with the contention of the petitioner and enclosed the report of U.C. Tewari, Inspector, who visited the petitioner''s site along with its reply. Petitioner then learnt about the report of the U.C. Tewari, Inspector. It was stated in the report that from May 1976 to November 1976 the petitioner had employed some contractors. Counting contractors and their employees as part of the establishment, the employees strength exceeded 20 and Therefore petitioner''s establishment was covered under the Act. After the report of Inspector U.C. Tewari, was made available to the petitioner, petitioner filed rejoinder and objected to the counting of the contractors as employees on strength of the petitioner'' establishment. The petitioner specifically submitted that contractors were not on the strength of its establishment. Contractors were employed casually, as passing necessity. They were not working exclusively for the petitioner and they should not be counted as employees of the petitioner. It is also pleaded that the petitioner was not given an opportunity to show that the contractors or their employees were never part of the establishment of the petitioner and principles of natural justice were breached.
5. By order dated 29.9.81 legal adviser of the Central Government while rejecting the petitioner''s representation, took the view that the mere fact that a person was working with more than one employer will not mean that there was no employer- employee relationship and if an establishment is engaging casual labour as a normal feature, such person would be counted in the establishment.
6. Petitioner''s Counsel argued that the petitioner had engaged contractors only from May 1976 to November 1976 during its entire existence and the employment of these contractors was not a normal feature of the establishment''s business. Jai Prakash, the contractor, examined by inspector, had stated that he worked as and when needed. Number of contractors engaged also fluctuated. The contractors were employed only temporarily to meet the emergent necessity. Reliance has been placed on T.S. Hariharan case, wherein it was held that only an employee which is employed in the regular course of the business having close nexus with the business can be considered as employee. It is further argued that neither the order of Provident Fund Commissioner nor that of Central Government had considered the casual and temporary nature of employment of the contractors employed only for a short period by the petitioner and the fact that this was not the normal feature of the business of establishment.
7. In the counter affidavit the facts about constitution of the firm and the business have not been denied. However, it has been denied that the employees strength of the petitioner''s firm varied between 9 to 18. It was submitted that employees strength was more than 20. It was denied that the contractors were engaged by the petitioner as a passing necessity. However, it was submitted that contractors and their associates were covered by the definition of employee u/s 2(f) of the Act. It was denied that respondent was not given an opportunity to present its case. The order of the Central Government and the Additional Provident Fund Commissioner were justified and correct.
8. The counsel for the petitioner has made out detailed submissions on following points:
1. The principles of natural justice were not followed by the Provident Fund Commissioner. Petitioner was not given opportunity to present his case and only an inspector called some records which were produced.
2. the authority did not consider the applicability of the Act. The order of the Central Government suffers from inherent defects as it was solely based on the report of the Inspector.
3. even on merits the petitioner would not come under the purview of the Act as there was no employer employee relationship between the petitioner and the contractors.
9. The Counsel for the respondent on the other hand submitted that petitioner had employed contractors who used to work with two to three helpers. It is now well settled that the employees of the contractor were to be considered as employees of the petitioner/ employer for whom the contractors work. Therefore, there was no illegality in the order of the Central Government or in the order of Provident Fund Commissioner. Even as per the definition of the employee u/s 2(f) of the Act person employed through Contractor were included. I have heard learned Counsel for the parties and perused the record.
10. It is apparent from the letter dated 5.3.81 written by the Provident Fund Commissioner to the petitioner that the petitioner firm was brought under the purview of the Provident fund without any proceeding u/s 7A of the Act merely on the basis of the report of Mr. U.C. Tewari, Inspector. The very first line of the letter shows that this order of applicability of Employees Provident Fund and Miscellaneous Provision Act 1952, was passed on the basis of information available with the Regional Provident Fund Commissioner which in turn was provided by its inspector. No show cause notice was given to the petitioner to represent its case u/s 7A of the Act. The Regional Provident Fund Commissioner on the basis of the report submitted by U.C. Tewari, Inspector, decided to cover the establishment of the petitioner under so, the Act and the petitioner was directed to deposit P.F. contribution separately under the provisions of Employees'' Provident Fund, 1952 and Family Employees'' Pension Scheme, 1971 at the prescribed rates w.e.f. 1.5.76. No calculation of the amount was done by the Regional Provident Fund Commissioner. Regional Provident Fund Commissioner himself had not conducted proceedings u/s 7A of the Act either to determine applicability of act or the dues payable under the Act. Against this letter, the petitioner moved Central Government u/s 19-A. On behalf of the Central Government legal adviser, passed the impugned order. Even in the order of the Legal Adviser the basis of bringing the petitioner firm into fold of EPF Act is the report of U.C. Tewari, Inspector, squad from the office of the Regional Provident Fund Commissioner, who visited the premises on 4.9.1980. The order shows that petitioner had paid an amount of Rs. 600/- to one Ram Babu Sharma, Rs. 1400/- to Sunder Singh, Rs. 400/- to Sarvan Kumar and Rs. 1105/- to Jai Prakash, contractors out of manufacturing account between June 1976 to November 1976. In June 1976 four contractors were paid total sum of Rs. 1815/- and in July five contractors were paid an amount of Rs. 2380/-. In August 1976 these five contractors were paid an amount of Rs. 3410/-. Since petitioner had contended that these contractors either used to work independently or with their labour ranging from two to three, Therefore, the inspector and authority increased employees strength of the establishment by 10-15 persons.
11. As far as determination u/s 7A of the Act is concerned, the provision comprises of two parts; i) authority has to decide whether the Act applies to the establishment concerned and ii) authority has to determine amount due from the employer. For this purpose the authority has to make such enquiry as deemed necessary. A bare reading of Sub-section (2) of Section 7A of the Act shows that officer conducting enquiry has to decide the issue as if he was trying a suit as a civil court with powers under the Code of Civil Procedure. The inquiry is in the nature of a quasi judicial proceedings. Sub- section 3 provides that no order shall be made under Sub-section (1) unless employer concerned is given a reasonable opportunity of representing his case. This provision also empowers the officer to compel the attendance of the persons concerned to ensure a fair and proper enquiry to decide the applicability of the Act or determination of the amount due from the employer. It is apparent that no order can be passed u/s 7A without conducting a full fledged inquiry following the procedure laid down and the officer determining the question has to determine both cover ability as well as amount payable. In the present case U.C. Tewari, Inspector, visited the factory some time in 1980 and all records were called. After checking the records from 1969-80 it was found that only between the months of May 1976 to November 1976 some contractors were engaged for additional work which the establishment had secured for making T.V cabinets and covers. Additional Provident Fund Commissioner on the basis of engaging contractors during this period, brought petitioner establishment under the cover of Provident Fund Act. Strangely the Assistant Provident Fund Commissioner had not conducted any inquiry to find out the names, addresses, salary and period of work of those workers for whose benefit the establishment was being covered under the Act.
12. Supreme Court in
13. Though the employer and the contractors, both were liable to maintain registers in respect of workers employed but the issue is not whether the registers were maintained or not. The issue is whether the Commissioner, a statutory authority, has exercised powers vested in him to collect the relevant evidence before determining the convertibility of the petitioner under the said Act. In my view Commissioner has failed to exercise his jurisdiction conferred u/s 7A of the Act before determining the question whether the petitioner was covered under the Provident Fund or not. He failed to consider even the fact that during the entire existence of the firm from 1969 to 1981, the contractors were employed only for a period of seven months, for additional work which the establishment had got. These contractors were not providing labour to the petitioner but they were doing job work of producing T.V. cabinets on contract basis.
14. These facts were in the notice of the Commissioner since petitioner had produced all documents and accounts but the Asstt. Commissioner instead of conducting an inquiry, decided of bringing the establishment in the fold of the Act, only because an inspector functioning under the Act had furnished information to him in a report about engaging contractors. The order was passed in a mechanical manner.
15. The order passed by the Regional Provident Fund dated 5.3.1981 shows that there was no independent determination u/s 7A of the Act. It is a cyclostyled order where some blanks have been filled. No inquiry as contemplated u/s 7A of the Act, had preceded. The contractors were not called upon to furnish the name of the helpers which were employed by them, the wages paid to them and the period for which wages had been paid. No determination of dues was done or explained. I have no hesitation in holding that the illegality of the order was apparent on the face of it.
16. Considering the case on merits, even if it is considered that during the functioning of the establishment from 1969-80, the inspector visited the premises in 1980 and found some payments were made to four/five contractors in the year 1976, can it be said that there were 20 or more persons employed in the establishment of the petitioner. Employment of requisite number of persons in establishment must be 20 or more to attract the Act and this employment should be normal regular requirement of the establishment reflecting its financial capacity and stability. I consider that the number of persons employed by an establishment for the purpose of this Act has to be determined by taking into consideration the general requirements of the establishment for its regular work which reflects its general financial capacity and stability. Where an establishment regularly employs for its business 20 or more number of persons for a major part of the year, merely because the employment of the required number does not extend to one full year, it cannot be said that the establishment was excluded from the application of the Act. However, where in an establishment, a few extra persons are employed on account of some exigency, for a short period necessitated by abnormal contingency which is not regular feature of the business of the establishment, once in a span of eleven years, it can reasonably be concluded that the establishment does not have financial capability and stability to bear the burden towards Provident Fund under the Act. The word ''employment'' must be construed as employment in the regular course of business of the establishment, obviously, such employment would not include employment of a few persons for short period on account of some passing necessity. This view gains support from Tiptop Dry Cleaners & Dyers v. UOI 1975 L L IC 674; Kumar Brother (Bidi) P. Ltd. v. R.P.F.Commissioner 1968 Lab. IC 1578 . Madras and Mysore High Courts had also taken the view that if an establishment had 20 or more persons in a single day in a year that would not be sufficient for the purpose of determining the number of persons employed as contemplated u/s 1(3) of the Act and attracting the provisions of the Act
17. While making representation before Central Government against the order of Provident Fund Commissioner, petitioner had clearly brought out the facts showing the general business of the petitioner and the fact that the four contractors were employed only from May 1976 to November 1976 and also the fact that the establishment was closed down in June 1981. All these facts were not considered by the Central Government while passing order dated 29.9.1981 Another aspect which was not considered by Commissioner or by the Central Government was that Section 2(f) covers only those employees which are employed by or through a contractor in, or in connection with, the work of the establishment. It postulates that such persons (employees) must be employed by or through a contractor as " contract labour". The contractor for purposes of Section 2(f) is purely a labour contractor and not an independent contractor who contracts to deliver " finished product" to the establishment. A Division Bench of the Andhra Pradesh High Court in Karachi Bakery v. Regional Provident Fund Commissioner 1999 (III) LLJ (Supp) 151 observed:
The view of the Provident Funds Commissioner was that if the appellant was having 6 regular and 5 part-time employees (in all 11), and if the appellant had entered into contracts with Devandas Bakery and Ram Bakery for supplying certain bakery products to the appellant, the employees of the said two firms- who are 18 in number- should be treated as employees of the appellant-firm inasmuch as the said contracts are in connection with the business of the said firm and fell within Section 2(f) of the Act. At the relevant time, the Act was applicable to establishments having twenty or more employees.
The High Court disagreed with the view of the Provident Fund Commissioner.
18. There can be three category of contract employees (i) those who are engaged directly by an establishment (ii) those who are employed through the agency of a contractor, the said contractor being purely labour contractor who contracts to bring the labour, to be engaged by or on behalf of the employer, in such a case, the contractors brings a relationship of master and the servant between employer and the employee brought by him (iii) Those labour who are engaged by a contractor who is not an ordinarily labour contractor but is an independent contractor himself is the master for the of employees he engages. In Chintaman Rao v. State of M.P. 1958 (XI) LLJ 252 , the Supreme Court had held that where the contractor known as sattedar with whom manufacturing contract for supply of bidis were recorded as independent contract and Therefore the kulis employed by the sattedar could not be treated as employee of the manufacturer for the purpose of factory Act. This distinction between the labour employed by the manufacturing and employed by independent contractor was also brought out in
19. The relationship between the proprietor, middlemen and out workers came up for consideration in this Court in
20. The Legislature wanted to regulate the contract system. The legislation did not want to stop the contract system. The provisions in the Act recognised the contractor as a part and parcel of the beedi industry. The contractor is referred to where the terms " contract labour" or " principal employer" or " employer" have been defined. Several functions which the employer has to perform are also performed by the contractor. He delivers tobacco and leaves to the home worker and collects the rolled beedis after application of chhat. He makes payment to them. Therefore, the contractor has been retained as an integral part though the attempt is to eliminate the vices which crept into the industry.
37.Therefore, the manufacturers or trade mark holders have liability in respect of workers who are directly employed by them or who are employed by them through contractors. Workers at the industrial premises do not present any problem. the manufacturer or trade mark holder will observe all the provisions of the Act by reason of employing such labour in the industrial premises. When the manufacturer engages labour through the contractor the labour is engaged on behalf of the manufacturer, and the latter has, Therefore, liability to such contractor labour (sic). It is only when the contractor engages labour for or on his own behalf and supplies the finished product to the manufacturer that he will be the principal employer in relation to such labour and the manufacturer will not be responsible for implementing the provisions of the Act with regard to such labour employed by the contractor. If the right of rejection rests with the manufacturer or trade mark holder, in such a case the contractor who will prepare beedis through the contract labour will find it difficult to establish that he is the independent contractor. If it is a genuine sale transaction by the contractor to the manufacturer or trade mark holder it will point in the direction of an independent contractor.
45. In the present case, it is not material to find out as to who can be called an independent contractor. It can be said that independent contractors are those who employ labour for and on behalf of themselves in so far as the present Act is concerned. The only scope for inquiry is whether a person has employed labour for and on his own behalf. If the answer be in the affirmative then such a contractor would be principal employer within the meaning of Section 2(g)(a).
46. It appears that the principal employer or the employer, as the case may be, is liable on the ground that the labour is employed for and on behalf of the principal employer or the employer. In relation to contract labour the principal employer is the person for whom or on whose behalf any contract labour is engaged in any establishment. An employer in relation to other labour is the person who has the ultimate control over the affairs of any establishment or has a substantial interest in the control of the affairs of any establishment as defined in Section 2(g)(b) of the Act. There is no vicarious liability in the case of the principal employer. The act does not define an independent contractor. The act does not prevent an independent contractor from being the principal employer in relation to contract labour. It will be a question of fact in each case as to who is the person for whom or on whose behalf contract labour is engaged. If such a contractor who is referred as an independent contractor employees labour for himself the liability will attached to him as the principal employer and not to the manufacturer or trade mark holder. There is no restriction on the right of the manufacturer or the trade mark holder to carry on business. They are liable under the act for contract labour employed for or on behalf of them.
19. From the aforesaid observation of the Supreme Court, it is clear that unless there is material that the labour engaged by the contractors is engaged for the private employer it cannot be said that they are labour through a contractor within Section 2(f) of the Act. In the present case contractors were employed for manufacturing T.V cabinets/ covers etc and the payment as stated above was made to the contractors depending upon the product supplied by them. It is the contractor who took help of the others in executing the work. The petitioner had no dealing with the helpers neither petitioner knew whether they were skilled or unskilled and on what terms and conditions they were working with the contractor. Neither any inquiry was conducted by the Provident Fund Commissioner to bring out the distinction whether the contractor employed had merely brought labour for and on behalf of employer or they were contractor who employed their own labour for manufacturing and delivering a furnished product i.e T.V. cabinets/ covers etc.
20. The learned Counsel for the respondent has relied upon a judgment delivered in writ petition No. 165/78 by this Court on 15.4.2004 titled Auto Crat Tours v. Regional Provident Fund Commissioner . In this case the petitioner was carrying transport business. He had a fleet of cars and utilized the services of the drivers. He contended that strength of his employees was less than 20. The petitioner was maintaining two registers. One for the regular drivers and other of the casual drivers and he took the stand that he was taking services of the casual drivers only when regular drivers were not available or were on leave or there was increase in the work due to tourist seasons. This Court has turned down the plea of the petitioner on the ground that the casual drivers were engaged in the establishment in the regular course of business and they are to be considered the employees of the establishment. The facts of the case are altogether different from the present case. In the present case no casual workers were employed by the petitioner. In fact from 1969-1980 petitioner had employed contractors only between May 1976 to November 1976. I Therefore, consider that neither the contractors nor the helpers of the contractors engaged by them for the work could not be termed as employees of the petitioner and could not be counted on the strength of establishment.
21. In the result, this petition is allowed and the order of the RPF Commissioner dated 5.3.1981 and order dated 29.9.1981 of the Central Government are hereby set aside.
