PAWAN HANS LTD. vs. AVIATION KARMACHARI SANGHATANA

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION Civil Appeal No.  353  of 2020 (Arising out of SLP (C) No. 381 of 2019)      M/S. PAWAN HANS LIMITED & ORS.       …APPELLANTS Versus      AVIATION KARMACHARI SANGHATANA       & ORS.  …RESPONDENTS J U D G M E N T INDU MALHOTRA, J.     Leave granted. 1. The   issue   which   arises   for   consideration   is   whether   the contractual employees of the Appellant­Company are entitled to provident   fund   benefits   under   the  Pawan   Hans   Employees Provident   Fund   Trust   Regulations   or   under   the   Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“ EPF Signature Not Verified Digitally signed by RAJNI MUKHI Date: 2020.01.17 16:20:21 IST Reason: Act ”) and the Employees’ Provident Fund Scheme, 1952 (“ EPF Scheme ”)  framed thereunder.  1 2. The background facts in which the present Civil Appeal has been filed are as under : 2.1 The Company was incorporated on 15.10.1985 under the Companies Act, 1956, and is registered as a Government of India company with the Registrar of Companies, Delhi. The Government   of   India   holds   51%   shareholding   in   the Appellant­Company and the remaining 49% is held by Oil and Natural Gas Company Ltd. (ONGC).  The   Company   was   incorporated   with   the   primary objective of providing helicopter support services to the oil sector for its off­shore exploration operations, services in remote and hilly areas, and charter services for promotion of   tourism.   It   is   classified   as   a   non­scheduled   operator under Rule 134 of the Aircraft Rules, 1937. 2.2 On   01.04.1986,   the   Appellant­Company   framed   and notified the Pawan Hans Employees Provident Fund Trust Regulations   (hereinafter   referred   to   as   “ the   PF   Trust Regulations ”) for giving provident fund benefits to all the employees of the Appellant­Company.  Regulations 1.3 and 2.5 of the PF Trust Regulations are set out hereunder for ready reference: 2 “1.3  ­ These Regulations shall apply to all the employees of the Corporation.   2.5. –   “Employee” means  any person  who is employed for wages/salary in any kind of work, monthly or otherwise, in or in connection with the work of the Corporation and who gets   his   wages/salary   directly   or   indirectly   from   the Corporation,   and   excludes   any   person   employed   by   or through a contractor  or in connection with the work of the Corporation but does not include any person employed as an apprentice or trainee.”              [emphasis supplied] 2.3 On   26.03.1987,   the   Appellant­Company   instituted   the Pawan Hans Employees Provident Fund Trust (“ PF   Trust ”) wherein   the   management   started   depositing   its   share towards the provident fund contribution with respect to employees   on   the   regular   cadre   of   the   Company; correspondingly, the regular employees started depositing the matching contribution with the PF Trust.  2.4 Out of a total workforce of 840 employees, the Company had engaged 570 employees on regular basis, while 270 employees were engaged on ‘contractual’ basis.  The Company implemented the PF Trust Regulations only with respect to the regular employees, even though the   term   “employee”   had   been   defined   to   include   “any 3 person”   employed   “directly   or   indirectly”   under   the   PF Trust Regulations. 2.5 The Company having framed its own PF Trust Regulations, was claiming exemption from the applicability of the EPF Act and EPF Scheme under Section 16 of the EPF Act. 2.6 On   08.01.1989,   the   Ministry   of   Labour,   Government   of India, issued a communication to the Central Provident Fund Commissioner, New Delhi, pertaining to the grant of exemption to departmental undertakings under the control of   the   Central/State   Government   statutory   bodies.   The Central   Provident   Fund   Commissioner   was   directed   to instruct   the   Regional   Provident   Fund   Commissioners   to carefully  review  the  cases  of  departmental  undertakings and statutory bodies falling under the categories specified in Section 16(1)(b) and 16(1)(c) of the EPF Act,  and take further action as indicated in the said letter.  Clause   (iv)   of   the   said   letter   dated   08.01.1989   is   of relevance, and is extracted hereunder for ready reference: “( iv)  There   may   be   establishments   which   employ   large member of casual/contingent staff, who are not entitled to the   benefit   of   provident   fund   or   pension.   The casual/contingent   staff   of   such   establishment   will continue to be covered under the Act, but their regular employees who are entitled to the benefit of provident fund or pension should be excluded from the purview of the   Act   .” 4          [emphasis supplied] 2.7 The Central Government, in exercise of the powers under S.1(3)(b)   of   the   EPF   Act,   issued   a   Notification   dated 22.03.2001,   making   the   provisions   of   the   EPF   Act applicable to aircraft or airlines establishments employing 20   or   more   persons,   excluding   aircraft   or   airlines establishments owned or controlled by the Central or State Government. The Gazette Notification No. SO 746 dated 22.03.2001 (“ Notification ”) is extracted for ready reference:­ “   S.O. 746 – In exercise of the powers conferred by clause   (b)   of   sub   section   (3)   of   Section   1   of   the Employees   Provident   Fund   and   Miscellaneous Provisions   Act   1952   (19   of   1952),   the   Central Government   hereby   specifies   the   following establishment   employing   20   or   more   persons   as   the class   of   establishments   to   which   the   said   Act   shall st apply with effect from 1  April 2001 namely: (i) An establishment engaged in rendering courier services; (ii) An establishment of aircraft or airlines other than the aircraft airlines owned or controlled by the Central or State Government.  (iii) An establishment  engaged  in rendering cleaning and sweeping services.”                   [emphasis supplied] The   said   Notification   was   brought   into   force   w.e.f 01.04.2001. 2.8 Correspondingly,   amendments   were   made   to   the   EPF Scheme framed under Section 5 of the EPF Act. Clause 3 5 (b)(ci) was inserted  vide  Notification No. S­35016/1/1997­ SS II dated 22.07.2002, by which the EPF Scheme was made applicable to aircraft or airlines establishments other than   the   aircraft   or   airlines   establishments   owned   or controlled by the Central or State Government. 2.9 The   members   of   the   Respondent­Union   made   several representations   on   18.09.2012,   29.09.2012,   13.03.2013, 19.11.2014   to   extend   the   benefit   of   the   PF   Trust Regulations   since   they   were   directly   engaged   by   the Company   on   contractual   basis,   some   of   whom   were working for almost 20 years.  The Company failed to respond to the representations.  2.10 Being   aggrieved   by   the   inaction   of   the   Company,   the Respondent­Trade   Union,   filed   CWP  No.325   of   2017  on 20.12.2016 against the Company praying for the   following reliefs:

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2.11 During   the   pendency   of   the   Writ   Petition,   the   Regional Provident   Fund   Commissioner,   Bandra   issued   a   letter dated 24.05.2017 to the Company wherein it was stated that   even   though   the   EPF   Act   would   not   apply   to establishments   owned/controlled   by   the   Central Government   as   per   S.16(1)(b)   and   (c),   however   social security benefits such as provident fund must be provided to   all   “ employees/workers   who   are   engaged   on contractual/casual/daily   wages   basis”   since   there   is   no distinction   between   a   person   employed   on   permanent, temporary, contractual, or casual basis under S.2 (f) of the EPF Act.  2.12 The   High   Court   vide   the   impugned   Judgment   &   Order dated  12.09.2018  allowed   the   Writ   Petition   in   terms   of prayer (a), with the direction that the benefits under the 7 EPF Act be extended to the members of the Respondent­ Trade   Union,   and   other  similarly   situated   employees.  It was held that a liberal view must be taken in extending social security benefits to the contractual employees. The High   Court   directed   the   Company   to   enrol   all   eligible contractual employees under the EPF Scheme, and deposit their   contribution   with   Respondent   No.3   –   Regional Provident Fund Commissioner from the date they became eligible   till   remittance,   and   thereafter   till   they   are   in employment of the Company. This was to be carried out latest by 31.12.2018. 3. Aggrieved   by   the   impugned   Judgment,   the   Appellant­ Company filed the present Civil Appeal.  This Court  vide  Order dated 14.01.2019 issued notice and granted stay of the impugned Judgment subject to the Company depositing a sum of Rs.5,00,00,000/­ (Rupees Five Crores) within 3 months in this Court.  Pursuant   thereto,   the   Company   deposited   the   said amount on 09.04.2019, which has been invested in a Fixed Deposit. 8 4. We have heard the learned counsel for both the parties, and have considered the oral and written submissions made on their behalf. 4.1 Ms. Pinky Anand, learned Additional Solicitor General of India,   appearing   for   the   Appellant­Company   inter   alia submitted that: a) The Company is excluded from the applicability of the EPF Act since it neither falls under Schedule I of the EPF   Act,   nor   is   it   covered   by   Notification   dated 22.03.2001 issued under Section 1(3)(b) of the EPF Act,   since   the   Notification   itself   expressly   excludes airline companies “ owned or controlled  by  the Central Government ” from the purview of the EPF Act. b) The Notification 22.03.2001 was inapplicable to the Appellant­Company since Section 16(1)(b) of the EPF Act, excludes an establishment owned or controlled by the Central Government from the scope of the EPF Act.  c) The   Central   Government   holds   51%   of   the shareholding   in   the   Appellant­Company,   and   the Board   of   Directors   of   the   Appellant­Company   have 9 been appointed by the Ministry of Civil Aviation. The Appellant­Company   is   governed   by   the   guidelines issued   by   the   Department   of   Public   Enterprises, Government of India. The Appellant­Company is thus an establishment owned and controlled by the Central Government.   Even   after   the   EPF   Act   became applicable   to   the   airlines   industry,   the   Appellant­ Company   being   an   establishment   owned   and controlled by the Central Government, was excluded from the purview of the EPF Act.  d) The   High   Court   committed   a   grave   error   in   giving retrospective application to the provisions of the EPF Act, i.e., from the date of the members joining the Respondent­Trade   Union,   given   that   several contractual   employees   had   superannuated,   passed away, resigned, or ceased to be in the employment of the   Company.   The   extension   of   benefits   under   the EPF Act to contractual employees irrespective of their status of employment with the Company was wholly illegal, arbitrary, and liable to be set aside.  10 e) The   members   of   the   Respondent­Union   and   other similarly situated employees have already been paid in full their monthly financial benefits/emoluments. The direction of the High Court to the Company to contribute to the provident fund of the contractual employees would amount to burdening the Company with twice the liability. 4.2 Mr. P.S. Narasimha, learned Senior Counsel appearing on behalf of the Respondent­Union   submitted inter alia   that: a) The term “employee” defined by Clause 2.5 of the PF Trust   Regulations   is   widely   defined   to   cover   all employees,   including   those   engaged   on   contractual basis, who are in the direct or indirect employment of the Company. The members of the Respondent­Union are in direct employment of the Company, since they have not been engaged through any contractor. The contractual workers are paid directly as evidenced by the pay slips issued by the Company. The benefits under the PF Trust Regulations, or the EPF Act, are required to be provided to even contractual employees 11 from   the   date   of   their   joining   till   the   date   of remittance. b) The   Company   is   not   controlled   by   the   Central Government   since   its   affairs   are   managed   and controlled by a Board of Directors. The Company is not a company controlled by the Central Government. The   Notification   dated   22.03.2001,   specified certain establishments including the airlines industry, other than airlines owned or controlled by the Central or State Government, to be covered under the EPF Act.   Consequently,   the   Company   was   obligated   to extend   the   benefits   under   the   EPF   Act   to   all   its employees.  c) The EPF Act is a beneficial piece of legislation, which has to be liberally construed. The denial of statutory benefits and entitlements like provident fund to the members of the Respondent­Union is   ex­facie   illegal, arbitrary,   discriminatory   and   in   violation   of   the provisions   of   the   EPF   Act   and   the   Constitution   of India. 12 5 The issue which arises for consideration in the present Civil Appeal   is   whether   the   Appellant­Company   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?  If so, the date from which the aforesaid benefit is to be extended to the contractual employees.  6    Discussion and Analysis  6.1 It   is   first   required   to   be   seen   whether   the   Appellant­ Company is excluded from the applicability of the provisions of the EPF Act and the EPF Scheme framed thereunder as contended by them. 6.2 As per Section 1(3) of the EPF Act, the EPF Act is applicable to every establishment in which 20 or more persons are employed, which is either a factory engaged in any industry specified   in   Schedule   I,   or   an   establishment   which   the Central   Government   may   by   notification   in   the   Official Gazette specify in that behalf. Section 1(3) of the EPF Act reads as:

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[emphasis supplied] Section 1(3) is subject to Section 16 of the EPF Act. Sub­section (1) of Section 16 enlists those establishments which are excluded from the applicability of the EPF Act. As per clause (b) of sub­section (1), an establishment belonging to or under the control of the Central or State Government, and   whose   employees   are   entitled   to   the   benefit   of contributory provident fund in accordance with any scheme or   rules   framed   by   the   Central   or   State   Government governing such benefits, is excluded from the purview of the EPF Act.  Sub­section (1) of Section 16 reads as:

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[emphasis supplied] This Court in  Regional Provident Fund Commissioner v. 1 Sanatan Dharam Girls Secondary School    laid down a twin­ test   for   an   establishment   to   seek   exemption   from   the provisions of the EPF Act, 1952. The twin conditions are:  1  (2007) 1 SCC 268 : (2007) 1 SCC (L&S) 167  15 First, the establishment must be either “ belonging to ” or “ under the control of ” the Central or the State Government. The phrase “ ” would signify “ ” of the belonging to ownership Government,   whereas   the   phrase   “ under   the   control   of ” would imply superintendence, management or authority to 2 direct, restrict or regulate.   Second,   the employees of such an establishment should be entitled to the benefit of contributory provident fund or old   age   pension   in   accordance   with   any   scheme   or   rule framed by the Central Government or the State Government governing such benefits.  If both tests are satisfied, an establishment can claim exemption/exclusion under Section 16(1)(b) of the EPF Act.         Applying the first test to the instant case, the Central Government   has   a   51%   ownership   in   the   Appellant­ Company, while the balance 49% is owned by the ONGC, a Central Government PSU.  As per Section 2(45) of the Companies Act, 2013, a “Government Company” means any company in which not less than 51 % of the paid­up share capital is held by the Central   Government.   Since   51%   of   the   shares   of   the 2   Shamrao Vithal Coop. Bank Ltd.  v.  Kasargode Panduranga Maliya , (1972) 4 SCC 600 16 Appellant­Company are owned by the Central Government, the first test is satisfied as the Appellant­Company can be termed as a Government Company under Section 2(45) of the Companies Act, 2013.        With respect to the second test, it is relevant to note that the Company had its own Scheme  viz.  the Pawan Hans Employees Provident Fund Trust Regulations in force. The Company however restricted the application of the PF Trust Regulations to only the ‘regular’ employees.   The PF Trust Regulations of the Company were not framed by the Central or State Government, nor were they applicable to all the employees of the Company, so as to satisfy the second test. The   Regional   Provident   Fund   Commissioner,   Bandra issued letter dated 24.05.2017 addressed to the Company wherein   it   was   stated   that   the   benefit   of   contributory provident   fund   was   not   being   provided   to contractual/casual   employees   of   the   Company;   and   was directed to implement the provisions of the EPF Act.  The   relevant   extract   from   the   letter   is   set   out hereinbelow: 

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In our view, the Company does not satisfy the second test, since the members of the Respondent­Union and other similarly situated contractual workers were not getting the benefits of contributory provident fund under the PF Trust Regulations framed by the Company, or under any Scheme or any rule framed by the Central Government or the State Government. Consequentially, the exemption under Section 16 of EPF Act would not be applicable to the Appellant­ Company.            In view of the above discussion, we hold that the Company has failed to make out a case of exclusion from the applicability of the provisions of the EPF Act.   6.3 The next issue which arises for consideration is whether the members of the Respondent­Trade Union are entitled to the 18 benefit of Provident Fund under the PF Trust Regulations or under the EPF Act. Clause 1.3 of the Regulations would show that the PF Trust Regulations were made applicable to  “  all employees” of the Appellant­Company.  Clause 2.5 of the Regulations, defines an “ employee ”, to include   who is employed for wages/salary any employee in any kind of work, monthly or otherwise, or in connection with   the   work   of   the   Company,   and   who   gets   his wages/salary   directly   or   indirectly   from   the   Company. Clause 2.5 excludes only a person employed by or through a contractor in connection with the work of the Company, and any person employed as an apprentice or trainee. In the present case, the Respondent­Union submitted that   even   though   the   appointment   letters   refer   to   the employees   as   ‘contractual’   employees,   they   were   not engaged   through   any   contractor.   They   were   being   paid directly by the Company, which is evidenced from the pay­ slips   issued   to   them.   It   was   submitted   that   about   250 contractual   employees   receive   wages   directly   from   the 19 Company, and are eligible to be included under the PF Trust Regulations framed by the Company.   6.4 We find that the members of the Respondent­Union have been in continuous employment with the Company for long periods   of   time.   They   have   been   receiving   wages/salary directly from the Company without the involvement of any contractor  since  the  date  of  their  engagement.  The  work being   of   a   perennial   and   continuous   nature,   the employment cannot be termed to be ‘contractual’ in nature.  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.  6.5 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 3 wages.   3   v.   (2019) 8 SCC 149 : (2019) 2 Sub­Regional Provident Fund Office  Godavari Garments Ltd., SCC (L&S) 483;  M/s P.M. Patel & Sons and Ors . v.  Union of India and Ors  (1986) 1 SCC 32. 20 In   view   of   the   above   discussion,   we   find   that   the members of the Respondent­Union and all other similarly situated contractual employees, are entitled to the benefit of provident fund under the PF Trust Regulations or the EPF Act. Since the PF Trust Regulations are in force and are applicable to all employees of the Company, it would be preferable to direct that the members of the Respondent­ Union and other similarly situated contractual employees are granted the benefit of provident fund under the PF Trust Regulations   so   that   there   is   uniformity   in   the   service conditions of all the employees of the Company. 6.6 The question which now arises is the date from which the benefit   of   provident   fund   is   to   be   extended   to   the contractual employees.         This Court  vide  Order dated 24.10.2019 had passed the following Order: “Provident Fund is normally managed on actuarial basis; the   contributions   received   from   employer   and   the employee are invested and the income by way of interest forms the substantial fund through which any pay­out is made.   For   all   these   years   the   Fund   in   question   was subsisting on contributions made by the other employees and, if at this stage, the benefit in terms of the judgment of the High Court is extended with retrospective effect, it may create imbalance. Those who had never contributed at any stage would now be members of the fund. The 21 fund never had any advantage of their contributions and yet the fund would be required to bear the burden in case any pay­out is to be made. Even if concerned employees are directed to make good contributions with respect to previous   years   with   equivalent   matching   contribution from the employer, the fund would still be deprived of the interest income for past several years in respect of such contributions.        In order to have clear perspective in the matter and to see if there could be any solution to the problem as posed above, we call upon the petitioner to depute a person who is well versed in the matter and who has been  managing the  Provident  Fund  Scheme  of  Pawan Hans Limited to have a dialogue  with the respondent No.3   before   15.11.2019   (a   representative   of   the respondent(s) is also at liberty to remain present during such discussion) so that a workable solution could then be presented by such person and the representative of respondent No.3 before us on the next occasion.       List the matter on 29.11.2019 at 10.30 a.m.” 6.7 The learned ASG submitted that no workable solution could be   worked   out   at   the   meeting   held   between   the representative of the Appellant­Company, Respondent No.3, and   the   representative   of   the   Respondent­Union.   The learned ASG however offered that the Appellant­Company was   willing   to   extend   the   benefit   under   the   PF   Trust Regulations to the members of the Respondent­Union and other   similarly   situated   employees,   from   the   date   of   the impugned Judgment.  6.8 Respondent   No.3   –   the   Regional   Provident   Fund Commissioner   submitted   that   since   the   Company   had 22 remained out of the purview of the EPF Act, the direction to deposit   contribution   from   the   date   of   eligibility   of   the contractual employees till the date of remittance was not workable, and could not be sustained.  After   hearing   the   parties   at   length,   and   in   light   of   the 7 peculiar facts and circumstances of this case, we affirm the Judgment & Order dated 12.09.2018 passed by the Bombay High Court in W.P.No.325/2017 holding that members of the Respondent­Union are covered by the EPF Act. However, we   modify   the   direction   of   the   High   Court   to   grant   the benefits under the EPF Act, and direct that the members of the   Respondent­Union   and   other   similarly   situated contractual employees be enrolled under the Pawan Hans Employees Provident Fund Trust Regulations so that there is uniformity in the conditions of service of all employees of the Appellant­Company.         Furthermore, the direction of the High Court to pay the contribution from the date of their eligibility till the date of remittance is also modified in terms of the directions given in this Judgment. 23 8 We   pass   the   following   directions   to   effectuate   the   reliefs granted:    (i) The interests of justice would be best subserved if the benefit of Provident Fund is provided to the members of the Respondent­Union, and other similarly situated contractual employees, from January 2017 when the Writ Petition was filed before the High Court.  (ii) Respondent   No.3   ­   the   Regional   Provident   Fund Commissioner,   Regional   Office,   Bhavishya   Nidhi Bhawan,   341 Bandra   (E),   Mumbai   is   directed   to determine and compute the amount to be deposited by the Company on the one hand, and the members of the   Respondent­Union   and   other   similar   situated employees on the other hand. The computation would be required to be made for the past period i.e. January 2017 to December 2019; (iii) The Company shall be liable to pay Simple Interest @ 12%   p.a.   on   the   amount   payable   by   it   towards contribution of provident fund for the past period, i.e., 24 January 2017 to December 2019, as per Section 7Q of the EPF Act,1952 ; (iv) The   statement   of   computation   made   by  Respondent No.3 will be placed before this Court within a period of 12   weeks   from   the   date   of   this   Judgment,   and thereafter   the   matter   will   be   listed   for   issuance   of necessary   directions,   so   that   the   amount   can   be remitted   from   the   deposit   made   before   this   Court, directly to the PF Trust; (v) The   employees   will   be   obligated   to   deposit   their matching contribution for the past period i.e. January 2017 to December 2019, within a period of 12 weeks along with interest @ 6% p.a., after the contribution of the Company has been remitted to the PF Trust; (vi) With   respect   to   the   period   from   January   2020 onwards,   the   Company   and   the   members   of   the Respondent­Union   as   also   other   similary   situated employees, will make their respective contributions as per the PF Trust Regulations;  (vii) The benefit shall not be extended to those employees who have superannuated, expired, resigned, or ceased 25 to be in the employment of the Company on the date of this Judgment ;  (viii) We   consider   it   appropriate   to   award   Costs   of Rs.5,00,000   (Rupees   Five   Lacs)   to   the   Respondent­ Union towards litigation expenses incurred in the High Court and in this Court. (ix) After the aforesaid amounts are disbursed, the balance amount lying deposited in this Court shall be refunded to the Appellant­Company.                         The present civil appeal along with all pending applications, if any, stand disposed of.   Ordered accordingly. ...…...............………………J. (UDAY UMESH LALIT) .......................................J. (INDU MALHOTRA) New Delhi;        January 17, 2020. 26