National Law Institute University

Bhopal

Labour & Industrial Law –II

Topic: Employers provident fund

Submitted to: Submitted by:

Mr. Mahendra Soni Rakesh Malviya
Associate Professor 2016B.A.LL.B.45

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BACKGROUND
In India provident fund is regulated by Employees Provident Fund and Miscellaneous Provisions Act,
1952. It is a Social Security Act passed by the Government of India.
It includes 3 Social Security Schemes namely Provident, Pension and Insurance to industrial employees.
Thus,
 the PROVIDENT FUND benefit are provided under Employees Provident Fund Scheme, 1952,
 PENSION benefits under Employees’ Pension Scheme 1995 and
 INSURANCE benefits under Employees’ Deposit Linked Insurance Scheme, 1976.

 STATEMENT OF PROBLEM

Provident fund is jointly contribution by the employer & employee to serve as a long term
saving support to employee upon retirement. How the provident fund is govern in India & how court
interpreted it .

 HYPOTHESIS
Employees provident fund & miscellaneous act 1952 govern provident fund in India & the court
took liberal interpretation in cases relating to provident fund but where interest of employees are
involved the court took the beneficial interpretation

 RESEARCH QUESTIONS
1. What is meaning & definition provident fund?
2. What are excluded employees?
3. What does basic wages means?
4. Interpret laws govern provident fund in India through case laws?

 OBJECTIVE OF THE STUDY

The objective of study aims at

1. To understand the concept of provident fund
2. With the help of case laws to interpret law relating to provident fund

 SCOPE
The scope of research is limited to The Employees Provident Fund & miscellaneous act , 1952

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  LITERATURE Review
The researcher shall be majorly relying on the below listed sources for gaining an understanding of the
topic.

ARTICLES & OTHER SOURCES

1. indiankanoon.org – This site provide full judgement on every cases of high court and
supreme court of India

2. azbpartners.com/bank/supreme-court-ruling-on-provident-fund

3. epfindia.gov.in- This is official site to access any govt. circulars or any orders about
provident fund

4. nishithdesai.com- This site provided scholarly articles and journals on provident fund

 RESEARCH METHODOLOGY
The mode of research adopted for this research is doctrinal . the analysis undertaken and the
conclusion reached is based on primary as well as secondary source of information; primarily
consisting of scholarly literature , articles , authenticate internet sources and relevant
judgements.

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INTRODUCTION

In India the provident fund is regulated by Employees Provident Fund and Miscellaneous Provisions
Act, 1952.& the purpose of this act is to provide retirement and old age benefits such as
 the PROVIDENT FUND benefit covered under Employees Provident Fund Scheme, 1952,
 PENSION benefits under the Employees’ Pension Scheme 1995 and
 INSURANCE benefits under The Employees’ Deposit Linked Insurance Scheme, 1976.

with the intent to protect the interest of workers recruited in factories and other establishments.
Further, this Act also provides the terminal benefits in case of occurrence of accidents or an
unforeseen event These include retirement, closure, retirement due to achieving the age of
superannuation, voluntary retirement or retirement as a result of circumstances resulting in the
inability of the workers or employees to work.
The benefits received under the Provident Fund act are utilized on retirement or termination of
the service.
Under EPF & MP scheme, an employee needs to pay a certain contribution towards the scheme
and an equal contribution is paid by the employer.
Later, the employee gets a lump-sum amount including self and employer’s contribution with the
interest on both the contribution on retirement.
The employer contribution is 12% of basic wages + dearness allowance + retaining allowance.
An equal contribution is payable by the employee also.
In the case of establishments which employ less than 20 employees or fall under the other
conditions, as per the EPFO rules, the contribution rate for both employee and the employer is
10 percent.

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Employee provident fund and miscellaneous Act 1952

Applicability of EPF& MP act,1952

1) Geographical - Act applies to whole of India except for J &K
2) Entity -

 Factory or Any Establishment:- Where 20 or more employees are employed or number

of employees which are provided by Central Govt.
 Factory or Any Establishment: Where Less than 20 employees are employed. Act is
directly applicable & is applicable when the central govt. gives notice of 2 months.
 Any Establishment: Where application is made to Central PF commissioner by
Employer and by majority of employees for applicability of act.
 Municipal Councils and Corporations: As all of them are notified by CG in
notification number 8th January 2011. Where Less than 20 employees are employed.-
Act is applicable when CG gives notice of 2 months.

3) Non Applicability

 Co-operative society having less than 50 employees & working without aid of power.
 Entities under control of Central Govt. or State Govt. OR entities governed by special
law.
 Entities exempted by Central Govt. based on specific consideration for specific period.

CASE LAWS INTERPRETATING PROVIDENT FUND

1). Contractual worker can also take benefit of PF

“M/S. Pawan Hans Limited and ors. v. Aviation Karmachari1” 
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Civil Appeal No 353 of 2020

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Facts:
The company was incorporated in the year 1985 under the Companies act 1956. The Government of India
holds 51% share and the 49% is owned by the Oil and the Natural Gas Company Ltd. (ONGC).
The company drafted the Pawan Hans Employees provident Fund Trust Regulation. The total workforce
was of 840 employees in which 570 were regular and the 270 were on a contractual basis. The company
had made an exception in the definition of the term employee and excluded the contractual working
people from the said benefit.
Issues: 
Whether the contractual employees of the appellant company are entitled to provident fund benefits under
the Pawan Hans employee’s provident fund trust regulations or in the employee’s provident fund scheme
1952?
The High Court :
The Hon’ble High Court allowed the writ petition filed by the trade union because the liberal & benificial
view should be adopted in extending the social security benefits to the contractual employees. 
The Company disappointed by the verdict of the HC and challenged the same in the SC because it is
excluded from the applicability of the provision of the EPF Act and the EPF scheme.
The Supreme Court verdict:
The SC agreed with the views of the HC.
Two tests were provided by SC
 exemptions of ownership of the government and
 Secondly, the employees should be a benefit as per the rule and scheme framed by the central or
the state government.
The company failed to follow the second test and therefore the exemptions cannot be claimed under
Section 16(1) (b) of the EPF Act.

The SC has held that “Contractual Employees engaged by the company, who by any direct or any indirect
means draw their wages or salary from the company are entitled to the all the benefit of the provident
fund under the rules and procedures as laid down under the EPF & MP act 1952”.

2). Workers Stitching Garments From Home ‘Employees' Under

Provident Fund Act:
“The Officer-In-Charge, Sub Regional Provident Fund Office Vs. M/s Godavari
Garments Limited 20192”
ISSUES:

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SLP 22243 of 2015

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'Whether the women workers fabricating garments for the Respondent Company from their home, comes
under the purview of the definition of "employee" under Section 2(f) of EP & MP Act, 1951?

Background-The Officer in Charge, Sub Regional Provident Fund Office (PF Authority) through an
order had held that female workers engaged for stitching garments were covered by the definition of
employee under Section 2(f) of the EPF Act. 

On appeal to the Bombay High Court, the Aurangabad bench of the Bombay High Court held that
“Godavari Garments had no direct or indirect control over the female workers.”

The court observed that, "The conversion of cloth into garment could be done by any person on behalf of
the women workers. Hence, the respondent company did not exercise any supervisory control over the
women workers." 

This was appealed to the Supreme Court by the PF Authority.  

Godavari Garments' Arguments  It was contended that there was no employer-employee relationship
between Godavari Garments and the female workers as Godavari Garments did not exercise any
supervisory control over them. In arriving at this finding, reliance was placed on the below factual
points:  

 “Sewing machines used by the female workers were not provided by Godavari Garments but
were rather owned by the workers themselves.
 The women worked from their homes and not at the production centers of Godavari Garments.
 Work to be performed by the workers could be done by their relatives, or any other person on
their behalf. 
 The workers were not bound to report to the production centers regularly, nor were they required
to work at the production centers.” 

Decision of the Supreme Court and Judicial Reasoning

A division bench of the SC observed that the definition of an “employee” under the EPF Act was wide
enough to include “any person engaged, either directly or indirectly, in connection with the work of the
establishment.” 

The SC relied in “Silver Jubilee Tailoring House and Others v. Chief Inspector of Shops and
Establishments3”, where it had held that ”when the employer had the right to reject the end product if it
did not confirm to the instruction of the employer and direct the worker to rework it, the element of
control and supervision could be said to be present”. 

In this scenario, Godavari Garments had the absolute right to reject the garments, in case of any defects
and thus, it was held that the control and supervision test was met.

Accordingly, the female workers were construed to be employees of Godavari Garments. The fact that
the workers stitched garments at home or were paid wages by Godavari Garments on a per-piece basis
was held to not result in any difference to the arrangement. 

3
3 SCC 498 (1974),

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 3). Interpretation of excluded employees
“Modern transportation Consultation Services Private Limited & Anr. Vs
Central Provident fund Commissioner Employees provident fund
organization & Ors. 20194

In this case SC interpreted the definition of excluded employer under EPF& MP act

Section 2(f) of EPF Scheme defines, “excluded employee” means—

(i) “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;
(ii) an employee whose pay at the time he is otherwise entitled to become a member of the Fund,
exceeds [fifteen thousand rupees] per month”;

What an excluded employee means?

An excluded employee, were not entitled to become a member of the Fund

Issue

When a person who is a member of any other Fund (other than EPF Scheme, 1952) withdraws full
amount of his accumulations and joins an organization which is covered under EPF Scheme, can he/she
be considered as an ‘Excluded Employee”?

Interpretations

Supreme court interpreted the term ‘excluded employees’ as

 “If a person is member of the Fund created under the Scheme of 1952 and withdraws all his
accumulations therein, he may not be obliged to be a member of the same Fund under the Scheme of
1952 over again and could be treated as an excluded employees. However, such is not the relaxation
granted in relation to an employee who was earlier a member of any other Fund (Not PF scheme, 1952)
but later on joins such an establishment where he would be entitled to membership of the Fund created
under the Scheme of 1952 because Principle of the Provident Fund Act is to provide social security for
those employees who otherwise would not be in a position to save any money from their wages”.
 Paragraph 2(f)(iv) provides that an apprentice shall be an excluded employee till he becomes a
full fledged employee.
 There was no age bar for an employee to become a member of the Scheme of 1952  

4). Whether special allowance to be included in Basic wages

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(Civil Appeal no. 7698 of 2009) , 2019”
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 “Regional Provident Fund Commissioner (West Bengal) vs Vivekananda
Vidyamandir and Others 2019”

BACKGROUND

Many cases before the SC of India had raised a common question , whether certain allowances ,
such as canteen allowance , travel allowance ,special allowance , conveyance allowance and
management allowance paid by an employer to its employees would falls within the meaning of
”basic wages” for computing the PF under the EPF&MP act

The definition of basic wages specifically excluded “any other allowance of a similar nature” –
prompting companies to exclude all allowances.

Issues -The appeals raise a common question of law that, if the special allowances paid by an
establishment to its employees would fall within the expression of “basic wages” under Section
2(b)(ii) R.W. Section 6 of the Act for computation of deduction towards PF.

The Ruling- In the Judgment, the SC reiterated the following principles:

(a)  Any contribution towards PF by establishments covered under the EPF Act is to be
determined by the test of universality, i.e., “whatever is payable in all concerns and is earned by
all permanent employees must be included within the purview of basic wages for the purpose of
contribution under the EPF Act but whatever is not payable by all concerns or may not be earned
by all employees of a concern must be excluded from the purview of ‘basic wages’ for the
purpose of calculating the contribution under the EPF Act”.

(b)  If any earning vary from individual to individual as per their efficiency and diligence will be
excluded from the term ‘basic wages’ as they are not earned by all employees of a concern. EG.
overtime allowance and relocation allowance.

(c)  To exclude an allowance from the ambit of ‘basic wages’, it must be shown that” the same is
either variable, or linked to any incentive for production resulting in greater output by an
employee, and that the allowances are not paid across the board to all employees in a particular
category or are being paid especially to those who have performed work beyond the normal work
that they were required to perform”

Importance of Judgement
There is no distinguish between a ‘domestic worker’ and ‘an international worker’ by this
judgement and does not amend the current position of law because the verdict is based on case

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of “Bridge and Roof Co. (India) Ltd. v. Union of India 5 (decided by a 6-judge bench of the
Supreme Court in 1962)” thereby simply reiterating the existing position of law

5). A Judgment on Set-Aside of Gazette notification amending

Employee Pension Scheme, 2014
“The Employees' Provident Fund Organization and Anr. v Sunil Kumar B &
Ors,2019”

In this case, the SC upheld the 2018 Kerala High Court decision in “P. Sasikumar and Ors. v
Union of India and Ors.” (Kerala HC Ruling) which had set aside “the Employee's Pension
(Amendment) Scheme, 2014 (2014 Amendment).”

In compliance with the EPF Act and the EP Scheme, 'Employers and employees are expected to
make a contribution of 12 per cent of each employee's salary (can be capped at 12 per cent of
INR 15,000 for domestic employees). Although the employee's contribution of 12 per cent is
completely distributed to the Employee Provident Fund ( EPF) account, the employer's
contribution is divided by 8.33 per cent into the employee's pension account and by 3.67 per cent
into the EPF account.

Organizations and employees often pay unfunded contributions and do so. However, the 2014
amendment, inter alia, limited the maximum pensionable income to INR 15,000 per month,
except all new members who received more than that pension amount (i.e. the 8.33 per cent
employer contribution referred to above will also go to the EPF account for those members) and
offered only a brief 6-month window for current members to choose whether or not they wished
to make an uncapped contribution.

As a result, the pension owed to workers has been drastically reduced, leading to petitions being
filed against this amendment.

In the example above, an employee earning INR 100,000 per month will be totally exempt from
the pension if he / she were a new PF member. For a current participant, their pension payment
will be limited to INR 1250 per month (i.e. 8.33 per cent of INR 15,000) unless they decided
within the 6-month timeframe to continue making uncapped contributions.

The judgment of the Hon'ble Kerala High Court on the Amended Gazette Notification

Judgment on the amended notification of the Hon'ble Kerala Supreme Court

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[(1963) 3 SCR 978]
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The High Court of Kerala has sent a variety of written requests questioning the validity of the
amendment in 2014. Following hearing the petitions, the Court of Kerala (P.Sasikumar vs. Union
Of India) held that the 2014 Amendment resulted in the creation, on a date (i.e. , 1 September
2014) of different groups of pensioners who received various pension benefits.

The High Court acknowledged that the EPF Act does not discriminate between members of a
regulated institution and recognizes employers rather than staff as a normal class. The benefits
derived by the EPF and by schemes (including Pensions Scheme) should also extend equitably to
that class of workers. Accordingly , the Court stated that this distinction had no reasonable or
legal justification, which would exclude most workers from their age by restricting the overall
pensionable income at INR 15,000 a month.

The High Court has also struck the provision for employers contributing above INR 15000 to
pay an extra 1.16% to the pension scheme.
It further claimed that the average annual salary computation of 60 months instead of 12 months
would dramatically decrease the pension, while thereby reducing it. The EPFO argued in this
way that the twelve-month period contributes to the exhaustion of the pension fund. However,
due to the lack of supporting evidence from the EPFO, the court dismissed this claim.

Hon’ble Supreme Court ordered, upholding the Hon’ble Kerala High Court Judgment  

6).EPF dues from a company under liquidation has to get priority

“Employees Provident Fund Commissioner Vs. O.L. of Esskay
Pharmaceuticals Limited (Supreme Court of India),2011”6

 The clause existed in view of the first payment on the establishment's assages of the
workers, as Article 11(2) was included in the EPF Act under Act No. 40 of 1973 and was
prioritized over all such debts owed by an employer in relation to its contributions.
However, the Parliament has not announced in its wisdom the working dues (including

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 Civil Appeal No. 9630 of 2011

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 different dues inclusive of provident funds), thus incorporating Section 529A into the
company Act by Law No.35 of 1985.

 The impact of the 1985 update to the Companies Act is to broaden the scope of the
workmen's dues and to carry it to line with the debts of secured creditors, and this
provision can not be viewed as prioritising the debts of the secured lender over the
provisor fund dues owed by the contractor.

 Clearly, after the employer's payment under the EPF Act is made, the remaining
employee duties shall be handled at a rate equivalent to the debts of the secured creditors,
and their payment shall be controlled by provisions of Section 529(1) as specified in
Sections 529(3), 529A and 530 of the company's law.

 In view of observation on with regard to the reading of section 11 of the EPF Act and
Sections 529, 529a and 530 of the Company Act, the judgment by the Gujarat High Court
Division which depended on and based on the understanding of Section 94 of the
Employees State Insurance Act, and Sections 529A and 530 of the Companies Act and
the Division Bench of the High Court while dismissing the applications filed by the
appellant, cannot be treated as laying down the correct law.
 Appeals are permitted in the results. The challenged decision and the order of the
company judge shall be set aside and the appellant 's demands for prayer shall be
acknowledged. The Official Liquidator appointed by the High Court will be depositing
the dues of PF payable by the employer within a period of 3 months

7). Linking PF with Aadhaar is not mandatory

“Justice K.S.Puttaswamy(Retd) vs Union Of India” 20187

 After the Employee Provident Fund Organization (EPFO) made Adhar card mandatory
to link with individual Provident Fund accounts, Many of tech. Giants and office
companies turned to the govt. to sort for relief

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WRIT PETITION (CIVIL) NO. 494 OF 2012
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  In this case H’onable SC stated that Linking Adhar is not mandatory for EPF. Thus,
linking your Aadhaar with Universal Account Number (UAN )is not mandatory.
 The Judgement states that “benefits earned by an individual” cannot be covered in
Section 7 of the Aadhaar Act.
 The verdict says, “It is clear that a benefit which is earned by an individual cannot be
covered under Section 7 of the Act, as it is the right of the individual to receive such
benefit.”
The statement impliedly states that the employees are no longer required to link their PF
account with Aadhaar. Also, the employer were not bound to confirm the PF details using
the Aadhaar card.
 EPF can’t be treated as a subsidy or a welfare scheme. Thus, there is no mandatory
requirement to link Aadhaar with UAN from now onwards.
Only those services that receive money from the Consolidated Fund of India have to be
linked with Aadhaar. EPF is not covered separately under the “Employees’ Provident
Fund and Miscellaneous Provisions Act, 1952” and not under the consolidated fund
 A 5 judge constitution bench held that “though Aadhaar would remain mandatory for
filing of I-T returns and allotment of Permanent Account Number (PAN), it would not be
mandatory to link Aadhaar to bank accounts and telecom service providers cannot seek
its linking for mobile connections also not mandatory to link it with PF accounts ”

8).CLUBBING OF ESTABLISHMENTS
“Milan biri factory Vs The regional provident fund commissioner , WB ,
20148
The apex court held that for clubbing 2 or more establishments for coverage under the
EPF & MP act 1952 following should be looked into -
 The management , employment , functional integrality , unity of ownership , condition of
service & General unity of purpose
 The employers own Conduct in mixing up or not mixing up the capital, staff and
management .
 If all units constitute one integrated whole , they would be treated as one but in case it is
to the contrary then each unit is a separate one.
 Whether one unit can exist conveniently and reasonably without the other or not.

9). Whether production bonus is included within the term

“basic wages”
 Bridge & Roof Co. (India) Ltd. vs. Union of India (UOI)9

8
(7) TMI 1198”
9
 1963 AIR 1474, 1963 SCR (3) 978

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 Issue-Whether production bonus is included within the term “basic wages” as defined in s. 2
(b) of the Act can be taken into account in calculating the provident fund contribution.

Held

Basis of Exclusion Clause:

The foundation of inclusion in Sec 6 and exclusion in clause (ii) is that whatever is payable
by employers and is earned by all permanent employees is included as basic wages for the
purpose, of contribution under sec 6, but which is not payable by employers or may not be
earned by all employees is not counted for the purpose of contribution.

Scope of the term, “Bonus”: When the 1952 act was passed the legislature could not
foreseen that different types of bonus could be awarded by different industries

The legislature used the term “bonus” in clause (ii) of the exception in s. 2(b), with a
intention to refer every kind of bonus which was prevalent in the industrial field before 1952.
When reference was made with respect to profit bonus, the term “bonus” had always been
limited by specifying the year for which the bonus was being claimed.

Therefore, ‘bonus’ did not mean profit bonus only. The use of the word “bonus” must refer to
bonus of all kinds. The reason for the exclusion of all kinds of bonus is the same, i.e.,
payment of bonus may not occur in all industrial concerns or it may not be made to all
employees of an industrial concern. Accordingly, bonus of all kinds are excluded from the
definition of the term “basic wages”.

Sec 2(b), says whatever was payable in cash as price for labour and arose out of contract
would be counted for the term “basic wages”, and that reward for labour which did not arise
out of contract might not be included in the definition. But the main part of the definition is
subject to exceptions in clause (ii), and those exceptions clearly show that they include even
the price for labour.

Conclusion: Production bonus is not to be included in “basic wage” for purpose

of calculating provident fund contribution.

10). Conducting proceedings under section 7A of the EPF Act

Sec.7A -Determination of Application of act and money due from employer

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Nature of Dispute

1. Dispute regarding applicability of act.

2. Amount due from any employer under any provision of the act and the scheme. The amount
due may be in respect of:

a. Contribution

b. Administration charges

c. Interest payable to employer for delayed payment

d. Any other amount payable for employer.

Who is empowered to determine the dispute?

1. Central provident fund commissioner.

2. Additional provident fund commissioner

3. Deputy Provident fund Commissioner

4. Regional Provident fund commissioner.

Powers of the Authority

1) Making necessary enquiries

2) Follow principles of natural justice
3) To pass necessary orders
4) To have same powers as vested in civil courts for-

(a) Enforcing attendance

(b) Requiring discovery and production of documents

(c) Receiving evidence on affidavit

(d) Issuing commissions for examination of witness

 Authorised Officer, Indian Overseas Bank vs. The Employee's Provident

Fund Organisation, 2019
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The madras high court observed that-

Sub-section (3) of section 7-A of the Act shows that no order shall be made under sub-section (1)
of section 7-A of the Act unless the reasonable opportunity of representing his case was given &
such Officers are vested with powers of a Civil Court while holding the proceedings.

 Sanjeeva Rao vs. C.B.I., 201210

The Bombay HC observed that-

While holding proceeding under 7-A of the EPF Act an officer acts as a Judge and entitled to
protection under Indian Penal Code and also under section 3(1) of the Judges (Protection) Act,
1985.
 
 The Authorised Officer, Indian Overseas Bank vs. The Employees' Provident
Fund Organisation and Others,2020 11
The Madras High Court observed that-
Section 7A of the Employees Provident Funds & MP Act provides that no order can be
passed without conducting a full-fledged inquiry as if the matter is decided in a civil suit in
respect of cover ability as well as determination of the amount.

CONCLUSION & SUGGESTIONS

In India provident fund is regulated by Social Security Act passed by the Government of India
i.e.
“Employees Provident Fund and Miscellaneous Provisions Act, 1952”. .
The purpose of this Employees Provident Fund and Miscellaneous Provisions Act, 1952 is to
provide retirement and old age benefits such as Provident Fund, Deposit Linked Insurance
Superannuation Pension, etc. with the intent to protect the interest of workers recruited in
factories and other establishments.
While interpreting the EPF act, the court took the view of liberal interpretation. Since, EPF is the
beneficial legislation, the court while giving the judgement kept the interest of employees &
given beneficial interpretation in favor of them.

10
LLR 1116
11
2020 LLR 96

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Considering the difficulty faced by the employers for any period during lockdown, It is
suggested that the EPFO, to not to take contribution or administrative charges, also employer
should be allowed to withdraw PF.

BIBLIOGRAPHY

The researcher will be relying on following sources for research .The sources is not limited &
may get amended while writing the research.
i) Web sources

1. indiankanoon.org

2. azbpartners.com/bank/supreme-court-ruling-on-provident-fund

3. epfindia.gov.in

4. labour.nic.in/lcomm2/nicreporthtm

5. casemine.com

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2) Articles & other resources
i) The Employees’ Provident Funds & miscellaneous act, 1952
ii) HM Sharma , Aispects of labour welfare and social security , edition 1 2003, Himalayan
publication house
iii) K.D. Shrivastav , commentaries on provident fund and miscellaneous provision act 1952,
edition 1 1982 eastern book company , Lucknow.
iv) businessmanager.in/articles_on_epf
v) http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-
single-view/article/construction-sector-workers-in-india-eligible-to-social-security-
benefits.html?no_cache=1&cHash=e3c67e7a58ff9b8f588f3d722d398584

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