Citation: 2012 LLR 22
Decided On: 20.09.2011
Court: High Court of Delhi
Regional Provident Fund Commissioner, Faridabad (Haryana) (“Commissioner“) initiated proceedings under Section 7A of the Employees Provident Fund & M.P. Act, 1952 (“Act“) against the Petitioner on the ground that Petitioner had allegedly violated the Act by not depositing provident fund contributions on the additional component of HRA, conveyance allowance and washing allowance as paid by it to its employees (security personnel employed by Petitioner for its clients). Commissioner, therefore, directed the Petitioner to pay additional provident fund contributions on the amount shown as HRA, conveyance allowance and washing allowance.
Upon appeal by the Petitioner, the Tribunal dismissed the appeal holding that Petitioner was supplying security personnel as a contractor and that all these personnel were the employees of the establishment where they were deputed. Accordingly, it was held that since the employees were employed by Petitioner for the principal employer, the principal employer/establishment where the personnel were deputed was liable to pay provident fund contributions of those employees.
- Whether the security guards/personnel provided by the Petitioner to its clients would be Petitioner’s employees or that these personnel would be the employees of the client/establishment to whom they are provided.
- Whether there was any additional liability payable in respect of those personnel by their employer.
Issue 1: Whether the security guards/personnel provided by the Petitioner to its clients would be Petitioner’s employees or that these personnel would be the employees of the client/establishment to whom they are provided.
The Petitioner is engaged in the activities of providing “security guard services” which is recognized under the Act as primary activity and not as an agency. Petitioner is an establishment with large number of employees and is directly covered by the provisions of the Act. Further, Petitioner has been allotted a provident fund (PF) code number for direct compliance of the provisions of the Act. Such code number is allotted to the employers and not to the contractors.
Section 2(e)(ii) of the Act defines employer in relation of any other establishments, as the person who, or the authority which, has the ultimate control over the affairs of the establishment. The Court concluded that Petitioner clearly falls within the meaning of employer under Section 2(e) of the Act in respect of its personnel deputed at various establishments and factories by observing the following facts:
- The security personnel/guards not only received their appointment letters, but also wages and allowances from the Petitioner after signing the registers maintained by Petitioner and were governed by the terms and conditions of their services with Petitioner.
- The clients of Petitioner had no control in the fixation of terms and conditions of the service of security guards.
- The security personnel were deputed by Petitioner in the establishment of their clients not permanently, but, on rotation and transfer basis depending upon the requirement and exigency of the services related to its clients.
- The clients had no disciplinary control over those personnel.
The High Court of Delhi also referred to the decision of Orissa High Court in Basanta Kumar Mohanty vs. State of Orissa [1992 (1) LLS 190] in which it was held that the Security and Detective Service (India) Ltd. which was providing security services to Talcher Thermal Power Station (“Talcher“) was not a contractor in relation to the employees deputed by it to Talcher nor was it required to obtain a license as contractor under the Contract Labour Act thereby holding that the contract between them was a principal to principal contract for services and not for supply of labour.
Conclusion: Personnel provided by Petitioner to its clients were not provided as a contractor, but on principal to principal basis. Thus the clients of Petitioner cannot
be termed as the principal employer of those security guards provided by Petitioner.
Issue 2: Whether there was any additional liability payable in respect of those personnel by their employer.
Section 6 of the Act makes it mandatory for the employer to contribute to the Provident Fund on the basis of wages, dearness allowance, retaining allowance as
payable to its employees. It is the obligation of the employer alone to contribute to the fund.
The definition of basic wages under Section 2(b) of the Act, has an exclusive clause in which various allowances including HRA, overtime allowance, bonus, commission or any other similar allowances have been provided so as to enable the employer and employee to determine their liability to make contribution to Provident Fund.
Conclusion: The view taken by the Commissioner and the Tribunal was based on a wrong interpretation of the provision of law and must be quashed.
Author: Vivek Verma
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