Sub: Deduction of EPF Contributions by the Contractors

& Off : 26613091 / 26607167 42103360 / 26761877 Email : kea@kea.co.in Web : www.kea.co.in KARNATAKA EMPLOYERS' ASSOCIATION NO.74, 2 nd FLOOR, SHANKARA ARCADE, VANIVILAS ROAD, BASAVANAGUDI BENGALURU - 560 004 Reg. No. TU 507 / 20-3-1962 CIRCULAR No.102/2015 To All Members of the Association Date : 19-11-2015 Sub: Deduction of EPF Contributions by the Contractors 1. The Employees Provident Fund Organisation has advised all Enforcement Officers that while visiting the establishment, they should invariably examine the compliance position in respect of the employees of the contractor by the principal employer and control system in place so that the principal employer ensures remittance of EPF dues by contractor before releasing the payment of contractor s bills. 2. A copy of the Internal Circular dated 6.11.2015 issued by the Provident Fund Organisation to its Field Functionaries is enclosed. 3. Mr.H L Kumar, a Leading Advocate on Labour Laws and also the Chief Editor Labour Law Report (LLR) has taken up with the Central Provident Fund Organisation and has inter-alia requested the PF Organisation to review their decision. 4. A copy of the Letter dated 17.11.2015 addressed by Mr.H L Kumar to Shri Shyam Sunder, Regional PF Commissioner (Compliance), Head Office of the Provident Fund Organisation is enclosed for the information of the Members. 5. KEA is in full agreement with the stand taken by Mr.H L Kumar and also appreciates his quick response to the instructions issued by the P.F. Organisation. 6. The Members are further advised to take up the matter with the Central Provident Fund Commissioner by quoting the Letter of Sri.H L Kumar. A Draft of the Letter to be addressed to the Provident Fund Organisation is enclosed. for KARNATAKA EMPLOYERS' ASSOCIATION sd/- (B.C. PRABHAKAR) PRESIDENT

To Shri Shyam Sunder Regional PF Commissioner (Compliance) Employees Provident Fund Organisation Ministry of Labour & Employment, Govt. of India 14, BhikajiCama Place, New Delhi - 110 066. Sub : Deduction of EPF Contribution by Contractors Sir, This refers to your communication No.C-III/4/3/(158)/SC(Contract Workers)/2014/HQ/29325 dated 6.11.2015 regarding instructions to the EOs that while visiting establishments that they shall invariably examine the compliance position in respect of contractor employees by the principal employer and the control system in place so that the Principal Employer ensures remittance of EPF dues by contractor before releasing the payments of contractor s bills. It can be made out that as long as there were no judgments of the High Courts holding that the principal employer will be liable for the dues payable by a contractor but now in successive judgments the High Courts have held that the principal employer will not be liable for any default of the payment by the contractors who have their independent code numbers issued by the Employees Provident Funds Department. It can also be made out that the sudden instructions as issued are on the backdrop of the recent judgment of the Punjab & Haryana High Court in M/s. Calcutta Constructions Company vs. Regional Provident Fund Commissioner and others, 2015 LLR 1023 holding that when code number is allotted to a contractor under the Employees Provident Funds and Miscellaneous Provisions Act, 1952, it becomes an employer under section 2(e) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 making it liable to pay EPF contributions of its employees. It appears that provident fund authorities have an ulterior motive to disregard the rule of law and to honour the dignity of High Courts by issuing impugned instructions which are against the spirit of the judgments not only one quoted above but other also which are being summarised as under. Before making reference to the direct judgments of the High Courts and also of Supreme Court, it is pertinent to state here on allotment of independent code number (after complying with the prescribed conditions) and submitting the list of 20 or more employees, a contractor acquires the status of employer (may it be a Company, firm, society or sole proprietorship) and becomes responsible for deposit of Employees Provident Fund contributions and other compliances. Besides that administrative charges are paid to the EPFO by such employers who were hitherto contractors. The establishment of contractor maintains records

of the employees, submits nomination forms, returns and complies with other formalities like maintenance of inspection book, etc. etc. it is intriguing as to why a principal employer should be asked to ensure the compliance position in respect of contractors employees as stated in circular dated 6.11.2015.. So far as the implications under Employees Provident Funds & MP Act, (hereinafter referred to as Provident Fund Act) are concerned, it has gone a sea change over the last, more than a decade. Till 22 nd March, 2001 the contractors were not allotted independent code numbers under Provident Fund Act and, as such, their workers were covered on the code number of the principal employers. The Scheme of Provident Fund Act provides that a code number is to be allotted to an establishment only then it will be entitled to deduct and deposit the contributions of the employees and the employer. While allotting code number, every establishment including a contractor has to comply with following requirements :- 1. Application Proforma for Coverage duly complete. (on Company letter head) 2. Copy of Memorandum / Partnership Deed etc., whatever applicable. 3. List of present Employees with salary break-up details and dates of appointment and parentage etc. 4. Chart showing number of employees, month wise from the date of start of business. 5. Chart showing number of employees, month wise, engaged through contractor(s) 6. Date of commencement of business. 7. Copy of first invoice, if any. 8. List of Directors / Partners, i.e., Names, parentage, addresses, etc. 9. Proof of residences of Directors. 10. Identification document of Directors. 11. Particulars of the Bank Account of the Company 12. One blank cancelled cheque leaf. 13. Pan number of the Company. 14. Pan numbers of Directors/Partners/Proprietor 15. Proof of ownership / tenancy, etc. of the premises. 16. Board Resolution / Authority. 17. Copy of Aadhar card (though not required immediately, but start obtaining from employees) When a contractor obtains independent code number, his or her obligations get increased vis-à-vis the employees. On allotment of code number, the Provident Fund Authorities recognize the contractor as employer since it has to comply with all the prescribed conditions including deposit of employer s contributions. A principal employer cannot be held responsible for the omissions and commissions of the contractor s employees. Neither the Provident Fund Act or the Scheme defines principal employer but only an employer.

In Pardeep Kumar vs. Presiding Officer and another, 2015 LLR 726, the Punjab and Haryana High Court has held that employer-employee relationship, in respect of principal employer, would not exist if the contractor, engaged in supply of man-power, is having a valid licence under the Contract Labour (Regulation and Abolition) Act, 1970, records of payment of wages and attendance show payments made by the contractor, EPF Employee Code number allotted to the workman is through the firm of the Contractor. Despite allotment of code number under the Provident Fund Act, some of the contractors default in depositing the contributions of their workers or delay in timely depositing the same. As and when such contractors default, the Provident Fund Authorities hold the principal employer liable for the dues. A question arises as to whether the principal employer can be held liable to pay Provident Fund dues payable by the contractor. When asked about the justification of such demand, the Authorities under the Provident Fund Act refer to paragraph 30(3) of Employees Provident Fund Scheme, 1952 providing that it shall be the responsibility of the principal employer to pay both the contributions payable by himself in respect of the employer directly employed by him and also in respect of the employees employed by or through a contractor and also administrative charges. It is pertinent to state here that paragraph 30 of the Scheme could be relevant only till 22 nd March, 2001 when the contractors were not allotted code numbers under the Provident Fund Act. However, for the applicability of Provident Fund Act, a contractor is treated as an establishment or employer when code number is allotted after satisfying about completion of all the formalities. As an independent establishment, it is responsible for payment of EPF contributions and other dues payable under Provident Fund Act, the principal employer cannot be asked by the Provident Fund Authorities in case a contractor holding independent code number defaults the Provident Fund dues. It is pertinent to state here, that the contractor in the capacity of an employer of its establishment pays 0.85% towards administrative charges in addition to its matching contribution which is termed as employers share of EPF contributions. The Employees Deposit Linked Insurance Scheme (like EPF Scheme in Chapter V) in its paragraph No.8 categorical provides as under : 8. Mode of payment of contribution (1) The contribution by the employee shall be remitted by him together with administrative charges at such rate as the Central Government may fix from time to time under subsection (4) of section 6C of the Act (at present the rate of contribution is @ 0.5% of Insurance Fund and its administrative charges @ 0.01%) to be deposited within fifteen days of the close of every month by a separate bank draft or cheque or by remittance in cash in such manner in may be specified in this behalf by the Commissioner. The cost of remittance, if any, shall be borne by the employer. (2) It shall be the responsibility of the employer to pay the contribution payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor..

(The Scheme says employer and not the contractor who makes the payment). The judgment of M/s. Calcutta Construction Company (supra) has dealt Para 30 of the Employees Provident Fund Scheme and is produced below : In the instant case, it is a matter of record that all the employees/workers employed by the contractor were paid salary by the petitioner-contractor. The petitioner- contractor has also been allotted a separate code number. Thus the plea that it is the establishment who has the control over the affairs of the Company thus is liable to pay contribution of the employees falls flat on the face of the petitioner contractor. Even going by the language of para 30 of the Scheme as referred to by the appellate authority in the order under challenge dated 16.09.2010 it reveals that it is the employer who in the first instance avail the contributions paid by himself and also on behalf of the employees employed by him directly or indirectly and thereafter the employee employed by the employer or his contractor shall recover the contribution payable by such employees. The aforementioned provisions envisages the situation where the contractor has not been allotted code number, for the reasons that in such situation the employee should not be made to suffer. In a landmark judgment Food Corporation of India vs. The Provident Fund Commissioner and ors., 1990 LLR 64 the Supreme Court has observed that it is indeed a large amount for the determination of which the Commissioner has only depended upon the lists furnished by the workers Union. It is no doubt true that the employer and contractors are both liable to maintain registers in respect of the workers employed. But the Corporation seems to have some problems in collating the lists of all workers engaged in depots scattered at different places. It has requested the Commissioner to summon the contractors to produce the respective lists of workers engaged by them. The Commissioner did not summon the Contractors or the lists maintained by them. He has stated that the Corporation has failed to produce the evidence. While allowing the appeal that the powers of the Civil Court under section 7A of the Act to be the determining authority under Provident Fund Act was given by law. This power was given to the Commissioner to decide not abstract questions of law, but only to determine actual concrete differences in payment of contribution and other dues by identifying the workmen. Despite above, the Provident Fund Authorities keep on fastening the liability for the default of the contractors upon the principal employer. In Brakes India Ltd. Vs. Employees Provident Fund Organisation, Vellore, 2015 LLR 635 the Madras High Court has held that EPF Authority not entitled to recover either PF contribution or damages from the principal employer in respect of employee engaged through contractors, registered with the PF Department, having independent code number. Contractors, registered with the PF Department, having independent code number, are to be treated as independent employer.

Earlier in Group 4 Securitas Guarding Ltd. & Another vs. Employees Provident Fund Appellate Tribunal &Ors., 2012 LLR 22 the Delhi High Court has held that where the contractor, being employer providing services of man-power, is having control over the personnel being supplied by him to the establishments by way of issuance of appointment letters, making payment of wages and other allowances, taking disciplinary actions, effecting their placement, transfer and termination of services, the relationship between such a contractor and the establishment where the man-power is supplied by him would be of principal to principal and not that of employer-contractor. Mere deliberations that too at the instance of one of the members does not justify that a responsible officer knowingly to supersede and bypass the judgments of the High Courtsinter alia interpreting the provisions of the Employees Provident Fund Act and the Schemes. If at all, the EPFO is aggrieved, the avenue the filing of the appeals in Supreme Court is open instead of the principal circumventing the judgments of the High Courts by advising the Enforcement Officers to arm twist the principal employer by asking them for compliances by the contractors processing independent code numbers. The administrative wisdom calls for withdrawing the impugned instructions lest it may lead to litigation since by these instructions the dignity of court is besmirched that too by a senior public official. May I also take liberty to know who is that great solitary member out of more than 40 members of the Central Board of Trustees at whose instance the instructions have been issued to deviate from the spirit and ratios of the aforesaid judgments. Also provide me the minutes to ascertain as to whether the deliberators have considered the direct judgments of the High Courts before suggesting to the EPFO to issue Guidelines in the impugned circular dated 6.11.2015. Also confirm whether the above mentioned judgments have been placed before CBT for deliberations. These judgments were direct on the subject for deliberation and in all these cases the EPFO had been parties either as Respondents or the Defendants hence the ignorance cannot be an excuse but a deliberate suppression. Assuming though not admitting that the instruction dated 6.11.2015 are to be given effect (since it also stated You may also issue suitable guidelines to the employers in the matter and attempt giving wide publicity through news media wherever possible, which goes against the provisions of the Contract Labour (R&A) Act defining workman in clause (b) of section 2 which reads as under : 2(b). A Workman shall be deemed to be employed as contract labour in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor with or without the knowledge of the principal employer. The principal employer is not under obligation to know who are the workers of the contractor hence the instructions are against the scheme and spirit of the Contract Labour (R&A) Act, 1970. The Scheme of the Contract Labour (R&A) Act stipulates that the principal employer will not be supervising the workers of the contractor otherwise the contract labour system will be rendered as sham, ruse

and camouflage as held in in Steel Authority of India Ltd. vs National Union Water Front Workers, 2001 LLR 961 (SC). In view of the above, the above instructions are totally against the judgments as quoted above and be withdrawn forthwith. It is prayed accordingly. Yours faithfully, ( H.L. KUMAR ) Editor : Labour Law Reporter CC to : 1. The Secretary Ministry of Labour & Employer Shram Shakti Bhawan KidwaiMarg, New Delhi - 1. 2. Members of the Board of Trustees 3. Mr. Harish Aggarwal Advocate for M/s. Calcutta Constructions Company Punjab & Haryana High Court Chandigarh.

DRAFT: To: The Central Provident Fund Commissioner Provident Fund Organization Head Office: 14, Bhikaji Cama Place NEW DELHI 110 066 Date: Dear Sir, Sub: Deduction of EPF Contribution by Contractors 1. We have come across Internal Circular of the Provident Fund organisation dated 11.6.2015 wherein the Enforcement Officers have been advised that while visiting the establishment, they should invariably examine the complaint s position in respect of the employees of the contractor by the principal employer and control system in place so that the principal employer ensures remittance of EPF dues by contractor before releasing the payment of contractor s bills. 2. The law on the point is now well settled that the Contractors registered with the P.F. Department, having independent Code Number are to be treated as Independent Employer. The instructions issued by the P.F. Organisation is, therefore, not in accordance with the legal position. 3. In the above context, we would like to refer to the Letter dated 17.11.2015 addressed by Mr.H L Kumar, Advocate, Supreme Court of India and the Chief Editor of Labour Law Reporter(LLR) addressed to Mr.Shyam Sunder, Regional PF Commissioner(Compliance), Employees Provident Fund Organisation. 4. We fully agree with the various contentions raised by Mr.Kumar which are duly supported by the decisions of the High Courts and Supreme Court. Mr.H L Kumar has made out a strong case for reviewing the above instructions and withdrawal. 5. The instructions as contained in your Letter dated 6.11.2015 would only serve as a tool for the Field Functionaries to harass the employers even though the matter is well settled and the Principal Employer cannot be held liable for the statutory liabilities of the Contractor who has been allotted Code Number by the P.F. Department after the contractor fully complied with the requirements of allotment of Code Number and he is to be treated as an independent employer for the purpose of EPF Act. 6. We, therefore, urge upon you to withdraw the instructions issued to the Field Functionaries vide your Letter dated 6.11.2015 forthwith. Thanking you, Yours faithfully, For xxxxxxxxxxxxx