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1962 Supreme(SC) 101
SUPREME COURT OF INDIA
14th March, 1962
B.P. SINHA, C.J.I., K. SUBBA RAO, N. RAJAGOPALA AYYANGAR, J.R. MUDHOLKAR AND T.L. VENKATARAMA AYYAR, JJ.
M/s. Orissa Cement Ltd., and others, Petitioners
Versus
Union of India and others, Respondents.
Petition No. 17 of 1961.
Advocates appeared
Mr. A. V. Vishwanatha Sastri, Senior Advocate (M/s. K. C. Jain and B. P. Maheshwari, Advocates, with him), for Petitioners; Mr. Bishan Narain, Senior Advocate, (M/s. Sukumar Ghose and P. D. Menon, Advocates, with him), for Respondents.
A.V.VISHWANATHA SASTRI, B.P.MAHESHVARI, BISHAN NARAIN, K.C.JAIN, P.D.MENON, SUKUMAR GHOSH
A statutory scheme requiring an employer to pay an employee's contribution and recover it solely via wage deduction is unreasonable and unconstitutional if extended to principal employers of contract labour, as they cannot deduct sums from wages paid by third-party contractors.
Headnote:(A) Employees Provident Funds Act, 1952 - Sections 5, 6(1), 7(1) - Constitution of India - Articles 19(1)(g) and 19(6) - Extension of Provident Fund benefits to employees employed through contractors - Validity of notifications - The objective of extending benefits to contractor employees is in the public interest and falls within the scope of Article 19(6) - However, the means adopted are unreasonable if the principal employer is required to pay the employee's contribution but is denied the right to recover it through wage deductions because the wages are paid by the contractor. (Paras 6, 9, 10)
(B) Contract Labour - Principal Employer’s liability - Where the scheme requires the employer to pay the full contribution and recover the employee's share from wages, such a provision is inapplicable to a principal employer who has no privity of contract with the workmen and does not pay their wages - Imposing the liability without the correlative right of recovery results in unfair discrimination between employers of direct labour and employers of contract labour. (Paras 9, 10)
Facts of the case:
A company challenged the validity of two notifications issued by the Central Government under the Employees Provident Funds Act, 1952. These notifications extended the benefits of the Provident Fund Scheme to employees employed through contractors. The petitioners contended that these notifications imposed an unreasonable burden on their business, infringing upon their right to carry on trade and business under Article 19(1)(g) of the Constitution.
Findings of Court:
The notifications are unconstitutional and void as they operate unfairly and harshly on persons who employ contract labour, creating an unreasonable discrimination between those who employ contract labour and those who employ direct labour.
Issues: Whether the notifications extending Provident Fund benefits to employees employed through contractors are reasonable restrictions under Article 19(6) of the Constitution, given that the principal employer cannot recover the employee's contribution from wages paid by a contractor.
Ratio Decidendi: While the goal of providing social security to contractor employees is legitimate, the mechanism for recovery (deduction from wages) is impossible for a principal employer to exercise. Since the law requires the employer to pay the full contribution initially and recover the employee's share "and not otherwise" than by deduction from wages, the principal employer is left to bear the employee's share of the contribution. This makes the scheme unreasonable and discriminatory.
Result: Petitions allowed.
VENKATARAMA AIYAR, J. : The first petitioner is a company carrying on business in the manufacture of cement in the State of Orissa and petitioners Nos. 2 and 3 are two of its Directors. They have filed the present petition under Art. 32, challenging the validity of two notifications dated January 15, 1958 and December 2, 1960 issued by the Central Government under S. 7(1) of the Employees Provident Funds Act, 1952 hereinafter referred to as "the Act". It will be convenient to first set out the relevant statutory provisions bearing on the question. The Act was passed for the purpose of providing for the institution of Provident Funds for the employees in factories and other establishments. Section 5 of the Act, which deals with this matter is as follows :
"5. Employees Provident Fund Schemes.(1) The Central Government may, by notification in the Official Gazette, frame a Scheme to be called the Employees Provident Fund Scheme for the establishment of provident funds under this Act for employees or for any class of employees and specify the establishments or class of establishments to which the said Scheme shall apply and there shall be established, as soon as may be after the framing of the Scheme, a Fund in accordance with the provisions of this Act and the Scheme.
(2) A Scheme framed under sub-see. (1) may provide that any of its provisions shall take effect either prospectively or retrospectively on such date as may be specified in this behalf in the Scheme."
Section 6(1) which provides for the employer making contribution to the Fund runs as follows :-
6(1) The contribution which shall be paid by the employer to the Fund shall be six and a quarter per cent, of the basic wages, dearness allowance and retaining allowance (if any) for the time being payable to each of the employees, and the employees contribution shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires and if the Scheme makes provision therefor, be an amount not exceeding eight and one third per cent, of his basic wages dearness allowance and retaining allowance (if any) :
Provided that where the amount of any contribution payable under this Act involves a fraction of a rupee, the Scheme may provide for the rounding off of such fraction to the nearest rupee, half of a rupee or quarter of a rupee."
Under S. 7 the Central Government may by notification in the Official Gazette, add to, amend or vary any, Scheme framed under this Act. Section 14 prescribes penalties for any contravention of the Provisions of the Act or default in compliance with them.
2. In exercise of the Powers conferred by S. 5 of the Act, the Central Government published on September 2, 1952, what is called the Employees Provident Funds Scheme, 1952, para 2(f)(iii) of the Scheme defines "Excluded Employees" as meaning the employees employed by or through a contractor. Under Para 3 the provident fund standing to the credit of an employee vests in the authorities constituted thereunder. Para 26 provides that every employee employed in a factory or establishment other than an excluded employee shall be required to become a member of the fund if he has completed one year s continuous service, in the factory or establishment, and there is a proviso that if the employee has actually worked in the factory or establishment for not less than 240 days, he shall be deemed to have completed one year s continuous service. Paras 30 to 32 deal with contributions to be made by the employer and they are as follows :
"30. The employer shall, in the first instance pay both the contribution payable by himself (in this Scheme referred to as the employer s contribution) and also, on behalf of the member employed by him, the contribution payable by the member (in this Scheme referred to as the member s contribution)".
"31. Notwithstanding any contract to the contrary the employer shall not be entitled to deduct the employer s contribution from the wage of a
