M/S. Orissa Cement Ltd. Vs. Union of
India  INSC 92 (14 March 1962)
14/03/1962 AIYYAR, T.L.
VENKATARAMA AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ) SUBBARAO, K.
AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R.
CITATION: 1962 AIR 1402 1962 SCR Supl. (3)
CITATOR INFO :
RF 1980 SC1789 (36) D 1987 SC 447 (9) D 1991
Provident Fund-Contract. labour- contribution
to provident fund-If and when principal employer liable-Provident Fund Act 1952
(XIX of 1952), ss. 5, 6, 7-Employees' Provident Fund Scheme, paras. 30, 31, 32,
73A-Notification No. S.B.O. 331. dated January 15, 1958-Notification No. G.S.R.
1467 dated December 2, 1960.
The Central Government under s.5 of the
Provident Funds Act, 1952, published a Scheme under the Act for the
establishments of the Provident Fund. Paragraph 2(f) (iii) of the Scheme
defined "Excluded Employees" meaning employees employed by or through
a contractor. Section 6 of the Act and paras. 30 to 32 of the scheme provided
for the employer making contribution to the fund and the combined effect of s.6
and paras. 30 to 32 of the Scheme is that the contribution to the Provident
Fund is to be 12-1/2% of the basic wages and dearness allowance, that is to be
borne equally by the employer and the employee and that the employer is to a
the whole or it, half on his account, and the other half on account of the
employee and he is to re-couple himself by deducting it from the wages of the
employee. Paragraph 26 of the Scheme provided that every employee in a factory
or establishment other than excluded employee shall be regarded to become a
member of the fund if he has completed one years continuous service.
The Government by Notification No. S.R.O. 351
dated January 15, 1958, amended Para. 2(f)(iii) of the Scheme, whereby.
all employees employed by contractor who were
directly connected with any manufacturing process carried out in a factory or
establishment became entitled to the benefit by the Act. Another Notification
No. G. R. E. 1457 dated December 2, 1960 repeated the said para. 2(f)(iii)
added a new para. 73A. This amendment had the effect of abolishing the
distinction between the workmen employed by the contractors who were directly
connected with the manufacturing process in the factory or establishment, and
those who were not so connected all of whom became entitled to the 838 benefit
of the Scheme. The authorities issued notice on the petitioner to comply with
the changes introduced by the amendments.
The petitioner filed petition under Art.32 of
the Constitution challenging the validity of the two notifications as
unreasonable restrictions and not falling within Art. 19(6) and that they
should be struck down as infringing Art.
19(1)(g) of the Constitution.
Held, that the Notification dated January 15.
1958 and December 21, 1960 are unconstitutional and void.
Section 6(1) of the Act is to make the
employer liable only for a moiety of the provident fund and while the scheme of
1952 is well designed to carry out this intentions in its application to
workmen directly employed, by reasons of the combined operation of paras. 30
and 32, it breaks down in its extension to contract labour by reason of the
inapplicability of para. 32. It operates unfairly and harashly on persons who
employ contract labour and it further results in discrimination between those
who employ contract labour and those who employ direct labour. The scheme
therefore cannot be said to be reasonable and must be struck down as not
falling within the protection afforded by. Art. 19(6).
ORIGINAL JURISDICTION : Petition No. 17 of
Petition under Art. 32 of the Constitution of
India for enforcement of Fundamental Rights.
A.V. Viswanatha Sastri, K. O. fain and B. P.
Maheshwari, for the petitioners.
Bishan Narain, Sukumar Ghose and P. D. Menon,
for the respondent.
1962. March 14. The Judgment of the Court was
delivered by 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
32, challenging the validity of two
notifications dated January15, 1958, and December 2, 1960, issued 839 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-section (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 so follows:"6(1) The contribution
which shall be Raid 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 840 and may, if any employee so desire& and if the Scheme
makes provision therefore, 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.
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 there under.
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 deemed to have completed one years 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 841 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 employers contribution from the
wage of a member or otherwise to recover it from him." "32. (1) The
amount of a member's contribution paid by the employer shall notwithstanding
the provisions in this Scheme or any law for the time being in force or any
contract to the contrary be recoverable by means of deduction from the wages of
the member and not otherwise :
Provided that no such deduction may be made
from any wage other than that which is paid in respect of the period or part of
the period in respect of which the contribution in payable Provided further
that the employer shall be entitled to recover the employee's share from a wage
other than that which is paid in respect of the period for which the contribution
has been paid or is payable where the employee has. in writing given a false
declaration at the time of joining service with the said employer that be was
not already a member of the Fund :
Provided further that where no such deduction
has been made on account of an accidental mistake or a clerical error, such deduction
may, with the consent in writing of the Inspector, be made from the subsequent
842 (2)Deduction made from the wages of a
member paid on daily weekly or fortnightly basis should be totaled up to
indicate the monthly deductions.
(3)Any sum deducted by an employer from the
wage of an employee under 'this Scheme &all be deemed to have been
entrusted to him for the purpose of paying the contribution' in respect of
which it was deducted-" The combined effect of s. 6 and Parse 30 to 32 of
the Scheme is that the contribution to the Provident Fund is to be 121/2 per
cent. of the basic wages, and dearness allowance, that it is to be borne
equally by the employer and the employee, and that the employer is to pay the
whole of it, half on his account, and the other half on account of the
employee, end he is to recoup himself by` deducting it from the wages of the
employee. Such deduction would be possible only when the employer is the person
who has to pay wages to the employee and that is why employees employed by or
through a contractor were included In the definition of "excluded
persons" to whom under Para 26 the Scheme had no application. These
employees would be paid by the contractor and the question of deduction of
wages by the principal employer, i.e, the person who is in charge of the
factory or establishment, will not arise.
It is said that with a view to avoid their
contribution under the Act, the employers resorted increasingly to the device
of employing workmen through contractors, and the Government accordingly deemed
it expedient to amend the provisions of the Scheme so as to secure the benefits
thereof to employees who were employed through contractors.
To carry out this purpose, a notification was
843 issued on January 15, 1958 No. S.R.O. 331 substituting for Para 2(f)(iii)
of the Scheme as it stood in 1952 the following :"(iii) an employee
employed by a contractor in any operation not directly connected with any
manufacturing process carried on in the factory or other establishment, or
Explanation--In respect of an employee employed by a contractor who is not an
excluded employee under this paragraph, the principal employer shall be respond
for complying with the provisions of the Act and the Scheme;
The result of this amendment was that all
employees employed by contractors who were directly connected with any
manufacturing process carried on in the factory or the establishment became
entitled to the benefits under the Act.
On May 11, 1959, Para 26 was suitably amended
so as to conform to the notification dated January 15, 1958. Even this
notification was felt to be inadequate for achieving the objects of the
legislation and therefore in exercise the powers conferred by s. 7(1) of the
Act Government issued a fresh notification No. G.S.R. 1467 on December 2, 1960,
whereby it repealed Para 2(f) (ii) as it then stood and added a new Para 73A as
follows :"73A. Where an employee is employed by, or through, a contractor
in, or in connection with, the work of an establishment, the principal employer
shall be responsible for complying with the provisions of the Act and this
Scheme in relation to such employee." This amendment had the effect of
abolishing the distinction made by the amendment of 1958 between 844 workmen
employed by contractors who were directly connected with the manufacturing
process in the factory or establishment, and those who were not so connected,
all of whom became entitled to the benefits of the Scheme.
The authorities constituted under the Act
issued notices to the first Petitioner drawing its attention to the changes
introduced by the notifications and asking it to comply with their provisions,
to which the management replied pointing out the practical difficulties in the
way of implementing them as regards workmen brought in by contractors. A long
correspondence followed culminating in a threat by the respondents to take
penal proceedings under s. 14 of the Act. Thereupon the petitioners have filed
the present petition, raising the question of the constitutionality of the two
notifications dated January 15, 1958 and December 2,1960. They contend that
they throw a heavy burden on their business and cannot, in consequence, be
upheld as reasonable restriction within Art. 19(6) and must be struck down as
infringing Art. 19(1)(g) of the Constitution. The respondents on the other hand
maintain that they are beneficent legislation enacted in the interests of the
public and are within the protection of Art. 19(6).
Now there can be no question that the
impugned notifications are, conceived in the interests of the public. The
Scheme framed under the Act in 1952 conferred benefits of provident fund on
workmen directly employed in factories or establishments but large sections of
them working there under similar conditions but employed by contractors were
excluded from its purview. This was obviously a discrimination for which' there
was no justification and it was this that was sought to be removed by the
notifications in question. It is not contended by the petitioners that the
object behind these notifications is not such as would fall within 845 Art.
19(6). What is urged is that the means and modus adopted for achieving it are
unreasonable and that therefore the, Scheme must be held to violate Art. 19(1)
(g) It is argued that when the Government decided to confer the benefits of
provident fund on workmen who were employed through contractors, instead of
framing provisions appropriate to their character as employees of contractors,
it simply extended to them the provisions which had been framed in 1952 with
reference to workmen directly employed without regard to the difference in the
situations in which the two classes of workmen were placed. This, it is
contended, has led to results as unjust as unforeseen, and the Scheme must
therefore be held not to be within the saving of Art. 19(6).
In order to decide how far this objection is
well founded we must examine the distinction between contract labour and direct
labour to the extent that it bears on the provisions of the Scheme. When the
principal employer engages contract labour there is no privity of contract
between him and the workmen who actually do the work. It is the contractor who
engages them, and pays wages to them. The principal employer has as such no
direct relationship with them. Now the argument of the petitioners is that the
obligation of the employer to contribute every month to the provident fund an
amount equal to six and a quarter per cent. of the wages and dearness allowance
of the employee is incapable of performance as the principal employer is not in
a position to know what wages had been agreed between the contractor and his
employees and that further as the factory or establishment maintains no muster
rolls as regards workmen employed through contractors, it is not possible for
the principal employer to know whether a workmen is a casual labourer, or
whether he is entitled to the benefits of the Scheme under Para 26, by reason
of his 346 having put in continuous work for the requisite period.
The difficulties suggested by the petitioners
are not without substance but they are not, in our view, of sufficient weight
to overthrow the Scheme. It is true that they could have been eliminated if the
Scheme had enacted a provision imposing on the contractors an obligation to
give a statement in writing to the principal employer containing the necessary
particulars about the workmen and their wages.
But even apart from such a provision there
should be no difficulty in the principal employer requiring the contractor at
the time of the agreement to give those particulars, so as to protect himself.
Nor is there any point in the contention that the workmen may be casual
labourers and the principal employer would not be in a position to ascertain
whether a particular workmen is entitled to the benefits of the-Scheme under
Per& 26 because under that par& the workman can claim the benefits of
the Scheme only if he works continuously for a period of not less then 240 days
in that very factory or establishment, and that is a matter which is capable of
being ascertained by the principal employer.
A more serious objection to the extension of
the Scheme of 1952 to workmen employed through contractors is that the right
given to the principal employer under Par& 32 is incapable of exercise as'
against them. Under Par& 30 the whole of the provident fund, being 12-1/2
per cent. of the wages ad dearness allowance has, to be paid in the first
instance by the employer and under Par& 32 he is to deduct half of it,
being the employee's share of the contribution from his wages. As already
pointed put, this contemplates that the hand which has to pay the provident
fund under Par& 30 is also the hand that has to pay wages to the workmen
under Para 32. But that is not the position in the case of contract labour. It
in the contractor who pays 847 the wages of workmen employed through him, but
the obligation to pay the provident fund is cast on the principal employer. Now
the complaint of the petitioners is that the Scheme works "with an evil
eye and an unequal hand" with reference to an employer who engages
contract labour, in that while an obligation to pay the entire provident fund,
including the share of his employee, is laid on him, he is not given the
correlative right of recouping himself to the extent of that share, by
deducting it out of his wages.
The answer of the respondents to this is that
the principal employer might by an arrangement with the contractor deduct from
out of the amounts payable to him the sums contributed by him to the provident
fund on account of the employees and that further he might sue to recover those
sums from the contractor in a suit based on s. 69 of the Contract Act.
But then, it is to be observed, that Par&
32 provides that the employer has to deduct the amount paid towards the
provident fund on account of the employee from his wages "and not
otherwise". Moreover the Scheme does Pot impose any obligation on the
contractor to pay to the principal employer the amounts paid by him on account
of the employee.
The intention of the Legislature as expressed
in a. 6(1) of the Act is to make the employer liable only for a moiety of the
provident fund and while the Scheme of 1952 is well designed to carry out this
intention, in its application to workmen directly employed, by reason of the
combined operation of Paras 30 and 32, it breaks down, in its extension to
contract labour by reason of the inapplicability of Para 32. It operates
unfairly and harshly on persons who employ contract labour and it further
results in discrimination between those who employ contract labour and those
who employ direct labour. The Scheme therefore cannot 848 be said to be
reasonable and must be struck down as not falling within the protection
afforded by Art. 19 (6).
In the result we hold that the notifications
dated January 15, 1958, and December 2, 1960, are unconstitutional and void.
The' petitioners are entitled to their costs.