2023 LLR 81
KARNATAKA HIGH COURT
Hon'ble Ms. Jyoti Mulimani, J.
W.P. No. 43868/2011 (L-PF), Dt/– 1-2-2022
Regional Provident Fund Commissioner, Bangalore
vs.
Eagle Hunters Pvt. Ltd.
EMPLOYEES' PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952 – Sections 7A and 12 – House Rent – When would be basic wages – Respondent is engaged in providing man-power to different establishments – Principal employers paid wages to contractor towards labour engaged as per rates under Minimum Wages Act – Contractor bifurcated the wages into basic wages, HRA and conveyance etc. paying provident fund contributions only on basic wages – EPF Authority treated the HRA as part of basic wages since it was paid to all employees and determined the EPF contributions directing the respondent to pay the same – Respondent challenged order of EPF Authority in appeal which was allowed in view section 2(b) of the Act holding HRA not basic wages – EPF Authority has challenged order of Appellate Tribunal in writ petition – Held, as per section 12 of the Act, the employer cannot reduce the wages either directly or indirectly – Splitting up of wages only to avoid payment of EPF contributions is not justified – Settled law is that any allowances paid to all employees is to be part of basic wages liable for deduction towards EPF contributions – Tribunal has failed to appreciate that splitting up is not permissible under law – EPF Authority is empowered to hold enquiry and determined EPF contributions under section 7A, damages under section 14B and interest under section 7Q of the Act – Hence, impugned order is set aside. Paras 3 and 5
For Petitioner: Mrs. B.V. Vidyulatha, Advocate.
For Respondent: None.
IMPORTANT POINTS
ORDER
Jyoti Mulimani, J.–1. Smt. B.V. Vidyulatha, learned counsel for petitioner has appeared through video conferencing.
2. The facts are stated as under:–
It is stated that the respondent is an establishment covered under the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (for short the Act) under code No. KN/19947. The respondent failed to pay Provident Fund contributions on House Rent Allowances payable to its employees. Hence, the petitioner vide order dated 27.10.1999 exercising powers conferred under section 7A of the Act determined a sum of Rs. 41,90,572/- (Rupees Forty One Lakhs Ninety Thousand Five Hundred and Seventy Two only) payable by the respondent for the period from May 1997 to June 1999.
Aggrieved by the action of the petitioner in determining contributions on House Rent Allowances, the respondent questioned the validity of the said order before the EPF Appellate Tribunal in Appeal No. ATA-1(6)/2001. The petitioner entered appearance and filed objections. The Tribunal after hearing both sides, allowed the appeal on 06.09.2010.
It is stated that respondent vide letter dated 21.02.2011 requested the petitioner for refund of a sum of Rs. 20,21,254/- (Rupees Twenty Lakhs Twenty-One Thousand Two Hundred and Fifty Four only) stated to have been remitted by them in pursuance of the order of the Tribunal and requested to refund the said amount in view of the order dated 06.09.2010.
It is said that the petitioner requested counsel for the appellant to furnish the certified copy of the order and the same was forwarded by letter dated 20.06.2011. It is averred that the order passed by the Tribunal was not furnished to the petitioner by their counsel. After the receipt of the order, the petitioner took necessary steps to challenge the said order dated 06.09.2010. Hence, there is any delay in filing the writ petition the same is due to the above said bona fide reason and the same is liable to be condoned.
Aggrieved by the order dated 06.09.2010 passed by the EPF Appellate Tribunal in Appeal No. ATA-1(6)/2001, the petitioner has filed this writ petition under Articles 226 and 227 of the Constitution of India.
3. Smt. B.V. Vidyulatha, learned counsel for petitioner submits that the order of the Tribunal is arbitrary, illegal and contrary to law. The order of the Tribunal is a non-speaking order.
Next, she submitted that the Tribunal has grossly erred in holding that House Rent Allowances are not basic wages and therefore, no contributions can be deducted from the same.
A further submission was made the Apex Court in Bridge Roof and Manipal Academy of General Education cases, has observed that if any allowances are paid to all the employees in pursuance of contract, the same is liable for deduction towards Provident Fund contributions since it forms part of basic wages. However, the Tribunal without considering the said decisions has grossly erred in holding that the House Rent Allowances are not basic wages and therefore, no Provident Fund contributions can be deducted on the same.
Counsel vehemently contended that the House Rent Allowances paid to all employees in pursuance of contract forms part of basic wages. It is also submitted that in the present case, it is not the case of the respondent that the House Rent Allowances are paid in lieu of not providing staff quarters. Once it is paid to all the employees the same becomes basic wages and therefore, determination of Provident Fund contributions on the same is in accordance with law and cannot be called in question.
Lastly, she submitted that the Tribunal has erred in quashing the well-reasoned order passed by the petitioner in exercise of powers conferred on it under section 7A of the Act. Accordingly, she submitted that the writ petition may be allowed.
Counsel for petitioner has relied upon the following decisions:–
1. ILR 2004 Kar 2067 – M/s. Group 4 Securitas Guarding Ltd. v. The Regional Provident Fund Commissioner, Employees Provident Fund Organisation and Another .
2. Civil Appeal No(s). 6221 of 2011 – The Regional Provident Fund Commissioner (II) West Bengal v. Vivekananda Vidyamandir and Ors. along with connected cases .
4. Heard and perused the Annexures with care.
5. The short point which requires consideration is whether the order of Tribunal requires any interference by this Court?
The facts have been sufficiently stated hence the same does not require reiteration.
The respondent – M/s. Eagle Hunters Private Limited, Bangalore is a covered establishment under the purview of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The respondent establishment is engaged in the business of supply of Labours to Industries and establishments and is also called as Contractor. It is a mere name lender who procure labours from open market and supply to the Industries and Establishments. The said Labours / employees are eligible to get minimum wages as applicable to the Industries and establishments to which they are engaged. Taking into consideration of the minimum wages applicable to the concerned, the Principals are paying salary to the labours / employees through the Contractor. The Contractor is required to make payment so received by him from the Principal employer who is affecting payment with reference to wages applicable to the said amount.
In the present, it is significant to note that the Contractor bifurcated the salary actual to basic, HRA, Conveyance etc., The Provident Fund was paid only to the amount showing as Basic.
While addressing argument, learned counsel Smt. Vidyulatha, has drawn the attention of the Court to section 12 of the Act and contended that section does not permit the employer to reduce wages.
It is necessary to refer to section 12 of the Act, which reads as follows:—
“ 12. Employer not to reduce wages, etc .—No employer in relation to an establishment to which any Scheme or the Insurance Scheme applies shall, by reason only of his liability for the payment of any contribution to the Fund or the Insurance Fund or any charges under this Act or the Scheme or the Insurance Scheme, reduce, whether directly or indirectly, the wages of any employee to whom the Scheme or the Insurance Scheme applies or the total quantum of benefits in the nature of old age pension, gratuity Provident Fund or Life Insurance to which the employee is entitled under the terms of his employment, express or implied.”
A bare reading of the above section makes it clear that the employer cannot reduce, whether directly or indirectly, the wages of any employee to whom the [Scheme or the Insurance Scheme] applies.
In the present case, the Contractor bifurcated the salary actual to basic, HRA and conveyance and the respondent Establishment did not pay the contribution. The same brought to the notice of the Commissioner concerned. Hence, the Assistant Provident Fund Commissioner exercising power conferred under section 7A of the Act, passed the order on 27.10.1999 determined the dues in respect of the respondent-Establishment and directed Establishment to remit the determined amount in the appropriate heads of accounts maintained in State Bank of India failing which action will be initiated under section 14 of the Act read with para 76 of the Scheme and the amount will be recovered as in the manner specified under section 8B to 8G of the Act. It was also made clear that the amount determined is exclusive of interest payable under section 7Q and damages leviable under section 14B of the Act.
It is relevant to note that the respondent-Establishment challenged the order of the Assistant Provident Fund Commissioner before the Appellate Tribunal and the Tribunal relying upon section 2(b) of the Act concluded that House Rent allowances are not basic wages and hence, no contributions can be deducted.
It is perhaps well to observe that under section 7A of the Act, the Commissioner is entitled to conduct an enquiry and decide the question whether the splitting up of the pay by the Employer to his / its Employees has been done only with a view to avoid payment of contribution to the provident fund or not.
In the present case, the Contractor has split the wages.
It is significant to note that as per section 12 of the Act, the Employer cannot reduce the wages.
The splitting up of the pay by the Employer to its Employees as has been done in the present case is only to avoid payment of contribution to the Provident Fund. It is needless to say that the same has been done to subterfuge to reduce the Provident Fund contribution.
In my considered opinion, the Assistant Provident Fund Commissioner, Karnataka justified in determining the dues payable by the respondent-Establishment.
The Tribunal has failed to appreciate that the splitting up is not permissible under law. I may venture to say that the Tribunal has failed to have regard to relevant considerations and disregarded relevant matters.
In my considered opinion, the order passed by the Tribunal is unsustainable in law.
6. In the result, the writ petition is allowed. The order dated 06.09.2010 passed by the Tribunal in Appeal No. ATA 1 (6) /2001 at Annexure-‘D' is quashed.