What the Supreme Court held on 'excluded employees' under the Employees Provident Fund Scheme

Shruti Mahajan March 27 2019

Employees who have withdrawn their full provident fund upon superannuation and subsequently re-employed on lump sum honorarium basis cannot be automatically treated by the employer as “excluded employees” under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees’ Provident Funds Scheme, 1952.

In order to be covered under the expression “excluded employee” under the 1952 scheme, the employee during his earlier employment must have been a member of the Fund established under the Scheme of 1952 and not any other Fund.

This was held by a Bench of Justices AM Sapre and Dinesh Maheshwari of Supreme Court in an appeal against a judgment of a Division Bench of the Calcutta High Court.

In the instant case, the Appellant, Modern Transport Consultation Services Pvt Ltd., had approached the Supreme Court contending that the employees who had retired from Indian Railways, would be ‘excluded employees’ when employed by the Appellant. Thus, it was the argument of the Appellants that they would not be obliged to make any PF contributions with respect to such employees.

This contention of the Appellant was accepted by the single judge of Calcutta High Court but rejected by the Division Bench of the Calcutta High Court. The Division Bench had held that such employees would indeed fall within the ambit of the Act as well as the Scheme. Aggrieved by this, the Appellants had moved the Supreme Court.

Facts of the Case

The dispute arose in 2002 when the Assistant Provident Fund Commissioner communicated to the Appellant company that owing to the number of employees in the establishment, the company fell within the purview of the Act. The Appellant responded to the same by claiming that most of the employees were retired personnel and were hired on a retainer basis. This contention was refuted by the Assistant Provident Fund Commissioner.

The competent authority under the Act initiated proceedings for the determination of money due from the Appellants and determined the amount of money payable. The Appellant then filed a Writ petition before the High Court where the Single Judge Bench ruled in the favour of the Appellants. This, however, was set aside by the Division Bench leading to an appeal in Supreme Court

Arguments before the Supreme Court

The Counsel for the Appellants submitted before the Supreme Court that the employees hired on retainer basis had enjoyed all the benefits of superannuation and were included in the General Provident Fund (GPF) Scheme while in service and were also in receipt of a pension. This would make them “excluded employees” under the Scheme of 1952. It was also argued that should these employees not be treated as “excluded employees”, as it would lead to their “unjust enrichment”.

The Respondent submitted that retired Railway employees would not fall within the scope of “excluded employees” given that they were not covered under the Scheme of 1952. The Counsel argued that under the Act of 1952, two different sets of provident fund Schemes are envisioned – the Scheme of 1952 under Section 5 of the Act and other Schemes as permissible under Section 17 of the Act.

It was argued by the Respondent that only those employees who have, in the past, benefitted from and withdrawn the benefits under the Scheme of 1952 would be “excluded employees” and the same was not true in the instant case. The Railway employees in the instant case had not been covered by the Scheme of 1952 during their service with the Railways and hence could not be treated as excluded employees.

The Verdict

The Court delved into the scope, history, and background of the Act and the Scheme relating to Employees’ Provident Fund. It considered the definitions of the terms “employees”, “exempted employees”, and “excluded employees” as well the meaning and scope of the terms “fund” and “scheme”.

The Court, arriving at its conclusion against the appellants, noted that an exemption to establishments under Section 5 of the Act can be granted only when the employees of the establishment are being provided benefits which are equivalent to or more favourable than provident fund scheme.

“Suffice would be to notice for the present purpose that coverage of the employees like the one engaged in the establishment of appellants is the rule; and ordinarily, the employees are expected to be covered by the Scheme framed under Section 5 of the Act of 1952 with the exception being that in case of availability of equivalent or more favourable benefits in an establishment, the appropriate Government could grant exemption.”

The crucial aspect which the Court considered was whether the definition of “excluded employees” in Paragraph 2(f) of the 1952 Scheme as also the stipulation in Paragraphs 26 and 69 of the Scheme refer to any provident fund or only to the Fund under the Scheme of 1952?

Answering the above question, the Court said that clause (f) of Paragraph 2 of the Scheme of 1952 refers to “the Fund” and not to “any Fund”. Further, paragraphs 26 and 69 also refer to “the Fund” and not to “any fund”. The determiner “the”, as occurring in Paragraph 2(f) and Paragraph 69 before the expression “Fund” makes it clear that the reference is only to the Fund which is created under the Scheme of 1952. It is not a general reference to any Fund, the Court held.

Therefore, the Fund referred to in Paragraphs 2(f), 26 and 69 of the Scheme of 1952 is that Fund, which is created under the Scheme of 1952 and the reference is not to any other Fund.

Thus, to be covered under the expression “excluded employee” by virtue of clause (i) of paragraph 2(f) read with clause (a) of paragraph 69(1), the employee must be such who was a member of the Fund established under the Scheme of 1952 and who had withdrawn full amount of his accumulations in the said Fund on retirement from service after attaining the age of 55 years.

In the instant case, the Railway employees had withdrawn their benefits from the General Provident Fund and not from the Fund established under the Scheme of 1952. Thus, they could not have been treated as “excluded employees” under the 1952 scheme. Consequently, the appellants fell within the ambit of “employer” under the Provident Fund Act.

“We have not an iota of doubt that the retired Railway employees, who had withdrawn their accumulations in General Provident Fund or any other Fund of which they were members, could not have been treated as “excluded employees” for the purpose of the Scheme of 1952 for the reason that such a withdrawal had not been from the Fund established under the Scheme of 1952.”

The Court, therefore, agreed with the findings of the Division Bench of the High Court and found no merit in the appeal. The Court also clarified the position on the question of “excluded employees” stating,

“In the framework and setup of the Scheme of 1952, the concept remains plain and clear that if a person is member of the Fund created thereunder i.e., under the Scheme of 1952 and withdraws all his accumulations therein, he may not be obliged to be a member of the same Fund under the Scheme of 1952 over again and could be treated as an “excluded employees”.