The Supreme Court has recently made a landmark decision on the question of applicability of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as ‘the Act’). The Apex Court deliberated extensively on whether an establishment not specifically covered under Schedule I of the Act could still attract its applicability.
The case in the limelight is that of Thankamma Baby v. The Regional Provident Fund Commissioner. The case discusses the interpretation of clause (b) of sub-Section (3) of Section 1 of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952. This clause states as follows:
“(The Act also applies) to any other establishment employing twenty or more persons or class of such establishments which the Central Government may, by notification in the Official Gazette, specify in this behalf.”
The Umbrella Case
The present case involves a manufacturing company that was alleged to fall under the category of ‘trading and commercial establishments’ under the Act. The company was engaged in the business of manufacturing, assembling, and selling of umbrellas.
In 1997, the Regional Provident Fund Commissioner had issued a notice to the company and made an inquiry under Section 7A of the EPF Act for ‘determination of moneys due from the employers’.
The company filed a review petition to the said Commissioner, which was rejected, and an appeal to the Appellate Authority which was also dismissed. The company then filed a writ petition, which once again came to be dismissed by the Single Judge. Subsequently, the order of the Single Judge was confirmed by a Division Bench of the Kerala High Court in a Writ Appeal.
When the matter finally came before the Apex Court in appeal, the Regional Provident Fund Commissioner (Respondent before the Apex Court) argued that that since the owner of the company was in the business of assembling umbrellas and selling them in her own outlet, the establishment was a commercial establishment. It was alleged that the business of the appellant fell in the category of ‘trading and commercial establishments’ notified by the Central Government in 1962.
The Company’s (Appellant’s) case was that a notification cannot be issued under clause (b) of sub-Section (3) regarding a factory engaged in an industry not covered by Schedule I.
Pertinently, Schedule I of the Act enumerates a list of industries engaged in various manufacturing businesses. It includes a plethora of industries from cement to surgical instruments, and everything in between.
Therefore, in the light of all these facts, the Supreme Court’s Bench of Justice Abhay S Oka and Justice Sanjay Karol carefully scrutinised this matter. While relying on the constitution bench judgment in Mohmedalli V. Union of India (1963 Supp (1) SCR 993), they observed that a purposive interpretation must be given to the clause (b), since the EPF Act is a social welfare legislation.
“We are dealing with a social welfare legislation described by the Constitution Bench as a measure of social justice. Therefore, to give effect to the legislature’s intention, the Court will have to adopt a purposive interpretation. We, therefore, reject the contention that all factories which are not covered by industries in Schedule I are out of the coverage of clause (b)“ the Apex Court said.
At this juncture, it might be valuable to understand what a purposive interpretation entails. A purposive interpretation is a method of statutory interpretation which considers the purpose of the provision and interprets the provision in accordance with that purpose.
Therefore, in this light, the intent of the court in adopting a purposive interpretation was to give effect to the objective with which the EPF Act was enacted. The EPF Act is a welfare legislation that aims to provide benefits to employees of various establishments.
Widened EPF Coverage
Notably, the Constitutional Bench judgment in Mohmedalli while dealing with the interpretation of the provisions of the 1952 Act and specifically sub-Section (3) of Section 1 of the Act laid down the following:
- The Act was made to institute provident funds for the benefit of the employees in factories and other establishments;
- The provisions of the Act constitute social justice measures; and
- The underlying idea behind the provisions of the Act is to bring all kinds of employees within its fold as and when the Central Government might think it fit after reviewing each class of establishments
Interpreting the provisions of the Act in the present case, the Apex Court said that a notification under clause (b) can be issued in respect of factories engaged in any industry which is not specified in Schedule I.
“Clause (a) of sub-Section (3) is applicable only to those factories engaged in any industry specified in Schedule I. Clause (b) of sub-Section (3) is applicable to all other establishments which are not covered by clause (a) of subsection (3) provided such establishments are notified by a notification issued by the Central Government which is published in the official Gazette. Clause (b) of sub-Section (3) takes within its fold all establishments which are not covered by clause (a). Therefore, a notification under clause (b) can be issued in respect of factories engaged in any industry which is not specified in Schedule I” the Apex Court said.
The Bench further opined that the argument that a notification cannot be issued under clause (b) of sub-section (3) in respect of a factory engaged in an industry not covered by Schedule I cannot be accepted.
Therefore, the Apex Court observed that the Appellant’s establishment was predominantly carrying on a commercial activity. The Court, thus, concluded that the business of the Appellant would fall in the category of ‘trading and commercial establishments’ notified by the Centre in its 1962 notification. The Court accordingly dismissed the appeal.
Thereby, the focal point of this judgment is that any manufacturing factory/ establishment that falls within the ambit of a ‘trading and commercial establishment’, which although not explicitly mentioned under Schedule I of the EPF Act, is still required to comply with the Act.
Authors: Riddhi Wasu, Neysa de Souza