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PETITIONER: M/S.  ORISSA CEMENT LTD.

       Vs.

RESPONDENT: UNION OF INDIA

DATE OF JUDGMENT: 14/03/1962

BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ) SUBBARAO, K. AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R.

CITATION:  1962 AIR 1402            1962 SCR  Supl. (3) 837  CITATOR INFO :  RF         1980 SC1789  (36)  D          1987 SC 447  (9)  D          1991 SC1381  (22)

ACT: Provident   Fund-Contract.  labour-Oontribution   to   prov- densfund-If  and  when principal  employer  liable-Provident Fund  Act 1952 (XIX of 1952), ss. 5, 6, 7-Employees’  Provi- dent  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.

HEADNOTE: 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 recouple  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

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the   distinction  between  the  workmen  employed  by   the contractors  who were directly connected with  the  manufac- turing  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  Constitu- tion  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).

JUDGMENT: ORIGINAL JURISDICTION : Petition No. 17 of 1961. 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 under  Art. 32,  challenging  the validity of  two  notifications  dated January- 15, 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 ofproviding 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

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             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  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 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 em-               ployer’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

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             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  contribu-               tion  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 wages.               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  12- 1/2  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

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             Explanation--In   respect   of   an   employee               employed  by  a contractor who is not  an  ex-               cluded  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

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argued  that  when  the Government  decided  to  confer  the benefits  of  provident fund on workmen  who  were  employed through  contractors, instead of framing  provisions  appro- priate  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

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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. Petition allowed.