EPF Act Can Be Applied Even To Factories Not Engaged In Schedule 1 Industries: Supreme Court Rejects Plea Of Umbrella Making Unit

The Supreme Court recently held that a notification under clause (b) of sub-Section (3) of Section 1 of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, can be issued by the Central Government in respect of factories engaged in any industry that has not been not specified in Schedule I. The Top Court was considering whether a factory, which is not specified in Schedule 1 of the Act, can be covered under the EPF Act.

While, Clause (a) of sub-Section (3) of Section 1 would be applicable only to those factories engaged in any industry specified in Schedule I, Clause (b) of sub-Section (3) takes within its fold all establishments which are not covered by clause (a), the Apex Court held. 

A bench of Justice Abhay S Oka and Justice Sanjay Karol while relying on the constitution bench judgment in Mohmedalli V. Union of India, 1963 Supp (1) SCR 993 observed that a purposive interpretation must be given to the said provision, 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. 

The said constitutional bench judgment in Mohmedalli (supra) while dealing with the interpretation of the provisions of the 1952 Act and specifically sub-Section (3) of Section 1 of the 1952 Act held:

a) The 1952 Act was made to institute provident funds for the benefit of the employees in factories and other establishments;

b) The provisions of the 1952 Act constitute social justice measures; and

c) The underlying idea behind the provisions of the 1952 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.

In the matter at hand, the Apex Court was dealing with an appeal wherein the Appellant was engaged in the manufacturing, assembling, and selling of umbrellas. The Regional Provident Fund Commissioner (Respondent before the Apex Court) issued a notice to the Appellant in 1997, alleging that the Act was applicable to it. The Respondent's case was that since the Appellant 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 in exercise of its powers under clause (b) of sub-Section (3) of Section 1 of the 1952 Act. The findings of the PF authority was upheld by the High Court. This was challenged by the Appellant in the Apex Court.  

The 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. However, the Apex Court did not accept this contention.

Interpreting the provisions of the Act, 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 Apex Court observed that the Appellant's establishment was predominantly carrying on a commercial activity. The Top 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. Thus, it would follow that the case of the Appellant would be governed by the said notification, the Court said. The Court accordingly dismissed the appeal.

Case Title: THANKAMMA BABY v. THE REGIONAL PROVIDENT FUND COMMISSIONER, CIVIL APPEAL NO. 4619 OF 2010

Citation: 2023 LiveLaw (SC) 972

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