Retention Allowance Paid To Seasonal Workers Falls Within Definition Of ‘Salary Or Wage’ For EPF Contribution: Bombay HC

The Bombay High Court has ruled that retention allowance paid to seasonal employees falls within the definition of ‘salary or wage’ for PF contributions under the EPF Act, 1952.

The Court was considering a Writ-Petition filed by the Maharashtra State Co-operative Cotton Growers’ Marketing Federation Limited against the order of the Appellate Authority allowing provident fund contribution demands on retention allowances paid from 1991-92 to 2008.

The single-bench of Justice Anil L. Pansare observed, "...…basic wages, as defined under Section 2(b) of the EPF Act excludes certain allowances/payment, like dearness allowance, house rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment. It, however, does not include retaining allowance. The authorities below, therefore, have rightly applied the law and calculated the contribution of Provident Fund by the Federation."

The Petitioner was represented by Senior Counsel M.V. Samarth with Advocate Vipul Ingle while the Respondent was represented by Advocate G.A. Kunte.

The Appellate Authority took cognizance of default committed by the Federation in remittance of Provident Fund, Family Pension Fund and Insurance Fund for the period from 1991-92 to 2008. It was found that the Federation is/was paying retention allowance to seasonal employees but Provident Fund contribution has been not paid. Accordingly, a summon under Section 7-A of The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 was issued to the Federation to justify non-payment of Provident Fund which it failed to justify to was accordingly called upon to deposit the same within fifteen days.

The order was challenged with the contention that retention allowance paid by the Federation to the employees is not basic wage as defined under the provisions of the EPF Act. As against, the Assistant Provident Commissioner submitted that the Federation is a Principal Employer and there is no difference between casual and temporary employee under the EPF Act. Reliance was placed on Section 6 of the EPF Act to contend that the Federation is duty bound to contribute to funds against the amount paid as retention allowance.

The Appellate Authority after taking into account the definitions of ‘employee’ and ‘basic wages’ held that employees include not only the persons directly employed by the employer but also those employed through contractor and further that there is no difference between casual and permanent employee, so far as EPF is concerned.

Counsel for the Petitioner submitted that the Federation is not an industry in terms of Section 2(i) read with Section 4 of the EPF Act. Section 2(i) defines ‘industry’ to mean any industry specified in Schedule – I, and includes any other industry added to the Schedule by notification under section 4. He further submitted that the Federation was acting as Chief Agent of the Government of Maharashtra only facilitating procurement and sale of cotton during harvest season. This work of facilitating farmers to sell cotton crop at reasonable price cannot be termed as industry and accordingly the provisions of the EPF Act will not apply.

The Court didn't agree to the petitioner's contention that it isn't an industry.

"....the object of the Federation is such that it involves in procurement of cotton and its processing in order to supply the same to the factories involved in textile and garment business. Thus, the Federation is not acting as facilitator as argued. This activity can be termed as industry engaged in manufacturing of textiles or cotton ginning, baling and pressing industry," the court observed.

It also added that the petitioner failed to show that the State Government has, by Notification in Official Gazette in terms of Section 17 of the EPF Act, exempted it from payment of contribution and therefore the argument of the Federation that the provisions of the EPF Act are not applicable doesn't stand.

The Court further found the argument of the federation that since the employees are engaged on seasonal basis, there is no continuity in the employment and, therefore, payment of Provident Fund is not attracted to be contrary to Section 6 of the EPF Act.

Noting that the employer is duty bound to contribute to Provident Fund 10% of basic wages, dearness allowance and retaining allowance, the court highlighted the definition of 'retaining allowance'.

"Explanation 2 provides that retaining allowance is an allowance payable to an employee of any factory or other establishment during any period in which the establishment is not working and the allowance is paid for retaining the services of an employee. In the present case, there is no dispute that the Federation has paid retaining allowance and, therefore, will be under obligation to contribute to the Provident Fund in terms of the EPF Act," the court observed.

The Court cited Supreme Court ruling in Managing Director, Chalthan Vibhag Sahakari Khand Udyog, Chalthan, District Surat Vs. Government Labour Officer And Others wherein the concept of retaining allowance payable to seasonal workmen during off-season in seasonal establishment has been clarified.

The Court thus reiterated that retaining allowance is an incentive offered to the workmen to attract them return to the factory after the expiry of off-season and it falls within the substantive part of the definition of expression 'salary or wage’.

"In the present case and in terms of the above mentioned judgment, the fact that the Federation has paid retaining allowance to the employees, it indicates that the Federation has retained the services of these employees and, therefore, jural relationship of employer and employee continues. Accordingly, when the workmen returns to work when the next cotton season starts, payment of retaining allowance during off-season partakes of the nature of basic wage on a diminished scale. This allowance is nothing but remuneration co-related to service and it cannot be treated as simple allowance," the court observed.

The Court pointed out that the basic wages definition of the EPF Act while excluding certain allowances doesn't exclude retaining allowance. It went through several Supreme Court judgements on this issue.

"Put all together, the authorities below having considered the relevant provisions of the EPF Act as also the relevant authorities, no interference is called for in the impugned orders. There is no merit in the petition," the court observed.

The petition was accordingly dismissed.

Cause Title: Maharashtra State Cooperative Cotton Growers vs The Appellate Tribunal (2024:BHC-NAG:12276)

Appearances:

Petitioner-Senior Counsel M.V. Samarth with Advocate Vipul Ingle

Respondents- Advocate G.A. Kunte

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