EPF: Employer's Liability in Contractor's Default H.L. Kumar, Advocate, New Delhi.

e-mail:

hlkumar@ymail.com

The enforcement machinery under the EPF Act more often proceed against principal employer for recovery of PF dues instead of taking recovery proceedings against the contractors despite the fact that the EPF authorities have granted code numbers to the contractors. In such recovery proceedings it is not correct to proceed against the principal employer without impleading the contractor.

The travesty with Indian labour laws is that most of it is out of sync with the changing trends that are sweeping across the world. On the one hand, the emphasis is on the outsourcing and contractual appointment of the employees so as to improve the capacity and decentralise the work. It is a welcome move, undoubtedly, because it leaves aadequate room for the companies to give more time and attention to the core work. On the other hand, the old laws, like the Employees Provident Fund Act are still left intact whereby the principal employer is held responsible for all the omissions and commissions of the contractors. This is palpably and patently wrong. As a matter of fact, in most of the cases, the contractors themselves are big employers and have obtained code numbers under the Employees' Provident Funds & Miscellaneous Provisions Act, 1952. For instance, a Chennai based security company has been employing over 50,000 security guards and has stated in 2007 that it will be adding over 5,000 every month. Therefore, it is incongruous to hold the principal employer liable for something that goes awry for which he has hardly any control. Thus, in todays circumstances that have obtained today it is necessary that the anomalies be done away with, otherwise; the very purpose of outsourcing and contractual appointment will get defeated. Of late, the courts have also realised this inconsistency, which is reflected in their judgments.

Section 2(t) of the Employees' Provident Funds & Miscellaneous Provisions Act, hereinafter referred to as the 'Provident Funds Act', defining employees includes any person, employed by or through the contractor or in connection with the work of the establishment. The inclusion of employees through the contractor has remained controversial since the authorities under the Provident Funds Act have been dealing with this preconceived

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notion that every principal employer will be liable to pay for contributions when the contractor will fail to make the payment. The default for payment of contribution is very common. Admittedly, the principal employer is ultimately liable to pay such contributions but there are certain restrictions upon the authorities in making the principal employer liable in all the defaults by the contractors.

For clarification, it is pertinent to state that there are two types of contractors. One those having their own code number and the other who don't have their own code numbers and the principal employer is authorized to deduct and deposit the contributions of their employees. In the second category, there is no dispute so far as the liability of the principal employer is concerned. So far as the second category is concerned, the authorities under the Provident Fund Act should not insist for payment of contributions for its employees but in practice for such contractors with Code number also, the authorities hold the principal employer liable since it is easier to recover from the bigger employers.

Despite the fact that the principal employer can be ultimately held liable for determining authority under section 7-A of the Provident Funds Act it is necessary to summon the contractor(s). When any determination pertaining to the amount of contribution as payable by the principal employer is made, rarely such summons is issued to the contractor(s). It is also pertinent to refer to sub section 2 of section 7-A of the Provident Funds Act providing for determination of money due from an employer which reads as under:

The officer conducting the inquiry under sub-section (1) shall, for the purposes of such inquiry, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5

I (A· 8) JANUARY 2011