Contractual employees entitled to PF benefits


The Supreme Court recently held that contractual employees who draw salaries directly or indirectly are entitled to provident fund benefits under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF act).

In M/s Pawan Hans Limited & Ors v Aviation Karmachari Sanghatana & Ors, helicopter service company Pawan Hans was incorporated under the Companies Act, 1956, and was subsequently registered as a public company with the Registrar of Companies, Delhi. The government held a 51% shareholding in Pawan Hans and the remaining 49% was held by the Oil and Natural Gas Company (ONGC).

Out of a total workforce of 840 employees, Pawan Hans had engaged 570 on a regular basis, while 270 were engaged on a contractual basis. Pawan Hans implemented its own PF trust regulations for giving provident fund benefits to all its employees, but the same was implemented only with respect to regular employees, even though the term “employee” was defined to include “any person” employed “directly or indirectly” under the company’s PF trust regulations.

The company’s labour union filed a writ petition before Bombay High Court, seeking the benefits under the EPF act to be extended to the members of the union and other similarly situated employees. The court allowed the writ petition.

Impugning the judgment of the high court, the company contended before the Supreme Court that it is excluded from the applicability of the provisions of the EPF act and the EPF scheme framed under it, as section 16(1)(b) of the EPF act excludes an establishment owned or controlled by the central government from the scope of the EPF act.

The Supreme Court observed that a twin test needs to be satisfied for an establishment to seek exemption from the provisions of the EPF act. First, the establishment must be either “belonging to” or “under the control of” the central or the state government.

Second, the employees of such an establishment should be entitled to the benefit of a contributory provident fund or an old age pension in accordance with any scheme or rule framed by the central government or the state government governing such benefits. If both tests are satisfied, an establishment can claim exemption/exclusion under section 16(1)(b) of the EPF act.

The court held that since 51% of the shares of Pawan Hans are owned by the central government, the first test is satisfied. The court, however, held that Pawan Hans had failed to make out a case of exclusion from the applicability of the provisions of the EPF act, since it did not satisfy the second test.

The court observed that although the company had its own scheme, namely the Pawan Hans Employees Provident Fund Trust Regulations in force, the same was restricted to only regular employees. Further, the PF trust regulations were not framed by the central or state government, nor were they applicable to all the employees, so as to satisfy the second test.

The Supreme Court held that the union members and all other similarly situated contractual employees are entitled to the benefit of provident funds under the EPF act.

The dispute digest is compiled by Bhasin & Co, a corporate law firm based in New Delhi. The authors can be contacted at Readers should not act on the basis of this information without seeking professional legal advice.