In a recent judgment in the Officer-in-charge, Sub Regional Provident Fund Office and Anr v Godawari Garments Limited, the Supreme Court held that a company is liable to pay provident fund contributions for its offsite employees. The judgment came in an appeal by the provident fund authorities against a Bombay High Court judgment, which had held that Godavari Garments was not liable to make provident fund contributions for its employees.
The respondent, the garment company, engaged women workers to stitch garments for the company at their homes. The workers were provided with raw materials, such as fabric, thread, buttons, and so on, with which they were required to stitch garments in accordance with specifications given by the company. However, the sewing machines were owned by the workers and not provided by the company.
The appellant issued a show-cause notice to the company asking it to make provident fund contributions for the workers. The balance sheet of the company for the year 1988-89, revealed large debits in respect of salary and wages for direct and indirect workers, but the company made a false statement that it had only 41 employees.
The provident fund officer made an order holding that the women workers engaged for stitching garments were covered by the definition of employee under section 2(f) of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF act). The company was directed to pay ₹1,597,087 (US$22,392) towards provident fund dues for the period from November 1979 to February 1991 within seven days.
The company challenged the order before Bombay High Court, which set aside the provident fund officer’s order. It was held that the company had no direct or indirect control over the workers. The conversion of cloth into garment could be done by any person on behalf of the workers. Hence, the company did not exercise any supervisory control over the workers.
The provident fund office challenged this order in the Supreme Court. The issue for consideration before the Supreme Court was whether the workers employed by the company were covered by the definition of employee under section 2(f) of the EPF act or not. The Supreme Court held that the EPF Act is a beneficial social welfare legislation, therefore provisions under the EPF Act have to be interpreted in a manner that is beneficial to the workers. The fact that the workers were permitted to work off-site did not take away their status as employees as they were paid wages directly by the company on a per-piece basis.
The dispute digest is compiled by Bhasin & Co, a corporate law firm based in New Delhi. The authors can be contacted at [email protected] Readers should not act on the basis of this information without seeking professional legal advice.