Delhi High Court
M/S Novelty Cinema & Ors. vs Regional Provident Fund Commissioner & ... on 27 April, 2010
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ WP(C) 1357/1983
% Date of decision: 27th April, 2010
M/S NOVELTY CINEMA & ORS. ..... Petitioners
Through: Mr. Harish Malhotra, Sr. Advocate with Mr.
R.K. Modi, Advocate.
Versus
REGIONAL PROVIDENT FUND COMMISSIONER & ANR. .. Respondents
Through: Mr. R.C. Chawla, Advocate.
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may
be allowed to see the judgment? yes
2. To be referred to the reporter or not? yes
3. Whether the judgment should be reported yes
in the Digest?
RAJIV SAHAI ENDLAW, J.
1. The petitioners by this petition impugn the order dated 25th November, 1982 of the respondent no.1 Regional Provident Fund Commissioner (RPFC) holding the petitioners liable for deposit of provident fund of the workers engaged in the canteen and cycle stand at Novelty Cinema, Delhi and also the consequent order dated 19th April, 1983 determining a sum of Rs.89,801.30p to be due and demanding the same from the petitioners. This Court by an interim order stayed the recovery subject to the petitioners furnishing a bank guarantee.
2. The petitioner no.1 M/s Novelty Cinema near Old Delhi Railway Station is stated to be owned and run by a partnership concern of the petitioners no. 2 to 4. Cinematographic films were exhibited in the said cinema and the same was WP(C) 1357/1983 Page 1 of 13 covered under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The petitioners had given some space in the premises of said cinema to one Sh. P.C. Mathur for running a canteen and another portion to one Sh. Ram Kishan for running a cycle stand. It is the case of the petitioners that the said canteen and cycle stand otherwise had no connection with the running of the said cinema and the canteen and the cycle stand were open to the general public as well. The petitioners were depositing the contribution towards provident fund of the employees in the said cinema. The RPFC vide notice dated 2nd January, 1979 under Section 7-A of the Act called upon the petitioners to show cause as to why the provident fund contribution in respect of employees employed by the aforesaid Sh. P.C. Mathur and Sh. Ram Kishan in the canteen and cycle stand respectively be also not recovered from the petitioners. The petitioners contended that the canteen and the cycle stand were functioning completely independently and had no connection whatsoever with the running of the cinema and to the best of their knowledge, the workers engaged by the said Sh. P.C. Mathur and Sh. Ram Kishan were for short durations only. The RPFC on such dispute being raised by the petitioners, proceeded to determine the applicability of the Act to the workers in the canteen and cycle stand qua the petitioners. However the said proceedings were adjourned sine die after Section 7-A of the Act was declared ultra vires by this Court. However, subsequently since the Supreme Court stayed the operation of the judgment of this Court declaring Section 7-A ultra vires, the RPFC vide notice dated 18th June, 1982 informed the petitioners that the proceedings aforesaid initiated under Section 7-A of the Act will be taken up on 7th August, 1982. On 7th August, 1982 the counsel for the petitioners appeared before the WP(C) 1357/1983 Page 2 of 13 RPFC and stated that he had been newly engaged and needed to apprise himself of the proceedings conducted till then and sought adjournment. The RPFC however declined the adjournment and reserved orders. Ultimately vide order dated 25th November, 1982 the RPFC relying on Royal Talkies Vs. Employees' State Insurance Corporation 1978 LAB I.C. 1245 (SC) held that the employees employed in the canteen and cycle stand work in the cinema or in connection with the work of the cinema and also get their wages directly or indirectly from the cinema and further held the employees in the canteen/cycle stand to be employees of the petitioners for the purposes of the Act. Consequently, vide order dated 19th April, 1983 the aforesaid sum of Rs. 89,801.30p was found due and demanded from the petitioners.
3. The senior counsel for the petitioners has informed that Novelty Cinema has since shut down. It is further informed that the same was earlier being run by the petitioners on land licensed by the MCD. It is further informed that Sh. P.C. Mathur and Sh. Ram Kishan running the canteen and the cycle stand respectively were holding independent licenses from MCD and were catering not only to the patrons of the cinema but to others as well. It is further stated that they had their own electricity connections and the petitioners were not paying any monies to the said two persons for running the canteen and the cycle stand but on the contrary the said persons were paying rent to the petitioners for the space provided by the petitioner to them for running the canteen and the cycle stand. It is contended that it was akin to letting out/licensing of a part of space of the cinema and the petitioners had no relationship whatsoever with the employees of the said canteen and cycle stand and could not be expected to comply with the provisions of the WP(C) 1357/1983 Page 3 of 13 Act qua the said employees. It is also contended that the definition of an employee in Section 2(f) of the Act is intended to cover the case of a contract labour and does not apply to an independent contractor as the aforesaid Sh. P.C. Mathur and Sh. Ram Kishan were. It is thus urged that the order of RPFC applying the Act to the petitioners qua the canteen and the cycle stand workers is erroneous and liable to be set aside. Alternatively, it is contended that the petitioners were not given any opportunity to establish their case. It is also urged that the Supreme Court in Royal Talkies (supra) was swayed by the factual position of the cinema paying the electricity charges in respect of the canteen and the canteen being run only during the hours of the shows in the cinema. It is contended that the factual position with respect to the canteen & cycle stand in Novelty Cinema was different; however the petitioners were deprived of an opportunity to demonstrate the same. It is urged that the proceedings were midway when the same were adjourned sine die owing to Section 7-A being declared ultra vires by this Court. However no opportunity to complete the proceedings was furnished after the proceedings were revived. The senior counsel thus contends that if this Court is not inclined to quash the orders, the matter be remanded for fresh determination. The senior counsel for the petitioner also relies on K.V. Ratnam Vs. Govt. of India 1987 LAB.I.C.1288 where a single judge of the Andhra Pradesh High Court held a lodge on the first floor and a restaurant on the ground floor of the same building to be independent establishments not capable of being treated as a single unit for applicability of the EPF Act.
4. The counsel for RPFC has relied upon the judgment in Royal Talkies only. WP(C) 1357/1983 Page 4 of 13
5. Today we have canteens and specialized parkings including valet parkings not only in cinemas but also in hospitals, malls and various other places of entertainment. During the hearing, examples were given to the counsel for the RPFC of the reputed food chains having been allowed to set up counters/shops in hospital premises to provide facility of food and refreshment to the visitors / attendants of the patients admitted in hospitals and also for the patients visiting the Out Patient Department (OPD) in the hospitals. It was put to the counsel that in today's day and time when patients and visitors visit hospitals not necessarily from their homes but may be after office hours and/or in the middle of the day and have to often wait there for long hours, provision of such facilities has become a necessity. The same is the position with parking. Parking is no longer a simple affair with a sole attendant for manning the same. Owing to the number of vehicles being in excess of the space, the vehicles in the parking space are required to be continuously shuffled and moved and which requires a large number of attendants. The same also leads to the necessity of providing a valet service. Days are not far when parking would be a highly mechanized, scientific, computerized affair. All this requires specialized manpower. An example was given to the counsel for RPFC of maintenance and other services within the court premises also. The hospitals, court establishments, cinemas who may be experts in their respective fields cannot be expected to provide such facilities with the same expertise. Increasingly, it is felt that rather than such establishments keeping the responsibility of such facilities/chores to themselves should outsource the same to agencies specialized in the same. The same results not only in better facilities/amenities but also more economic rates. Often it is found that the cost WP(C) 1357/1983 Page 5 of 13 which would be incurred by the establishment in providing the said services/amenities itself is more than if it is outsourced. A specialist in providing canteen, parking or other services would be often carrying out such services for a large number of other establishments and is able to offer lower / competitive rate.
6. The counsel for RPFC sought to reply to the aforesaid queries by placing before this Court the following judgments:-
i. G.V.V. Swamy Vs. Regional Provident Fund Commissioner 1987 LAB.I.C.719. In this case Hindustan Ship Yard had engaged construction contractors. Hindustan Ship Yard as principal employer was held liable for provident fund with respect to the employees of the said construction contractors. Hindustan Ship Yard sought determination of the amounts due by issuance of notices to the said contractors. The construction contractors objected to the same. The Division Bench of the Andhra Pradesh High Court held that the contractors became liable to pay to the Hindustan Ship Yard their own share of contribution as employer's share as also the contribution payable by their employees;
ii. Enfield India Ltd. Vs. Regional Provident Fund Commissioner (2000) I LLJ 1612 Madras. In this case Enfield, a manufacturer of motorcycles had entered into an agreement with one Thor Power Systems (TPS) whereunder TPS agreed to assemble generator sets with materials to be supplied by the Enfield. RPFC covered the employees of TPS as employees of Enfield for the purposes of WP(C) 1357/1983 Page 6 of 13 provident fund. A single judge of the Madras High Court found that TPS was the sole contractor of Enfield and hence held Enfield to be the employer, under Section 2(f), of the employees of TPS;
iii. M/s. P.M. Patel & Sons Vs. Union of India 1986 LAB. I.C.1410 SC. In this case the Supreme Court held that the workers rolling beedis at their homes for the petitioner to be the employees of the petitioner;
iv. Kumar Brothers (Bidi)Pvt. Ltd. Vs. The Regional Provident Fund Commissioner1968 Lab.I.C. 1578 Patna. The position herein was akin to above;
v. M/s. S.K. Nasiruddin Beedi Merchant Ltd. Vs. Central Provident Fund Commissioner 2001 LAB. I.C. 730 SC. The position herein akin to above.
7. As far as the judgment of the Supreme Court in Royal Talkies is concerned and on which the order of RPFC impugned in this petition is based, the same is in relation to the Employees' State Insurance Act, 1948 and not in relation to the EPF Act. I find a material difference in the definition of employee in the two Acts. Section 2(f) of EPF Act, defines employee as under:
"2(f) "employee" means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of [an establishment], and who gets, his wages directly or indirectly from the employer, [and includes any person,-
(i) employed by or through a contractor in or in connection with the work of the establishment;WP(C) 1357/1983 Page 7 of 13
(ii) engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), or under the standing orders of the establishment;]"
8. Section 2(9) of the ESI Act defines an employee as under:-
"(9) "employee" means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and-
(i) who is directly employed by the principal employer, on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or
(ii) who is employed by or through an immediate employer, on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or
(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service;
[and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment] [or any person engaged as apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), or under the standing orders of the establishment; but does not include]-
(a) any member of [the Indian] naval, military or air forces; or [(b) any person so employed whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government] a month:
Provided that an employee whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government] at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period;]."
9. Section 2(13) of the ESI Act defines an immediate employer as under:- WP(C) 1357/1983 Page 8 of 13
"(13) "immediate employer", in relation to employees employed by or through him, means a person who has undertaken the execution, on the premises of a factory or an establishment to which this Act applies or under the supervision of the principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in, or incidental to the purpose of, any such factory or establishment, and includes a person by whom the services of an employee who has entered into a contract of service with him are temporarily lent or let on hire to the principal employer [and includes a contractor]."
10. Section 2(17) of the ESI Act defines a principal employer as under:-
"(17) "principal employer" means-
(i) in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under [the Factories Act, 1948 (63 of 1948)], the person so named;
(ii) in any establishment under the control of any department of any Government in India, the authority appointed by such Government in this behalf or where no authority is so appointed, the head of the Department;
(iii) in any other establishment, any person responsible for the supervision and control of the establishment;"
11. I have wondered whether the aforesaid constitutes a material difference for the judgment in Royal Talkies qua ESI Act to be not applicable to a case under the EPF Act. I find the same argument to have been urged before a single judge of the Bombay High Court in N.J. Nayudu and Company Vs. Regional Provident Fund Commissioner MANU/MH/1162/2004. However the said argument was negatived by holding that the definition of employee in both the Acts was more or less similar. It was held that the judgment in Royal Talkies applies to the EPF Act also. However, another single judge of the Bombay High Court in Employees WP(C) 1357/1983 Page 9 of 13 State Insurance Corporation Vs. R.K. Furnaces MANU/MH/0593/2006 did not follow the judgment in Royal Talkies with respect to workmen engaged for changing the electrical wiring in the cinema and who were working only for two hours a day and for a short period.
12. I am unable to agree with the judgment of the single judge of the Bombay High Court in N.J. Nayudu (supra) holding that there is no difference in the definition of employee in the ESI Act and under the EPF Act. In my view, the definition of employee under the ESI Act is much wider than in the EPF Act.
However, need is not felt to delve deeper on this aspect in as much as the Supreme Court recently vide order dated 28th July, 2009 in Civil Appeal 7482 of 2003 titled Food Corporation of India Vs. Regional Provident Fund Commissioner has held that the definition of employee in Section 2(f) of EPF Act has to be read in the light of decision of Constitution Bench in Steel Authority of India Ltd. Vs. National Union Waterfront Workers (2001) 7 SCC 1. It was also held that what had been held in Bharat Heavy Electricals Ltd. Vs. ESI Corporation (2008) 3 SCC 247 in relation to ESI Act, applies to proceedings under the EPF Act also, i.e. in case of employees engaged through contractor, before determination by the Authorities under the Act, notice is required to be issued to the contractor. In the present case also, no notice was issued to the canteen and the cycle stand contactor. In fact, it was / is one of the pleas of petitioners before RPFC as well as before this Court they had no inkling whatsoever of the employees if any of canteen and cycle stand and Sh. P.C. Mathur and Sh. Ram Kishan should be summoned.
WP(C) 1357/1983 Page 10 of 13
13. I had during the hearing also drawn attention of the counsel for the RPFC to another recent judgment of the Supreme Court in International Airport Authority of India v. International Air Cargo Workers' Union AIR 2009 SC 3063 though not under the EPF Act. The Supreme Court in the said judgment has reiterated the test of control and supervision to determine the relationship of employer and employee. A distinction was also carved out between control and supervision of work and control and supervision of employment. It was held that control and supervision of work (described as secondary control) even would not establish the relationship of employer and employee if the salary of the employee is paid by the other and if the right to regulate the employment and ultimate supervision (described as primary control) is with the other. The counsel for the RPFC merely observed that a judgment under the Industrial Disputes Act or for that matter under any other labour legislation would not apply to the test of employer employee relationship under the EPF Act. I however find that this Court in Katari Coloring Factory Vs. Regional Provident Fund Commissioner MANU/DE/1015/1999 has held that the judgments on employee employer relation under other labour statutes have a common thread running through them; that the dominant test for establishing a master servant relationship is the extent of control and supervision of one over the other. Test of control and supervision was thus held applicable under the EPF Act also. I also find that this Court in Springdales School v. Regional, Provident Fund Commissioner (2006) 2 LLJ 321 held that when an educational society enters into an agreement with the transporter for providing contract carriage bus and staff for running the bus such as driver, conductor, cleaner and there is no stipulation in the agreement about payments of charges by WP(C) 1357/1983 Page 11 of 13 the transporter to his staff and the said transporter and his staff were also doing the duties of others, the employees of transporter cannot be said to be the employees of the educational society within the meaning of Section 2(f) of the EPF Act.
14. The other test formulated in the International Airport Authority (supra) was of camouflage. In my view, the definition of employee in the EPF Act particularly, the part "employed by or through a contractor in or in connection with the work of the establishment" has to be read in the same light. The legislative intent appears to be to pierce manipulations by the employer who by creating a facade are depriving the workmen of the benefits of the legislation. Where it is found that though the cinema itself is running a canteen or a cycle stand but to deprive the employees engaged for the said purposes of the benefits of the social welfare legislation, a contractor has been introduced as an intermediary and/or a labour contractor to provide the workmen only has been used, the courts would certainly hold the said employees to be employees of the cinema. However where the cinema has engaged an expert for providing the amenity of canteen and the facility of parking and such expert brings his/its own workforce, then the said workmen cannot be treated as the employees of the cinema.
15. It is not the case of RPFC in the present case that the petitioners were running the canteen and/or the cycle stand or that P.C. Mathur and / or Ram Kishan are a sham or a façade employed by the petitioners to avoid compliance of statutes or to deprive the canteen and/or cycle stand workers of statutory benefits . It is not the case that the employees of the said canteen and / or cycle stand have WP(C) 1357/1983 Page 12 of 13 been employed by the petitioners through a contractor. It is also not the case that the petitioners were exercising primary or even secondary control over the canteen and / or cycle stand workers.
16. Though at one stage, I was inclined to remand the matter but in view of the aforesaid legal position and considering the fact that the cinema has already closed down, it was felt to decide the matter conclusively rather than allow it to languish further. I had also enquired from the counsels whether any employees of the canteen or cycle stand have made any claim and/or whether the RPFC had raised any other demand in the last over 27 years since when the matter is pending before this Court. The answer is in the negative.
17. Resultantly the petition is allowed. The order of RPFC impugned in this petition cannot be sustained and is quashed.
No order as to costs.
RAJIV SAHAI ENDLAW (JUDGE) 27th April, 2010 pp WP(C) 1357/1983 Page 13 of 13