The Bombay High Court has ruled that the retention allowance given to seasonal workers is considered a type of ‘salary or wage’ for the purpose of EPF contributions.
The Bombay High Court has decided that the retention allowance given to seasonal workers is considered part of ‘salary or wage’ for provident fund contributions under the EPF Act of 1952. This ruling came from a Writ-Petition by the Maharashtra State Co-operative Cotton Growers’ Marketing Federation Limited, challenging an order from the Appellate Authority regarding provident fund contributions on retention allowances from 1991-92 to 2008. Justice Anil L. Pansare noted that while basic wages, as defined in Section 2(b) of the EPF Act, exclude certain payments like dearness allowance and bonuses, they do not exclude retention allowance. Therefore, the lower authorities correctly applied the law and calculated the provident fund contributions owed by the Federation.
The Petitioner was represented by Senior Counsel M.V. Samarth and Advocate Vipul Ingle, while Advocate G.A. Kunte represented the Respondent. The Appellate Authority recognized that the Federation had defaulted on its provident fund, family pension fund, and insurance fund payments from 1991-92 to 2008. It was determined that the Federation had been paying retention allowances to seasonal employees but had not made the necessary provident fund contributions. Consequently, a summon under Section 7-A of The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 was issued to the Federation, which failed to justify the non-payment and was ordered to pay within fifteen days.
The order was disputed on the grounds that the retention allowance given by the Federation to its employees does not qualify as basic wage under the EPF Act. In response, the Assistant Provident Commissioner argued that the Federation acts as a Principal Employer and that there is no distinction between casual and temporary employees under the EPF Act. They referenced Section 6 of the EPF Act, asserting that the Federation must contribute to the funds based on the retention allowance paid. The Appellate Authority, after reviewing the definitions of ‘employee’ and ‘basic wages,’ concluded that employees include not only those directly hired by the employer but also those hired through contractors, and that there is no distinction between casual and permanent employees regarding EPF obligations.
The Petitioner’s counsel argued that the Federation does not qualify as an industry according to Section 2(i) in conjunction with Section 4 of the EPF Act. Section 2(i) defines ‘industry’ as any listed in Schedule – I, along with any additional industries added by notification under Section 4. The counsel further claimed that the Federation was merely acting as a Chief Agent for the Government of Maharashtra, helping with the procurement and sale of cotton during the harvest season. They contended that this role of assisting farmers in selling their cotton at fair prices does not constitute an industry, and thus the EPF Act should not apply. However, the Court disagreed with the petitioner’s argument that it is not an industry.
The Federation’s goal is to procure and process cotton to supply it to textile and garment factories. Therefore, the Federation is not merely a facilitator, as claimed. This activity is classified as part of the textile manufacturing or cotton ginning, baling, and pressing industry, the court noted. It also mentioned that the petitioner did not prove that the State Government exempted it from contribution payments through a Notification in the Official Gazette under Section 17 of the EPF Act. Thus, the Federation’s claim that the EPF Act does not apply is invalid. The court further stated that the Federation’s argument about seasonal employment lacking continuity, and therefore not requiring Provident Fund payments, contradicts Section 6 of the EPF Act. The court emphasized that employers must contribute 10% of basic wages, dearness allowance, and retaining allowance to the Provident Fund, highlighting the definition of ‘retaining allowance.’
“Explanation 2 states that a retaining allowance is paid to an employee during periods when the establishment is not operational, to keep the employee’s services. In this case, it is undisputed that the Federation has provided a retaining allowance, making it obligated to contribute to the Provident Fund as per the EPF Act,” the court stated. The court referenced a Supreme Court ruling in Managing Director, Chalthan Vibhag Sahakari Khand Udyog, Chalthan, District Surat Vs. Government Labour Officer And Others, which clarified the concept of retaining allowance for seasonal workers during off-seasons in seasonal establishments.
The Court emphasized that retaining allowance serves as a motivation for workers to return to the factory after the off-season, and it is part of the definition of ‘salary or wage.’ In this case, since the Federation paid retaining allowance to its employees, it shows that the Federation has kept these employees on board, maintaining the employer-employee relationship. Therefore, when the workers come back for the next cotton season, the retaining allowance during the off-season is considered a form of basic wage, albeit at a reduced rate. This allowance is essentially payment linked to their service and should not be seen as just a simple allowance, the court stated.
The Court also noted that while the EPF Act’s definition of basic wages excludes certain allowances, it does not exclude retaining allowance. It reviewed various Supreme Court rulings on this matter. “Considering all the relevant provisions of the EPF Act and the applicable authorities, there is no need to change the previous orders. The petition lacks merit,” the court concluded. As a result, the petition was 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
