Contractual employees also entitled to receive Provident Fund benefits: Supreme Court


In a recent judgment delivered by Hon’ble Judges U. U. Lalit and Indu Malthotra, in the case of M/s. Pawan Hans Limited & Ors. Vs. Aviation Karmachari Sanghatana & Ors.[1], the Supreme Court of India (“Supreme Court“) has held that employees who draw wages/salaries whether directly or indirectly from a company, are entitled to provident fund benefits under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“Act“).


M/s. Pawan Hans Limited is a company incorporated under the Companies Act, 1956 and is registered as a Government of India company with the Registrar of Companies, Delhi (“Company“). The Government of India holds 51% (fifty-one percent) shareholding in the Company and the remaining 49%(forty-nine percent) is held by Oil and Natural Gas Company Limited.The Company had framed and notified the Pawan Hans Employees Provident Fund Trust Regulations(“PF Trust Regulations“) in the year 1986 for giving provident fund benefits to all the employees of the Company. The PF Trust Regulations defined an “employee”as any person who is employed for wages/salary in any kind of work, monthly or otherwise, in or in connection with the work of the Company and who gets his wages/salary directly or indirectly from the Company, and excludes any person employed by or through a contractor or in connection with the work of the Company but does not include any person employed as an apprentice or trainee. In the year 1987, the Company instituted the Pawan Hands Employees Provident Fund Trust (“PF Trust“) wherein the management began to deposit its share towards the provident fund contribution with respect to only the regular employees of the Company. Similarly, the regular employees began to deposit the matching contribution with the PF Trust. The Company had engaged a total of 570 (five hundred and seventy) employees on a regular basis, while 270 (two hundred and seventy) employees were engaged on a “contractual” basis. On March 22nd, 2001, the Central Government issued a notification, making the provisions of the Act applicable to aircraft or airlines establishments employing 20 (twenty) or more persons, excluding those owned or controlled by the Central or State Government. In view of this, amendments were made to the Employees’ Provident Fund Scheme (“EPF Scheme“) framed under Section 5 of the Act. A clause 3(b)(ci) was inserted vide notification dated July 22nd, 2002 whereby the EPF Scheme was made applicable to aircraft or airlines establishments excluding those owned or controlled by the Central or State Government.

Several representations had been made between the years 2012-2014 by members of the respondent union, Aviation Karmachari Sanghatana (“Union“) to the Company, for extending to them, the benefit of the PF Trust Regulations, since they were directly engaged by the Company on a contractual basis. Some of these employees had been working with the Company for almost 20 (twenty) years. The Company failed to respond to the representations and hence, the Union filed a Writ Petition on December 20th, 2016 against the Company in the High Court of Mumbai (“High Court“). The High Court vide judgment and order dated September 12th, 2018, allowed the Writ Petition, directing the Company to enrol all eligible contractual employees under the EPF Scheme and deposit their contribution with the Regional Provident Fund Commissioner (“RPFC“) from the date they became eligible till remittance and thereafter till they are in employment of the Company. Aggrieved by the judgment, the Company filed a Civil Appeal before the Supreme Court.

Issues for consideration before the Supreme Court

  1. Whether the Company is under a statutory obligation to provide benefit of provident fund to its contractual employees under the PF Trust Regulations or the Act?
  2. Whether members of the Union are entitled to benefit of provident fund under the PF Trust Regulations or under the Act?
  3. The effective date from which the benefit of provident fund is to be extended to the contractual employees.

Reasoning and Analysis

  1. In order to establish whether the Company is excluded from the applicability of the provisions of the Act and the EPF Scheme as contended by the Company, the Supreme Court examined Section 16(1) of the Act. As per Section 16(1)(b) of the Act, an establishment belonging to or under the control of the Central or State Government, and whose employees are entitled to the benefit of the contributory provident fund in accordance with any scheme or rules framed by the Central or State Government governing such benefits, is excluded from the purview of the Act.
  2. The Court analysed the twin test laid down in the case of RPFC Vs. Sanatan Dharam Girls Secondary School[2] for establishments seeking exemption from the provisions of the Act. The twin conditions are as follows:
    1. The establishment must be “belonging to” or “under the control” of the Central or State Government; and
    2. The employees of the establishment should be entitled to the benefit of contributory provident fund or old age pension in accordance with any scheme or rule framed by the Central or State Government governing such benefits.Only if both tests are satisfied, can an establishment claim exemption under Section 16(1)(b) of the Act.
  3. The Court on applying the twin test, concluded that since the Central Government has 51% (fifty-one percent) ownership in the Company, it satisfied the first test. However, the Court observed that the Company failed the second test since the Company which had its own scheme, i.e. the PF Trust Regulations (not framed by the Central or State Government) did not provide contractual employees any contributory provident fund benefits. In view thereof, the Court held that the Company was not eligible for exemption under the Act.
  4. Further, the Court was of the view that the members of the Union had been in continuous employment with the Company for long periods of time. They had also been receiving wages/salary directly from the Company i.e. without the involvement of any contractor since the date of their respective engagement. Thus, their employment could not be termed to be “contractual” in nature. In view thereof, the Court held that the PF Trust Regulations would cover all contractual employees as well.
  5. While deciding on the second issue, since the PF Trust Regulations were already in force and were applicable to all the employees of the Company, the Court deemed it fit to direct the Company to grant provident fund benefits to the members of the Union as well as other similarly situated contractual employees under the PF Trust Regulations so that there is uniformity in the service conditions of all employees of the Company.
  6. As regards the date from which the benefit of the provident fund is to be extended, the Court decided that the benefit should be provided from January 2017 i.e. when the Writ Petition was filed before the High Court. The reasoning for this being that extending the benefits retrospectively from the dates the members became eligible would create an enormous imbalance.


The Supreme Court affirmed the order passed by the High Court with modifications, holding that the members of the Union and all similarly situated contractual employees of the Company are entitled to receive benefits of the PF Trust Regulations from January 2017. The Company is liable to pay simple interest @ 12% (twelve percent) p.a. on the amount payable by it towards contribution of provident fund for the period of January 2017 to December 2019. Similarly, the employees are obligated to deposit their matching contribution @ 6% (six percent) p.a.after the remittance of contribution of the Company. The Supreme Court further clarified that the benefits shall not extend to those employees who have superannuated, expired, resigned or ceased to be in the employment of the Company as on the date of the judgment.

This judgment comes as a relief to the contractual employees of the Company, who had been seeking parity with the regular employees covered under the PF Trust Regulations.[3]It is pertinent to note that the Employees’ Provident Fund Organization (“EPFO“) has previously sought to bring several firms under its radar to ensure remittance of provident fund, pension and insurance amounts on behalf of the firms regular contract workers and those employed through contractors. The EPFO after having found laxity by contractors in depositing amounts after claiming enormous sums from principal employers, fixed the onus of remittance on to the principal employers vide its notification dated February 02nd, 2017.[4]With the rapid rise in employment of contract workers, amendments in the labour laws are absolutely essential for protecting the rights and interests of such workers.