M/S Novelty Cinema & Ors. vs Regional Provident Fund ...
2010 Latest Caselaw 2216 Del

                  *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

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

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

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.

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

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

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;

(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:-

"(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

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.

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

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

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