Karnataka High Court

M/S Ibm India Private Limited vs Union Of India on 1 February, 2023

Bench: C.M. Poonacha

                                                           R
     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 1ST DAY OF FEBRUARY, 2023

                           BEFORE

        THE HON'BLE MR. JUSTICE C.M. POONACHA

         WRIT PETITION NO.41066 OF 2014 (L-PF)

BETWEEN

M/S. IBM INDIA PRIVATE LIMITED
A COMPANY INCORPORATED UNDER THE
COMPANIES ACT, 1956 AND HAVING ITS
REGISTERED OFFICE AT SUBRAMANYA ARCADE,
# 12, BANNERGHATTA MAIN ROAD,
BANGALORE 560029
REPRESENTED BY ITS LEGAL COUNSEL
SRI. LAHAR APPAIAH
                                           ...PETITIONER
(BY SRI K.KASTURI, SR. COUNSEL FOR
SRI THOMAS VELLAPALLY, ADVOCATE)

AND

1.    UNION OF INDIA
      REPRESENTED BY ITS PRINCIPAL SECRETARY,
      MINISTRY OF LABOUR & EMPLOYMENT,
      NEW DELHI 110001

2.    REGIONAL PROVIDENT FUND COMMISSIONER-II
      NO.2, MARUTHI COMPLEX,
      1ST "A" MAIN, HIG SECTOR,
      NEAR SBI, YELAHANKA NEW TOWN,
      BANGALORE 560064

3.    L. THOMAS SELVAN
      S/O S.N.LAZAR,
      MAJOR,
      NO.14/2, II FLOOR,
                           2




     M.E.G OFFICERS COLONY,
     BANGALORE 560033

     AND NOW AT C/O LAWRENCE,
     NO.407, TRINITY ENCLAVE,
     OLD MADRAS ROAD,
     CV RAMAN NAGAR POST,
     BANGALORE 560093
                                           ...RESPONDENTS
(BY SMT B V VIDYULATHA, ADVOCATE FOR R2;
    SRI A J SRINIVASAN, ADVOCATE FOR R3;
    V/O DATED 21.1.2015 R1 IS DELTED)

     THIS WP IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED
ANN-L ORDER DT.15.7.14, PASSED BY THE REGIONAL
PROVIDENT FUND COMMISSIONER-II SRO, YELAHANKA,
BANGALORE R2, HEREIN AND ETC.

     THIS PETITION HAVING BEEN HEARD AND RESERVED
FOR   ORDERS    ON   08.11.2022, COMING  ON   FOR
'PRONOUNCEMENT OF ORDER' THIS DAY, THE COURT MADE
THE FOLLOWING:-

                       ORDER

The present petition is filed seeking for the

following reliefs:

"a) Issue a Writ of Certiorari or other appropriate writ, direction or order quashing the impugned Annexure L order dated 15.07.2014 passed by the Regional Provident Fund Commissioner-II, SRO, Yelahanka, Bangalore, Respondent No.2 herein;

b) Issue a writ of mandamus or other appropriate writ, direction or order to Respondent No.2 restraining him from collecting any provident fund contributions on the 17 B wages paid to the Respondent No.3, in terms of ANNEXURE 'L' order during the pendency of this petition;

c) Grant such other or further relief to the Petitioner as may be deemed fit in the facts and circumstances of the case and in the interests of justice."

2. The facts leading to the present petition are

that the respondent No.3 (herein after referred to as

'workman') was employed with the petitioner -

Company and his services were terminated pursuant

to the termination order dated 05.11.2001. Being

aggrieved, the workman filed a petition under Section

10(4-A) of the Industrial Disputes Act, 1947 (for short

'I.D. Act') before the Labour Court, Bengaluru. The

petitioner entered appearance in the said proceedings

and contested the same. The Labour Court by its

award dated 17.12.2012, directed the petitioner to

reinstate the workman into service with backwages,

continuity of service and consequential benefits. The

said award of the Labour Court was challenged by the

petitioner before this Court in W.P.No.10715/2013.

This Court, vide interim order dated 04.03.2013,

stayed the award of the Labour Court, subject to

payment of wages under Section 17-B of the I.D. Act.

In compliance of the said order dated 04.03.2013, the

amount equivalent to the last drawn salary of the

workman was paid by the petitioner from February,

2013.

3. The workman filed a complaint dated

02.09.2013, to the second respondent - Regional

Provident Fund Commissioner, K.R. Puram, Bengaluru,

alleging that no Provident Found (for short 'PF')

contribution was being deducted from the amount

paid by the petitioner. Pursuant to the said complaint,

the second respondent issued notice to the petitioner,

in response to which, the petitioner filed a detailed

reply. Thereafter, upon being notified, enquiry was

conducted under paragraph 26-B of the Employees

Provident Funds Scheme, 1952 (for short 'EPF

Scheme') by the second respondent and written

submissions were also submitted. The second

respondent vide order dated 15.07.2014, held that the

petitioner is liable to pay the PF contribution. Being

aggrieved, the present writ petition is filed.

4. Learned Senior Counsel appearing for the

petitioner - Company referring to the definitions

contained in the enactments, contends that the

payment made to the workman was pursuant to the

interim order dated 04.03.2013, passed in

W.P.No.10715/2013 and the same cannot be

tantamount to wages for the PF contribution to be

made in respect of the said amount. In support of his

contentions, he relies on the following judgments:

1. Dena Bank vs. Kiritikumar T. Patel1.

2. Swastik Textile Engineers Pvt. Vs. Virjibhai Mavjibhai Rathod and Another2;

3. M/s. Orissa Air Products Pvt. Ltd., vs. Regional Provident Fund Commissioner3.

Hence, he seeks for allowing of the writ petition

and granting of the reliefs sought for therein.

5. Per contra, learned counsel for the

respondent - workman justifies the order passed by

the second respondent and submits that the wages

under Section 17-B of the I.D. Act is liable for the

contribution to the PF amount. In support of his

submission, he relies on the judgment of this Court in

the case of R.V.Shanbhag vs. The Federation of

(1999) 2 SCC 106

(2008) 1 GLR 670

(2012) IIILLJ 697 ORI

Karnataka Chamber of Commerce and Industries

and Ors4.

6. Learned counsel for the respondent PF

authorities also justifies the order passed by the PF

authorities.

7. I have considered the contentions putforth

by both the parties and perused the material available

on record. The question that arises for consideration

is:

"Whether the employer is liable to

deposit the provident fund contribution as

provided under the Employees Provident

Fund Scheme, 1952 in respect of payments

made in compliance of Section 17-B of the

I.D. Act?"

2002 (1) KCCR 32

8. The essential facts are undisputed,

inasmuch as, the workman was in the employment of

the petitioner and he was terminated on 05.11.2001.

That the said order of termination was set aside by

the Labour Court by award dated 17.12.2012, which

was challenged by the petitioner before this Court in

W.P.No.10715/2013. It is further undisputed that this

Court, vide interim order dated 04.03.2013, stayed

the award passed by the Labour Court subject to the

petitioner complying Section 17-B of the I.D. Act and

in furtherance thereof, the petitioner has been paying

the wages to the workman.

9. The workman was paid a salary of

`48,955/- and a sum of `14,281/- was deducted

(including PF contribution of `1,955/-) and the net

salary paid was `34,674/-. Pursuant to the interim

order of this Court dated 04.03.2013, the payment to

the workman was shown in the pay-slip as 'Special

Payment' in a sum of `48,955/- and after deduction of

income tax of `9,791/-, the amount paid was

`39,164/- for the month of April, 2013. A note was

mentioned at the bottom of the pay-slip that the said

payment is made under Section 17-B of the I.D. Act

pursuant to the interim order of this Court, without

prejudice of IBM's position and that the matter is sub-

judice and subject to final judicial order.

10. The second respondent upon considering

the contentions putforth by both the parties, vide its

order dated 15.07.2014, while holding that the

petitioner was liable to pay the contribution to the PF,

has held as follows:

"There is no specific provision under the Act to deal with the issues in the case.

Where no specific direction is available in letter, the spirit of the law will have to take charge. No doubt, the quintessence of the objective sought to be achieved through the Employee's Provident Fund and

Miscellaneous Provisions Act, 1952 is "Social Security" to the working class. Hence, I am inclined to resolve the dispute keeping the spirit of the law in mind.

....

If the employee is getting wages, whether on employment or not, it is paid because their existed a relationship of master-servant between the complainant and the establishment. It is sequel to the employment till termination. Now, that the employer is required to pay wages as per the orders of the Hon'ble High Court of Karnataka, there is no dispute that the wages of an employee/member is subject to PF contribution. The only dispute is that complainant claims that he remains an employee and wages (as defined u/s 17B of ID Ac) is subject to Provident Fund contribution and the establishment refutes his claim.

....

While I find that the contention of the establishment is not totally bereft of merit, the scale is more tilted towards the contentions of the complainant."

(emphasis supplied)

11. To appreciate the contentions putforth by

both the parties, it is necessary to consider the

relevant statutory provisions. Section 2(rr) of the I.D.

Act reads as follows:

"2(rr)."wages" means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment or of work done in such employment, and includes-

(i) such allowances (including dearness allowance) as the workman is for the time being entitled to;

....

.... "

12. Section 17-B of the I.D. Act reads as

follows:

"17B. Payment of full wages to workman pending proceedings in higher courts.- Where in any case, a Labour Court, Tribunal or National Tribunal by its award directs reinstatement of any workman and the employer prefers any proceedings against such award in a High Court or the Supreme Court, the employer shall be liable to pay such workman, during the period of pendency of such proceedings in the High Court or the Supreme Court, full wages last drawn by him, inclusive of any maintenance allowance admissible to him under any rule if the workman had not been employed in any establishment during such period and an affidavit by such workman had been filed to that effect in such Court:

Provided that where it is proved to the satisfaction of the High Court or the

Supreme Court that such workman had been employed and had been receiving adequate remuneration during any such period or part thereof, the Court shall order that no wages shall be payable under this section for such period or part, as the case may be.]

13. Section 2(b) of the Employees' Provident

Funds and Miscellaneous Provisions Act, 1952 states

as follows:

"2(b). "basic wages" means all emoluments which are earned by an employee while on duty or [on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-

(i) the cash value of any food concession;

(ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance,

overtime allowance, bonus commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;

(iii) any presents made by the employer."

14. It is clear from the aforementioned that the

wages stipulated under Section 2(rr) of the I.D. Act is

the remuneration payable to a workman in respect of

his employment. Section 17-B of the I.D. Act has

been inserted by Act 46 of 1982. The purpose of

inserting Section 17-B of the I.D. Act is to enable the

employee to fight the litigation pursuant to the award

for reinstatement made by the Labour Court or

Industrial Tribunal. This aspect is clear from the

proviso to Section 17-B the I.D. Act which stipulates

that if such workman has been employed and had

been receiving adequate remuneration during the said

period, no wages under Section 17-B of the I.D. Act is

payable for the said period.

15. The payment made under Section 17-B of

the I.D. Act is under certain situations only to enable

the employee to fight the litigation that the company

would agitate before the High Court or the Hon'ble

Supreme Court and it is in such circumstances, the

High Court or the Hon'ble Supreme Court are entitle to

order for payment of wages under Section 17-B of the

I.D. Act.

16. It is clear from the definition of basic wages

as defined in Section 2(b) of the Employees' Provident

Funds and Miscellaneous Provisions Act that the same

are amounts to earned by an employee while on duty

in accordance with the terms of the contract

employment.

17. In the case of Dena Bank (supra), the

Hon'ble Supreme Court with regard to the intention of

enacting Section 17-B of the I.D. Act has held as

follows:

"21. As indicated earlier Section 17-B has been enacted by Parliament with a view to give relief to a workman who has been ordered to be reinstated under the award of a Labour Court or the Industrial Tribunal during the pendency of proceedings in which the said award is under challenge before the High Court or the Supreme Court. The object underlying the provision is to relieve a certain extent the hardship that is caused to the workman due to delay in the implementation to the workman is in the nature of subsistence allowance which would not be refundable or recoverable from the workman even if the award is set aside by the High Court or this Court. Since the payment is of such a character Parliament thought it proper to

limit it to the extent of the wages which were drawn by the workman when he was in service and when his services were terminated and therefore used the words "full wages last drawn". To read these words to mean wages which would have been drawn by the workman if he had continued in service if the order terminating his services had not passed since it has been by the award of the Labour of Industrial Tribunal, would result in so enlarging the benefit as to comprehend the relief that has been granted under the award that is under challenge. Since the amount is not refundable or recoverable in the even of the award being set aside it would result in the employer being required to give effect to the award during the pendency of the proceeding challenging the award before the High Court or the Supreme Court without his being able to recover the said amount in the event of the award being set aside. We are unable to constitute the

provisions contained in Section 17-B, to cast such a burden on the employer. In our opinion, therefore, the words "full wages last drawn" must be given their plain and material meaning and they cannot be given the extended meaning."

(Emphasis supplied)

18. A Coordinate Bench of the Gujarat High

Court in the case of Swastik Textile Engineers Pvt.

Ltd., (supra), was considering a situation, where the

employer paid backwages to an employee pursuant to

the award made by the Labour Court and the question

for consideration was whether the employer was liable

to pay PF contribution in respect of the backwages

paid. It was held as follows:

"13. For the aforesaid reasons, I am of the opinion that the amount of backwages paid to the workman did not constitute the 'basic wages' as envisaged by the Act. The petitioner, was therefore, under no obligation to make statutory

contribution to the provident fund under the Act."

19. In the case of M/s. Orissa Air Products

Pvt. Ltd., (supra), the High Court of Orissa was

considering a case where the payments which were

made by the employer in compliance of Section 17-B

of the I.D. Act are subject to the EPF Scheme and

where the employer required to deposit the

contributions as per paragraph No.29 of the EPF

Scheme. In the said case, it was held in the said case

as follows:

"4. Thus, it is clear that basic wages on which contribution is to be calculated, is all emoluments, which is earned by an Employee while on duty, leave or on holidays. The emphasis is on the expression that all employments which are earned by an Employee. Any payment made under Section 17-B of the Act is not actually wages earned. Payment made

under Section 17-B of the I.D. Act is in nature of subsistence allowance given to the Workman, who has been ordered to be reinstated in service by the Labour Court and the award passed by the Labour Court is assailed in any higher Court.

Furthermore, it appears that this provision has been inserted to ensure that the Workman is not unnecessarily harassed by a protracted litigation and that his basic needs are taken care of. The quantity specified to be the last wages drawn is only to avoid confusion regarding the exact amount to be paid to such an Employee.

6. It is not disputed that the Employee was dismissed. The Labour Court by its award directed his reinstatement but the operation of the award has been stayed. So, at present, the status of the workman is that of a dismissed employee, and therefore, he cannot be said to have earned the wages, which is being paid to him under section 17B of the I.D. Act. In

that view of the matter, the conclusion arrived at by the Regional Provident Fund Commissioner, Orissa, Bhubaneswar in the proceeding under paragraph No.26B of the Scheme, 1952 on 24.08.2010 is erroneous, and therefore, the same is quashed."

(Emphasis supplied)

20. In the case of R.V.Shanbhag (supra), a

Coordinate Bench of this Court was considering a case

where the Assistant Secretary of the Federation of

Karnataka Chamber of Commerce and Industry was

terminated without enquiry and it was challenged

before the Labour Court. During the pendency of the

proceedings before the Labour Court, upon a report

submitted by a Committee, a settlement was arrived

at and joint memorandum of settlement was

presented before the Labour Court which was

accepted and an award was passed in terms of the

settlement. It was agreed in the said settlement that

the dismissed employee would be paid a sum of

`5,00,000/-. However, the said payment did not

include the PF legally payable to the workman. The PF

Authorities passed an order in favour of the employee

directing the Federation to pay the PF. However, the

Appellate Authority had decided in favour of the

Federation. In the said writ petition, it was held as

follows:

"10. The said settlement has been accepted by the Labour Court and has become an award by the Labour Court. A reading of the said terms would show that the Federation has paid a sum of `5/- lakhs in full settlement of the claims of the petitioner towards backwages and compensation in lieu of reinstatement etc., gratuity and further compensation under voluntary retirement scheme. The settlement further refers to an amount of salary payable for different periods. The settlement further reads in Clause 2 that

what is received by the Petitioner in full and final settlement of the claim pertaining to back wages, compensation in lieu of reinstatement, gratuity etc. There is absolutely no reference with regard to settlement of PF. There is not even a whisper about the settlement of PF. In these circumstances I am of the view that the present settlement cannot be said to be a settlement in full in favour of the petitioner in so for as PF. If that is the case nothing prevented the parties in saying so in the settlement. Moreover the parties could have not have settled PF which is always settled under the Act by the Commissioner. PF is a statutory payment and it cannot be settled de hors of the Act. A settlement contrary to an Act would be a settlement contracting out of a statute which is impermissible in law. In these circumstances petitioner's counsel is right in saying that the settlement did not pertain to a settlement of PF dues. .... "

21. It is clear from the aforementioned rulings

relied upon by the learned counsel that judgment in

the case of R.V.Shanbhag (supra) is not applicable to

the facts of the present case, inasmuch as, in the said

case, the question for consideration was with regard

to the settlement arrived at between the parties and

the of PF contribution to be paid in respect of the

same.

22. The case of Swastik Textile Engineers

Pvt. Ltd., (supra), the question for consideration is

with regard to PF contribution for backwages.

23. In the case of Dena Bank (supra), the

Hon'ble Supreme Court has categorically held with

regard to the objective for payment of wages under

Section 17-B of the I.D. Act and the same is required

to be taken into consideration in the present case

while deciding the question that arises for

consideration.

24. The case of M/s. Orissa Air Products

Pvt. Ltd., (supra), is squarely applicable to the