Kerala High Court
Employees Provident Fund Organization vs M/S Ambassador Security & Detective ... on 31 July, 2025
2025:KER:56854
W.P.(C).No.25272 of 2014
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE S.MANU
THURSDAY, THE 31ST DAY OF JULY 2025 / 9TH SRAVANA, 1947
WP(C) NO. 25272 OF 2014
PETITIONER:
THE EMPLOYEES PROVIDENT FUND ORGANIZATION
KOTTAYAM - 686 001;
REPRESENTED BY THE ASST. PROVIDENT FUND
COMMISSIONER
BY ADV SHRI.JOY THATTIL ITTOOP
RESPONDENTS:
1 M/S AMBASSADOR SECURITY & DETECTIVE SERVICES
CHIRATHALATTU BUILDING, NEAR MEDICAL CENTRE,
KOTTAYAM - 686 001, REPESENTED BY ITS MANAGING
PARTNER, MR.C.S.CHANDRASEKHAR.
2 THE EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL
SCOPE MINAR, 4TH FLOOR, CORE-II,
LAXMI NAGAR DISTRICT CENTRE, NEW DELHI -110001.
BY ADVS.SRI.T.M.CHANDRAN
SRI.S.SUJITH
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY
HEARD ON 31.07.2025, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:
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W.P.(C).No.25272 of 2014
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S.MANU, J.
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W.P.(C).No.25272 of 2014
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Dated this the 31st day of July, 2025
JUDGMENT
First respondent is engaged in the business of providing
security and detective services to individuals and business
houses. It is a covered establishment under the Employees'
Provident Funds and Miscellaneous Provisions Act, 1952. On the
basis of report of the Enforcement Officer proceedings under
Section 7A of the Act was initiated against the 1 st respondent.
Ext.P1 order was passed by the Regional Provident Fund
Commissioner finding that the 1st respondent was liable to remit
a total amount of Rs.42,92,510/- towards EPF dues. First
respondent approached the EPF Appellate Tribunal in Appeal
No.ATA No.803(7)/12. The appeal was allowed. Challenging
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the order passed by the Appellate Tribunal, Employees Provident
Fund Organization has filed this writ petition.
2. Two issues were considered by the Regional Provident
Fund Commissioner in the proceedings under Section 7A. First
issue was as to whether the 1st respondent was required to
remit PF contribution on the minimum wages as notified by the
appropriate Government. This issue was found in favour of the
1st respondent. The second issue considered was as to whether
the 1st respondent was liable to pay PF contribution on HRA,
conveyance allowance and washing allowance. The authority
noted that till January 2010 the wage structure consisted of
basic wages, DA, HRA as well as conveyance and washing
allowance. From February 2010 the HRA and conveyance
allowance were merged into basic and the 1 st respondent
started remitting contributions on the basis of the new basic
wages, inclusive of HRA and conveyance allowance. The
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authority concluded that the 1st respondent was liable to pay PF
contribution on the allowances also for the period from March
2008 to March 2010. The authority held that the employer was
liable to make contributions on those components of
emoluments which in reality were not allowances.
3. In the appeal the 1 st respondent contended that the
enquiry was not conducted properly and proper opportunity was
not provided to the employer to adduce evidence and also to
cross-examine the officers who had prepared the report after
inspection. First respondent argued that as per the practice in
the security service industry, terms of employment are arrived
at by verbal contracts and not necessarily by contracts in
writing. It was for the employer and the employees to decide
how much is to be paid as basic wages. Similarly, it was for
them to decide how much shall be paid as allowances and also
that allowances under which heads are to be paid. Till January
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2010 the wage structure followed by the 1 st respondent was
different. From February 2010, HRA and conveyance allowance
were merged into the basic on the basis of demands by the
employees. First respondent thereafter started remitting PF
contribution on the basis of basic wages which included HRA and
conveyance allowances also. Hence, the 1 st respondent
contended that there were no short remittances as found by the
Regional Provident Fund Commissioner.
4. The Appellate Tribunal found that the employer was
free to settle the wage structure of the employees as no law
prescribed any norms for fixing the wage structure. The
Tribunal made reference to its order in ATA No.223(16)/2006
wherein it was held that no contribution is liable to be paid in
respect of minimum wages as well as HRA, TA payable etc. The
Tribunal agreed with the contention of the 1 st respondent that
the decision to merge HRA and conveyance allowance into basic
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was pursuant to agreement arrived at between the employer
and employees and the said decision was having effect from
only from the date of agreement. From February 2010, after
such merger was effected, the 1st respondent started remitting
contributions on the basis of revised basic pay. The Appellate
Tribunal held that the presumption of the Regional Provident
Fund Commissioner that the 1st respondent was bound to merge
all allowances into basic wage even before an agreement to that
effect was arrived at was erroneous. Accordingly, the appeal was
allowed and the assessment order was set aside.
5. The learned Standing Counsel for EPFO contended
that the Tribunal went wrong in allowing the appeal. The 1 st
respondent in order to reduce the liability to pay PF contribution
treated a part of the wages as HRA, washing allowance and
conveyance allowance. Later, in February 2010 the
establishment started paying contribution at a higher rate. This
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conduct amounted to an admission that the contribution was not
paid properly hitherto. The learned Standing Counsel submitted
that in Ext.P1 order, the Regional Provident Fund Commissioner
had considered every relevant aspect and concluded that the
employer had not produced any agreement or contract between
him and the workers regarding the wage structure. No
appointment order of any employee showing the details of
wages and components were shown to the Enforcement
Officers. No satisfactory explanation was offered for not
considering the allowances to calculate the PF contributions.
There was no reliable material to show that, as per the terms of
the contract, the allowances were to be treated as not part of
the basic wages. Therefore, the conclusions of the authority
under Section 7A were proper and legal and the Tribunal went
wrong in setting aside the same. The learned Standing Counsel
relied on the judgment of the Hon'ble Supreme Court in
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Regional Provident Fund Commissioner (II), West Bengal
and others v. Vivekananda Vidhya Mandir and others
[(2020) 17 SCC 643] to contend that the conclusions on facts
made by the authority under Section 7A ought not to have been
lightly interfered with by the Appellate Tribunal. The learned
counsel hence submitted that the order passed by the Appellate
Tribunal may be set aside and the order under Section 7A may
be upheld.
6. The learned counsel appearing for the 1st respondent
defended the order of the appellate authority. He contended that
the authority under Section 7A of the Act had proceeded in a
highly prejudiced manner against the 1 st respondent. In the
very nature of business of running a security service, many
employees will come work for a short term and leave the
establishment. It was not practical to execute employment
agreements under such circumstances. Several persons who
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work as security personnel may leave the job and opt other jobs
frequently. The Regional Provident Fund Commissioner
proceeded against the 1st respondent without noticing the
peculiar features of establishments offering security services. He
contended that the Enforcement Officer proceeded against the
1st respondent only after the 1st respondent started making
contributions at a higher rate after February 2010. He pointed
out that from February 2010 the 1 st respondent establishment
merged HRA and conveyance allowance to basic pay. Thereafter,
PF contribution was remitted on the basis of basic pay which
included the said allowances also. Only then the authorities
under the EPF Act proceeded against the 1 st respondent alleging
that contributions made earlier were inadequate as the same
was not on the basis of pay excluding HRA and conveyance
allowance. He hence pointed out that the authorities proceeded
against the 1st respondent on totally wrong premises. The
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reasoning adopted by the Regional Provident Fund
Commissioner was erroneous. The learned counsel also
contended that the said authority did not provide opportunity to
the petitioner to adduce evidence by examining witnesses.
Hence, the proceedings were vitiated and the conclusions were
fallacious. He contended that the Appellate Tribunal rightly
interfered and set aside the order passed under Section 7A.
7. The learned counsel relied on judgment of the
Hon'ble Supreme Court in Assistant Provident Fund
Commissioner v. G4S Security Services (India) Limited
and another [(2023) 11 SCC 822]. It was a case in which the
allegation against the employer was that the wage structure was
split to reduce the basic wage and thereby incorrect amounts
were paid towards provident fund. The Appellate Tribunal
decided against the EPFO. Order of the Tribunal was upheld by
the learned Single Judge and the Division Bench of the High
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Court. The Hon'ble Supreme Court also rejected the appeal filed
by the EPFO.
8. The learned counsel for the petitioner relied on the
judgment of the Hon'ble Supreme Court in Food Corporation
of India v. Provident Fund Commissioner and others
[(1990) 1 SCC 68], in support of his contention that when the
employer sought for adducing evidence, it was the legal duty of
the Commissioner to permit to adduce evidence. The Hon'ble
Supreme Court held in the said judgment that the Commissioner
should exercise all his powers to collect all evidence and collate
all material before coming to proper conclusion. The Apex Court
further held that the same is the legal duty of the Commissioner
and it would be failure to exercise the jurisdiction if the
Commissioner refuses to do so when a party to the proceeding
requests for summoning evidence from a particular person. The
learned counsel for the petitioner submitted that, by refusing to
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examine witness cited by the 1 st respondent and also by not
providing opportunity to cross-examine the officers involved in
the inspection, the authority had committed grave illegality
while passing the orders under Section 7A. The learned counsel
relied on a judgment of a Division Bench of this Court in ESI
Corporation v. Taurus Security Services [2018 (1) KLT 131]
in support of his contention that special allowances paid to
security guards taking into account the peculiar nature of the
work were not to be treated as part of basic wages. The learned
counsel also referred to a judgment of Patna High Court
reported in Raj Kumar Gupta v. Assistant Provident Fund
Commissioner [Laws (PAT) 2013 774]. The learned counsel
pointed out that Patna High Court criticized the Provident Fund
Authorities for compelling employers to make contributions with
regard to faceless, nameless or non-identifiable workman on
mere head-count or herd-count. The learned counsel concluded
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by submitting that the order passed by the Appellate Tribunal is
not liable to be interfered with.
9. It is evident from the facts of the case that
proceedings were initiated under Section 7A of the Act against
the 1st respondent only after the establishment merged HRA and
conveyance allowance with basic wages in February 2010. The
explanation offered by the establishment for effecting such
merger was that the same was as per the demand by the
employees. I find considerable merit in the contention of the
learned counsel appearing for the 1st respondent that in the
peculiar nature of the business of providing security services,
the employer establishment may not be in a position to execute
employment agreements with all security guards deployed by it.
Many persons may join the establishment for short period and
number of persons remaining continuously engaged through the
employer may be less. It is up to the employer and the
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employee to settle the terms of employment as long as there is
no law governing the same. The authority under Section 7A
also found that minimum wages were not applicable. Hence,
the said authority ought to have found that there was no legal
requirement to pay any particular amount as basic wages as far
as the 1st respondent is concerned. For the reason that the 1 st
respondent started remitting contribution at a higher rate after
the HRA and conveyance allowance were also merged with basic
wages from February 2010 the authorities could not have
presumed that the 1st respondent had split up those allowances
which were part of actual wages prior to February 2010. The
conclusion of the Appellate Tribunal in this regard is sound and
correct.
10. It is also evident from the facts that proper
opportunity was not provided to the 1st respondent to adduce
evidence during the inquiry under S.7A. In the light of the
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judgment of the Hon'ble Supreme Court in Food Corporation
of India v. Provident Fund Commissioner and others
[(1990) 1 SCC 68], the authority under Section 7A ought to
have provided opportunity to the 1 st respondent to adduce
evidence. Failure to do so has caused prejudice to the 1 st
respondent. However, as the imposition of penalty has been
found improper and illegal it is not required to remit the matter
for fresh inquiry.
In view of the above discussion, I do not find any reason
to interfere with the impugned order passed by the Employees'
Provident Fund Appellate Tribunal. The writ petition is therefore
dismissed.
Sd/-
S.MANU
JUDGE
skj
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APPENDIX OF WP(C) 25272/2014
PETITIONER'S EXHIBITS
EXT.P1 TRUE COPY OF THE ORDER DATED 21/9/2012 BEARING
NO.KR/KTM/RPFC/HMT/19140/ ENF.I(1)/13/12/7606.
EXT.P2 A TRUE COPY OF THE APPEAL FILED BY THE 1ST
RESPONDENT BEFORE THE 2ND RESPONDENT.
EXT.P3 A TRUE COPY OF THE COUNTER AFFIDAVIT FILED
BEFORE THE 2ND RESPONDENT.
EXT.P4 A TRUE COPY OF THE ORDER DATED 11/03/2013
ISSUED BY THE 2ND RESPONDENT.
