Delhi HC holds para 27AA of the EPF Scheme, 1952 not to be ultra vires the EPF Act

The Delhi High Court vide its judgment dated January 10, 2020, in the case of Mahanagar Telephone Nigam Limited (“Appellant”) vs. Union of India and Others (“Respondent”) LPA No. 111/2015, adjudicated upon the issue that whether any amendment to the Employees' Provident Fund Scheme, 1952 (“EPF Scheme”), beneficial to the employee, will become automatically applicable to the employees of the establishment and whether condition no. 25 of appendix ‘A’ (A company reporting loss for three consecutive financial years or erosion in their capital base shall have their exemption withdrawn from the first day of the next/succeeding financial year) to para 27AA of the EPF Scheme (Terms and conditions of exemption) is ultra vires the Employees` Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”). Facts of the case The present appeal was filed by the Appellant, seeking to set aside the order dated December 16, 2014 whereby the Single Judge has dismissed the writ petition filed by the Appellant. In the said writ petition, the Appellant had, inter-alia, challenged orders passed by Regional Provident Fund Commissioner, whereby the authority had withdrew the relaxation granted to the Appellants on grounds of violation of condition no. 25 of appendix 'A' to para 27AA of the EPF Scheme. A further declaration was sought that the said paragraph is ultra vires of the EPF Act. Submissions by the Appellants The Appellants were granted relaxation under para 79 of the EPF Scheme (Special provisions relating to factories or other establishments in respect of which applications for exemption are received) subject to certain conditions, by the appropriate authority, pending the grant of exemption from the EPF Scheme. The Appellant argued that the exemption is still awaited and the relaxation so granted did not put restriction as set out in condition no. 25 of appendix 'A' of para 27AA of the EPF Scheme. The said para 27AA was itself inserted through an amendment, which was effective from January 6, 2001. The Appellants further contended that the said condition no. 25 is not mentioned in the relaxation order granted and neither the reading of the relaxation order discloses that Section 17 (Power to exempt) or para 27AA were applied while passing the relaxation order. Further, the Appellants submitted that the condition no. 25 applies only to exemption and hence, its violation could not be a ground to withdraw the relaxation order. The Appellants further contended that condition no. 25 or para 27AA of the EPF Scheme are ultra vires the EPF Act. Submissions by the Respondents The Respondents contended that the relaxation granted was as per para 79 of the EPF Scheme and subject to the conditions set out therein. The revised conditions governing the grant of exemption under section 17 and those stipulated in appendix 'A' would apply even during the relaxation period. The Respondents further relied on the relaxation order, which stated that, “Any amendment to the said Scheme which is more beneficial to the employees than the existing rules of the establishment shall be made applicable to them automatically.” The Respondents contended that the condition no. 25 of the EPF Scheme would apply automatically to the order of relaxation passed by the Commissioner, acting under para 79 of the EPF Scheme. Further, by an amendment to the EPF Scheme, para 27AA was introduced by which it was provided that all exemptions granted or to be granted shall be subject to terms and conditions given in appendix 'A' with effect from January 6, 2001. Thus, before granting exemption, the funds of an establishment will have to be scrutinized as well as their contributions. Therefore, once it was found that the Appellants had reported losses, the Respondents were justified in cancelling the relaxation orders. Decision of the court The High Court observed that the appropriate authority being satisfied that the establishment was eligible for exemption under the EPF Act had granted relaxation under para 79 of the EPF Scheme in 1988. However, it was subsequently found that the establishment had reported losses for 3(three) consecutive financial years and this was found to contravene condition no. 25 in Appendix A. The High Court had further placed reliance on the relaxation order which stipulated that any amendment to the EPF Scheme which is more beneficial to the employee then the existing rules shall be made applicable to them automatically. Thus, the High Court held that the action of withdrawal of the relaxation does not suffer from any illegality. The court further held that condition no. 25 or para 27AA of the EPF Scheme is not ultra vires the EPF Act. Section 17 of EPF Act clearly provides that an exemption would be granted to an establishment to which the EPF Act applies, only if, in the opinion of the appropriate Government, the rules of its provident fund are not less favourable than those specified under Section 6 (Contributions and matters which may be provided for in Schemes)and the employees are also in enjoyment of the other provident fund benefits not less favourable than those under the said EPF Act. Therefore, the condition no. 25 is in tune with the purpose behind section 17 of the EPF Act, in as much as if the establishment is running into losses then certainly it cannot grant to its employees better benefits then available under the EPF Act. This update has been contributed by Arka Majumdar (Partner) and Juhi Roy (Associate). Download Pdf