Allowed

Irix Technologies (P) Ltd. v. Employees Provident Fund Organisation

Karnataka HC8 Sept 2023WP/23966/2019

Case brief

AI extract

What is this about?

In two petitions challenging EPF orders against two IT firms, the Karnataka High Court set aside the orders finding 'Bank Mitras' to be employees. The court held that the EPF Scheme Para 26B mandates hearing both employer and employee, and omitting the Bank Mitras violated principles of natural justice. The matter was remitted.

What did the court decide?

Impugned orders set aside and matters remitted to authorities for reconsideration after issuing notice to the Bank Mitras and affording opportunity to all parties.

Irix Technologies (P) Ltd. Vs Employees… — Pension and Retirement Benefits | Karnataka HC (2023)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 08^TH DAY OF SEPTEMBER, 2023

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BEFORE

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THE HON’BLE MRS. JUSTICE K.S. HEMALEKHA

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WRIT PETITION No.23966/2019 (L-PF) C/W WRIT PETITION No.34049/2019 (L-PF)

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IN W.P. No.23966/2019

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BETWEEN:

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IRIX TECHNOLOGIES (P) LTD. HAVING ITS REGISTERED OFFICE AT: III FLOOR, #125/31 ANNAPOORNESHWARI TOWER 33^RD CROSS, 4^TH BLOCK BANGALORE – 560 048 REP. BY ITS DIRECTOR MR. SANTOSH GALGALI. ... PETITIONER

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(BY SRI K. KASTURI, SENIOR ADVOCATE FOR SMT. SRIBHOOMI YESASWINI K., ADVOCATE (V.C.))

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AND:

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EMPLOYEES PROVIDENT FUND ORGANISATION REGIONAL OFFICE, COMPLIANCE WING BHAVISHYANIDHI BHAVAN, #13, RAJA RAM MOHAN ROY ROAD, BANGALORE – 560 025 REPRESENTED BY THE REGIONAL PROVIDENT FUND COMMISSIONER – I SMT. AMUDHA C. (BY SMT. NALINI VENKATESH, ADVOCATE)

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... RESPONDENT

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THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER DATED

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19.11.2018 PASSED BY THE REGIONAL PROVIDENT FUND COMMISSIONER-I, REGIONAL OFFICE, BENGALURU AT ANNEXURE-L AND ETC.

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IN W.P. NO.34049/2019

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BETWEEN:

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INTEGRA MICRO SYSTEMS PVT. LTD., AT G-5, SWISS COMPLEX, 33, RACE COURSE ROAD, BENGALURU – 560 001 REPRESENTED BY ITS AUTHORIZED SIGNATORY MR. SANDEEP KASLIWAL. ... PETITIONER (BY SRI K. KASTURI, SENIOR ADVOCATE FOR SMT. SUBHA ANANTHI K., ADVOCATE (V.C.))

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AND:

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EMPLOYEES’ PROVIDENT FUND ORGANISATION, REGIONAL OFFICE, COMPLIANCE WING, BHAVISHYANIDHI BHAVAN, #13, RAJA RAM MOHAN ROY ROAD, BENGALURU – 560 025 REPRESENTED BY THE REGIONAL PROVIDENT FUND COMMISSIONER-I SMT. AMUDHA C. ... RESPONDENT

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(BY SRI K.S. VENKATARAMANA, ADVOCATE)

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THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER DATED 27.11.2018 BEARING NO.BG/BNG/COMP/B’LURU-II/2D/13580/201819/6085 PASSED BY THE REGIONAL PROVIDENT FUND COMMISSIONER-I, REGIONAL OFFICE, BENGALURU, AT ANNEXURE-‘EE’; AND ETC.

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THESE WRIT PETITIONS HAVING BEEN HEARD AND RESERVED ON 28/07/2023 FOR ORDERS AND COMING FOR PRONOUNCEMENT OF ORDER THIS DAY, THE COURT PRONOUNCED THE FOLLOWING:

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O R D E R

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The petitioners in these writ petitions are seeking to quash the orders dated 19.11.2018 and 27.11.2018 passed by the Regional Provident Fund Commissioner-I, Regional Office, Bangalore (respondent herein) at Annexures – "L" and "EE" respectively and a writ of mandamus forbidding the respondent from proceeding further pursuant to the orders dated 19.11.2018 and 27.11.2018.

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Brief facts of the case are that, the petitioners in

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both the petitions are companies under the provisions of the

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Companies Act, 2016 dealing in IT business solutions and services. The Government of Karnataka introduced the

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scheme called as Pradhan Mantri Jan Dhan Yojana (“PMJDY”) to serve the unserved and under privileged across the country who were deprived of financial service, wherein banks were expected to increase the number of customers in

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the rural sectors of India. In view of the said Scheme, the petitioners in both the petitions undertook to provide services to the Andhra Pradesh Gramin Vikas Bank vide

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agreements dated 21.04.2017 and 20.07.2011 respectively. As per the agreement, the petitioners would only be facilitating the objectives of the bank to promote the business of the bank. The petitioners herein engaged individuals known as Customer Service Provider/Bank Associate (CSP/BA) (hereinafter referred to as “Bank Mitra” for the sake of convenience). The “Bank Mitras” were mainly the shop owners or even the self-employed people who did this for additional income and not being the employees of either the petitioner or the bank. The petitioners are covered under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as “the EPF and MP Act” for short) and have been promptly paying the provident fund contribution for all its full time and part time employees. It is stated that pursuant to the agreement with the bank, the petitioners entered into an individual agreements with the “Bank Mitra” detailing the contract between the parties and as per the agreement vide Clause 2(d), the payment would be made only if the minimum

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target of 50 accounts is met and “Bank Mitra” who works as an ultra small branch must meet the target of 25 transactions and it is stated that the “Bank Mitras” are either provision/departmental store points or mobile recharge shops or the like and they are paid commission and from the facts, it is clear that the “Bank Mitras” are merely commission agents and not employees of the petitioner.

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This being so, the respondent issued notice under para 26B of the Employees' Provident Funds Scheme, 1952 ("EPF Scheme, 1952" for short). During the course of enquiry, the petitioner explained in writing that “PMDJY” Scheme, model working of the “Bank Mitra” and their payment scheme. The respondent by the impugned order without considering the objections of the petitioner, held that the “Bank Mitras” are the employees of the petitioners and the proceedings were to be continued for the purpose of assessment. Aggrieved by which, the petitioners have preferred these petitions.

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The respondents have filed their objections, inter

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alia, contending that the petitioners in both the petitions are the establishment covered under the EPF and MP Act, 1952, and since the petitioners-establishment failed to remit dues for the period from December 2017 and 2018, the respondent had initiated enquiry under Section 7A of the said Act to assess the dues and while the enquiry was in progress, the enforcement officer submitted a report stating that the establishment is engaged in providing banking facilities to rural customers for effective implementation of Government Schemes of Telangana and Andhra Pradesh States and the establishment is having “Bank Mitras” to provide banking services and the provident fund benefits have been extended to the office employees and not to such

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“Bank Mitras”. It is stated that, in order to verify the eligibility of the “Bank Mitra” and to examine the employer and employee relationship, an enquiry under para 26B of the EPF Scheme, 1952 was initiated, and on enquiry, vide impugned order it is rightly held that the “Bank Mitras” are

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the employees within the meaning of definition under Section 2(f) of the EPF and MP Act, 1952 and by verifying various records and proper application of the judicial mind, the respondent has arrived at a reasonable conclusion that the “Bank Mitras” are employees and hence, there is an employer and employee relationship to the establishment as per the order under para 26B which has been passed on examining the entire records.

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Heard Sri K.Kasturi, learned senior counsel appearing for Smt. Bhoomi Yasaswini K., learned counsel for the petitioner and Smt. Nalini Venkatesh, learned counsel for the respondents.

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Learned senior counsel for the petitioners in both the cases would submit that the authority under the statute cannot issue notice under para 26B of the EPF Scheme and then proceed to pass an order under a different provision of Section 7A of EPF and MP Act without affording an opportunity to the parties to the proceedings. Notice of the provision under which an enquiry has been concluded and

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the procedure adopted by the authority is against the principles of natural justice. That the authority was predetermined in its approach, which is evident from the notice that was issued stating that there are “employees who have not been covered” and hence, the enquiry was only a formality. The reasoning accorded by the authority holding that the “Bank Mitras” are the employees of the petitioners, on the ground that they are engaged in connection with the work of the establishment, when the main work of the petitioners is IT services and not implementation of the “PMJDY” Scheme. Learned senior counsel would submit, that the entire proceedings conducted by the authority is without following the principles of natural justice as contemplated under para 26B of the EPF Scheme 1952, and the entire proceeding is vitiated as wholly erroneous.

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Per contra, learned counsel appearing for the respondent - Provident Fund Organization would justify the order passed by the authority and would contend that on preliminary verification having noticed that the establishment

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is providing PF facilities to the office employees and not extended the said PF benefits to “Bank Mitra” and on analyzing the facts, the authority has rightly come to the conclusion that there is employer and employee relationship to this establishment.

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This Court has given its anxious consideration to the rival contentions urged by the learned counsel for the parties and perused the material on record.

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The short question that arises for consideration in

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this petition is, “ whether the principles of natural justice have been vitiated by not making the “Bank Mitra” as a party to the proceedings ?”

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In order to consider the said aspect, para 26B of the EPF Scheme, 1952 needs to be considered, which states as under:

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"26B. Resolution of doubts - If any question arises as to whether an employee is entitled to, or required to become, or continue as, a member, or as to the date from which he is so entitled or required

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to become a member, the same shall be referred to the Regional Provident Fund Commissioner who shall decide the same:

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Provided that both the employer and the employee shall be heard before passing any order".

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The plain reading of the said para 26B of the EPF

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Scheme, 1952 would envisage, that the authority can decide the question as to whether the person is an employee or not, while deciding the said question under the Scheme requires both the employer and employee shall be heard before passing the order by the authority and the authority cannot pass an order by issuing notice only to the employer. It is evident from the material placed before this Court that the

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“Bank Mitra” whom the authority held to be an employee, were not parties to the said proceedings. The entire exercise of the proceedings initiated by the respondent is without following para 26B of the EPF Scheme, 1952 and violative of principles of natural justice. If we read the entire Act including the Scheme, the purpose of this enactment was to create a welfare legislation regarding the contribution and

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duty of the employer to extend the benefit to the employees

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in the manner concerning the present Act. When a welfare legislation is enacted, particularly dealing with the benefits extended to the employees, it is only to ensure financial security on retirement, compelling the employer also to contribute for such welfare fund under the Act. If the very purpose of the enactment was to be considered as a Welfare Legislation, definitely it would not have the intention of the legislation to entrust the power of determination of relationship between the parties to different authorities under different enactment and again come back to the welfare legislation where the entitlement of the membership has to be determined. Reading of para 26B of the EPF Scheme, 1952 or any other provisions of the Act, by no stretch of imagination can be understood that the intention of the makers of this statute was to strive the parties to a different forum. The Regional Provident Fund Commissioner has to decide, the entitlement or requirement or continuation of the member to a provident fund and is also empowered to

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decide the relationship of the employer and the employee between the parties.

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However, the authority in the present case, while conducting enquiry held that, there is an employer and employee relationship to the establishment. While holding so, the “Bank Mitra” who were necessary parties in the said proceedings were not made as a party. In light of the statement of objects and the reasons of EPF and MP Act, the “Bank Mitras” have no retirement and since they are not employed in the first place nor did the makers of the legislation contemplate inclusion of every type of person into the fold of EPF and MP Act and thus, the question of including the “Bank Mitra” under the definition of the employee would not arise is the contention of the learned senior counsel, the said contention cannot be adjudicated in the absence of "Bank Mitra" who are necessary and proper parties to the proceedings.

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Thus, when an impugned order is passed holding

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that the employees come under the EPF scheme, if the

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authority had taken another view, will not the “Bank Mitra” be a necessary party when an order is passed under para 26B of the EPF Scheme, 1952, the employee has to be heard. Accordingly, the point framed for consideration is answered in favour of the petitioner. In light of this, the impugned order needs to be set aside and the matter requires to be remitted back for reconsideration afresh in accordance with law. Accordingly, this Court pass the following:

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OEDER

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(i) These writ petitions are allowed.

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(ii) The impugned orders dated 19.11.2018 and 27.11.2018 are set aside and the matters are remitted back

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to the authorities, for reconsideration afresh in accordance with law after issuance of notice to the “Bank Mitra” and after affording sufficient and reasonable opportunity to the parties in accordance with law.

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SD/-

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JUDGE

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Irix Technologies (P) Ltd. v. Employees Provident Fund Organisation

Case brief

What is this about?

What did the court decide?

Irix Technologies (P) Ltd. v. Employees Provident Fund Organisation

Case brief

What is this about?

What did the court decide?

What the court decided

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Statutes considered

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