EPF Act Coverage: Supreme Court Sets Out Criteria for Clubbing Two Establishments

EPF Act Coverage: Supreme Court Sets Out Criteria for Clubbing Two Establishments

A two-judge bench of the Supreme Court recently ruled on whether different institutes can be grouped for coverage under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act).

After reviewing several decisions on the matter, the Court found that the two institutes have financial integrity and are therefore interconnected and can be grouped for coverage.

Both institutes in this case were run by the same society, the Ideal Fine Arts Society. The Ideal Institute was founded in 1965, and the Arts College (the appellant) was founded around 20 years later, in 1985-86. If the employees of both institutes are combined, the total number of employees is 26, which meets the requirement for coverage under Section 1(3)(b) of the EPF Act, which states that an institute with 20 or more employees is liable to be covered under the provisions of the EPF Act as of March 1, 1988. Additionally, both institutes were located on the same campus.

Justices Hima Kohli and Rajesh Bindal examined the relevant documents and found that the Society of the Appellant and the Ideal Institute have financial integrity because the Society has advanced substantial funds to the institutes. Additionally, both institutes operate from the same premises.

The Ideal Fine Arts Society runs two institutions on the same campus: the Ideal Institute of Fine Arts and the Mathosri Manikbai Kothari College of Visual Arts. The Ideal Institute was founded in 1965 to offer a diploma course in drawing and painting, and the Arts College was founded in 1985-86 to offer degree and postgraduate degree courses in drawing and painting.

The Ideal Institute reportedly employed eight people, while the Arts College had 18 employees. The issue arose concerning their coverage and application of the Employees' Provident Funds and Miscellaneous Provisions Act (EPF Act). Based on the Enforcement Officer's report of July 1, 2003, the establishment was found to be covered under the provisions of the EPF Act, as there were a total of 26 employees working in both institutes, which are managed by the same society and located on the same premises.

The establishment was subsequently served with a notice, and the Commissioner issued an order on September 23, 2005, under Section 7-A of the EPF Act, assessing the amount of contributions to be made by the appellant under various EPF Act schemes. The Arts College challenged this order by filing a statutory appeal before the Tribunal, which was dismissed. The appellant then filed a Writ Petition challenging the Tribunal's order before the High Court, which was dismissed by both the Single Judge and the Division Bench.

Initially, the appellant contended that the orders issued by the Commissioner, the Tribunal, and the High Court were legally untenable. The argument put forth asserted that Ideal Institute and Arts College, although operated by the same Society, are distinct and separate entities. There is no commingling of finances between these two institutions, and they offer distinct courses, each having obtained permission and affiliation from separate authorities.

On the contrary, the counsel representing the respondent asserted that there is no mistake in the orders issued by the Commissioner, the Tribunal, or the High Court, which mandate the inclusion of both institutions operated by the Society under the purview of the EPF Act.

Furthermore, the respondent also contended that in this particular case, the appellant, the Ideal Institute, and the Society failed to present any evidence before the adjudicating authorities, namely the Commissioner, the Tribunal, and even the High Court, to challenge the findings made by the Enforcement Officer. They failed to establish that both institutions are autonomous and lack shared management.

In its assessment, the Court stressed that according to the provisions of the EPF Act, if an establishment employs 20 or more individuals, that establishment must be subject to the regulations of the EPF Act, thus entitling its employees to various benefits provided therein.

The Court also narrowed the scope of the appeal, clarifying that it is not about calculating dues under the EPF Act, but rather about whether the EPF Act applies by clubbing together two institutes.

The Court then cited several precedents that established the law on the adjudicated issue. These decisions included Associated Cement Co. v. Workmen (AIR 1960 SC 56), in which the Court held that it is impossible to lay down a single, absolute test for all cases when determining whether to club together two establishments for coverage under the EPF Act. The real purpose is to ascertain the true relationship between the two establishments and to opine thereon. In one case, the test of "unity of ownership, management, and control" may be important, while in another, the test of "functional integrity" or "general unity" may be more important. There may also be cases where the test of "unity of employment" is applied.

The Court also cited Noor Niwas Nursery Public School v. Regional Provident Fund Commissioner and others (2001) 1 SCC 1, in which it was held that there is no single, one-size-fits-all test for determining whether to club together two establishments for coverage under the EPF Act.

After reviewing the various orders and documents on record, the Court found that the appellant had taken the case very lightly. First and foremost, the Court noted that the Enforcement Officer had submitted a report on July 1, 2003, after inspecting the institute, in which he stated that the establishment would be covered under the provisions of the EPF Act.

The coverage was confirmed by an order dated August 12, 2003. The Court pointed out that the appellant did not challenge either of these orders. It was only after the Commissioner passed an order on September 23, 2005, under Section 7-A of the EPF Act, that the proceedings were initiated.

When the matter reached the Tribunal, it recorded that the responsibility of proving that there were fewer than 20 employees was on the appellant to exclude the applicability of the EPF Act before the Commissioner, and the appellant had failed to do so. Thus, the Tribunal did not interfere with the Commissioner's order.

Finally, the Court found that the documents produced by the appellant themselves show that it is not an independent establishment but an arm of the Society.

One of the relevant documents was the December 9, 1987 letter from the University Grants Commission to the Registrar of Gulbarga University, Gulbarga, notifying the inclusion of the appellant college in the list of approved non-government colleges teaching up to the bachelor's degree level. The college's name was mentioned as "The Ideal Fine Arts Society's College of Visual Art."

The Court, thus, held that the College is simply an extended arm of the Society, rejecting the appellant's arguments and dismissing the appeal.