REPORTABLE

 IN THE  SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7698 OF 2009

MODERN TRANSPORTATION CONSULTATION  SERVICES PVT. LTD. & ANR. .....  APPELLANT(S)

VS.

CENTRAL PROVIDENT FUND COMMISSIONER  EMPLOYEES PROVIDENT FUND  ORGANISATION & ORS. .....  RESPONDENT(S)

JUDGMENT

Dinesh Maheshwari, J.

1. In this appeal by special leave, the appellants (writ petitioners) have called

in question the judgment and order dated 07.05.2008 in FMA No. 537 of 2007

whereby, the Division Bench of High Court at Calcutta has reversed the order

dated 07.04.2006, as passed by the learned Single Judge in W.P. No. 2982(W) of

2005.

1.1. By the aforesaid order dated 07.04.2006, the learned Single Judge of High

Court  allowed  the  writ  petition  filed  by  the  appellants  while  upholding  their

contentions that the employees of Railways, who had withdrawn full amount of

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provident  fund  while  retiring  and  who  were  engaged  by  them on  lump  sum

honorarium basis, should be treated as “excluded employees" for the purpose of

the  Employees'  Provident  Funds  and  Miscellaneous  Provisions  Act,  1952

(hereinafter  referred  to  as  'the  Act'/'the  Act  of  1952')  and  the  Employees'

Provident Funds Scheme, 1952 (hereinafter referred to as 'the Scheme of 1952').

However, in the Letters Patent appeal preferred by the Central Provident Fund

Commissioner  and  the  Regional  Provident  Fund  Commissioner,  the  Division

Bench  of  High  Court  totally  disagreed  with  the  learned  Single  Judge;  and

dismissed the writ  petition while holding that the said employees, who retired

after  serving  an  exempted  employer,  would  not  fall  within  the  category  of

excluded employees on re-employment and would be covered by the Act and the

Scheme of 1952.

2. The basic question arising for determination in this appeal is as to whether

the retired employees of Railways, who had withdrawn all  the superannuation

benefits, including full amount of accumulations in their provident fund accounts,

are to be treated as "excluded employees" in  terms of  Paragraph 2(f)  of  the

Scheme of  1952? If  to  be  treated as "excluded employees",  the said  retired

employees of  Railways, on being re-employed by the appellants,  may not be

required  to  join  the  Fund  created  under  the  said  Scheme  of  1952  and

consequently, the appellants may not be obliged to make any contribution in that

regard.  

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3. The relevant factual aspects leading to the question aforesaid are not of

much controversy and could be briefly summarised as follows:

3.1. The appellant No. 1, a Private Limited Company, had been engaged in

manning the Captive Railway System of the respondent No. 4-Damodar Valley

Corporation ('DVC'). The appellant No. 2 is said to be a Director of the appellant

No. 1-company. The appellants would submit that their only connection with DVC

had been a contract to supply the personnel for manning the cabins and gates on

the railway-road;  and they  were  receiving the  remuneration for  supplying  the

aforesaid personnel,  who were retired employees of  the Indian Railways and

were engaged on a lump sum honorarium basis.  

3.2. By  his  letter  dated  18.02.2002,  the  Assistant  Provident  Fund

Commissioner  Circle-IV,  Calcutta  informed  the  appellant-company  that  the

number of  employees of  its establishment being twenty-eight  in  the month of

May, 1999, the establishment came within the purview of the Act of 1952 with

effect from 01.05.1999. In reply, the Director of the appellant-company stated in

his letter dated 05.03.2002 that all the persons engaged by the company, except

two of them, were the retired Railway employees above 58 years of age; that all

of  them were working only on retainer basis; and that they were not covered

under  the  Employees'  Provident  Fund Scheme.  The said  Assistant  Provident

Fund Commissioner, in his letter dated 03.05.2002, refuted the contentions of the

appellants while  referring to  Paragraph 26 of  the Scheme of  1952 and while

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asserting,  inter alia,  that  on and from 01.11.1990, an employee is eligible for

enrolment  as  a  member  of  the  Scheme of  1952 from the  date of  joining  an

establishment covered under the Act of 1952; that there was no age bar for an

employee to become a member of the Scheme of 1952; and that the employees

in question were not excluded employees in terms of the Scheme of 1952.

3.3. It appears that the appellant-company applied for exemption under Section

17 of the Act and Paragraph 27 of the Scheme of 1952 on the ground that the

persons concerned were retired Railway employees but then, no decision was

taken on such representations. On the other hand, by yet another letter dated

22.05.2002,  the  appellant-company  elaborated  on  its  contentions  that  the

employees in question, being retired employees of Railways, did not come within

the purview of the Act of 1952 and were to be treated as "excluded employees"

under Paragraph 26 of the Scheme of 1952. It was stated that these employees,

whilst in the service of Railways, were not covered under the Scheme of 1952

but were covered under the General Provident Fund (‘GPF’) Scheme and had

withdrawn all  the superannuation benefits including Provident Fund (‘PF’) and

pension and hence, they were not covered under the Act of 1952. It was also

claimed that these employees were in receipt of more favourable benefits than

those available under the Scheme of 1952 and had expressed their unwillingness

to become the members of the Scheme of 1952. However, the authorities related

with the Employees'  Provident Fund Organisation (the contesting respondents

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herein)  maintained  that  the  employees  of  an  establishment  were  eligible  for

enrolment  as  members  of  the  Scheme of  1952  irrespective  of  age;  and  the

employees of the appellant company were not "excluded employees", as defined

in the Scheme of 1952.  

3.4. The appellant-company having failed to remit the requisite contribution in

relation to the employees concerned, the competent authority under the Act of

1952 commenced proceedings under Section 7A thereof, for determination of the

money due from the appellants. By its order dated 31.12.2004, the competent

authority, after having heard the appellants, determined the amount payable by

the appellant-company under  various heads while  holding,  inter  alia,  that  the

provisions of the Act of 1952 were not repugnant to the GPF Scheme; that a

person was entitled to draw double or multiple pension/s; and that the retirement

of  the employees from Railways would not  take them within  the definition of

"excluded  employees".  Aggrieved,  the  appellants  preferred  the  writ  petition

before the High Court at Calcutta [W.P. No. 2982(W) of 2005].

4. In the impugned order dated 07.04.2006, the learned Single Judge of High

Court, though held that the Act was applicable to the establishment of appellants

but, thereafter, concluded that on superannuation, the retired employees of the

Railways would fall  within the definition of “excluded employees”. The learned

Single Judge observed that an employee, who had withdrawn full amount of his

accumulation  in  the  fund,  on  re-employment  with  any  establishment  not

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exempted  under  Section  17  of  the  Act,  would  not  be  again  treated  as  an

employee  to  be  covered  under  the  Act.  The  learned  Single  Judge  further

observed  that  accepting  the  submissions  of  the  authorities  would  create  a

situation where an employee,  after being employed in any establishment  and

working  for  some  time,  may  voluntarily  retire  from  service  and  join  another

establishment and keep on doing so successively and get the benefit of various

provisions  of  the  Act  of  1952.  According  to  the  learned  Single  Judge,  even

though the Act of 1952 is a piece of social benefit legislation, and its provisions

are intended to protect the employees, who are considered to be the weaker

section of  society,  yet,  the enactment  is not  intended to create a largesse in

favour of the employees at the cost of the employer. In the opinion of learned

Single Judge, the retired employees of Railways cannot be compelled to become

members  of  the  Fund  and  else,  the  object  and  purpose  of  the  expression

“excluded employees” in the Scheme of 1952 would be rendered nugatory. The

learned Single Judge also observed that when an employee earning more than

Rs. 6,500/- was treated as an “excluded employee” because of the scale of pay

as per Paragraph 2(f)(ii) of the Scheme of 1952, there was no reason as to why

Paragraph 2(f)(i) would not apply in case of an employee who had withdrawn the

full amount of his accumulations. The learned Single Judge further observed that

in order to decide as to whether the provisions of the Act do not apply in respect

of  some of  the employees,  the provisions contained in Paragraph 2(f)  of  the

Scheme of 1952 must be strictly construed; and having taken the benefit of one

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Scheme,  the  employees  cannot  compel  the  employer  to  comply  with  the

provisions of the Act. With these observations, the learned Single Judge allowed

the writ petition and remanded the matter to the authorities for re-determination

of  the amount  of  provident  fund payable  by  the appellants,  after  treating the

retired employees as “excluded employees”, but after taking into account those

employees who were seeking to be included under the Act voluntarily.

5. Aggrieved by the order so passed by the learned Single Judge, the Central

Provident Fund Commissioner and the Regional Provident Fund Commissioner

preferred the Letters Patent appeal that has been considered and allowed by the

Division Bench of High Court at Calcutta by way of the impugned judgment and

order dated 07.05.2008.

5.1. The Division Bench took note of the meaning assigned to the expressions

“Fund”  and  “Scheme”  in  the  Act  of  1952  as  also  the  definition  of  “excluded

employee” in Paragraph 2(f) of the Scheme of 1952 and rejected the contentions

of  the  writ  petitioners  that  the  employees  in  question  were  to  be  treated  as

excluded employees while observing as under:

“We  are  unable  to  accept  the  submission  of  Mr.  Sengupta  that  the receipt of GPF and the Pension by the retired railway employees would be as if full payment has been received under paragraph 69(1). There can be no addition to the term “Fund” as defined under Section 2(h). It is also  not  possible  to  accept  that  since  the  Railway  Employees  have retired on superannuation and are beyond the age of  55 years,  they would be on par with the “excluded employees”. There is no maximum age limit  prescribed  in  any  of  the  provisions  of  the  Act  or  the  1952 Scheme for  an  employee  to  become  a  member  of  the  Fund  or  the Scheme.  It  is  claimed  that  the  term  “Scheme”  refers  only  to  the

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Employees Provident Fund Scheme framed under Section 5. The term “excluded employee” therefore has to be co-related to the employee who was a member of the “fund” as defined under Section 2(h) of the Act. Such  an  employee  would  be  an  “excluded  employee”  when  the  full amount  has  been withdrawn by  him on  retirement  from service  after attaining the age of 55 years i.e., in terms of Paragraph 69(1)(a). The provision being crystal clear does not admit of any other interpretation. Paragraph  69(1)(c)  deals  with  an  employee  who  withdraws  the  full amount standing to his credit immediately after migration from India for permanent settlement abroad and for taking employment abroad.

In our opinion, there can be no dissections of these provisions as proposed by Mr. Sengupta. Under paragraph 2(f)(i) a retired employee would be an excluded employee. Under Paragraph 2(f)(ii) an employee who is otherwise entitled to become a Member of the fund becomes an excluded employee as he is earning beyond the stipulated minimum that is required for an employee to become a Member of the Scheme. This provision clearly demonstrates the underlying principle of the Provident Fund Act is to provide social security for those employees who otherwise would  not  be  in  a  position  to  save  any  money  from  their  wages. Paragraph 2(f)(iv) again provides that an apprentice shall be an excluded employee till he becomes a fullfledged employee. There is a qualitative difference between Paragraph 2(f)(i) on the one hand and Paragraph 2(f) (ii) & (iv) on the other. Paragraph 2(f) 1(i) provides exclusion only to the employees who have already received retirement benefits. On the other hand, under Clause 2(f)(ii) and 2(f)(iv) an employee may be an excluded employee at one point and may not be at a subsequent point. But benefit of these provisions cannot be extended to any employees who are not erstwhile members of a fund administered by the Central Board, under Section 5A of the Act

The ‘Fund’ created by the exempted establishment under Section 17(1)(a) cannot be equated with the Fund which is established by the Central Board under Section 5(1). Nor can it be added to the definition of Fund  under  Section  2(h)  of  the  Act.  It  is  for  this  reason  that  the appropriate  Government  can  only  exempt  an  establishment  from the operation of the scheme under Section 17(1) upon forming an opinion that the employees of such an establishment enjoyed benefits which are not less favourable to the employee than the benefits available under the Act or any Scheme made under the Act. In fact, the exemption can only be  granted  on  consultation  with  the  Central  Board.  This  provision  is made only to give supervisory control  to the Appropriate Government over individual employers seeking exemption. But this provision cannot be put on the same pedestal as Section 5(1) of the Act. It is admitted position that employees of the Railways are not members of the 1952 Scheme.  Therefore,  these  retired  employees  cannot  be  treated  as excluded employees covered under Paragraphs 69(1)(a) and 26 of the

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1952  Scheme.  There  is  a  clear  distinction  between  a  fund  which  is created by the Central Government and is administered by the Central Board under Section 5(1)(a) and a fund created by a private employer, exempted under Section 17(1) and administered by Board of Trustees under Section 17(1A) and (b). There can be no intermingling of the two provisions. ”  

5.2. In view of the above, the Division Bench concluded on the matter in the

following:

“In view of the above, we find that the judgment of the learned Single Judge is not sustainable in law. We are unable to hold that retired employees of the Railways can be treated as excluded employees. We are also unable to hold that, not including the retired employees in the category of excluded employees would in any manner contravene the provisions  of  the  Act  or  the  Scheme.  We  are  unable  to  accept  that bringing the Railway employees within the purview of the Act and the Scheme would result in unjust enrichment of the retired employees. We are  of  the  opinion  that  an  employee  who  retires  after  serving  an exempted  employer  would  not  fall  within  the  category  of  excluded employees on re-employment and would be covered by the Act and the 1952 Scheme. We are also unable to accept that since the employees covered  under  Paragraph  2(f)(i)  and  (ii)  are  excluded  employees,  all employees who had drawn the  full  amount  from any other  Provident Fund should also be treated as excluded employees.

In view of the above, we allow this appeal and set aside the order passed by the learned Single Judge.

Consequently, the writ petition being W.P. No. 2982(W) of 2005 shall be dismissed.”

6. Assailing the judgment  aforesaid,  learned counsel  for the appellant  has

strenuously  argued  that  the  Division  Bench  of  High  Court  has  erred  in

interpreting  the  term  “excluded  employee”  and  in  holding  that  the  retired

employees of the Railways, even when they had withdrawn the full amount from

their  provident  fund,  cannot  be  treated  as  excluded  employees.  The  learned

counsel emphasised on the submissions that the retired Railway employees, who

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were  covered  under  GPF  Scheme  while  in  service,  who  had  drawn  all  the

superannuation benefits including the PF,  and who were also receiving pension

under the CPG rules, would fall within the definition of "excluded employees" as

contained in clause (i) of Paragraph 2(f) of the Scheme of 1952. Learned counsel

submitted that as per Paragraph 26 thereof, the Scheme of 1952 shall apply to all

the employees other than excluded employees; and, as per Paragraph 2(f)(i),  an

excluded employee is the one who, having been a member of a provident fund,

had withdrawn the full amount of his accumulations in the fund under clause (a)

or (c) of sub-paragraph (1) of Paragraph 69. Therefore, according to the learned

counsel, the employees concerned in the present case ought to be treated as

“excluded employees”, for having withdrawn their PF accumulated with the Indian

Railways after having reached the age of superannuation. Further, according to

the  learned  counsel,  if  these  employees  are  not  treated  as  “excluded

employees”, it would amount to their unjust enrichment, which has never been

the intention of the Act of 1952 or the Scheme thereunder. The learned counsel

contended  that  the  Division  Bench  of  High  Court  has  erred  in  holding  that

Paragraph 69 of the said Scheme does not apply to the case of retired Railway

employees and such retired employees, though not covered under the Act, came

to be so covered on their re-employment in an establishment covered under the

said  Act.  According  to  the  learned  counsel,  the  Division  Bench has  erred  in

interpreting the definitions of ‘Fund’ and ‘Scheme’ and in restricting the definition

of ‘Fund’ under Section 2(h) of the Act by holding that even after retiring from the

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Railways and receiving the benefits under GPF Scheme, the said employees are

not "excluded employees" as the said employer is not covered under the Scheme

of 1952.  

7. Per contra, learned counsel for the contesting respondents has referred to

the  object  as  also  the  arrangement  of  the  Act  of  1952  and  has  particularly

submitted that two different sets of provident fund Schemes are envisioned: on

one hand is the Scheme contemplated by Section 5 of the Act, the Scheme of

1952 being that Scheme; and on the other hand, there could be other Scheme/s,

as permissible under Section 17 of the Act of 1952. According to the learned

counsel, coverage of the employees referable to the Act of 1952 by one of the

Schemes of provident fund is the rule and generally, such employees would be

covered by the Scheme of 1952 with the exception that such coverage may not

be  necessary  when  the  employees  receive  the  benefits  under  some  other

Scheme, which are not less than those available under the Scheme of 1952.

Learned  counsel  for  the  respondent  submitted  that  in  the  framework  of  the

Scheme  of  1952,  only  some  specific  classes  of  employees  are  treated  as

“excluded employees”, as defined in Paragraph 2(f) thereof; and, as per clause

(i) of Paragraph 2(f), only such an employee would be excluded who was earlier

the member of the Fund under the Scheme of 1952 and had withdrawn all the

benefits  thereunder.  According  to  the  learned  counsel,  the  present  appeal  is

devoid  of  merits  for  the  reason  that  the  Railway  employees,  who  were  not

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covered under the Scheme of 1952, do not fall within the definition of “excluded

employees”  as  per  Paragraph 2(f)  of  the Scheme of  1952,  even if  they had

withdrawn the amount standing to their credit in any provident fund created under

any other Scheme.  

8. We have bestowed thoughtful consideration to the rival submissions and

have examined the record of the case with reference to the law applicable.  

9. For  determination of  the question involved in  this  matter,  appropriate  it

would be to briefly take note of the objects and reasons behind the Act of 1952

as  also  the  relevant  provisions  thereof  and  the  relevant  stipulations  in  the

Scheme framed thereunder i.e., the Scheme of 1952.

9.1. The background aspects had been that, taking note of the need to provide

for  the  institution  of  contributory  provident  funds  for  the  purpose  of  financial

security  of  industrial  workers,  the  Government  of  India  promulgated  the

Employees' Provident Fund Ordinance with effect from 15.11.1951, which was

later  on  replaced  by  the  Act  of  19521.  Thus,  the  concept  underlying  the

enactment had been of providing for compulsory contributory provident funds for

safeguarding the future of  industrial  workers.  Elaborate provisions have been

made  in  the  Act  for  creation  of  a  Fund,  to  be  settled  in  accordance  with  a

Scheme  to  be  framed  by  the  Central  Government.  However,  the  Act  also

1 The Act was originally enacted on 04.03.1952 as "The Employees' Provident Funds Act, 1952" (No. 19 of 1952); its nomenclature was changed to "The Employees' Provident Funds and Family Pension Fund Act,  1952" w.e.f.  23.04.1971; and its nomenclature was again changed to the present one i.e.,  "The Employees' Provident Funds and Miscellaneous Provisions Act, 1952" w.e.f. 01.08.1976.

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provides for continuation of such of the other provident funds, which are offering

equal  or  more  advantageous  terms  to  the  employees  concerned  and  are

operating efficiently.  

9.1.1. In the Act of 1952, the expression “employee” is defined in clause (f) of

Section 2 as under:

“(f) “employee” means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment,  and who gets,  his wages directly or indirectly from the employer, and includes any person,-

(i)  employed by or through a contractor in or in connection with the work of the establishment;

(ii)  engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), or under the standing orders of the establishment;”

9.1.2. The  concepts  of  “exempted  employee”  and  “exempted  establishment”  are

defined in clauses (ff) and (fff) of Section 2 of the Act of 1952 as under:

“(ff) “exempted employee” means an employee to whom a Scheme or the Insurance Scheme, as the case may be, would, but for the exemption granted under section 17, have applied;

(fff) “exempted establishment” means an establishment in respect of which  an  exemption  has  been  granted  under  section  17  from  the operation of all or any of the provisions of any Scheme or the Insurance Scheme, as the case may be, whether such exemption has been granted to  the  establishment  as  such  or  to  any  person  or  class  of  persons employed therein;”

9.1.3. The expression “Fund” is defined in clause (h) of Section 2 of the Act of

1952 as under:

“(h) “Fund” means the provident fund established under a Scheme;”

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9.1.4. The expression “Scheme” means the one framed under Section 5 of the

Act of 1952 and is defined in clause (l) of Section 2 as under:

“(l) “Scheme” means the Employees Provident Fund Scheme framed under section 5;”

9.1.5. Section 5 of the Act of 1952, providing for the Employees’ Provident Fund

Scheme, reads as under2:  

"5.  Employees’  Provident  Funds  Scheme.  – (1)  The  Central Government may, by notification in the Official Gazette, frame a scheme to  be  called  the  Employees’  Provident  Fund  Scheme  for  the establishment of provident funds under this Act for employees or for any class  of  employees  and  specify  the  establishments  or  class  of establishments to which the said Scheme shall apply and there shall be established, as soon as may be after the framing of the Scheme, a Fund in accordance with the provisions of this Act and the Scheme.  

(1A) The Fund shall vest in, and be administered by, the Central Board constituted under section 5A.  

(1B) Subject to the provisions of this Act, a Scheme framed under sub-section  1  may  provide  for  all  or  any  of  the  matters  specified  in Schedule II.  

(2) A Scheme framed under sub-section 1 may provide that any of its provisions shall take effect either prospectively or retrospectively on such date as may be specified in this behalf in the Scheme."

9.1.6. For the purpose of the question at hand, sub-section (1) and sub-section

(1-A) of Section 17 of the Act of 1952, relating to the powers of the appropriate

2 The  original  Section  5  has  undergone  several  changes  by  way  of  amendments.  The relevant amendments to be noticed for the present purpose are that by Act No. 37 of 1953, original Section 5 was re-numbered as sub-section (1), the expressions for establishment of Fund soon after  framing of  Scheme were  added,  and sub-section (2)  was also  inserted. Moreover, by Act No. 28 of 1963, Sub-section (1A) to Section 5 (providing for vesting and administration of Fund in and by the Central Board) was inserted. The provisions relating to Central and State Boards and co-related aspects were also inserted as Sections 5A to 5E by the said Act No. 28 of 1963, which need not be dilated upon, for being not relevant for present purpose.  

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Government  to  grant  exemption and the consequence thereof,  could  also be

taken note of as under:  

"17.  Power  to  exempt  - (1)  The  appropriate  Government  may,  by notification in the Official Gazette, and subject to such conditions as may be  specified  in  the  notification,  exempt,  whether  prospectively  or retrospectively, from the operation of all or any of the provisions of any Scheme –  

(a) any establishment to which this Act applies if, in the opinion of the appropriate Government, the rules of its provident fund with respect to the rates of contribution are not less favourable than those specified in section 6 and the employees are also in enjoyment of other provident fund  benefits  which  on  the  whole  are  not  less  favourable  to  the employees than the benefits provided under this Act or any Scheme in relation  to  the  employees  in  any  other  establishment  of  a  similar character; or  

(b) any establishment if the employees of such establishment are in  enjoyment  of  benefits  in  the  nature  of  provident  fund,  pension  or gratuity and the appropriate Government is of opinion that such benefits, separately  or  jointly,  are  on  the  whole  not  less  favourable  to  such employees than the benefits provided under this Act or any Scheme in relation to employees in any other establishment of a similar character:  

Provided  that  no  such  exemption  shall  be  made  except  after consultation  with  the  Central  Board  which  on  such  consultation  shall forward its  views on exemption to  the appropriate Government within such time limit as may be specified in the Scheme.  

(1A) Where an exemption has been granted to an establishment under clause (a) of sub-section (1),-  

(a) the provisions of sections 6, 7A, 8 and 14B shall, so far as may be, apply to the employer of the exempted establishment in addition to such other conditions as may be specified in  the notification granting such  exemption,  and  where  such  employer  contravenes,  or  makes default in complying with any of the said provisions or conditions or any other provision of this Act, he shall be punishable under section 14 as if the said establishment had not been exempted under the said clause (a);

(b)  the  employer  shall  establish  a  Board  of  Trustees  for  the administration  of  the  provident  fund  consisting  of  such  number  of members as may be specified in the Scheme;  

(c) the terms and conditions of service of members of the Board of Trustees shall be such as may be specified in the Scheme;  

15

(d) the Board of Trustees constituted under clause (b) shall–  

(i) maintain detailed accounts to show the contributions credited, withdrawals made and interest accrued in respect of each employee;  

(ii)  submit  such  returns  to  the  Regional  Provident  Fund Commissioner or any other officer as the Central Government may direct from time to time;  

(iii)  invest  the  provident  fund  monies  in  accordance  with  the directions issued by the Central Government from time to time;  

(iv) transfer, where necessary, the provident fund account of any employee; and

(v) perform such other duties as may be specified in the Scheme.

*** *** *** "

9.2. After  having  taken  note  of  the  relevant  provisions  of  the  Act  of  1952,

essential it is to take into comprehension the relevant provisions and stipulations

of  the  Scheme  of  1952  that  has  been,  as  noticed,  framed  by  the  Central

Government under Section 5 of the Act of 1952.

9.2.1. Noteworthy it is that there is no definition of an "excluded employee" in the

Act  of  1952.  In  fact,  this  expression  comes  in  operation  for  the  purpose  of

exclusion of certain employees from compulsion to join the Fund created under

the Scheme of 1952. Therefore, this expression is defined only in the Scheme of

1952, in clause (f) of paragraph 2 thereof, as under:  

"(f) "excluded employee" means—  

(i) an employee who, having been a member of the Fund, withdrew the full amount of his accumulations in the Fund under clause (a) or (c) of sub-paragraph (1) of paragraph 69;  

16

(ii)  an  employee  whose  pay  at  the  time  he  is  otherwise  entitled  to become a member of the Fund, exceeds fifteen thousand rupees per month;3  

Explanation.  --'Pay'  includes  basic  wages  with  dearness  allowance, retaining  allowance  (if  any)  and  cash  value  of  food  concessions admissible thereon;

(iii) [omitted]4;  

(iv) an apprentice.  

Explanation.--  An  apprentice  means  a  person  who,  according  to  the certified standing orders applicable to the factory or establishment, is an apprentice,  or  who  is  declared  to  be  an  apprentice  by  the  authority specified in this behalf by the appropriate Government;"

9.2.2. Paragraph 26 of the Scheme of 1952 specifies the classes of employees

entitled to, and required to, join the Fund as also the co-related aspects. Useful it

shall  be to keep in view the fact  that  the expression "Fund",  as occurring in

Paragraph  26  refers  to  the  Fund  created  under  the  Scheme  of  19525.  This

Paragraph 26 reads as under:

"26. Classes of employees entitled and required to join the fund.-

(1) (a) Every employee employed in or in connection with the work of a factory or other establishment to which this Scheme applies, other than an  excluded  employee,  shall  be  entitled  and  required  to  become  a member of the Fund from the day this paragraph comes into force in such factory or other establishment.  

(b)  Every employee employed in  or  in  connection with  the work of  a factory or other establishment to which this Scheme applies, other than an excluded employee, shall also be entitled and required to become a member of the fund from the day this paragraph comes into force in such factory or other establishment if on the date of such coming into force, such employee is a subscriber to a provident fund maintained in respect

3 At the relevant point of time, in sub-clause (ii) the figures had been 'six thousand and five hundred  rupees' in place of the present figures of ‘fifteen thousand rupees’ 4 Sub-clause (iii) and explanation thereto were omitted by GSR 1467 dated 02.12.1960 5 The contra-distinction of this "Fund" with a "private provident fund" is noticeable in sub-paragraph (5),  where reference is made to an exempted establishment.

17

of the factory or other establishment, or in respect of any other factory or establishment (to which the Act applies) under the same employer:  

Provided  that  where  the  Scheme  applies  to  a  factory  or  other establishment  on  the  expiry  or  cancellation  of  an  order  of  exemption under section 17 of the Act, every employee who but for the exemption would  have  become  and  continued  as  a  member  of  the  Fund,  shall become a member of the fund forthwith.  

(2)  After  this  paragraph  comes  into  force  in  a  factory  or  other establishment,  every employee employed in or in connection with the work or that factory or establishment, other than an excluded employee, who  has  not  become  a  member  already  shall  also  be  entitled  and required to become a member of the fund from the date of joining the factory or establishment.  

(3) An excluded employee employed in or in connection with the work of a factory or other establishment to which this Scheme applies shall, on ceasing to be such an employee, be entitled and required to become a member of the fund from the date he ceased to be such employee.  

(4) On re-election of an employee or a class of employees exempted under paragraph 27 or paragraph 27 A to join the fund or on the expiry or cancellation  of  an  order  under  that  paragraph,  every  employee  shall forthwith become a member thereof.  

(5)  Every  employee  who  is  a  member  of  a  private  provident  fund maintained in respect of an exempted factory or other establishment and who but for exemption would have become and continued as a member of the fund shall, on joining a factory or other establishment to which this Scheme applies, become a member of the fund forthwith.  

(6) Notwithstanding anything contained in this paragraph an officer not below the rank of an Assistant Provident Fund Commissioner may, on the  joint  request  in  writing  of  any  employee  of  a  factory  or  other establishment  to  which  this  Scheme applies  and his  employer,  enroll such employee as a member or allow him to contribute more than fifteen thousand rupees of his pay per month if he is already a member of the fund and thereupon such employee shall be entitled to the benefits and shall be subject to the conditions of the fund, provided that the employer gives  an  undertaking  in  writing  that  he  shall  pay  the  administrative charges payable and shall comply with all statutory provisions in respect of such employee."

9.2.3. For  comprehension  of  all  the  relevant  provisions  and  stipulations,  a

reference to sub-paragraph (1) of paragraph 69 of the Scheme of 1952 is also

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pertinent  and the  same,  as  applicable  at  the  relevant  point  of  time,  may  be

noticed as under6:

"69. Circumstances in which accumulations in the Fund are payable to a member.- (1) A member may withdraw the full amount standing to his credit in the Fund—

(a) on retirement from service after attaining of the age of 55 years:  

Provided that a member, who has not attained the age of 55 years at the time of termination of his service, shall also be entitled to withdraw the full amount standing to his credit in the Fund if he attains the age of 55 years before the payment is authorized;  

(b) on retirement on account of  permanent  and total  incapacity for work due to bodily or mental infirmity duly certified by the medical officer of the establishment or where an establishment has no regular medical officer,  by  a  registered  medical  practitioner  designated  by  the establishment;  

(c) immediately before migration from India for permanent settlement abroad or for taking employment abroad;  

(d) on  termination  of  service  in  the  case  of  mass  or  individual retrenchment;  

(dd) on termination of service under a voluntary scheme of retirement framed by the employer and the employees under a mutual agreement specifying,  inter  alia,  that  notwithstanding  the  provisions  contained  in sub-clause (a) of clause (oo) of section 2 of the Industrial Disputes Act, 1947,  excluding  voluntary  retirements  from the  scope  of  definition  of "retrenchment"  such  voluntary  retirements  shall  for  the  purpose  be treated as retrenchments by mutual consent of the parties;  

(e) in any of the following contingencies, provided the actual payment shall be made only after completing a continuous period of not less than two months immediately preceding the date on which a member makes the application for withdrawal:—  

(i) where  a  factory  or  other  establishment  is  closed  but  certain employees who are not retrenched, are transferred by the employer to other factory or establishment, not covered under the Act;  

6 This paragraph 69 and its sub-paragraphs and clauses have also undergone several amendments from time to time; however, the contents as reproduced herein are more or less in the same form, as are  applicable to the present case.  

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(ii)  where  a  member  is  transferred  from  a  covered  factory  or  other establishment  to  another  factory  or  other  establishment  not  covered under the Act, but is under the same employer; and  

(iii)  where  a  member  is  discharged  and  is  given  retrenchment compensation under the Industrial Disputes Act, 1947 (14 of 1947);"

10. Before proceeding further, we may take note of a decision of this Court

referred to by the learned counsel for the parties, being that in the case of N.K.

Jain  and  Ors.  v.  C.K.  Shah  and  Ors.:  (1991)  2  SCC  495.  The  relevant

background aspect of the said case had been that the establishment in question

was governed by the provisions of  the Act of  1952 but  was exempted under

Section 17; and had its own trust in respect of the provident fund contributions.

However,  the  establishment  failed  to  pay  such  contributions  for  some period

during the year 1974 and there was a default. The question was as to whether

such default  would entail  prosecution  also,  or  only  the  exemption  was to  be

cancelled ?  The said case, being related to a different fact situation and different

controversy  may  not  have  a  direct  bearing  on  the  present  matter  but,  the

observations of this Court,  illuminative on the setup and framework of the Act

and the Scheme of 1952, could be usefully reproduced as under:

“7. On  a  perusal  of  the  above extracted  provisions of  the  Act  the following aspects to the extent relevant to the present case can be spelt out.  The  management  of  an  establishment  has  to  contribute  to  the provident  fund  and  the  government  under  Section  5  can  frame  a Scheme called Employees’ Provident Fund Scheme and such a Scheme was  framed  in  the  year  1952.  The  Scheme  provides  for  the establishment  of  provident  fund  under  the  Act  for  employees  of  the establishments specified therein. Section 6 is the material provision and deals with contributions which may be provided under the Scheme and also  prescribes  the  rate  of  contribution  to  the  fund  and  that  the employees’ contribution should be equal to the contribution payable by

20

the employer. Section 14 deals with the penalties and Section 14(1-A) lays  down  that  an  employer  who  contravenes,  or  makes  default  in complying  with  the  provisions  of  Section  6  shall  be  punishable  with imprisonment for a term which may extend to six months but shall not be less than three months in case of default in payment of the employees’ contribution  which  has  been  deducted  by  the  employer  from  the employees’ wages. But for adequate reasons it can be less. Paragraph 76 of the Scheme also provides for punishment for failure to pay such contributions to the fund. Then we have Section 17 which provides for the exemption. As per the said section the appropriate government may by notification and subject to such conditions, as may be specified in the notification, exempt from the operation of all or any of the provisions of any  Scheme  (in  the  present  case  1952  Scheme)  if  the  appropriate government  is  satisfied  that  the  rules  of  the  provident  fund  which  a particular establishment is following in the matter of contribution to the provident fund are not less favourable than those specified in Section 6 and that the employees are also in enjoyment of other provident fund benefits. In other words the exemption from the operation of the Scheme is granted provided the particular establishment makes contribution as per its own rules governing the contribution to the fund, which in other words, can be called a provident fund scheme of its own are not less favourable than those specified in Section 6. Accordingly the exempted establishment has to provide for its employees the benefits which are in no way less favourable than the ones provided under the Act and the Scheme.”  

10.1. In  the  said  case,  this  Court  finally  held  that  the  failure  to  make  the

contributions by an exempted establishment to the provident fund as per its own

rules may also attract the penalties under sub-sections (1-A) and (2-A) of Section

14 of the Act of 1952.  

11. In the scheme and structure of the Act of 1952, it is but clear that for the

specified establishments or class of establishments, the Central Government was

to frame a Scheme, to be called “the Employees’ Provident Fund Scheme”; and

soon after framing of such Scheme, a Fund was to be established, which was to

vest in, and administered by, the Board constituted under Section 5A. As noticed,

21

the expression “Fund” is defined in the Act of 1952 to mean the provident fund

established under a Scheme; and the expression “Scheme” is defined to mean

the Employees Provident Fund Scheme framed under Section 5. Indisputably,

the Scheme of 1952 is the one framed by the Central Government in exercise of

the powers conferred by Section 5 ibid.  We shall examine the provisions of the

Scheme of 1952 a little later. At this juncture, apposite it would be to take note of

another  feature of  the  Act  of  1952 emanating  from the  provisions relating  to

exemption, as contained in Section 17 thereof.    

12. By  virtue  of  sub-section  (1)  of  Section  17,  an  establishment  could  be

exempted from the operation of all or any of the provisions of any Scheme if: (a)

in  regard  to  the  establishment  to  which  the  Act  applies,  the  appropriate

Government is of opinion that the rules of its provident fund, with respect to the

rates  of  contributions,  are  not  less  favourable  for  the  employees  than  those

specified in Section 6 and the employees are in enjoyment of other provident

fund benefits  which,  on  the  whole,  are  not  less  favourable  than the  benefits

available  under  the  Act  or  under  the  Scheme  in  relation  to  any  other

establishment of similar character; and (b) in regard to any other establishment,

the appropriate Government is of opinion that benefits in the nature of provident

fund, pension or gratuity, as available to the employees of such establishment

are, on the whole, not less favourable than the benefits provided under the Act or

any Scheme in any other establishment of similar character.

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12.1. When an exemption is granted to an establishment under clause (a) of

sub-section (1) of Section 17 of the Act of 1952, several duties are cast upon the

employer as specified in sub-section (1-A) thereof, with penal provisions in the

event of default. We need not elaborate on various other provisions contained in

Section 17. Suffice would be to notice for the present purpose that coverage of

the employees like the one engaged in the establishment of appellants is the

rule; and ordinarily, the employees are expected to be covered by the Scheme

framed under Section 5 of the Act of 1952 with the exception being that in case of

availability  of  equivalent  or  more favourable benefits  in  an establishment,  the

appropriate Government could grant exemption. As per sub-section (2) of Section

17,  even  the  Scheme  may  make  a  provision  for  exemption  but  the  basic

requirement being again that the persons or the class of persons to be exempted

are entitled to such benefits which are, on the whole, not less favourable than the

benefits provided under the Act and the Scheme thereunder i.e., the Scheme of

19527. All the requirements of Section 17 make the position undoubtedly clear

that the provisions are intended to ensure optimum benefits for the employees

and  even  the  exemption  is  granted  only  on  the  satisfaction  of  appropriate

7 Sub-section (2) of Section 17 reads as under:  (2) Any Scheme may make provision for exemption of any person or class of persons employed

in any establishment to which the Scheme applies from the operation of all or any of the provisions of the Scheme, if such person or class of persons is entitled to benefits in the nature of provident fund, gratuity or old age pension and such benefits, separately or jointly, are on the whole not less favourable than the benefits provided under this Act or the Scheme:  

Provided that no such exemption shall be granted in respect of a class of persons unless the appropriate  Government  is  of  opinion  that  the  majority  of  persons  constituting  such  class  desire  to continue to be entitled to such benefits.

23

Government  about  existence of  equivalent  or  more favourable provident  fund

Scheme for the employees concerned.

13. The  Scheme  of  1952  was  framed  by  the  Central  Government  on

02.09.1952  i.e.,  within  6  months  of  the  enactment  of  the  Act  of  1952.  The

provisions  of  the  Scheme  are  generally  made  applicable,  subject  to  the

provisions  of  Sections  16  and  17  of  the  Act,  to  all  the  factories  and  other

establishments to which the Act applies or is applied under sub-sections (3) and

(4) of Section 1 or under Section 3 of the Act. The provisions of the Scheme of

1952 have been extended to various establishments from time to time under

clause (b) of sub-paragraph (3) of Paragraph 1 thereof. As per Paragraph 26 of

the Scheme of 1952, every employee employed in or in connection with the work

of the factory or other establishment to which this Scheme applies, is entitled to,

and is obliged to,  become a member of  the Fund from the date the Scheme

would come into force for such factory or establishment, except the “excluded

employees”. Significantly, even an "excluded employee", on ceasing to be so i.e.,

on  ceasing  to  be  an  “excluded  employee”,  is  entitled  to,  and  is  required  to,

become a member of the Fund from the date of such cessation.

13.1.  In the framework of  the Scheme of 1952, exclusion is provided under

clause (i) of Paragraph 2(f) thereof to an employee who had been a member of

the Fund and had withdrawn full amount of his accumulations in the Fund under

clause (a) or (c) of Paragraph 69(1). Now, clause (a) of the said Paragraph 69(1)

24

of the Scheme of 1952 refers to a member who would withdraw the full amount

standing to his credit in the Fund on retirement from service after attaining the

age of 55 years. Clause (c) is not relevant for the present purpose as the same

relates to a member who withdraws the amount before migration from India for

permanent settlement or taking employment abroad but then, a comprehensive

look at various clauses of paragraph 69(1) makes it clear that reference therein is

to a member of the Fund who withdraws full amount standing to his credit for

different  eventualities  like  regular  retirement;  retirement  for  disablement  or

incapacity;  migration  from  the  country;  termination  of  service;  accepting  a

voluntary  retirement  scheme;  closure  of  the  factory;  transfer  from a  covered

factory or establishment to another factory or establishment not covered under

the Act etc.

14. It is not a matter of much debate in this case that the appellants otherwise

answer  to  the  description  of  "employer"  under  the  Act  of  1952  and  their

establishment is covered thereunder. The basic contention urged in this matter

on behalf of the appellants is that the persons engaged by them had been the

members of General Provident Fund while working as the employees of Railways

and had withdrawn the full amount of accumulations in GPF and are, therefore,

to  be  treated  as  “excluded  employees”.  This  contention  has  fundamental

shortcomings as pointed out infra.

25

14.1. The crucial  aspect to be considered in this matter is as to whether the

definition of  “excluded employees” in Paragraph 2(f)  as also the stipulation in

Paragraphs 26 and 69 of the Scheme of 1952 refer to any provident fund or only

to the Fund under the Scheme of 1952? As noticed above, in the setup and

structure of the Act of 1952, specific distinction is maintained between the Fund,

which is created by the Central Government under Section 5(1) of the Act and

any other provident fund, which is created by an employer. Significantly, clause

(f) of Paragraph 2 of the Scheme of 1952 refers to “the Fund" and not to "any

Fund”; and Paragraphs 26 and 69 also refer to “the Fund" and not to "any Fund”.

The determiner “the”, as occurring in Paragraph 2(f) as also Paragraph 69 before

the expression "Fund" makes it  clear that the reference therein is only to  the

Fund which  is  created  under  the  Scheme  of  1952  and  it  is  not  a  general

reference to any Fund. The requirement of joining the Fund under Paragraph 26

ibid. is also of joining that Fund which is created under the Scheme of 1952. In

other words, obviously and undoubtedly, the Fund referred to in Paragraphs 2(f),

26  and 69  of  the Scheme of  1952 is  that  Fund,  which is  created under  the

Scheme of 1952 and the reference is not to any other Fund. Thus, to be covered

under the expression “excluded employee” by virtue of clause (i) of paragraph

2(f) read with clause (a) of paragraph 69(1)  ibid., the employee must be such

who was a member of the Fund established under the Scheme of 1952 and who

had withdrawn full amount of his accumulations in the said Fund on retirement

from service after attaining the age of 55 years.   

26

14.2. On the plain interpretation aforesaid, we have not an iota of doubt that the

retired Railway employees, who had withdrawn their accumulations in General

Provident Fund or any other Fund of which they were members, could not have

been treated as “excluded employees” for the purpose of the Scheme of 1952 for

the reason that such a withdrawal had not been from the Fund established under

the  Scheme of  1952.  In  fact,  there  was  no  occasion  for  them to  make  any

withdrawal from the Fund established under the Scheme of 1952 because they

were never the members of the said Fund. In other words, the employees in

question were not answering to the requirements of clause (i) of paragraph 2(f)

read with clause (a) of paragraph 69(1) of the Scheme of 1952 and hence, were

not the “excluded employees”. The Division Bench of the High Court has rightly

rejected the contention of appellants that every employee, who had withdrawn

full  amount  from  any  provident  fund,  should  be  treated  as  an  “excluded

employee”. In our view, the answer by the Division Bench of the High Court is in

accord with law and deserves to be approved.

15. We may also  take  note  of  and deal  with  a  few ancillary  aspects.  The

appellants,  in  their  initial  response  to  the  proposition  for  coverage  of  the

employees in question under the Scheme of 1952, attempted to state that most

of the said employees were above 58 years of age and that they had expressed

unwillingness to join the Fund under the said Scheme. It does not appear from

the record if the concerned employees categorically made any such expression

27

of unwillingness. Even otherwise, as noticed, the provisions of the Act and the

stipulations  of  the  Scheme  of  1952  are  mandatory  in  character  and  the

application thereof could not have been averted by the appellants or the said

employees except on certain eventualities as mentioned in Section 17 of the Act

as also Paragraph 26 of the Scheme of 1952. Such eventualities are indeed non-

existent in the present matter. So far the aspect relating to age is concerned, the

operation and effect of the Act and the Scheme of 1952 are not restricted with

reference to any age limit of the employee. Such a suggestion relating to the age

of the employees had been entirely baseless and has rightly been disapproved.

15.1. Apart from the above, the appellants also alleged that they had applied for

exemption and no decision was taken on their representation. In this regard, it is

noticed that the appellant had not made any such submission that they had any

better  and beneficial  scheme for  their  employees.   In  any  case,  there  is  no

concept of any holidaying in payment of contribution by the employer by merely

moving an application for exemption; and when there was no order of exemption

under Section 17 by the competent authority, the appellant-company was under

the liability to make payment of its contribution.

16. Before concluding,  we may also point  out  that  the observations by the

learned Single Judge of High Court in this matter, that clause (i) of Paragraph 2(f)

of the Scheme of 1952 has to be applied in relation to the withdrawal from any

provident  fund  and  else,  an  employee  may  keep  on  successively  deriving

28

benefits,  remain  rather  unwarranted  because  the  principle  underlying  the

enactment  and  the  Scheme  of  1952  is  to  provide  financial  security  to  the

employees. The concept of exclusion from the Scheme of 1952 is limited to the

class/es  of  employees  mentioned  in  Paragraph  2(f)  only;  and  the  area  of

operation of this exclusion clause cannot be expanded by way of an assumption

about the alleged extra advantage likely to be driven home by an employee. In

fact, even the assumption of the learned Single Judge does not appear apt in the

framework of the Act and the Scheme of 1952. Whatever an employee gets by

virtue  of  the  Act  of  1952  is  basically  the  accumulation  in  his  provident  fund

account, where he and his employer do contribute. The learned Single Judge

had gone to the extent of observing that when the employees earning more than

the particular amount (Rs. 6,500/- per month at the relevant time) were excluded

under clause (ii) of Paragraph 2(f) of the Scheme of 1952, the retired employees

who had received their accumulations could also be excluded under clause (i) of

Paragraph  2(f).  With  respect,  we  are  unable  to  find  any  logic  in  these

observations because the stipulation in clause (ii) of Paragraph 2(f) relates to an

entirely different class of employees with reference to the quantum of their pay;

and exclusion of such class of employees as per clause (ii) cannot lead to any

corollary that clause (i) be also expanded beyond its plain language. The order

passed  by  the  learned  Single  Judge,  being  based  on  entirely  irrelevant

considerations,  has  rightly  been  disapproved  by  the  Division  Bench  of  High

Court.  

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17. To summarise, in the framework and setup of the Scheme of 1952, the

concept remains plain and clear that if a person is member of the Fund created

thereunder i.e., under the Scheme of 1952 and withdraws all his accumulations

therein, he may not be obliged to be a member of the same Fund under the

Scheme of 1952 over again and could be treated as an “excluded employees”.

However, such is not the relaxation granted in relation to an employee who was

earlier a member of any other Fund but later on joins such an establishment

where  he  would  be  entitled  to  membership  of  the  Fund  created  under  the

Scheme of 1952. This framework of the provisions and stipulations appears to be

best  serving  the  interest  of  employees,  while  providing  them  with  continued

financial security. Therefore, we find no reason to take any view different than the

one taken by the Division Bench of the High Court in this case.  

18. For  what  has  been  discussed  hereinabove,  this  appeal  fails  and  is,

therefore, dismissed.              

   ...............................................J.             (ABHAY MANOHAR SAPRE)

      ..............................................J. (DINESH MAHESHWARI)   1

New Delhi  Dated: 26th March, 2019.

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