The apex court on 28th February 2019 delivered a revolutionary judgement that
has changed the Employee Provident Fund deduction structure entirely. The apex
Court in The Regional Provident Fund Vs. Vivekananda Vidyamandir & Others held
that Special Allowances are to be considered as a part of basic wage
and it was camouflaged as part of an allowance so as to avoid deduction and
contribution accordingly to the provident fund account of the employees. In
this Judgement, the apex court has relied on the Bridge & Roof Co (India) Ltd
Vs. Union of India, where it was held that the Special Allowance is to
be included while calculating the basic wages and it cannot be excluded while
calculating the contribution under Section 6 of the Act .
In Manipal Academy of Higher Education Vs Provident Fund Commissioner, it
was held that special allowances are not to be included in basic wages
as it is specifically paid to those who avail the opportunity and is not
universally available to everyone . But the apex court in this case held
that special allowance is a part of the basic salary and thus has to be
included. The respondents were of the view that Special allowance could not be
included in the basic wages as they were not universally given to all the
employees and were variable from person to person. For example, Education
allowance is not universally given to all & it is variable in nature.
A person who does not have any kids may not get any educational allowance as
compared to a person who has kids. Similarly overtime allowance also differs and
is not universal in nature. The overtime allowance given to an employee working
overtime for two hours is different from the employee working overtime for more
than twenty hours. For calculating basic wage all the payments that are
universal in nature should be taken into account. But the apex court rejected
the contentions of the respondent as they failed to provide any record of the
extra amount paid to the workmen were in fact paid for the extra work which had
exceeded the normal output prescribed for the workmen.
The Employee Provident Fund Organization (EFPO) also issued a circular on
20th March,2019 marking this judgement as very crucial and abundantly important.
After passing of this circular there has been an unrest between the employers
regarding the affectivity of this judgement and whether it should be applied
prospectively or retrospectively.
The rule of beneficial construction states that every statue is
prospective in nature unless anything is expressively mentioned in the statute
to give a retrospective effect . In this case the effectivity of the
judgement is not touched upon by the judge and nothing is expressly mentioned
regarding its applicability. But due to the Circular there are concerns among
the employers that if this judgement is given a retrospective effect, they would
be liable to pay special allowances to all their present and past employees
which would amount to a huge pay-out. Since the judgement is silent upon the
effect, the employers are anxious because if it is applied retrospectively then
they would have to pay Special allowance to their past employees who may have
left the organization, retired or may have died. This would not only increase
the financial burden on the employers but also make it a tedious task to make
such deductions for all the employees.
In Regional Provident Fund Commissioner, West Bengal Vs. Superintendence Co.
of India Private Limited an order was passed wherein it was held that
We also hold that in accordance with the law laid down by the Courts
retrospective effect cannot be given in respect of a statute until and unless it
is specifically mentioned in the statute. Similarly, coverage under the
appropriate schedule also cannot be retrospectively would lead to absurdity
since fact would show that many employees have already left service the same
world some retired, some of them left this world also.
The apex court has not expressly mentioned about the judgement applying
retrospectively but there are speculations because of the circular published by
the authorities and it has been raising concerns among the employers.
In Aluminium Corporation of India Vs. Regional Provident Fund Commissioner an
order was passed where it was held that It is, therefore, entirely against
the purposes and object of the Act to apply a scheme retrospectively to the
company for a period of five years within which time some of the employees have
already left and presumably left by taking their provident fund accumulations.
The Government by calling up the company to replenish and refund even those
moneys is doing something illegal and against the preamble and object of the Act
because no beneficiaries are there any more to avail of that fund for whom alone
the Government can secure such fund from the employer.
On 29th March 2019, one of the petitioners in the case named Surya Roshni filed
a review petition against the ruling of the Supreme Court. But the court found
no merits in the review petition and hence dismissed the petition on 28th August
2019. By dismissing this petition, it is clear that the earlier ruling of the
supreme court in relation to the Special Allowance shall prevail. The EFPO has
also issued a circular dated 28th August 2019 advising the field officers not to
conduct any investigations/Inspections without the permission of the Central
Analytics and Intelligence Unit (CIAU).
The main issue was not the judgement of the apex court, but the circular issued
marking the judgement as important for the employers. If the circular had not
been issued, then there would be no question about the applicability of the
judgement. But still some concerns remain among the employers regarding the
retrospective effect of the judgement.
If this judgement is applied retrospectively then there would be chaos regarding
the payment to the workmen and would affect the financial position of some
employers. Although in the light of the above orders and since the judgement is
silent about the applicability the judgement should be applied prospectively in
order to avoid extreme and grave hardships to the employers.
But it is ultimately
upon the judges to decide whether this judgement should be given a prospective
or a retrospective effect. The employers as of now can only wait for further
updates and hope that this judgement is prospectively applied.