The provisions of the EPF Act have been made applicable to establishments which render expert services, such as supplying of personnel, advice on domestic or departmental enquiries, special services in rectifying pilferage, thefts and payroll, irregularities to factories and establishments on certain terms and conditions, as may be agreed upon between the establishment and the establishment rendering expert services, vide Notification dated 17.05.1971, in case such establishments employ twenty or more persons.
A crucial question which arose for determination before the Hon’ble Supreme Court in the matter of M/s Panther Security Service Private Limited vs. The EPFO and Another decided on 2nd November 2020 was whether the establishment rendering such expert services would fall outside the ambit of the provisions of the EPF Act if the wages are disbursed by the establishment rendering expert services from the contractual payment received from the client.
As to the brief facts of the case, the establishment under consideration, in the present case, was a private security agency (‘Security Agency) ’engaged in the business of providing private security guards to its clients on payment basis, and registered under the Private Security Agencies (Regulation) Act, 2005. Pursuant to visit of a squad under EPF Act and seizure of relevant documents, the Assistant PF Commissioner opined that the security agency was required to make necessary contributions in respect of its 79 employees, as it stood covered by the term ‘expert services’ in the above notification. It also noticed that wages were not paid directly by the clients to the security guards deployed by the appellant but that the payments were made by the clients to the security agency, who in turn disbursed wages to the security guards. In a Writ Petition by the Appellant before the Hon’ble High Court at Allahabad, the Court declined interference with the conclusion of expert services being rendered by the appellant. The review petition filed before the Hon’ble High Court was also dismissed.
In the appeal preferred by the security agency before the Hon’ble Supreme Court, against the decision of the High Court at Allahabad, it was contended by the security agency that it merely facilitated in providing security guards to its clients at the request of the latter and the payments were made by the clients to the security agency, who in turn disbursed wages to the security guards. In the above context, the security agency contended that the provisions of the EPFO Act were not applicable to it. The EPFO, on the other hand, contended that the security agency rendered expert services by way of providing trained personnel as security guards and was covered by the Notification dated 17.05.1971.
The Supreme Court, after taking into account the contentions of the appellant and the EPFO, examined the matter from the lens of the provisions of the Private Security Agencies (Regulation) Act, 2005 and the Notification dated 17.05.1971. Under the provisions of the Private Security Agencies (Regulation) Act, 2005, the security agency is required to maintain a register, inter-alia, with the names, addresses, photographs and salaries of the private security guards and supervisors under its control. The Rules framed under the Act mandate that proper security training of the person employed is the responsibility of the security agency. In view of the above provisions of the Act, it was held that the appellant is the employer of such security guards, who are its employees and are paid wages by the appellant. The contention of the security agency that it merely facilitated in providing security guards to its clients was rejected by the Hon’ble Court. As regards the scheme of disbursement of wages by the security agency to the security guards, it was clarified by the Hon’ble Supreme Court in this decision that the fact that the client paid money under a contract to the security agency, and in turn the security agency paid the wages of such security guards from such contractual amount received from the client, it did not make the client the employer of the security guard nor did security guards constitute employees of its clients.
Accordingly, it was held that the security agency was engaged in the specialised and expert services of providing trained and efficient security guards to its clients on payment basis and was squarely covered by the Notification dated 17.05.1971. While placing reliance on its earlier decisions, the Supreme Court reiterated that the provisions of the EPF Act are applicable to a private security agency engaged in the expert service of providing personnel to its client, if it meets the requirement of the EPF Act.
The ratio of the decision would clearly also extend to other establishments which render expert services, within the context of notification dated 17.05.1971, i.e., those engaged in supplying of personnel, advice on domestic or departmental enquiries, special services in rectifying pilferage, thefts and payroll, irregularities to factories and establishments on certain terms and conditions. The decision holds considerable significance, in as much as it clarifies that in the matter of coverage of establishments, which render expert services to its clients, under the EPF Act, the fact that scheme of disbursement of wages to the employees of such establishments is devised in such a way that the disbursement is made from the payments received from the clients is immaterial, if the establishment otherwise meets the requirements of the EPF Act. Accordingly, such an arrangement of disbursement of wages would not serve as a camouflage in the matter of coverage of the establishment and remittance of contributions under the provisions of the EPF Act.