Intermediary Arrangement May Not Necessarily Break Employer-Employee Relationship Under EPF Act: Madras High Court

The Court was hearing writ petitions challenging orders passed by the Provident Fund Authority under Para 26B of the EPF Scheme, read with Section 7A of the EPF Act, determining the liability of a manufacturing company to enrol Beedi Rollers for provident fund benefits and to pay contributions exceeding ₹2 crore.

A Bench of Justice K. Surender, while stating that “under Section 2(f) of the EPF Act, an 'employee' includes a person employed directly or indirectly”, took note that in the present case and enquiry revealed that “the petitioner exercised control” over the intermediary and “over the manner in which the beedis were to be rolled”, and further that the beedis so rolled were purchased through the intermediary and “branded as the petitioner’s product and sold in the market”.

Subsequently, the Bench, while stating that “the sustenance of the beedi rollers was wholly dependent on the petitioner company”, held that the presence of an intermediary “does not alter the relationship between the beedi workers and the petitioner company.”

Background

The proceedings originated from a complaint submitted by a workers’ union alleging that provident fund benefits were not extended to nearly 800 workers engaged through an intermediary concern.

The petitioner company challenged an order passed by the Regional Provident Fund Commissioner determining that several hundred workers who supplied unbranded products through an intermediary trading entity were, in fact, employees of the petitioner company and therefore entitled to provident fund coverage.

After enquiry, the authority concluded that the intermediary entity functioned merely as a conduit and that the workers supplying goods through it were effectively working for the petitioner establishment. A subsequent order quantified provident fund contributions payable by the petitioner.

The petitioner contended that the workers were independent individuals selling products to the intermediary and that no employer-employee relationship existed between them and the petitioner company. It relied on findings from excise proceedings and a criminal case to argue the absence of nexus.

The Provident Fund authority, on the other hand, argued that documentary and oral evidence established that the workers were engaged indirectly and that the arrangement was structured to avoid statutory obligations.

Court’s Observation

The Court first reiterated the limited scope of judicial review under Article 226, observing that it would not reappreciate evidence unless the authority’s findings were unsupported by evidence, legally erroneous, or procedurally unfair.

It then examined the findings recorded by the Provident Fund Commissioner, noting that the enquiry had revealed several material circumstances demonstrating a functional and economic nexus between the workers and the petitioner company. These included evidence that the intermediary entity lacked independent commercial registration, operated exclusively with the petitioner, and procured goods from workers after supplying raw materials sourced from premises adjacent to it.

The authority had further found that the intermediary concern functioned effectively as a benami unit created to procure goods to circumvent the provisions of the EPF Act.

The Court emphasised the statutory definition under Section 2(f) of the EPF Act, which includes persons employed “directly or indirectly.” It noted that the enquiry established that the petitioner company exercised control over the manner in which the goods were produced, issued specifications for production, purchased the finished products through the intermediary, branded them as its own, and marketed them commercially.

It therefore held that the presence of an intermediary does not alter the legal relationship where workers are in substance rendering services for the principal establishment and are economically dependent upon it.

The Court also observed that the Provident Fund Commissioner had provided detailed and convincing reasoning demonstrating that the workers fell within the statutory definition of “employee.”

Even assuming that an alternative interpretation of facts was possible, the Court held it could not substitute its own view when the authority’s conclusion was reasonable, plausible, and supported by evidence.

In conclusion, the Court held: “The EPF Act is a beneficial piece of legislation intended to safeguard employees’ welfare. Though a dubious method was adopted by the petitioner company in engaging the services of the beedi rollers, on a close scrutiny and the reasoning given in the order dated 01.07.2003, it cannot be held that the beedi rollers are not employees of the petitioner company or that they are not entitled to provident fund benefits”.

Conclusion

The High Court concluded that the findings of the Provident Fund Authority were legally sustainable and supported by evidence. It held that the orders determining liability and assessing provident fund dues did not warrant interference. Both writ petitions were therefore dismissed, and the impugned orders were sustained.

Cause Title: M/s. Seyadu Beedi Company v. Regional Provident Fund Commissioner & Anr.

Appearance

Petitioner: C. Karthikeyan

Respondents: I. Robert Chandra Kumar; T. Aswin Raja Simman (Standing Counsel for EPF)

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