The present provident fund act needs an urgent clarification definitive meaning of the concept of “occupier”. In practice, it is misunderstood and is a subject of litigation in a number of cases across India.
[A] The Clause 2(k) of the PF Act 1952, defines an
Occupier means the person, who has ultimate control over the affairs of the factory, and, where the said affairs are entrusted to a managing agent, such agent shall be deemed to be the occupier of the factory;
Several companies designate an official of the company as Occupier. The official designated as Occupier often faces prosecution. The real culprits the owner or a partner blatantly escape the prosecution and consequent punishment. In ultimate analysis, workers lose out as an Official as an Occupier hardly is ever able to make good the defaults but still suffers prosecution.
[B] The reason for this can be traced to the definition of Occupier. It was same as Factories Act 1948 when PF Act 1952 was enacted. Both are identical verbatim. However, Definition or Factories Act was amended in 1987 in the wake of Bhopal tragedy.
The amendment expanded the definition in Section 2(n) substantially adding qualifying clauses and clear description of the responsibility, as under:
Clause 2(n) “occupier” of a factory means the person who has ultimate control over the affairs of the factory.
(i) In the case of a firm or other association of individuals, any one of the individual partners or members thereof shall be deemed to be the occupier;
(ii) In the case of a company, any one of the directors shall be deemed to be the occupier;
(iii) in the case of a factory owned or controlled by the central government or any state government, or any local authority, the person or persons appointed to manage the affairs of the factory by the central government, the state government or the local authority, as the case may be, shall be deemed to be the occupier:];
Further Clause 7 A of Factories Act describes the duties of an Occupier as under:
7a. General duties of the occupier.
(1) Every occupier shall ensure, so far as is reasonably practicable, the health, safety and welfare of all workers while they are at work in the factory.
(2) Without prejudice to the generality of the provisions of subsection (1), the matters to which such duty extends, shall include-
(a) The provision and maintenance of plant and systems of work in the factory that are safe and without risks to health;
(b) the arrangements in the factory for ensuring safety and absence of risks to health in connection with the use, handling, storage and transport of articles and substances;
(c) The provision of such information, instruction, training and supervision as are necessary to ensure the health and safety of all workers at work;
(d) the maintenance of all places of work in the factory in a condition that is safe without risks to health and the provision and maintenance of such means of access to, and egress from, such places as are safe and without such risks;Online GST Certification Course by TaxGuru & MSME- Click here to Join
(e) the provision, maintenance or monitoring of such working environment in the factory for the workers that is safe, without risks to health and adequate as regards facilities and arrangements for their welfare at work.
(3) except in such cases as may be prescribed, every occupier shall prepare, and, as often as may be appropriate, revise, a written statement of his general policy with respect to the health and safety of the workers at work and the organization and arrangements for the time being in force for carrying out that policy, and to bring the statement and any revision thereof to the notice of all the workers in such manner as may be prescribed.
Even the application for registration factories was modified in line with the amendment. It is apparent that responsibilities cover shop level practices.
A similar amendment in PF Act would have been in order. But in absence of it, local officials of PF office continue to accept even an official as the Occupier. Worst is when In some cases there is a director or a partner as Occupier for Factories Act and an official as Occupier in Form of “return of Ownership”. The form is so designed that it does not carry any signature of the Official designated as Occupier as a result the official may not even know of being designated as an Occupier.
[C] To protect the interest of workers a section has been added by an amendment in 1973 under as Indian Penal Code Section 405. This reads as under
405. Criminal breach of trust.- Whoever, being in any manner entrusted with property , or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or willfully suffers any other person so to do , commits “criminal breach of trust”.
–A person, being an employer [of an establishment whether exempted under section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), or not who deducts the employee’s contribution form the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.] [Explanation 2.-A person , being an employer, who deducts the employees’ contribution from the wages payable to the employee for credit to Employees’ State Insurance Fund held and administered by the Employees ‘ State Insurance Corporation established under the Employees’ State Insurance Act, 1948 (34 of 1948), shall be demeaned to have been entrusted with the amount of the contribution to the said Fund in violation of the said Act, shall be deemed to have dishonestly used to amount of the said contribution in violation of a direction of law as aforesaid.]
Though this specifically refers to employer the local officials interpret this to also mean Occupier by virtue of definition of Employer as per, Clause (e) of PF Act as under:
(i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under clause f of sub-section 1 of section 7 of the factories act, 1948 (63 of 1948), the person so named; and
(ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent;
It is obvious that in a private enterprise or a partenership firm an officail cannot be designated as an occupier as it will entail an unusual situation as per the definition of employer that an employee is also an employer. And Occupier enjoys higher authority than owner.
[D] In this context, a judgment of Hon Supreme Court is quite instructive while dealing with batch of writ petitions only on the question of interpretation of term Occupier.
J.K. Industries Limited Etc.Etc vs The Chief Inspector Of Factories … on 25 September, 1996
Author: D Anand. Bench: Anand, A.S.
PETITIONER: J.K. INDUSTRIES LIMITED ETC.ETC. Vs.
RESPONDENT: THE CHIEF INSPECTOR OF FACTORIES AND BOILERS AND OTHERS ETC.
DATE OF JUDGMENT: 25/09/1996 BENCH: ANAND, A.S. (J) BENCH: ANAND, A.S. (J) THOMAS K.T. (J)
ACT: HEADNOTE: JUDGMENT: WITH (W.P (C) 1129/91. C.A. NOS. 245-256/96, W.P. (C) 134/93. W.P. (C) 657/91. C.A. NOS. 244/96, 1238, 4499-4500/96, 4501/96, W.P. (C) NOS. 165/96, 187/96 AND C.A.NO.12552/96 (Arising out of S.L.P. (C) No. 12498/96) J U D G E M E N T DR. ANAND. J.
C. A .No. 12552/96
Hon Supreme Court has made certain pertinent observations while giving the judgment.
(a) It is in this background that we shall consider the scope and validity of Section 2(n) of the Act as amended in 1987. According to the definition of the ‘occupier’ under section 2(n), an occupier means a person who is in ‘ultimate control of the affairs of the factory’. Though the word ‘person’ has not been defined under the Act, but under Section 3(42) of the General Clauses Act, a person has been defined to include a company or association or body of individuals, whether incorporated or not. Such a person, under Clause 2(n) of the Act, therefore, could be a company or a partnership or an association of persons or an individual. Where the factory is owned or run by a company, it would be that company which would be the occupier of the factory.
(b) The argument of the learned counsel for the appellants/petitioners that the expression “person” in Section 2(n) implies only an individual does not bear scrutiny, when construed in the case of a company, a firm of partners or an association of persons. Where it is the company which owns or runs such a factory, it is the company which has the ultimate control over the affairs of the factory, and, therefore it would be the company would be the occupier of that factory. However, since a company is a legal abstraction, it can act only through its agents who in fact control and determine the management and are the centre of its personality. Such agents are generally called the directors being the “directing mind and will” of the company. The deeming fiction under proviso (ii), therefore, only clarifies the position where company is the occupier of the factory. The legislature by providing the deeming fiction under proviso (ii) did not detract from the generality of the main provision under Section 2(n), but only clarified it. The directors are not the employees or servants of the company. They manage, control and direct the business of the company as “owners” (Section 291 of the Companies Act). The Directors are often referred to as the “alter ego” of the company. Where the company owns or runs a factory, it is the company which is in the ultimate control of the affairs of the factory through its Directors. An employee or officer of the factory or of the company, even if authorized by the board of directors by a resolution to be a person “in the ultimate control of the affairs of the factory” cannot be so. Such an employee only carries out orders from above and it makes no difference that he has been given some measure of discretion also and has supervisory control. He can at best be treated to be in the immediate control of the affairs of the factory or having day to day control over the affairs of the factory, the ultimate control being retained by the company itself. The legislature did not designedly use the expression immediate or day to day or supervisory control instead of ultimate control in the main provision of Section 2(n). The word ‘ultimate’ in common parlance means last or final.
(c) There is a vast difference between a person having the ultimate control of the affairs of a factory and the one who has immediate or day to day control over the affairs of the factory. In the case of a company, the ultimate control of the factory, where the company is the owner of the factory, always vests in the company, through its Board of Directors. The Manager or any other employee, of whatever status, can be nominated by the Board of Directors of the owner company to have immediate or day to day or even supervisory control over the affairs of the factory. Even where the resolution of the Board of Directors says that an officer or employee, other than one of the directors, shall have the ‘ultimate’ control over the affairs of the factory, it would only be a camaflouge or an artful circumvention because the ultimate control cannot be transferred from that of the company, to one of its employees or officers, except where there is a complete transfer of the control of the affairs of the factory. Mechanical recitation of the words of Section 2(n), as a Mantra, in a resolution nominating an employee or an officer as the occupier by stating that he shall have “ultimate control over the affairs of the factory”, cannot be permitted to defeat the object of the amendment. The provisions of the Act have to be construed in a manner which would promote its object, prevent its subtle evasion and foil its artful circumvention to suppress the mischief.
(d) To sum up our conclusions are:
(1) In the case of a company, which owns a factory, it is only one of the directors of the company who can be notified as the occupier of the factory for the purposes of the Act and the company cannot nominate any other employee to be the occupier of the factory:
(2) Where the company fails to nominate one of its directors as the occupier of the factory, the Inspector of Factories shall be at liberty to proceed against any one of the directors of the company, treating him as the deemed occupier of the factory, for prosecution and punishment in case of any breach or contravention of the provisions of the Act or for offences committed under the Act. (3) Proviso (ii) to Section 2(n) of the Act is intravires the substantive provision of Section 2(n) of the Act;
(4) Proviso (ii) to Section 2(n) is constitutionally valid and is not ultra-vires Articles 14, 19(1) (g) and 21 of the Constitution of India;
Author – N. S. Nanavaty, Email firstname.lastname@example.org