Application of Chapter V-B of the Industrial Disputes act

The Company had more than 100 employees at its Baddi

undertaking and I have been instructed that on account of a
VRS declared by the Company, several workmen resigned
voluntarily and from August 2019, there are 93 employees in the
Company. At the time when the Company had more than 100
workmen, Section 25K and Chapter V-B applied to the
Company. I may here quote Section 25 K of the Act:

25K. Application of Chapter V-B

(1) The provisions of this Chapter shall apply to an

industrial establishment (not being an establishment of a
seasonal character or in which work is performed only
intermittently) in which not less than [one hundred]
workmen were employed on an average per working
day for the preceding twelve months.

Therefore, Section 25K and Chapter V-B will continue to apply

to the Company for a period of 12 months from the date that not
less than 100 workmen were employed on an average per
working day in the preceding 12 months. Therefore, Chapter V-B
will continue to apply to the Company for a period of 12 months
from the date that the number of workmen in the Company
became less than 100. Therefore, in my considered legal
opinion, Chapter V-B will continue to apply to the Company
for a period of 12 months from August 2019 (the date that
the number of workmen became less than 100, i.e., 93) till
August 2020.

Since the Company intends to close down its operations at

Baddi and the number of workmen is less than 100 but more
than 50, the Company will be required to give sixty days’ Notice
of intention to close down. I quote herein below Section 25-FFA
of the Act:
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25FFA. 1 Sixty days' notice to be given of intention to

close down any undertaking.-

(1) An employer who intends to close down an undertaking

shall serve, at least sixty days before the date on which
the intended closure is to become effective, a notice, in the
prescribed manner, on the appropriate Government
stating clearly the reasons for the intended closure of the
undertaking: Provided that nothing in this section shall
apply to--

(a) an undertaking in which--

(i) less than fifty workmen are employed, or

(ii) less than fifty workmen were employed on an

average per working day in the preceding twelve
months,

(b) an undertaking set up for the construction of

buildings, bridges, roads, canals, dams or for other
construction work or project.

(2) Notwithstanding anything contained in sub- section

(1), the appropriate Government may, if it is satisfied that
owing to such exceptional circumstances as accident in
the undertaking or death of the employer or the like it is
necessary so to do, by order, direct that provisions of sub-
section (1) shall not apply in relation to such undertaking
for such period as may be specified in the order.]

For the Company to be able to issue a Notice under Section 25-

FFA, the conditio sine qua non is that the said Section (i.e.,
Section 25-FFA) should apply to the Company. In this regard, I
may observe that the above definition of the said Section that
ascertains applicability is negative, i.e., it states that the above
Section shall not apply (i) if less than fifty workmen were
employed or (ii) if less than fifty workmen were employed on an
average per working day in the preceding twelve months.
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Conversely, it means that for the said Section to apply, an

undertaking must employ (i) more than fifty workmen or employ
(ii) more than fifty workmen on an average per working day
in the preceding twelve months.

As mentioned supra, the Company had more than 100

employees at its Baddi undertaking till August 2019, when the
said number has reduced to 93, which is more than 50 but less
than 100. Therefore, in order for Section 25-FFA to apply to the
Company for the Company to be able to invoke the said Section,
there must be more than 50 workmen on an average per
working day in the preceding 12 months. This period of 12
months is, in my considered legal opinion, absolutely mandatory
and directory and not discretionary. Therefore, in my
considered legal opinion, Section 25-FFA will apply to the
Company only after a period of 12 months from August
2019 (the date that the number of workmen became more
than 50 i.e., 93) till August 2020. Therefore, the Company will
be able to issue the said Section 25-FFA Notice on September
2020 and close down, all other things being equal, by the end of
November 2020.

There is no limitation prescribed in the Act for retrospective

recovery of PF Contribution and hence, the PF Department can
in theory seek retrospective recovery of PF Contribution from
Establishments. The Department is, however, expected, in Law
and Equity to act in a non-arbitrary and reasonable manner
under the Doctrine of Legitimate Expectation, which is one of
the principles that obtain in Administrative Law pertaining to
the relationship between the relationship between an individual
and a public authority. According to this doctrine, the public
authority can be made accountable in lieu of a ‘legitimate
expectation’. A person may have a reasonable or legitimate
expectation of being treated in a certain way by the
administrative authorities owing to some consistent practice in
the past or an express promise made by the concerned
authority. The doctrine is not a specific legal right engraved in a
particular statute or rule book, but has been upheld in a catena
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of decisions and may be summarized as pertaining to

established rights or obligations being altered, which are
enforceable by or against a person or body, or deprivation of
some benefit or advantage which had been permitted by the
authorizing body in the past and which a person or body could
have legitimately expected to enjoy until a valid ground for
withdrawal of the same was communicated to him or he had
been assured by the decision making body that such a benefit or
advantage would not be withdrawn until him being given an
opportunity of contending reasons as to why they were
withdrawn. The basis for this is enshrined in Article 14 of the
Constitution of India and thus ‘non-arbitrariness and
unreasonableness’ have been made the necessary qualifiers for
assessing as to whether there was a denial of legitimate
expectation or not. Under Article 14 of the Constitution of India,
every citizen has the right to equality of law and equal protection
before law. The concept of an arbitrary action being in violation
of Article 14 was first introduced and discussed in the case of
E.P. Royappa v State of Tamil Nadu, reported in 1974 AIR page
555, wherein it was laid down that ‘equality is antithetic to
arbitrariness’. Thus Article 14 has a very wide ambit and
encompasses within it equality, the principles of natural justice
and is a mandate against arbitrary state actions and imposes a
duty on the State and its Machinery to act fairly. A body of case
Law has discussed and elaborated on this Doctrine: State of
Kerala v. K.G. Madhavan Pillai (1988) 4 SCC 669); Navjyoti Coop.
Group Housing Society v/s Union of India (1992) 4 SCC 477),
Food Corporation of India v/s Kamdhenu Cattle Feed
Industries (1993) 1. S.C.C. 71), Union of India v/s Hindustan
Development Corporation (1993) 3 SCC 499), Madras City Wine
Merchants v/s State of Tamil Nadu (1994) 5 SCC 509) and P.T.R.
Exports (Madras) Pvt. Ltd. And Others v/s Union of India &
others (AIR 1996 SC 3461), M.P. Oil Extraction v. State of
M.P (1997) 7 SCC 592) and National Buildings Construction
Corporation v/s S. Raghunathan (1998) 7 SCC 66).

While the EPFO has initiated action for past non-compliances, it

would be interesting to see how the courts interpret the doctrine
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of legitimate expectations in the event of any PF litigation arising

out of retrospective effect of the PF Judgment. The doctrine of
legitimate expectations is a principle of administrative law which
protects individuals from arbitrary actions taken by public
authorities. As per this doctrine, an individual may have a
reasonable or legitimate expectation of being treated in a certain
way by the administrative authorities owing to some consistent
practice in the past. Implementing the PF Judgment
prospectively could potentially undermine the government’s
efforts towards ease of doing business - an agenda that the Modi
government will continue to actively focus on during the next
five years. The PF Judgment is also likely to impose immense
financial burden on the industry, especially start-ups and
MSMEs.

As regards ascertaining retrospective liability, if any, I may

mention that the Central PF Authority has issued a Circular
dated 28th August 2019 wherein it has directed its Field Offices
to refrain from initiating any fishing and roving inquiries into the
wage structure of complying Establishments on the pretext that
certain Allowances that ought to have been considered as 'Basic
Wages' might not have been considered for determining
employer and employee Provident Fund Contribution. The said
Circular permits the field offices to conduct Inquires only in
those cases where credible basis is available for forming a view
that the Employer has indulged in illegal practices of avoiding
payment of Contribution by splitting Basic Wages and that
before initiating such action, the Field Offices have to take prior
permission of Central Analysis Intelligence Unit (CAIU) as well as
follow administrative guidelines and policy. In the event of
retrospective liability sought to be levied on the Company by the
Department in the future, I may observe that it has been laid
down in the said matter that “no material has been placed by
the establishments to demonstrate that the allowances in
question being paid to its employees were either variable or were
linked to any incentive for production resulting in greater output
by an employee and that the allowances in question were not
paid across the board to all employees in a particular category or
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were being paid especially to those who avail the opportunity”.

In the event of any attempt made by the PF Department to
impose retrospective liability, the Company may demonstrate
through documentation that that the allowances being paid to
its employees were either variable or were linked to any incentive
for production resulting in greater output by an employee and
that the allowances in question were not paid across the board
to all employees in a particular category or were being paid
especially to those who avail the opportunity. Therefore, the
same will be liable to be adjudicated and established. As regards
the PIL’s in the said matter, the same is a matter of conjecture
and cannot be established with any certainty as on date. The
Review Petition filed in the said matter has already been
dismissed and as far as constituting a Larger Bench is
concerned, the same will take a very long time. It is therefore
my considered Legal Opinion that as of now, it will not be
possible to ascertain retrospective liability.