Case BriefsSupreme Court

Supreme Court: In a case where a company provided trained and efficient security guards to clients, claimed that security guards were the employees of the client, the was bench of Navin Sinha* and Surya Kant, JJ has held that merely because the client pays money under a contract to the appellant and in turn the appellant pays the wages of such security guards from such contractual amount received by it, it does not make the client the employer of the security guard nor do the security guards constitute employees of the client.

Background

By Notification dated 17.05.1971[1] issued under Section 1(3)(b) of the EPF Act, the provisions of the EPF Act were made applicable to specified establishment rendering expert services and employing twenty or more persons.

The appellant contended that it was not covered by the said Notification since it was not engaged in rendering any expert services and merely facilitated in providing Chowkidars to its clients at the request of the latter. The salary was paid to the Chowkidars by the client who engaged their services and that the appellant had only 5 persons on its rolls.

The Assistant Provident Fund Commissioner on basis of balance sheets seized during a raid opined that

  • the appellant had more than twenty employees on its rolls and stood covered by the term “expert services” such as providing of personnel under the Notification.
  • 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 appellant, who in turn disbursed wages to the security guards.
  • the remedy of an appeal before the Tribunal under Section 7-I was bypassed by the appellant instituting the writ petition directly.

The Allahabad High Court declined interference with the conclusion of expert services being rendered by the appellant. A review petition contending that the appellant stood duly registered under the Private Security Agencies (Regulation) Act, 2005 was also rejected.

Analysis

Private Security Agencies (Regulation) Act, 2005

The Act of 2005 defines a private security agency under Section 2(g) as an organization engaged in the business of providing security services including training to private security guards and providing such guards to any industrial or business undertakings or a company or any other person or property.  A licence is mandatory under Section 4 and those security agencies existing since earlier were mandated to obtain such licence within one year of coming into force of the Act.

A complete procedure is provided with regard to making of an application for grant of a licence under Section 7, renewal under Section 8 of the Act.The eligibility for appointment as a security guard with such security agency is provided under Section 10 of the Act.

Section 11 provides for the condition of the licence and the licence can be cancelled under Section 13. A private security agency under Section 15 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.

Private Security Agencies Central Model Rules, 2006

The 2006 Rules framed under the Act of 2005, requires verification by the security agency before employing any person as a security guard or supervisor in the manner prescribed. Proper security training of the person employed is the responsibility of the security agency under Rule 5, and Rule 6 prescribes the standard of physical fitness for security guards.

Under Rule 14 the security agency is required to maintain a Register in Form VIII, Part-I of which contains details of the management, Part¬II contains the name of guard, his parentage, address, photograph, badge no. and the salary with the date of commencement.

Part III contains the name of the customer, address, the number of guards deployed, date of commencement of duty and date of discontinuance.

Part IV contains the name of the security guard/supervisor, address of the place of duty, if accompanied by arms, date and time of commencement of duty and date and time of end of duty.

Conclusion

Considering the aforementioned analysis, the Court concluded that the appellant is engaged in the specialised and expert services of providing trained and efficient security guards to its clients on payment basis. The provisions of the Act of 2005 make it manifest that the appellant is the employer of such security guards and who are its employees and are paid wages by the appellant.

Merely because the client pays money under a contract to the appellant and in turn the appellant pays the wages of such security guards from such contractual amount received by it, it does not make the client the employer of the security guard nor do the security guards constitute employees of the client. The appellant therefore is squarely covered by the Notification dated 17.05.1971.

The Court further noticed that the appellant refused to show the statutory registers under the Act of 2005 to the authorities under the EPF Act.  It also took note of the letter dated 03.04.2001 written by the appellant, with the appellant’s balance sheet seized for the financial years 2003¬04, 2004-05,   2005¬06 and 2006¬07 showing payment of wages running into lacs.

The Court, hence, concluded that the appellant has more than 20 employees on its roles and hence, provisions of the Act therefore necessarily apply to it.

[Panther Security Services Pvt. Ltd. v. Employees’ Provident Fund Organisation, 2020 SCC OnLine SC 981, decided on 02.12.2020]


*Justice Navin Sinha has penned this judgment. Read more about him here

For appellant: Advocate S. Sunil

For Respondent: Advocate Divya Roy

[1] “G.S.R. No. 805 : In exercise of the powers conferred by clause   (b)   of   sub-section   (3)   of   Section   1   of   the Employees’ Provident Funds and Family Pension Fund Act, 1952 (19 of 1952), the Central Government hereby specifies that with effect from the  31st May, 1971, the said Act shall apply to every establishment rendering 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 and employing twenty or more persons.”
Legislation UpdatesRules & Regulations

Government of India recently launched Private Security Agency Licensing Portal, with features of single window system for licensing across the country, linked with Integrated Criminal Justice System(ICJS) for antecedents verification, online payment of licensing fees, along with facilities of e-sign and geo-tagging. For making this Portal more useful, certain amendments in model rules have become necessary.

The intent of the amendments sought to be brought in the Private Security Agencies Central Model Rules, 2006 are:

  1. Insertion of linkage with Integrated Criminal Justice System(ICJS) for antecedents verification digitally in place of manual verification.
  2. Aligning the Model Rules with National Skill Qualification Framework (NSQF) made mandatory w.e.f. 27.12.2018 by the Government of India.
  3. To digitize certain provisions that previously could be carried out by only offline methods.
  4. To enable electronic payment of the fee along with banker’s cheque or demand draft.
  5. To improve ease of doing business for private security agencies operating in more States than one by ironing out practical difficulties being faced by these agencies.

The Private Security Agencies Central Model Rules, 2006 were formulated to prescribe details of enforcement of the provisions of the principal Act. The States/UTs adopted these Rules by notifying their separate Rules. Government proposes to amend the Model Rules so as to ensure more effective compliance of the Act in the light of technological advancement in the digital era and promote ease of doing business.

The private security industry is a crucial component of security and safety in society. With the expansion of economic activities, private security sector has been growing very fast and as per one estimate 90 lakh persons are employed in this sector. The Private Security Agencies (Regulation) Act, 2005 regulates functioning of the private security agencies through Controlling Authorities appointed by the State Governments and UT Administrations. The Ministry of Home Affairs administers this Act and formulates Model Rules thereunder.


Ministry of Home Affairs

[Source: PIB]

[Notification dt. 08-11-2019]