Labour Compliance - would it fall on us as a Principal employee? - CiteHR
Labour Law & Hr Consultant
Industrial Relations And Labour Laws
Harsh Kumar Mehta
Consultant In Labour Laws/hr
Korgaonkar K A
+1 Other

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Dear Professional Colleagues, I wish to have your advice in the following situation:

My company is a manufacturer and registered under Central Excise Act. In order to quote higher manufacturing capacities, it has taken over a small company (located approx 6 kms away) under Lease for a period of 5 years by executing a Lease Deed. The query is, in case that small company (having separately PF / ESIC registration) fails in compliance like paying minimum wages or payment of bonus to its contract employees, would it fall on us as a Principal employee.

The other thing to mention is that, that company has its own organization structure and we would just outsource the work to them, they will responsible to supervise and execute it. But in order to maintain the quality, we have deputed a small team of 5 quality inspectors at their premises.

Request for your specific comment on the same.

Thanks and Regards,

Sudhir Dhole

1. Sir, the employer and the person to whom the factory or establishment is so transferred shall jointly and severally be liable for any default. Please refer to Section 93A of ESI Act, 1948, which is self-explanatory. Perhaps similar provisions may also exist in EPF & MPs Act.
2. The second aspect of oursourcing the work etc. is not relevant in view of position mentioned above.

Unless the terms and conditions of the lease are known one cannot give a correct answer to the question raised. If the lease arrangement is only for outsourcing man u factoring activities that too within the leased premises by its own em ploy eyes, I think you will not incur any vicarious liability.
Dear Sudhir ji,
According to me:
1. The company which you have taken on lease whether it is having same entity or separate entity than of your main company and since this company is separately covered under the EPF&MP Act and ESI Act, your main company will not be directly responsible and liable to under EPF&MP Act and ESI Act.
2. Your main company will be responsible and liable under MW Act, POB Act etc. if the entity of both the companies is one and same but it seems to me is not so.
3. Under CLRA, the company which is taken by you on lease is a principal employer and therefore, this company is responsible and liable under this Act and not your main company.
Most of the things depend on how you have taken it on record.

Dear Colleagues,
At the outset let me express my sincere thanks for the responses. Let me clarify point wise on the issues raised:....

The clauses of Lease deed very clearly states that it is only the manufacturing facilities (that is the Plant and Machinery) and not the land which shall be taken on Lease.

The Lease is executed with clear intention of taking over of the Plant and Machinery of the Lessor on the lease against which, the lease rentals are paid on monthly basis

Yes, the entity is very different and not forming part of our management. The management of the lessor company is not directly or in-directly related to Lessee (our company's management ). Physically it is situated 6 kms away from our premises.

Mehtaji, yes I have referred to section 93A, which explicitly mentions about the liability of the transferee limited to the value of assets so transferred. Thanks!!!

What remains is whether do we have such expressed section under other acts too.

With Thanks and Regards,
Sudhir Dhole

Yes Section 17B of PF act is simiiar to Section 93A of ESIC act.
Request the attention of readers to section 93 of the Factory Act. It refers to liability falling on owner of the premises in case it is leased to Different Occupiers. But in a situation, where there is single occupier, then whose responsibility it would be.

My interpretations about section 17B (EPF & MP Act), section 93A (ESI Act and section 93 (Factories Act) are as follows.

1. Sections under EPF and ESI Acts speak about joint and several liability of both your management and the employer of the lessor company engaging their workmen. You are using only manufacturing facility, ie, plant and machinery for a rent payable periodically. In this exercise how does any employee employer relationship come? If the situation is like, you take the machinery on hire and engage the workers of the lessor company and take output and in return, pay the lessor an amount worked out including the rental value of machinery and the wages payable to the workers, then there would be master servant relationship between you and the workers of the lessor and you would be under a legal obligation to ensure that the lessor (employer of the workers) pay the workers who work for you (at the lessor’s facility) the statutory minimum wages, contribute towards their ESI, PF etc and take care of their safety health and welfare as per Factories Act.

2. Section 93 of the Factories Act tells us about the liability of occupier or the factory owner who has leased the facilities out to you. It is the responsibility of the lessor to provide for latrines, washing facilities, etc, fencing of machinery, precautions against fire, maintenance of hoists/ lifting equipment etc.

That means there seems to be no relevance to any of these Acts but the arrangements could only be regarded as an arrangement of lessor and lessee.



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