Navigating PF Contributions and Labor Licenses in NTPC Projects: What Are the Rules?

NTPC Project: PF Contributions and Labor License

In an NTPC Project, the main contractor has engaged a subcontractor and offloaded some part of the work. The subcontractor is recovering the PF contributions from his employees and depositing them under his PF code regularly. The subcontractors' laborers are covered under the labor license of the main contractor. NTPC is asking the main contractor to deposit the PF under their PF code or to issue Form V to the subcontractor to enable them to obtain the labor license.

Please advise me on the following:

1. Is it mandatory that the PF contributions be deposited with the main contractor's PF code only, even if the subcontractor has a PF registration?
2. Should the subcontractor have a labor license for depositing the contribution under his PF code?

Regards,
Krishnan

It is not mandatory that the PF contributions be deposited with the main contractor's PF code. On the recommendation of the contractor, Form V should be issued to the subcontractor by the principal employer to enable them to obtain the labor license.

This is a very interesting situation that HR executives often encounter in their professional lives.

Applicability of Labor Statutes

This issue involves the applicability of two labor statutes:

1. The Employees' Provident Fund & Misc. Provision Act, 1952
2. The Contract Labour (R&A) Act, 1970

The EPF Act, for compliance purposes, registers all establishments that meet the terms and conditions stipulated in the Act for registration. These establishments could be either a service taker or a service provider (contractor and subcontractors). Once an establishment is registered under the Act and is compliant with the Act regarding its employees, it remains responsible for all obligations under the Act as a registered establishment. These responsibilities are not dependent on the nature of the job the establishment performs (whether as a service provider or a service taker).

Therefore, in the current case, if the subcontractor is compliant with the EPF Act as a separate legal entity (registered establishment under the PF Act), they will continue to do so.

Labor License and Form V Requirement

Regarding the Labor License and the requirement of Form V, as insisted upon by NTPC, I would like to clarify that Form V is a contract-specific document that can only be issued by the Principal Employer (NTPC) to their contractor. The contract between the main contractor and subcontractor is for providing manpower to the main contractor. However, as this manpower is not deployed in the main contractor's establishment, this contract falls outside the scope of the Contract Labour Act, and the main contractor cannot be considered the Principal Employer in this case. Therefore, there should be no insistence on Form V.

Based on the Form V issued by NTPC, the main contractor has already obtained the required license for all contract labor deployed by them, whether engaged directly or indirectly. Hence, compliance with the Act in terms of obtaining the license is complete.

To add further to the replies, the PF deposited by the subcontractor suffices for the PE and main contractor regarding the labor deployed by the subcontractor. However, for the labor deployed by the main contractor, PF has to be deposited by them. There is no need for a labor license in favor of the subcontractor for depositing PF.

Regards,
KK

Mr. Krishnan has asked for clarification on two points:

1. Principal Employer (PE) NTPC is asking for an EPF Challan from the Main Contractor to whom the Work/Contract Order has been issued.

2. Issuance of Form V by the main contractor to the Subcontractor.

Clarification on EPF Challan Requirement

Regarding the first point, my explanation is as follows:

If the main contractor has subcontracted the work to a subcontractor and the subcontractor is depositing PF Challans for the covered workmen on his EPF Code Number, there is nothing wrong in doing so. However, it is crucial that the main contractor has entered into a valid agreement with the subcontractor mentioning all these terms & conditions of compliance matters in the said agreement.

Furthermore, when submitting the challan copies, ECR uploads details, remittance confirmation slip, muster roll cum wage register, wage slip copies, and other applicable compliance documents under various labor acts/rules must be signed by the authorized representatives of both the main contractor and the subcontractor.

Issuance of Form V

Regarding the second point, my explanation would be as follows:

The issuance of Form V is the prime prerogative and responsibility of the Principal Employer. In this case, PE (i.e., NTPC) is the only authorized entity to issue Form V to the main contractor or subcontractor. If PE requires a Labor License from its subcontractor, PE should first amend its RC incorporating the subcontractor's name. Subsequently, after RC Amendment, PE can issue Form V to the subcontractor. After receiving Form V from PE and the amended RC copy, the subcontractor can apply for a labor license after completing all formalities as prescribed under the Contract Labor (R & A) Act/Rules.

I hope the above explanation addresses the query. If members are not convinced or satisfied, they are encouraged and requested to provide their valuable inputs/points to make this matter more interesting.

Thanks,

Regards,
Anil Sharma
Manager - Compliance

I one hundred percent agree with Shri. Anil Sharma ji. It is totally wrong on the part of the PE, in my opinion, to ask for PF compliance of a subcontractor in the code of his contractor when the subcontractor already has an allotted code number.

When an establishment is assigned a social security code by the respective authority, the expected compliance should be under the specific code allotted to that establishment and not under the code of any other establishment.

Licensing Under CLA

Licensing under CLA is a separate matter unrelated to PF compliance. The PE can issue Form V to its subcontractor if desired. If the subcontractor applies for a license with Form V provided by the PE, the authority must issue the license to the subcontractor.

Members are invited to contribute to this discussion.

If a subcontractor receives Form-V from the Principal Employer and obtains a Labour License, does this mean that the main contractor does not need to obtain a Labour License?

Thank you.

I would like to add my views to the above discussion as follows:

Definition of 'Contractor'

The term 'contractor' has been very clearly defined in Section 2(1)(c) of the Contract Labour (Regulations and Abolition) Act, 1970, where a subcontractor has been included. Accordingly, all the labor law formalities have to be complied with, which a main contractor follows. In this case, as the agreement or contract has been between two parties - NTPC, who is the Principal Employer, and the main contractor, it is better if the main contractor enters into an agreement with his subcontractor and approaches the Principal Employer to get Form-V issued in favor of the subcontractor. The subcontractor can then apply for the license to the appropriate licensing authority. One should not be confused between the two Acts as both are separate and independent Acts. The Employees' Provident Funds and Miscellaneous Provisions Act, 1952, deals with the provisions regulating provident fund matters, while the Contract Labour (Regulations and Abolition) Act, 1970, deals with the registration, licensing of the establishments, and regulatory provisions of the terms and conditions of service of the contract labor.

Advice on Queries

Regarding advice on your query, my answer to the first query is that it is not necessary to deposit the PF contribution with the main contractor; rather, it is more appropriate to deposit it in the subcontractor's head of PF. The second query has already been replied to in the preceding paragraph.

Regards,
BS Kalsi

Dear professionals who are suggesting that the Principal Employer (PE) issue a separate Form V under the Contract Labour (R&A) Act, 1970 to the subcontractor,

I would like to clarify that Form V by the PE can be issued only to an entity that has been awarded a contract by the PE. At the same time, Form V is contract-specific. In fact, if you read its content, it is a certificate by the PE that he has awarded a contract to M/s XXXXX.

In the absence of any contract between the PE and the subcontractor, it will be totally out of place if he issues a separate Form V to the subcontractor.

The subcontractor is operating in the establishment of NTPC by virtue of his understanding or agreement with the main contractor, to which the PE is not a party.

The responsibility of the PE under the Act will be for all such contract labour who have been engaged and deployed by the main contractor in the establishment of the PE, including those of the subcontractor. Likewise, the main contractor shall obtain the license for all the contract labour either engaged directly by him or through his subcontractor and be responsible for his part of responsibilities under the Act for all such labour.

Regards

According to me, a subcontractor can apply for a labor license under the CLA. The requirement for obtaining a license is Form V issued by the Principal Employer.

To support my statement, I have the following points to share.

Definition of Contractor:

Section 2 (c): "Contractor," in relation to an establishment, means a person who undertakes to produce a given result for the establishment, other than a mere supply of goods or articles of manufacture to such establishment, through contract labor or who supplies contract labor for any work of the establishment and includes a subcontractor.

Section 12 deals with the licensing of Contractors. Subsection 1 states:

With effect from such date as the appropriate Government may, by notification in the Official Gazette, appoint, no contractor to whom this Act applies shall undertake or execute any work through contract labor except under and in accordance with a license issued in that behalf by the licensing officer.

Section 21 deals with the application for a license as follows:

(1) Every application by a contractor for the grant of a license shall be made in triplicate in Form IV, to the licensing officer of the area in which the establishment, in relation to which he is the contractor, is located.

(2) Every application for the grant of a license shall be accompanied by a certificate by the principal employer in Form V to the effect that the applicant has been employed by him as a contractor in relation to his establishment and that he undertakes to be bound by all the provisions of the Act and the rules made thereunder in so far as the provisions are applicable to him as principal employer in respect of the employment of contract labor by the applicant.

The definition of Contractor is inclusive, which includes even subcontractors. The criteria to apply for a license is that such an application shall be accompanied by a certificate by the Principal Employer in Form V. If you, being a subcontractor, apply for a license with a certificate by the Principal Employer in Form V and the authority rejects the same, you can challenge the rejection.

I am attaching herewith one Circular by the Labour Commissionerate, Mumbai on this subject, which is in Marathi and also not readable. For your ready reference and that of other members, the translation of the said circular is given as follows:

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Office of the Labour Commissioner,
Commerce Centre, Tardeo,
Mumbai 400 034.

CIRCULAR

Sub: Contract Labour (R&A) Act 1960
Issue of license to subcontractor – Reg.

It is noticed that there is ambiguity in issuing a labor license to the subcontractors appointed by the contractors under the Contract Labour (R&A) Act and Maharashtra Rules made thereunder.

In this regard, the Government has issued necessary directions, and accordingly, it is being informed that the definition of contractor under section 2(1) (c) includes subcontractors also. If the contractor appoints any subcontractor for the work awarded to him, a license under the Act may be given to such subcontractor.

There should not be any objection in issuing a license to such a subcontractor who applies for a license to the authority accompanied by a certificate by the Principal Employer in the prescribed format under rule 21 (2).

Necessary steps are to be taken according to the directions of the Government, and all the pending issues are to be disposed of.

SD/-

Commissioner of Labour

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I hope you and other members are convinced by my point of view. Further discussion and comments are welcome. In this regard, you can view my earlier posting link: https://www.citehr.com/430531-info-c...dont-fall.html

Regards,

Dear Devbrat Jha ji, I have gone through all the postings once again and found that no member, including myself, has suggested issuing Form V to the subcontractor regarding the PE issue.

On the contrary, Shri. Krishnan, who started this thread, mentioned that the PE is asking the main contractor to deposit the PF of the subcontractor under their code or to issue Form V to the subcontractor to enable them to obtain the labor license.

The members, including myself, replied in response to the query by Shri. Krishnan. The views expressed by individuals may or may not be correct. One can differ with others. I have stated my opinion with support.

Regards.

Dear Mr. Sharma and Mr. Korgaonkar,

It is nice to find that so many HR professionals are contributing and exploring the nuances of Labour Laws.

Original Query

I quote the original querist:

In an NTPC Project, the main contractor has engaged a sub-contractor and offloaded some part of the work. The sub-contractor is recovering the PF contributions from his employees and depositing them under his PF code regularly. The sub-contractors' laborers are covered under the labor license of the main contractor. NTPC is asking the main contractor to deposit the PF under their PF code or to issue Form V to the sub-contractor to enable them to obtain the labor license.

Please advise me on the following:

1. Is it mandatory that the PF contributions be deposited with the Main contractor's PF code only even if the Subcontractor is having a PF registration?

2. Should the Subcontractor have a labor license for depositing the contribution under his PF code?

Response to Queries

In the above case, we are talking about two different labor laws, independent of each other. My short and simple reply to the queries are as follows:

1. No, it is not.

2. No, it is not.

Discussion on Contract Labour Act

Further, on the issue of license under the Contract Labour Act (which in fact is indirectly a point of discussion, not raised by the querist specifically), I am still of the opinion that PE cannot issue two certificates in Form V, one to the main contractor and another to a contractor engaged by the main contractor, particularly in the absence of any contractual relationship between NTPC and the contractor of the main contractor. It is possible only when two separate contracts are awarded.

This is my opinion despite going through the copy of the Circular stated to be issued by the Labor Commissioner, Govt. Of Maharashtra.

The above opinion of mine has been duly endorsed by Shri P K Mukhopadhaya, Ex. Chief Labor Commissioner Of India.

I strongly believe we, as HR professionals, do have the right to hold different opinions. I don't intend to abase or demean anyone's opinions or views.

Regards,

I have gone through the comments given by all the echelon in the field of Labour Law and particularly all the nuisance consultants. I beg to differ with Mr. Koregaonkar on the subject of the issuance of Form V to Subcontractors. In this regard, please refer to Section 13 of the CLRA Act, 1970 - Grant of License, and the basic documents needed to be provided to the ALC to issue the Contract Labour License to contractors.

Documents Required in Maharashtra

In Maharashtra, the documents required are:
- Form V
- Form IV along with Annexure B
- Affidavit of Contractor
- Work Order / Agreement / Purchase Order

Kindly read the contents of Form V. Since the Principal Employer (PE) has not entered into a work contract with Subcontractors, how will the PE issue Form V to Subcontractors?

Kindly revert with your opinion on the matter.

When any government department issues a tender in the open market, it clearly mentions in the terms and conditions that joint ventures/sub-contractors will not be entertained. In the private sector, this is not an issue.

Suggestion for Handling Subcontractor Agreements

Refer to the terms and conditions and discuss with the concerned department. If they agree, you should create a simple agreement (ensuring that the subcontractor complies with various labor laws) and submit it to the department. There is no need for your subcontractor to procure a contract labor license.

If you have any queries, please contact [Email Removed For Privacy Reasons].

Thank you.

Responding to your query, Lakshmi, yes, it is mandatory to issue Form V to the contractor and insist on a Labour License. Otherwise, the contractor will not be a separate entity apart from you. This situation could lead to a lot of botheration and avoidable legal complications, including the risk of being considered a 'sham contract.'

Regards,
KK