26 STANDING COMMITTEE ON LABOUR (2016-17) (SIXTEENTH LOK SABHA) MINISTRY OF LABOUR AND EMPLOYMENT [EXEMPTED ORGANISATIONS/ TRUSTS/ ESTABLISHMENTS FROM EPFO : PERFORMANCE, ISSUES AND CHALLENGES] TWENTY-SIXTH REPORT LOK SABHA SECRETARIAT NEW DELHI April, 2017/Chaitra, 1939 (Saka) i TWENTY-SIXTH REPORT STANDING COMMITTEE ON LABOUR (2016-17) (SIXTEENTH LOK SABHA) MINISTRY OF LABOUR AND EMPLOYMENT [EXEMPTED ORGANISATIONS/ TRUSTS/ ESTABLISHMENTS FROM EPFO : PERFORMANCE, ISSUES AND CHALLENGES] Presented to Lok Sabha on 07.04.2017 Laid in Rajya Sabha on 07.04.2017 LOK SABHA SECRETARIAT NEW DELHI April, 2017/Chaitra, 1939 (Saka) ii CONTENTS PAGE No. COMPOSITION OF THE COMMITTEE (iv) INTRODUCTION (v) REPORT GIST OF OBSERVATIONS/RECOMMENDATIONS 1 CHAPTER - I I. INTRODUCTORY 6 CHAPTER - II I. COVERAGE OF WORKERS/EMPLOYEES 13 II. TOTAL CORPUS 20 III. PATTERN OF INVESTMENT 28 IV. PHYSICAL INSPECTION OF SECURITIES 34 V. MONITORING 36 VI. VIOLATIONS/MALPRACTICES 44 VII. PROPOSALS PENDING FOR GRANT OF EXEMPTION 47 VIII. WITHDRAWAL OF EXEMPTION 49 IX. MAINTENANCE OF DATA BASE 51 APPENDICES Appendix I- Minutes of the Seventh Sitting of the Committee held on 55 14th December, 2016. Appendix II-Minutes of the Eleventh Sitting of the Committee held on 58 18th January, 2017. Appendix III-Minutes of the Fifteenth Sitting of the Committee held on 62 6th April, 2017. iii COMPOSITION OF THE STANDING COMMITTEE ON LABOUR (2016-17) DR. KIRIT SOMAIYA - CHAIRPERSON MEMBERS Lok Sabha 2. Shri Udayanraje Pratapsingh Bhonsle 3. Shri Rajesh Diwakar 4. Shri Ashok Kumar Dohrey 5. Shri Satish Chandra Dubey 6. Shri Devajibhai Fatepara 7. Shri Satish Kumar Gautam 8. Dr. Boora Narsaiah Goud 9. Shri Rama Chandra Hansdah 10. Shri C. N. Jayadevan 11. Shri Bahadur Singh Koli 12. Dr. Arun Kumar 13. Shri Kaushalendra Kumar 14. Shri Hari Manjhi 15. Shri R. Parthipan 16. Shri Dayakar Pasunoori 17. Shri Hariom Singh Rathore 18. Shri Y.S. Avinash Reddy 19. Shri Naba Kumar Sarania (Hira) 20. Shri Kodikunnil Suresh 21. Shri Mulayam Singh Yadav Rajya Sabha 22. Shri Ram Narain Dudi 23. Shri N. Gokulkrishnan 24. Shri Nazir Ahmed Laway 25. Shri P.L. Punia 26. Shri Rajaram 27. Shri Amar Shankar Sable 28. Ms. Dola Sen 29. Shri Tapan Kumar Sen 30. Shri Ravi Prakash Verma 31.* Vacant * Vacancy occurred vice Shri Haji Abdul Salam expired on 28.02.2017. SECRETARIAT 1. Ms. Rimjhim Prasad - Joint Secretary 2. Smt. Anita B. Panda - Director 3. Smt. Archana Srivastva - Under Secretary iv INTRODUCTION I, the Chairperson, Standing Committee on Labour (2016-17) having been authorized by the Committee do present on their behalf this Twenty-Sixth Report on 'Exempted Organisations/ Trusts/ Establishments from EPFO: Performance, Issues and Challenges' pertaining to the Ministry of Labour and Employment. 2. The Committee took evidence of the representatives of the Ministry of Labour and Employment and EPFO on 14th December, 2016 and 18th January, 2017. The Committee considered and adopted the Draft Report at their sitting held on 6th April, 2017. The Committee wish to express their thanks to the officers of the Ministry of Labour and Employment for tendering oral evidence and placing before them the detailed written notes and post evidence information as desired by the Committee. 3. For ease of reference, the Observations and Recommendations of the Committee have been printed in thick type in the body of the Report. New Delhi; DR. KIRIT SOMAIYA 6th April, 2017 CHAIRPERSON, 16th Chaitra, 1938 (Saka) STANDING COMMITTEE ON LABOUR v GIST OF OBSERVATIONS/RECOMMENDATIONS AS CONTAINED IN THIS REPORT Concerned with the gross deficiencies in the monitoring of the performance of Provident Fund Exempted Establishments, the Standing Committee on Labour had decided to examine the subject “Exempted Organizations/Trusts/Establishments from EPFO: Performance, Issues and Challenges” on priority and held evidences of the representatives of the Ministry of Labour and Employment and EPFO as well as few exempted Establishments on 14.12.2016 and 18.1.2017 respectively. The Committee have been informed that their concerns are being addressed by the Ministry of Labour & Employment and EPFO. In the present Report, the Committee have made their observations/recommendations on the following points:- 1. A definite timeline need to be given to all Regional offices to conduct compliance audit of the 1549 Exempted Establishments employing 84,42,241 workers. Also all pending proposals for cancellation of exemptions to be finalised without further delay. 2. Total corpus of Exempted Establishments is ₹2.57 lakh crore, which includes a huge unclaimed amount of Rs.5475 crore too. 1 This data was collected by EPFO only after the intervention of the Committee. Presently no provision is there in the Act to deter a Trust from holding such unclaimed amount with them. Suitable provision/amendment needs to be incorporated in the Act to specify the time period for holding unclaimed amount by the establishments to avert such a situation. Also the concerned establishments are expected to have names and addresses of all workers hence urged to trace them to reduce non-claim cases. 3. C-DAC, Pune, which is developing a better software to monitor details of all Exempted Establishments and their compliance of the provisions of the Act, to speed it up as further time would be required for migration of data from the old system to the new one, before the new software starts its proper operations. 4. In 180 Exempted Establishments having less than 20 workers, 22 Establishments have zero membership. Exemption granted to these Establishments to be reviewed immediately. 5. 118 Exempted Establishments have total corpus of less than 1 crore. They filed their last returns in 2014 or 2015. Apprehending that these Establishments may not have settled the PF dues of their employees/workers, EPFO has been asked 2 to explain the basis of granting exemption to them, reasons for non-filing of returns since last 2-3 years and status of disbursement of dues to the subscribers. 6. The Committee have recommended that proper strong guidelines may be prepared with regard to past performance, net worth, group performance, etc. as well as minimum strength of workers, collections, contributions, corpus of the company/establishment, to grant exemption. 7. The Committee have asked to be furnished with the special audit report of certain exempted establishments, as committed by EPFO during the meeting held on 18.1.2017 which was promised to be ready by 31.3.2017. 8. Surcharge levied by EPFO in case of deviations from the prescribed pattern of investment by Exempted Establishments, is very nominal hence cannot act as an effective deterrent. Therefore, Committee has directed that a raised amount of surcharge be notified at the earliest. 9. As the present Act does not impose any restrictions on Exempted Establishments to invest accumulated PF fund amount in their own business, therefore, the Committee have 3 strongly recommended to initiate requisite process to stop such practices. 10. No physical inspection of investment instruments (where the PF amount is invested) is made due to the same being in DEMAT format. Committee has emphasized on inspection of DEMAT Accounts as well as physical inspection of filed returns during the compliance audit of Exempted Establishments to ensure that the Government-prescribed pattern is followed. 11. Citing various cases of violations, the Committee have emphasized on bringing requisite transparency and accountability not only in the compliance of exemption provisions under the EPF & MP Act, 1952 by the concerned establishments but also in the monitoring of the same by RPFCs and EPFO. In the meantime, the Ministry and the EPFO are already active on the following initiatives: (i) development of a new better software through C-DAC for more effective monitoring; (ii) initiation of compliance audit of Exempted Establishments; 4 (iii) identification of small/very small PF Trusts and framing of policy guidelines for imposing restrictions of minimum corpus and membership etc; (iv) In view of non-capturing of data about un-claimed PF amount of members with Trusts of PF Exempted Establishments, initiation of formulation of guidelines for Trusts to transfer un-claimed amounts of EPFO; (v) Framing of new rates of surcharge for levying on account of deviation from the prescribed pattern of investment by BOTs of PF Exempted Establishments; and (vi) In-principle agreement to frame necessary guidelines/amendments/ notification to restrict BOTs of Exempted Establishments from investing in the instruments issued by the principal establishments and its sister concerns. As is seen from the recommendations, the Committee have sought status of all these efforts at the action taken stage. 5 REPORT CHAPTER-I INTRODUCTORY With the Industrial growth in India, some of the big employers had introduced schemes of provident funds for the welfare of their workers. But all those schemes were private and voluntary. Workers of the small employers remained deprived of the benefits which were provided by the big employers. On 11th February, 1948, a private bill was introduced in the Constituent Assembly of India to provide for the establishment and grant of provident fund for certain classes of workers by their employers. This Bill provided for compulsory establishment of provident funds by every employer in industrial concerns for the betterment of the employees and their families. On 15th November, 1951 the Government of India promulgated the Employees' Provident Funds Ordinance which came into force on that date. Subsequently the Employees' Provident Funds and Miscellaneous Provisions Bill was introduced in the Parliament to replace the Ordinance. To avoid any hardship to new establishments, a provision had been made for exempting them for a period of three years and similar exemptions were given to other establishments which were less than three years old till they have been in operation for a period of three years in all.