Negotiations are a long drawn process. Collective bargaining results in the settlement after a protracted span of negotiations. The settlements are signed with retrospective effect. Though the benefits of the settlement are extended in retrospective effect the question remains whether Provident Fund contributions are payable on the arrears of wages.
This issue was considered by the Supreme Court in the matter of Pranvidyut Mandal Mazdoor Federation vs. Rajasthan State Electricity Board (Civil Appeals Nos. 1790 of 1992
decided on 23.04.1992) where it has held that revision of wage structure as a result of an award has to be taken as a part of the agreement of employment in the context of Provident Fund Act. Therefore the Hon’ble Supreme Court held that Provident Fund contributions are payable on arrears of wages.
The Hon’ble Supreme Court in the matter of Rajasthan State Electricity Board held that the Provident Fund Act was a social welfare legislation and it would be in conformity with the objects of the Act to hold that the revised pay scales become part of the agreement of employment for 1st April 1980 as per the award given in the year 1985. Under the circumstances it would be in conformity with the objects of the Provident Fund Act to hold that the revised pay-scales have become part of the agreement of employment with effect from 1st April, 1980.
However, the employers in settlements in the private sector provide for benefits of arrears as an ex gratia or a lump sum amount as a ‘bakshish’ or under a similar name.
However, whether such a payment will save the liability of Provident Fund or not is not yet decided by any Court. However, this practice, as followed by the industry is placed hereunder as a matter of record.