' This appeal impugns the order passed by the Vice-Commissioner of the respondent-Institution uated 31-3- 2001 and the order dated 11-12-2001 passed by the learned Social Security Court, whereby the order of the Vice-Commissioner was upheld.
2. The facts of this case are relatively straightforward. The appellant is a company engaged in the manufacture of dairy and other products. It has its manufacturing premises at 29-Kilometre Sheikhupura Road. The said premises have been notified under section 1(3) of the West Pakistan Employees Social Security Ordinance, 1965 (the "Ordinance"). The appellant-company employed respondent No,4 namely Farid Co. (Pvt.) Ltd. As a construction contractor at the aforesaid premises. It is not in dispute that the said respondent No,4 undertook construction work at the manufacturing premises of the appellant during the years 1996 to 1998 and employed workers for this purpose.
3. On 24-11-1998 the appellant-company received a notice issued by the respondent-Institution stating therein that it had underpaid the social security contribution due from it under the provisions of the Ordinance. As a consequence an amount of Rs,31,52,740 was demanded from the appellant company as shortpaid contribution.
Here it may be noted that the said amount was claimed by the respondent-Institution in respect of workers employed by Farid Co. (Pvt.) Ltd. At the appellant's site for construction. Work. The appellant-company submitted a reply to the said notice on 27-11-1998. After hearing' the Vice-Commissioner respondent No,1 reduced the amount and ordered the appellant company to make payment of a sum of-- Rs,12,61,917 as shortpaid contribution.
4. The order of the Vice-Commissioner was appealed by the appellant company before the learned Social Security Court, but the said appeal was dismissed vide order dated 11-12-2001. In the order passed by the learned Social Security Court, it was held that the appellant-company was itself the principal obligant and in that capacity, was required by the terms of the Ordinance to make payment of social security contribution in respect of the workers of the contractor Farid Co. (Pvt.) Ltd. Employed by it at the appellant's premises.
5. Before the learned Social Security Court, the appellant-company had advanced the plea that the appellant company was at most a guarantor but the principal obligation for making social security contribution in respect of the construction work referred to above fell on the construction contractor itself. In support of this contention, learned counsel for the appellant had drawn the attention of the learned Social Security Security Court to the provisions of subsection (8) of section 20 of the Ordinance. This plea, however, did not find favour with the learned Social Court and was repelled. The learned Special Security Court relied on the judgment of the Honourable Supreme Court in the case titled Sindh Employees' Social Security Institution v. Consolidated Sugar Mills Limited (1989 SCMR 888) while holding that the appellant-company was liable as a principal-debtor for payment of the Social Security contribution in respect of the construction work undertaken by the respondent No,4 notwithstanding the fact that the said respondent was a construction contractor.
6. Aggrieved of the order passed by the learned Social Security Court, the present appeal has been preferred by the appellant-company. The issue before me is confirmed to the question as to whether the appellant company was a principal obligant in respect of the social security contribution relating to the above noted construction work or was merely a guarantor to secure payment of Social Security contribution by the construction contractor namely Farid Co. (Pvt.) Ltd.
7. I have heard learned counsel for the appellant as well as learned counsel for the construction contractor and the Social Security Institution. In order to appreciate their contentions, I consider it necessary to reproduce the provisions of section 20(8) and the provisions of section 2(9) of the Ordinance. These provisions read as under:- - "20(8). In the case of construction work the owner of the building shall guarantee the payment of contributions by the contractor."
"2(9). 'employer' means in the case of works executed or undertakings carried on by any contractor or licensee on behalf of the State, the contractor or licensee working for the State, and in every other case the owner of the industry, business, undertaking or establishment in which an employee works and includes any agent, manager or representative of the owner."
8. In my opinion, the provisions of section 20(8) of the Ordinance are clear and unambiguous. Wherever an employer whose premises have been notified under section 1(3) of the Ordinance engages a construction contractor to undertake construction work at such premises, the said employer is obliged only in a secondary capacity as a guarantor to ensure that Social Security contribution is paid by the construction contractor in respect of the workers employed by him while undertaking the construction work. It follows, therefore, that if the employer in such cases is merely a guarantor, the principal obligation for making payment of the Social Security contribution would fall on the constractor and not on the employer.
9. The precedent of the Honourable Supreme Court in the case titled Sindh Employees' Social Security Institution v. Consolidated Sugar Mills Limited, which was relied upon by the learned Social Security Court to hold that the appellant-company is a principal obligant, is clearly distinguishable on facts. I have gone through the cited precedent and note that in the said case the contractors engaged by the employer were required to perform functions such as removal of mud/ash and Baggage and for other purposes such as loading and unloading of sugarcane, stacking of bags of sugar and carriage of its employees by buses. There was no contractor engaged for the purpose of any construction work. This circumstance distinguishes the present case on facts.
10. In view of the fact that construction contractors find specific mention in subsection (8) of section 20 of the Ordinance, it is clear that construction contractors are treated by the Ordinance as a category apart and distinct from other types of contractors. Based on the circumstances and undisputed facts of this case, I have not the slightest doubt that Farid Co. (Pvt.) Ltd. Being the construction contractor was principally obliged to make Social Security contribution in respect of the construction work undertaken at the premises of the appellant-company.
The appellant-company, however, was liable as a guarantor. The Social Security Institution was, as such, entitled to recover the shortpaid contribution from the appellant-company but only in its capacity as a guarantor.
11. The aforesaid circumstance has relevance and material bearing on the rights of the appellant-company. If it makes payment of the Social Security contribution as a guarantor of Farid Co. (Pvt.) Ltd. It will, under the provisions of section 140 of the Contract Act be entitled to recover the amount from Farid Co.(Pvt.) Ltd. This would not be the case if the appellant was principally liable to make payment of the Social Security contribution in respect of the workers employed by Farid Co. (Pvt.) Ltd., at its premises.
12. Before parting with this judgment I need to address a preliminary objection which was raised on behalf of Farid Co. (Pvt.) Ltd. By its learned counsel. It was argued that Farid Co. (Pvt.) Ltd., had not been notified under the provisions of section 1(3) of the Ordinance. As a consequence, it was contended Farid Co. (Pvt.) Ltd. Fell outside the ambit of the Ordinance and was, therefore, not obliged to make payment of any Social Security contribution. As a further consequence, it was argued the appellant-company could not be termed a guarantor if Farid Co. (Pvt.) Ltd. Was not obliged under the Ordinance to make any social security contribution for the construction work undertaken by it at the premises of the appellant.
13. In support of the aforesaid argument, learned counsel for Farid Co. (Pvt.) Ltd., referred to the case titled Messrs Kwong Fah Chinese Restaurant v. Punjab Employees' Social Security Institution (1990 MLD 235). In the said precedent it was held that Social Security contribution could only be demanded from a person, who had been notified under section 1(3) of the Ordinance. Tie aforesaid argument of learned counsel for respondent No,4 is not legally tenable. In the cited case, the petitioner had premises in which a restaurant was being run.
The said premises had not been notified under section 1(3) of the Ordinance.
14. The cited precedent has no relevance in the present case. It is clear, from the provisions of section 2(9) of the Ordinance reproduced above, that barring contractors employed by the State, the owner of an industry or establishment is to be treated as the employer of any person working in such establishment even where such person is the employee of a contractor. It is for this reason the owner of an establishment (other than the State) is liable, as a general rule, to make Social Security contributions in respect of the employees of a contractor who work in the establishment of such owner. The only exception to the general rule is in respect of the employees of a construction contractor. Even for such employees, the owner of an establishment is not absolved of liability to make Social Security contributions. However, the liability is that of a guarantor only, the contractor himself being liable as principal obligant.
15. The fact that Farid Co. (Pvt.) Ltd. Has not been notified under section 1(3) of the Ordinance has no bearing on this case. As noted above, the appellant's premises have been so notified. This is sufficient to bring within the ambit of the Ordinance, any contractor'who choose to undertake construction work at such premises.
16. For the foregoing reasons I find the Social Security Court was not legally justified in holding that the appellant-company was the principal obligant in respect of social security dues payable in respect of persons employed by Farid Co. (Pvt.) Ltd. For construction work at the premises of the appellant. As a consequence, the order of the learned Social Security Court is modified and it is held that the appellant-company is a guarantor in respect of the short paid Social Security contribution and not a principal debtor.
17. It was pointed out by learned counsel for Farid Co. (Pvt.) Ltd. That no notice was ever issued to it by the Social Security Institution demanding any amount from it as contribution under the Ordinance. In this view of the matter, he stated that an observation be made that the amount, if any, recoverable by the respondent institution shall only be recovered after notice to Farid Co. (Pvt.) Ltd. And after affording to it an opportunity of being heard.
This request being reasonable and in accord with the provisions of the Ordinance, is allowed. As a consequence, it is directed that the impugned amount shall not be recovered from Farid Co. (Pvt.) Ltd. Without affording to it an opportunity of being heard.