Objectives and important definitions of worker’s participation act 1968

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Q-1:     Describe the objectives & important definitions of worker’s participation act 1968.

Ans:     OBJECTIVES

The objectives of Companies Profits (Workers’ Participation) Act, 1968 are:

(a)        To provide for participation of workers in the profits of companies and matters ancillary thereto;

(b)        To achieve uniformity within the meaning of Article 13(2) of the Constitution.

 

IMPORTANT DEFINITIONS

PROFITS [Section 2(d)]

Profits in relation to a company means such of the net profit as have been defined in Section 87-C of the Companies Act 1913 as are attributable, to its business, trade, undertakings or other operations in Pakistan.

WORKER [Section 2(f)]

Worker in relation to a company means an employee of the company whose average monthly emoluments computed in the manner set forth in the scheme do not exceed Rs.s 5,000 and who has been in the employment of the company for a period of not less than 6 months.

 

ESTABLISHMENT OF FUND [Section 3]

1.         Salient features of legal provisions governing the establishment of fund are as under: L Every company to which the scheme is applicable is^ required to establish a Workers participation Fund in accordance with the scheme set out in the Schedule annexed to the Act. As soon as the accounts for the year in which the scheme becomes applicable to it, are finalized, but not later than 9 months after the close of that year.

2.         Subject to the adjustment, if any. The company is required to pay every year to the fund not later than 9 months after the close of that year, 5% of its profits during such year, which shall where the accounts have been audited by the Auditor appointed under Section 23/B of the Industrial Relations Ordinance 1969r be assessed on the basis of such audit and,

3.         The company is required to furnish to the Federal Government and the Board not later than 9 months after the close of the year of account, its audited accounts for that year duly signed by the Auditor.

4.         The amount paid to the fund in relation to a year shall be a year shall be deemed to have allocated to the Fund on the first year of the year next succeeding that year.

 

MANAGEMENT OF FUND [Section 4]

Legal provisions governing the management of the fund are summarized below:

1.         A Board of Trustees shall be constituted as soon as possible, but not later than 2 months after the establishment of a Company of a Fund,

2.         The Board shall consists of the following Trustees;

(a)        2% elected by the workers of the company from amongst themselves.

(b)        2% nominated by the management of the company of whom at least one shall b a person from the Accounts Branch of the company.

3.         The persons holding office as Trustees for one-year tenure shall elect the Chairman of the Board. Alternately from amongst the elected Trustees and those who were nominated. However, the first chairman shall be amongst the later,

4.         A Trustee shall hold office for such term and on such conditions as may he prescribed by the rules- An exception has been made in a situation when he sooner seizes to represent he interest, he was elected or nominated to represent,

5.         All decisions of the Board are required to be expressed in terms of the opinion of the majority of the Trustees and in the event of Trustees being equally divided in their opinion, the Chairman shall have exercise a second and casting vote,

6.         The Board shall manage and administer the Fund in accordance with the provisions of the above Act, the scheme and any rule made in this behalf.

7.         The Board shall in the exercise of its powers and performance of its functions, be subject to such directions as the Federal Government may from time to time give.

8.         The Federal Government is vested with the power remove Trustee from his office or direct that the Board shall stand suspended for such period as may be specified in the order and direct that pending the election or nomination of a person in place of the Trustee removed from the office or as the case may be, the reconstitution of the Board shall be exercised and performed by a person specified in the order. The above powers can be exercised by the Federal Government, if it is of opinion that a Trustee or a Board has been persistently failing in the performance of his order, its functions or has generally been acting in a manner inconsistent with the object and interests of the Fund, However, against it. The scheme in the Rules shall be construed as references to the Officer specified in the order in place of the Trustee. Before the expiry of the period of super session, the Board shall be reconstituted in accordance with the provisions of the above Act so as to enable it to take over its functions upon the expiry of such period.

9.         A casual vacancy in the office of a Trustee shall be failed. As soon as may be, by the election or as the case may be, by nomination of another person and the person elected or nominated to fill such vacancy, shall hold office for unexpired term of his predecessor.

No act or proceedings of the Board shall be invalid or questioned merely on the ground of the existence of a vacancy in, or defect in the Constitution of the Board.

 

SCOPE OF SCHEME [Schedule Para 1]

The scheme applies to all companies engaged in industrial undertakings which satisfy and one of the following conditions, and to such other companies as the Federal Government may by notification in the official Gazette, specify in this behalf namely:

(i)         The number of workers employed by the company at any iime during a year is 50 or more.

(ii)        The paid-up capital of the company as on the last day of its accounting year is Rs. 20 lakh or more.

(iii)       The value of the fixed assets of the company (at cost) as on the last day of the accounting year is Rs. 40 lakh or more.

Explanation-..In this scheme…

“Industrial undertaking” means an institution, organization, enterprise or establishment which involve the use of electrical, mechanical thermal, nuclear or any othsr form of energy transmitted mechanically and not generated bv human or animal agency and which is engaged in any one or more of the following operations, namely:

(i)         The subjection of goods or materials to any manufacturing, assembly, finishing or other artificial or natural process, which changes their original condition ox adds to their value:

(ii)        Ship-building;

(iii)       The transformation, generation, conversion, transmission or distribution of electrical energy, including hydraulic power: and

(iv)       The working of a mine. Oil-well or any other source of mineral deposit including blending, refining and purification of oils and gases: and includes companies engaged in the marketing and distribution of gas’1 or oil or in the carriage of men or goods by sea or air, and any other institute organization, enterprise or establishment which the [Federal Government] may, by notification in the official Gazette, declare io be an industrial undertaking for the purposes of this scheme: and

References to the paid-up capital and the value of the fixed assets of the company shall, In the case of a company incorporated outside Pakistan but having a branch in Pakistan, be construed as references respectively to the capital invested in such branch and the value of the fixed assets of the branches.

INVESTMENT OF FUND [Schedule Para 2]

(1)        The amount allocated or accruing to the Fund shall be available to the company for its business operations- The company may however; request the Board to utilize the amount in the Fund for investment under sub- paragraph (7) and the Board may decide to invest the amount.

(2)        The company shall pay to the Fund un respect of the amount in the Fund available to it for its business operations as aforesaid interest at the rate of 2 per cent above the bank rate or 75 per cent of the rate at which dividend is declared on its ordinary shares, whichever is higher. In case there is more than one class of ordinary shires on which different rates of dividend have been declared, then the sighted average of the different rates of dividend shall be taken for the purpose of determining the rate of interest. The interest to the Fund shall accrue on and from the first day of the year next succeeding the year in which the scheme becomes applicable to the Company. Even when the company does not wish to utilize the amount by the company for the period between the date of allocation of any amount to the Fund and the date of its investment under sub-paragraph (7).

(3)        If at any time after the establishment of the Fund, the company raises any additional capital, otherwise than through the issue of bonus or bonus shares, the Fund^ shall have the first option to convert any amount available to the company under subparagraph (1) or any of the assets of the Fund in to ordinary ^equity capital upto a ceiling of 20 per cent of the paid up capital of the company prior to such conversion or 50 per cent of the additional capital, whichever is less.

 

EXPLANATION

In this sub-paragraph, “additional Capital” does not include any capital offered or to be offered or to be offered to foreign participants of the company.

(4)        For the exercise of the right of conversion under sub-paragraph (3), the Board shall be given sufficient time to sell assets of the Fund to realize the amount needed for subscription to the additional issue of capital by the company.

(5)        The shares acquired in the manner set out in sub-paragraph (30 shall participate in future bonus and right issues in the same manner as other shares.

(6)        The shares acquired in the manner set out in sub-paragraph (3) shall carry voting rights in the same manner as other shares and such voting rights shall be exercised by the Board on behalf of the Fund.

(7)        The amount in the Fund, which, under sub-paragraph (1) the company has requested to be utilized for investment under this paragraph may be invested by the Board for the purchase of any of the following, namely:

(a)  I.C.P Mutual Fund Certificate

(b)  National Investment Trust (Unit) Certificates;

(c)  Government securities including Defence and Postal Savings Certificates; and Any other securities approved for the purpose by the Federal Government.

 

INVESTMENT IN COMPANY’S SHARES

Where a company raises additional capital by the issue of new shares, the Fund has first option to convert its available amount into shares upto a ceiling of 20% of paid-up capital or 50% of the additional capital, whichever is less. For this purpose the Board shall be given sufficient time to sell its assets for investment in additional capital. Such shares shall participate in future bonus and right issues and shall carry voting rights and shall be exercised by the Board.

 

ELIGIBILITY TO BENEFITS [Schedule Para 3]

All workers shall be eligible to the benefits of the scheme and to participate in the Fund, However, a worker not completing six months of employment with the company during a year of account shall not participate in the Fund in respect of that year.

 

 

DISTRIBUTIOSN OF BENEFITS [Schedule Para 4]

1.         The share of a worker in the annual allocation to the fund shall be expressed in units or fractions of units of Rs.10.

2.         The number of available units shall be divided into three parts for three categories of workers:

– A worker in first category gets 4 units.

– A worker in the second category gets 2 units, and

– A worker in the third category gets one unit.

3.         The number of units available to each category of workers shall be divided equally among all the workers of that category.

4.         No worker shall be entitled to units exceeding Rs.3,000/=. Any amount left out of the annual allocation shall be transferred to Worker’s Welfare Fund.

5.         Average monthly wages means total wages drawn during the year divided by 12. Average monthly wages shall be rounded up to nearest Rs.10.

 

CATEGORIES OF WORKERS

First:               Workers drawing average monthly wages not exceeding Rs.2,200/=.

Second:          Workers drawing average monthly wages between Rs.2,200/= and Rs.3,200/=.

Third:              Workers drawing average monthly wages between Rs. 3,200/= and Rs.5,000/=.

The distribution of benefit from the fund shall be as under:

1.         Total annual income of the fund including capital gains realized shall be distributed yearly amongst workers in proportion to their unit of entitlement.

2.         A worker shall be entitled to receive 100% of the net asset value of the units standing in his name.

3.         The following workers shall be entitled to the benefit:

(a)        Worker who voluntarily leave the employment

(b)        Worker whose services are terminated

(c)        Worker who retire from service

(d)        Nominated beneficiary of a deceased worker

(e)        Worker who continues in service.

 

NET ASSET VALUE OF UNITS [PARA 6]

To determine the net asset value of a unit, the total net assets of the Fund, namely, market v&lue of the securities, cash and other assets resulting from the investment and reinvestment, capital accretion thereto and all incomes of any kind arising there from shall be divided by the number of units in the Fund. Net asses value of the entire Fund shall be computed one every year and each worker’s according to the amount they voluntarily contribute to the Fund

 

PENALTY [SECTION 5]

Legal provisions governing penalty are as under:

1.         On failure to comply with the provisions- of the Act, of the schemes, every Director. Manager or other officer responsible for the management of the affairs of the company shall pay by way of a penalty, which may extend to Rs. 500 and in the case of continuing failure, a further sum that may extend to Rs, 1000 for every day for the first during which the failure continues. The penalty can only be imposed for the Federal Government by or so directs.

2.         The uncollected amount of penalty can be recoverable as an arrear of land revenue,

3.         The Federal Government is vested with powers to review7 the penalty or and after review, pass such order as it may think. However, by any aggrieved person.

 

POWER TO CALL FOR INFORMATION (SECTION 6)

The Federal Government has been empowered has been to call upon a Company or a Board to furnish it at any time, such information and documents including the records of the proceedings of the Company, or the Board as may be relevant or useful for the purposes of or necessary for ensuring proper compliance with the provisions of this Act, The Rules and the Schemes.

SETTLEMENT OF DESPITES [SECTION 7]

Any difference arising between the Board and the Company relating to the administration of the scheme shall be reported to the Federal Government. Its decision, thereon, shall be final. All claims of a worker relating to the benefits of the Scheme whether against the Board or the Company, shall be settled in the same manner as is provided for in the payment of wages Act 1936 for the settlement of claims arising out of deductions from Wages.

 

DELEGATION OF POWER [SECTION 8]

The Federal Government may direct that of or any of its powers or functions under the said Act, may be exercised or performed by an Officer subordinate to it or by any Authority so specified. However, the Federal Government should do it through notification in the official Gazette and may laid down any limitation, restrictions or conditions.

 

POWER TO MAKE RULES (SECTION 9)

The Federal Government has been vested with the power to make rules to carry out the purposes of the above Act.

ACT TO OVERRIDE OTHER LAWS (SECTION 10)

Provisions of the above Act have been made mandatory for application purposes notwithstanding anything contained in any other law for the time being in force, or in any contract or the memorandum or articles of association of a Company.

FISCAL CONCESSION TO THE COMPANIES

All companies to whom the scheme applies shall be allowed the allocation made to the scheme as a deduction to arrive at the taxable income.

TAX TREATMENT OF THE INCOME

The income of the Fund including capital gains shall be exempt from income tax.

TAX TREATMENT OF THE INCOME OF THE WORKER

All sums paid cut by the Fund shall be exempt from income tax in the hand of the workers.

WORKING AND LOCATION OF THE BOARD OF TRUSTEES

The office of the Board of Trustees shall be located at the factory premises or, if there is more than one factory run by the company, at the registered head office of the company. All expenses of the Board, including the cost of maintaining account, shall be borne by the company.

AUDIT OF THE FUND ACCOUNTS

The Fund accounts shall be audited annually at the company’s expense in the same manner as the accounts of the company are audited:

Provided that the (Federal Government) may, at its own cost, appoint independent accountants for a special audit of the accounts of the Fund.

SCHEME’S BENEFITS TO BE IN ADDITION TO OTHER BENEFITS

The benefits to a worker under this scheme shall be in addition to, and not in derogation or substitution of, any other benefits to which the worker may be entitled under any other law, contract, terms and condition of employment or otherwise.

SPECIAL PROVISION FOR INDUSTRIES WORKING SEASONALLY

Notwithstanding anything contained in this Act or this scheme the (Federal Government), may by notification in the official Gazette, make special provisions for the participation of worker in the profits of companies engages in industrial under takings which operate only for a part of the year.

COMPANIES ENGAGED IN MORE THAN ONE INDUSTRIAL UNDERTAKING

Notwithstanding anything contained in this Act or this scheme, the (Federal Government) may, at the request of a company which is engages in more than one industrial undertakings located at different pi aces permit the splitting up of the Fund amongst the various under takings or groups of undertakings and constitution of the Board of Trustees for each such undertaking or group of undertakings; and thereupon the provisions of the Act and this scheme shall have effect in relation to such undertakings or groups of under takings; and thereupon the provisions of the Act and this scheme shall have effect in relation to such undertakings or groups as if each such under taking or group were a company.

 

ENTRUSTMENT OF MANAGEMENT OF FUND TO INVESTMENT CORPORATION OF PAKISTAN

The board of Trustees may, with the prior approval of the (Federal Government), enter into a contract with the Investment Corporation ofPakistan, the National Investment Trust or the National Bank ofPakistan, entrusting the management of the Fund to that Corporation. Trust or Bank on such fee which shall be payable by the company, and on such terms and conditions as may be mutually agreed upon.

The Federal Government made the following special provisions for the participation of workers in the profit of companies engaged in the following industrial undertakings, which operate only for a part of the year:

(i)         For the purpose of clause (f) of Section 2 of Act and paragraph 3 of the Schedule thereto, a worker of an industrial undertaking engaged in the manufacturing of sugar, ginning of cotton or processing of tobacco to which paragraph 1 for the said Schedule applies shall be deemed to have completed six month of continuous employment with the company and eligible to the benefits of the Scheme, if he is in continuous employment of the industrial undertaking for not less than half of the period for which the under taking has operated in a year of account.

(ii)        For the purpose of disbursement of benefits to workers in accordance with paragraph 5 of the Schedule a worker of an Industrial undertaking which is not in continuous operation for the whole of a year shall be credited.

(a)  With a year of continuous employment, if he has been in continuous employment with that undertaking for the entire period for which is not in continuous operation for the whole of a year shall be credited.

(b)  With such period of continuous employment as that period bears to the period he continuously worked with the under taking the same proportion as a whole year bears to the total period for which the undertaking operated during a year of account.

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