IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
SPECIAL LEAVE PETITION (CIVIL) NO. 11230 OF 2008
M/s L.N. Gadodia & Sons & Anr. ...Petitioner (s)
Versus
Regional Provident Fund Commissioner ...Respondents (s)
J U D G E M E N T
H.L. GOKHALE J.
This Special Leave Petition raises the question as to whether the
respondent herein had erred in clubbing the two appellant concerns for the
purposes of applying the provisions of the Employees Provident Funds and
Miscellaneous Provisions Act, 1952 (hereinafter referred to as the Provident Funds
Act).
Facts leading to this Special Leave Petition -
2. The facts leading to this petition are this wise. The petitioner no.1
herein and petitioner no.2 (M/s Delhi Farming and Construction Pvt.
Ltd.) are sister concerns. The office of the respondent wrote to them
vide their letter dated 11.6.1990 calling upon them to comply with the
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provisions of the Provident Funds Act, failing which legal action would
be initiated against them. The petitioner filed an application, and
disputed clubbing of the two concerns for the purposes of their
coverage under the provisions of the said Act. The application was
accordingly heard by the Regional Provident Fund Commissioner
(Enforcement and Recovery) Delhi, under the provisions of section 7A
of the Provident Funds Act. He heard the legal advisor of the
petitioners as well as the enforcement officer representing the
provident fund department. It was submitted on behalf of the
petitioners that the second petitioner was incorporated in 1930 as the
Delhi Cattle Farming Private Limited, and in the year 1983 it's name
was changed to the present name i.e. Delhi Farming and Construction
Private Limited (`Delhi Company' for short). The first petitioner was
incorporated as another Private Limited Company in the year 1941,
and there was no connection between the activities or business of the
two companies. They were different and separate legal entities, and
should not be clubbed into one establishment. It was pointed out that
the main business of the second petitioner i.e. the Delhi Company was
to acquire lands and farms for the purpose of cultivation and to
engage in other agricultural activities. After its land was acquired by
Delhi Administration in 1959 and after receiving compensation, the
second petitioner shifted its business to purchase of gas cylinders and
3
giving
them on hire, supplying security equipments to the Government of
India, and supply of gray/processed fabrics to readymade garments
exports though this was only a side business. It was pointed out that
as far as the first petitioner is concerned, their business was only as a
selling agent of Calico Mills and Tata Mills, Ahmedabad. It was also
trading in whole-sale cloth business. It was not disputed that both the
companies have their registered office at 1112, Kucha Natwan,
Chandni Chowk, Delhi-6 but it was stated that the Delhi Company
carries its business and commercial activities at 116, Hans Bhawan,
Bahadur Shah Zafar Marg, New Delhi-110002. Shri R.G. Gadodia and
Shri T.P. Gadodia were no longer the Directors in either of the two
companies, and only Smt. Sudha Gadodia was Director in both the
companies.
3. On the other hand, the enforcement officer pointed out that
apart from the fact that the two companies had common registered
office, Shri R.G. Gadodia and Shri T.P. Gadodia were the common
Directors in both the units at the time of inspection and clubbing.
Apart from Smt. Sudha Gadodia being admittedly a Director in both the
units, Shri T.P. Gadodia was the Managing Director in both the units.
It was further pointed out that as per the Audited Report of the Delhi
Company dated 24.4.1988, it had given a loan of Rs.5 lakh to the first
petitioner. Two officers viz. Shri G. Ventakeshwaran and Shri S.K.
4
Shome
were employed by both the units as Technical Manager and
Commercial Manager respectively. The two companies had the same
telephone nos. i.e. 2512890 and 2513009. Both the units were using
the same gram number which was `GadodiaSon'.
4. In rebuttal, the petitioners pointed out that the Delhi
Company had its own separate staff. The above referred two
telephone nos. were in the name of the first petitioner and the second
petitioner had another telephone no. i.e. 3318668. As far as the loan
aspect is concerned, it was pointed out that the loan of Rs.5 lakh was
just one loan to the first petitioner, and the Delhi Company had given
loans to the tune of about Rs. 27 lakhs to different entities. The
enforcement officer however pointed out that at the time of inspection
it was noticed that the employees were being swapped between the
two companies. Although the first petitioner had its branches at
Bombay, Amritsar, Ahmedabad and Kanpur, the number of employees
in the Delhi office of this company and the second petitioner were kept
below 20 to avoid coverage under the Provident Funds Act. Having
considered all these facts and the submissions by both the parties, the
Provident Fund Commissioner came to the conclusion that there was
an integrity in the management, finance and the workforce of the two
companies, and the entire business was being run by one family. The
management and the supervision was in the hands of the same
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Managing Director, and the finances of one company were being used
by the other. In view of this, he held that both the units belonged to
one establishment, and they have to be clubbed together for the
purposes of application of the Provident Funds Act. He therefore,
passed an order to proceed to determine the dues from the
petitioners, and directed that further proceedings in the enquiry be
taken up by the concerned Presiding Officer.
5. This order was challenged by the petitioners before the
Employees Provident Fund Appellate Tribunal by filing an appeal
No.ATA-167(4)/2000 under Section 7D of the Provident Funds Act.
The Tribunal accepted the submission of the petitioners that the two
units were separate private limited companies, and since a company is
a juristic person, merely because there is a common Managing
Director, the two units cannot be considered to be one establishment.
One company taking a loan of Rs.5 lakh from another, does not make
them financially integrated. He also observed that there was no
evidence to show that the two officers were mentioned as employed at
the same time in the two companies. He relied upon section 2A of the
Act, and submitted that considering different departments or branches
of an establishment as one establishment was one thing, and
considering different establishments as one establishment was
another. Merely because the departments or branches of an
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establishment are to be treated as a part of the establishment, two
establishments cannot be taken to be one. He, therefore, allowed the
appeal and held that clubbing was not possible in the facts of the case,
and set-aside the order of the first respondent.
6. Being aggrieved by that order, the respondent filed a
petition bearing No. W.P.(C) 5669/2001 in the High Court of Delhi. A
Single Judge of Delhi High Court who heard the matter examined the
material on record, and considered the authorities cited by both the
parties governing the legal position. Having considered all these
aspects, he held that the Tribunal was swayed by the fact that the two
companies are separate legal entities. He noted that the law laid
down by this Court on this aspect was clear. What is to be seen is the
proximity of the two units and common management. There was no
error in the order passed by the Provident Fund Commissioner. The
Appellate Tribunal had no reason to interfere therein. In his view, the
order of the Tribunal was perverse and contrary to law. He, therefore,
set-aside the same and allowed the petition.
7. The petitioners filed an appeal against the decision of the
Single Judge being LPA No.399/2007. After examining the
submissions of both the parties, the Division Bench came to the same
conclusion as the single Judge and dismissed the appeal by passing a
detailed judgment and order dated 20.12.2007.
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8.
The present Special Leave Petition has been filed to
challenge this judgment and order dated 20.12.2007. We have heard
Mr. S.K. Dholakia, Sr. Advocate for petitioners, and Ms. Shrabani
Chakrabarty for the respondent. We have noted the submissions
made by both the counsel, as well as the authorities relied upon by
them.
Consideration of the rival submissions -
9. As noted earlier, the main question in this appeal is whether the two
units are to be regarded as one establishment for the purposes of the Provident
Funds Act. Welfare economics, enlightened self interest and pressure of trade
unions led the larger factories and establishments to introduce the schemes of
provident fund for the benefit of their employees. But the employees of small
factories and establishments remained away from these benefits. With the increase
in the number of smaller factories and establishments, there was a need of a
beneficial enactment for the employees engaged therein. The Provident Funds Act,
is a welfare enactment brought into force for that purpose. The Parliament was
concerned with the issue of making an appropriate provision for the employees in
the factories and the establishments after their retirement, and for the benefit of
their dependents in case of early death of the employees. That is how the Provident
Funds Act came to be enacted in the year 1952, which requires a compulsory
contribution to the fund and which is independently managed by the Provident Fund
Commissioner. The employer and employees covered thereunder, both contribute
8
towards this fund. As
per the present provision of section 6 of the Provident Funds Act, both of them have
to contribute to the fund an amount equivalent to 10% of the basic wage and
dearness allowance (and retaining allowance, if any) per month. The Central
Government has the power to raise this contribution to 12% after making an
appropriate enquiry. The contribution to fund earns an appropriate interest thereon.
As stated above, after the retirement of the employee or in the event of need of
finance for specified reasons, or in the event of his death prior thereto, the amount
becomes available.
10. In para 5 of Sayaji Mills Ltd. Vs. Regional Provident Fund
Commissioner reported in [AIR 1985 SC 323] this Court has explained as to
what should be the approach towards this legislation in the following words :-
"5. At the outset it has to be stated that the Act has been
brought into force in order to provide for the institution of
provident funds for the benefit of the employees in factories
and establishments. Article 43 of the Constitution requires the
State to endeavour to secure by suitable legislation or
economic organisation or in any other way to all workers,
agricultural, industrial or otherwise among others conditions
of work ensuring a decent standard of life and full enjoyment
of leisure. The provision of the provident fund scheme is
intended to encourage the habit of thrift amongst the
employees and to make available to them either at the time
of their retirement or earlier, if necessary, substantial
amounts for their use from out of the provident fund amount
standing to their credit which is made up of the contributions
made by the employers as well as the employees concerned.
Therefore, the Act should be construed so as to advance
the object with which it is passed. Any construction
which would facilitate evasion of the provisions of the
Act should as far as possible be avoided......."
(emphasis supplied)
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The present
controversy with respect to the applicability of the Provident Funds Act has to be
approached with this perspective.
11. Now, on the question as to whether such two units should be
considered as one establishment or otherwise, there is no hard and fast rule.
However, guidelines have been laid down in two judgments of this Court rendered
way back in the years 1959-60 and they are followed from time to time. Thus, in
The Associated Cement Companies Ltd., Chaibasa Cement Works,
Jhinkpani Vs. Their Workmen reported in [AIR 1960 SC 56], a bench of three
judges was considering the question as to whether the factory and the limestone
quarry belonging to the appellant company should be considered as one
establishment for the purpose of Industrial Disputes Act, 1947. This Court observed
therein as follows:-
"11. ........ What then is `one establishment' in the ordinary industrial
or business sense? ....... It is, perhaps, impossible to lay down any one test
as an absolute and invariable test for all cases. The real purpose of these
tests is to find out the true relation between the parts, branches, units etc. If
in their true relation they constitute one integrated whole, the establishment
is one; if on the contrary they do not constitute one integrated whole, each
unit is then a separate unit. How the relation between the units will be
judged must depend on the facts proved, having regard to the scheme and
object of the statute which gives the right of unemployment compensation
and also prescribes a disqualification therefor. Thus, in one case the unity of
ownership, management and control may be the important test; in another
case functional integrality or general unity may be the important test; and in
still another case, the important test may be the unity of employment.
Indeed, in a large number of cases several tests may fall for consideration at
the same. The difficulty of applying these tests arises because of the
complexities of modern industrial organization; many enterprises may have
functional integrality between factories which are separately owned; some
may be integrated in part with units or factories having the same ownership
and in part with factories or plants which are independently owned."
10
Later in
paragraph 5 of Management of Pratap Press, New Delhi Vs. Secretary, Delhi
Press Workers' Union Delhi reported in [AIR 1960 SC 1213], another bench of
three judges explained the above proposition in Associated Cement Company
(supra) in the following words:-
" ......While pointing out that it was impossible to lay down any
one test as an absolute and invariable test for all cases it observed that
the real purpose of these tests would be to find out the true relation
between the parts, branches, units etc. This court however mentioned
certain tests which might be useful in deciding whether two units form
part of the same establishment. Unity of ownership, unity of
management and control, unity of finance and unity of labour, unity of
employment and unity of functional "integrality" were the tests which
the Court applied in that case.......
12. Accordingly, depending upon the facts of the particular case, in some
cases the concerned units were held to the part of one establishment whereas, in
some other cases they were held not to be so. Regional Provident Fund
Commissioner Vs. Dharamsi Morarji Chemical Co. Ltd. reported in [1998 (2)
SCC 446] and Regional Provident Fund Commissioner Vs. Raj's Continental
Export (P) Ltd. reported in [2007 (4) SCC 239] are cases where the two units
were held to be independent. In Dharamsi Morarji (supra), the appellant
company was running a factory manufacturing fertilizers at Ambarnath in Distt.
Thane, Maharashtra since 1921. The appellant established another factory at Roha
in the adjoining district in the year 1977 to manufacture organic chemicals with
separate set of workers, separate profit and loss account, separate works manager,
plant superintendents and separate registration under the Factories Act. The two
were held to be separate for the purposes of coverage under the Provident Funds
11
Act. In Raj's
Continental Export (supra), Dharamsi Morarji was followed since the two entities
had separate registration under the Factories Act, Central Sales Tax Act, 1956,
Income Tax Act, 1961, Employee State Insurance Act, separate balance sheets and
audited statements and separate employees working under them.
13. As against that in Rajasthan Prem Krishan Goods Transport Co.
Vs. Regional Provident Fund Commissioner, New Delhi reported in [1996
(9) SCC 454] and Regional Provident Fund Commissioner, Jaipur Vs.
Naraini Udyog and others reported in [1996 (5) SCC 522] the concerned units
were held to be the units of the same establishment. In Rajasthan Prem Kishan
Goods Transport Co. (supra) the trucks piled by the two entities were owned by
their partners, ten out of thirteen partners were common, the place of business was
common, the management was common, the letter-heads bore the same telephone
numbers. In Naraini Udyog (supra) the two entities were located within a
distance of three kilometers as separate small-scale industries but were represented
by the members of the same Hindu undivided family. They had a common head
office at New Delhi, common branch at Bombay and common telephone at Kota.
The accounts of the two entities were maintained by the same set of clerks.
Separate registration under the Factories Act, The Sales Tax Act and The ESIC Act
were held to be of no relevance and the two units were held to be one
establishment for the purpose of Provident Funds Act.
14. In the present case the Directors of the two petitioner companies
belong to the same family. The Managing Director is common. The two senior
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officers i.e
Commercial Manager and Technical Manager are common. At the time of
inspection, the Enforcement Officer noticed that the employees of the two
companies were being swapped. Both of them have same registered address and
common telephone numbers and a common gram number. The audited accounts
revealed that the second petitioner company had given a loan of Rs. 5 lakhs to the
first petitioner in the year 1988. The two companies are family concerns of the
Gadodia family. Hence, in the facts of the present case we have to hold that there
is an integrity of management, finance and the workforce in the two private limited
companies. The two companies have seen to it that on record each of the two
entities engage less than twenty employees, although the number of employees
engaged by them is more than twenty when taken together. The entire attempt of
the petitioners is to show that the two entities are separate units so that the
Provident Funds Act does not get attracted. The material on record however, leads
to only one pointer that the two entities are parts of the same establishment and in
which case they get covered under the Provident Funds Act.
15. As the preamble of the Provident Funds Act states, `it is an act to
provide for the institution of provident funds, pension fund and deposit-linked
insurance fund for employees in factories and other establishments'. The term
factory is defined under section 2 (g) of the Act, however, there is no definition of
an establishment or a commercial establishment in the statute. Inasmuch as the
petitioners are entities situated in Delhi, we may profitably rely upon the definition
of `establishment' and `commercial establishment' under the Delhi Shops and
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Establishments Act,
1954. The definition of establishment is available in section 2 (9) and that of
commercial establishment in section 2 (5) thereof. These two definitions read as
follows:-
"Section 2(9) Establishment-
"establishment" means a shop, a commercial establishment,
residential hotel, restaurant, eating house, theatre or other places
of public amusement or entertainment to which this Act applies
and includes such other establishments as Government may, by
notification in the Official Gazette, declare to be an establishment
for the purposes of this Act;
Section 2(5) Commercial establishment
2(5) "commercial establishment" means any premises wherein
any trade, business or profession or any work in connection with,
or incidental or ancillary thereto, is carried on and includes a
society registered under the Societies Registration Act 1860 (XXI of
1860) and charitable or other trust, whether registered or not,
which carries on any business, trade or profession or work in
connection with or incidental or ancillary thereto, journalistic and
printing establishments, contractors and auditors establishments
quarries, and mines not governed by the Mines Act, 1952 (XXXV of
1952), educational or other institution run for private gain and
premises in which business of banking, insurance, stocks and
shares, brokerage or produce exchange is carried on, but does not
include a shop or a factory registered under the Factories Act, 1948
(LXIII of 1948), or theatres, cinemas, restaurants, eating houses,
residential hotels, clubs or other places of public amusement or
entertainment;"
It cannot be denied that the two petitioners carry on a trade or business for private
gain from the premises wherein the two companies are situated. They would
therefore, fall within the definition of `commercial establishment' and consequently,
under the definition of `establishment'. The only question is whether they are to be
treated as two separate establishments or one establishment for the purposes of
this act.
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16. The
petitioners have contended that the two entities are two separate establishments.
They have tried to draw support from section 2(A) of the Act which declares that
where an establishment consists of different departments or has branches whether
situated in the same place or in different places, all such departments or branches
shall be treated as parts of the same establishment. It was submitted that only
different departments or branches of an establishment can be clubbed together, but
not different establishments altogether. In this connection, what is to be noted is
that, this is an enabling provision in a welfare enactment. The two petitioners may
not be different departments of one establishment in the strict sense. However,
when we notice that they are run by the same family under a common management
with common workforce and with financial integrity, they are expected to be treated
as branches of one establishment for the purposes of Provident Funds Act. The
issue is with respect to the application of a welfare enactment and the approach has
to be as indicated by this Court in Sayaji Mills Ltd. (supra). The test has to be the
one as laid down in Associated Cement Company (supra) which has been
explained in Management of Pratap Press (supra).
17. The Provident Fund Department had issued notice to the petitioners on
11.6.1990 on the basis of their inspection. It had relied upon the 1988 Audit Report
of the petitioners. The petitioners had full opportunity to explain their position in
the inquiry before the Provident Fund Commissioner conducted under Section 7A of
the Provident Funds Act. The petitioners, however, confined themselves only to a
facile explanation. If according to them, the management, workforce and financial
15
affairs of the two
companies were genuinely independent, they ought to have led the necessary
evidence, since they would be in the best know of it. When any fact is especially
within the knowledge of any person, the burden of proving that fact lies on him.
This rule (which is also embodied in section 106 of the Evidence Act) expects such a
party to produce the best evidence before the authority concerned, failing which the
authority cannot be faulted for drawing the necessary inference. In the facts and
circumstances of the present case, the Provident Fund Commissioner was therefore
justified in drawing the inference of integrity of finance, management and workforce
in the two petitioners on the basis of the material on record.
18. The Regional Provident Funds Commissioner was therefore, entirely
justified in taking the view that on the facts and law, the two petitioners had to be
clubbed together for the purposes of their coverage under the Provident Funds Act.
The Appellate Tribunal clearly erred in re-appreciating the facts on record and
applying wrong propositions of law thereto. The learned Single Judge was therefore
required to set-aside the order of the Appellate Tribunal in view of his conclusion
that the order was contrary to the facts and the law, and was perverse. The
Division Bench has rightly confirmed the order passed by the learned Single Judge.
19. In the circumstances, this petition is dismissed. The concerned officer
of respondent will now proceed for the determination and recovery of the provident
fund dues from the petitioners in accordance with law. There will be no order as to
the costs.
................................J.
( J.M. Panchal )
16
...................................J.
( H.L. Gokhale )
New Delhi
Dated : September 26, 2011
