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Monday, September 26, 2011

whether the two companies are to be treated as two separate establishments or one establishment for the purposes of this act.=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 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.


                                                                                   REPORTABLE


                     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


                                 2





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


                                       5





      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


                                        6





      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.


                                                   7


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)


                                                    9


        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


                                                     12


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


                                                    13


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.


                                                   14


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