Bombay High Court
Allana Sons Private Limited vs R.M. Gandhi, The Regional Provident ... on 5 February, 1991
Equivalent citations: [1991(63)FLR120], (1993)IIILLJ809BOM, 1991(1)MHLJ818
JUDGMENT S.M. Daud, J.
1. This petition under Article 226 of the Constitution takes exception to the imposition of damages under Section 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, hereinafter referred to as 'the Act'.
2. Petitioner is a private limited company registered under the Companies Act, 1956. It was incorporated on 1st February 1973 and is engaged in commercial and trading activities. It has an establishment and was covered under the Act in 1975. A code number was allotted to it and remittances representing the employer's and employees' contributions were made to the account kept with the respondent. In October 1976, the Petitioner set up another business being that of shipping and doing business in the name and style of Allan a Lines. Having a work-force of less than 50, the petitioner wanted to avail of infancy benefits under Section 16(1)(b) of the Act vis-a-vis the establishment for Allana Lines. However, on 24th October 1977, it approached the respondent for voluntary coverage under Section 1(4) of the Act. The Commissioner gave a reply which is at Exh.C, acceding to the request for allotment of a separate Code number for Allanna Lines, but making it clear that the said allotment was for the purposes of administrative convenience and that in his eyes Allana Sons Pvt. Ltd. and Allana Lines were parts of the same establishment and not separate or independent units. It was further made clear that Allana Lines would be deemed to be covered as from 1st December 1976. On 11th December 1984, the respondent addressed Exh.E to Allana Lines calling upon it to show-cause why an order under Section 14B of the Act should not be made against it for delaying the remittance of contributions for the months December 1976 to August 1982 - both inclusive. A reply was given to the show-cause notice by the petitioner describing the said reply to be for and on behalf of Allana Lines - a division of Allana Sons Pvt. Ltd. In the reply, which is atExh.F, various defences were taken and on 3rd January 1986, respondent passed the order impugned in this petition. Seven defences were raised by the petitioner and all of them were negatived. Commissioner split up the defaults into four categories. For the first category damages were imposed at rate 100% of the dues; for the second category at 70% of the dues; for the third category 5% and for the last category 2%. Petitioner was directed to pay Rs. 37,050.15 ps. representing the damages and the administrative charges. Failure to pay the amount within a fortnight of the reciept of the order by the petitioner was to give rise to action under Section 8 of the Act.
3. Petitioner's contention is that Allana Lines is an independent establishment having a separate and distinct business vis-a-vis that being done by Allana Sons Pvt. Ltd. This latter concern is a bare and simple commercial and trading establishment engaged in the sale and purchases of goods as also export and import thereof. Allana Lines on the other hand is a shipping concern. The two businesses are served by different staffs and with separate managers attending to each of them. The businesses have maintained separate accounts and even compilation of annual accounts is kept distinct and different. There is no nexus or connection between the two businesses. Neitheris one incidentally or even proximately connceted with the other. Therefore, the two represent different and separate establishments. Allana Lines was entitled to infancy period benefits of five years under Section 16(1)(b) of the Act and it was for this reason that it sought a separate Code number by its letter dated 24th November 1977. In writing that letter Allana Lines were foregoing the infancy benefit for near about 4 years. Seeking voluntary coverage did not mean that Allana Lines was admitting its being a department or branch of Allana Sons Private Ltd. It gave the remittances with a view to avoid unnecessary controversy. The show-cause notice given by the respondent had been properly replied to. In spite of this the respondent had thought it proper to impose damages under Section 14-B of the Act. No case for imposition of damages existed and in any case the order of the respondent was wholly arbitrary in that no explanation had been essayed for imposition of different rates for different periods. The order was an abuse of the power vested in the Commissioner under Section 14-B of the Act and deserve to be quashed.
4. Respondent in a return filed by an Enforcement Officer on his behalf, maintained that Allana Lines is a division, branch or unit of petitioner-company. That is why Section 2-A of the Act was attracted and that explained the respondent's communication at Exh.C. Petitioner had accepted this position and it did not lie in its mouth to contend that though entitled to the infancy benefit of Section 16(1)(b), it had foregone a substantial part of the advantage by seeking voluntary coverage. There had been delay in the remittances and a show-cause had been given to the petitioner. The order impugned was a proper exercise of jurisdiction vested in the respondent. The petition was without merit and deserved to be dismissed with costs.
5. Mr. Talsania representing the petitioner contends that Section 2-A of the Act was attracted inasmuch as Allana Lines could not be said to be a mere department or branch of Allana Sons Pvt. Ltd. Counsel for the respondent Mr. Master counters this argument by pointing out, to what he says, clinches the issue in favour of the view taken by the respondent. The facts relied upon by the learned Counsel are that though the show-cause notice at Exh.E was addressed to Allana Lines, the reply was given by Allana Sons Pvt. Ltd. albeit describing itself as so doing on behalf of a division of it functioning in the name and style of Allana Lines. The next point according to Mr. Master, is the identity of the person challenging the order passed by the respondent. The party challenging the order is not Allana Lines, but Allana Sons Pvt. Ltd. Interesting as this quibble is, what should not be forgotten is the first section of the Act. Sub-section (3) of Section 1 says that subject to the provisions contained in Section 16, the Act applies to the three categories specified in Clauses (a) and (b) of Sub-section 3 and Sub-section 4. The categories covered are described as an "establishment". The expression "establishment" has not been defined in the Act. But Section 2-A goes on to say that an establishment having different departments or different branches whether situated al the same place or different places will not be enough to efface the fact that all belong to and form part of the same establishment. What may be taken as not denied is the fact that Allana Sons Pvt. Ltd. and Allana Lines are both owned by the same set of people. Next it may be taken that their offices are located in close proximity to each other-so much so that letter addressed to Allana Lines may be delivered to Allana Sons Pvt. Ltd, But that is about all. This is not enough to constitute the functional integrality contemplated by Section 2-A of the Act. The inapplicability of Section 2-A to a situation like the present one, has been the subject of umpteen decisions of this Court and I can do no better than refer to Dharamsi Morarji Chemical Co. Ltd. v. N. G. Desai, RPFC and Anr. reported in 1984 Mah. L.J. 780. The factual position in that case was that a public limited company established a factory for the manufacture of heavy inorganic chemicals and fertilizers in 1921. In July 1977, a new factory came to be established at another place for manufacture of certain organic chemicals which were not manufactured at the old factory. Having regard to Section 16(1)(d) of the Act, the new factory was entitled to the infancy benefit of three years. On a request made by the workers the company voluntarily agreed to reduce the exemption and infancy period from 3 to 2 years. An application was made to the Commissioner who refused the claimed exemption on the following ground: That the management of the two factories was common and there was no separate ownership; capital, profit and loss accounts and as such both the units were one and therefore, the new factory was covered by the Act from its very inception. The company denied this, contending that the two factories were inter-dependent, that they were separately registered under the Factories Act, that the new factory was not a branch of the old factory, that the factories were managed by two separate Works Managers, that there was no inter-transferability of the workmen of the two factories, that separate Code numbers were given to the two factories, that there was no supervisory control over either of the two factories by the other, and that accounts were separately maintained. Pratap J. before whom the matter came up, held that there was no functional integrality at all. Some of the reasons given by the learned Judge are reproduced below.:
"Thus, the two factories have separate registration numbers. The same are also separately registered under the Factories Act. The said factories also maintain and draw up separate profit and loss accounts. The said two factories also have separate Works Managers and plant superintendents. And each factory also has a separate and independent set of workmen or employees who are not as such transferable from one factory to the other..... .One also does not find any supervisory control by cither of these factories over the other. The two factories do not have any inter-connection as such in the matter of supervisory, financial or managerial control. Inference and conclusion is irresistible that these two factories constitute distinctly different entities and separate establishments......Except the fact that the two factories are owned by one and the same Company, all the other relevant factors lead to the conclusion, fair, just and reasonable, that the two factories are different and separate establishments.'' -
The learned Judge was required to answer more specifically an argument addressed by the respondent about community of ownership and the existence of consolidated accounts, etc. The answer given by the learn ed Judge was: -
"There is no bar to a Company establishing more than one factory..... The mere fact that the Company ultimately consolidated the accounts of the two factories for the purpose of the Companies Act and the Income-tax Act cannot result in a conclusion that, therefore, the two factories constitute one establishment. It is not unknown that where one and the same Company establishes separate, distinct and different factories at different places in the country with each having its own separate accounts, consolidation is annually effected for the purposes of the Companies Act and the Income-tax Act."
The learned Judge in the latter part of the judgment recorded the fact of his taking a view in consonance with that of a Division Bench which Division Bench Judgment had been assailed by a Special Leave Petition to the Supreme Court. What was conceded before him was that SLP had been dismissed. Having regard to all these circumstances I do not see how the respondent goes on repeating the same contention in case after case and year after year. Mr. Master contends that Exh.C was accepted by the petitioner and this would amount to an admission by the petitioner of Allana Lines being a department or branch of Allana Sons Pvt. Ltd. Counsel submits that in the petition itself Allana Lines is described as a division of Allana Sons Pvt. Ltd. The word division means nothing. It certainly does not mean a department or branch in the sense in which these words are used in Section 2-A of the Act, and, as said earlier, Section 1 of the Act is aimed against establishments and not against companies or factories or whatever. Provided there be no identity in the sense of functional integrality between the two establishments, the authorities administering the Act cannot take recourse to Section 2-A thereof. Having come to this conclusion, I now go to an examination of the impugned order.
6. If Allana Lines was not a department or branch of Allana Sons Pvt. Ltd. for the applicability of Section 2-A, it could not be faulted for delaying the remittances at least upto the time when it applied for the voluntary coverage. After the coverage had been obtained, it knew that the Act applied to it. The employees' contributions were recovered from the wages payable to the employees. Therefore, recoveries effected as from March 1978 had to be remitted with the stipulated time. Tested thus, the delays commencing from June 1978 with breaks and ending August 1982 would be liable for the imposition of damages. For the preceding period i.e. commencing from December 1976 and ending February 1978, the petitioner was not liable to impose any penalty. In the result, the petition is allowed. Rule is made partially absolute, by quashing damages imposed by the respondent for the period commencing December 1976 to February 1978 (both months inclusive). Parties to bear their own costs.
7. Respondent is entitled to make a withdrawal in pursuance of the above, with the petitioner being at liberty to withdraw the excess, if there be any. The Prothonotory & Senior Master to act on the minutes of this order.
8. The order in relation to withdrawal and entitlement to refund to come into effect after a period of 6 weeks as from today.