Bombay High Court
Paranjape Metal Shapers Pvt. Ltd., A ... vs Union Of India (Uoi) A Copy To Be Served On ... on 25 October, 2002
Equivalent citations: (2004)ILLJ672BOM
Author: A.M. Khanwilkar
Bench: A.M. Khanwilkar
JUDGMENT A.M. Khanwilkar, J.
1. This Writ petition takes exception to the order passed by the Assistant Provident Fund Commissioner, Sub-Regional office, Kolhapur, dated 7.11.1995 under Section 7A of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952 (Herein after referred to as the said Act).
2. Briefly stated the petitioner is a private limited company. It was engaged in the activity of processing of cylinders and had its unit Bhosri at Pune. It has come on record that the said unit was closed down from 1979 because of labour problems. The petitioner company however, in the meantime decided to go for expansion and diversification as is mentioned in the directors reported dated 4th December, 1984 (13th Annual Report). In that report it is mentioned as observed by the authority below that, under the heading "expansion programme" (item 4)-the unit at village Sanghvi near Shirval is stated to be part of expansion and diversification undertaken by the petitioner company." Pursuant to the said decision taken by the management, factory at 'Shirval' was set up sometime in 1985. In this factory at Shirval, activity of production of cylinders was to be undertaken. Initially the authorities accepted the request of the petitioner to exempt the newly established factory at Shirval district Satara. For the sake of brevity, petitioner's unit at "Bhosri" will be referred to as 'B' and newly established factory at "Shirval" will be referred to as 'S'. However, subsequently the concerned authorities enquired into the matter and were of prima facie view that although the two units were located at different places, but for the purposes of the Act, it was not open for the petitioner company to claim exemption by invoking Section 16 of the Act. for it was not a newly set up establishment as such. In the circumstances, further enquiry was undertaken and opportunity was given to the petitioner company to give its explanation and also to produce relevant documents. After completing that exercise the authority found that unit at 'S' was not entitled for exemption under Section 16 of the Act. For taking this view the Commissioner has found that:-
i) There were unity of ownership
ii) There was unity of management
iii) There was unity of supervision and control
iv) There was unity of finance
v) There was functional integrality The Commissioner has adverted to all the relevant aspects for recording the above opinion. In the ultimate analysis the Commissioner held that petitioner was not entitled to claim exemption under Section 16 of the Act. It is this decision which is the subject matter of challenge in the present petition.
3. Mr. Bapat for the petitioner strenuously contended that the approach adopted by the Commissioner is manifestly wrong and mis-directed in law. According to him it is now well settled that test of functional integrality is superior and to be considered predominantly for deciding the issue. He placed reliance in the case of Saurashtra Trust v. States' People (P) Ltd., and Ors. reported in 1995 II ICLR 781, wherein this Court on examining relevant decision of the Apex Court in paragraph-10 has concluded that-
"Survey of the precedents of the Apex Court shows that although several tests were evolved in Associated Cement Company Case (supra) the test of functional integrality and functional interdependence has emerged superior, particularly in cases involving retrenchment and closure."
Relying on this observation learned Counsel for the petitioner contends that Court will have to consider whether the factors taken into account by the Commissioner while answering issue of functional integrality can be said to be correct and proper in law. He placed reliance on another decision of the Division Bench of this Court in the case of Yeshwant G. Chikhalkar and Ors. v. Killick Nixon Ltd., and Ors. reported in 1999 II CLR 390, wherein in paragraph-2 of that decision the Division bench of this Court has observed-
"This point has often arisen in the cases under the Employees Provident Fund Act, whereunder clubbing of two divisions or undertakings was questioned by the employers."
Division Bench has then observed that-
"It is now very well established that if one unit which is totally independent and which will not be closed or affected by the closure or stoppage of another unit owned by the same employer in hat case these two units would be independent and not interdependent and, therefore, there cannot be any functional integrality between these units."
Relying on this observation, learned Counsel contends that, subsequently established unit by the petitioner at 'S' is undoubtedly a factory, but when it was established, unit at 'B' was already existing. He submits that, infact, it is common ground that at the relevant time unit 'B' was already closed down since 1979 and was re-opened only in 1987; moreover when the unit 'S' was started in 1985 it was not at all dependent on unit 'B' till 1987; besides even after unit 'B' was opened in 1987, unit 'S' was not entirely dependent on unit 'B' as it had engaged services of five sub-contractors to undertake the work of processing required for making of final product produced by unit 'S'. In substance it is contended that unit 'S' was not at all dependent on unit 'B' and if that be so, then issue of functional integrality will have to be answered in favour of the petitioner, for it will not be possible to take the view that unit 'S' was to be affected substantially by the closure or even by the functioning of unit 'B'. He further contends that there is no evidence nor the authority has found that unit 'S' has been established by the petitioner company so as to evade liability under this Act. He further contends that the workers of unit 'S' are entirely different set of workers. According to him unit 'S' is neither a branch nor a department of unit 'B' and no such finding has been returned by the Commissioner. However, unit 'S' is a separate unit. He submits that unit 'B' which was in existence in earlier point of time in any case is not a feeding factory for unit 'S'. In the circumstances, he contends that if this be the fact situation then the issue of functional integrality will have to be answered in favour of the petitioner and in which case the petitioner would be entitled to claim exemption under Section 16 of the Act because unit at 'S' being a new establishment of the petitioner would be entitled for that exemption. To support this proposition, Mr. Bapat has also placed reliance on the decision of the Division Bench of this Court directly dealing with the provisions of Section 2A and 7A of the Act reported in the case of Niton Industries v. Union of India and Ors. reported in 2000 I CLR 922.
4. On the other hand Mr. Karnik contends that the submission advanced by Mr. Bapat that test of functional integrality is superior and perhaps the only determinative factor for answering controversy is ill-advised. He has relie on the decision of the Apex Court in the case of Management of Pratap press v. Secretary, Delhi Press Worker's Union Delhi and its workmen . Wherein in paragraph-5 of that decision the Apex Court has observed as follows:-
"Of all these tests the most important appears to us to be that of functional "integrality" and the question of unity of finance and employment and of labour. Unity of ownership exists ex hypothesi where two units belong to a proprietor there is almost always likelihood also unit of management. In all such cases therefore the Court has to consider with care how far there is "functional integrality" meaning thereby such functional interdependence that one unit cannot exist conveniently and reasonably without the other and on the further question whether in matters of finance and employment the employer has actually kept the two units distinct or integrated."
He further relied on the observation of the Apex Court which is a decision of 4 Judges Bench, in the case of Wenger & Co. v. Their Workmen reported in 1963 Vol-II Labour Law Journal 403. At page 40B the Apex Court has dealt with this aspect and has observed thus:-
"The question as to whether industrial establishments owned by the same management constituted separate units or one establishment has been considered by this Court on several occasions. Several factors are relevant in deciding this question. But it is imported to bear in mind that the significant or importance of these relevant factors would not be the same in each case whether or not the two units constitute one establishment or really two separate and independent units, must be decided on the facts of each case. Mr. Pathak contends that the Tribunal was in error in holding that the restaurants cannot exist without the wine shops and that there is functional integrality between them. It may be conceded that the observation of the tribunal that there is functional integrality between a restaurant and a wine shop and that the restaurant cannot exist without wine shops, is not strictly accurate or correct. But the test of functional integrality or the test whether one unit can exist without the other, though important in some cases, cannot be stressed in every case without having regard to the relevant facts of that case, and so, we are not prepared to accede to the argument that the absence of functional integrality and the fact that the two units can exist one without the other necessarily show that where they exist they are necessarily separate units and do not amount to one establishment. It is hardly necessary to deal with this point elaborately because this Court had occasion to examine this problem in several decisions in the past, vide Associated Cement Companies Ltd. v. their workmen (1960-I L.L.J.1) Pratap Press, etc. v. their workmen (1960-I L.L.J. 497); Pakshiraja Studios v. its workmen (1961-II L.L.J. 380); South India Mill owners' Association and Ors. v. Coimbatore District Textile Workers' Union and Ors. (1962-I L.L.J. 223); Fine Knitting Company Ltd., v. Industrial Court and Ors. (1962-I L.L.J. 275); and D.C.M. Chemical Works v. its workmen (1962-I L.L.J. 388)"
Relying on these observations, learned Counsel contends that the test of functional integrality is not the only test to be kept in mind as is contended before this Court but even other factors will have to be taken into account to answer the issue. Besides the above two decisions, learned Counsel has placed reliance on the decision of the Apex Court which directly dealt with Section 16 of this Act, in the case of Sayaji Mills Ltd., v. Regional Provident Fund Commissioner reported in 1984 (Supp) Supreme Court Cases 610. In this decision the court has, inter alia, considered the legislative intent of this enactment. The Apex Court has observed that this legislation is for the benefit of the employees in factories and establishments. Therefore, the Act should be construed so as to advanced the object with which it is passed. It is further observed in paragraph 5 that, any construction which would facilitate evasion of the provisions of the Act should as far as possible be avoided. Besides in paragraph-6 it is observed that the Act being a beneficent statue and Section 16 of the Act being a clause granting exemption to the employer from the liability to make contributions, Section 16 should receive a strict construction. The Apex Court has affirmed the view taken by this Court as early as in 1956 in an unreported decision between Chagganlal Textile Mills Pvt. Ltd., v. P.A. Bhaskar in Misc. Application No. 289 of 1956 disposed of on November 5, 1956, wherein this Court had observed:-
"In any event, the Employees' Provident Funds Act is a beneficial legislation for the benefit of the employees and every construction of its provisions which would defeat the object of the legislation and lead to an evasion must be rejected, unless the clear language of the Act leaves no option to the Court but to accept such an interpretation."
Learned Counsel then placed reliance on the dictum of the Apex Court in paragraph-11 which reads as:-
"Mere investment of additional capital or effecting of repairs to the existing machinery before it was restarted, the diversification of the lines of production or change of ownership would not amount to the establishment of a new factory attracting the exemption under Section 16(1)(b) of the Act for a fresh period of three years"
Mr. Karnik contends that no doubt the Apex Court was dealing with a different fact situation but the dictum would apply to a case of establishment of a new factory by way of diversification of the lines of production and in those cases exemption under Section 16 of the Act is unavailable. He submits that even if that observation is an obiter dicta, yet the same will be binding on this Court. Learned counsel also placed reliance on another decision of the Apex Court in the case of Regional Provident Fund Commissioner, Jaipur v. Naraini Udyog and Ors. wherein the Apex Court has approved the view taken by the Commissioner in that case, that the concept of an establishment for the purposes of the Act is wide enough to include more than one factory and as such the factors relied upon by the management do not cut across that concept. In that case the Commissioner had also held that the purpose of the Act has to be borne in mind while considering the question of clubbing of two concerns. The Apex Court then overturned the view taken by the Division Bench of the Rajasthan High Court that since two companies were registered independently they were two different identities though represented by members of the same family, so as to extend the benefit to those companies of the Act 1952. The Apex Court found that such a conclusion would be unjustified even if the two companies were registered as independent units and represented separately by members of the Hindu undivided joint family. It then proceeded to observe that nonetheless the Commissioner recorded, as a act, the functional unity and integrality between the two concerns. Consequently, the definition of 'establishment' which was widely defined would encompass within its ambit the two units as an establishment for the purpose of the Act. In the circumstances, Mr. Karnik submits that in the present case the Commissioner has found as a fact that not only there was unit in ownership but also in management and supervision and control of the two units of the petitioner company, but more than that it is found that there was common books of account, common profit and loss account and no separate allocation of funds have been or were made for the newly established unit 'S' or the old unit 'B'. The Commissioner has also found that no separate earning is calculated for each of the units. Besides, the balance sheet for the period as on 30.6.85 mentioned the value of assets of both the units together and there was no mention regarding allocation of funds for the respective units, as can be seen from the accounts. The Commissioner has further found that from the balance sheet as on 30.6.88 it is seen that the petitioner company had secured loans from Cosmos Bank, Pune by hypothecating plant and machinery, mortgaging land and building and, cash credit by hypothecation of stock of finished and semi finished goods, raw materials, stores and spares and personal security of Directors, which was relating to unit 'S' of the petitioner company. In this background, the Commissioner has found that there was unity of finance in both the units as for obtaining loan for unit at 'B', assets in unit 'S' were hypothecated to the bank. This according to Mr. Karnik is a clinching factor to answer the issue against the petitioner. Besides this Mr. Karnik contends that while considering the issue of functional integrality, the Commissioner has found as a fact there is absolutely no separate entry of payment made to unit 'B' for the work undertaken by that unit, which was received from unit 'S'. Besides the Commissioner has also adverted to the directors report dated 4.12.87 which clearly provides that the unit 'S' was the out come of the expansion and diversification programme of the petitioner company. He therefore, contends that it this is so then no other aspect would be relevant having regard to the dictum of the Apex Court in the case of Sayaji Mills supra. He therefore, submits that his petition deserves to be dismissed as no infirmity can be found with the conclusion reached by the Commissioner while considering the issue. He submits that infact the view taken by the Commissioner was a possible view and if that is so, no interference in exercise of writ jurisdiction is warranted, as it cannot be said that the Commissioner has committed any manifest error or the conclusion reached is perverse not it can be said that the above conclusion is error apparent on the face of the record.
5. Having considered the rival submissions, to my mind, there is no substance in this petition. It is not possible to countenance the argument that the test of functional integrality alone should be reckoned. Whereas, I have no hesitation in accepting the contention of the respondents that the settled legal position is to the contrary. It will be apposite toe advert to the case of Management of Pratap Press New Delhi (supra). Indeed in paragraph-5 of this decision, the Apex Court has observed that the test of functional integrality is most important. However, the Apex Court has also observed that the question of unity of finance and employment and of labour of two units is equally important. The Bench of four Judges of the Apex Court in the case of Wenger & Co. v. their workmen (supra) has reiterated the legal position that several factors are relevant in deciding this question and the significance or importance of these factors is not the same in each case. It is further observed that the test of functional integrality, though important in some cases, cannot be stressed in every case without having regard to the relevant facts of that case. To put it differently this decision rejects the argument as is canvassed before me that the test of functional integrality is the determinative test. Even the decision of the division bench of this court relied by the petitioner in Nito Industries case (supra) would support that proposition. In paragraph-17 of that decision the division bench has adverted to the observation made by this Court in Dharamsi Morarji's case and observed as under:-
"It was observed in this case by the High Court that even though both the factories were owned by a common owner, namely, respondent company, and even though the Board of Directors was common, that by itself could not be sufficient unless there was clear evidence to show that there was interconnection between these two units and there was common supervisory, financial or managerial control, and as there was no such evidence, the contentions of the respondent company were not accepted by the High Court."
7. To put the controversy to rest, it would be apposite to advert to the opinion expressed by the Apex Court while considering the case in Regional Provident Fund commissioner and Anr. v. Dharamsi Morarji Chemical Co. Ltd., reported in 1998 (I) L.L.J. 1060. This case arose from the decision of our High Court in Dharamsi Morarji's case which has been referred to by the division bench in paragraph-17 of Nitton Industries case (supra). The Apex Court in this decision, in paragraph-4 has observed that merely because company ownership was common cannot be the basis to answer the issue one way or the other. Apex Court then went on to observe that:-
"That by itself cannot be sufficient unless there is clear evidence to show that there was interconnection between these two units and there was common supervisory, financial or managerial control."
In my view therefore, Mr. Bapat is not right in contending that the test of functional integrality alone be taken into account and no other consideration would be relevant. As observed earlier, the Commissioner has not only considered the matter by applying the test of functional integrality but also on the basis of other factors such as unity of supervision, finance and managerial control, ownership, supervision and control. Mr. Karnik is right in contending that if the other factors which have been considered by the Commissioner in deciding those issues are bound to be germane and unexceptionable then it is not possible to suggest that the opinion formed by the Commissioner on taking all those factors into account is mis-directed in law or that no person would have formed that opinion. If that be so, then there will be no reason to interfere with that opinion in exercise of writ jurisdiction. As has been held by the Apex Court in the case of Sayaji Mills Ltd., (supra) that this Act 1952 is a piece of legislation for the benefit of the employees in factories and establishment. The Apex Court has also observed that the Act should be construed so as to advance the object with which it is passed and any construction which would facilitate evasion of the provisions of the Act should as far as possible be avoided. Further, Section 16 should receive strict construction as it exempts the employer from the liability to make contribution. The Apex Court has also held in the same decision that mere investment of additional capital or effecting of repairs to the existing machinery before it was restarted, the diversification of the lines of production or change of ownership would not amount to the establishment of a new factory attracting the exemption under Section 16(1)(b) of the Act. This observation of the Apex Court plainly concludes the matter against the petitioner. The petitioner has made a very candid statement in the Annual Report that project 'S' was on account of expansion and diversification plan of the petitioner company. The Apex Court has observed that the diversification of the lines of production would not amount to establishment of a new factory. This infact would conclude the issue. Similarly, reliance is rightly placed on the decision of the Apex Court in the case of RPFC v. Naraini Udyog and Ors. (supra) that the definition of establishment under this Act is wide enough to encompass two units or concerns as in this case. Be that as it may, the Commissioner has adverted to several other aspects while considering the point in issue. There is no reason to doubt the correctness of that finding reached by the Commissioner. No material is produced before this court to doubt the correctness thereof. If the petitioner company has treated both the units as one for financial purpose as there was common books of accounts, profit and loss and no separate allocation of funds for the each unit nor computation of earning of each unit is done separately and as noticed from the accounts of the petitioner company, the petitioner company had arranged for loan by mortgaging and hypothecating assets of unit 'B' for advancing the activity of unit 'S'. In such case, it is incomprehensible that both the units are separate or were treated to be separate by the petitioner. Besides, it is found as a fat that there is unity of ownership, management, and supervision and control. Moreover, although unit 'B' undertakes the work of processing from unit 'S', but no separate entry of payment for that work is effected. Taking totality of the factors into accounts. In my view, therefore, for the reasons already recorded by the Commissioner it is not open for the petitioner to contend that unit set up at 'S' is a new establishment for the purposes of claiming exemption under Section 46(1)(b) of the Act.
8. Accordingly, this petition fails and the same is dismissed with costs.
9. At this stage, Mr. Bapat for the petitioner prayed that the petitioner be granted some time so that liability determined by the Commissioner under the impugned order can be discharged by the petitioner company. I see no reason to accept this request as it appears from the record that initially ad-interim relief was granted in favour of petitioners on 26.1.96 but while admitting Writ petition this court on 17.9.98 refused to grant interim relief in favour of the petitioner. If there was no interim relief, petitioner was under obligation to discharge the liability in accordance with law. The fact that the matter remained pending before this court for almost six years after refusal of interim relief, the petitioner cannot be allowed to take advantage of that situation. It will be open to the authorities to take recourse to such action as may be permissible in law. The petitioner may persuade the authorities to take a lenient view of the matter if the law so provides.
10. At this stage, Mr. Bapat submits that the court may record that his request for making payment should not be construed as petitioner giving up its right to take the matter before the higher forum.
Certified copy expedited.