Bombay High Court
Kadamba Sub-Urban Transport ... vs Assistant Provident Fund Commissioner on 13 November, 1998
Equivalent citations: (2000)ILLJ624BOM
Author: R.K. Batta
Bench: R.K. Batta, J.A. Patil
JUDGMENT R.K. Batta, J.
1. The short question which is required to be decided in this petition is whether the petitioner Kadamba Sub-Urban Transport Corporation Limited is a Department/Branch of M/s Kadamba Transport Limited so as to fall within the scope and ambit of Section 2A of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter called the said Act) or that it is a new establishment entitled to infancy period benefit in terms of Section 16(1)(d) of the said Act. We shall first advert to the relevant facts which are necessary for determination of the issue in question.
2. The petitioner's case is that Kadamba Transport Limited (hereinafter referred to as KTC for short) a Government Company was incorporated under the Companies Act, 1956 on October 15, 1980 and this Company has been operating its buses on long routes within Goa and on other Inter-State routes since the date of its incorporation. The Government noticed that the commuters within a radius of 10 kms. from major towns in Goa were finding it difficult to reach their destination to and fro on account of shortage of city services and taking into consideration the said difficulties, the Government took a policy decision to provide city buses/Sub-Urban services by setting up the petitioner Company which was incorporated on July 11, 1988. The petitioner Company was started with a share capital of Rupees one crore. Some of the old buses of KTC were purchased by the petitioner Company for a total sum of Rs. 19,41,000/-out of which a sum of Rs. 15,00,000/- was treated as share capital of KTC in the petitioner Company by allotting 15,000 shares of Rs. 1,000/- each. The balance amount of Rs. 4,41,000/- was treated as loan from KTC to the petitioner Company which was payable with 12% interest per annum. Subsequently, four more buses were sold by KTC to the petitioner for a total consideration of Rs. 4,75,000/- in respect of which also additional 9000 shares of Rs. 1,000/- each were allotted to KTC. Thus, KTC holds 24,000 shares of the petitioner Company. Initially some expertise was taken from KTC to petitioner Company on honorary basis and services of Assistant Depot Manager and Accountant of KTC were availed of by the petitioner Company on deputation and they were paid by the petitioner Company. The petitioner Company availed of the garage facilities of KTC but the petitioner Company paid for the services rendered by KTC in the garage as well as supply of spares at the Kadamba Bus Terminus, Panaji while other facilities like water, electricity and telephone were provided by KTC to the petitioner Company free of cost. However, the Board of Directors of KTC and petitioner Company were different; the shareholders were different; the sphere of operation was different; the share capital was different and that the employees including drivers and clerical staff were directly recruited by the petitioner Company and were not taken from KTC.
3. The respondent held inspections of the premises of the petitioner Company and pursuant to such inspections, issued show cause notice dated January 28, 1992 which is at Exh.P-3 on record in which it was stated that the petitioner had failed to pay the Provident Fund contribution from November 1988 to October, 1991 amounting to Rs. 5,44,126/- and further claimed that administrative charges for the aforesaid period amounting to Rs. 13,144/- and Rs. 13/- had not been paid. For the said breaches, the petitioner was directed to show cause within seven days as to why the amount of Provident Fund, Family Pension Fund, deposit linked insurance fund and administrative charges should not be recovered from the petitioner as arrears of land revenue under Section 8 of the said Act. It appears that the respondent had conducted an inquiry under Section 7A of the said Act and, on the basis of Provident Fund Inspector's report, the said notice in question was issued.
4. The petitioner filed reply to show cause notice and after hearing the parties and their Advocates, the respondent passed impugned Order dated January 29, 1993 which is subject matter of challenge in this petition and is at Exh.P-5 whereby it was held that the petitioner's establishment was covered under Section 2A of the said Act right from the inception and was not entitled to any infancy benefit as provided under Section 16(1)(d) of the said Act.
5. The case of the respondent, on the other hand, is that the top level management and supervision of the petitioner's establishment, is done by KTC; KTC provides office premises with water, electricity and telephone-facilities to the petitioner free of charge; that the entire share capital of the establishment is held by KTC; the petitioner's establishment depends upon KTC for purchase of spares and maintenance of its vehicles; the petitioner's establishment contributes to insurance fund of KTC; that the buses of KTC have been transferred to the petitioner's establishment by book adjustment; that the two Companies are wholly owned by Government and are engaged in passenger transport which is common to both of them and that the petitioner's establishment is interconnected with KTC in the matter of supervision, finance, management control, due to which there is functional integrality and unity of ownership.
6. We have heard learned senior counsel Shri. Desai appearing on behalf of the petitioner and Central Government Advocate Shri. G V. Tamba in the matter.
7. Learned senior counsel for the petitioner, has brought to our notice that certain findings of the respondent in the impugned Order dated January 29, 1993 are not factually correct and the same are:
That the entire share capital of the petitioner's establishment is not held by KTC; the petitioner does not depend on KTC for purchase of spares for the maintenance of the vehicles, but it only uses the said facility and pays for the same to KTC; that the top level management and supervision of the petitioner is not done by KTC and that the clerical work of the petitioner's establishment is not looked after by KTC. On merits, his submissions are that the Board of Directors of both the Companies are different; shareholders thereof are different; sphere of operation is different; share capital is different; that for spares and maintenance of the vehicles petitioner pay to KTC. The balance sheets and profit and loss account is separately maintained; all the employees namely drivers and clerical staff have been newly recruited by the petitioner and it is only initially that expertise and experience of KTC was availed of for sometime and some staff members were taken on deputation from KTC and were paid by the petitioner Company and that there is no functional integrality between the two Companies. After drawing our attention to a number of judgments on the subject, it was pointed out by the learned senior counsel for the petitioner that mere common ownership of two units by itself is not sufficient to satisfy the test of functional integrality; that the petitioner Company would survive in the event of closure of KTC and that on the basis of material placed by the petitioner Company, the respondent had erred in coming to the conclusion that the petitioner Company is a Department/Branch of KTC so that the petitioner Company was covered under Section 2A of the said Act. The rulings upon which reliance was placed by learned senior counsel are :-- Dharamsi Morarji Chemicals Co. Ltd. v. N. G. Desai, The Regional Provident Fund Commissioner and Ors., (1985-1-LLJ-433) (Bom), Gujchem Distillers India Ltd., Ahmedabad v. Regional Provident Fund Commissioner, (1986-I-LLJ-19) (Guj-DB), Devesh Sandeep Associates and Ors. v. Regional Provident Fund Commissioner, Bangalore, (1997-I-LLJ-1167), Senthilnathans Pharmaceuticals v. Regional Provident Fund Commissioner, (1997-I-LLJ-71) (Mad) and Regional Provident Fund Commissioner and Anr. v. Dharamsi Morarji Chemicals Co, Ltd., (1998-I-LLJ-1060) (SC). He, therefore, urged that the impugned order in question is liable to be set aside as well as the show cause notice dated January 28, 1992.
8. On the other hand, learned Central Government Advocate Shri Tamba, urged before us that the two establishments are owned by Government; the business is same namely carrying of passengers; that the petitioner/Company enjoys free office premises, water, electricity and telephone facilities from KTC; that the top level management and supervision was that of KTC and that the buses were provided by KTC to the petitioner Company though the modality chalked out was to partly treat the purchase price of the buses as share capital of KTC and partly as loan. According to him, taking into account supervision, financial and management control which was exercised by KTC it is clear that there was total functional integrality and unity of ownership, as a result of which the petitioner's case was covered under Section 2A of the said Act. He, therefore, urged before us that the impugned order of the respondent which is well founded on facts placed before it, is not liable to be interfered with in the exercise of writ jurisdiction of this Court. In support of his submissions, he placed reliance on Regional Provident Fund Commissioner, Jaipur v. Naraini Udyog and Ors., (1996-II-LLJ-1063) (SC) and Union of India and Ors. v. A. S. Amarnath, (1999-I-LLJ-1365) (SC).
9. Before going into the merits of the rival contentions, we shall briefly refer to the rulings upon which reliance has been placed on either side in Dharamsi Morarji Chemicals v. N. G. Desai (supra) the Company established a factory in 1921 for manufacturing heavy organic chemicals and fertilizers. During 1977 the said Company established another new factory at a different place for the manufacturing of certain organic chemicals which are not manufactured in the first factory. The question which arose before the Provident Fund Commissioner was whether the latter factory was entitled to the benefit of infancy period under Section 16(1)(d) of the said Act. The Provident Fund Commissioner held that the latter factory is not entitled to infancy period benefit because both the factories constitute one establishment. A Single Judge of this Court found that the products which were manufactured by the two factories were distinct and different; the workers of the two factories were separate, though five to six employees of the first factory were sent to the second factory to take advantage of their expertise and experience to set up the latter factory which circumstance could hardly have any significance for determination as to whether the two factories constituted one or separate establishment. It was pointed out by the learned single Judge that in the very nature of things when a new factory is sought to be set up the benefit of such expertise and experience as surely can be availed of and on the basis of this, it cannot be concluded that the two factories constitute one establishment. The other factors which were noticed by the learned Single Judge were that the two factories had separate registration numbers under the Factories Act; that the said factories also maintain and draw up separate profit and loss accounts; that the said two factories also have separate works managers and plant superintendents; that each factory had separate and independent set of workmen or employees who are not as such transferable from one factory to the other; that the workers in the latter factory were recruited directly from outside sources; there was no supervisory control by either of these factories over the other. The two factories did not have any interconnection such as in the manner of supervisory, financial or managerial control. On the basis of these findings, the Learned Single Judge set aside the order of the Provident Fund Commissioner. It was also held that 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 the conclusion that the factories constitute one establishment.
10. This ruling of the learned Single Judge was challenged by the Regional Provident Fund Commissioner before the Apex Court and the Apex Court in Regional Provident Fund Commissioner v. Dharamsi Morarji Chemicals (supra) confirmed the findings of the learned Single Judge and held that the fact that both the factories were owned by a common owner was not sufficient unless there was clear evidence that there was interconnection between the two units and that there was common supervisory, financial and managerial control which evidence was missing.
11. The petitioner had relied upon the Judgment of the learned Single Judge before the respondent, but the respondent without any discussion held that the said case was not similar to the one under consideration. In our opinion, this judgment of the learned Single Judge is attracted and applicable to a great extent to the case under consideration and this aspect we shall deal with at a little later stage after reference of the rulings cited on either side is complete.
12. Learned Advocate for the petitioner had also relied upon the ruling in Gujchem Distillers India Ltd. v. Regional Provident Fund Commissioner (supra). In this case it was found that the account books of two units were kept separate and distinct and profit and loss account was also drawn separately, though at a later stage they were consolidated in a form to be presented to the shareholders of the company and to the Registrar of Companies and for the purpose of income-tax. It was also noticed that there was no transferability of the employees between the two units, which maintained independent muster rolls and barring the initial loan-service of a few and far between employees from one unit whose salary came to be debited to the unit where services were availed, there was no transfer of any employee even though these employees were there for the initial period who were taken on loan-service basis were repatriated. There were separate agreements entered into between the two units and even bonus questions of the two units were separately dealt with. It was found that there was no inter dependability of the two units and one could exist without the other Accordingly, it was held that the individual unit was a separate unit entitled to infancy benefit under Section 16(1)(d). This case also assists the case of the petitioner. On account of the fact that in the petitioner's case also the account books, profit and loss accounts have been separately maintained; except for availing of honorary services of some of the Directors of KTC for some time, in order to avail their experience and expertise to set up the new establishment, the other employees namely drivers and clerical staff was totally different from the petitioner's Company. Of course; the services of Assistant Depot Manager and Accountant of KTC was availed but on deputation and the payments to them, were made by the petitioner.
13. The next ruling upon which reliance has been placed by learned Senior Advocate is Senthilnathans Pharmaceuticals v. Regional Provident Fund Commissioner (supra). In this case also the entitlement of infancy period cropped up. The Regional Provident Fund Commissioner had ordered the petitioner therein to implement the scheme on the ground that business was same; it was started in the same premises; the petitioner had purchased stock and furniture from the old firm and few employees of the old establishment were continued with the petitioner. The Madras High Court on the facts of that case came to the conclusion that the petitioner was a new establishment and had nothing to do with the old establishment which was closed and was entitled to infancy benefit.
14. The last ruling, upon which reliance has been placed by learned Senior Advocate for the petitioner, is Devesh Sandeep Associates and Ors. v. Regional Provident Fund Commissioner (supra). In this case two firms had certain common partners and were carrying on business of marketing leather cloth upholstery, wall paper and tiles which were clubbed together by the Regional Provident Fund Commissioner and asked to comply with the provisions of the Act. The issue which arose in the Writ Petition was whether the two firms were separate units or they could be clubbed together to bring it within the net of the said Act. The Karnataka High Court held that the mere fact of ownership of the two units and mere location of the two units in common premises by itself was not sufficient to satisfy the test of functional integrality and the test of functional integrality would be whether the second unit would survive in the absence of the first unit or when the first unit was closed whether the second unit would continue to do its business activity. In the light of these observations, the High Court had remanded the matter for decision afresh to the Regional Provident Fund Commissioner.
15. As against these rulings, the learned Central Government Standing Advocate Shri Tamba has placed reliance on Regional Provident Fund Commissioner v. Naraini Udyog and Ors. (supra). In this case the Commissioner had recorded finding of functional integrality and unity between the two concerns which finding had been set aside by the High Court. The Apex Court held that the Commissioner, as a fact, had recorded finding of functional unit and integrality between the two concerns and the High Court was not justified in reversing the said conclusion on the ground that the two were registered as separate units and represented separately by the members of a Hindu Undivided Joint Family. In this case it was held by the Commissioner that the accounts of the two units were maintained by the same set of clerks and taking into account the totality of the facts, the Commissioner had come to the conclusion that the two firms in reality constitute a single establishment for the purpose of the Act and the High Court was not justified in interfering with the finding of the Commissioner, in the light of the material on record.
16. The second ruling upon which reliance has been placed by learned Central: Government Standing Advocate is Union of India and Ors. v. A. S. Amarnath (supra). In this case, the High Court had held that the respondent's establishment was a new one entitled to infancy benefit and not the continuation of the business of the partnership firm which had closed down after the death of the respondent's father who was partner therein. It was further held that closure compensation was given to and accepted by; the workmen, that the closure was held by the State Government to be bona fide and valid, the workmen had accepted the decision of the Government and that the mere fact that some of the workmen of the former firm were employed by the respondent's establishment, that the new establishment was utilising the licence exploited by the old firm, that there was similarity in the names of the two concerns and that the machinery utilised by the old firm was availed of by the respondent's establishment, were inconsequential. In fact, this ruling would not be strictly applicable to the facts and circumstances of this case but even if it is applied, it helps the petitioner rather than the respondent.
17. KTC Ltd. was incorporated under the Companies Act, 1956 on October 15,1980 and since then it was operating its buses on long routes within Goa and on Inter-State routes. The Goa Government noticed that the commuters within the radius of 10 kms. from major towns in Goa were finding it difficult to reach their destination and taking into account the said difficulty, decided to set up another Company to operate buses within the radius of 10 kms. from the city and also for the purpose of providing transport to school children. There is no doubt that the two Companies are owned by the Government, but as rightly pointed out by learned senior counsel, the sphere of operation of these two Companies is different though the business may be same. KTC operates buses on long routes, but the petitioner's Company was set up to operate buses within 10 kms. from the major towns and for providing transport to school children. The petitioner Company was started with fresh share capital of Rs. 1 crore, whereas the share capital of KTC was Rs. 15 crores. In order to utilise the buses of KTC which could not probably operate on long routes because of wear and tear it was decided to utilise the said buses by the petitioner Company and for that purpose the petitioner Company purchased buses from KTC. Initially, the petitioner Company purchased buses from KTC for Rs. 19,41,000/ - and subsequently purchased additional buses for Rs. 4,75,000/-. Out of the purchase price, a sum of Rs. 4,41,000/- was treated as loan by KTC to the petitioner Company which was repayable with 12% interest per annum. For the balance purchase price shares were allotted to KTC to the tune of Rs. 24 lakhs which was treated as investment of KTC in the petitioner Company. In order to ensure that the new venture of petitioner Company is successful it was decided to utilise the services of top level executives of KTC on honorary basis. This was with a view to utilise the expertise and experience gained by these top level executives so that the petitioner Company could take off with flying colours. Of course, the situation turned out to be pathetic for the petitioner and the petitioner Company right from the beginning started incurring losses. Thus, it can be well imagined as to what experience or expertise had been contributed which was expected by availing of the services of five top level KTC executives on honorary basis. This means that the services rendered by the said top level executives on honorary basis did not in any manner help the petitioner in taking off the new venture. Besides this, Asst. Depot Manger and one Accountant were taken on deputation basis by the petitioner-Company from KTC and their salary was paid by the petitioner Company. All other staff including drivers, conductors and other clerical staff had been recruited afresh by the petitioner Company. No staff was taken from KTC. The other factors which are relevant and were totally ignored by the respondent in determining the issue in question are that the Board of Directors of the two Companies were different; shareholders were different; share capital was different and the profit and loss account and balance sheet were separately maintained. The respondent had in fact taken into consideration certain erroneous facts while deciding the issue in question i.e. the entire share capital of the establishment was held by KTC; that clerical work of the Depot was looked after by KTC ; that the petitioner Company was dependent upon KTC for almost everything and the top level supervision, finance and managerial control was that of the KTC. The respondent was influenced by the fact that the two Companies were owned by the Government and the petitioner Company was utilising the premises in Kadamba Terminal belonging to KTC as well as water, electricity and telephone facilities free of charge. The material on record was certainly not sufficient to come to the conclusion that there was functional integrality between the two Companies. The petitioner Company utilised the services of the workshop of KTC on payment basis and made payments for spares and other services available during breakdown of buses by the petitioner. The petitioner did take buses from KTC in case of breakdown but paid hire charges for the same. It cannot be said that the petitioner Company was dependent on KTC to the extent that if KTC closed down, the petitioner Company would not be able to survive. In the light of the material on record, the conclusion arrived at by the respondent cannot be sustained as we do not find functional integrality of the two units or dependence of the petitioner Company on KTC to such an extent that if KTC was closed, it will mean automatically closure of the petitioner Company. It is in this context that the judgment of the learned single Judge in Dharamsi Morarji Chemicals v. N G. Desai (supra) which has been confirmed by the Apex Court in Regional Provident Fund Commissioner v. Dharamsi Morarji Chemicals (supra) assumes considerable importance. This ruling is thus attracted and is directly applicable to the facts and circumstances of the case.
18. For the aforesaid reasons, we hold that the petitioner Company cannot be covered under Section 2A of the said Act so as to treat it as Department/Branch of KTC but, on the contrary, in our opinion, the petitioner Company would fall under Section 16(1)(d) of the said Act and, as such, it would be entitled to infancy benefit of three years. The impugned Order dated January 29, 1993, is therefore quashed and set aside. Rule is accordingly made absolute in terms of prayer Clauses (a) and (b). In the facts and circumstances, we would leave the parties to bear their costs.