V. Khalid, J.
1. These writ petitions involve an identical question of law and are, therefore, being disposed of by a common judgment. O.P.No. 4280 of 1975 is by Sri Madhavan Thampy. O.P. No. 4281 of 1975 is by his wife, Saraswathi Amma. O.P. Nos. 4061 and 4315 of 1975 are by his daughters, by name Suriakumari and Kalamalini respectively. O.P. No. 4284 of 1975 is by his son, P. Komala Kumar. I shall refer to the facts of the case in O.P. No. 4061 of 1975 and the counter-affidavit filed therein since the pleadings in that petition cover other cases also.
2. Sri Madhavan Thampy was the proprietor of ' P. Madhavan Thampy, Vessel Merchant, Chalai, Trivandrum'. This shop was started in or about 1944 at Chalai as a vessels shop. Subsequently he started a factory for the manufacture of metal utensils under the name and style of Komilavilas Metal Industries. Originally, vessels were sold only from the shop at Chalai. They began to be sold from the factory as well later. In subsequent years he started new shops in three other places, namely, Saraswathi Metal Stores at Trivandrum, P. Madhavan Thampy, vessel merchant at Attingal and P. Midhavan Thampy, vessel palace at Kottayam. On 16-8-1964 he converted his proprietory business into a partnership firm by taking his son, Komalakumaran Nair as a working partner. The partnership continued until 16-8-1969 on which date the partnership business was dissolved. It is stated in the petition that since Kornalakumaran Nair was only a working partner with no capital investment, the petitioner's father became once again entitled to all the assets of the partnership on its dissolution and, therefore, all assets were transferred to his capital account. On the same date, that is, on 16-8-1969 he gifted the Saraswathi Metal Stores to his major son, M.K.K. Nair, the vessels shop at Attingal to his daughter, Kalamalini, the petitioner in O.P.No. 4315/75, the shop at Kottayam to another daughter, Suriakumari and the factory, Komalavilas Metal Industries, to his wife, Saraswathi Amma. The Gift Tax authorities accepted the gift. Exhibit evidences the individual gift tax assessment for the year 1970-71.
3. According to the petitioner, the employees of various shops at various places were retrenched by paying closure compensation which the employees accepted without demur. This was prior to the gift deeds. Their provident fund accounts were also closed by furnishing necessary returns. Thus, the business run by Sri Madhavan Thampy was wound up. New businesses came in its place. While so, by memorandum dated 11th November, 1971, Ext. P3, the respondent-Regional Provident Fund Commissioner, Kerala, issued a notice to the petitioner to file Form Nos. 5, 10 and 12 and to make remittances in respect of employees employed under the Unit with effect from 17-8-1969. The petitioner submitted a reply Ext. P4 on 29-11-1971 stating that new businesses have come into existence after the gift deeds, and that they are independent shops owned and enjoyed by different major members under the gift deeds. After the receipt of Ext. P4, the respondent informed the petitioner that the matter had been referred to the Central Provident Fund Commissioner, New Delhi, for final decision. Thereafter the petitioner was informed by the respondent that the Central Provident Fund Commissioner had decided against him and that the provisions of the Employees Provident Funds Act, 1952 should be applied to these concerns with effect from 17-8-1969. This is evidenced by Ext. 7. This was followed by Ext. P9 by which the petitioners were informed that legal action would follow failing compliance of the notice of demand. Hence this writ petition challenging Exts. P3, P5, P7 and P9, as being illegal, arbitrary and perverse.
4. In the counter-affidavit filed by the respondents, it is admitted that before partition, the employer had retrenched all the employees by paying retrenchment compensation and that they had settled the provident fund accounts on the basis of the report submitted by the employer. But on subsequent inspection it was found that the return submitted by the employer was false and that all the units of the petitioner-firm continued to function under the supervision of his own close relations as different units with the same employees from the date of the alleged transfer, that is to say, from 16-8-1969, or from the next day. The stand taken is that there was no closure of the establishment as contended by the petitioner. The gift deeds, according to the respondent, were effected with mala fide intention to defeat the provisions of law, A copy of the Provident Fund Inspector's report is produced as Ext. R1. It is further stated that the machineries, furniture and the premises used by the different establishments were the same. The counter-affidavit winds up by saying that the business run by the petitioner is not closed and it continues.
5. Before referring to the contentions advanced before me, I think it will be useful to refer to Ext. R1 which is a communication from the Provident Fund Inspector to the Regional Provident Fund Commissioner sent after visiting the establishment several times and after conducting enquiries. The Provident Fund Inspector, Trivandrum, has found that the original establishment has got split up into three. But from the accounts, it was seen that Suriakumari, Kalamalini, M.K.K. Nair and Komala Vilas Metal Industries were given credit facilities by the parent concern. In other words, in the account books of Madhavan Thampy, Chalai, all the above parties have got accounts as proprietors of the concerned business concerns. It is further stated in Ext. R1 that when the Provident Fund Inspector wanted to look into the documents evidencing the transfer, he was told that no registered document was executed since all that took place was only transfer of movables.
6. With this background, I shall examine the question of law raised by the petitioner's counsel that the five establishments are ' new establishments', that: the integrity of the old establishment got disrupted and that the new establishments are entitled to the protection under Section 16(1)(b) of the Act. While considering the applicability of the Act in question, Courts will not be guided by actions taken under other enactments. Where a gift deed is executed, the provisions of the Gift Tax Act are immediately attracted and the gift suffers assessment, if within the assessable limit, The turnover of the business of a donee, if assessable to sales tax, suffers sales-tax. All these will not save the donees from the mischief of the Act, if the officers are satisfied that the gift deeds did not, in law, disrupt the integrity of the old business and bring into existence new establishments entitled to the benefit of Section 16(1)(b) of the Act.' What the Court is concerned with here is only to apply the provisions of this Act with reference to the special facts of the case before it. For arguments' sake, we will admit that the original firm got dissolved on 16-8-1969 ; that as per the gift deeds the donees were looking after the businesses at different places ; that the gift tax authorities, the income-tax authorities and the sales-tax authorities have accepted the dissolution of the firm. But one will have to die-abuse one's mind about the impact of such actions while considering the provisions of the Act in question. In all fiscal legislations assessments follow when returns are filed or when officers find the assessees are liable to be assessed. Here, we are concerned with a piece of progressive special legislation specially enacted for the benefit of the employees and the question to be decided is, whether by the dissolution of the firm and by the execution of the gift deeds, there was an attempt to circumvent the provisions of the Act and to defeat the rightful claims of the employees. In other words, from the attendant circumstances this Court will have to see whether the gift deeds were bona fide, genuine, and whether new establishments, in reality, came into existence, disrupting the integrity of the old establishments.
7. Section 1(3) of the Employees' Provident Funds Act, 1952 reads as follows :
(3) Subject to the provisions contained in Section 16, it applies -
(a) to every establishment which is a factory engaged in any industry specified in Schedule I and in which twenty or more persons are employed, and
(b) to any other establishment employing twenty or more persons or class of such establishments which the Central Government may, by notification in the Official Gazette, specify in this behalf:Provided that the Central Government may, after giving not less than two months' notice of its intention so to do, by notification in the Official Gazette, apply the provisions of this Act to any establishment employing such number of persons less than twenty as may be specified in the Notification.
Section 2A reads as follows :
2A. Establishment to include Departments and branches.-For the removal of doubts, it is hereby declared that where an establishment consists of different departments or has branches, whether situate in the same place or in different places, all such departments or branches shall be treated as part of the same establishment.
Section 16(1)(b) reads as follows :
16. Act not to apply to Certain establishments,-(1) This Act shall not apply-
(a) * * * * .(b) to any other establishment employing fifty, or more persons or twenty or more, but less than fifty persons until the expiry of three years in the case of the former and five years in the case of the latter, from the date on which the establishment is, or has been set up.
Explanation.-For the removal of doubts, it is hereby declared that an establishment shall not be deemed to be newly set up merely by reason of a change in its location.
8. The petitioner's counsel largely relied upon the Division Bench ruling of this Court reported in Mohammed Kutti (K.M.) v. Regional Provident Fund Commissioner, Trivandrum and Ors. 1968-II L.L.J. 466; the correctness of which was doubted by a learned Judge of this Court and on whose reference the matter was again considered by a Full Bench in the decision reported in T.A. Zainulabdeen v. Regional Provident Fund Commissioner, Kerala and Anr. (1975) L.I.C. 412, corresponding to (1974) K.L.T. 708. These two cases are not very helpful to the petitioner here because all that the two cases have done is only to direct the officer concerned to consider the facts of those cases in the contact of the three questions formulated therein. In the Division Bench case, the three questions formulated are:
(1) Is the partition real and bona fide ?
(2) Did it disrupt the integrity of the establishment and create three separate establishments ?
(3) And does the separated establishment with which we are concerned employ less than twenty persons ?
In that case, this Court had to consider the partition of an estate and whether the integrity of the estate was disrupted and whether the partition was real or not. In the Full Bench case also, one of the Judges who was a party to the Division Bench case, and who spoke for the Full Bench, reiterated the three questions formulated in the earlier judgment and observed that they were not satisfied that there has been an enquiry or investigation bearing in mind the correct principles to be applied. To press into service the above two judgments is, with great respect, to beg the question to be decided here.
9. What I am concerned with in this case is to find out the answers for the three questions formulated above. I have to find out whether the dissolution of the partnership and the execution of the gift deeds were bona fide and genuine and not made to circumvent the provisions of the Act. For this purpose, support can be had from two Supreme Court judgments, one reported in Lakhsmi Rattan Engineering Works v. R.P.F. Commissioner 1966-I L.L.J. 741, and the other in State of Punjab v. Satpal 1970-II L.L.J. 64.
10. In 1966-I L.L.J. 741, the Supreme Court was considering two civil appeals together. In one, the appellant before the Supreme Court purchased a factory from the Government of India on 23rd May, 1955, The said factory was started as a diesel engine factory by the Ministry of Rehabilitation in 1952. On 27th July, 1956 the Regional Provident Fund Commissioner informed the appellant that the Employees' Provident Funds Act, 1952 (as it then stood), applied to it and therefore, he should deposit the dues on account of contributions and administrative charges under the Act and submit necessary returns in that behalf. The appellant objected and stated that he was not liable to pay the amount claimed from it and relied on Section 16(1)(b) of the Act, while the Provident Fund Commissioner contended that the factory must be deemed to have been established in 1952. The appellant contended that the period of three years allowed under Section 16(1)(b) should count from the date from which the appellant purchased the factory from the Government of India. The following observations of the Supreme Court in that judgment are useful in repelling the contentions of the petitioner here :
Thus, even if there is a change in the location of an establishment, that would not affect the date from which the establishment began provided there was continuity of working. If that is so, with respect to the change of location, there can be no doubt that a mere change of ownership would make no difference to the date of establishment of the establishment so long as there was continuity of working. The contention of the appellant that the date of establishment in its case should be taken as 23rd May, 1955 when it acquired the factory from the Government has, therefore, no force.
Then it is urged that in any case the appellant merely acquired the machinery and premises of the factory and re-started the factory after its acquisition and did not take over a running factory from the Government of India. We are of opinion that this contention also has no force. It is clear from Col. (ix) of the agreement between the appellant and the Government of India that the appellant had taken over a running factory. Clause (ix) provides that -
the purchaser agrees to take over and to employ all the 168 workers at present working in the said factory whose names and other particulars are mentioned in schedule 4 annexed hereto on the wages specified therein with effect from the date on which the possession of the said factory is handed over to the purchaser.This clause clearly means that the appellant took over a running factory and therefore, there was mere change of ownership in May. 1955 and so the date of establishment must remain the date of its first establishment in 1952. In the circumstances, the appellant cannot claim that the date of first establishment of the factory in this case should be taken to be 23rd May, 1955 and three years' exemption should count from that date.
On this reasoning the appeal was dismissed. The other appeal was also dismissed on the very same reasoning that the mere change of ownership, so long as the factory is working all the time, makes no difference to the date of establishment of the factory. The Supreme Court held that the contention of the appellant that since he purchased the factory only in 1955, he could not be made liable for payment of provident fund cannot be sustained.
11. In 1978-II L.L.J. 64, the Supreme Court had before it an appeal against acquittal. The respondent there was prosecuted for breach of Section 16(1)(b) of the Act. He was acquitted. The State of Punjab took up the matter in appeal. The short facts necessary for our purpose are as follows : One T. started a factory by the name of Net Ram Tirath Ram on November 9, 1957. The factory was manufacturing in the years 1958-59, tavas, chaff-cutter blades. Later the name of this manufacturing concern was changed to Jai Bharat Metal Industries, T. was the then sole proprietor of the concern. In September, 1962, Setpal, who was the accused in the case, and three others joined T. as partners. The firm continued till February 13, 1963, on which date the partnership was dissolved. T. went out of the business. The remaining partners continued to run the factory jointly. This went on till April 30, 1963. The factory was run in the same premises with the same labour and under the same name. In April, 1963, the factory was removed to other premises and a new electrical connection was obtained but the old machinery of the factory save the electric motor was installed, and the factory continued although not for the original business, but for the business of manufacturing iron nails for shoes for the bullocks. The firm did not at that time maintain a register of provident funds. By the time the factory first employed 20 or more workmen, the period of five years had already elapsed from the initial establishment of the factory by T. The defence of the accused in that case was that there was no evidence that the factory ever employed 20 workmen prior to November 13, 1962. This point found favour with the trial Court, and hence the accused was acquitted. In appeal, it was contended by the State of Punjab that the infancy period of five years during which the factory was exempt from the operation of Section 16(1)(b) was to be reckoned from the date on which the establishment was or had been set up, and not from the date on which factory establishment first began to employ 20 or more workmen. This ground was not accepted by the High Court. Hence the appeal to the Supreme Court. The following paragraphs throw light upon the manner in which the Court approached the points involved :
The contention of the respondents is that the business which they were running in 1964-65 was an entirely different business and was not the same business which Tirath Ram had started. They referred in particular to the kind of articles that Tirath Ram was manufacturing and submit that the manufacturers had been changed when action was taken under the Employees' Provident Funds Act. In other words, they draw attention to the difference between the manufacture of Tawas and knives on the one hand and nails for bullock shoes on the other. We do not think this makes any difference. In fact, the business had already changed in the hands of the partnership long before the establishment changed its premises. The business of the partnership was running an iron smithy for the manufacture of iron articles and the factory continued even though the manufacturing process changed from one article to another. We must, therefore, hold that the same factory continued in spite of the change from Tawas to iron nails in the manufacturing process.
The next submission on behalf of the respondents is that the partnership changed and, therefore, a new business came into existence. Here again, we are not concerned with the law of partnership but with the Employees' Provident Funds Act. The law takes into account only the existence of establishments and the employment of a certain number of persons in factories over a given period. It is for this purpose that change of location or change of composition of partners or even a change in the manufacturing process is not considered vital in the application of this law. This was laid down by this Court in very explicit terms in Civil Appeal Nos. 522 and 573 of 1964 decided on October, 6, 1965, Lakshmi Rattan Engineering Works v. The Regional Provident Fund Commissioner, Punjab and Ors.
The most important question which arises for consideration in this case is whether the period of infancy is to be calculated from 9-11-1957 when the establishment was first begun or from 13-11-1962 when the employment of 20 or more workmen first commenced. This point is also covered in the case we have cited above. A further ruling on the subject exists in R. Ramakrishna Rao v. State of Kerala (1968) 2 S.C.R. 810. In that case, also, employment of 20 or more persons began later than the commencement of the establishment. Explaining the subsection, this Court states that the word 'is' in the sub-section clearly indicates a newly started business, and the words ' has been' a business which has been in existence before. It is, therefore, held that the period of infancy must be calculated from the first establishment of the factory and not from the moment of time when the figure of 20 or more is first reached.
On these conclusions the Court held that the factory must be taken to have started in the year 1957 and that the acquittal of the respondent there was erroneous and must be set aside.
12. These two authorities afford proper guide for the case on hand. It cannot be disputed that inspite of dissolution of the partnership and in spite of the gift deeds, the original places of businesses continued as such, either as branches or as independent concerns, and the original character of the business also continued. Though the employees were retrenched, compensation paid, and contributions under the Act also were settled, what really happened in this case was only a transfer of ownership for the purpose of getting out of the reach of the Act and not the creation of independent concerns unconnected with one another. The materials available in Ext. R1 speak eloquently of the inter-connection between the five branches. The head office was profuse and generous in giving credits to the other branches for running the business. I do not say that one concern cannot advance loan to another business concern, bona fide and real.
But here what we have is the case of the original owner executing gift deeds in favour of his wife and children and making available funds to the donees to continue the business which he once owned. These circumstances are sufficiently indicative of the fact that the gift deeds were executed solely for the purpose of over-reaching the provisions of the Act.
13. Vehement arguments were put forward by the petitioner's counsel that the integrity of the old firm should be deemed to have been broken up and five independent establishments should be deemed to have come into existence attracting the benefit of Section 16(1)(b). On the reasoning given above I hold that the facts and circumstances of the case belie the case so forcefully put forward. On this conclusion, I do not think it necessary to refer to the other judgments cited at the bar by the counsel on both sides.
14. The learned Central Govt. Pleader read out to me from a recent judgment of the Supreme Court in S.L.P. (Civil) No. 4583 of 1977, wherein Krishna Iyer, J., speaking for the Bench observed :
Change of location may be a circumstance, but certainly is not a clinching one. Change of machinery, change of workmen, change of licences and the like may have some bearing but it is only the totality that tells.
Again,.an overall appreciation of the features shows the continuity of the old in new hands as contrasted with the extinction of the old and birth of a new concern.
In this case, the totality of circumstances according to me, speak only one language and that is keeping alive of the continuity of the old establishment and not its extinction and the birth of new concerns,
15. These writ petitions, therefore, fail and are dismissed. No order as to costs.