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New Ahmedabad Bansidhar Mills (Private) Ltd., Ahmedabad Vs. Union of India and ors. - Court Judgment

LegalCrystal Citation
SubjectLabour and Industrial
CourtGujarat High Court
Decided On
Case NumberSecond Appeal No. 1452 of 1960
Judge
Reported in(1966)7GLR868
ActsFactories Act, 1948 - Sections 1(3), 2, 5, 16, 17, 62, 66(1), 100 and 100(1)
AppellantNew Ahmedabad Bansidhar Mills (Private) Ltd., Ahmedabad
RespondentUnion of India and ors.
Cases ReferredLtd. v. Regional Provident Fund Commissioner
Excerpt:
(i) labour and industrial - second appeal - section 16 of employees' provident fund act, 1952 and section 100 of code of civil procedure, 1908 - appellant claimed initial exemption from operation of act of 1952 for period of three years under section 16 (b) - lower appellate court considered all facts and circumstances - only misreading of evidence but finding not being solely based on that misreading as it is substantially established on memorandum of association, agreement and other relevant factors - no ground to attract second appeal under section 100. (ii) new establishment - test to see whether establishment is new or continuation of old one - fact of hands or management being changed cannot give rise to factory being newly established - change or alterations must be of such.....1. in this second appeal by the original plaintiffs the short question which rises for determination is whether the appellant-company known as the new ahmedabad bansidhar mills (private), ltd., ahmedabad, was as claimed by it an infant factory established only on 11 march, 1954 and as such entitled to an exemption for a period of three years from the said date, namely, 11 march, 1954, under s. 16(b) of the employees' provident funds act, 1952 (19 of 1952) (herein-after to be referred to as the act) in respect of the application of provisions of the employees' provident fund scheme framed under s. 5 of the act. the respondents are the union of india, the state of gujarat, the regional provident fund commissioner, state of gujarat, and the provident fund inspector, ahmedabad. the learned.....
Judgment:

1. In this second appeal by the original plaintiffs the short question which rises for determination is whether the appellant-company known as the New Ahmedabad Bansidhar Mills (private), Ltd., Ahmedabad, was as claimed by it an infant factory established only on 11 March, 1954 and as such entitled to an exemption for a period of three years from the said date, namely, 11 March, 1954, under S. 16(b) of the Employees' Provident Funds Act, 1952 (19 of 1952) (herein-after to be referred to as the Act) in respect of the application of provisions of the Employees' Provident Fund Scheme framed under S. 5 of the Act. The respondents are the Union of India, the State of Gujarat, the Regional Provident Fund Commissioner, State of Gujarat, and the Provident Fund Inspector, Ahmedabad. The learned trial Judge found in favour of the appellant on this question and gave it a declaration that the appellant-company was not under any obligation to implement the scheme framed under the Act before 11 March, 1957. In appeal by the respondents against that judgment the learned appellate Judge found against the plaintiffs on that point and dismissed the suit. Against that judgment and decree the plaintiffs have come to this Court in appeal.

2. The material facts may first be stated in brief. A proprietary firm in the name Bansidhar Process House was carrying on business of bleaching, dyeing the printing in the compound of Madhubhai Mills at Ahmedabad. On 20 October, 1953 the appellant-company was incorporated under the Indian companies Act, 1913. In the memorandum of association (Ex. 66) one of the objects for Which the appellant-company was established is to acquire and take over as a going concern the business carried on in the name and style of Bansidhar Process House situated at Ahmedabad and with a view thereto to enter into an agreement in terms referred to in the articles of association of the company. This is stated to be the first among the objects for which the appellant-company was established. On 5 December, 1953 the contemplated agreement came into existence between the appellant-company and the owner of Bansidhar Process House, one Ravjibhai Mathurbhai Patel. Under that agreement, a copy of which is at Ex. 65, the business of bleaching, dyeing and printing carried on at Ahmedabad in the name and style of the firm of Bansidhar Process House was agreed to be sold to the appellant company along with goodwill, the tenancy rights, pending contracts, plant and machinery, etc. It is not the case of the appellant that any separate document of sale was made thereafter. But it is common ground that the consideration of Rs. 1,87,705-3-0 referred to in the agreement of sale, was paid and possession of the property of the Bansidhar Process House was taken by the appellant-company. It is in evidence that the appellant-company purchased some more machinery. According to the trial Court the value of the new machinery so purchased was Rs. 2,55,000. It appears that the appellant-company decided to carry on the business not at the premises where the Bansidhar Process House was situated, namely, in the compound of the Madhubhai Mills, but at a different place, namely, in the compound of Laxmi Hosiery Mills at Naroda Road, Ahmedabad. The factory at the Naroda Road according to the appellant-company, commenced on 11 March, 1954. The appellant was asked by the Regional Provident Fund commissioner to implement the Employees' provident Fund Scheme from 1 June, 1953. The appellant did not accept that liability on the ground that its factory was a new factory, a new establishment and a new undertaking having no connexion with the factory of Bansidhar Process House. As this stand of the appellant was not accepted by the Regional Provident Fund Commissioner, the present suit was filed.

3. In the suit the appellant first asked for a declaration that its establishment was not a factory at all covered by the provisions of the Act and therefore it was not under an obligation to implement the Employees' Provident Fund Scheme. In the alternative the appellant prayed for a declaration that if its factory was so governed by the provisions of the Act or the scheme, it was entitled to an initial exemption from the operation of those provisions for a period of three years under S. 16(b) of the Act. The first prayer was negatived by the trial Court but the second prayer was granted. Against that decree the defendant-respondents went in appeal and the plaintiff-appellants did not file any cross-objections. In appeal the learned appellate Judge held that the appellant was not entitled to an initial exemption under S. 16(b) of the Act. Hence this appeal.

4. At the outset, a preliminary objection was raised by the learned Assistant Government Pleader who appears for the respondents. His objection was that the question raised in this appeal is purely a question of fact and as the finding on that question of fact is against the plaintiffs, this Court cannot interfere. To appreciate this submission it would be necessary to refer first to S. 16 and then to the relevant provisions of the judgment. Section 16, as it stood in 1953-54 which is the period with which we are concerned, reads as under :

'16. Act not to apply to factories belonging to Government or local authority and also to infant factories. - This Act shall not apply to -

(a) any factory belonging to the Government or a local authority, and

(b) any other factory, established whether before or after the commencement of this Act, unless three years have elapsed from its establishment.'

5. There have been subsequent amendment to this section by Acts 94 of 1956, 22 of 1958 and 46 of 1960. It is not necessary at this stage to refer to these amendments because we are concerned here with the section as it then stood. To earn an exemption under Clause (b) of S. 16 it has to be proved when the factory which claims that exemption was established. It is from the date of its establishment that it gets exemption for a period of three years. The learned Assistant Government Pleader argues, and I think rightly that the question when the factory was established is a question of fact and on this question, the learned appellate Judge having expressed himself, the matter is concluded. Sri Nanavati who appears for the appellant argues that the learned appellate Judge having reached his conclusion of this question by means of inferences drawn from other facts, the conclusion so reached by a process of inferences is a question of law. He invited my attention to the decision of the Supreme Court in Kameswaramma v. Subba Rao [A.I.R. 1963 S.C. 884]. There their lordships were concerned with the question of construction of some of the documents and they held that

'A construction of documents (unless they are documents of title) produced by the parties to prove a question of fact does not involve an issue of law, unless it can be shown that the material evidence contained in them was misunderstood by the Court of fact.'

6. Their lordships proceed to add that they did not wish to rest their decision on this narrow ground even if right, because the legal inference from the proved facts may still raise a question of law. Sri Nanavati relies on this last proposition, namely, that a legal inference from the proved facts may still raise a question of law. However, here we are concerned not with any legal inference from proved facts but with an inference of facts but with an inference from proved primary facts. In Sri Meenakshi Mills, Ltd. v. Incometax Commissioner [A.I.R. 1957 S.C. 49] to which my attention was invited by the learned Assistant Government Pleader, this very point has been discussed by their lordships at considerable length. There the question was whether the transaction under consideration was a benami transaction. On proved facts the Incometax tribunal drew the conclusion that it was a benami transaction and this finding was sought to be challenged before the Supreme Court on the ground that it could be challenged on the footing that it was a question of law. The argument was advanced in the same broad terms as has been advanced before me by Sri Nanavati, namely, that an inference from facts was a question of law and that as the conclusion of the tribunal that the intermediaries were dummies and that the sales standing in their names were sham and fictitious was itself an inference from several basic facts found by it, it was a question of law and that the appellant had the right under S. 66(1) of the Income-tax Act, 1922, to have the decision of the court on its correctness. This broad proposition was not accepted by their lord-ships. After pointing out that such a proposition would in fact wipe out the distinction between questions of law and questions of facts, they classified the cases for the purposes of examination on principle into three categories, namely, those in which the inferences drawn are purely questions of fact, those in which the inferences drawn are purely questions of law and those in which the inferences drawn are mixed questions of fact and law. There should be no difficulty as to the second class of cases. As to the first class of cases they refer to the observations of Esher, M. N., in Queen v. Special Commissioners of Incometax [(1891) 3 Tax Case 289], to the following effect :

'It seems to me that that is a question of fact. It is a question of the true inference which they (Commissioners) had to draw as a matter of evidence upon the facts which they had in evidence before them. But to draw an inference of fact from evidence before you is not a question of law at all. The inference is a question of fact just as much as the direct evidence of fact, and it would be an appeal against facts, which we are not entitled to entertain and consequently there can be no mandamus.'

7. Then their lordships referred to what they called a clearer and more emphatic refutation of the appellant's contention in a passage in Simon's Income tax, 1952 Edn., Vol. I, p. 281, That passage is as follows :

'There can be no doubt that it is for the Commissioners, and for the Commissioners alone, to discover and state the basic or 'primary' facts of the case .... From the primary facts the Commissioners will almost always need to draw some inference or inferences by the exercise of reasoning, and it is this process of inference which may, according to its nature, be a finding of law or of fact or a mixed finding of law and fact.'

8. Therefore, so far as the first class of cases is concerned, an inference drawn from primary facts does not cease to be a question of fact merely because the fact so determined is an inference from other primary facts. It is however otherwise in respect of the third class of cases. In those cases the ultimate finding through an inference drawn from the facts is the result of the application of proper principles of law to the inference or inferences and in such cases an inference from facts is a question of law. Such a case, for example, would be a case where the question is whether on proved facts adverse possession can be said to be established. Their lordships stated the result of the authorities in these words :

'The result of the authorities then is that inference from facts would be a question of fact or of law according as the point for determination is one of pure fact or mixed question of law and fact.'

9. In this case the inference to be drawn from proved primary facts was a question relating purely to a question of fact and therefore it is not possible to accept Sri Nanavati's contention that it stands on the same footing as a question of law.

10. Sri Nanavati has however another argument to advance but before I turn to that argument it would be relevant to refer to the provisions of S. 100 of the Civil Procedure code. Under Sub-section (1) of S. 100 a second appeal lies to the High Court on any of the following grounds, namely :

'(a) the decision being contrary to law or to some usage having the force of law;

(b) the decision having failed to determine some material issue of law or usage having the force of law; and

(c) a substantial error or defect in the procedure provided by this Code or by any other law for the time being in force, which may possibly have produced error or defect in the decision of the case upon the merits.'

11. Sri Nanavati contends that if his first submission is not accepted, namely, that the inference to be drawn from questions of fact is a question of law and would as such fall under Clause (a), there is in this case, by reason of what the learned appellate Judge did, a substantial error or defect in the procedure provided by the Civil Procedure Code, and therefore this Court is entitled to go into the finding on the question of fact reached by the lower appellate Judge as the error has reflected itself in the decision of the question of fact on merits. To appreciate this argument it would be necessary to refer to the manner in which the case was placed before the learned appellate Judge and dealt with by him on the question arising in this case. It appears to have been argued in the lower appellate Court as it was argued before the trial Court that from certain proved facts the reasonable inference was that the factory carried on by the appellant was a newly established factory. The facts relied on were that the appellant had taken out a new factory licence, a new sales-tax number and a new tax-mark, that the old concern had been closed for some time before the work was started by the appellant, that the ownership had changed, that the premises of the factory were not identical, that new machinery had been added, that the name of the new business was different and that the workers employed were different. Nanavati's argument is that in respect of three of these factors the appellate Judge misread the evidence. The three factors on which he places reliance are the purchase of additional new machinery, the closure for some time of the Bansidhar Process House before the appellant began to work its factory and the non-employment of the workers of the Bansidhar Process House in the new factory. His argument is that as regards the first two factors the learned appellate Judge has not considered them at all and as regards the third he has misread the evidence led in the case. I am not satisfied so far as his submission concerns the first two factors. The learned appellate Judge has in Para. 9 of his judgment referred to the fact that new machinery was purchased and he has come to the conclusion that the purchase of new machinery does not necessarily mean that a new factory was intended to be established. Sri Nanavati argues that the learned appellate Judge does not appear to have given due weight to the fact that some of the machines were purchased even before the date of agreement, that is, before 5 December, 1953. There is nothing in the judgment to indicate that this fact was not before the mind of the Court. The learned Judge has referred to the argument advanced before him in respect of new machines. If that is so, unless there is clear indication in the judgment that he had overlooked this part of the evidence, it is not possible to say that there has been either a misreading of the evidence or non-application of mind of the Judgment on the material evidence on this part of the appellant's case. As regards the second factor, namely, that the Bansidhar Process House was closed for some time before the work of the appellant's factory was started, it will be noticed that this also has been referred to by the learned appellate Judge in Paras. 9 and 12 of his judgment. It is not necessary for the Judge to reproduce all the arguments advanced before him or to consider every part of the evidence led in the case. I shall have occasion to refer presently to what is or is not a substantial error or defect in procedure. For the present it is enough to say that in respect of this second factor there has been no defect. Sri Nanavati is, however, on the surer ground in respect of the third factor. The only oral evidence led in the case was the testimony of the appellant's manager. In his deposition (Ex. 72) he stated that the appellant did not employ any workers of the Bansidhar Process House in its factory. This statement of his was not challenged in cross-examination. However, when the learned appellate Judge proceeded to discuss the various circumstances relevant on the question as to when the factory was established, in respect of this particular circumstance what he has stated in Para. 10 of his judgment was that the plaintiff company had not led evidence that the workers in the Bansidhar Process House were not employed by it and in Para. 12 of this judgment he has stated that the same workers were continued by the appellant. These statements are obviously contrary to the deposition of the manager just referred to. It is not as if the learned Judge has disbelieved the evidence. He has in fact read the evidence in terms contrary to what was deposed to before him. Sri Nanavati argues and I think rightly that this is a substantial error or defect in the procedure.

12. What is a substantial defect in the Procedure under Clause (c) of S. 100(1) of the Civil Procedure Code has been explained at length be the Supreme Court in Ramachandra v. Ramalingam [A.I.R. 1963 S.C. 302]. Their lordships in that case state :

'It is necessary to remember that S. 100(1)(c) refers to a substantial error or defect in the procedure. The defect or error must be substantial - that is one fact to remember, and the substantial error or defect should be such as may possibly have produced error or defect in the decision of the case upon the merits - that is another fact to borne in mind. The error or defect in the procedure to which the clause refers is, as the clause clearly and unambiguously indicates, an error or defect connected with, or relating to, the procedure; it is not an error or defect in the appreciation of evidence adduced by the parties on the merits. That is why, even if the appreciation of evidence made by the lower appellate Court is patently erroneous and the finding of fact recorded in consequence is grossly erroneous, that cannot be said to introduce a substantial error or defect in the procedure. On the other hand, if in dealing with a question of fact, the lower appellate Court has placed the onus on a wrong party and its finding of fact is the result substantially of this wrong approach, that may be regarded as a defect in procedure; if in dealing with questions of fact the lower appellate Court discards evidence on the ground that it is inadmissible and the High Court is satisfied that the evidence was admissible, that may introduce an error or defect in procedure. If the lower appellate Court fails to consider an issue which had been tried and found upon by the trial Court and proceeds to reverse the trial Court's decision without the consideration of such an issue, that may be regarded as an error or defect in procedure; if the lower appellate Court allows a new point of fact to be raised for the first time before it, or permits a parts to adopt a new plea of fact, or makes out a new case for a party, that may, in some cases, be said to amount to a defect or error in procedure. But the High Court cannot interfere with the conclusions of fact recorded by the lower appellate Court however erroneous the said conclusions may appear to be to the High Court because, as the Privy Council has observed, however gross or inexcusable the error may seem to be, there is no jurisdiction under S. 100 to correct that error.'

13. It was argued before the Supreme Court that even when the first appellate Court which reverses the finding of the trial Court has failed to come to close quarters with the evidence in the case or to meet the reasoning of the trial Court in support of its conclusions. The judgment of the appellate Court must be deemed to be vitiated by an error in procedure and so can be interfered with in second appeal. Their lordships of the Supreme Court rejected that proposition.

14. It would appear, therefore, that if the lower appellate Court has placed the onus on the wrong party or has discarded admissible evidence on the ground that it is inadmissible or has decided without considering a material issue which was tried in the trial Court or has allowed a new point of fact to be raised or based its conclusion on evidence which is no evidence at all, it would be committing an error of procedure which would bring the case within the ambit of Clause (c) of S. 100(1) of the Civil Procedure Code. But merely because the lower appellate Court has not come to close quarters with all the evidence or has not considered all the reasoning of the trial Court or has not given weight to the trial Court's appreciation of the witnesses' demeanour, it would not amount to an error of procedure within the meaning of the said clause. The instances given by the Supreme Court cannot be said to be exhaustive but are illustrative. A complete misreading of some material evidence by the lower appellate Court and basing its finding on such misreading of the evidence would be an error similar to the one referred to by the Supreme Court as an error arising from the lower appellate Court's basing its conclusion on evidence which is no evidence at all. Therefore, such an error would also be an error in procedure within the ambit of Clause (c) of S. 100(1) of the Civil Procedure Code. In so far as such an error has materially contributed to the finding of fact reached by the lower appellate Court, it would be a substantial error. In this case, there is no doubt that when we read the learned Judge's reasoning in Para. 12 of his judgment the impression on his mind that the same workers had continued with the appellant and were employed by it was one of the factors which weighed with him in coming to the conclusion that the factory of the appellant was not a newly established factory. Therefore, the learned appellate Judge's finding of fact on that question is, in my view, open for consideration.

15. Now coming to the merits of this question of fact, namely, when was the factory with which we are concerned established. Sri Nanavati relies on the following facts which he says have been proved and which according to him go to prove that the factory was established only on 11 March, 1954. The facts relied on by him are these :

(1) Before the agreement dated 5 December, 1953 the appellant had purchased some new machinery. This purchase, according to him, took place on 22 October, 1953.

(2) At the time of the purchase of the undertaking Bansidhar Process House from its owner Bavjibhai Mathurbhai Patel the said Bansidhar Process House was closed and was not running.

(3) The owners of the two undertakings, namely, the Bansidhar Process House and the appellant, are not the same but are different entities, and carry on business under different names.

(4) The appellant took out a new licence under the Factories Act and a new sales-tax number under the sales tax and a new tax-mark when it started the business under the appellant's name

(5) The workers employed by the appellant were not the same as the workers employed in the Bansidhar Process House and in fact no worker of the latter was employed by the appellant.

(6) The business of the appellant was started in different premises, that is, in the compound of Laxmi Hosiery Mills at Naroda Road, Ahmedabad, and was not continued in the premises where Bansidhar Process House was situated, that is, in the compound of Madhubhai Mills.

16. These are, therefore, the facts and circumstances which Sri Nanavati says have been proved and on which he relies in support of his contention that the factory with which we are concerned was established no earlier than 11 March, 1954.

17. Now, before considering whether these facts and circumstances are established and if so, what is their effect, it would be relevant to refer to the memorandum of association under which the appellant was incorporated and to the agreement of purchase dated 5 December, 1953 to which reference has been made earlier. The memorandum of association is dated 2 October, 1953. The first paragraph states the name of the company, the second the situation of its registered office and the third paragraph sets out the objects for which the company is established. Clauses (1) and (2) of Para. 3 read as under :

'(1) To acquire and take over as a going concern the business carried on under the name and style of 'Bansidhar Process House' situated at Ahmedabad, and with a view thereto to enter into the agreement referred to in Clause (3) of the articles of association of the company and to carry the same into effect with or without modification.

(2) To carry on the said business as a going concern and to develop and extend the said business'.

18. Therefore, one of the objects for which the company is established is to acquire and take over as a going concern the business carried on under the name and style of Bansidhar Process House and to develop and extend the said business. Clause (1) refers to the agreement to be entered into with the Bansidhar Process House. That agreement, Sri Nanavati concedes, is the same which took shape in Ex. 65 dated 5 December, 1953. Now, when we turn to that agreement, after reciting that the vendor, namely, the Bansidhar Process House, was carrying on business of bleaching, dyeing and printing processes at Ahmedabad, etc., and that the company (meaning the appellant-company) was formed with the object among other objects to the acquisition of the said business of the vendor as a going concern together with the rights and benefits of all the existing contracts, etc., and after referring to Clause (3) of the articles of association under which the company after incorporation is to enter into an agreement therein referred to with the vendor, the terms of agreement between the parties are set out. Under the first term the vendor agrees to sell and the company agrees to purchase the goodwill of the said business of Bansidhar Process House, the benefits of the tenancy rights of various premises including the premises where the said business is being carried on and the benefits of all pending contract deposits entered into or made by the said Bansidhar Process House in its name for the purpose of the said Business. Under the second term all the plants, machinery, office furniture, fixtures and fittings, stock-in-trade, tools, implements and utensils of the value of Rs. 1,87,705-3-0 are to be taken over by the company from the vendor. Then there are certain usual clauses of vesting of the business in the possession of the companion the sale price being paid. The sale price is to be paid within a year from the date of the incorporation of the company. But it is specifically provided that at the time of the completion of the sale

'adjustments and apportionments shall be made between the vendor and the company on the basis that the purchase of the said business shall be deemed to have been effected as from first day of November 1953.'

19. These are the material terms of the agreement. Reading the memorandum of association and the agreement together, it is apparent that one of the main objects for which the company was established was to acquire and take over as a going concern the Bansidhar Process House. It is also apparent from these documents that till the date of the agreement the Bansidhar Process House was a going concern. In fact it is so admitted in Para. 4 of the plaint itself, because therein it is stated that the plaintiff agreed to purchase the Bansidhar Process House along with goodwill and as a going concern with the benefit of all existing contracts by the agreement dated 5 December, 1953. At the time of the agreement, it appears that the intention was to carry on business at the same place where the Bansidhar Process House is situated in order to develop and extend it and in fact in Para. 4 of the plaint it is stated that the plaintiffs subsequently changed their idea to continue the business of the Bansidhar Process House which was purchased by the plaintiffs as a going concern by the agreement dated 5 December, 1953 and started a new factory in the compound of Laxmi Hosiery Mills at Naroda Road. This is further apparent from the fact that the agreement of purchase is deemed to have been effected from 1 November, 1953. It is not clear from the evidence as to when the consideration was paid but as the business under the appellant's name was admittedly actually started in the new premises from 11 March, 1954, it may be assumed that the consideration had been paid before that date.

20. It is now convenient to turn to the evidence bearing on the six facts and circumstances on which reliance has been placed by Sir Nanavati. There is no doubt that the appellant purchased the new machinery which according to the finding of the learned appellate Judge was of the value of Rs. 2,55,000. In the plaint it was not stated when that machinery was purchased, whether before the agreement dated 5 December, 1953 or after, but at the hearing of this appeal Sri Nanavati stated that part of the machinery was purchased on 22 October, 1953 and he in support of this relied on the extracts of the account books of the appellant which were produced before the lower Court on the date of hearing. As that evidence has been accepted, it may be held to have been established that some part of the new machinery was purchased between the date of incorporation of the company and the date of the aforesaid agreement. It is next contended that at the time of purchase, the Bansidhar Process House was closed and not actually running. Now, it is not clear from the evidence what is the point of time in respect of which this theory has been put forward at the time of the hearing. In the plaint there is no averment that the Bansidhar Process House was closed or had stopped running. The agreement dated 5 December, 1953 and the averments in connexion with that agreement in Para. 4 of the plaint would indicate that at least till 5 December, 1953 Bansidhar Process House was running and was a going concern. In the deposition of the appellant's manager, Hasumukhlal Chimanlal (Ex. 72), it was for the first time stated that the factory of Bansidhar Process House was not in working order when they purchased it. No further details were given. In cross-examination when he was questioned on the point all that he could state was that he did not know since when that concern was closed before it was purchased by the appellant. Therefore, the evidence that the Bansidhar Process House, meaning the factory run by it, was closed is not at all satisfactory and is inconsistent with the documentary evidence, namely, Exs. 65 and 66, and with the averments made in the plaint. That evidence cannot be accepted. If it was closed, the best that could be held in favour of the appellant on the evidence as established was that there was temporary closure to enable the taking over of the business. This is what the learned appellate judge has held. As regards the third circumstance relied on by Sri Nanavatai, there is no dispute that the owners of the two concerns are different entities. The owner of the Bansidhar Process House was Ravjibhai Mathurbhai Patel, whereas the appellant is a private limited company and in the memorandum of association the only subscribers whose names are given are Champaklal Banalal Shah and Bamenlal Mathurdas Patel. It is also undisputed that the names of the two concerns are different. Whether that has any significance will be considered later. It is also undisputed that the appellant-company took out a new licence under the Factories Act, a new sales-tax number under the sales-tax and a new tax-mark. As regards the question whether or not the appellant employed any of the workers of the Bansidhar Process House, the evidence is the testimony of Hasmukhlal Chimanlal who states in his deposition that the appellant had not employed any workers of the Bansidhar Process House. There is no cross-examination on that point. The learned Assistant Government Pleader argued that the best evidence would have been the production of the registers of the workers of the two concerns which are required to be kept under S. 62 of the Factories Act, 1948. That no doubt is true. But as the statement of Hasmukhlal Chimanlal was not challenged, an occasion for production of the registers did not arise. As to the last circumstance on which reliance was placed by Sir Nanavati, namely, that the factory of the appellant was started not in the premises where the Bansidhar Process House was situated but in other premises, namely in the compound of the Laxmi Hosiery Mills at Naroda Road this position is not disputed.

21. The lower appellate Court has considered all these facts and circumstances. The only error which can be said to have been committed by it is that when considering one of the facts, namely, whether the workers of Bansidhar Process House were continued to be employed by the appellant it misread the evidence but its finding that the factory of the appellant was established much earlier than 11 March, 1954 is not solely based on that understanding of the evidence but is substantially based on the lower appellate Court's reading of Exs. 66 and 65, that is, the memorandum of association and the agreement, and on the further fact that the same business was carried on and there was no break in continuity because if the work was stopped for a short period it was so stopped for a temporary purpose, namely, for removing the machines from the old premises and installing them in to the new premises. As regards the other circumstances namely, the purchase of fresh machinery, the change of ownership, the taking out of new licences, etc., the lower appellate Court did not consider them of any significance. But Sri Nanavati says that they are of significance and it would be necessary to examine that argument. Before I do so I should like to turn to the terms of S. 16.

22. What is required to be proved under Clause (b) of S. 16, as I have earlier stated, is when the factory was established. That takes us to the question as to what is meant by the establishment of a factory. The learned Assistant Government Pleader submits, and I think rightly, that a factory can be said to be established from the date the factory starts working. If we turn to the definition of the word 'factory,' this becomes more clear. The definition in S. 2(g) of the Act reads as under :

''factory' means any premises, including the precincts thereof, in any part of which a manufacturing process is being carried on or is ordinarily so carried on, whether with the aid of power or without the aid of power.'

23. Therefore, the important ingredient is the carrying on of manufacturing process. The factory can, therefore, be said to be established when it begins to carry on manufacturing process or, in other words, when it goes into production. Mere erection of the machinery would not be enough to establish a factory within the meaning of S. 16 of the Act. The date of establishment of the factory would be the date on which it starts its manufacturing process. Now, in considering when the factory started its manufacturing process or, in other words, when it went into production, any change of ownership is of little significance because what we are concerned with is the factory and not the owners thereof. Section 1(3) of the Act which deals with the extension of the Act provides that it applies in the instance to all factories engaged in any industry specified in Sch. I in which fifty or more persons are employed and then goes on to provide that it may be extended to other factories employing less than fifty persons by a notification of the Central Government in the official gazette. The provident fund scheme which is to be framed under S. 5 is to framed with respect of the employees or class of employees of factories specified. The temporary exemption under S. 16 is with reference to factories and has no relation to owners of the factories Under S. 17, as it stood before 1956, there was power with the appropriate Government to exempt factories from the operation of the Act or of any scheme. The exemption was either in respect of factories or in respect of class of persons employed in the factories. These provisions indicate that the owners do not come into the picture if the change of ownership makes no difference to the question of establishment of a factory not does a change of employees and the reasons are the same. It is true that the provisions of the Act are for the benefit of the employees but merely because an employee ceases to be an employee in a particular factory, he does not lose the benefit which he has earned and which is available from the fund created under the scheme under S. 5 of the Act. If he goes to another factory to which the Act applies, he would normally be entitled to similar benefits. The change of employees is a normal incident of the running of a factory and it is difficult to see how such a change can be said to affect the question when the factory was established. Temporary closures are also normal incidents of the running of a factory. If that were not so, then even a closure for a day for repairs or on a holiday would have the consequence that as from that date the factory is newly established. Similarly, overhaul of machinery or addition to machinery or replacement of machinery are also normal incidents of the running of a factory and they by themselves can have little bearing on the question as to when the factory was established. These circumstances may, no doubt, be relevant if there is evidence to show that the factory which was once established has ceased to function as a factory. The test is whether the continuity has been so completely broken that for all intents and purposes the factory has become dead and the later production has commenced entirely anew.

24. Turning now to authorities, reference may first be made to the decision of the Bombay High Court in Chhaganlal Textile Mills (Private), Ltd. v. Regional Provident Fund Commissioner and others, in Miscellaneous Application No. 389 of 1956 (unreported) to which my attention has been invited by the learned Assistant Government Pleader. That was a case of a textile mill at Chalisgaon under liquidation known as the Chhagan Laxminarayan Mills Company, Ltd. The liquidator leased out the mills to Kotak & Co. from 1 March, 1952 for a period if three years. The lease expired on 28 February, 1955. With effect from 1 March of that year the lease was given by the liquidator to another party, namely, Babulal Shrivallabh, and in that lease it was specifically provided that the lessee shall not be liable in respect of any liabilities connected with the mills prior to 1 March, 1955 and that they shall work the mills as a new concern and not as successors either of the lessors or of Kotak & Co. The workers were discharged by Kotak & Co. at the end of their period of lease. Babulal Shrivallabh entered into possession on 13 March, 1955 and recruited workers on a temporary and entirely new basis. Thereafter Babulal Shrivallabh floated a private limited company called the Chhaganlal Textile Mills (Private), Ltd., and they transferred to the said company the said mills which in the meanwhile they had purchased from the liquidator. The transfer took place on 25 February, 1956. When the Regional Provident Fund Commissioner called upon them to implement the provisions of the Act, they filed this petition. After examining the scheme of the Act, Tendolkar, J., who decided that matter, stated that the Act applied to factories and not to the owners thereof and if that is so, the starting of the mills as a factory was from some time prior to 1951 and it was at that time it can be said to have been established. It was urged before him that the order of liquidation and the consequent temporary discontinuance of business until a lease was granted to Kotak & Co. had the consequence of making the factory which was established cease to be established. He negatived that submission holding that a temporary cessation of the activities of an established factory cannot lead to the result that the factory ceases to be established for the purposes of the Employees' Provident Funds Act, for if it did, the class of employers who spare no ingenuity in seeking to deprive the employees of all the benefits conferred upon them by statute would have a convenient handle whereby the activities of an established factory have to be discontinued for a few months in order to deprive the employees of the benefits under the Act. He pointed out that the establishment of the factory involves that the factory has gone into production and no more and a temporary cessation of its activities for whatever reasons that cessation takes place, cannot take the factory out of the category of an established factory for the purposes of the Act. The fact that the workers were discharged by Kotak & Co. was pressed before him and he held that that fact cannot make the factory which was established the time Kotak & Co. ceased to be lessees cease to be established, for if it did, every change of ownership of factory which may well result in the old employees being discharged by the old employer and re-employed by the new employer deprive the employees of the benefits conferred upon them by the Act. He then went on to observe that even a complete change in the whole body of employees cannot make a factory which is established, cease to be established. He concluded that the factory in that case must be held to have been established prior to 1951, and in any event not later than 1 March, 1952. This ease was followed by the Punjab High Court in Robindra Textile Mills v. Secretary, Ministry of Labour, Government of India [1960 - I L.L.J. 650], and by the Calcutta High Court in Vegetable Product, Ltd. v. Regional Provident Fund Commissioner, West Bengal [A.I.R. 1959 Cal. 783]. It is not necessary to refer to the facts of these two cases. They lay down the same propositions. In the Punjab case the factory was closed for more than seven months. There was also a change of ownership and there was a change in employees and there was addition of machinery. The addition to or subtraction from a factory, it was stated, however large, cannot change the date of its establishment. The emphasis in the scheme, the Punjab High Court pointed out, is on the factory which carries on manufacturing process and not on the employee who benefits under the Act. The Calcutta High Court took the same view and stated that the factory may from time to time change hands. The fact that it does change hands cannot give rise to its being newly established. The test, it was said, was whether the change or the alterations are of such magnitude that it cannot be said that the same factory was continuing; then indeed the continuity can be said to have been broken.

25. Therefore, if the facts and circumstances relied on by Sri Nanavati are examined in the light of these principles, it is apparent that nothing turns on the several facts and circumstances on which reliance was placed. The change of ownership, the temporary cease of work, the addition of machinery and the change of employees have already been dealt with. The fact that new licences were taken or a new tax-mark was taken, did not make any difference. The learned appellate Judge has pointed out that partly this may be due to the fact that the sales tax number has been cancelled and the old licence of the factory may have expired particularly during the period that the factory was temporarily closed between December, 1953 and March, 1954. But Sri Nanavati argues that there is one distinguishing feature in the present cases and that feature is that whereas in the rulings earlier referred to there was no change in the premises which the factories occupied, in our case there has been a change in the premises. According to him, when there is a change in the premises, the old factory dies and a new factory is born. This, he submits, is the necessary result of the definition of the expression 'factory' in the Act. I have referred to that definition earlier. I shall examine that definition presently. But the argument, if accepted, would so completely defeat the provisions of the Act, as the provisions can then be easily evaded by a change of location every three years, that unless the language compels that construction, it cannot be accepted as a reasonable construction. All that the definition means is that if in any premises a manufacturing process is being carried on or is ordinarily so carried on it is a factory. Sri Nanavati says that once the premises have changed the factory ceases to be the old factory, because one of the existing ingredients of the factory, namely, the premises, disappears or takes a different shape. If, he argues, the premises are changed, it is not the same factory because under the definition premises are part of a factory. The argument over-looked the fact that the expression used is 'any premises' and not 'the premises.' The essence of the factory is not a particular location or particular premises as suggested by Sri Nanavati, but the carrying on of a manufacturing process in any premises. When the location of the factory is shifted, manufacturing process is still carried on in the premises. In my opinion, therefore, the definition of the expression 'factory' does not lend support to the construction which Sri Nanavati urges or to his argument that as from the date the premises were changed, a new factory must be deemed to have been established. The learned Assistant Government Pleader referred me to the explanation that was added to S. 16(b) of the Act by Act 22 of 1958. It appears that in 1956 by Act 94 of 1956 the word 'factory' throughout the Act was substituted by the word 'establishment.' By Act 22 of 1958, CI. (a) of S. 16 was recast so as to confine the exemption to establishments registered under the Co-operative Societies Act and employing less than fifty persons and working without the aid of power. To Clause (b) an explanation was added in the following terms :-

'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.'

26. The learned Assistant Government Pleader states that this explanation brings out the intention underlying S. 16. It is, however, not necessary to go to this explanation for the purposes of interpreting S. 16 as it stood before it was so amended, for even if it has to be interpreted as it then stood in the light of the definition of the expression 'Factory,' the result, in my opinion, is the same.

27. For these reasons the lower appellate Court was, in my opinion, right in coming to the conclusion that the factory run by the appellant cannot be said to have been established only on 11 March, 1954 as contended by the appellant. It is nobody's case that the Bansidhar Process House was entitled to any exemption under S. 16 of the Act or that such exemption was continuing at the time the appellant took it over. In the result, therefore, the appeal was rightly dismissed.

28. Before I close it is necessary to mention that the learned Assistant Government pleader drew my attention to the fact that this appeal has been valued for the advocate's fee at Rs. 10 per cent and this valuation is contrary to the finding given by the trial Court was not challenged in appeal. The finding was that the suit be valued at Rs. 9,999 the purpose of the pleader's fees. Sri Nanavati stated that he would carry out this valuation.

29. In the result, the appeal fails and is dismissed with costs.


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