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Vittaldas Jagannathadas and anr. Vs. the Regional Provident Fund Commissioner, Madras and anr. - Court Judgment

LegalCrystal Citation
CourtChennai High Court
Decided On
Case NumberWrit Petn. No. 1018 of 1962
Reported inAIR1965Mad508
ActsIndustrial Law; Employees' Provident Funds Act, 1952 - Sections 16; Indian Partnership Act - Sections 69
AppellantVittaldas Jagannathadas and anr.
RespondentThe Regional Provident Fund Commissioner, Madras and anr.
Cases ReferredDevi Press v. Regional Provident Fund Commr. W. P. Nos.
.....- petition filed for inhibiting 1st respondent from collecting contributions towards employees' provident fund from writ petitioners - in case legal entity 'establishment' came totally to an end and was succeeded by fresh legal entity - then fresh entity is entity to which act applies as first impact - entity entitled to infancy protection will have to be granted protection as matter of course - in case writ petitioners are entitled to claim that their establishment is new one then they would escape liability on another ground also - such ground being petitioners claim to employ less than 20 persons - such claim has not been controverted in counter affidavit. - - the matter is not res integra, and there are several decisions available at the calcutta, punjab and kerala high..........not on the mere forum of proprietorship or changes in ownership. additions to or subtractions form a factory, however large, cannot affect the continuance of the establishment. in hindustan electric co., v. regional provident fund commr. air 1959 p&h; 25 a single judge of that court again laid it down that subsequent events merely of the character of cessation of work for a period, resumption of production or change of ownership will not affect the date of establishment of, the factory. this decision was affirmed, in regional provident fund commr. punjab v. lakshmi ratten engineering works ltd., by division bench on appeal.(8) now, turning to the decisions of the calcutta high court in bharat board mills ltd. v. regional provident fund commr. (s) : air1957cal702 the learned judge of.....

(1) This Writ proceeding by the managing partners of the M/s. Lakshmibai Jagannathadas and Co., praying for the issue of a Writ of Mandamus or other suitable writ inhibiting the 1st respondent, Regional Provident Fund Commissioner, form collecting form the writ petitioners contributions towards the Employees' Provident Fund, involves a certain question of considerable significance and interest, bearing upon the Industrial Law. The matter is not res integra, and there are several decisions available at the Calcutta, Punjab and Kerala High Courts, s well as one reported decision of Srinivasan J., and two unreported decisions of the same learned Judge. There are also available other decisions of this Court which relate to he Industrial Disputes Act and not to the Employees' Provident Funds Act 19 of 1952, which is the legislation that now concerns us, but which are helpful as enunciating the basic principle involved.

(2) Since the very formulation of that principles requires a background of the facts, I shall first set them forth. I may, immediately add that they are to be found in some elaboration in the affidavit filed on behalf of the Writ Petitioners, and that they have hardly been controverted in the counter-affidavit of the respondents, namely, Regional Provident Fund Commissioner (Respondent 1) and the Collector of Madras (Respondent 2). On the Tiruvottiyur High Road, bearing No. 149, certain buildings are situate on private property, designed for a cinema theatre and known as the Maharani Talkies. The proprietors who are lessors of this building constitute a Hindu joint family of a certain Jagannadhadas Govindas and two other members of the same family; admittedly, he lessors were leasing out to successive lessors not merely the buildings. Maharani Talkies, but also the projector equipment (machinery) furniture and other suitable fittings designed for the exhibition of cinema pictures. But the very important fact running throughout the history of the leases, is that the lessors (Jagannadhadas Govindas and members of his family) were not the persons actually exhibiting films to the public for profit, or maintaining an establishment of personnel in connection therewith.

(3) Originally a certain S. Raja Chetty and G. V. Narasimhalu Chetty were the lessees form about the year 1948. That lease terminated, and the proprietors (Lessors) obtained vacant possession of the premises, equipment and machinery and furniture. A certain decision of this Court C. S. No. 472 of 1949 relates to this matter. For some time till March 1953, the theatre appears to have been closed.

(4) After April 1953, there was a fresh lease of the theatre, machinery and furniture, by the proprietors (Lessors) to a certain Munirathnam Naidu on a monthly rental of Rs. 2450. The relevant terms and conditions are to be found in the document of lease, and the lease was renewed for a subsequent period. Munirathnam Naidu was a conducting the business of exhibition of films at he theatre and paying the rent for lease of the premises and machinery till 1961. It is indisputable that in the meantime Act 19 of 1952 became applicable to this establishment and also that the 'infancy protection' enacted in S. 16(b) of that Act ensured for some period, after which there was the full liability of the Lessee, the person conducting the business and the head of the establishment, to make the relevant provident fund contributions on behalf of the employees. But the more important fact is that the lease in favour of Munirathnam Naidu expired with effect form 31-3-1962. According to the affidavit, he lessee thereupon ended his business discharged all his employees, after notice and payment of bonus due, liquidated the business outright and delivered over possession of the leasehold premises and machinery to the owners. The owners took possession of the properties, the Maharani Talkies, Lakshmibai Jagannathadas and Co., represented by the writ petitioners as managing partners. We have a fresh lease deed, with different conditions of lease; for instance, the rent is to be enhanced to Rs. 3500 per mensem and there are other conditions.

(5) The firm itself had been registered as a partnership under S. 69 of the Indian Partnership Act. It is claimed for Writ Petitioners that this is an independent legal entity, with no relationship in law to the earlier concern of Munirathnam Naidu, or to the lease in favour of that individual. But there are two facts which do appear to justify in some measure the view taken by the Provident Fund Commissioner. The first is that these Writ Petitioners are themselves related to the family of the Lessors, the proprietors of the buildings and the equipment. The relationship is admitted, and not in dispute. The second is that, after commencing the fresh business, the present writ petitioners did employ 19 employees in their establishment, many of whom were the discharged ex-employees of the previous lessee Munirathnam Naidu. Presumably bearing these considerations in mind, the Provident Fund Commissioner took the view that it was the same continuing establishment, though the owners were different, and that the period of infancy protection having expired, the present lessees are bound to make the provident fund contributions on behalf of their employees under the Act. The simple question is whether this view is correct, and what are the principles of law applicable to a case of this character.

(6) The matter is one of a considerable interest. It would be viewed form another perspective, namely, whether the Court would not be justified in piercing through the veil or semblance of a particular legal entity, to the reality thereof, and holding in terms of that reality, that a legal obligation has subsisted unimpaired, though if the form alone were to be taken into account the obligation need not be strictly applicable. As I stated earlier there are decisions impinging on this aspect and I shall very briefly refer to them before enunciating what appears to me to be the true guiding principle on facts of this character.

(7) Several decisions of Court have held that he Act applies to the establishment or to the factory in question, and not to the owners, suffice to modify or affect the obligation to make contributions on behalf of the members of the establishment, towards provident funds benefits, once the period of infancy protection has expired. This was laid down by a Bench of the Kerala High Court in Kunnath Textiles v. Regional Provident fund Commr., : (1959)IILLJ510Ker . In Robindra Textile Mills v. Secy. Ministry of Labour, Govt. of India, New Delhi, a single Judge of that Court held that even the temporary closure of a factory will not affect its continuing legal existence, and that the emphasis in the Act is on the factory which carries on the process and on the employees who benefit not on the mere forum of proprietorship or changes in ownership. Additions to or subtractions form a factory, however large, cannot affect the continuance of the establishment. In Hindustan Electric Co., v. Regional Provident Fund Commr. AIR 1959 P&H; 25 a single Judge of that Court again laid it down that subsequent events merely of the character of cessation of work for a period, resumption of production or change of ownership will not affect the date of establishment of, the factory. This decision was affirmed, in Regional Provident Fund Commr. Punjab v. Lakshmi Ratten Engineering Works Ltd., by Division Bench on appeal.

(8) Now, turning to the decisions of the Calcutta High Court in Bharat Board Mills Ltd. v. Regional Provident Fund Commr. (S) : AIR1957Cal702 the learned Judge of that Court held that the date of commencement of the establishment is, when the factory begins to function, and the fact that a new company subsequently takes over or acquires the factory, does not shift the date of the establishment. The criterion will be unaltered, even if the factory ceases production of goods for a certain time, and resumes production later. In other words the impact of the Act is upon the factory or establishment and not on the owner.

(9) In Jamnadas v. Regional Provident Fund Commr. West Bengal, AIR 1963 Cal 513 the same principle of law was re-emphasised, and it was held that the purchaser of a company cannot obtain infancy protection merely because he has stepped into the shoes of the previous owner.

(10) Coming now to the decisions of this Court, the matter was considered upon certain of its aspects by Srinivasan J., in R. L. Sahni and Co., v. Union of India, : AIR1964Mad451 . I think that I can best elucidate the ratio of this decision by settling forth an extract form the actual text of the judgment, which is as follows:

'It seems to me that looking at the matter broadly, where an establishment, such as a factory, has been set up the owner of the factory does not run the business on his own but chooses to lease the factory form time to time, every fresh lease cannot give rise to the setting up the factory afresh. The case may undoubtedly be different if the factory itself was closed down for some reason or other and its is started afresh under certain circumstances. Equally it seems to me that the establishment here is the organisation which has brought into existence the Cinema theatre along with the equipment and other amenities for the exhibition of films. That is being leased from time to time. The mere fact that there is a new lessee at different points of time does not mean that the establishment of the cinema theatre comes into existence each time a new lease is created. In a manner of speaking the cinema theatre may be likened to a factory which has the necessary equipment for the purpose for which it was brought into existence and that it is, the hand of A or B that actually fulfils that object has no real relevance to the point of time when the establishment can be deemed to have been set up.'

Earlier, the learned Judge referred to the difficulty which really lies at the root of the entire matter viz., 'What is an establishment?' and observed:

'Unfortunately the expression 'establishment' is not defined.'

(11) My attention has been drawn to two subsequent unreported decisions of the same learned Judge. One of them relates to the question of liquidation proceedings, and whether there was a continuance of the old establishment though in a different form or name: Devi Press v. Regional Provident Fund Commr. W. P. Nos. 225 and 226 of 1962: AIR 1963 Mad 462. The other judgement W. P. No. 1333 of 1961 (Mad.) is of greater interest and significance. in the facts of that case, the learned Judge stated:

'That the same premises was used does not mean that it is the same business. There is a vital distinction in law between the transfer of a business as a running concern and the transfer of a few of the assets of the business, which has been wholly ignored by the Regional Provident Fund Commissioner. It must also be mentioned that in so far as the closure of the business by Narayana Iyer was concerned the genuineness of that closure was never in dispute. It was not closed down with a view to escaping any liability which the application of the employees' Provident Funds Act might impose.'

In effect, the learned Judge quashed the orders of the Regional Provident Fund Commissioner declining to give infancy protection to what was virtually a new concern.

(12) I was also aware of the central difficulty stressed by Srinivasan J., and evident in all the decisions to which my attention has been drawn. After reference to several authorities and 'Words and Phrases Judicially Defined' by Burrows, Vol. 1. I find that the most helpful definition of 'establishment', at least in the context of the usage of that word in the present Act 19 of 1952, is that available in the Oxford Dictionary, namely 'Organised body of men maintained for a purpose'. Once we have this definition in perspective, and also keep in mind the principle that the Act really applies to the factory of establishment or industrial organisation, whichever it might be termed, and not to changes tin ownership, or to the history of the organisation which might include temporary closures, to seems to me that the true ways of looking at the liability becomes fairly clear. On the entire complex of facts of a given case, can we conclude that the legal entity, 'the establishment' came totally to an end, and was succeeded by a fresh legal entity? If that be the case, then that fresh entity is the entity to which the Act applies as a first impact and, if that entity is entitled to infancy protection that protection will have to be granted as a matter of course.

(13) The learned Additional Government Pleader has only one argument to urge in this connection. He pleads that it might be possible for any 'establishment' to be maintained upto the verge of the expiry of infancy protection, to be formally dissolved and then for an establishment apparently different in semblance though not really so, to come into existence again, claiming the benefit of infancy protection; if such a stratagem is to be recognised, it will mean a permanent evasion of the Act. Obviously this will be akin to Benami, and everything will depend on the facts of the individual case, if in a particular case, it appears that that he new establishment is not genuinely such, but is only an old one formally resuscitated in order to avoid the legal obligation, it is always open to the Court to hold that it is the old establishment which is substantially continuing, and that he liability new form also. But where, in reality, the old establishment has come to an end, and there is a new establishment, this establishment is entitled to infancy protection in its own right, even it happens by coincidence to have employed a large part of the personnel of the previous establishment. Actually, if the writ petitioners are entitled to the claim that their establishment is a new one, as the Additional Government Pleader concedes, they would escape liability on another ground also, since they claim to employ not less than 20 persons; that claim has not been controverted in the counter-affidavit. On the present facts, I think that only confusion can result if we compound the lessors of exhibiting the films in the theatre, and employing personnel as an establishment for that purpose. As far I can see, this has nothing to do with the lessors who are merely leasing the theatre and the machinery and furniture, and there has never been any question of an 'establishment' appertaining to the lessors at all.

(14) Under the circumstances, the writ petitioners are undoubtedly entitled to relief, and a writ of mandamus will issue restraining the respondents, from collecting the contributions.

(15) Before leaving this matter, I may add that if possible evasions of the law, in this respect, are to be checked or avoided, it may be necessary to consider suitable legislative amendment of Section 16, in order to effect that purpose. Parties will bear their own costs.

(16) Petition allowed.

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