Skip to content


The Chennimalai Weavers' Co-operative Production and Sale Society Limited, represented by Its President M.P. Nachimuthu Vs. the Government of India, represented by Under Secretary to Government, Ministry of Labour and two Ors. (03.03.1980 - MADHC) - Court Judgment

LegalCrystal Citation
SubjectLabour and Industrial
CourtChennai High Court
Decided On
Reported in(1980)2MLJ339
AppellantThe Chennimalai Weavers' Co-operative Production and Sale Society Limited, represented by Its Presid
RespondentThe Government of India, represented by Under Secretary to Government, Ministry of Labour and two Or
Cases ReferredC.H.O. and Gold Storage Co. Ltd. v. Prafullachandra
Excerpt:
.....strong reliance upon this decision and says that in so far as the petitioner's society has been held not to fall under section 1(3)(a) of the act, there is no scope for applying section 1(3)(b) read with the notification, since the dominant activity is neither trading nor commercial activity. but that power cannot clearly be exercised for making the act applicable to factory establishments in an industry which has not been specified in schedule i. for a commodity like cotton seed a particular kind of storage or store-house would be advisable. just as in a commodity like, say cotton seed, certain precautions have got to be taken, similarly in commodities like potatoes in order that they may not decay early and may remain useful for a pretty long time, it is necessary to store them in..........learned counsel for the department, would submit the act makes a clear distinction between a factory engaged in an industry specified in schedule i and any other establishment respectively under sections 1(3)(a) and (b). sub-section 1(3) (b) is a residuary section. that will cover all cases other than section 1(3)(a). there may be non-factories engaged in scheduled industries and non-factories engaged in non-scheduled industries. then again, for the application of section 1(3)(a) of the act, the following three elements will have to be present :--(i) it must be a factory; (ii) it must be an industry engaged in an industry specified in schedule i; and (iii) it must have 20 or more persons, while section 1(3)(b) would cover the remaining cases. this distinction has been well brought.....
Judgment:

S. Mohan, J.

1. The writ petition is for certiorari to quash the order of the second respondent dated 16th May, 1979.

2. The facts are as under--The petitioner is Chennimalai Weavers' Go-operative Production and Sale Society Limited, Chennimalai, Tamil Nadu, represented by its President. The Society was registered, under the then Madras Go-operative Societies Act, 1932 on 7th April, 1941, which started its operation on 14th April, 1941, with 45 members and a paid up share capital of Rs. Rs. 1,771.00. Presently, there are 553 'A' Glass members and 30 'B' Glass members with a paid up share capital of Rs. 5.36 lakhs. There are 578 looms in the society. The society is functioning within the area of Chennimalai village and its suburbs.

3. The object of the Society is the improvement of the handloom industry and of the economic conditions of the weavers residing in the area of operation of the society. With a view to achieve this object, the society purchases yarn and other raw materials and advances the same to weaver members who are required to convert them into finished goods and deliver them to the society. For this conversion wages are paid to them. Society also arranges form marketing of the finished goods to the best advantage of the society. In accordance with the objects enumerated in the bye-laws the society is purchasing yarn and supplying them to the members, who convert them into bed-sheets and Bowels and deliver the finished products to the society. The society in turn pays them the labour charges. The society also owns a Dye house for colouring the yarn which is supplied to the weaver members. The society is also running an elementary school to educate the children of the members belonging to the weaving class and a Community Hall with a Library and Dispensary.

4. The third respondent (The Regional Provident Fund Commissioner, Tamil Nadu State) issued a notice on 26th September, 1968 stating that the petitioner factory with all its branches and departments comes under the purview of the Employees' Provident Funds Act, 1952(hereinafter referred to as the Act), and the scheme framed thereunder from 1st June, 1968, since it is a factory, to which the Act is made applicable under Section 1(3)(a), as engaged in Textiles (Dyeing Unit),one of the industries mentioned in Schedule I of the Act.

5. As against this order, the petitioner preferred an appeal under Section 19-A of the Act contending that the Dyeing Unit is only a feeder and incidental activity of the society, the predominant activity of the society being the production of various kinds of bed-sheets and towels and therefore the Act is not applicable to the society. The appeal was heard by the Legal Adviser of the Central Government, Department of Labour. The order was passed on 2nd September, 1974 stating that the main business of the society is purchasing and storing of yarn and selling the finished goods manufactured by the hand-loom weavers in their own looms in their houses and as such it comes under the category of 'Trading and Commercial Establishment' covered by the Act under Section 1(3)(b). It is not a factory and therefore the society cannot be covered under Section 1(3)(a) of the Act.

6. Aggrieved by this order, the petitioner filed an appeal under Section 19-A of die Act on 11th November, 1974 before the Central Government. The second respondent held that the petitioner-society was rightly covered under the heading 'Trading and Commercial Establishment' by its order dated 16th May, 1979. It is under these circumstances, the present writ petition has been preferred to quash these orders.

7. The learned Advocate-General, appearing for the petitioner, would contend that this is a case in which if at all the petitioner could have been brought under Section 1(3)(a), having held that the petitioner's case will not fall under the said sub-section, there is absolutely no scope for invoking Section 1(3) (6) of the Act as against the petitioner, read with the notification relating to trading and commercial establishment. The petitioner is not a trading and commercial establishment inasmuch as the predominant activity of the petitioner was manufacture of textiles, viz., bed-sheets and towels and not mere purchase, sale or storage of goods. It was the contention of the learned Advocate-General, that what is material is only the dominant activity of an establishment, to determine its true nature. The mere fact that there was an element of sale, purchase or storage of goods, was immaterial. Then again, it has to be remembered that the society merely purchases yarns, gets that yarn converted into bed-sheets or towels by the weavers on their own looms, for which they are given wages on piece rate basis. In such a case, there is no element of sale or purchase. In support of this submission, reliance is placed on the decision reported in Chhotalal Morarji Dhami v. Regional Provident Commissioner (1970) 1 LLJ 541. In the notification relating to trading and commercial establishment, all the three elements of sale, purchase and storage have to be present. Here, what is purchased is yarn. What is sold is the finished product, viz., bed-sheets and towels. Obviously the finished products have to be sold. But there is no relationship between purchase and sale. For all these reasons, it is submitted that the impugned orders are liable to be set aside.

8. As against this, Miss Radha Srinivasan, learned Counsel for the department, would submit the Act makes a clear distinction between a factory engaged in an industry specified in Schedule I and any other establishment respectively under Sections 1(3)(a) and (b). Sub-section 1(3) (b) is a residuary section. That will cover all cases other than Section 1(3)(a). There may be non-factories engaged in scheduled industries and non-factories engaged in non-scheduled industries. Then again, for the application of Section 1(3)(a) of the Act, the following three elements will have to be present :--(i) it must be a factory; (ii) it must be an industry engaged in an industry specified in Schedule I; and (iii) it must have 20 or more persons, while Section 1(3)(b) would cover the remaining cases. This distinction has been well brought out in the decision reported in Radhakrishna Narayandas v. Regional Provident Fund Commissioner A.I.R. 1967 M.P. 157 : : (1967)IILLJ649MP . Therefore, it is not correct to contend that merely because the petitioner's society is exempt from Section 1(3)(a), Section 1(3)(b) will not apply. As a matter of fact, concerning this, in the notification G.S.R. 346, dated 17th March, 1962 relating to trading and commercial establishment, what is required is purchase, sale and storage of any goods. The presence of any one of the elements will do. Therefore, there is no scope for applying the dominant activity test. In support of this submission, reliance is placed on the decision reported in C.H.O. and Cold Storage Co. Ltd. v. Prafullachandrd : (1967)ILLJ153Bom .

9. In order to appreciate the above arguments the relevant statutory provisions may be looked at. Section 1(3) of the Act 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 fifty as may be specified in the notification.

Section 1(3)(a) covers a case of (1) an establishment which is a factory, (2) engaged in any industry specified in Schedule I ; (3) in which twenty or more persons are employed. It is the common case that Schedule I in so far as it mentions the manufacture of textiles (made wholly or in part of cotton or wool or jute or silk, whether natural or artificial) will govern the petitioner's society, since it produces cotton handloom towels and bed-sheets. No doubt, in this case, it has been held that the petitioner is not a manufacturer, because it by itself is not engaged in manufacture. & Therefore, the only question is whether Section 1(3)(b) would apply. To my mind it appears to be a residuary clause, since the language used is any other establishment. Therefore, a non-factory is contemplated under that subsection. The notification relating to trading and commercial establishment made in G.S.R. 346, Gazette of India, dated 17th March, 1962, reads as under:

Every trading and commerciale establishment engaged in purchase, sale and storage of any goods, including establishments of importers, exporters, advertisers, commission agents and brokers and commodity and stock exchanges, but not including banks or warehouses established under any State or Central Act, with effect from 30th April, 1962.

In order to decide as to the applicability of either of these sub-sections, the Courts have been adopting the dominant activity test.

10. In Chhotalal Morarji Dhami v. Regional Provident Fund Commissioner (1970) 1 L.L.J. 541, it was held:

One of the primary questions of fact for investigation is which of the two activities of the petitioner is the dominant activity of his establishment. Is it manufacturing activity or is it the commercial activity? It does not appear that the position was clearly examined from the point of view of the principles discussed.

Learned Advocate-General places strong reliance upon this decision and says that in so far as the petitioner's society has been held not to fall under Section 1(3)(a) of the Act, there is no scope for applying Section 1(3)(b) read with the notification, since the dominant activity is neither trading nor commercial activity.

11. Reliance is also placed on the decision reported in Kumar Brothers (Bidi) v. Regional Provident Fund Commissioner 1968 Lab. I.C. 1578. In that case, the question arose, whether notification could be held to be applicable to an establishment engaged in manufacture of bidi from finished tobacco leaves purchased in the market. Inasmuch as purchase, storage and sale are only incidental to the manufacture, the notification was held not applicable.

12. In dealing with the scope of this section it was observed in Radhakrishnan v. Regional Provident Fund Commissioner : (1967)IILLJ649MP , as follows:

The plain language of Section 1(3) of the Employees' Provident Funds Act, 1952, shows that whereas by Clause (a) the Act has been made applicable to every establishment which is a factory engaged in any industry specified in Schedule I of the Act and in which the prescribed minimum number of persons are employed, Clause (b) makes a provision for the applicability of the Act to 'any other establishment' employing twenty or more persons or class of such establishments which the Central Government may, by notification, specify in that behalf. The expression 'any other establishment' occurring in Section 1(3)(b) is in contradistinction to the word 'factory' used in Clause (a) and means any establishment which is 'a non-factory establishment'. Clause (b) gives to the Central Government the power to apply the Act to 'any other establishment that is to say, an establishment which is not a factory establishment, no matter whether the 'any other establishment' belongs to an industry specified or not specified in Schedule I. It does not enable the Central Government to extend the applicability of the Act to factory establishments not specified in Schedule I.

Section 1(3) of the Act itself recognises the distinction between a 'factory establishment' and 'any other establishment'. Therefore, it cannot be contended that if in a manufacturing concern registered as a factory there are establishments employed in the manufacturing process and also establishments engaged in trading or commercial matters, then the concern cannot be split up. Whether any particular establishment is a part of a factory establishment or whether certain employees are engaged in a factory establishment or 'other establishment' are questions of fact which should be determined by the 'Officer holding the enquiry under Section 7-A of the Act.

At page 364 it was observed:

Our attention has been drawn to the decision of the Kerala High Court in Provident Fund Inspector, Quilon v. Kerala Janata Printers and Publishers (P.) Ltd. : AIR1965Ker130 . In para-graph 9 of the judgment in that case, it has been observed by the learned Judges of the Kerala High Court that (at page 505):..By Clause (a) of Sub-section (3) of Section 1 only factories employing twenty or more men engaged in specified industries are brought within the Provident Funds Act. To all other establishments, factory or non-factory, whether engaged in industry or otherwise, the Act may be applied by resorting to notification under Clause (b) of Sub-section (3) of Section 1. Factories engaged in industries other than those mentioned in Schedule I may also be brought within the ambit of the Act by a notification under Section 4, thus adding to Schedule I.

With all due respect to the learned Judges, we are unable to agree with their view that the Act may be applied by resorting to a notification under Clause (b) of Sub-section (3) of Section 1 'to all other establishments, factory or non-factory, whether engaged in industry or otherwise'. It is no doubt true that the power under Clause (b) can be exercised so as to make the Act applicable to non-factory establishments, whether engaged in an industry specified or not specified in Schedule I. But that power cannot clearly be exercised for making the Act applicable to factory establishments in an industry which has not been specified in Schedule I. The construction put by the Kerala High Court on Section 1(3)(b) makes Section 4 of the Act altogether redundant.

13. In construing the scope of the notification in a case relating to storage of potatoes, it was held in C.H.O. and Cold Storage Co. Ltd. v. Prafullachandra : (1967)ILLJ153Bom , thus:

On a reading of the two Clauses (a) and (b) of Sub-section (3) of Section 1 of the Act together it is thus clear that Clause (b) refers to all the factories which are not included in Schedule I and other establishments which are non-factory establishments. The only requirement for applicability is that there must be a notification by the Central Government. Therefore, the only question that has to be seen is whether there is a notification by the Central Government with respect to the establishment which the company is having. The company is having a cold storage. Item No. 11 from Appendix I was relied upon by the prosecution. This notification is dated 7th March, 1962 published in the Gazette of India, 1962, Part II and the trading and commercial establishments covered by this notification are brought under this Act from 30th April, 1962. This notification makes the Act applicable to trading and commercial establishment engaged in the purchase, sale or storage of any goods including establishment of exporters, importers, advertisers etc. It is contended on behalf of the prosecution that the present industry of the applicant-accused is included by this notification and the Act has been made applicable to it under Section 1(3)(b). The applicant, on the other hand, contends that the establishment engaged in the storage of any goods does not include an establishment which is engaged in running a cold storage. It is contended that in a cold storage, the goods are stored at a lower temperature for the purpose of preserving the goods from deterioration; if the goods are kept under ordinary conditions in a store, such goods will deterioarte early and a special treatment has to be given to such goods so that they can be preserved for a length of time. This is achieved by storing the goods in a cold storage and this would not be included in the storage as stated in the notification. The word 'storage' has been defined in the Oxford English Dictionary as (1) capacity or space for storing; (2) the action of storing or laying up in reservation, the condition or fact of being stored ; (3) a place where something is stored. Cold storage has also been put under this heading and means the storing of provisions in refrigerating chambers as a means of preserving them from decay. The ordinary meaning that would be given to the word 'storage' is a place for storing. That means any place where the goods can be stored. It may be that for different commodities different conditions of storage may be necessary. For a commodity like cotton seed a particular kind of storage or store-house would be advisable. For kerosene oil and other articles, different conditions may be necessary but still all these places are the places for storing the various commodities and irrespective of the conditions which may be obtaining in each of these places, they would all be called storages because what is done there is that actually the goods or commodities are stored or kept for a length of time. Just as in a commodity like, say cotton seed, certain precautions have got to be taken, similarly in commodities like potatoes in order that they may not decay early and may remain useful for a pretty long time, it is necessary to store them in certain cool places. There are certain medicines to which nothing will happen if they are placed in ordinary atmosphere. There are other medicines which will decay or deteriorate or lose their efficacy if they are stored or placed in ordinary atmosphere and need to be stored in a cool place--may be a natural cool place or an artificially cooled place, but still such a place will remain a storage and nothing but a storage. In this case we find that potatoes in order to keep them marketable for a long period, are required to be placed in a cool placing having a temperature between 34 to 38 or 40 degrees F. For this purpose chambers are constructed and arrangement is made to keep these chambers at those low temperatures and by bringing the potatoes inside such chambers they are in fact stored in those chambers as long as they are not required for immediate use. The cold storage thereby does not cease to be a storage. In my view, the word 'storage' used in the notification dated 7th March, 1962 is of a large amplitude and covers all kinds of storages maintained under different conditions for different purposes. The only primary thing that has to be seen is whether it is a place for storage of commodities. Whether the conditions therein are natural or artificially created, that still would remain as a storage and all such places will be covered by the notification. The establishment of the applicant company, therefore, would fall within this notification which covers a storage and as such, the provisions of Section 1(3)(b) of the Act read with notification dated 7th March, 1962, will make the Act applicable to the applicant company.

14. The last of the two decisions, above referred to, is relied on by the learned Counsel for the department. If the theory of dominant activity test is applied to this case, the position that boils down is, that yarn is purchased, the society gets bed-sheets and towels manufactured by the handloom weavers and sells them. No doubt, Section 1(3)(b) is a residuary clause and would take in all cases not covered by Section 1(3)(a) of the Act as laid down in Radhakrishnan v. Regional Provident Fund Commissioner 1967 MPLJ 71 : 32 FJR 358 : AIR 1963 MP 157. But, it requires to be remembered that it is by virtue of the notification above referred to, the petitioner's society is stated to be covered by the Act. A careful reading of the notification does show that the accent is on 'trade and commerce'. In other words the establishment must be ' a trading and a commercial establishment'. It is not that mere presence of anyone of the elements, viz. purchase, sale and storage would be enough. Those 'activities must be indulged in by the trading and commercial establishment. In so far as the petitioner is not a trading and a commercial establishment, but only purchases yarn and gets them manufactured into bed-sheets and towels by handloom weavers, which is its dominant activity, it cannot be called a trading and a commercial establishment. The element of sale is only incidental to manufacture. The ruling in Kumar Brothers (Bidi) v. Regional Provident Fund Commissioner (1968) 2 Lab. I.G. 1578 at 1589. squarely applies to this case. In paragraph 17, it was observed thus:

A subsidiary question arising from the counter-affidavit and the reply thereto is whether the establishments of the petition en are, as contended by the respondent, primarily engaged in the purchase, storage and sale of manufactured bidi. the manufacture of bidi being only a subsidiary activity or, as contended by the petitioners, they are primarily engaged in the manufacture of bidi from the finished tobacco leaves purchased by them, the purchase and sale of bidi being only incidental to the manufacture. The contention of the petitioners must, in my opinion, prevail, because the purchase of tobacco leaves is necessary for the manufacture of bidi and the sale follows from the manufacture. Hence, these establishments cannot be covered by the 'trading and commercial establishments' notified under Section 1(3)(b) of the Act of 1952.

As laid down in Chhotalal Morarji Dhami v. Regional Provident Fund Commissioner (1970) 1 LLJ 541' the dominant activity is the proper test. The decision of the Bombay High Court in C.H.O. and Gold Storage Co. Ltd. v. Prafullachandra : (1967)ILLJ153Bom , has no application because the cold storage was part of the sale and purchase of potatoes in that case.

15. For all these reasons, the impugned orders are hereby quashed and the writ petition will stand allowed. However, there will be no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //