Skip to content


The Regional Provident Fund Commissioner and anr. Vs. Vittaldas Jagannathadas and anr. - Court Judgment

LegalCrystal Citation
SubjectService
CourtChennai High Court
Decided On
Reported in(1969)2MLJ118
AppellantThe Regional Provident Fund Commissioner and anr.
RespondentVittaldas Jagannathadas and anr.
Cases ReferredR. L. Sahni & Co. v. Union of India
Excerpt:
- .....affect the obligation to make contributions on behalf of the members of the establishment towards employees provident fund once the period of infancy protection has expired. the infancy protection clause in 16 (1) (b) of the act is from the date of the commencement of establishment. the fact that a new company subsequently takes over or acquires the factory or establishment does not shift the date of a commencement 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, as pointed out by the learned judge, the impact of the act is upon the factory or establishment, and not on the owner. even temporary closure of a factory or establishment or cessation of work for a period will.....
Judgment:

R. Sadasivam, J.

1. This Writ Appeal is against the order of Anantanarayanan, J., as he then was, in Writ Petition No. 1018 of 1962 filed by Jagannathadas and Co., hereinafter referred to as the Company, granting a writ of mandamus, restraining the appellants herein from collecting the employees' provident fund contributions in pusuance of the letter, dated 28th June, 1962 of the first appellant, the Regional Provident Fund Commissioner, hereinafter referred to as the Commissioner. The facts of this case are clearly stated in the order under appeal and they are not in dispute. One Jagannathadas Govindas, Vallabhadas Baldevadat and Khusaldas-Govindas who constituted members of a Hindu joint family;, owned the theatre known as Maharani Talkies, constituting the land and buildings situated on the Thiruvottiyur High Road, Madras, bearing Door No. 149, the talkie equipment, machinery, other fittings and the furniture. One S. Raja Chetty and C.V. Narasimhalu Chetty were the original lessees of the Maharani Talkies from 1st October, 1948, till the owners got possession of the theatre in pursuance of the decree of this Court in C.S. No. 472 of 1949, dated 16th December, 1952. The theatre was vacant till 31st March, 1953, and it was then leased from 1st April, 1953, to one Munirathnam Naidu on a monthly rent of Rs. 2,450 for a period of five years. The said Munirathnam Naidu obtained another lease deed on 31st December, 1958 for four years from 1st April, 1958. In exercise of the powers conferred by Clause (b) of Sub-section (3) of Section 1 of the Employees' Provident Funds Act, 1952, (XIX of 1952) (hereinafter referred to as the Act), the Central Government issued a notification dated 19th June, 1961, in the Gazette of India extending the Act to Cinemas, Preview Theatres and certain other classes of establishments in each of which 20 or more persons are employed. Munirathnam Naidu, a lessee of the Mjtharani Talkies, was making provident fund contributions to the Commissioner in pursuance of the demand made on him. The, lease in favour of Munirathnam Naidu expired with effect from 31st March, 1962 and the respondent-company represented by the sons of Jagannathadas Govindas, one of the members of he Hindu joint family which owned the theatre, took a lease of the theatre Maharani Talkies with effect from 1st April, 1962, though the actual lease deed was executed some time later on 16th May, 1962, for a period of five years on a monthly rent of Rs. 3,500. The respondent-company is a partnership firm which came into existence on its registration on 22nd March, 1962. The fact that the managing partners of the partnership firm of Lakshmibai Jagannathadas and Co., are the sons of one of the members of the joint family which owned the theatre, is not relevant for the purpose of this case. Before Munirathnam Naidu, the prior lessee, handed over possession of the theatre after the expiry of the lease on 31st March, 1962, he discharged all his employees after notice and payment of their dues, including bonus. The respondent-Company claimed to have called for application and employed 19 persons to carry on the business of exhibiting talkie films in Maharani Talkies from 1st April, 1962. In his counter affidavit the first appellant-Commissioner has stated that the respondent-Company took over the theatre from 1st April, 1962 with 19 employees who had formerly been working in the establishment and most of whom were members of the Provident Fund Scheme. In the reply affidavit of the respondent-Company, it is stated that the Company did not take over the theatre with the employees, but chose from persons who had applied to the Company to serve in its staff. But it is admitted that out of 19 persons employed by the respondent-Company, as many as 17 persons were employed by Munirathnam Naidu. The contention of the respondent-Company is that their establishment is not the same establishment as that of the previous lessee of the Maharani Talkies, but that it is a totally different entity and so there is a new establishment entitled to exemption under Section 16 of the Employees' Provident Funds; Act in favour of an establishment which has not completed five years and comprised less than 20 members.

2. Anantanarayanan, J., as he then was, has in his order referred to several decisions and pointed out the true guiding principles in dealing with cases arising under the Act. We shall briefly refer to those principles before considering the main point that arises for decision in this appeal. The Act applies to a factory or establishment as defined in the Act, and not to the owners, and a mere change of ownership cannot suffice to modify or affect the obligation to make contributions on behalf of the members of the establishment towards employees provident fund once the period of infancy protection has expired. The infancy protection clause in 16 (1) (b) of the Act is from the date of the commencement of establishment. The fact that a new company subsequently takes over or acquires the factory or establishment does not shift the date of a commencement 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, as pointed out by the learned Judge, the impact of the Act is upon the factory or establishment, and not on the owner. Even temporary closure of a factory or establishment or cessation of work for a period will not affect the date of the establishment or factory as the emphasis in the Act is on the factory or establishment. Thus it is abundantly clear from the decisions referred to by the learned Judge in his order that a transferee of a factory or establishment coming under the Act cannot claim, or obtain infancy protection merely on the ground that he acquired interest in the concerned factory or establishment only on the date of transfer in his favour.

3. There will not be any difficulty in clear cases where a person acquires interest in a factory or establishment coming under the purview of the Act by virtue of a transfer as he takes over the business of the factory or establishment with all its rights and liabilities. There will be difficulty in construing the applicability of the Act to a particular factory or establishment which the Commissioner claims is a continuation of a factory or establishment which was already subject to his jurisdiction under the Act, and the claim is resisted on the ground that the said factory or establishment is a completely new one, which had nothing to. do with the earlier factory or establishment for one reason or other. The Explanation to Section 16 (1) of the Act provides for the removal of doubts by declaring that an establishment shall not be deemed to be newly set up merely by reason of a change in its location. This Explanation is not relevant to the present case as the business of the theatre, if it is to be a continuous one, should be in the same place. But it should be noted that this Explanation has been given only for the removal of doubts.

4. The decision in this appeal rests mainly on the answer to the question as to what is an establishment. The word ' establishment' has not been defined in the Act. Anantanarayanan, J., as he then was, has considered the definition of an 'establishment' given in the Oxford Dictionary, namely, ' organised body of men maintained for a purpose ', as the most helpful definition, at least in the context of usage of that word in the Act. He has then proceeded to observe as follows:

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 is 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 so to be granted as a matter of course.

Though he has not specifically found that the establishment of the respondent-company is a new one, in the light of his interpretation of the word ' establishment', it could reasonably be inferred from his allowing the writ petition, that he considered the establishment in this case as a new one entitled to infancy protection in its own right.

5. In R. L. Sahni and Co. v. Union of India : (1966)IILLJ230Mad , the same question came up for consideration before a Bench of this Court. It is clear from the said decision that the facts of that case are almost similar to the facts of this case, though it does not appear clearly from that judgment whether Sahni & Co., which took a lease of the Rajakumari Theatre from the owner, called for applications and employed the staff as in this case. The appellant in that case relied on the decision now under appeal Vittal Das Jagannath Das v. Regional Provident Fund Commissioner, Madras : AIR1965Mad508 . It has been pointed out in the Bench decision that the meaning of the word 'establishment', 'as a body of men maintained for a purpose', given in the Oxford Dictionary is one of several other meanings, one of which is 'house of business' which the Bench adopted as the one consonant with the object and policy of the Act.

6. In Webster's ' New International Dictionary ', several meanings of the word ' establishment' are given and one of them describes ' establishment' as the place where one is permanently fixed for residence or business; residence, including grounds, furniture, equipage, etc., with, which one is fitted out; also, any office or place of business, with its fixtures; as, to keep up a large establishment; a manufacturing establishment. In giving the word 'establishment' the meaning of 'home of business', the Bench relied on the definition of the words 'employer' and ' employee ' in the Act which explained the terms in relation to an establishment, thus making it plain that' establishment' is not the same thing as employer and employee, but different and distinct from employer and employee. In the result, the Bench expressed their inability to share the view expressed in the judgment under appeal. This Bench decision is binding on us, unless we entertain any doubt about its correctness and consider it necessary to refer the question to a fuller Bench. It is clear from the Bench decision that the exemption available under Section 16 (1) of the Act is to the organisation or establishment itself as such, and not to the owner or lessee, or manager thereof, and that it cannot be postulated that each time there is a change of hands, a new establishment has been set up. It is clear from that decision that a mere change of hands would not clothe the establishment with a newness.

7. The learned Advocate for the respondent-company tried to distinguish the present case on the ground that the staff was recruited afresh by the company as and from 1st April, 1962, from out of the persons who applied to it. But this point has also been clearly dealt with in the following passage in the Bench decision at page 419:

The fact that the claims of the workers vis-a-vis the old company were settled up to the date of the winding up or that the workers were re-employed by the petitioner-partnership does not in any way touch upon the question as to the date on which the establishment came into existence.

8. It is true the business of exhibiting films conducted by Munirathnam Naidu came to an end on 31st March, 1962, and the respondent-company started its partnership business in exhibiting films from 1st April, 1962. But the house of business in this case is the Maharani Talkies comprising the talkie equipment, machinery, other fittings and the furniture. The said house of business, which is the establishment in this case, continued to exist without break even after the respondent-company took a lease of the theatre. The fact that the respondent-company is now employing only 19 persons is not relevant unless it is found that the establishment now controlled by the respondent-company is found to be a new one which is sought to be brought within the purview of the Act for the first time. But it should be noted that the employees provident fund contributions were collected for the establishment of Maharani Talkies even during the prior period when Munirathanam Naidu was the lessee. Section 1 (5) of the Act states:

An establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time falls below twenty.

In order to invoke the proviso to that section, it is necessary for the respondent-company to prove that the number of persons employed was less than fifteen for a continuous period of not less than one year. It is only in the case of an establishment which is sought to be brought for the first time within the purview of the Act that the minimum number of employees should be less than 20 to claim exemption.

9. Thus the mere fact that the respondent-company appointed its own staff, which included a large number of the members of the old staff, will not make the establishment conducted by the respondent, namely, the Maharani Talkies, a new one.

10. The view expressed above finds clear support from the following passage in the judgment of Srinivasan, J., in Messrs. R.L. Sahni and Co. v. Union of India (1964) 2 M.L.J. 191:

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 from time to time, every fresh lease, cannot give rise to the setting up of the factory afresh. The case may undoubtedly be different if the factory itself was closed down for some reason or other and it 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 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 fulfills that object has no real relevance to the point of time when the establishment can be deemed to have been set up.

The decision of Srinivasan, J., in Devi Press v. Regional Provident Fund Commissioner I.L.R. : (1965)ILLJ294Mad also throws considerable light on the question under consideration. It appears from that decision that a company known as Devi Press Limited, went into voluntary liquidation and a dispute arose between the workers and the management on the closure of the company. But they were resolved amicably by a settlement under which two of the managing agents of the Devi Press Limited, which went into liquidation, who had purchased the machinery, its accessories and the furniture of the company and formed a partnership on 25th January, 1957, to carry on the business of printing agreed to re-entertain the workers, except those in the binding department as new employees. This is a stronger case than the present one as the old Devi Press Limited was voluntarily wound up and a new partnership firm came into existence on 25th January, 1957, which re-employed most of the workers of the old firm except those in one department. It was urged in that decision that the old company had gone into liquidation and the new one did not take over the previous company as a running concern and that by a mutual agreement the service of all the employees ceased and they became the new employees in the service of the new firm and that the mere fact that it purchased the machinery of the old firm would not make the petitioner firm a successor of Devi Press Limited. These contentions were rejected by the learned Judge in the following terms:

It has been pointed out that these two petitioners were the managing agents of the previous company. That business went into voluntary liquidation. The reasons for winding up that business are not apparent from the records or even the resolution passed by the members of that company. But that the dissolution took place a week or ten days before the issue of the notification make the Act applicable to the printing industry is a patent fact. While in terms the business was not sold as a going concern to the petitioner firm, in effect that was what was done. The entirety of the machinery, its accessories and the furniture were taken over. The very Factory and Corporation licences were transferred in the name of the petitioner partnership. The fact that the claims of the workers vis-a-vis the old company were settled up to the date of the winding up or that the workers were re-employed by the petitioner partnership does not in any way touch upon the question as to the date on which the establishment came into existence. In truth, the old establishment continued, although in a different name. If that is so, the date on which the establishment came into existence is not 25th January, 1957, the date of the formation of the partnership and the carrying on of the business from that date, but the date on which the old Devi Press Ltd., came into existence.

11. In Writ Petition No. 4380 of 1965 one of us (Ramakrishnan, J.) held that the principles of the Bench decision in R.L. Sahni & Co. v. Union of India : (1966)IILLJ230Mad , would apply to that case even though what had happend in that case was a division of the rights of management among the former owners and re-allocation of the management in a different manner, but at the same time, without affecting the integrity or the nature of the activity which was carried on in the establishment prior to the partition and which continued to be the same even after the partition. It was held in that decision that:

As long as there is homogeneity and integrity in the nature of the activity of the business carried on in a particular establishment and there is no break up of that homogeneity and integrity, the workers who are employed in that establishment will continue to enjoy the benefit of the Act, after it has been once applied to that establishment, unaffected by any subsequent change in the ownership whether by transfer or by partition.

12. The decisions relied on by the learned Advocate for the respondent do not really affect the principles enunciated in the Bench decision in R. L. Sahni &.Co. v. Union of India : (1966)IILLJ230Mad . Thus, in Writ Petition No. 1333 of 1961, on the file of this Court, relied on by the learned Advocate for the respondent, Srinivasan, J., has quashed the order of the Provident Fund Commissioner refusing to give infancy protection contemplated by Section 16 (1) (b) of the Act to the petitioner in that case. It is only necessary to refer to the facts of that case to show that the decision turned upon the same. One Narayana Iyer was running a hotel in Karaikudi and he closed his business in September, 1957, and discharged all his employees. The Employees Provident Funds Act, which was passed in 1952, was made applicable to hotel industry only with effect from 1st July, 1961, long after Narayana Iyer closed his hotel sometime in November, 1957. Subramania Iyer, the divided brother of Narayana Iyer, who filed the writ petition, took a lease of the premises from Narayana Iyer. He also took on hire some of the vessels used in the hotel business by Narayana Iyer, purchased other articles he required and secured a licence from the municipality to run the hotel. Thus on the facts it could hardly be contended that the business of Subramania Iyer was not a new business. It is in view of the facts of that case Srinivasan, J., has observed that the circumstance that one brother closed down his business and another brother took a lease of the premises for the purpose of running a business of his own cannot by itself serve to show that the business was a single one, which continued to run whether in the hands of this brother or that brother.

13. The decision of Venkatadri, J., in Writ Petition No. 1937 of 1965 that the press conducted by the petitioner in that case was an infant industry entitled to protection under Section 16 of the Act was based on the fact that the petitioner in that case merely purchased the machinery of a printing press, which went into liquidation, and started a new business of his own.

14. The decision of a single Judge in Subbarama Chetty v. Zewar Ali A.I.R. 1960 Mys. 14, relied on by the learned Advocate for the respondent has been distinguished by Srinivasan, J., in Devi Press v. Regional Provident Fund Commissioner I.L.R. : (1965)ILLJ294Mad , and also in the Bench decision in R. L. Sahni & Co. v. Union of India : (1966)IILLJ230Mad , as one based on the facts of that case which clearly established that a dissolution of the original partnership was not intended to defeat the claim of the workers and that the business started by one of the partners with assets which fell to his share was a new one. If the decision purports to lay down any legal principle that in every case of a dissolution, or a partition, the establishment of the original business should in all cases be deemed to have come to an end, we are unable to accept it, as the said question has been considered by one of us in Writ Petition No. 4380 of 1965 already referred to.

15. The decision of a Bench of this Court in Jayajothi & Co. v. Official Liquidator, Madras (1963) 2 M.L.J. 273, dealt with the question whether there was a closure of a company entitling the workmen to compensation under the Industrial Disputes Act. It has been held in that decision that where there is only a lease of the factory or undertaking as a going concern and the employer (company) continues to have title to and owns the undertaking (mills) and the factory continues to work with the same old employees who were being engaged when the company was directly managing the affairs of the mills, there cannot be said to be any closure or discharge of workmen or retrenchment or transfer, there having been no transfer of the goodwill of the company. The learned Advocate for the respondent relied on this decision in support of his contention that there should be continuity of service of the employees to justify the claim for provident fund contribution by the first appellant. But this decision has nothing to do with the meaning of the word 'establishment' for the purpose of the Act, which is the point in issue in the case and for which authority is found in the decision of the Bench of this Court in R. L. Sahni & Co. v. Union of India : (1966)IILLJ230Mad .

16. For the foregoing reasons, we find that the lease taken by the respondent-company to run the Mihirani Talkies would not make the establishment a new one for the purpose of the Employees Provident Funds Act, and hence the respondent company cannot claim the infancy protection under Section 16 (i) (b) of the Act. The provident fund contributions were being collected from the Maharani Talkies when it was managed by Munirathnam Naidu. The liability to pay provident fund contributions for such of the members of the establishment as provided under the Act cannot cease on 31st March, 1962, when the lease of Munirathnam Naidu came to an end. We have already pointed out that there was no break in the continuity of the establishment as the respondent company started to run the business of Maharani Talkies even from 1st April, 1962, though we may add that a short break would not also affect the liability to contribute to the employees provident fund. The respondent-company is, therefore, not entitled to a writ of mandamus prayed for by them.

17. The Writ Appeal is allowed and the Writ Petition No. 1018 of 1962 is dismissed. In the circumstances of the case, the parties will bear their own costs.


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