IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE T.R. RAMACHANDRAN NAIR THURSDAY, THE 23RD JUNE 2011 / 2ND ASHADHA 1933 OP.No. 2021 of 1999(N) -------------------- PETITIONER : --------------------- MARUTI ENGINEERS, AIR PORT ROAD, PERUMTHANNI, THIRUVANANTHAPURAM, REPRESENTED BY ITS MANAGING DIRECTOR SMT. PREETHI JOHN BY ADVS. SRI.U.K.RAMAKRISHNAN, SENIOR ADVOCATE SRI. E.K. MADHAVAN SRI. P.V. LOHITHAKSHAN SRI.V.KRISHNA MENON RESPONDENT(S): ------------------------- 1. THE EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL, 7TH FLOOR, 60 SKYLARK BLDG., NEW DELHI – 110 019. 2. THE REGIONAL PROVIDENT FUND COMMISSIONER, EMPLOYEES PROVIDENT FUNDS, BHAVISHYANIDHI BHAVAN, PATTOM, THIRUVANANTHAPURAM. R1 & R2 BY ADV. SRI.N.N. SUGUNAPALAN, SC, P.F. THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 15/06/2011, ALONG WITH OP NO. 3315 OF 1999, THE COURT ON 23/06/2011 DELIVERED THE FOLLOWING: Mn ...2/- OP.No. 2021 of 1999(N) -2- ORDER ON C.M.P. NO. 3346/1999 IN OP. NO. 2021/1999 DISMISSED 23/06/2011 SD/- T.R. RAMACHANDRAN NAIR, JUDGE //TRUE COPY// P.S. TO JUDGE Mn OP.No. 2021 of 1999(N) APPENDIX PETITIONER'S EXHIBITS: EXT.P1 : COPY OF THE PARTNERSHIP DEED DATED 2.5.1989 EXECUTED BETWEEN SMT. PREETHI JOHN AND NEENA GEORGE. EXT.P2 : COPY OF THE ACKNOWLEDGEMENT OF REGISTRATION OF FIRM DATED 25.7.1989 ISSUED BY THE REGISTRAR OF THE FIRMS. EXT.P3 : COPY OF THE CERTIFICATE DATED 27.6.1991 ISSUED BY THE GOVERNMENT OF KERALA DECLARING THE PETITIONER'S ESTABLISHMENT AS A SMALL SCALE INDUSTRIAL UNIT. EXT.P4 : COPY OF THE CERTIFICATE OF REGISTRATION DATED 16.8.1991 ISSUED BY THE SALES TAX OFFICER, TRIVANDRUM. EXT.P5 : COPY OF THE LETTER ISSUED BY THE INCOME TAX OFFICER ALLOTING THE PERMANENT ACCOUNT NUMBER UNDER THE INCOME TAX ACT. EXT.P6 : COPY OF THE PARTNERSHIP DEED DATED 15.9.1990. EXT.P7 : COPY OF THE ACKNOWLEDGEMENT OF REGISTRATION OF CASS DATED 18.12.1990 ISSUED BY THE REGISTRAR OF FIRM. EXT.P8 : COPY OF THE LETTER ISSUED BY THE INCOME TAX OFFICER ALLOTING THE PERMANENT ACCOUNT NUMBER TO CASS UNDER THE INCOME TAX ACT. EXT.P9 : COPY OF THE ORDER OF THE 1ST RESPONDENT DATED 27.10.1998. RESPONDENT'S EXHIBITS - NIL //TRUE COPY// P.S. TO JUDGE Mn T.R. Ramachandran Nair, J. - - - - - - - - - - - - - - - - - - - - - - - - O.P. Nos.2021/1999-N & 3315/1999-T - - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 23rd day of June, 2011. JUDGMENT These two writ petitions are filed by the respective petitioners challenging the proceedings of the Employees Provident Fund Appellate Tribunal, which is produced as Ext.P9 in O.P.No.2021/1999. The said order has been passed in two different appeals filed by the said petitioners. 2. By the proceedings issued by the Regional Provident Fund Commissioner, under Section 7-A of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, (for short 'the Act' ) it was held that the two establishments are to be covered under the Act, as a single unit by clubbing them. It was taken up in appeal before the Tribunal. 3. Heard parties. 4. Learned Senior Counsel appearing for the petitioner submitted that the order of the Tribunal is clearly illegal. Various decisions of the Apex Court and this Court were also relied upon in this context. 5. The facts of the respective cases show the following: O.P.No.2021/1999 is filed by “Maruti Engineers”. The same is a registered partnership firm. The unit is working as a Maruti Authorised Service op 2021/99 & 3315/99 2 Dealer and registered under the Factories Act. There are two partners. It was originally belonging to another firm, viz. “Maruti Engineers”, Trivandrum, wherein one Shri P.S. Suresh Babu and Shri V. Suresh were the partners. It is their case that the activity is confined to Maruti vehicles and the petitioner is having separate set of employees and was maintaining separate wage register and muster rolls for their employees. Ext.P1 is the copy of the partnership deed dated 2.5.1989. It is pointed out that M/s. Computer Auto Scan and Services which is the petitioner in O.P.No.3315/1999, is a separate and independent firm registered under the Partnership Act. Its function is only to detect the defects of the vehicles using computer technology. The partners of Maruti Engineers are not the partners of the other firm. The said firm is attending the work of all types of motor vehicles and are not confined to Maruti vehicles. It has also got its own separate employees and employees of both the units are not transferable or inter-changeable and they are not working together for these two firms. M/s. Computer Auto Scan and Services was started as a proprietary concern by Shri Thomas Muthoot and a partnership was constituted on 15.9.1990. A copy of the partnership deed is produced as Ext.P1. Apart from Shri Thomas Muthoot, two other partners are also there. The partners of both the units are different. op 2021/99 & 3315/99 3 6. It is pointed out that both the units are maintaining separate balance sheets, profit and loss account and are assessed to income tax separately. M/s. Computer Auto Scan and Services, is also maintaining separate muster rolls and wage registers for their employees. The said establishment is one coming within the purview of Shops and Commercial Establishments Act. The employees of both the units are less than 20. Accordingly, it is contended that there is no unity of management, unity of labour, unity of finance, unity of ownership or functional integrality between the two units. These establishments are working in two different buildings even though they are situated in a big single compound. Finally, it is pointed out that the Computer Auto Scan and Services is not financed by the petitioner in O.P.No.2021/1999, and both units are not depending upon the other. 7. Learned Senior Counsel for the petitioners submitted that the order passed by the Tribunal cannot be supported in the light of the various decisions of the Apex Court and this Court, viz. Evans Food Corporation v. Union of India and another (1994 (2) LLJ 646), Regional Provident Fund Commissioner & another v. Dharamsi Morarji Chemical Co. Ltd. (1998 (1) LLJ 1060) and Regional Provident Fund Commissioner v. op 2021/99 & 3315/99 4 Raj's Continental Exports (P) Ltd. (2007 (11) LLJ 553). 8. Per contra, it is argued by the learned counsel for the respondents that as found by the Tribunal, the partners of these two units are from the very same family, viz. Muthoot family. Shri Thomas Muthoot was the Chief Executive for some period, of the firm “Maruti Engineers”, who was enjoying wide powers. M/s. Computer Auto Scan and Services was his proprietary concern initially, before forming the partnership. It is pointed out that the activities of the two units are similar and supportive of each other and therefore it is contended that all the relevant tests are satisfied. 9. A reading of the order of the Tribunal, Ext.P9 show that the Tribunal was of the view that “having regard to the age of all these partners which is 21 years, 22 years, it is evident that all these paper transactions are showy and nothing is real. The real owner is some one and to my mind that is the Muthoot family.” With regard to M/s. Computer Auto Scan and Services, the Tribunal observed as follows: “It was initially set up exclusively in the name of Thomas Muthoot, later on it was converted into a partnership firm and the contents of the partnership deed were similar to previous one regarding retirement of the partners. Shri Thomas Muthoot was aged 24, Smt. Sylu Thomas alias Sylu Jacob aged 33 years and Smt. Saramma Thomas alias Saramma Jacob aged 40 years.” The fact that the op 2021/99 & 3315/99 5 ladies are residing in Kozhencherry, whereas the place of business is in Trivandrum, had also been noted by the Tribunal. It is thereafter found as follows: “They are complimentary to each other and it can be said without least doubt that these two establishments are being run by one joint family in the name of its family members whether son, daughter-in-laws or married daughters. Then because of similarity of the job of these two establishments are doing, it may be said without mistake that they are complimentary to each other and as such they can be clubbed for finding out the real strength of the establishment for the purpose of this Act.” Finally, it is observed that the proximity of the two establishments and the relation of the partners as it is clear from their residence also, commonness of ownership, finance and managerial control are also pointer that the two establishments are one integral as a whole. 10. In the order passed under Section 7A of the Act, it was mentioned that all the tests are satisfied. My attention was invited by the learned counsel for the respondents to the facts narrated in the order. Actually, mainly two points alone have been stated by the Commissioner also. They are: (1) Partners of both the firms, are members of the same family. So it cannot be said that the above establishments are under separate management; (2) The establishment, viz. Maruti Engineers is op 2021/99 & 3315/99 6 engaged in the business of automobile services and repairing, whereas Computer Auto Scan and Services is engaged in the business of detecting the defects of the vehicles. So, it is evident and clear that the two establishments are engaged in primary and secondary stages of the same activity. 11. Some of the features of the two establishments show the following: The partners of Maruti Engineers are Smt. Preethi John Muthoot and Smt. Meena George Muthoot, whereas the partners of Computer Auto Scan and Services, are M/s. Thomas Muthoot, Sylu Thomas and Saramma Thomas. Therefore, the persons constituting the partnership, have no interest in the different units as partners. Maruti Engineers is registered under the Factories Act as a factory and Computer Auto Scan and Services is one coming under the purview of Shops and Commercial Establishments Act. Maruti Engineers is a service dealer of Maruti vehicles, whereas M/s. Computer Auto Scan and Services is dealing with all types of vehicles. Both are functioning in separate buildings and are having separate employees who are neither transferable nor inter-changeable. The employees of one unit are not working in the other unit also. Shri Thomas Muthoot was the Chief Executive of Maruti Engineers till 1/10/1992. M/s. Computer Auto Scan and Services was originally a proprietary concern op 2021/99 & 3315/99 7 under him which was taken over by a partnership in the year 1990. Both are registered under different enactments, viz. Sales Tax Act, etc., are maintaining separate balance sheet, profit and loss account and are separately assessed under the Income Tax Act. Both are maintaining separate muster rolls and wage registers. Both are not having investments in the other unit and there is no financial and functional dependency between the two units. 12. The decision of the Apex Court in Regional Provident Fund Commissioner's case (1998 (1) LLJ 1060) is a case where two units were owned by a common owner. It was held that “the fact that both factories were owned by a common owner, namely, the respondent - company, was not sufficient, unless there was clear evidence to show that there was inter- connection between these two units and there was common supervisory financial or managerial control.” After referring to the relevant findings rendered by the High Court, the following finding was rendered in para 2 of the judgment: “In view of these salient features found to be well established on the record, in our view, it could not be said that Roha factory only because it is owned by the respondent-Company was not a new establishment or could be treated to be a branch or department of Ambarnath factory which by itself was an establishment admittedly op 2021/99 & 3315/99 8 covered by the Act as it was an old establishment since 1921.” In para 4 of the judgment, it was noted that the only connecting link was the fact that the respondent was the owner of the two units. Their Lordships further held as follows: “So far as this contention is concerned the finding reached by the High Court, as extracted earlier, clearly shows that there was no evidence to indicate any such inter-connection between the two factories in the matter of supervisory, financial or managerial control. Nothing could be pointed out to us to contradict this finding. Therefore, the net result is that the only connecting link which could be effectively pressed in service by the learned counsel for the appellant for culling out interconnection between Ambarnath factory and Roha factory was that both of them were owned by a common owner, namely, the respondent-Company and the Board of Directors were common. That by itself cannot be sufficient unless there is clear evidence to show that there was interconnection between these two units and there was common supervisory, financial or managerial control. As there is no such evidence in the present case, on the peculiar facts of this case, it is not possible to agree with the learned counsel for the appellant that Roha factory was a part and parcel of Ambarnath factory or it was an adjunct of the main parent establishment functioning at Ambarnath since 1921.” Therefore, what is important is a common supervisory, financial or managerial control. op 2021/99 & 3315/99 9 13. In the later decision in Raj's Continental Exports (P) Ltd.'s case (2007 (11) LLJ 553) also the very same decision, viz. Regional Provident Fund Commissioner's case (1998 (1) LLJ 1060) is relied upon. Herein also, the facts of the case show that the proprietor of M/s. Continental Exporters was the Managing Director of the respondent company. It was held by the Regional Provident Fund Commissioner that the same is a department of the former concern. The High Court found that there was total independent exercise of the management and control of the affairs, the employees were separately appointed and controlled and accordingly they were not one and the same. The Apex Court relied upon the earlier decisions in Management of Pratap Press v. Their Workmen (1960 (1) LLJ 497) and Regional Provident Fund Commissioner v. Dharamsi Morarji Chemical Co. Ltd. (1998 (1) LLJ 1060) and in para 7 it was held as follows: “In Regional Provident Fund Commissioner and another v. Dharamsi Morarji Chemical Co. Ltd. (1998) 2 SCC 446 : 1998-I- LLJ-1060, it was held that unless there is clear evidence to show that there was any supervisory financial or managerial control, it cannot be said that one is the branch of the other. As noted by learned single Judge, the respondent was separately registered under the Factories Act. It was separately registered under the op 2021/99 & 3315/99 10 Central Sales Tax Act and the Employees State Insurance Act. It has also been found by learned single Judge that there was total independence of the two units. The learned single Judge and the Division Bench were right in their conclusion that the respondent is not a branch of M/s. Continental Exporters.” Therefore, the real test is whether there was any supervisory financial or managerial control as laid down by the Apex Court in these decisions. 14. The decision of this Court in Evans Food Corporation's case (1994 (2) LLJ 646) elaborately considered the various aspects wherein both the establishments were controlled by the same family. Therein, one firm which was registered under the Partnership Act, was engaged in the business of manufacturing cattle feed and the other is the sole distributor of the product of former. The former firm was a proprietary concern and later reconstituted and made a firm by adding the second son of the Managing Director as a partner. In the latter firm certain other members of the same family were the partners. This Court in para 5 of the judgment held as follows: “In order that the petitioner is liable as an employer it must be shown that he has the ultimate control over the affairs not only of Evans but also of Super.” After referring to the various decisions of this Court, it was held thus in op 2021/99 & 3315/99 11 para 12: “The question of unity of the two establishments must therefore, be decided on the touchstone of its total functional unity. The undisputed facts show that Evans and Super are distinct by reason of the absence of common employment, distinct registrations under the Employees' State Insurance Act and tax laws, absence of any financial assistance such as loans and totally distinct partners. Do these facts suggest that Evans and Super are one integrated whole? The only fact which raised suspicion that the two units may be one is that the business of Super is carried on from the same building as of Evans. But, then, Super has its office in a separate room in the same building for which rent is paid. While the vehicles of Evans are used for transporting goods to be supplied by Super, the latter pays for the use of the vehicles. In my opinion, these facts are not inconsistent with the distinct identities of the two establishments. Two establishments can carry on business in the same building and yet possess distinct identities as business establishments. On a superficial view, the use of the vehicles of one establishment by another and the proximity of the offices and use of the same building appear to suggest commonness of purpose. But, then, Super pays for the use of the vehicles and use of the premises. These facts prove the separate and distinct character of the establishments. It was further held thus in para 13: “The features that make the two establishments distinct are separate op 2021/99 & 3315/99 12 account books, distinct employees, none of them being common, separate partners, none of them being common, and indices such as independent registration under the Employees' State Insurance Act, the Sales Tax Act and the Income-tax Act. The employees of Super do not perform any work for Evans. The fact that the partners of the two establishments belong to the same family has been strongly highlighted with the aid of the judgment in P. Madhavan Thampi v. Regional provident Fund Inspector (supra). The mere fact that the partners belong to the same family may be a reason for close scrutiny of the claim that the two units constitute separate establishments but by itself it does not unite the two establishments. Different members of the same family can establish different business concerns. In the case of P. Madhavan Thampi (supra) the workers were common; the units used the same machinery, were supervised by the members of the same family and the parent unit provided abundant credit. In this case, there is total absence of such features. In my opinion, Evans and Super are distinct and separate establishments. They cannot be considered as one.” 15. This Court noticed various features that there is absence of common employees, distinct registrations under the Employees State Insurance Act and tax laws, absence of any financial assistance such as loans and totally distinct partners. This Court found that both the establishments are not one integrated whole. With regard to the allegation op 2021/99 & 3315/99 13 that they are functioning within one building, it was held that “two establishments can carry on business in the same building and yet possess distinct identities as business establishments.” The features that make the two establishments distinct are separate account books, distinct employees, none of them being common, separate partners, none of them being common, and these were relied on by this Court. The remaining aspect whether the partners being members of the same family is decisive or not, was also considered by this Court and it was held that different members of the same family can establish different business concerns. 16. Therefore, the above decisions clearly show that unless there is financial, managerial and functional integrality, two units cannot be taken as one merely because the partnerships are formed by members of the same family. In fact, in respect of the units concerned, in Raj Continental Exports (P) Ltd.'s case (2007 (11) LLJ 553) the proprietor of one establishment was the Managing Director of the other one. In respect of the units considered in Dharamsi Morarji Chemical Co. Ltd.'s case (1998 (1) LLJ 1060), both were owned by a common owner. Therefore, the finding by the Tribunal here that partners of the two units of the petitioners being members of Muthoot family, that will be a decisive factor, cannot be op 2021/99 & 3315/99 14 accepted as a correct one. There is no basis for the finding that the real owner is one and the same and evidence is lacking with regard to the same. The fact that the two units are in the same compound also will not be a decisive one in the absence of certain other factors like common employees or transferability of the employees, financial support between the two units, etc. 17. Learned counsel for the respondents relied upon the following decisions: Regional Provident Fund Commissioner, Jaipur v. M/s. Naraini Udyog & others (1996 (2) LLJ 39), a decision of the Karnataka High Court in Regional Provident Fund Commissioner v. M/s. Ratna Enterprises (1986 (2) LLJ 137) and of a Division Bench of this Court in Madona Textiles v. Employees' State Insurance Corporation (2000 (2) LLJ 1422). 18. In the first of the decisions, viz. in M/s. Naraini Udyog's case (1996 (2) LLJ 39) the Apex Court found on evidence that even though two companies were registered separately, various factors like common head office, common branch, common telephone, accounts of two units maintained by same set of clerks, etc will go against the plea that they are different. Of course, that was also a case where the two companies were op 2021/99 & 3315/99 15 represented by members of the same family. Evidently, the Apex Court found in favour of the department, in the light of the evidence regarding the functional unity and integrity. The decision turned on the facts of the said case. 19. In the case considered by the High Court of Karnataka, in M/s. M/s. Ratna Enterprises's case (1986 (2) LLJ 137) it is seen that there were two cinema theatres which were originally covered by the provisions of the Act and was under a common proprietress. Later, she constituted a partnership with her children and continued to manage both the theatres. Still later, the partnership was dissolved and two different partnerships were also formed. The contention was that the number of employees came down from 20 which was rejected by the Provident Fund Commissioner. The High Court was of the view that the subsequent developments cannot have an impact on the coverage already granted to the units. Therefore, the said case is also distinguishable, as the facts are not similar. 20. In the decision of a Division Bench of this Court in M/s. Madona Textiles's case (2000 (2) LLJ 1422), after noticing the relevant principles and after analysing the facts and evidence therein, it was found by the Division Bench that there was a geographical unity, functional op 2021/99 & 3315/99 16 integrality and unity of management to a major extent. The issue was considered in the light of the provisions of the Employees State Insurance Act, 1948. The said decision also is distinguishable on facts. 21. Herein, the evidence clearly show otherwise. The real test was not properly applied by the Provident Fund Commissioner and by the Tribunal. It was noted that the partners being members of the same family, it will be material. Evidently, there are no common partners and there is no case that the employees are common or transferable or interchangeable. One is registered under the Factories Act and the other is under the Shops and Commercial Establishments Act. Both are having separate profit and loss