IN THE HIGH COURT JUDICATURE, ANDHRA PRADESH AT HYDERABAD FRIDAY, THE THIRTIEH DAY OF SEPTEMBER TWO THOUSAND AND ELEVEN PRESENT THE HONOURABLE SRI JUSTICE G.CHANDRAIAH W.P. No.35858 of 1998 Between: The Enforcement Officer, Employees” Provident Fund and Miscellaneous Provisions Act, 1952, Anantapur. … Petitioner and The E.P.F. Appellate Tribunal and another. … Respondents THE HONOURABLE SRI JUSTICE G.CHANDRAIAH W.P. No.35858 of 1998 ORDER: This writ petition has been filed by the Enforcement Officer, Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, Anantapur, seeking for issuance of Writ of Certiorari calling for the records relating to the order dated 07.10.1998 passed in ATA/11(11)/98 by the 1st respondent, Tribunal, and quash the same as illegal and unjust and consequently direct the 2nd respondent Society to continue to implement the provisions of the Employees’ Provident Fund and Miscellaneous provisions Act, 1952. The matter arises under the provisions of Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (for short ‘the Act’). By order dated 11.03.1998, the Assistant P.F. Commissioner, Officer-in-Charge, while exercising the powers under Section 7-A(1) of the Act held that M/s. Kothapeta Cotton and Silks Weavers Cooperative Society (Production and Sales) Society, Uravakonda, (hereinafter referred to as ‘the Society’) was rightly covered under Section 1(3) (b) of the Act and also that the weavers engaged by the Society and paid conversion charges shall be enrolled as members of provident fund from the due date of eligibility irrespective of fact that they happened to be members of the Society and directed the employer to remit the provident fund dues as assessed vide Office Proceedings No.AP/CP/11590/Enf.IV/ATP/97/770, dated 16.06.1997 within 15 days from the date of receipt of the order. Aggrieved by the same, the Society, filed an appeal before the appellate authority and the appellate authority vide its order dated 07.10.1998 allowed the appeal. Assailing the same, Enforcement Officer filed the present writ petition. Brief facts of the case are that the Society was covered under the Act with effect from 01.01.1981 under Section 1(3) of the Act in the schedule head textiles having engaged 53 employees on that date and having completed three years of infancy period. The establishment implemented the provisions of the Act and scheme framed thereunder from the date of coverage without any dispute except for the fact that it was not extending membership to the weavers of the society. Non-enrolment of the weavers, engaged by the society, was reported by the Enforcement Officer, Anantapur vide his report dated 24.09.1996. The Society did not produce the list of weavers and payments made to them before the Enforcement Officer, in spite of his repeated requests. The office of the Assistant Provident Fund Commissioner, Cuddapah was constrained to initiate an inquiry under Section 7-A of the Act to determine the dues payable by the Society in respect of the weavers engaged by the Society. 7-A inquiry notice was serviced to the Society and several opportunities were given to it to produce the records before the Section 7-A authority as evidenced in the file maintained by the Sub-Regional Office, Cuddapah. The Society neither appeared before the authority nor produced the records. In view of the above situation, the 7-A authority decided to assess the dues based on the particulars furnished by the Enforcement Officer vide his inspection report dated 07.01.1997 and assessed an amount of Rs.54,257/- towards arrears payable in respect of weavers engaged by the society. The ex-parte order under Section 7-A in this regard was issued on 16.06.1997. Aggrieved by the said order, the society filed an affidavit on 13.07.1997 seeking to set aside ex-parte order and the authorities with an intention to give one more chance to the Society, notice issued on 08.09.1997 to produce records before the authority and state its case if any. The inquiry was posted on 30.09.1997 and the society was represented by its President along with an advocate. The main contentions of the representatives of the society are as follows: “1. There is no master and servant and employer and employee relationship between the weavers and the society and that all the weavers are members of the society and they are not paid wages but only remuneration pending on the provision of the materials by the society. It is also pointed out that it is the will and pleasure of the members whether they want to take yarn from the society and produce cloth and the role of the society is only that of a mediator between members of the society APCO and members of the society. 2. The society is actually having only five regular employees who are paid salaries. An establishment which is co-op.society engaging less than 20 employees is not coverable under P.F. Act under Sec.1(3) other than by a notification under Sec.1(4) of the Act. 3. The members of the society are not employees within the meaning of Sec.2(f) of his Act. 4. The members are not getting wages for any kind of work and they are not getting wages directly or indirectly from the society. 5. There is no dispute between the employees and management of the society and P.F. authorities cannot suo moto initiate 7-A proceedings unless there is dispute as stated above. 6. The majority of the employees have not given their consent for coverage under the Act. 7. Wage or basic wage as defined in Sec.2(b) of the Act does not attract this establishment members since Sec.2(b) excludes commission or any other similar allowances payable to the employees from that P.F. deductions under Sec.2(f) of the Act. The society is not an employer and members its employees.” In view of the above, the contention of the society was that the society is not coverable under the Act and hence the amount assessed under Section 7-A of the Act vide order dated 16.06.1997 are not legal. Therefore, sought to drop initiation of the proceedings. The original authority had considered the contention of the society and held as under: “1. It is well established law that the co-op. society is a separate entity and can be distinguished between the society and its members. The society in taking the services of its members and also non-members for the functioning of the society what is production of textiles. It is seen that wages are being paid to non- members for the work done by them and in the case of weavers who are members of the socity converstion charges are paid to them. It is also clear that the function of the society is to do business in woven cloth by supplying the same as per the specification of the ultimate buyer i.e., APCO. It is obvious that the commission received by the society from APCO is not only by virtue of being wages for the members of society but also a the establishment which is responsible for maintaining the quantity and quality required by APCO. For example, if weavers supply materials which is not upto the mark in quality for the production level falling short of vis-a-vis the amount of yarn taken by the member definitely, the society has to take appropriate action either by reducing the remunaration paid to the concerned person or by other suitable action. So an element of supervision and control is evident in the functioning of the members as weavers of the society. 2. Actual employment strength of an establishment has to be taken based on the fact that how many employees are required for the functioning of the establishment. A weaving establishment cannot be run without weavers. Existence of the establishment itself depends on the work done by the weavers. Just because they happen to be the members of the society does not change the fact that the establishment cannot exist without the work rendered by the weavers. Therefore the number of weavers engaged by the society in its business will form part of the employment strength and has to be counted as such. As per the information available in the file maintained by the P.F. office it is seen that the society engaged more than 50 employees including the weavers and hence was liable to be covered under E.P.F. Act. It is also to be noted that the society was implementing the provisions of the Act to its employees who are non-members right from 1981 without any dispute as to the applicability of the Act to the society. 3. This pint has already been dealt with under point No.1. 4. Even though the members are not paid wages as such, they are being paid conversion charges. Conversion of yarn to woven cloth does not require any other input other than labour and hence conversion charges paid are only the cost of labour for converting the yarn into cloth and hence it is only wages called in another name. 5. An inquiry under Sec.7A is not initiated to settle disputes between management and employees but to determine dues payable by an establishment under the E.P.F. Act nd scheme. These dues might have accrued either due to non-implementation of the provisions of the Act or wrong implementation of the provisions of the Act. It is not stipulated under the Act that there has to be dispute between the management and employees to initiate proceedings under Sec.7A of the Act. 6. Consent of the majority of the employees is required under the Act for coverage only when an establishment is covered under Sec.1(4) of the Act. In the instant case the society was covered under the Act under Sec.1(3) of the Act having satisfied all the conditions which are required for coverage under the Act and hence the question of obtaining consent for the employees does not arise. 7. It has already been discussed in detail why the conversion charges paid to the weavers are only wages and not any other payment, while discussing point No.4. Conversion charges paid to the weavers being only remuneration of the labours put in by the weavers for converting yarn to cloth. The payment cannot be termed as commission or allowances.” By considering all the grounds raised by the society, the original authority held that the provisions of the Act would apply to it and they are liable for implementation of the provisions and for the consequential action. Therefore, aggrieved by the said order, the Society preferred an appeal and the appellate authority allowed the appeal holding as under: “if a cooperative society runs a spinning mill and employs the member of the society as weavers or the weavers are made member of the society (which is not legally possible under the societies Act because and person having interest in the business of society cannot become a member and also while a member he gets some interest afterwards he ceases to remain member), then according to the view of the Hon’ble Madras High Court he may be treated as an employee of the society. But where the cooperative society is formed by the weavers themselves for procuring raw materials for weaving and for facilitating sales etc. then they can never be held to be the employees of such a cooperative society. My this view finds support from the judgment of Hon’ble Punjab and Haryana High Court reported in Punjab Khadi Mandal Vs. RPFC (1996) 3 LLJ (Suppl.) 60 (P & H). In 1986 Lab. IC370; ESIC, Hyderabad Vs. M/s. Lakshmi Powerloom Weavers Cooperative and Sales Society Ltd., Warrangal, a Division Bench of the Hon’ble Andhra Pradesh High Court has also held “hence we are of the opinion that the work of these members in these societies though for remuneration would not make them employees of the Societies”. The learned APFC has lost sight of the fact that the appellant Cooperative Society is a link between the APCO and the weaver members and on the basis of PM Patel’s case if the Department wants to establish any relation of the employer and employee then they should try it between the APCO and the weaver and not the appellant’s Society. From the facts of this case I am of a clear view that there is no relation of employer and employee between this appellant’s Cooperative Society and the weavers members who are getting tarns from APCO through the appellant Cooperative Society and selling out their end product to the APCO through the appellant Cooperative Society. In the result the appeal succeeds. ORDER The appeal is allowed. The impugned order is set aside.” The contention of the petitioner in the writ petition is that the appellate authority had not considered the facts mentioned in the counter filed before it on the following issues: i) Non-Members also work for the society; ii) Right of rejection is vested with the Society which definitely gives the Society the status of the employee as the said right can be exercised only through supervision and control; iii) The nominclature for the payment of remuneration for the work done cannot change the purpose for which it is paid and in the instant case although it is called as conversion charges, it is in reality a wage paid to the employees who turn out work for the society. The learned counsel for the petitioner contended that several aspects that have been considered by the original authority holding that the Society is the establishment within the provisions of the Act and therefore, the provisions of the Act would apply to the said society and in fact, earlier, the society was implementing the provisions of the Act but suddenly failed to implement the same. Therefore, necessary action was initiated under the provisions of the Act and the original authority, after considering all the aspects raised by the Society, passed the order. But, the appellate authority allowed the appeal erroneously as stated hereinabove. He further submitted that in similar circumstances, this Court in its order dated 04.04.2007 passed in W.P. No.25626 of 1998 filed by the Regional Provident Fund Commissioner, Barkatpura, Hyderabad against the respondents i.e. 1. The Employees’ Provident Fund Appellate Tribunal, New Delhi and 2. Natural Resources Development Co-operative Society Limited, Himayat Nagar, Hyderabad, wherein the petitioner sought to issue Writ o f Certiorari calling for the records relating to the order dated 23.07.1998 in case No.ATA/1(6)/97 passed by the 1st respondent therein and quash the same as illegal and unjust and this Court vide its order dated 04.04.2007, while setting aside the impugned order therein, the 1st respondent therein was directed to reconsider the matter with proper perspective and pass afresh orders, in the light of the observations made in the matter, after issuance of a notice of hearing to the parties. In the said order, this Court had considered the judgment rendered in M.W.C.P. & SOCIETY LTD. V. R.P.F. COMMR. & ORS.[1] wherein it is held that when members of cooperative society do work in connection with that of society and they are paid wages, there exists employer and employee relationship for the purpose of extending the provisions of Employees Provident Funds and Miscellaneous Provisions Act, 1952. While taking into consideration the said judgment, this Court passed the following order in W.P. No.25626 of 1998, which reads as under: “Even the finding that a member cannot have an interest in any of the activities of the society and as soon as he acquires any interest in the business of the society, he becomes disqualified to remain as a member is also not properly considered. The A.P. Cooperative Societies Act, 1964, under which the second respondent-society was registered, provides disqualification for a person to be admitted as member and for being a member if he is a paid employee of the society or of its financing bank or of any society for which it is the financing bank and, this disqualification of a member-employee to be a member of the society is also removed by Section 21(2) of the Act, if the society has as its principal object the provision of employment to its members. Section 21-A of the A.P. Cooperative Societies Act also makes a person ineligible for being chosen as and for being a member of the committee of a society, if he acquires any interest in any subsisting contract made with or work being done for the society, except as otherwise prescribed. Therefore, both the prohibitions contained in the A.P. Cooperative Societies Act, 1964 do not appear to have any application to the instant case inasmuch as the very Act permits a member of a society to be an employee of a society which has as its principal object the provision of employment to its members and every member of the society will naturally have interest in the business of the society and there is no element of acquiring interest in any subsisting contract made with or work being done for the society, which disqualifies a member to be a member of the committee. Though there is appearance on behalf of the respondents, no counter affidavit is filed and the learned counsel reported no instructions. For the reasons stated above, I am of the considered opinion that the appellate Tribunal did not consider the various aspects in proper perspective and the matter requires reconsideration by the appellate Tribunal. Accordingly, I set aside the order passed by the appellate tribunal and remit the matter back to the first respondent herein for consideration afresh in the light of the observations made above after issuance of a notice of hearing to the parties. The writ petition is allowed to the extent indicated above. No costs.” In the instant case also, the respondents, contradicting the grounds raised by the petitioner in the writ petition, have filed no counter affidavit. In that view of the matter, having regard to the orders passed by the original authority, giving substantial reasoning, and having regard to the grounds raised in the writ petition, which have not been considered by the appellate authority, this Court is of the considered opinion that the order under impugned is erroneous and required to be reconsidered as the grounds raised by the petitioner are in the interest of employees working in the society, particularly, for the fact that the society was implementing the provisions of the Act, prior to action initiated by the authority under Section 7-A of the Act. Therefore, the impugned order is set aside and the matter is remitted to the 1st respondent, Appellate Tribunal, to re-consider the matter afresh, taking into consideration all the factual and legal position having regard to the aims and objectives of the provisions of the Act, by giving opportunity to both the parties and pass appropriate orders, in accordance with law, within a period of three months, from the date of receipt of a copy of this order. In the result, this writ petition is allowed. There shall be no order as to costs. ________________________ JUSTICE G.CHANDRAIAH Date: 30.09.2011 LSK [1] ILLJ High Court, Madras, 824