IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 27.07.2011 CORAM: THE HON’BLE MR. JUSTICE K.CHANDRU W.P.No.9624 of 2010 & M.P.No.1 of 2010 The Management of Hotel Pratap Plaza Rep.by its Partner Mr.M.K.Prasad No.96-C, Kodambakkam High Road Chennai 34 ... Petitioner Vs. 1. The Presiding Officer Employees' Provident Fund Appellate Tribunal (Ministry of Labour & Employment, Government of India) SCOPE MINAR, CORE II, 4th floor Lakshmi Nagar District Centre Lakshmi Nagar, New Delhi 110 092 2. The Regional Provident Fund Commissioner No.20, Royapettah High Road Royapettah, Chennai 14 ... Respondents Prayer : Petition filed under Article 226 of the Constitution of India praying for the issuance of a Writ of Certiorari calling for the records of the 1st respondent in ATA No.94 (13) of 2002 and quash its orders dated 13.4.2010 confirming the order of the 2nd respondent dated 6/08.5.1996 in proceedings No.D6/TN/MS/35712/Enf/Regl/96. For Petitioner :: Mr.S.Ravindran for M/s.T.S.Gopalan & Co. For Respondents :: Mr.K.Gunasekar, ACGSC for R2 R1 - Tribunal https://hcservices.ecourts.gov.in/hcservices/ O R D E R The petitioner is the Management of Hotel Pratap Plaza represented by its Partner. The writ petition is filed against the order passed by the first respondent Employees' Provident Fund Appellate Tribunal made in ATA No.94(13) 2002 dated 13.04.2010. By the aforesaid order, the Tribunal upheld the order passed by the second respondent under Section 7-A of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (for short PF Act) dated 06.05.1996 and dismissed the appeal filed by the petitioner. 2. The writ petition was admitted on 30.04.2010. Pending the writ petition, this Court order notice on the application for stay. 3. It is the case of the petitioner that one M/s.M.P.Rao and Company was registered as partnership firm in the year 1970 and it had four partners and they all belong to the same family. The firm was engaged in finance business. However, in the year 1983, the finance company was wound up. Subsequently, the firm engaged in the business of hiring machinery such as Generators, lights and other equipments for Film and other Industries and that business was closed during the year 1991. The machineries were also sold and the employees engaged by them were discharged after settling their accounts. Thereafter, the firm decided to explore the possibility of utilizing its landed property at No.96-C, Kodambakkam High Road, Chennai – 34. Accordingly, in that property, the Hotel was constructed and the hotel business commenced from 04.03.1993. During the period between 1991 and 1993, the firm did not carry on any business. After the hotel was started with effect from 04.03.1993, they were entitled to have infancy protection in terms of Section 16 (1)(b) of the PF Act. Therefore, the employees engaged by them were liable to be covered by the provisions of the PF Act after the infancy period of three years with effect from 04.03.1996. However, even before the expiry of infancy period, all the employees in the Hotel were covered by the provisions of the PF Act from 01.07.1995 onwards. 4. The petitioner submitted a proforma to the second respondent. The second respondent by a letter dated 30.10.1995 sought for certain clarifications from the petitioner. Thereafter, the second respondent, by a letter dated 09.01.1996 informed the petitioner that since the Hotel was a Unit of M/s.M.P.Rao and Company, who were having 31 persons during May 1993, it was liable to be covered from 01.05.1993 itself and was not entitled for any infancy protection. The petitioner was also allotted a code number and was called upon to remit contributions. They were also directed to send the arrears of contribution for the period from 01.05.1993 to 31.12.1995. An enquiry under Section 7-A was also conducted and https://hcservices.ecourts.gov.in/hcservices/ by proceedings dated 06.05.1996, the second respondent held that the petitioner was bound to implement provisions of the Act from 01.05.1993 and are also liable to pay the damages. 5. Aggrieved by the said order, the petitioner preferred an appeal under Section 7-I of the PF Act before the first respondent Tribunal. Along with the appeal, they have also enclosed 17 documents in support of their memorandum of appeal. The Tribunal after notice to the second respondent held that the petitioner is not entitled for infancy protection. The Hotel business was started in the year 1993 when Section 16-D was in force. The Tribunal further held that to avail the benefit of infancy protection, the petitioner must show that it was a new establishment. Even as per the appeal memo, it was the same firm which was doing different business. Hence, the owner was one and the same. The Tribunal referred to the judgment of the Supreme Court in Sayaji Mills Ltd. v. R.P.F.C., reported in 1984 Supp SCC 610, wherein, the Supreme Court held that mere investment of additional capital or affecting the repairs to the existing machinery business cannot make it a new business. The diversification of the line of production will not make it as a new factory. The Tribunal held that since the owner and finance are the same and there was only change of business, the petitioner's hotel business cannot be construed as a new establishment. Hence, the order of the second respondent was upheld by the Tribunal. 6. On notice from this Court, the second respondent has filed a counter affidavit dated 13.07.2011. It was contended that M/s.M.P.Rao and Company and the petitioner are not two different establishments. One is the continuation of the other with a different name and style. Hence, it was contended that the petitioner cannot claim any infancy protection. 7. The learned counsel for the petitioner also filed an additional typed set containing the list of Annexures enclosed along with the appeal filed before the Tribunal. A perusal of the order of the Tribunal does not show that it had even looked into those Annexures before rendering the finding. No legal finding can be given unless the facts are looked into by the Tribunal. 8. The learned Standing Counsel for the PF Department referred to the judgment of the Supreme Court in State of Punjab v. Satpal reported in AIR 1970 SC 655 = (1969) 3 SCC 910. Reliance was placed upon the following passages found in paragraphs 6 to 8, which is as follows:- "6.The contention of the respondents is that the business which they were running in 1964-65 was an entirely different business and was not the same business which Tirath Ram had started. They referred https://hcservices.ecourts.gov.in/hcservices/ in particular to the kind of articles that Tirath Ram was manufacturing and submit that the manufacturers had been changed when action was taken under the Employees' Provident Funds Act. In other words, they draw attention to the difference between the manufacture of Tawas and knives on the one hand and nails for bullock shoes on the other. We do not think this makes any difference. In fact, the business had already changed in the hands of the partnership long before the establishment changed its premises. The business of the partnership was running an iron- smithy for the manufacture of iron articles and the factory continued even though the manufacturing process changed from one article to another. We must, therefore, hold that the same factory continued in spite of the change from Tawas to iron nails in the manufacturing process. 7.The next submission on behalf of the respondents is that the partnership changed and therefore a new business came into existence. Here again, we are not concerned with the law of partnership but with the Employees' Provident Funds Act. The law takes into account only the existence of establishments and the employment of a certain number of persons in factories over a given period. It is for this purpose that change of location or change of composition of partners or even a change in the manufacturing process is not considered vital in the application of this law. This was laid down by this Court in very explicit terms in Civil Appeal Nos. 572 and 573 of 1964, decided on October 6, 1965 (Lakshmi Rattan Engineering Works v. Regional Provident Fund Commissioner, Punjab). 8.The most important question which arises for consideration in this case is whether the period of infancy is to be calculated from 9-11-1957 when the establishment was first begun or from 13-11-1962 when the employment of 20 or more workmen first commenced. This point is also covered in the case we have cited above. A further ruling on the subject exists in R. Ramakrishna Rao v. State of Kerala1. In that case also employment of 20 or more persons began later than the commencement of the establishment. Explaining the sub-section, this Court states that the word “is” in the sub-section clearly indicates a https://hcservices.ecourts.gov.in/hcservices/ newly started business, and the word “has been” a business which has been in existence before. It is, therefore, held that the period of infancy must be calculated from the first establishment of the factory and not from the moment of time when the figure of 20 or more is first reached." 9. The learned Standing Counsel further referred to the judgment of the Supreme Court in Sayaji Mills Ltd. v. R.P.F.C., reported in 1984 Supp SCC 610. He relied upon the following passage found in paragraph 12, which is as follows:- "12.On behalf of the appellant, reliance was placed on the decision of this Court in Provident Fund Inspector v. Secretary, N.S.S. Cooperative Society, Changanacherry12. That was a case in which the Secretary of a cooperative society which owned a press had been acquitted by the Magistrate of the charge of not complying with the provisions of the Act. The High Court had confirmed the order of acquittal. On appeal, this Court found that there was no groundto interfere with the acquittal. The defence of the accused in that case was that the Cooperative Society of which he was the Secretary had acquired the press in question in March 1961 and had established a new press subsequently and hence the Act was not applicable to the press as the period of three years prescribed by Section 16(1)(b) of the Act had not expired. The evidence in that case showed that after the purchase, a new owner had come in the place of the former owner, the work of the press was stopped on the date of its sale and was started again after a break of three months, the machinery in the press was also altered and the persons employed previously were not continued in service. While a fresh recruitment of workmen had taken place, out of those workmen only six happened to be the former employees and compensation had been paid to the workmen at the time of the sale by the former owner. On these facts it was held that a new establishment had come into existence. In the case before us, it is seen that about 70 per cent of the former workmen had been employed by the appellant and there was no change of machinery. Further this is a case where the interruption of work had taken place owing to the order in the winding up proceedings. It is relevant to state here that this Court in the course of its https://hcservices.ecourts.gov.in/hcservices/ judgment in the above case did not overrule the decision of the Calcutta High Court in Bharat Board Mills Ltd.2 but only distinguished it. The facts of that case more or less corresponded to the facts of the case before us. It is true that this Court in the above decision approved the decision of the Madras High Court in Vittaldas Jagannatahdas v. Regional Provident Fund Commissioner13 but that does not make any difference so far as the case before us is concerned since in the Madras case there was a finding that in reality the old establishment had come to an end and there was a new establishment. In the case before us, the finding of fact of the trial court is to the contrary. The learned trial Judge has held that the intention in this case was to maintain the continuity of the old factory. Hence the decision on which reliance is placed being distinguishable on facts is not of much use to the appellant." 10. On the contrary, Mr.S.Ravindran appearing for M/s.T.S.Gopalan and Co., learned counsel for the petitioner placed reliance on the judgment of the Supreme Court in Noor Niwas Nursery Public School v. R.P.F. Commr., reported in (2001) 1 SCC 1. He relied upon the following passage found in paragraph 4, which is as follows:- "4.Whether two units are one or distinct will have to be considered in the light of the provisions of Section 2-A of the Act which declares that where an establishment consists of different departments or has branches whether situate in the same place or in different places, all such departments or branches shall be treated as parts of the same establishment. In such cases, the court has to consider how far there is functional integrity between the two units, whether one unit cannot exist conveniently and reasonably without the other, and on the further question, in matters of finance and employment, the employer has actually kept the two units distinct or integrated. In fact, this Court set out certain tests in Pratap Press v. Secy., Delhi Press Workers' Union1. However, we may point out that each case would depend upon its own peculiar facts and has to be decided accordingly." https://hcservices.ecourts.gov.in/hcservices/ 11. But in the very same judgment, in paragraph 6, the Supreme Court had observed as follows:- "6.....The learned counsel submitted that if the two units were put together as a single establishment, the Act would be applicable and otherwise not, inasmuch as it falls short of the number of minimum of employees for the applicability of the Act under Section 1(3)(b) of the Act. We are not impressed with this argument. The two establishments have more than 20 employees and the exemption granted under Section 17 of the Act is subject to the condition that such exclusion will not apply to the appellant's unit because the same would not be covered under another scheme for subscribing to the provident fund. When the entire establishment is covered by the Act, only part of the establishment is excluded and condition of exclusion being applicable only to a part, we fail to understand as to how the appellant can rely upon the said letter to claim non-applicability of the Act on the ground that it falls short of the number of employees." Therefore, that judgment has no direct application to the facts on hand. 12. The learned counsel further referred to the judgment of the Supreme Court in Regional Provident Fund Commissioner and another v. Dharamsi Morarji Chemical Co. Ltd., reported in (1998) 2 SCC 446, in paragraph 4, it was held as follows:- "4.It is true that if an establishment is found, as a fact, to consist of different departments or branches and if the departments and branches are located at different places, the establishment would still be covered by the net of Section 2-A and the branches and departments cannot be said to be only on that ground not a part and parcel of the parent establishment. However, on the facts of the present case, the only connecting link which could be pressed in service by the learned counsel for the appellant was the fact that the respondent-Company was the owner not only of the Ambarnath factory but also of Roha factory. On the basis of common ownership it was submitted that necessarily the Board of Directors could control and supervise the working of Roha factory also and therefore, according to the learned counsel, it could be said that there was interconnection between Ambarnath factory and Roha https://hcservices.ecourts.gov.in/hcservices/ factory and it could be said that there was supervisory, financial or managerial control of the same Board of Directors. 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 interconnection between the two factories in the matter of supervisory, financial or managerial control. Nothing could be pointed out to us to contraindicate 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." 13. The learned Counsel for the petitioner also referred to a judgment of this Court in Regional Provident Fund Commissioner, Tirunelveli v. Prabha Beverages (Private) Ltd., and another reported in 2008 (4) L.L.N. 899, where similar contention raised by the respondent was rejected. 14. In the light of the rival contentions, it has to be seen whether the Tribunal had adverted to all the relevant facts before dismissing the appeal. As noted already, the Tribunal passed a cryptic order and affirmed the order passed by the second respondent. When an appeal is filed with necessary enclosures, the Tribunal has to advert to those Annexures and pass an order after applying its mind on the relevant particulars. The Tribunal except relying upon the judgment of the Supreme Court in Sayaji Mills's case (cited supra) did not take note of the subsequent legal developments. 15. In this regard, it is necessary to refer to the judgment of the Supreme Court in Regional Provident Fund Commr. v. Raj's Continental Exports (P) Ltd., reported in (2007) 4 SCC 239. In paragraphs 2 and 3, it was held as follows:- https://hcservices.ecourts.gov.in/hcservices/ "2.Background facts in a nutshell are as follows: The respondent claimed infancy protection under the provisions of the Act. It started production in 1984. The respondent was of the view that it was an extension of the branch of M/s Continental Exporters, a proprietorship concern of one Sampathraj Jain, who was also the Managing Director of the respondent Company. The appellant's view was that the respondent was nothing but a department of the aforesaid “M/s Continental Exporters”. Assailing the adjudication, the respondent filed a writ petition stating that there was no financial integrity. It was separately registered under the Factories Act, the Central Sales Tax Act, 1956, the Income Tax Act, 1961 and the Employees' State Insurance Act. The concerns are separate and distinct. They have separate balance sheets and audited statements. The High Court accepted the contention and held that there was total independent exercise of power in the two concerns. Though the manufacturing of goods was in respect of the same article, that by itself was not sufficient to hold that it was a branch or department of M/s Continental Exporters. The High Court as a matter of fact found that there was total independence in exercise of the management and control of the affairs, the employees were separately appointed and controlled. Taking into account these factors it was held that the respondent Company and M/s Continental Exporters were not one and the same. 3.Challenge was made to the order of learned Single Judge in the writ appeal. The High Court after analysing the factual position came to hold that there was nothing in common between the two establishments. Merely because the proprietor of one concern was the Managing Director of the other that by itself is not sufficient to establish that one was branch of the other. Accordingly, the writ appeal was dismissed." 16. The Supreme Court while dealing with the clubbing of various manufacturers under the Central Excise Act in Rollatainers Ltd. v. CCE, reported in (2004) 11 SCC 203 dealt with the clubbing of various manufacturers for levying excise. In paragraphs 7 and 8, it was observed as follows;- "7.There are no two opinions that both the factories are near to each other and they are owned by the same https://hcservices.ecourts.gov.in/hcservices/ owner and the common balance sheet is maintained. But, by this can it be said that both the factories are one and the same? The definition of “factory” as defined in Section 2(e) of the Central Excise Act, 1944, reads as under: “2. (e) ‘factory’ means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on;” 8.Simply because both the factories are in the same premises, that does not lead to the inference that both the factories are one and the same. In the present case, from the facts it is apparent that there is no commonality of purpose, both the factories have a separate entrance, there is a passage in between and they are not complementary to each other nor are they subsidiary to each other. The end product is also different, one manufactures duplex board and the other manufactures paper. They are separately registered with the Central Excise Department. The staff is separate, their management is separate. It is also not the case of the Revenue that the end product of one factory is raw material for the other factory. From the above facts it is apparent that there is no commonality between the two factories, both are separate establishments run by separate managers though at the apex level they are maintained by the appellant Company. There are separate staff, separate finished goods. Simply because both the factories may have common boundaries, that will not make them one factory. Accordingly, we are of the opinion that the view taken by the Tribunal does not appear to be well founded and likewise, the view taken by the Commissioner, Central Excise. Accordingly, we allow both these appeals, set aside the order of the Tribunal passed on 7-6-2002 as well as the order passed by the Commissioner, Central Excise, New Delhi III on 28-9-2001 in both the appeals." 17. In the present case, the petitioner is not doing the same business and the employees are not the same employees. Merely because the ownership of the establishment are the same does not automatically enable the authorities to come to the conclusion that it is a continuous business and not a new establishment. https://hcservices.ecourts.gov.in/hcservices/ 18. In the light of the above, the writ petition stands partly allowed and the impugned order of the Tribunal is set aside. The matter is remitted to the first respondent Employees' Provident Fund Appellate Tribunal for fresh disposal in accordance with law. The Tribunal shall dispose of the appeal after taking note of all the relevant facts indicated in the judgment and after due notice to the parties, within a period of six months from the date of receipt of a copy of this order. However, there will be no order as to costs. Consequently, connected miscellaneous petition is closed. Sd/- Asst.Registrar. /true copy/ Sub Asst.Registrar. svki To 1. The Presiding Officer Employees' Provident Fund Appellate Tribunal (Ministry of Labour & Employment, Government of India) SCOPE MINAR, CORE II, 4th floor Lakshmi Nagar District Centre Lakshmi Nagar, New Delhi 110 092 2. The Regional Provident Fund Commissioner No.20, Royapettah High Road Royapettah, Chennai 14 1 cc to M/s.T.S. Gopalan and Co, Advocate, Sr. 45522 1 cc to Mr.K. Gunasekar, Advocate, Sr. 45494 W.P.No.9624 of 2010 GR (CO) kk 3/8 https://hcservices.ecourts.gov.in/hcservices/