IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 12.07.2011 CORAM THE HONOURABLE MR.JUSTICE D.MURUGESAN and THE HONOURABLE MR.K.K.SASIDHARAN W.A.No.715 of 2010 Regional Provident Fund Commissioner, Tirunelveli. .. Appellant / Petitioner Vs 1. M/s.Prabha Beverages Private Ltd., Nathalam Village, Marthandam, Kanyakumari District. 2. The Presiding Officer, Employees Provident Funds Appellate Tribunal, 7th Floor, 60, Skylark Buildings, Nehru Palace, New Delhi. .. Respondents/Respondents Writ Appeal against the order of this Court dated 22.10.2008 made in W.P.No.3462 of 1999. Presented under Article 226 of the Constitution of India to issue of a writ of certiorari calling for the records of the second respondent relating to the order dated 27.8.1998 passed by the second respondent in Case No.13 (54) 1998 and quash the said order dated 27.8.1998 passed in case No.13(54) 1998. For Appellant : Mr.K.Ramu For Respondents : Mr.Hari Radhakrishnan/R-1 R2 - Court * * * * * J U D G M E N T D.MURUGESAN, J. This writ appeal is directed against the order dismissing the writ petition filed by the appellant herein. https://hcservices.ecourts.gov.in/hcservices/ 2.The appellant is the Regional Provident Fund Commissioner, Tirunelveli. The first respondent, M/s.Prabha Beverages Private Limited, Marthandam, is a company registered under the Companies Act, 1956. The primary activity of the company is manufacturing of soft drinks and it commenced its trial production on 04.08.1987. The company entered into a Franchise Agreement with M/s.Parle (Exports) Pvt. Ltd., Bombay, which is a covered establishment under the Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter called as 'the Act'). By virtue of the franchise agreement, the first respondent-company was permitted and authorised as bottlers to bottle, sale and distribute beverages known as Gold Spot, Kismet, Limca, Rimzim, Thumsup and Bisleri Club Soda. On the ground that the first respondent-company is an agent of M/s.Parle (Exports) Pvt. Ltd., an enquiry under Section 7-A of the Act was conducted. The first-respondent company claimed the benefit for the period from August 1987 to August 1990, as it would be entitled to the benefit of Section 16 for a period of 3 years for payment of provident fund contribution. However, the said claim was rejected and the appellant, in his order dated 09.03.1998 directed the first respondent to remit a sum of Rs.2,71,572/-, a further sum of Rs.12,826.50, Rs.45,750/-, Rs.9,867/- and Rs.197.35 in various accounts for the above period. The appellant further directed, in the event the first respondent-company fails to pay the said amount, to initiate prosecution under Section 14 of the Act. 3.Being aggrieved by the said order of the appellant, the first respondent-company preferred appeal before the Employees Provident Funds Appellate Tribunal and by order dated 27.08.1998, the appeal was allowed. The Appellate Tribunal held that the first respondent-company is only a contractor of M/s.Parle (Exports) Pvt. Ltd., pursuant to the franchise agreement. The Appellate Tribunal also found that the first respondent-company is an independent manufacturer and therefore, it is entitled to the infancy benefits under Section 16 of the Act. 4.The above order of the Appellate Tribunal was questioned by the appellant in the writ petition, which was dismissed. Hence, the present writ appeal. 5.The only issue to be considered is as to whether the first respondent-company is primarily carrying on manufacturing activity and is a contractor under the franchise agreement or it is an agent of M/s.Parle (Exports) Pvt. Ltd., making it ineligible for payment of provident fund contribution during the infancy period. 6.Section 16(1)(d) of the Act provided that the Act shall not apply to any establishment newly set up until the expiry of the period of 3 years from the date on which such establishment is or https://hcservices.ecourts.gov.in/hcservices/ has been set up. The above provision was deleted by the Amendment Act X of 1998 with effect from 22.09.1997. The first respondent- company was set up and started its trial production on 04.08.1987 and the actual manufacturing process was started on 17.08.1987. Placing reliance on the above provision of Section 16(1)(d), the first-respondent company claimed that the provision of the Act shall not apply for a period of 3 years from the date when the establishment was set up. This led to an enquiry conducted under Section 7-A of the Act, which ultimately resulted in the order of the appellant directing the first-respondent company to pay the contributions from 04.08.1987. 7.Before the learned single Judge, two questions were raised, viz., i) when the original authority, namely, the Regional Provident Fund Commissioner himself has passed an order on the basis of the enquiry conducted under Section 7-A of the Act, whether he would be competent to file a writ petition challenging the Appellate Tribunal's order reversing his order; and ii) whether the first respondent-company is a contractor of M/s.Parle (Exports) Pvt. Ltd., under the franchise agreement or is an agent. In the event it is held that the first respondent-company is only a contractor of M/s.Parle (Exports) Pvt. Ltd. under the franchise agreement, it should have the benefit of infancy period for 3 years from 04.08.1987. On the other hand, if it is held that it is an agent of M/s.Parle (Exports) Pvt. Ltd., then the said benefit is not available to the first respondent-company in view of the fact that M/s.Parle (Exports) Pvt. Ltd., is an establishment covered under the Act. 8.As far as the first contention is concerned, the learned Judge has observed that the appellant is not entitled to file a writ petition questioning the order of the Appellate Tribunal. In our opinion, the said finding of the learned Judge cannot be accepted. Though the appellant has passed the order on an enquiry under Section 7-A directing the first respondent-company to pay the contribution, it cannot be said that in the event the said order is reversed by the Appellate Tribunal, no further challenge could be made before the Court. If that argument is accepted, in all cases in the event the order of the original authority is reversed on appeal, the same would necessarily become final without any further challenge before any other forum or before this Court. To this extent, we are not inclined to accept the said finding of the learned single Judge. 9.Coming to the next submission as to whether the first respondent-company is a contractor or an agent of M/s.Parle (Exports) Pvt. Ltd., this being a question of fact, to decide such question of fact, the terms and conditions of the franchise agreement are relevant. Before we go into the said question, we may refer the following judgments rendered under similar https://hcservices.ecourts.gov.in/hcservices/ circumstances, wherein it has been held that a franchise agreement holder is only a contractor. 10.In Parle Beverages (P) Ltd. vs. Union of India and others (1982 ELT 142 (Bombay)), the Bombay High Court had an occasion to consider the very same issue, wherein M/s.Parle Beverages (P) Ltd. had entered into a franchise agreement. In that judgment, in fact an earlier Division Bench Judgment of the Delhi High Court in Poona Bottling Co. Ltd. and another vs. Union of India and others, reported in 1981 (8) ELT 389 taking a similar view was quoted with approval. It has been held by the Bombay High Court as follows:- " 6. ... As mentioned hereinabove, an idential question came up for consideration before the Division Bench of Delhi High Court and the judgment is reported in 1981 ELT 389 (supra). The Division Bench held on consideration of the terms of Franchise Agreement that the imposition of various restrictions on the petitioner company under the Franchise Agreement on buying the essence for the beverages, like maintenance of records, chemical tests, sale and distribution of beverages, types of bottles or crowns to be used, control over retail franchise, company's right of inspection, were merely to safeguard the trade interests and cannot lead to the conclusion that the bottling companies are manufacturing for or on behalf of the Parle (Exports) Pvt. Ltd. I am in agreement with the view taken by the Division Bench of Delhi High Court." A similar view has also been taken by the by the Andhra Pradesh High Court in the judgment reported in 1991 (62) FLR 627 (Karachi Bakery vs. Regional Provident Fund..) and by the Rajasthan High Court in the judgment reported in 2007 (11) FLR 394 (Regional Provident Fund Commissioner (The) and Anr. vs. Moti Warping Factory. By placing reliance on the above judgments, the learned Judge held that the first respondent-company had engaged only in manufacturing activity, which is entitled to the benefit of Section 16(1)(d) of the Act. 11.The learned Judge has also considered Section 2-A of the Act relating to the definition of 'Establishment'. Whether the first respondent-company is an establishment or not also could be decided only on the basis of the franchise agreement. The franchise agreement was dated 15.01.1987. Clause 3 of the agreement provides that the first respondent-company will buy from M/s.Parle (Exports) Pvt. Ltd. the essence/syrup for the beverages at the prevailing prices and shall notify all bottles and crowns purchased by the first respondent-company. The clause also provides that no essence/syrup, cartons, crates, crowns or finished merchandise will be sold, loaned or delivered to any other Bottler without prior written permission of M/s.Parle (Exports) Pvt. Ltd. https://hcservices.ecourts.gov.in/hcservices/ 12.Mr.Ramu, learned counsel appearing for the appellant, would submit that apart from the above clause, the first respondent- company should manufacture the beverages in a plant approved by M/s.Parle (Exports) Pvt. Ltd. and located within the described territory under the agreement. He would draw our attention to various clauses of the agreement in order to submit that the first respondent-company is nothing but an agent of M/s.Parle (Exports) Pvt. Ltd. These conditions of the agreement should be considered with reference to the actual activities carried on by the first respondent-company. 13.It is true that by virtue of the franchise agreement, the first respondent-company is bound to purchase the essence, viz., the raw materials for manufacturing the beverages. Nevertheless, factually it could be seen that the first respondent-company, in order to set up the unit, availed a loan of Rs.65 lakhs from SIPCOT, Tamil Nadu, under the category that it is a new venture. It has also availed credit facilities from State Bank of Travancore, Marthandam. The Government of Tamil Nadu recommended the registration of the first respondent-company as a new industrial undertaking to the Deputy Director of General of Technical Development. The Tamil Nadu Electricity Board also sanctioned electricity supply with special zone applicable to the new industrial units. It was also recognised as a small scale industrial unit by the Director of Industries and Commerce. It has also obtained licence from the Ministry of Food and Civil Supplies, Government of India, under the Production Order 1995. Though the first respondent-company has to manufacture beverages strictly in accordance with the terms and conditions under the franchise agreement, the entire manufacturing activity is not controlled by M/s.Parle (Exports) Pvt. Ltd. The franchise agreement should be read in consonance with the actual activities carried on by the first respondent-company. By mere agreement of undertaking to manufacture beverages only by using the essence supplied by M/s.Parle (Exports) Pvt. Ltd. with certain other clauses controlling the first respondent-company only in order to ensure the quality of the beverages, that would not change the character of the unit as a new venture. 14.Section 2(e) of the Act defines an employer meaning in relation to an establishment which is a factory. Section 2(g) defines a factory meaning any premises including the precincts thereof, in any part of which a manufacturing process is being carried on or is ordinarily so carried on. The Appellate Tribunal had factually found that the first respondent-company is carrying on manufacturing activity, which factual finding has been upheld by the learned single Judge. In our opinion, such a factual finding requires no interference. https://hcservices.ecourts.gov.in/hcservices/ 15.Mr.Ramu, learned counsel appearing for the appellant would submit that in the event there is a functional integrality between the two companies, both the companies should be considered as one establishment and in that event, the first respondent-company cannot claim the benefit that it is a new company entitling itself to the benefit of Section 16(1)(d), as it stood then. In support of the said submission, the learned counsel would rely upon the judgment of the Apex Court in The Associated Cement Companies Limited, Chaibassa Cement Works, Jhinkpani vs. Their Workmen, reported in AIR 1960 SC 56. 16.In the said case, the Supreme Court was considering the question as to whether a limestone quarry owned by the same company situate about a mile and half from one place to another would be considered for the purpose of one establishment. The Apex Court laid the test that manufacturing unit is completely depending upon the principal raw material for the manufacture of cement and the other company is depending exclusively for the supply of limestone on the said quarry. To put it otherwise, one company is depending upon the raw material of the other company and in turn, for that raw material, the other company was depending upon the limestone quarry. Only in that context, the Apex Court found that there was functional integrality. Even otherwise, the Apex Court, in order to find out the relationship between the two companies for functional integrality, found that several points should be considered including (1) ownership, (2) control and supervision, (3) finance, (4) management and employment, (5)geographical proximity and (6)general unity of purpose and functional integrality. In the case on hand, it is to be seen from the franchise agreement that except supplying the raw material and for establishing the unit as per its specification, M/s.Parle (Exports) Pvt. Ltd. has no control over the management and employment of the first respondent-company. Further, the first respondent is owned by the company as such and the control and supervision for the manufacturing activity vest in the first respondent-company only. Hence, the said judgment cannot be made applicable to the facts of the present case. 17.The learned counsel for the appellant would also rely upon yet another judgment of the Supreme Court in Noor Niwas Nursery Public School vs. Regional Provident Fund Commissioner and Others, (2001) 1 SCC 1 and would contend that the first respondent- company cannot exist conveniently and reasonably without M/s.Parle (Exports) Pvt. Ltd. This is one of the tests to find out whether the establishment is protected under Section 16 of the Act. In our opinion, the said judgement is also not applicable to the present case. In that judgment, the Supreme Court was considering a case where two units were run by the same society and they were located in one and the same address and thereby establishing geographical proximity. As both the units are run by the same society and that https://hcservices.ecourts.gov.in/hcservices/ on a factual finding that one unit cannot exist conveniently and reasonably without the other, the Apex Court found that both the units are one and the same. However, in the present case, as has been pointed out earlier, except the supply of raw materials and to prescribe the manner in which the unit is to be located, there is no other control over the manufacturity activity by M/s.Parle (Exports) Pvt. Ltd. 18.The two establishments are independent and the first respondent-company is only expected to manufacture beverages by using the raw materials supplied by M/s.Parle (Exports) Pvt. Ltd. and upto their specification. Hence, both the units cannot be considered as either one unit or the first respondent-company is an agent of M/s.Parle (Exports) Pvt. Ltd. The first respondent- company is an independent establishment as provided under Section 2-A of the Act. Hence, the above contention of Mr.Ramu, learned counsel for the appellant is also liable to be rejected. 19.For all our above reasons, we are not inclined to interfere with the order of the learned single Judge. Accordingly, the writ appeal fails and the same is dismissed. No costs. sra Sd/- Asst. Registrar //True Copy// Sub Asst. Registrar To The Presiding Officer, Employees Provident Funds Appellate Tribunal, 7th Floor, 60, Skylark Buildings, Nehru Palace, New Delhi. + 1 cc to Mr. K. Ramu, Advocate SR No.40840 + 1 cc to M/s. Hari Radhakrishnan, Advocate SR No.41064 KSK(CO) SR/21.7.2011 Judgment in W.A.No.715 of 2010 https://hcservices.ecourts.gov.in/hcservices/