Case: Niton Industries Vs. Union of India &amp; Others

not be closed or affected by the closure or stoppage of another unit owned by the same employer in that case these two units would be independent and not interdependent and, therefore, there cannot be any functional integrality between these units. If, however, one unit is adversely affected or is closed down because of the closure of the other unit and it cannot survive unless the other unit also functions, in such a situation two units would be interdependent mutually. One would not survive unless the other continues to function".The Division Bench in the above mentioned case, found that this concept of integrality between the two units was totally absent. It therefore held that the shipping division of the company was altogether different and had no connection or relation with the activities of other units. The fact that merely because some employees were transferable or were transferred there being a unity of ownership and management, it did not find favour with the Division Bench, and the order of the Industrial Court and the Single Judge was upheld.19. Citing the above mentioned Judgments, Mr. Naidu argued that in the present case at hand, M/s. Niton Industries, Inventa Valves Industries (Bombay) Private Limited, M/s. Niton Industrial Corporation were three different legal entities, and that, there was no functional integrality between them, if one applied the criteria laid down by the Honble Supreme Court and the above mentioned Judgments of this Court. He submitted that keeping in mind the factual position about the separate existence of the Firms, it could not be said that one of the establishment is the department or branch of the other, as envisaged or defined by Section 2-A of the Act.20. We find force in the contentions of Mr. Naidu, learned counsel for the appellants.21. Mr. Master, learned counsel for the respondents on the other hand, strenuously tried to argue that all these establishments were one and the same and therefore, they were rightly clubbed together by the Regional Provident Fund Commissioner for the purpose of applicability of the provisions of the Act. To substantiate his argument, he relied heavily on the Judgment of the Supreme Court reported in 1957 I L.L.J. 448 J. G. Vakharia vs. Regional Provident Fund Commissioner, Bombay. This was a case under the Employees Provident Funds and Miscellaneous Provisions Act, 1952. In this case, a sick mill was run by a partnership consisting of father and son. On the death of his father, the son entered into partnership with his two major sons. Shortly before the advent of the Act, the factory was made to close its business. Subsequently, the various machineries were leased to the members of the family owning separate units. Under the terms of the lease, they were bound to work in priority for the parent lessor company. On a question as to whether the various units run by the members of the family should be considered as distinct and independent units or as a subterfuge to avoid the liability of contribution under the Act, it was held that the five units were not independent units and that they were clearly inter-dependent and in between them, they carried on same process which the original mill was carrying on and the process were carried on for the benefit of the original mill and for no one else. It was found in this case that the entire transaction was subterfuge to avoid the liability of contribution under the Act, and in fact the parent partnership Firm continued to carry on the business through the separate units artificially set up. It was under such circumstances that the Court came to the conclusion that it was a clear case of a subterfuge which could not be permitted to succeed so as to defeat the rights of the employees who should be benefited by the Act.22. This decision, in our opinion, however, has no application to the facts of the present case at hand, where there is nothing to show that the three establishments namely; M/ s. Niton Industries, M/s. Niton Industrial Corporation, and Inventa Valves Industries (Bombay) Private Limited were artificially set up as subterfuge to avoid the liability of contribution under the Act or when admittedly, there is not inter-dependency in management, control and finance. In such a situation, it cannot be said that there is functional integrality between these establishments.23. Mr. Master, learned counsel for the respondents also relied upon Rajasthan Prem Krishan Goods Transport Co. Vs. Regional Provident Fund Commissioner & Ors., reported in 1996 II L.L.J. 662, wherein it is held by the Honble Supreme Court that the authorities functioning under the Act can pierce the veil and read between the lines within the outwardliness of the two apparent. In this case, Regional Provident Fund Commissioner treated Rajasthan Prem Krishan Goods Transport Company and Rajasthan Prem Krishan Transport Company as one and the same entity, holding the ostensible separate existence of these two particular concerns as artificial and nonexistent even though the two concerns were being treated as separate for the purposes of Income-tax Act. It was in this case that the doctrine of piercing the veil was set out for the application of the provisions of the Act. In our opinion, even this case does not come to the rescue of the respondents. The facts of the above mentioned case were totally different, the integrality between the Firms was obvious, leading to the legitimate inference of subterfuge. No such case is made out in the present case at hand. The factual position totally belies such a suggestion. In our view, therefore, the learned Single Judge committed error in holding that just because there was common ownership and just because all the companies were in the same line of manufacturing of valves, there was functional integrality between them. The observation about financial proximity between three establishments also is not correct, in as much as the loans taken can always be paid off and the shares can be transferred or sold.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]22. This decision, in our opinion, however, has no application to the facts of the present case at hand, where there is nothing to show that the three establishments namely; M/ s. Niton Industries, M/s. Niton Industrial Corporation, and Inventa Valves Industries (Bombay) Private Limited were artificially set up as subterfuge to avoid the liability of contribution under the Act or when admittedly, there is notinterdependency in management, control andfinance. In such a situation, it cannot be said that there is functional integrality between thesethis case, Regional Provident Fund Commissioner treated Rajasthan Prem Krishan Goods Transport Company and Rajasthan Prem Krishan Transport Company as one and the same entity, holding the ostensible separate existence of these two particular concerns as artificial and nonexistent even though the two concerns were being treated as separate for the purposes ofAct. It was in this case that the doctrine of piercing the veil was set out for the application of the provisionsof the Act.In our opinion, even this case does not come to the rescue of the respondents. The facts of the above mentioned case were totally different, the integrality between the Firms was obvious, leading to the legitimate inference of subterfuge. No such case is made out in the present case at hand. The factual position totally belies such a suggestion. In our view, therefore, the learned Single Judge committed error in holding that just because there was common ownership and just because all the companies were in the same line of manufacturing of valves, there was functional integrality between them. The observation about financial proximity between three establishments also is not correct, in as much as the loans taken can always be paid off and the shares can be transferred or sold.