Case: M/S L.N.Gadodia &amp; Sons  Vs. Regional Provident Fund Commr

2. The facts leading to this petition are this wise. The petitioner no.1 herein and petitioner no.2 (M/s Delhi Farming and Construction Pvt. Ltd.) are sister concerns. The office of the respondent wrote to them vide their letter dated 11.6.1990 calling upon them to comply with the provisions of the Provident Funds Act, failing which legal action would be initiated against them. The petitioner filed an application, and disputed clubbing of the two concerns for the purposes of their coverage under the provisions of the said Act. The application was accordingly heard by the Regional Provident Fund Commissioner (Enforcement and Recovery) Delhi, under the provisions of section 7A of the Provident Funds Act. He heard the legal advisor of the petitioners as well as the enforcement officer representing the provident fund department. It was submitted on behalf of the petitioners that the second petitioner was incorporated in 1930 as the Delhi Cattle Farming Private Limited, and in the year 1983 its name was changed to the present name i.e. Delhi Farming and Construction Private Limited (`Delhi Company for short). The first petitioner was incorporated as another Private Limited Company in the year 1941, and there was no connection between the activities or business of the two companies. They were different and separate legal entities, and should not be clubbed into one establishment. It was pointed out that the main business of the second petitioner i.e. the Delhi Company was to acquire lands and farms for the purpose of cultivation and to engage in other agricultural activities. After its land was acquired by Delhi Administration in 1959 and after receiving compensation, the second petitioner shifted its business to purchase of gas cylinders and giving them on hire, supplying security equipments to the Government of India, and supply of gray/processed fabrics to readymade garments exports though this was only a side business. It was pointed out that as far as the first petitioner is concerned, their business was only as a selling agent of Calico Mills and Tata Mills, Ahmedabad. It was also trading in whole-sale cloth business. It was not disputed that both the companies have their registered office at 1112, Kucha Natwan, Chandni Chowk, Delhi-6 but it was stated that the Delhi Company carries its business and commercial activities at 116, Hans Bhawan, Bahadur Shah Zafar Marg, New Delhi-110002. Shri R.G. Gadodia and Shri T.P. Gadodia were no longer the Directors in either of the two companies, and only Smt. Sudha Gadodia was Director in both the companies.3. On the other hand, the enforcement officer pointed out that apart from the fact that the two companies had common registered office, Shri R.G. Gadodia and Shri T.P. Gadodia were the common Directors in both the units at the time of inspection and clubbing. Apart from Smt. Sudha Gadodia being admittedly a Director in both the units, Shri T.P. Gadodia was the Managing Director in both the units. It was further pointed out that as per the Audited Report of the Delhi Company dated 24.4.1988, it had given a loan of Rs.5 lakh to the first petitioner. Two officers viz. Shri G. Ventakeshwaran and Shri S.K. Shome were employed by both the units as Technical Manager and Commercial Manager respectively. The two companies had the same telephone nos. i.e. 2512890 and 2513009. Both the units were using the same gram number which was `GadodiaSon.4. In rebuttal, the petitioners pointed out that the Delhi Company had its own separate staff. The above referred two telephone nos. were in the name of the first petitioner and the second petitioner had another telephone no. i.e. 3318668. As far as the loan aspect is concerned, it was pointed out that the loan of Rs.5 lakh was just one loan to the first petitioner, and the Delhi Company had given loans to the tune of about Rs. 27 lakhs to different entities. The enforcement officer however pointed out that at the time of inspection it was noticed that the employees were being swapped between the two companies. Although the first petitioner had its branches at Bombay, Amritsar, Ahmedabad and Kanpur, the number of employees in the Delhi office of this company and the second petitioner were kept below 20 to avoid coverage under the Provident Funds Act. Having considered all these facts and the submissions by both the parties, the Provident Fund Commissioner came to the conclusion that there was an integrity in the management, finance and the workforce of the two companies, and the entire business was being run by one family. The management and the supervision was in the hands of the same Managing Director, and the finances of one company were being used by the other. In view of this, he held that both the units belonged to one establishment, and they have to be clubbed together for the purposes of application of the Provident Funds Act. He therefore, passed an order to proceed to determine the dues from the petitioners, and directed that further proceedings in the enquiry be taken up by the concerned Presiding Officer.5. This order was challenged by the petitioners before the Employees Provident Fund Appellate Tribunal by filing an appeal No.ATA-167(4)/2000 under Section 7D of the Provident Funds Act. The Tribunal accepted the submission of the petitioners that the two units were separate private limited companies, and since a company is a juristic person, merely because there is a common Managing Director, the two units cannot be considered to be one establishment. One company taking a loan of Rs.5 lakh from another, does not make them financially integrated. He also observed that there was no evidence to show that the two officers were mentioned as employed at the same time in the two companies. He relied upon section 2A of the Act, and submitted that considering different departments or branches of an establishment as one establishment was one thing, and considering different establishments as one establishment was another. Merely because the departments or branches of an establishment are to be treated as a part of the establishment, two establishments cannot be taken to be one. He, therefore, allowed the appeal and held that clubbing was not possible in the facts of the case, and set-aside the order of the first respondent.6. Being aggrieved by that order, the respondent filed a petition bearing No. W.P.(C) 5669/2001 in the High Court of Delhi. A Single Judge of Delhi High Court who heard the matter examined the material on record, and considered the authorities cited by both the parties governing the legal position. Having considered all these aspects, he held that the Tribunal was swayed by the fact that the two companies are separate legal entities. He noted that the law laid down by this Court on this aspect was clear. What is to be seen is the proximity of the two units and common management. There was no error in the order passed by the Provident Fund Commissioner. The Appellate Tribunal had no reason to interfere therein. In his view, the order of the Tribunal was perverse and contrary to law. He, therefore, set-aside the same and allowed the petition.7. The petitioners filed an appeal against the decision of the Single Judge being LPA No.399/2007. After examining the submissions of both the parties, the Division Bench came to the same conclusion as the single Judge and dismissed the appeal by passing a detailed judgment and order dated 20.12.2007.8. The present Special Leave Petition has been filed to challenge this judgment and order dated 20.12.2007. We have heard Mr. S.K. Dholakia, Sr. Advocate for petitioners, and Ms. Shrabani Chakrabarty for the respondent. We have noted the submissions made by both the counsel, as well as the authorities relied upon by them.

Court's reasoning:
The Provident Funds Act, is a welfare enactment brought into force for that purpose. The Parliament was concerned with the issue of making an appropriate provision for the employees in the factories and the establishments after their retirement, and for the benefit of their dependents in case of early death of the employees. That is how the Provident Funds Act came to be enacted in the year 1952, which requires a compulsory contribution to the fund and which is independently managed by the Provident Fund Commissioner. The employer and employees covered thereunder, both contribute towards this fund. As per the present provision of section 6 of the Provident Funds Act, both of them have to contribute to the fund an amount equivalent to 10% of the basic wage and dearness allowance (and retaining allowance, if any) per month. The Central Government has the power to raise this contribution to 12% after making an appropriate enquiry. The contribution to fund earns an appropriate interest thereon. As stated above, after the retirement of the employee or in the event of need of finance for specified reasons, or in the event of his death prior thereto, the amount becomesThe petitioners have contended that the two entities are two separate establishments. They have tried to draw support from section 2(A) of the Act which declares that where an establishment consists of different departments or has branches whether situated in the same place or in different places, all such departments or branches shall be treated as parts of the same establishment. It was submitted that only different departments or branches of an establishment can be clubbed together, but not different establishments altogether. In this connection, what is to be noted is that, this is an enabling provision in a welfare enactment. The two petitioners may not be different departments of one establishment in the strict sense. However, when we notice that they are run by the same family under a common management with common workforce and with financial integrity, they are expected to be treated as branches of one establishment for the purposes of Provident Funds Act. The issue is with respect to the application of a welfare enactment and the approach has to be as indicated by this Court in Sayaji Mills Ltd. (supra). The test has to be the one as laid down in Associated Cement Company (supra) which has been explained in Management of Pratap Press (supra).17. The Provident Fund Department had issued notice to the petitioners on 11.6.1990 on the basis of their inspection. It had relied upon the 1988 Audit Report of the petitioners. The petitioners had full opportunity to explain their position in the inquiry before the Provident Fund Commissioner conducted under Section 7A of the Provident Funds Act. The petitioners, however, confined themselves only to a facile explanation. If according to them, the management, workforce and financial affairs of the two companies were genuinely independent, they ought to have led the necessary evidence, since they would be in the best know of it. When any fact is especially within the knowledge of any person, the burden of proving that fact lies on him. This rule (which is also embodied in section 106 of the Evidence Act) expects such a party to produce the best evidence before the authority concerned, failing which the authority cannot be faulted for drawing the necessary inference. In the facts and circumstances of the present case, the Provident Fund Commissioner was therefore justified in drawing the inference of integrity of finance, management and workforce in the two petitioners on the basis of the material on record.18. The Regional Provident Funds Commissioner was therefore, entirely justified in taking the view that on the facts and law, the two petitioners had to be clubbed together for the purposes of their coverage under the Provident Funds Act. The Appellate Tribunal clearly erred in re-appreciating the facts on record and applying wrong propositions of law thereto. The learned Single Judge was therefore required to set-aside the order of the Appellate Tribunal in view of his conclusion that the order was contrary to the facts and the law, and was perverse. The Division Bench has rightly confirmed the order passed by the learned Single Judge.