Jwala Prasad Sikaria and Company vs The Regional Provident Fund Commissioner of Orissa and Another

K.B. Panda, J.—In this application under Articles 226 and 227 of the Constitution, the Petitioner seeks to quash the order dated 6-9-1974 (Annexure 15) of the Regional Provident Fund Commissioner, Orissa, Bhubaneswar (hereinafter referred to as the Commissioner) rejecting the claim of the Petitioner for infancy period benefit as contemplated u/s 16 of the Employees Provident Funds (And Family Pension Fund) Act, 1952 (Act No. 19 of 1952), (hereinafter referred to as the Act). The admitted facts are thus:

One Sri Koovarji Karson Rathor, (hereinafter referred to as the lessor) was the owner of two mills situated within one premises near College Square, Town Cuttack under the name and style "Bhima Ice Factory and Flour Mills". The flour mill was established sometime in the year 1935. The Bhima Ice factory and Flour Mill made an application u/s 1(4) of the Act for coverage of the establishment under the Act and accordingly it was done by Government of India Notification No. SRO(PF/ 539(1)/54-I-II (annexure 3). It would follow, therefore, that both the establishment, namely, Bhima Ice Factory as well as the Flour Mill were covered under the above Government notification and thus came under the Act. The Flour Mill section had been leased out to M/s. Rathor Brothers in 1956 and the said lease terminated in July, 1961. The Flour Mill remained closed from July, 1961 to January, 1964 when it was again leased out to the Petitioner-company under an agreement dated 15-3.1964 for a period of one year on terms and conditions given in detail in annexure-1. This lease was renewed from time to time on terms and conditions as contained in the original lease till 20-3-1972. Thereafter he machinaries existing is the Mill were obtained by the lessee-Petitioner from the lessor at a price of Rs. 81,000/ - under a sale deed dated 21-3-1972. The rent in respect of utilisation of the Flour Mill and the use of the machineries fitted, buildings, godown etc. was initially settled at Rs. 2500/ - per month in the original lease deed dated 15-3-1964 which was enhanced to Rs. 3500/ - per month with effect from 1-1-1965. This rent continued to hold good till the purchase by the lessee of the machineries etc. on 21-3-1972 whereafter the rent payable was scaled down to Rs. 2500/ - per month.

It was contended on behalf of the Petitioner that the establishment, namely, the Flour Mill having come into existence with effect from 1-1-1964 and the strength of its employees never having touched 20 until 1969-70, the liability for payment for contribution under the Act would arise only from 1969-70 and not before that.

In the counter affidavit it is asserted that once the Act is made applicable to an establishment (as has been admitted in the instant case) irrespective of the units they may be having or they may have, it continues to be governed by the provisions of the Act. As long as there is homogeneity and integration in the nature of activities of the business carried on in a particular establishment, subsequent change in the ownership whether by transfer or partition makes no difference. It is also asserted in a new company or concern subsequently taken over or acquires the factory the date of establishment of the factory thereby does not change. Nor does it matter if the factory has ceased to produce goods for some time before acquisition and resumes production under a new name or style. Thus what is relevant is the date of establishment of the factory when the manufacturing process started. Regarding the assertion in the petition that after the Petitioner took lease of the buildings and some machineries, he made substantial renovations and additions thereto at a cost of more 2.5 lakhs, it is asserted in the counter affidavit that when the premises of the factory had not changed the date of establishment would be the date when that process initially started in 1935 and no change in the personality of the management would affect the date of establishment of the factory. Even assuming that the original flour Milling machineries were reconditioned and additional machineries were installed by the Petitioner, they do not alter the date of establishment of the factory. Even the stoppage or closure of the flour milling being temporary it cannot be said that the factory had ceased to exist. Hence the claim of the Petitioner u/s 16(1)(b) of the Act is resisted.

It was contended on behalf of the Petitioner by Mr. S.B. Nanda that the Ice factory and the Flour Mill sections being in different buildings; that previously the lessor having leased out the Flour Mill to M/s. Rathor Brothers in 1956 which terminated in 1961; that the Flour Mill being defunct from July 1961 till January, 1964; that the Petitioner having added new machineries; and that the Petitioner having purchased the sick and old machineries subsequently at a cost of Rs. 81,000/ - and further the present Petitioner being in no way related to the lessor and having started the mill with separate factory licence, separate sales tax numbers and foodgrains licence, in the absence of functional integration between the Ice factory and the Flour mill, the Petitioner should be taken to be an absolute stranger who has started a new factory of its own and as such entitled to the benefits u/s 16 of the Act.

In the premises, the sole point for consideration is if in the circumstances it can be said that a new factory had come up under the management of the Petitioner to get the benefits of Section 16 of the Act. In support of his stand Mr. Nanda, learned Counsel for the Petitioner relied much on Palanimalai v. Regional Provident Fund Commissioner and Anr. 1970 (1) L.L.J. 536. That was a case where the Petitioner and his two brothers along with their father were partners of a partnership which was wound up on 13th April, 1963 under intimation of such dissolution to the concerned authorities like the Income Tax and Sales Tax etc.. Later, one of the Partners Palanimalai formed a new partnership with his three adult sons and his minor son and were admitted to the benefits of the partnership. This new partnership was founded only on 29th of April, 1963. The question was whether the establishment of the Petitioner was a new one or whether it was the old establishment which was split up. There their Lordships held that the Petitioner''s establishment was a new establishment set up only on 29th of April, 1963 since there was no reason for reaching a contrary conclusion in the case. Mr. Nanda relied much on the observations made therein to the following effect:.

If a dissolution of an existing firm takes place and it is not an artifice for circumvention of the provisions of the Act, the old partnership comes to an end and no longer continues. If an old partner enters into a new partnership with others and carries on a similar business activity as that of the old partnership, it cannot be contended that no new establishment comes into being.

We do not think this citation can come to the rescue of the Petitioner. Therein it is said that the question whether an, establishment is new or whether it is a part of old establishment is one which should be decided on the facts and circumstances in each case. It was held thus:

While it is indisputable that if a plurality of establishments come into being when an old establishment ceases to continue and the bifurcation of the same establishment into more than one component unit has for its object the evasion of the provisions of the Act, such separation of one establishment into different component units which has for its purpose the circumvention of the provisions of the Act cannot assist an argument that the new units are new establishments.

There their Lordships put emphasis on the question whether an old establishment ceased to exist and the bifurcation of the same into more than one component unit was with the purpose of evading tax. But here the question is whether the old Flour Mill at the hands of the lessor continued in the hands of the Petitioner or a completely new one came into existence.

The other case relied on by Mr. Nanda is The Provident Fund Inspector, Trivandrum Vs. The Secretary, N.S.S. Co-operative Society, Changanacherry, . That was a criminal case in which a printing press established in 1946 was sold in 1961 and the accused in that case became the new owner. The work of the press was stopped on sale to the accused and was restarted after a break of about three months. The machinery in the old press was also altered, the persons employed previously were not continued in service and fresh recruitments of employees took place amongst whom only six happened to previous employees, and compensation had been paid to the workmen disbanded at the time of the sale of the press by the previous owner. It was held that the old establishment was completely closed when the transfer of ownership took place, and an entirely new establishment was set up three months later so that the benefit of non-applicability of Section 16(1)(b) of the Act for a period of three years was available to the accused from June July, 1961 when the new establishment was set up. In that case, their Lordships laid great stress on burden of proof and on the facts and concluded that the old establishment was completely closes when the transfer of ownership took place and an entirely new establishment was set up three months later. But here the Flour Mill ran with temporary stoppages while the lessees changed, the lessor remaining the same. So in the instant case neither the machinery changed, nor the owner, nor the premises, but only the management of the same changed hands.

We think, the most appropriate case is that of Jay Bharat Woolen and Silk Mills v. Regional Provident Fund Commissioner, Punjab and Ors. 1965 (II) L.L.J. 21. In that case, prior to October 1, 1954, a factory under the name and style of Bharat Udhar Manufacturing Company was run by one Balkishan Munjal. Due to disputes it broke up and the machineries were also divided. Some of the machineries of the factory were removed by Balkishan to another premises where he started another factory. The son of Khial Das along with another member of the family of Balkishan started the factory in the same premises occupied by Bharat Udhar Cloth Manufacturing Company with the same set of workers under the name of Jai Bharat Woolen and Silk Mills. When the Regional Provident Fund Commissioner demanded contributions under the Act it was pleaded that the Petitioner-company was exempted u/s 16(1)(b) of the Act as three years had not elapsed from the establishment of the factory. Negativing their contention it was held

No hard and fact rule could be laid down for finding out whether a particular establishment is new or old for the purpose of Section 16(1)(b) of the Employees'' Provident Funds Act. It would depend on the facts and circumstances of each case. In the instant case the Petitioner-firm continued the same business in the same premises with the same machinery and see of workers as were being used by Bharat Udhar Cloth Manufacturing Company. They continued the same manufacturing process. Under such circumstances it cannot be said that the Petitioner-firm was a new establishment and was set up with effect from 1 October, 1954,

In view of the law thus laid down and in the facts and circumstances of the case, namely, location of the Mill being same and initially with same machineries under the same owner and there being no assertion that as soon as from the status of a lessee he became the owner, the old employees were all disbanded, the conclusion is inevitable that it is not a new factory or industry as contemplated u/s 2(g) or 2(i) of the Act had come into existence so as to be exempted from the operation of Section 16 of the Act which in its explanation even envisages that an establishment shall not be deemed to be a newly set up one merely by change of its location. Our positive finding in the present setting is that it is not a new: establishment but the old one in the hands of the Petitioner first as a lessee and then as proprietor and that it is not a new establishment at new hands but an old establishment at old bands.

Accordingly we would dismiss the petition, but in the circumstances, without costs.

R.N. Misra, J.

I agree.