The Madras Pencil Factory vs The Regional Provident Fund Commissioner

Balakrishna Ayyar, J.—This is a petition for the issue of an appropriate writ to restrain the Regional Provident Fund Commissioner from

enforcing his orders dated 28th November, 1956, 29th December, 1956, and 6th March, 1957. The relevant facts are these. The petitioners are

the firm of V. Perurnal Chetty & Sons. They run a pencil factory in Madras, in which according to one part of the record 114 people and

according to another part of the record 140 people are employed. The factory utilises imported machinery, and attached to the factory is a foundry

and a workshop in which certain spare parts required for the use of the machinery are fabricated. The number of persons employed in this

workshop and foundry is 23.

On 28th November, 1956, the Regional Provident Fund Commissioner wrote to the petitioners,

Your factory comes under the purview of the Employees Provident Funds Act, 1952 and the Scheme framed thereunder from 1st November,

1952 as it is engaged in the manufacture of ""General Engineering Products"" one of the industries mentioned in Schedule I to the Employees''

Provident Funds Act, 1952, has completed three years from the date of commencement of production on the 6th October, 1952 and has

employed fifty or more persons on the 6th October, 1952.

He then called upon them to submit various returns and make various remittances. On 20th December, 1956, the petitioners replied that their

factory did not fall under the Employees Provident Funds Act. On 29th December, 1956, the Commissioner wrote to the petitioners,

With reference to your letter cited you are informed that Section 1(3) of the Employees Provident Fund Act provides that the Act applies to all

factories engaged in any industry specified in Schedule I in which 50 or more persons are employed. The words ''in which 50 or more persons are

employed'' have reference to the word ''factory'' and not to ''industry''. Therefore even though the number of workers engaged in a schedule

industry in factory may be less than 50, the Act will apply to the factory if in the factory as a whole 50 workers or more are employed. It is the

total employment, as a strength of the factory as a unit on the crucial date, viz., 6th October, 1952, which is material and not the employment

strength of a section engaged in the Scheduled Industry.

On 18th January, 1957, the petitioners again wrote to the Regional Provident Fund Commissioner to which on 6th March, 1957, he sent a reply

requiring the petitioners to comply with the instructions already issued. In paragraph 4 of this letter, the Commissioner stated:

It is brought to your notice that by not implementing the Employees Provident Fund Scheme, 1952, so far in your factory you have violated the

mandatory provisions of the Employees Provident Fund Act, 1952 and the scheme and have thus rendered yourself liable for prosecution u/s 14 of

the Act and paragraph 76 (a), (c) and (e) of the Employees Provident Fund Scheme 1952. If you do not implement the scheme within a week of

receipt of this notice, you are hereby informed and please take notice that penal action under the Provisions of the Act and the scheme quoted

above will be taken against you without any further intimation to you.

In view of this, the petitioners filed the present writ petition on 15th March, 1957. They also applied for an interim injunction in C.M.P. No.

2311 of 1957, and on 15th April, 1958, Rajagopalan, J., granted the interim injunction prayed for. Section 19(a) of the Employees Provident

Funds Act of 1952 provides that

if any debt arises as to (i) whether a factory is engaged in any industry specified in schedule I : or (ii) whether 50 or more persons are employed in

factory...the Central Government may by order make such provision or give such direction...as appear to it to be necessary, or expedient for the

removal of the doubt or difficulty....

The section also provides that the order of the Central Government in such a case shall be final. In view of this the petitioners wrote to the

Government of India to which they received the reply, that their application would be considered after the Writ Petition they had filed in this Court

has been disposed of by this Court.

The question is whether the Employees Provident Funds Act of 1952 applies to the factory of the petitioners.

Omitting the portions that are not material here, Sub-section (3) of Section 1 of the Act originally ran as follows:

Subject to the provisions contained in Section 16, it applies in the first instance to all factories engaged in any industry specified in Schedule I in

which fifty or more persons are employed.

Central Act No. 94 of 1956 re-enacted the section as shown below : (here too I am quoting only the material portion):

Subject to the provisions contained in Section 16, it applies (a) to every establishment which is a factory engaged in any industry specified in

Schedule I and in which fifty or more persons are employed....

The amendment made three changes : (i) the words ''in the first instance'' were taken out; (ii) instead of the words ''all factories'' the expression

''every establishment which is a factory'' was substituted; and (iii) the word ''and'' was inserted between the words ''Schedule I'' and ""in which 50

or more persons are employed"". For the purpose of the present case the first two changes are not important but the third one is.

The argument of the learned advocate for the petitioners may be thus summarised. Schedule I includescement, cigarettes and ''electrical,

mechanical or general engineering products''. That schedule, however, does not include pencils. The making of spare parts for machines with the

aid of which pencils are manufactured will no doubt fall within the heading ''engineering products''.

But the petitioners are not employing fifty persons in making such engineering products. The expression 50 or more persons'' used in Sub-

section (3) of Section 1 as it stood before it was amended relates to ''industry'' and not to the word ''factories''. Unless therefore, it can be shown

that the petitioners have been employing fifty or more persons in that Section 20 of their factory which is engaged in manufacturing engineering

products, that factory will not come within the scope of the section.

To this the learned Government Pleader replied : The expression ''fifty or more persons'' relates not to the word ''industry'' but to the word

''factories''. Therefore, if any, engineering product is manufactured in any part of a factory it is of no consequence whether the number of persons

engaged in such manufacture is less than 50. If the total number of persons employed in the factory including the number of persons employed in

manufacturing an ""engineering product"" amounts to 50 or more, then the provisions of the Act would apply.

I shall now refer to some of the decisions cited before me.

One of these is that of the Bombay High Court in Oudh Sugar Mills Ltd. Vs. Regional Provident Fund Commissioner, Bombay, . The material

facts there were as follows: The petitioner was a public limited company registered under the Indian Companies Act. It carried on the business of

manufacturing hydrogenated vegetable oil and its by-products, such as soap and oil cake. The oil used to be marketed in tin containers of various

sizes. Such containers were fabricated by the company in the precincts of the oil factory. The containers were used only for the purpose of packing

vegetable oil and for no other purpose. 31 persons were employed in manufacturing these tin containers. 211 workers were employed in the other

parts of the factory. The Regional Provident Fund Commissioner called upon the company to make contributions under the Employees Provident

Funds Act. At that time the oil industry was not included in Schedule I of the Act but drums and containers were. The Court held that the demand

made by the Regional Provident Fund Commissioner was not legal. Justice Mudholkar observed,

The word ''industry'' as already stated has been defined to mean a specified industry. What we have therefore to ascertain is, what was the industry

in which the unit was engaged and not merely what was manufactured by the unit for the purpose of its industry. A unit may manufacture a number

of things some of which may fall within the schedule. But if that was not the main or the dominant purpose of the industry, it would make no

difference. In other words, where while carrying on an industry certain products arc produced not with the object of marketing them separately but

with the object of using them in the industry itself, then the production of those articles cannot result in the engagement in an industry or producing

these articles. The word ''industry'' should be understood in the sense in which it is understood in the business community. If the industry, as here, is

the production of edible oil, then all the intermediate products which are produced for carrying on that industry cannot be regarded as separate

industries. Therefore, the mere fact that any of these products was included in the Schedule will not bring the Act into operation.

With these observations I am in respectful agreements:

Tambe, J., however, stated:

I agree with may learned Brother in the conclusion reached viz., that this petition should be allowed. However with utmost respect to my learned

Brother, I do not find myself in agreement with the view taken by him that where the principal object of an industry does not fall within the meaning

of the First Schedule of the Act then even if certain scheduled articles for being used in that industry only are manufactured, the provisions of the

Act are not attracted. In my view, the determining factory is whether in any part of a factory any manufacturing process is going on and whether the

manufactured article is such that it falls within the meaning of the First Schedule. But to attract the Act this alone is not sufficient. The number of

persons employed in the unit engaged in the manufacture of such article must be fifty or more.

It is on these observations of Tambe, J., that the learned Counsel for the petitioners strongly relied.

The second case, I shall refer to, is Nagpur Glass Works Ltd. Vs. Regional Provident Fund Commissioner, Bombay, . The principal business

of the petitioner there was the manufacture of glass in which 420 workmen were employed. It was also engaged in the manufacture of burners and

metal lamps, consisting of glass oil containers and metal burners and reflectors. In this branch 187 people were employed. Schedule I of the

Provident Funds Act did not at the relevant time include the glass industry. In 1953, the Provident Funds Act of 1952 was amended, and an

explanation was added to Schedule I. This explanation gives a list of ''industries'' which are included in the general heading ''electrical'', mechanical

or ''general engineering products'' mentioned in the schedule. Neither burners nor metal lamps are included in this explanation j but ''hurricane

lanterns'' are. The Court held that metal lamps and burners would fall within the definition of electrical, mechanical or general engineering products

but that nevertheless the Employees Provident Funds Act would not apply to the whole factory, since glass was not included in the Schedule at the

relevant date and that the Act would apply only to that section of the factory, which produced burners and metal lamps. The learned Judges

dissented from the view of Mehrotra, J., as reported in Great Eastern Electroplaters, Ltd. v. Regional Provident Fund Commissioner 11 Factories

Journal Reports 191, about what would constitute electrical, mechanical and general engineering goods. The decision of Mehrotra, J., however is

of interest in another respect. At page 194 the learned Judge observed:

Before the provisions of the Act, therefore, could be applied to the present factory, it is necessary (a) that the factory should be engaged in any

industry specified in the Schedule, (b) that it should employ 50 or more persons and (c) that it is not an infant factory within the meaning of Section

16 of the Act....

The point to which I want to draw attention here is that the learned Judge was of opinion that the expression ''50 or more persons'' relates to

''factories'' and not to ''industry''.

In N.K. Industries (Private) Ltd., Kanpur Vs. Regional Provident Fund Commissioner, U.P., , Sahai, J., following the unreported decision of

the Kerala High Court in Kokkalai Rice & Oil Mills v. R.P.F. Commissioner, expressed the view that the expression ''50 or more persons''

applied to ''factories'' and not to ''industry.''

The point therefore to consider is whether the expression ''in which 50 or more persons are employed'' applied to ''factories'' or to ''industry''. The

petitioner''s case is that it relates to ''industry'', and not to ''factories''. To my mind the words ''In which fifty or more persons are employed'' relate

to ''factories'' and not to industry. I say so because the latter part of the section, which is as follows, to my mind, makes it clear:

...but the Central Government may, after giving not less than two months'' notice of its intention so to do, by notification in the Official Gazette,

apply the provisions of the Act to all factories employing such number of persons less than fifty as may be specified in the notification and engaged

in any such industry"".... It is obvious therefore that it is die strength of the factory and not of that department in which that particular industry is

being carried on which is to be considered. In other words the Act would apply to factories employing fifty or more persons though in that

department of the factory in which that particular industry is being carried on less than fifty persons are working.

With respect I am unable to agree with the view that ''fifty or more persons'' refers to industry and not to factory. It will be noticed that the

word ''industry'' is used in the Act to indicate a sector of economic activity in which several factories may be engaged, and not to a department

inside a factory. Schedule I speaks of ''any industry engaged in the manufacture of any of the following : and then various items like cement, iron

and steel, paper, textiles are enumerated. The cement industry, for example, would comprise a number of factories like those run by say, the

Andhra Cement Co., the Associated Cements Co., and others. The word ''industry'' as used in the Act is inappropriate to indicate only a unit or

department inside a factory. This view is strengthened by the language of Section 19(a) of Act XIX of 1952, which gives power to the Central

Government to remove difficulties whenever any doubt arises as to whether a ''factory'' is engaged in any ''industry'' or whether 50 or more

persons are employed in a factory. This will make it clear that the word ''industry'' and the word ''Factory'' are not used in the sense in which they

appear to have been understood in N.K. Industries (Private) Ltd., Kanpur Vs. Regional Provident Fund Commissioner, U.P., and the. Kerala

Case, Kokkalai Rice and Oil Mills v. R.P.F. Commissioner (supra). Whatever scope there may have been for argument about the meaning of

these words in Section 1(3) as it originally stood, there is no such scope now after the section was, recast and amended in 1956. As I mentioned

before, Sub-section (3) of Section 1 was recast as follows by Act XCIV of 1956:

Subject to the provisions contained in Section 16, it applies (a) to every establishment which is a factory engaged in any industry specified in

Schedule I and in which 50 or more persons are employed.

The introduction of the conjunction ''and'' between the words ''Schedule I'' and the words ''in which 50 or more persons are employed'' makes it

manifest beyond doubt that the latter set of words must be related to ''factory''. This amendment made in the Act does not appear to have been

noticed in the Allahabad case, cited above as the judgment quotes Section 1(3) as it stood before its amendment in 1956.

At the same time I find it difficult to accept the view of the learned Government Pleader that if any part of a factory is engaged in making ''an

engineering product'' within the meaning of Schedule I of Act XIX of 1952, then that factory must be considered to be one engaged in making an

engineering product, and that in consequence Act XIX of 1952, will apply to it. The error in this view consists in that it ignores the difference

between what is primary and what is incidental. We can properly say that a carpenter is engaged in working on wood, in making chairs, tables, or

windows as the case may be. But from time to time the carpenter sharpens his chisel on a piece of plank on which some sand is spread, or it may

be that he replaces the broken handle of one of his chisels. That is only incidental to his primary or principal work as a carpenter. If the reasoning

of the learned Government Pleader were right, we may as well say that when a clerk working in an office mends his pencil he is ''engaged'' in

mending pencils. But that will be manifestly absurd.

Let us take another illustration. Suppose there is a dairy farm where the milk is converted into butter, cheese, cream and other milk products.

That will be a factory within the meaning of Section 2(g) of Act XIX of 1952. Now a dairy would require drums in which bran, cotton seed and

other forms of cattle feed are stored. It will also require buckets of wood or other material in which the cattle feed is mixed and served to the

animals. The dairy would also require churns, cream separators and other similar equipment. It would need vessels with handles for transporting

the milk from the milking shed to the cold room. It may also keep bicycles for delivery of the articles to the customers. Now drums and containers

figure as item 24 in the Explanation to Schedule I, and these would, therefore, be ''engineering products.'' Parts and accessories of those products

are also included as item 25. Now in order to operate efficiently, the dairy may employ one or two persons to repair its drums and containers, who

may provide new hoops for the drums and buckets or rivets of the handles of vessels and other containers. They may also solder leaky vessels or

repair or replace the tubing in the factory. Because one or two persons are engaged in such processes nobody would think of saying that the dairy

is engaged in the manufacture of engineering products. On the basis of the reasoning of the learned Government Pleader one must be prepared to

say that if a large hotel which employs 50 or more people also employs a man to repair its vessels and ''containers'' by re-fixing the handles or for

providing rivets to those handles whenever necessary it will be a factory engaged in the production of engineering goods. That would be a very

extraordinary position.

It seems to me that the proper way of looking at the matter is this; First of all we ask; to what does the section apply? The answer at once

emerges that it applies to ''factories'' that is to say, to premises in any part of which a manufacturing process is carried on, whether with or without

the aid of power. We next ask to what kinds of factories does it apply? We now find that two requirements have to be satisfied. One is that 50 or

more persons must be employed in the factory. The other is that the factory must be engaged in one of the industries specified in Schedule I. One

of those industries is the manufacture of engineering products as explained in the Schedule.

It is the ''factory which must be engaged. In other words that must be the primary activity of the factory. If with a view to carry out its primary

activity, it is incidentally engaged in something else, it will not alter its primary character. The learned Government Pleader argued that the Section

does not say that the factory must be wholly engaged in the specified industry. That is no doubt so. But this does not mean that the construction

contended for by the learned Government Pleader is correct. In order to get the result he is contending for, we will require the addition of a wholly

new set of words in Section 1(3). We shall require words to the effect that if any part of a factory is engaged in making any article that false within

the scope of Schedule I, then the whole factory would be deemed to be engaged in such industry. The learned Government Pleader argued that the

Act is a benevolent enactment, and that, therefore, we must try to extend its scope as far as possible. It seems to me that it is for the Legislature to

say how far it will go. A Court can only take the words as they are written in the statute. Suppose in the present case a jury were to be taken

round the factory of the petitioners and after they have seen it and they come out of it they are asked; what is this factory engaged in, the only

answer they would give is that it is engaged in making pencils. That it seems to me, is the proper approach to the question. Of course, I agree that

a factory may be engaged in producing more than one article. In such a case it would be perfectly correct to say that the factory is engaged in

producing all those articles. I have no doubt whatever that the word ''engaged'' in Sub-section (3) of Section 1 refers to the primary activity of the

factory. I have quoted above from paragraph 7 of the judgment of the Bombay High Court in Oudh Sugar Mills Ltd. Vs. Regional Provident Fund

Commissioner, Bombay, , and I repeat my respectful agreement with it.

In my view the factory run by the petitioners is not engaged in any industry specified in Schedule I of the Act XIX of 1952. The Act, therefore,

does not apply to it. The rule nisi is, therefore, made absolute. There will be no order as to costs.