T.R. Raghava Iyengar and Co. vs The Regional Provident Fund Commissioner

Jagadisan, J.—This is a petition under Article 226 of the Constitution wherein the petitioners pray for the issue of a writ of Mandamus or

other appropriate writ forbearing the respondent, the Regional Provident Fund Commissioner, Madras, from enforcing the provisions of the

Employees'' Provident Funds Act, 1952 (Act XIX of 1952) and the Scheme framed thereunder, against them. I shall refer to Act XIX of 1952 as

the Act in this judgment.

The petitioners constitute a firm of partnership carrying on the business of manufacture and sale of brass and copper vessels in the village of

Pallathur in Ramanathapuram district. They purchase brass and copper sheets and circles from the market, and turn these raw materials into

household vessels and utensils by employing manual labour. The products so shaped and turned into wares are polished with the aid of electric

motor of 6 H. P. According to the petitioners there are only three employees under them who do the packing and despatch of the finished wares.

The workers who hammer and shape the sheets and circles into finished products are alleged to be not employees under the petitioners but

individuals doing the work on some contract basis. This contract is vaguely set out in paragraph 3 of the petitioner''s affidavit in the following terms:

The metal workers turn out unpolished vessels from the sheets and circles supplied to them according to their will and capacity by beating the

plates into shape and are paid per piece of work at the prevailing wage rates, and this at present works out on an average to 3 annas per seer of

metal according to the vessel made varying with the shape and nature of the vessel and with due regard to the labour likely to be involved in the

production thereof.

These workers are alleged to be, to quote the language of the affidavit) ""more or less in the nature of independent contractors"".

The Inspector, functioning under the Act, visited the establishment on 2-2-1960. He was furnished by the petitioners with such information as he

wanted in regard to the manufacturing process involved in the production of the metal wares and the number of employees working in the

establishment. On the report furnished by the inspector, the Regional Provident Fund Commissioner informed the petitioners by his letter dated 26-

2-1960 that the establishment of the petitioners came within the ambit of the Act. That communication, in so far as it is relevant for the present

purpose, reads as follows:

Your factory comes under the purview of the Employees'' Provident Funds Act 1952, and the Scheme framed thereunder from 1-2-1959 as it is

engaged in Electrical, Mechanical and 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 before 31-1-1959 and has employed 50 or more

persons before 31-1-1959.

The rest of the communication instructs the petitioners as to what they should do in future towards fulfilment of the provisions and terms of the Act

and the Scheme.

The petitioners sent a reply to the Commissioner on 4-3-1960. They submitted that they were running only ""a cottage industry"" that the industry

cannot be described as ""electrical, mechanical and general engineering"" as set out in Schedule I of the Act, that except 5 persons who were

employed on a monthly salary, the other workers were not employees at all, as the term is defined under the Act and that therefore the

Commissioner should not apply the Act to them. The Commissioner sent a further communication to the, petitioners on 6-4-1960 reiterating his

view, that the petitioners'' business employment fell, within the Act and advising them in their own interest to implement the Act and the scheme. By

another communication dated 20-4-1960 the Commissioner insisted that the petitioners should make the remittances as per the Act and submit the

returns on or before 30-4-1960. Thereupon the petitioners submitted a petition u/s 19-A of the Act to the Central Government on 3-5-1960.

Therein they alleged that they have been carrying on business from the year 1950, that the number of employees since 5-2-1960, had only been

47, and that out of these were only 3 persons who were paid monthly salaries, that the rest were not servants employed under them, that they

could not be termed employees as defined under the Act, and prayed for a declaration that the Act was not applicable to their establishment. The

petitioners filed the above writ petition in this Court on the very next date, namely, 4-5-1960. They now pray for the issue of a writ of Mandamus

restraining the respondent, the Regional Provident Fund Commissioner, from implementing his decision that the Act is applicable to them.

Learned counsel for the petitioners urged the following contentions before me. (1) The establishment is not a factory engaged in any industry

specified in Schedule I of the Act. (2). The Regional Provident Fund Commissioner has no jurisdiction to enforce the Act and the Scheme framed

thereunder pending the decision of the Central Government u/s 19-A of the Act. (3) The Commissioner has no jurisdiction to put in operation the

Act and the Scheme retrospectively as and from 1-2-1959 by passing an order on 23-2-1960, (4) The number of persons employed in the factory

is below 50, the statutory minimum necessary to bring in the operation of the Act, as it stood before its amendment by Act XLV of 1960. (5) The

Commissioner acted erroneously in including the workers who were not salaried employees in the factory for the purpose of counting the number

of employees. I shall now deal with these contentions seriatim.

The question whether the industry carried on by the petitioners for the purpose of manufacturing vessels and utensils out of brass and copper

sheets and circles is covered by the Act does not present any difficulty. The Schedule to the Act defines the industry which is within the Act in

these terms:

Any industry engaged in the manufacture of any of the following namely:-- electrical, mechanical or general engineering products.

This expression is further elucidated by the following explanation:

In this Schedule without prejudice to the ordinary meaning of the expressions used therein--(a) the expression electrical, mechanical or general

engineering products includes......(19) ""Products of metal rolling and rerolling"".

The language of the statute is quite clear and I have no doubt that conversion of metal sheets and circles into vessels results in products of metal

rolling and rerolling. Learned counsel for the petitioners submitted that this metal wares cannot be called electrical, mechanical or general

engineering products. But this contention overlooks the explanation which constitutes products of metal rolling as being within the definition of

electrical, mechanical or general engineering products. Even if the explanation had not been there, I would have been inclined to take the view that

the manufactured products of the petitioners are really mechanical products. So long as a machinery is employed in the course of manufacture of

the product, be it for the purpose of merely polishing the ware or for any other purpose, the ultilisation of the mechanical aid would necessarily lead

to the conclusion that the products are mechanical products.

My attention is drawn to the decision of the Allahabad High Court in Great Eastern Electroplaters, Ltd. Vs. Regional Provident Fund Commr.,

U.P., , wherein a Single Judge of that Court held that a torch case is only an article for purposes of keeping batteries and not for purposes of

generating electricity, and that therefore the torch case is not a mechanical or electrical product, though the ease is produced by cutting, shaping

and soldering brass iron sheets by means of machineries. The Bombay High Court has however dissented from this decision of the Allahabad High

Court. In Nagpur Glass Works Ltd. Vs. Regional Provident Fund Commissioner, Bombay, , a Division Bench of the Bombay High Court referring

to the Allahabad decision observed thus:

With utmost respect to the learned Judge we find it difficult to agree with the interpretation placed by him on the expression. In our opinion, as

already stated, the words ''electrical, mechanical and general'' have reference to the process of manufacture and not to the use to which the articles

produced could be put.

I am of the same view as that expressed by the Bombay High Court. In my opinion the industry carried on by the petitioners is a scheduled

industry under the Act, and is therefore necessarily governed by the Act.

The next contention urged on behalf of the petitioners that there should be forbearance of the enforcement of the Act and the Scheme by the

Commissioner till a decision is rendered by the Central Government deserves careful consideration. It must be mentioned that till today the

application of the petitioners preferred to the Central Government u/s 19-A remains undisposed of. Learned counsel on both sides state that no

decision has yet been rendered by the Central Government. An examination of the provisions of the Act and its Scheme is necessarily called for.

The Act applies to the following establishments:

(1) Every establishment which is a factory engaged in any industry specified in Schedule I and in which 20 or more persons are employed;

(2) Any other establishment employing 20 or more persons or class of such establishments, which the Central Government may specify and notify

in the Official Gazette;

(3) Any establishment employing less than 20 persons which the Central Government may notify in the Official Gazette after giving notice, of not

less than two months, of its intention to do so. Prior to the amendment by the Act XLVI of 1960 the minimum number of employees in the

establishment was fixed at 50. Excluding establishments which may be notified by the Central Government, the Act would apply to an

establishment if the following conditions are fulfilled:

(1) The establishment must be a factory, which is defined under the Act, as any premises in which a manufacturing process is being carried, with

or, without the aid of power. (Manufacture means making, altering, finishing or otherwise treating or adapting any article or substance with a view

to its use, sale, transport, delivery or deposit) (S. 2-i-a).

(2) The factory must be engaged in any industry specified in Schedule I of the Act.

(3) The factory must be one in which 20 or more persons are employed. (The number of employees was fixed as 50 or more before the amending

Act XLVI of 1960).

The word ""employee"" is defined in Section 2(f) as follows:

Employee means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an

establishment, and who gets his wages directly or indirectly from the employer, and includes any person employed by or through a contractor in or

in connection with the work of the establishment.

The question whether an establishment is within or outside the Act is a mixed question of fact and law. It is certainly not a pure question of law.

Now there can be no factory under the Act unless a manufacturing processes carried on in the premises. Whether a manufacturing process is

carried on or not would depend upon the activities in the premises. The work done in the premises is purely a question of fact. But whether it

constitutes a ""manufacture"" within the meaning of the Act would be a question of law. The number of persons employed is a question of fact.

Whether the persons engaged in work in the factory are employees for wages, whether their relationship with the employer is that of a servant and

a master or whether they are independent contractors is very largely a question of fact. It is quite obvious that the applicability of the Act to a

particular establishment turns upon the state of certain basic facts. A dispute whether an establishment is governed by the Act or not cannot be

settled without a proper determination of facts forming the corner stone of the whole statutory edifice.

The Act is ill-drafted and imperfect in its terms and causes disappointment by the absence of a machinery for settling controversial and

disputed questions of fact. The power of the Central Government u/s 19-A to pronounce its opinion for removal of doubts or defects cannot be

said to be quite adequate, effective or satisfactory, to obviate the necessity of any special Tribunal or to dispense with such a tribunal altogether.

The nature of the function discharged under that Section by the Central Government, and the circumstances under which its jurisdiction can be

invoked are not made quite explicit by the language of the statute but are beset with more than an ordinary degree of complexity, as illustrated by

judicial decisions, exhibiting conflicting trends or views. It seems to me that Section 19-A affords slender assistance to the proprietor of an

establishment who pleads for the non-applicability of the Act, with the utmost bona fides and on good grounds. The Officer of the Central

Government at New Delhi dealing with the question whether an establishment at Pallathur in Ramanathapuram district is within the ambit of the Act

or not necessarily depends upon the facts contained in the files forwarded by the Regional Provident Fund Commissioner and the averments in the

application of the factory owner, which being interested, do not secure full weight. There is no provision in the Act for the Central Government to

hold an enquiry in the matter. The employer has no means of letting in evidence to substantiate his pleas. Even the most careful decision of the

Central Government may not be calculated to do real and substantial justice to the subject claiming immunity from the Act. The result is that the

Act is applied merely on the notions of the Commissioner or the Central Government without due regard to the rights of persons, complaining that

the Act is wrongly applied to them. It is manifestly improper that the subject should be saddled with pecuniary obligations on the edict, or ipse dixit

of the levying authority without giving him chance to be heard and to substantiate his contentions in the matter. The present position is that

obligations under the Act might be thrust on any establishment quite illegitimately leading the employer to protest if he can and if he has no

misgivings of its futility.

The crucial question is whether in a case of this description involving a dispute regarding basic facts which must be present to attract the

applicability of the Act, the Commissioner should be permitted to enforce the Act and the Scheme because in his view such facts are present,

pending the decision of the Central Government, which is the competent authority to decide the dispute and which is already seized of the matter at

the instance of the petitioners. I shall now refer to a few decisions cited at the Bar dealing with the scope and ambit of Section 19-A. The section

as it stood before the amendment under Act XLVI of 1960 reads thus:

If any difficulty arises in giving effect to the provisions of this Act, and in particular, if any doubt arises as to (i) whether an establishment which is a

factory, is engaged in any industry specified, in Schedule I; (i-a) whether any particular establishment is an establishment falling within the class of

establishments to which this Act applies, by virtue of a notification under Clause (b) of sub-section (3) of Section 1; or (ii) whether fifty or more

persons are employed in an establishment; or (iii) whether three years have elapsed from the establishment of an establishment; or (iv) whether the

total quantum of benefits to which an employee is entitled) has been reduced by the employer, the Central Government may, By order, make such

provision or give such direction, not inconsistent with the provisions of this Act, as appear to it to be necessary or expedient for the removal of the

doubt or difficulty; and the order of the Central Government in such cases shall be final.

The section as it now stands reads:

If any difficulty arises in giving effect to the provisions of this Act, and in particular, if any doubt arises as to--(i) Whether an establishment which is

a factory, is engaged in any industry specified in schedule I; (ii) Whether any particular establishment is an establishment falling within the class of

establishments to which this Act applies by virtue of a notification under Clause (b) of subsection (3) of Section 1 or (iii) the number of persons

employed in an establishment, or, (iv) the number of years which have elapsed from the date on which an establishment has been set up; or (v)

whether the total quantum of benefits to which an employee is entitled has been reduced by the employer, the Central Government may, by order,

make such provision or give such direction not inconsistent with the provisions of this Act, as appear to it to be necessary or expedient; for the

removal of the doubt or difficulty and the other order of the Central Government, in such cases shall be final.

I shall first refer to the decision of this Court in Annamalai Mudaliar and Bros. Vs. Regional Provident Fund Commissioner, Madras and Others, .

That is a decision of Rajagopalan, J. The petitioner in that case was the managing partner of a firm owning a factory at Karur, producing bed

sheets and towels on handlooms. The petitioner raised objection that the Act was not applicable on the ground that the number of labourers

employed in the business did not come up to the minimum of 50 as required by the Act. The petitioner contended that the workers were not

employees as defined under the Act. The Commissioner, however, treated the establishment as one within the Act. There was no application to the

Central Government u/s 19-A either by the petitioner or by the Commissioner. The learned Judge held that the mere application of the Act by the

Commissioner would not amount to any decision that the establishment in question fulfilled all the requirements necessary for the ap-. plicability of

the Act, that the competent authority to decide that question was not the Commissioner but only the Central Government, and that unless and until

such a decision is rendered by the Government the Act cannot be put in operation. At page 272 the learned Judge observed thus:

In any case there was no decision beyond that implied in the claim by the first respondent that the provisions of the Act applied, which was the

basis for the demand notices he issued to the petitioner to pay up the contributions claimed to be due, and also the further steps taken by the first

respondent and the second respondent to recover the sums demanded as arrears of land revenue under the provisions of Section 8 of the Act.

Again at page 273:

It is not necessary for me either to decide at this stage the scope of the statutory finality accorded by Section 19-A of the Act to the decision of

the Central Government in proceedings under Article 226 of the Constitution.

What the petitioner firm really seeks in this case is that demands for contribution issued to it by the first respondent should not be enforced till the

question whether the petitioner''s is a factory in which 50 or more persons are employed, and if so, it comes within the scope of Section 1(3) of the

Act is decided. That relief, I think, he is entitled to get on the short ground that there is a dispute and that dispute has yet to be decided u/s 19-A of

the Act"".

The learned Judge accordingly granted the issue of a mandamus in the following terms:

The respondents should forbear from enforcing the demands already issued to the petitioner before the question whether the petitioner''s is a

factory within the meaning of Section 1(3) of the Act, is decided u/s 19-A of the Act.

The Calcutta High Court has taken the same view as that taken by this Court in the decision cited above. That decision is reported in

Aluminium Corporation of India Ltd. Vs. Regional Provident Fund Commissioner and Others, . It is enough to refer to the following observation of

P.B. Mukharji, J. at page 574,

The language of Section 19-A of the Act is such that it"" does not lend itself easily to retrospective application. It gives power to the Central

Government to remove difficulty or doubt. Until the doubt or difficulty is removed, there is little scope for putting such order in retrospective

operation. The language of Section 15(2) is quits clear also. It begins with the words ''on the application of any scheme''. Now the scheme can

only apply after the doubt or the difficulty has been removed by an order u/s 19-A of the Act, and not before. It is only then that the scheme

applies, and not otherwise. It is only then that the employees can again be said to ''become members of the fund'' u/s 15(2) of the Act.

The Bombay High Court had occasion to consider the provisions of Section 19-A of the Act in The Nagpur Glass Works Ltd. Vs. The

Regional Provident Fund Commissioner and Others, . The view taken by the Bombay High Court is that the expression ""doubt or difficulty arising

in a matter of giving effect to the provisions of the Act"" must be a difficulty experienced by the authorities who are charged with the administration

of the provisions of the Act. At page 165 the learned Judges observed,

That means that if the authorities experienced any difficulty in the actual implementation of the provisions of the Act they may ask the Central

Government to pass an order making appropriate provisions or give appropriate directions. But these provisions or these directions must not be

inconsistent with the provisions of the Act. If this interpretation is correct, then it follows that if anybody can make a reference to the Central

Government for removing the difficulty arising in the implementation of the Act, it is the Regional Provident Fund Commissioner or the other

appropriate authority. It is not open to the factory or the establishment or any one connected therewith to approach the Central Government calling

upon them to make a provision or to pass an order in that regard.

I must now refer to an unreported decision of this Court decided by my learned brother Veeraswami, J. in P. W. No. 619 of 1959. Veeraswami,

J, has expressed his concurrence with the view of the Bombay High Court set forth above. In the case which was decided by Veeraswami, J. there

was no application by the factory owner to the Central Government pending at the time when the writ petition was taken up for decision in this

Court. The extreme contention that was urged on behalf of the petitioner in that case was that even if there was no matter pending before the

Central Government it was the duty of the Commissioner to set the machinery u/s 19-A in motion, and that until such a thing is done, the Act

cannot be put into operation. If I may say so with respect that contention was rightly negatived by the learned Judge.

With great respect to the learned Judges of the Bombay High Court and to my learned brother, Veeraswami, J. who has expresed his

concurrence with the Bombay view, I am unable to agree with the construction of Section 19-A, that nobody else except the statutory authorities

can move the Government under that provision. I have already pointed out that even the machinery u/s 19-A of the Act to settle disputed questions

of fact is not of a satisfactory nature. If the owner of the establishment were to be denied of any right to move the Central Government u/s 19-A

questioning the applicability of the Act, it would really mean that he has no remedy, and that he must meekly submit to the application of the Act by

the Commissioner however ill-founded it may be. I am very reluctant to adopt such a construction of the statute, which is not warranted by the

language of the enactment, and which in any event would be prejudicial and injurious to the rights of the subject.

The jurisdiction of this Court under Article 226 of the Constitution should not be exercised to investigate disputed questions of fact. If there is a

dispute between the Commissioner and the factory owner on basic questions of fact regarding the number of persons employed in the factory or

regarding the nature of the industry carried on therein, I cannot envisage the possibility or desirability of this Court settling that dispute inviting

evidence to be placed before this Court. As it is there is some machinery provided under the Act, satisfactory or unsatisfactory, which can resolve

disputed questions of fact between the subject and the State, and that is the machinery enacted u/s 19-A of the Act. Till the dispute is decided by

that appropriate authority, it cannot be said that the Act can be legitimately put into operation despite the protests of the petitioners. With respect, I

agree with the decision of Rajagopalan, J. in Annamalai Mudaliar and Bros. Vs. Regional Provident Fund Commissioner, Madras and Others, ,

and in my opinion mere demand by the Commissioner compelling the petitioners to pay the contributions cannot be a decision by a competent

authority on the dispute raised by the petitioners. I am satisfied that a mandamus should be issued forbearing the respondent from enforcing the

demands under the Act and the Scheme till the application of the petitioners u/s 19-A of the Act before the Central Government is disposed of and

decided one way or the other.

In the view that I have taken, it is unnecessary for me to deal with the other contentions raised by the learned counsel for the petitioner.

In the result a writ of mandamus will issue against the respondent forbearing him from enforcing the Act and the Scheme framed thereunder

until such time as the petitioner''s application to the Central Government u/s 19-A is finally adjudicated upon. The rule nisi is made absolute in these

terms. There will, however, be no order as to costs.