PETITIONER:
SAYAJI MILLS LTD.
Vs.
RESPONDENT:
REGIONAL PROVIDENT FUND COMMISSIONER
DATE OF JUDGMENT21/12/1984
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
VENKATARAMIAH, E.S. (J)
MISRA, R.B. (J)
CITATION:
1985 AIR 323 1985 SCR (2) 516
1984 SCC Supl. 610 1984 SCALE (2)967
ACT:
Employees’ Provident Funds and Miscellaneous
Provisions Act 1952 (Act XlX of l952) section 16(1)(b) scope
of the appellant a public limited company purchasing ‘”Hirji
Mills Ltd.” in certain liquidations proceedings from the
Official Liquidator and recommending the factory after an
year of its closure with the same machinery and with 70% of
the previous workmen after investment of some fresh capital
in the business and renovation of the machinery -Whether the
factory is a “new factory” within the meaning of S.16(1)(b)
and the provisions of the Act are not applicable on the date
of the suit to the factory-Interpretation of benevolent
legislation.
HEADNOTE:
At the sale held by the Official Liquidator under the
orders of the Bombay High Court, the appellant a public
limited company, purchased the “Hirji Textile Mills” minus
its goodwill and its workmen who were discharged earlier.
The appellant invested some fresh capital in the business,
renovated the machinery and employed workmen on fresh
contracts which included 70% of the workmen formerly working
in that factory and commenced to produce certain never types
of things at the factory w.e.f. November 12, 1955, after
obtaining a new licence to run it. When by the end of
February, 1956 the Regional Provident Fund Commissioner made
certain enquiries about the working of the factory in order
to enforce the provisions Provident Fund Act against the
appellant, the appellant wrote to him stating that The
factory was an infant factory having been established on
November 12,1955 and the period of three years had not
elapsed from that date within the meaning of Section 16(1)
(b) of the Act. When the Regional Provident Fund
Commissioner was not convinced about its explanation, the
appellant first filed a writ petition under Article 226 of
the Constitution before High Court of Bombay in
Miscellaneous Application No. 76 of 1957 challenging the
applicability of the Act to the factory and after
withdrawing it, filed Short Cause Suit No. 2088 of 1958
before the City Civil Court at Bombay for a declaration that
the Act and the scheme framed thereunder could not be
enforced against the factory until the expiry of three years
from November 12, 1955 and that the appellant was not liable
to make any contributions under the Act. The trial Court
dismissed the suit holding, that in view of the several
facts established in the case it could not be presumed that
a new factory was established by the
517
appellant on November 12, 1955, that the continuity of the
old factory had A not been broken and as such the appellant
was liable to make contributions under the Act. The judgment
of the trial Court was affirmed by the Bombay High Court in
Appeal No.406/64. Hence the appeal by special leave.
Dismissing the appeal, the Court,
^
HELD: 1.1. Every statute should be construed so as to
advance the object with which it is passed and as far as
possible, avoiding any construction which would facilitate
evasion of the Act. [521-C]
1.2. In consonance with the directions enshrined in
Article 43 of the Constitution, Employees’ Provident Fund
Scheme is intended to encourage the habit of thrift amongst
the employees and to make available to them either at the
time of their retirement or earlier, if necessary,
substantial amounts for their use from out of the provident
fund amount standing to their credit which is made up of the
contributions made by the employers as well as the employees
concerned. The Act being a beneficent statue and section 16
of the Act being a clause granting exemption to the employer
from the liability to make contributions, section 16 should
receive a strict construction
[521A-B, 522A]
2.1. The criterion for earning exemption under section
16(1)(b) of the Act is that a period of three years has not
yet elapsed from the date of establishment of the factory in
question. It has no reference to the date on which the
employer who is liable to make contributions acquired title
to the factory which once established may be interrupted on
account of factory holidays, strikes, lock outs, temporary
breakdown of machinery, periodic repairs to be effected to
the machinery in the factory, non-availability of raw
materials, paucity of finance etc., and also on account of
an order of court as in the present case. Interruptions in
the running of factory which is governed by the Act brought
about by any of these reasons without more cannot be
construed as resulting in the factory ceasing to the factory
governed by the Act and on its restarting it cannot be said
that a new factory is or has been established. On the
resumption of the manufacturing work in the factory it would
continue to be governed by the Act which does not state that
any kind of stoppage in the working of the factory would
give rise to a fresh period of exemption. In other words the
period of three years should be counted from the date on
which the factory was first established and the fact that
there had been a change in the owners p makes no difference
to the counting of period. [522A-D, 524D-E]
Lakshmi Rattan Engineering Work v. Regional Provident
Fund Commissioner, Punjab & Ors. [1966] 1 LLJ 741 SC,
reiterated.
Chaganlal Textile Mills Pvt. Ltd. Y.P.A. Bhaskar Misc.
Appln. No. 289 of 1956 disposed of on November 5, 1956: M/s.
Bharat Board Mills Ltd. v. The Regional Provident Fund
Commissioner & Ors. A.I.R. 1957 Cal. 702: Vegetable Products
Ltd. v. Regional Provident Fund Commissioner W. Bengal &
Ors. A.I.R. 1959 Cal. 783; Jamnadas Agarwala & Anr. v. The
Regional Provident Fund Commissioner West Bengal & Ors.
A.I.R. 1963 Cal. 513;
518
Robindra Textile Mills v. Secretary Ministry of Labour Govt.
of India New Delhi & Anr A.I.R. 1936 Punjab-55. Hindustan
Electric Co. Ltd. v. Regional Provident Fund Commissioner
Punjub & Anr. A I.R 1959 Punjab 27 Regional Provident Fund
Commissioner Punjab & Anr. v Lakshmi Rattan Engineering
Works Ltd A.I.R. 1962 Punjab 507: M/s. R.L. Sahni & Co v.
Union of India represented by the Regional Provident
Commissioner Madras & Anr. A.l.R. 1966 Mad. 416; Kunnath
Textile v. Regional Provident Fund Commisioner A.I.R. 1959
Kerala 3; The New Ahmedabad v Bansidar Mills Pvt Ltd.
Ahmedabad v. Union of India & Ors. A I R. 1968 Gujarat 71;
approved.
Provident Fund Inspector Trivendrum v. Secretary N.S.
S. Co-operative Society Changanacherry [1970] 2 S.C.R. 481:
Vithaldas Jagnnathdas & Anr. v. The Regional Provident Fund
Commissioner Madras & Anr. A.I.R. 1965 Mad. 508;
distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No.2139 of
1970.
From the Judgment and Decree dated August 25, 1969 of
the High Court of Bombay in Appeal No. 406 of ]964 from
Original n Decree.
N. H. Hingorani, Mrs. K. Hingorani and Mrs. Rekha
Pandey for the Appellant.
O. P. Sharma and Miss. ,4. Subilashini for the
Respondent.
The Judgment of the Court was delivered by
VENAKTARAMIAH, J. This appeal by Special Leave
involves the question whether the provisions of the
Employees’ Provident Funds and Miscellaneous Provisions Act,
1952 (Act XIX of 1952) (herein after referred to as ‘the
Act’) were applicable on the date of the suit out of which
this appeal arises to the factory which was purchased by the
appellant in the year 1955 in certain liquidation
proceedings.
Prior to December, 1954 a company called ‘Hirji Mills
Ltd.’ was carrying on the business of manufacture and sale
af textile goods in its factory situated at Fergusson Road,
Lower Parel, Bombay. That company was ordered to be wound up
by the High Court of Bombay and its assets were ordered to
be sold by the Official Liquidator. At the sale held by the
Official Liquidator, the appellant which was a Public
Limited Company, purchased the above said factory. It is
stated that the workmen had been discharged earlier and the
goodwill of the company in liquidation had not been
519
acquired by the appellant. There was discontinuance of the
work of A the factory for some time. The appellant restarted
the factory on November 12, 1955. The appellant claims that
it invested some fresh capital in the business, renovated
the machinery and also employed workmen on fresh contracts
though about 70 per cent of the workmen were formerly
working in that factory. It is also contended that the
appellant commenced to produce certain new types of goods at
the factory after obtaining a new licence to run it. When by
the end of February, 1956 the Regional Provident Fund
Commissioner made certain enquiries about the working of the
factory in order to enforce the Act against it, the
appellant wrote to him stating that the factory was an
infant factory as it had established it on November 12, 1955
and the period of three years had not elapsed from that
date. The appellant claimed exemption from the operation of
the Act relying upon section 16 (1) (b) thereof. When the
Regional Provident Fund Commissioner was not convinced about
its explanation the appellant filed a writ petition under
Article 226 of` the Constitution before the High Court of
Bombay in Miscellaneous Application No. 76 of 1957
challenging the applicability of the Act to the factory.
That petition was, however, withdrawn. Later on the
appellant filed a suit before the City Civil Court at Bombay
in Short Cause Suit No. 2088 of 1958 for a declaration that
the Act and the scheme framed thereunder could not be
enforced against the factory until the expiry of three years
from November 12, 1955 and that the appellant was not liable
to make any contributions under the Act. The appellant also
prayed for an injunction against the Regional Provident Fund
Commissioner restraining him from enforcing the Act against
the factory. The suit was resisted by the Regional Provident
Fund Commissioner. He contended that the Act was applicable
to the factory when it was in the hands of Hirji Mills Ltd.
(the company under liquidation) and hence it did not cease
to apply merely because there was discontinuance in the
working of the factory for a short period and there was
change Of ownership. It was also pleaded that the factory
could not be treated as having been newly established on
November ‘ 2, 1955 and hence the exemption under section 16
(1) (b) of the Act was not available. The trial court
dismissed the suit with costs. The trial court while
negativing the contention of the appellant observed thus:
“If a factory was closed down and after it had
gone into liquidation the factory is dismantled by the
liquidator and the liquidator sold the various assets
as scrap it would be a different matter but in the
present case having regard to the recitals in the Deed
of Conveyance dated 5th December 1955
520
Ex. A it cannot be disputed that the Plaintiffs have in
fact purchased all the assets (a) lands, hereditaments
and premises, (b) buildings, godowns, structures and
sheds and (c) the plant and machinery and other
movables from Hirji Mills (in Liquidation) and Official
Liquidator and others and what is more after making
such purchase they have been utilizing the said same
assets particularly same factory premises and same
plant and machinery with a few additions to carry on
the same business, namely, manufacturing textile goods
which was carried on by that factory when it was owned
by Hirji Mills Ltd. with 65 to 70 per cent of the old
staff and workmen of Hirji Mills Ltd. From these facts
it cannot be said that the intention while effecting
the transfer of all the several assets from the former
owners to the owners was that the old factory should
become defunct or non-existent and a new factory was
intended to be established. On the contrary these facts
affirm the continuity of the established factory,
notwithstanding the fact that the plaintiffs did not
purchase it as a going concern.”
The trial court held that in view of the several facts
established in the case it could not be presumed that a new
factory was established by the appellant on November 12,
1955. It on the other hand held that the continuity of the
old factory had not broken and as such the appellant was
liable to make contributions under the Act. The judgment of
the trial court was affirmed by the Bombay High Court in
Appeal No. 406 of 1964. This appeal by Special Leave is
filed against the judgment of the High Court.
The facts established in this case are that Hirji
Mills Ltd. had been carrying on the business of manufacture
of textile goods in the factory` from the year 1931 upto the
date of the winding up order which was made on December 17,
1954 and there was stoppage of manufacturing activity in`the
factory till November 12, 1955 on which date it was
recommenced by the appellants. The points for consideration
are whether in the circumstances in which the appellant came
to acquire the factory there was the extinction of the old
factory and the establishment of a new factory on November
12, 1955 and whether it could be said that the Act had
ceased to apply to the factory on the stoppage of the
manufacturing process in it owing to the winding up order.
521
At the outset it has to be stated that the Act has
been brought A into force in order to provide for the
institution of provident funds for the benefit of the
employees in factories and establishments. Article 43 of the
Constitution requires the State to endeavour to secure by
suitable legislation or economic organisation or in any
other way to all workers, agricultural, industrial or
otherwise among others conditions of work ensuring a decent
standard of life and full enjoyment of leisure. The
provision of the provident fund scheme is intended to
encourage the habit of thrift amongst the employees and to
make available to them either at the time of their
retirement or earlier, if necessary, substantial amounts for
their use from out of the provident fund amount standing to
their credit which is made up of the contributions made by
the employers as well as the employees concerned. Therefore,
the Act should be construed so as to advance the object with
which it is passed. Any construction which would facilitate
evasion of the provisions of the Act should as far as
possible be avoided. Section 1 (3) of the Act during the
relevant period declared that subject to section 16 thereof,
it applied to every establishment which a factory engaged in
any industry specified in Schedule I thereof and in which
fifty or more persons were employed. The material part of
section 16 of the Act as it stood at the relevant time
alongwith the marginal note read as follows:-
” 16, Act not to apply to factories belonging
to Government or Local Authority and also to infant
factories- F
(1) This Act shall not apply to-
(a) any factory belonging to the Government
or a local authority; and
(b) any other factory, established whether
before or after the commencement of this
Act, unless three years have elapsed
from its establishment.
Explanation:-For the removal of doubts, it is
hereby declared that the date of the establishment of a
factory shall not be deemed to have been changed merely
by reason of a change of the premises of the factory..
”
522
The Act being a beneficent statute and section 16
of the Act being a clause granting exemption to the employer
from the liability to make contributions, section 16 should
receive a strict construction. If a period of three years
has elapsed from the date of the establishment of a factory,
the Act would become applicable provided other conditions
are satisfied. The criterion for earning exemption under
section 16(1) (b) of the Act is that a period of three years
has not yet elapsed from the date of the establishment of
the factory in question. It has no reference to the date on
which the employer who is liable to make contributions
acquired title to the factory. The Act also does not state
that any kind of stoppage in the working of the factory
would give rise to a fresh period of exemption. The work in
a factory which is once established may be interrupted on
account of factory holidays, strikes, lock outs, temporary
breakdown of machinery, periodic repairs to be effected to
the machinery in the factory, non-availability of raw
materials, paucity, of finance etc. It may also be
interrupted on account of an order of court like the one we
are confronted with in this case. Interruptions in the
running of a factory which is governed by the Act brought
about by any of the reasons mentioned above without more
cannot be construed as resulting in the factory ceasing to
be a factory governed by the Act and on its restarting it
cannot be said that a new factory is or has been established
On the resumption of the manufacturing work in the factory,
it would continue to be governed by the Act. In Chagganlal
Textile Mills Pvt. Ltd. v. P.A. Bhaskar(1) on the file of
the Bombay High Court which is one of the earliest decisions
delivered on the above question (which is unreported),
Justice Tendolkar observes thus:
“The important point to notice about this
provision is that the Act is made applicable to
factories and not to P the owners thereof; or, in other
words, it applies to factories irrespective of who the
owners from time to time may be.”
The learned Judge proceeds:
“The question is whether the order of
liquidation and the consequent temporary discontinuance
of business until a lease was granted to Kotak and
Company has the consequence of making the factory which
was established cease
(1) Misc. Appln. No. 289 of 1956 disposed of on
November 5, 1956.
523
to be established. In my opinion the answer to this question
must be in negative. A temporary cessation of the activities
of an established factory cannot lead to the result that the
factory ceases to be established for the purposes of the
Employees’ Provident Funds Act, for if it did, the class of
employers who spare no ingenuity in seeking to deprive the
employees of all the benefits conferred upon them by statute
would have convenient handle whereby the activities of an
established factory have to be discontinued for a few months
in order to deprive the employees of the benefits under the
Employees’ Provident Funds Act. I take it that the
establishment of a factory involves that the factory has
gone into production and no more.. but once it goes into
production, a temporary cessation of its activities, for
whatever reasons that cessation takes place cannot in my
opinion, take the factory out of the category of an
established factory for the purposes of the Employee’s
Provident Fund Act.”
Towards the conclusion of his judgment, the learned
Judge says that: ‘
“Even a complete change in the whole body of
employees cannot make a factory which is established,
cease to be established. In any event, the Employees’
Provident Funds Act is a beneficial legislation for the
benefit of the employees and every construction of its
provisions which would defeat the object of the
legislation and lead to an evasion must be rejected,
unless the clear language of the Act leaves no option
to the Court but to accept such an interpretation.”
The above statement appears to us to lay down the law
correctly. We find that this view has been followed in
Messrs Bharat Board Mills Ltd. v. The Regional Provident
Fund Commissioner & Ors.,(1) Vegetable Products Ltd. v.
Regional Provident Fund Commissioner, W. Bengal & Ors.,(2)
Jamnadas Agarwalla & Anr v. The Regional Provident Fund
Commissioner, West Bengal & Ors.,(3) Robindra Textile Mills
v. Secretary, Ministry of Labour, Govt. Of India, New
(1) A.I.R. 1957 Cal. 702.
(2) A I.R. 1959 Cal. 783.
(3) A.I.R. 1963 Cal. 513.
524
Delhi & Anr.(1) and Hindustan Electric Co. v. Regional
Provident Fund Commissioner, Punjab & Anr(2), Regional
Provident Fund Commissioner Punjab & Anr. v. Lakshmi Ratten
Engineering Works Ltd.(3) (affirmed in item 2 infra). A
similar view has been taken by the Madras High Court in M/s.
R.L. Sahni & Co v. Union of India, represented by the
Regional Provident Commissioner, Madras & ,Anr (4) in which
it was held that it could not be postulated that each time
when there was a change of hands, a new establishment came
into existence. In Kunnath Textiles v. Regional Provident
fund Commissioner(6) and in The New Ahmedabad Bansidar Mills
Pvt. Ltd. Ahmedabad v. The Union of India &; Ors.(6) also
the same view has been taken.
In Lakshmi Ratten Engineering Works v. Regional
Provident fund Commissioner, Punjab & Ors (7) which was
filed by one of the parties to the appeal before the Punjab
High Court in Regional Provident Fund Commissioner, Punjab &
Anr. v. Lakshmi Ratten Engineering Works Ltd (supra) against
the judgment rendered therein, this Court has held while
affirming the said judgment that the words in section 16 (1)
(b) of the Act were quite clear and they left no room for
doubt that the period of three years should be counted from
the date on which the factory was first established and the
fact that there had been a change in the ownership made no
difference to the counting of that period
This is not a case where the old factory was reduced
into scrap and a new factory was erected in its place. Nor
can it be said that there was total discontinuity brought
about between the old factory and the factory which was
restarted after the appellant purchased it. The stoppage of
production was brought about temporarily as stated earlier
by the winding up order and the factory was restarted after
it was sold to the appellant by the Official Liquidator. The
finding of fact recorded by the trial court in this case
which is affirmed by the High Court clearly establishes that
it was the same old factory which recommended production on
November 12, 1955. What is of significance is that a
substantial number of workmen
(1) A.I.R. 1958 Punjab 55,
(2) A.I.R. 1959 Punjab 27.
(3) A.I.R. 1962 Punjab 507.
(4) A.l.R. 1966 Mad. 416.
(5) A.I.R. 1959 Kerala 3.
(6) A.I.R. 1968 Gujarat 71. 5
7) 1966 I Labour Law Journal 741.
525
and staff who were working under the former management had
been A employed by the appellant though it is claimed that
they had entered into new contracts of employment. Mere
investment of additional capital or effecting of repairs to
the existing machinery before it was restarted, the
diversification of the lines of production or change of
ownership would not amount to the establishment of a new
factory attracting the exemption under section 16 (l) (b) of
the Act for a fresh period of three years.
On behalf of the appellant, reliance was placed on the
decision of this Court in Provident Fund Inspector,
Trivandrum v. Secretary, N.S.S. Co-operative Society,
Changanacherry.(1) That was a case in which the Secretary of
a Co-operative Society which owned a press had been
acquitted by the Magistrate of the charge of not complying
with the provisions of the Act. The High Court had confirmed
the order of acquittal. On appeal, this Court found that
there was no ground to interfere with the acquittal. The
defence of the accused in that case was that the Co-
operative Society of which he was the Secretary had acquired
the press in question in March, 1961 and had established a
new press subsequently and hence the Act was not applicable
to the press as the period of three years prescribed by
section 16 (l) (b) of the Act had not expired The evidence
in that case showed that after the purchase, a new owner had
come in the place of the former owner, the work of the press
was stopped on the date of its sale and was started again
after a break of three months, the machinery in the press
was also altered and the persons employed previously were
not continued in service. While a fresh recruitment of
workmen had taken place, out of those workmen only six
happened to be the former employees and compensation had
been paid to the workmen at the time of the sale by the
former owner. On these facts it was held that a new
establishment had come into existence. In the case before
us, it is seen that about 70 per cent of the former workmen
had been employed by the appellant and there was no change
of machinery. Further this is a case where the interruption
of work had taken place owing to the order in the winding up
proceedings. It is relevant to state here that this Court in
the course of its judgment in the above case did not
overrule the decision of the Calcutta High Court in Messrs
Bharat Board Mills Ltd. (supra) but only distinguished it.
The facts of that case more or less corresponded to the
facts of the case before us. It is true that this Court in
the above decision approved the decision of the
(1) [1970] 2 S.C.R. 481.
526
Madras High Court in Vithaldas Jagannathdas & Anr. v. The
Regional Provident Fund Commissioner, Madras & Anr.(1) but
that does not make any difference so far as the case before
us is concerned since in the Madras case there was a finding
that in reality the old establishment had come to an end and
there was a new establishment. In the case before us, the
finding of fact of the trial court is to the contrary. The
learned trial judge has held that the intention in this case
was to maintain the continuity of the old factory. Hence the
decision on which reliance is placed being distinguishable
on facts is not of much use to the appellant.
In the circumstances, we do not find that there is any
infirmity in the judgment under appeal. The appeal,
therefore, fails and is hereby dismissed with costs.
S.R. Appeal dismissed.
(1)A.I.R. 1965 Mad. 508.
527