IN THE HIGH COURT OF KERALA AT ERNAKULAM
OP.No. 28918 of 2001(P)
1. REMADEVI AMMA
... Petitioner
Vs
1. THE COMMISSIONER
... Respondent
For Petitioner :SRI.BECHU KURIAN THOMAS
For Respondent :SRI.N.N. SUGUNAPALAN, SC, P.F.
The Hon'ble MR. Justice S.SIRI JAGAN
Dated :11/02/2009
O R D E R
S. Siri Jagan, J.
=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=
O.P. No. 28918 of 2001
=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=
Dated this, the 11th February, 2009.
J U D G M E N T
Petitioner’s husband was the owner of a cashew factory.
Disheartened by mounting debts, her husband committed suicide.
Thereupon, the factory devolved upon the petitioner and her children.
The petitioner leased the factory to the 4th respondent by Ext. P1
dated 14-1-1997. Such transfer was endorsed in the factory licence
and the transfer was duly recognised by the authorities under the
Factories Act. Thereafter, the 4th respondent was running the factory.
The 4th respondent defaulted payment of dues under the Employees
Provident Funds and Miscellaneous Provisions Act. On the ground
that the petitioner, being the owner of the factory, is also liable for
payment of the amounts due under the Act, proceedings were
initiated against the petitioner as well as the 4th respondent. It
resulted in Ext. P3 series of criminal complaints before the criminal
court in which both the petitioner and the 4th respondent were made
accused. Ext. P4 demand notice was also issued to the petitioner for
an amount of Rs. 3,55,285/- being contributions payable under the
Act for the period during which the 4th respondent was conducting the
factory pursuant to the lease executed by the petitioner and the
transfer of factory licence in favour of the 4th respondent. Since no
payment was made, Ext. P5 notice for arrest and detention of the
petitioner was issued by the 3rd respondent. Ext. P6 order of
attachment of movable properties of the petitioner was also issued.
The petitioner is challenging Ext. P3 series as well as Exts.P.4, P5 and
P6.
2. The contention of the petitioner is that the petitioner is not
liable for the amounts demanded as contributions for the period
during which the 4th respondent was conducting the factory in so far
as the petitioner was not the ’employer’ as defined under the Act for
O.P. No. 28918/2001. -: 2 :-
the period in question. The petitioner also refers to clause 9 of Ext.
P1, by which the 4th respondent had undertaken to pay off the
provident fund dues during the period of lease. According to the
petitioner, going by the definition of ’employer’ in Section 2(e), the
petitioner is not the employer of the factory in question.
3. A counter affidavit has been filed by the respondents who
opposes the contentions of the petitioner. According to them, going
by the definition in Section 2(e), the owner is also liable along with
the occupier of the factory and by virtue of Section 17B also, the
petitioner is liable.
4. I have heard counsel on both sides and considered the
arguments advanced before me.
5. Neither the lease in favour of the 4th respondent executed by
the petitioner nor the knowledge of that lease by the respondents are
denied by the respondents. It is also not denied before me that
pursuant to Ext. P1 lease, the factory licence had also been
transferred in the name of the 4th respondent. In clause 9 of Ext. P1
executed between the petitioner and the 4th respondent, it is
specifically stated thus:
“9. The licensee shall be liable to meet all labour liabilities
like wages, contribution to the E.S.I., Provident Fund, Welfare
Fund and all other benefits to which the workers of the factory are
entitled and shall periodically convince the licensor that all such
payment are made in time during the currency of the licence.”
Section 2(e) defines the expression ’employer’ thus:
“(e) “employer” means:-
(i) in relation to an establishment which is a factory, the
owner or occupier of the factory, including the agent of such
owner or occupier of the factory, including the agent of suchO.P. No. 28918/2001. -: 3 :-
owner or occupier, the legal representative of a deceased owner or
occupier and, where a person has been named as a manager of the
factory under clause (f) of sub-section (1) of section 7 of the
Factories Act, 1948 (63 of 1948), the person so named; and
(ii) in relation to any other establishment, the person
who, or the authority which, has the ultimate control over the
affairs of the establishment, and where the said affairs are
entrusted to a manager, managing director or managing agent.”
Section 2(k) defines the expression “occupier of the factory” thus:
“(k) “occupier of a factory” means the person who has
ultimate control over the affairs of the factory, and, where the said
affairs are entrusted to a managing agent, such agent shall be
deemed to be the occupier of the factory.”
Going by the said definition, the owner or occupier of the factory is
the employer. Here, admittedly, the factory has been transferred by
way of lease by the petitioner to the 4th respondent. The factory
licence has also been transferred in the name of the 4th respondent.
Therefore, the 4th respondent is the occupier of the factory and as a
result the employer. He had also specifically contracted with the
petitioner to pay off the provident fund amounts due for the period
during which he holds the lease.
6. Section 17B of the Act reads thus:
“17B. Liability in case of transfer of establishment:- Where
an employer, in relation to an establishment, transfers that
establishment in whole or in part, by sale, gift, lease or licence or
in any other manner whatsoever, the employer and the person to
whom the establishment is so transferred shall jointly and
severally be liable to pay the contribution and other sums due
from the employer under any provision of this Act or the Scheme
or the Pension Scheme or the Insurance Scheme, as the case may
be, in respect of the period up to the date of such transfer:
Provided that the liability of the transferee shall be limited
to the value of the assets obtained by him by such transfer.”
O.P. No. 28918/2001. -: 4 :-
Going by Section 17B, a transferor is liable only in respect of the
period up to the date of such transfer. For the period up to the date
of transfer, the transferee also would be liable, but limited to the
value of the assets obtained by the transferee by such transfer. That
essentially means that after the date of transfer by way of lease, the
transferee alone would be liable for the dues under the Act and not
the transferor. A conjoint reading of Sections 2(e), 2(k) and 17B, I
have no doubt in my mind that after the date of transfer, the
transferor would cease to be the employer as defined under the Act.
7. Of course, the learned standing counsel for the Provident
Fund Organisation would raise a contention that subsequently the
lease period expired and the factory reverted to the petitioner, which
would be a transfer coming within Section 17B and therefore the
petitioner would be liable as a transferee. I am not satisfied that
such an interpretation is contemplated under Section 17B. On expiry
of a lease, there is no transfer of the properties back to the transferor
because the property all along continued to be that of the transferor.
Therefore, there is no requirement of the lessee transferring the
property back to the owner. The law relating to property or the law of
contract in India does not envisage a transfer on the expiry of the
period of lease. On expiry of the lease period, the contract of lease is
terminated and the property automatically reverts to the lessee for
which a transfer by the lessee to the transferor is necessary.
Further, under the proviso to Section 17B, the liability of the
transferee shall be limited to the value of the assets obtained by him
by such transfer. Here, even assuming that the reversion of the
property to the lessor after the expiry of the lease amounts to a
transfer, no assets of the lessee are obtained by the transferor from
O.P. No. 28918/2001. -: 5 :-
the lessee on such transfer, in so far as the assets belonged to him all
along notwithstanding the lease. In the above circumstances, I am
not inclined to accept the contention of the 4th respondent that as the
owner of the factory in question, the petitioner would also be liable for
amounts due from the 4th respondent under the Act.
The result of the above discussion is that all proceedings
initiated against the petitioner for non-compliance with the provisions
of the Act as an employer during the period when the 4th respondent
was running the factory as a lessee are unsustainable. Consequently,
Ext.P3 series and Exts. P5 and P6 are also unsustainable to the extent
it makes the petitioner liable under the Act. Accordingly, they are
quashed. However, I make it clear that the respondents would be free
to continue proceedings already initiated against the 4th respondent
for the amounts due from him. The original petition is allowed as
above.
S. Siri Jagan, Judge.
Tds/
O.P. No. 28918/2001. -: 6 :-
S. Siri Jagan, J.
=-=-=-=-=-=-=-=–=-=-=-=-=-=-=-=-=-=
O.P. No. 28918 of 2001
=-=-=-=-=-=-=-=-=–=-=-=-=-=-=-=-=-=
J U D G M E N T
11th February, 2009.