ORDER
1. W.M.P. No. 2760 of 1991 was filed by the petitioner in W.P. No. 2428 of 1986 pending before this Court for an order of interim injunction restraining the first respondent or his agents from demanding the Provident Fund accumulations due from the petitioners, pending disposal of the writ petition. When the same came up for orders, by consent of parties, the main writ petition itself was taken up for hearing.
2. W.P. No. 2428 of 1986 was filed for a writ of mandamus directing the mandamus directing the first respondent to pass necessary orders stating that the petitioners will come under the Employees Provident Fund Act on the basis of S. 16(1)(b) of the Act only from November 2, 1984 and allot a code number to the petitioner’s firm. In the affidavit filed in support of the writ petition, the petitioners have contended that the writ petitioner is a partnership firm, that on October 3, 1981 they entered into an agreement with the 4th respondent, a Government of India Undertaking as evidenced by a written agreement, that the petitioners fabricate and supply garments which the fourth respondent exports outside with some of the inputs supplied by the fourth respondent, that in terms of the agreement between the petitioners and the fourth respondent, the petitioners set up a new establishment consisting of 121 employees in November, 1981 for making garments, that all the employees were freshly recruited and the petitioners established and commenced the establishment only in July, 1981, that in view of S. 16(1)(b), the provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 hereinafter referred to as the “Act”, the same is entitled to infancy protection, that it is completely a new establishment with no one who was earlier working or earlier a member contributory to the scheme, that on October 29, 1984 the petitioners informed the first respondent about the same and requested him to allot them a Provident Fund Code number to enable them to deduct the Provident Fund contributions in terms of the scheme, that even earlier, the necessary proforma as to the commencement of the Establishment with effect from November 2, 1981 was filed, that the Enforcement Officer of the first respondent visited and inspected all the documents and records available which indisputably showed that the Establishment as established in 1981 was a new one and that in spite of all these materials owing to certain wrong understanding of the relevant provisions of law as well as misconception and misconstruction of the vital and relevant facts the first respondent failed to give a separate code number inspite of the request from the 4th respondent too, the petitioners were obliged to file the writ petition. By way of abundant caution, the petitioners have been deducting the subscriptions of the employees and with their own contributions have been remitting them in a Savings Bank Account from November 1984 onwards.
3. The petitioners further contended that as per the terms and conditions of the agreement between them and conditions of the agreement between them and the fourth respondent, they are the employer in respect of these employees and found working in their Establishment and that the fourth respondent has nothing to do with them and does not have anything to do with those employees of theirs in any manner whatsoever and that the first respondent was ill advised to treat them as having any link or connection with the fourth respondent directly or indirectly.
4. The respondents 1 to 3 filed a common counter affidavit contending as follows :
“(a) The writ petitioners are contractors of the fourth respondent who are the principal employers, that the fourth respondent owns the premises, machineries and makes available the power and other facilities out of materials supplied by the fourth respondent, that the contractors stitch the garments as per specification of the Corporation under the direct control and supervision of the officials of the fourth respondent, no materials fabricated or otherwise can be removed outside without the permission of the fourth respondent, that the fourth respondent is covered and exempted under S. 17(1)(a) of the Act with code number D.L./1138 and that the request for allotting a separate code number for them cannot be conceded as it will be contrary to S. 6 of the Act and paragraphs 30(1) and 36B of the Scheme and that it is only responsibility of the fourth respondent to enlist the labourers in question employed by the contractors/writ petitioner in the Provident Fund Scheme. The request for an allotment of a code number as an interim measure was rejected in W.M.P. No. 3682 of 1986 on March 25, 1986.
(b) The agreement between the petitioner and the fourth respondent is not disputed, that the petitioner being one among the contractors of the already covered and exempted are not entitled to infancy protection under S. 16(1) but will be bound to implement the provisions from the date the Establishment was set up, that fourth respondent who is claimed to be the principal employers are solely responsible for the implementation of the Act/Scheme under S. 6 of the Act and paragraphs 30(1) and 36B of the Scheme and therefore the grant of infancy protection in this case did not arise. It is also contended that it is for the 4th respondent to take up the matter with the Regional Provident Fund Commissioner of its Region for allotment of a separate code number for administrative convenience on the contractor giving an undertaking that they will take the responsibility of implementing the provisions of the Act and the scheme.
(c) The writ petitioners being the contractors of the fourth respondent, cannot be treated as a separate unit and assigned a separate code number independently, bringing the establishment under the fold under S. 1(3) of the Act and accepting the plea of the writ petitioner will amount to violation of S. 6 of the Act and paragraphs 30(1) and 36(B) of the Scheme. The fact that the records and materials of the writ petitioner were inspected is admitted, that in as mush as it found that the writ petitioners were one among the contractors of the fourth respondent they could not be brought under the provisions giving them the benefit of infancy protection under S. 16(1)(b) and in the view of the respondents 1 to 3 such a course will be opposed to S. 6 of the Act and paragraphs 30 and 36B of the scheme.
(d) Though the petitioner Establishment was set up separately, they function only as one of the contractors of the fourth respondent to make garments in terms of the agreement entered into between them that the terms and conditions of the agreement are such they will not be covered under S. 1(3) and that they cannot also claim infancy protection under S. 16(1) of the Act. It is also the plea of the respondents 1 to 3 that Cl. 9 of the agreement will not come to the rescue of the petitioners to claim the relief as prayed for and that as per S. 6 of the Act and paragraphs 30 and 36B of the Scheme, the liability in that regard is that of the principal employer even in respect of the persons employed by the contractor.
(e) The Principal employer alone can ask and get a separate code number and not the contractor/writ petitioner. It is also contended that the writ petitioner failed to follow the procedure under paragraph 36B of the Scheme and it is responsibility of the principal employer to extend the benefits under the Act/scheme in respect of the employees employed though writ petitioners and that in any event that petitioners ought to have resorted to the remedial measures provided under S. 19A and cannot maintain this writ petition. The respondents 1 to 3 have prayed for a direction to the writ petitioners to implement the provisions of the Act along with the employees of the principal employer fourth respondent under Code No. DL/1138 from the date of set up of the Establishment.”
5. On behalf of the writ petitioners, Mr. Habibullah Badhsha, the learned Advocate General and senior counsel argued and on behalf of the respondents 1 to 3, Mr. P. Narasimhan, learned Principal Standing Counsel for the Central Government argued. The learned counsel reiterated the submissions and claims made in their proceedings, referred to supra. Mr. N. Dinakar, learned counsel for the fourth respondent supported the claim of the writ petitioner for assignment of a separate code number, that it was contended that they have nothing to do with the employees of the writ petitioners either directly or indirectly, that they have also written to the authorities surrendering their exemption under S. 17(1) and seeking for exemption under Paragraph 27A with necessary application and also requesting for assignment of sub-code numbers to the Establishments of their independent contractors. Copies of communication dated April 4, 1990 and May 28, 1990 were also made available to court and other parties present.
6. I have carefully gone through the submissions made by the learned counsel appearing on either side in the light of the materials made available and the governing position of law. In my view this is a typical case illustrative of the impracticable, illogical and unreasonable approach and attitude of the authorities entrusted with the enforcement and implementation of the provisions of a beneficent piece of social welfare legislation for the well being of the employee itself leading to defeat and frustrate the very object and purpose of the Act. A practical and purposeful thinking and reasonable and reasoned approach would have helped the cause of the workers than the mechanical and wooden like approach adopted which brought more harm than fostering harmony and ensuring to the workers the benefits secured under this social legislation.
7. Since the respondents 1 to 3 have laid great stress both in their counter affidavit as well as at the time of hearing on some of the provisions of the Act and the Scheme, I consider it necessary to refer to them before testing their claims based thereon. S. 1(3) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 reads as follows :-
“(3) Subject to the provisions contained in S. 16, it applies –
(a) to every establishment which is a factory engaged in any Industry specified in Schedule I and in which twenty or more persons are employed, and
(b) to any other establishment employing twenty or more persons or class of such establishments which the Central Government may, by notification in the Official Gazette, specify in this behalf :
Provided that the Central Government may after giving not less than two months’ notice its intention so to do, by notification in the Official Gazette, apply the provisions of this Act to any establishment employing such number of persons less than twenty as may be specified in the notification.”
8. S. 2(e) and S. 2(f) as they stood at the relevant point of time read as follows :-
“(e) ’employer’ means ………..
(i) in relation to an establishment which is a factory, the own or occupier of the factory including the agent of such 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 C1. (f) of sub-S. (1) of S. 7 of the Factories Act, 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 were the said affairs are entrusted to a manager, managing director or managing gent, such manager, managing director or managing agent;
(f) ’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 employers, and includes any person employed by or through a contractor in or in connection with the work of the establishment.”
9. S. 6 of the Act at the relevant point of time stood as hereunder :
“The contribution which shall be paid by the employer to the Fund shall be six and a quarter per cent of the basic wages, dearness allowance and retaining allowance (if any) for the time being payable to each of the employees (whether employed by him directly or by or through a contractor), and the employees’ contribution shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires and if the scheme makes provision therefor, be an amount not exceeding eight and one third per cent of his basic wages, dearness allowance and retaining allowance (if any).
Provided that in its application to any establishment or class of establishments which the Central Government, after making such enquiry as it deems fit, may by notification in the Official Gazette specify, this section shall be subject to the modification, that for the words ‘six and a quarter per cent’. the words ‘eight per cent’ shall be substituted :
Provided further that where the amount of any contribution payable under this Act involves a fraction of a rupee, the scheme may provide for the rounding off of such fraction to the nearest rupee, half of a rupee or quarter of a rupee.
Explanation 1 : For the purposes of this section, dearness allowance shall be deemed to include also the cash value of any food concession allowed to the employee.
Explanation 2 : For the purposes of this section, “retaining allowance” means an allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment during any period in which the establishment is not working, for retaining his services.”
10. S. 16(1) reads thus :-
“This Act shall not apply –
(a) to any establishment registered under the Co-operative Societies Act, 1942, or under any other law for the time being in force in any State relating to co-operative societies, employing less than fifty persons and working without the aid of power; or
(b) to any other establishment employing fifty or more persons or twenty or more, but less than fifty, persons until the expiry of three years in the case of the former and five years in the case of the latter, from the date on which the establishment is, or has been set up.
Explanation : For the removal of doubts it is hereby declared that an establishment shall not be deemed to be newly set up merely by reason of a change in its location.”
11. Paragraphs 30 and 36B of the Employees Provident Fund Scheme, 1952, stood as hereunder at the material point of time :
“30(1). The employer shall in the first instance, pay both the contribution payable by himself (in this scheme referred to as the employer’s contribution) and also on behalf of the member employed by him directly or by or through a contractor the contribution payable by such member (in the scheme referred to as the member’s contribution).
(2). In respect of employees employed by or through a contractor the contractor shall recover the contribution payable by such employee (in this scheme referred to as the member’s contribution) and shall pay to the principal employer the amount of member’s contribution so deducted together with an equal amount of contribution (in this scheme referred to as the employer’s contribution) and also, administrative charges.
(3) It shall be the responsibility of the principal employer to pay both the contributions payable by himself in respect of the employees directly employment by him and also in respect of the employees employed by or through a contractor and also administrative charges.
Explanation : For the purpose of this paragraph the expression ‘administrative charges’ means such percentage of the pay (basic wages, dearness allowance, retaining allowance, if any, and cash value of food concessions admissible thereon) for the time being payable to the employees other than an excluded employee and in respect of which provident fund contributions are payable as the Central Government may, in consultation with the Central Board and having regard to the resources of the Fund for meeting its normal administrative expenses, fix.”
36B-Every contractor shall, within seven days of the close of every month, submit to the principal employer a statement showing the recoveries of contributions in respect of employees employed by or through him and shall also furnish to him such information as the principal employer is required to furnish under the provisions of the Scheme to the Commissioner”
12. The learned counsel for respondents 1 to 4 relied upon the following case law :- The decision of this Court in Vittaldas Jaganathadas v. Regional Provident Fund Commissioner (1966-I-LLJ 240) was quoted with approval and applied to this case in P. F. Inspector v. N. S. S. Co-operative Society , by the Supreme Court of India in laying down the norms and guidelines for the applicability of S. 16(1)(b) of the Act. It was held therein that where the establishment in question is a ‘New Establishment’, it is entitled to infancy protection and this was in the context of an old Establishment being closed and a new Establishment coming into existence in its place. The decision in M/s. Satish Plastics v. Regional Provident Fund Commissioner (1981-II-LLJ-277), was that of a Division Bench of the Gujarat High Court wherein the position of an Accountant employed for writing accounts on contract basis who had the option to work likewise for others and also to work or write the accounts in this house, was considered. That Court held that S. 2(f) of the Employees’ Provident Funds Act, 1952 is wide enough to take within its sweep a person permitted to work at his residence as well and even if he is not wholly employed but principally employed in connection with the business of the shop. It is to be seen that in this case emphasis was laid on the existence of master and servant relationship though not of conventional type but at least of having regard to the economic realities irrespective of the nomenclature devised by parties. In P. M. Patel v. Union of India (1986-I-LLJ-88) the Supreme Court considered the case of home workers of a single manufacturer who receive raw materials from the manufacturer, roll the beedis at home and deliver them to the manufacturer for wages and subject to the requisite degree of control and supervision found to be indicative of the existence of relationship of master and servant and held that such workers fall within the definition of S. 2(f) of the Act.
13. The Supreme Court of India, in P. M. Patel’s case (supra) had an occasion to analyse the earlier decided cases and the inherent differences in a contract of service on the one hand and contract for service on the other and reiterated the need for an overall consideration without laying too much emphasis upon anyone factor by quoting with approval the ratio in Silver Jubilee Tailoring House and others v. Chief Inspector of Shops and Establishments and another (1973-II-LLJ-495) in the following terms (1986-I-LLJ-88 at 92-93) :
“It is exceedingly doubtful today whether the search for a formula in the nature of a single test to tell a contract of service from a contract for service will serve any useful purpose. The most that profitably can be done is to examine all the factors that have been referred to in the cases on the topic. Clearly, not all of these factors would be relevant in all the cases or have the same weight in all cases. It is equally clear that no magic formula can be propounded which factors should in any case be treated as determining ones. The plain fact is that in a large number of cases, the Court can only perform a balancing operation weighing up the factors which point in the direction and balancing them against those pointing in the opposite direction.
During the last two decades the emphasis in the field has shifted and no longer rests so strongly upon the question of control. Control is obviously an important factor and in many cases it may still be the decisive factor. But it is wrong to say that in every case it is decisive. It is now no more than a factor, although an important one.”
14. Once again, the observations of Constitution Bench of the Apex Court in Mangalore Ganesh Works etc. v. Union of India etc. (1974-I-LLJ-367), as hereunder, were also quoted : (1986-I-LLJ-88 at 93) :
“….. the manufacturers or trade mark holders have liability in respect of workers who are directly employed by them or who are employed by them through contractors. Workers at the Industrial premises do not present any problem. The manufacturer or trade mark holder will observe all the provisions of the Act by reason of employing such favour in the industrial premises. When the manufacturer engages labour through contractor the labour is engaged on behalf of the manufacturer, and the latter has therefore liability to such contract labour. It is only when the contractor engages labour for on his own behalf and supplies the finished product to manufacturer that he will be the principal employer in relation to such labour and the manufacturer will not be responsible for implementing the provisions of the Act with regard to such labour employed by the contractor. If the right of rejection rests with the manufacturer or trade mark holder, in such a case the contractor who will prepare beedis through the contract labour will find it difficult to establish that he is the independent contractor.”
15. The general principle and the position of law governing the matter before me being what has been stated above, it requires next to be considered as to what are the salient features and the nature of the contract in the present case which govern the rights of parties. The fact that the nature of the transaction in question has to be decided in the light of the terms and conditions contained in the agreement dated October 3, 1981 is not in controversy. The salient features of the transaction as disclosed therein are : (a) the fourth respondent and the writ petitioner are in the position of licenser and licensee; (b) the licensee was entrusted with the work of manufacturing the garments having regard to their export knowledge of the job; (c) the fourth respondent has engaged only the writ petitioner for the fabrication of the garments in terms of the specifications and standards and delivering the same to the fourth respondent; (d) every one of the restrictions contained in the agreement, the provisions relating to the exercise of supervision and control and the payment for the work done by the fourth respondent are designed to workers employed by the writ petitioner, and the workers employed by the writ petitioner have no direct concern or connection with the same. Though the stipulations contained in the agreement provide for the fourth respondent making available the machineries and other equipments for the fabrication of the garments, the terms of the agreement also provide for the payment and collection o what is stated to be a licence fee for every garment produced for having the privilege of using the machineries and the equipments of the fourth respondent. Thus it could be seen that these provisions taken together with clause 9 of the agreement which fixes all liabilities and responsibilities arising out of labour laws and their implementation with the writ petitioner, no direct relationship or connection could be spelt out on the terms and conditions of the agreement between the fourth respondent and the staff or labour employed, nor the said terms warrant the existence of such relationship even indirectly.
16. Further clauses 11, 12 and 13 of the agreement would go to show that the fourth respondent has nothing to do with the staff or labour employed by the writ petitioner in connection with the work of fabrication of the garments. The said clauses may be usefully extracted and a perusal of the same per se will fortify the conclusions arrived at by me as set out hereinafter.
17. The licencee or the persons engaged by them shall not be entitled to any benefits, privileges or advantages etc., available to the employees of LICENSER. The LICENCEE will have no claim whatsoever against the LICENSOR expect to the extent of payment of their bills for fabrication of the garments according to the terms of the agreement.
18. The LICENCEE shall remain responsible to the LICENSOR for due, timely and efficient execution of the job work entrusted to them.
19. If any fabricated garments not being in accordance with the specification is required to be altered or modified, the same shall be so altered or modified by the LICENSEE at no extra payment. The LICENCEE shall be responsible for the quality of garments fabricated by them. They will employ sufficient number of quality inspectors and checkers who will inspect each garment for quality and specification and to affix their identification number and mark on each garment passed by them, before handing over the garments for finishing and packing.
20. In the event of claims on the LICENSOR from the foreign buyer in respect of garments manufactured by the LICENCEE, the LICENCEE shall pay an amount equal to 25% of the Fabrication charges paid to by LICENSOR to LICENCEE for manufacturing the garments under claim, or 10% of the total claim amount whichever is less.
21. 13.(1) The contractor/licencee shall employ their own labour force for the purpose of carrying out the jobs entrusted to them and the agreement shall not create any relation-ship as employer and employee between the LICENSOR and the LICENCEE. The LICENCEE will be the first (best ?) judges as to the number of persons to be engaged for the work entrusted to them and the LICENCEE alone will be entitled to dictate to such persons the manner of executing the work without any interference from the LICENSOR. The LICENSOR shall not have any connection, contract or control whatsoever with the persons engaged by the LICENCEE, nor will it exercise any supervision or control over the manner by which anything is to be done by the persons engaged by the LICENCEE. The LICENSOR will have nothing to do with the conditions of employment or engagement of or manner or mode of the same. The LICENSOR will not have any control in the matter of their discharge, dismissal, termination, reemployment either, nor any such claim shall lie against the LICENSOR.
(2) It shall be the sole and absolute responsibility of the LICENCEE to pay the wages and salary of the workmen/staff employed by the LICENCEE as contract labour and such wages, or salary shall be paid before the expiry of such period as may be prescribed, in the presence of the authorised representative of the LICENSOR.
(3) The Licencee/Contractor shall not employ child labour.”
22. The fact situation being what has been noticed supre, the only conclusion that inevitably follows from the same is that the staff and labour employed in the establishment in question are that of the writ petitioner, on their account and for their own purpose and that they work for the writ petitioner in assisting him to fabricate garments for the writ petitioner who alone is responsible to the fourth respondent to supply the fabricated or finished garments for charges to be paid by the fourth respondent to the writ petitioner for garments fabricated and supplied. The fourth respondent has nothing to do with the wages or salary payable to the staff and labourers and any reduction for rejection of goods ultimately by the foreign buyer also falls upon the writ petitioner and not upon the individual worker. Having regard to the peculiar facts and circumstances of the case, the rights of parties inter see, I am of the view that the staff as well as labourers employed by and working under the writ petitioner are directly the employees of the writ petitioner and that they have no connection, relationship or rights vis-a-vis the fourth respondent. The said establishment of the writ petitioner has been factually and really established and brought into existence for the first time in November, 1981 and consequently having regard to S. 1(3)(b) read with S. 16(1), the establishment in question, which is distinct and separate from the fourth respondent establishment, is entitled to infancy protection for three years from its inception. The claim of the writ petitioner, therefore, is quite in accordance with law and the respondents 1 to 3 are bound to comply with the demand made by assigning the separate code number as required. The attempt of the authorities to telescope it into the fourth respondent and thereby deny the in fancy protection is neither appealing to reason nor logic or can be said to be inaccordance with the provisions of law relied upon in the counter affidavit. In the light of the realities of the situation disclosed from the terms and conditions of the agreement dated October 3, 1981 the plea that the fourth respondent can yet be considered to be the employer and the staff and labour working with the writ petitioner can be said to be the employees of the fourth respondent is, to say the least farfetched and the said assumption not only lacks any legal or proper basis but is nothing but a conjectural exercise based upon surmises and imaginary inventions.
23. Even that apart, when admittedly the fourth respondent enjoys exemptions under S. 17(1)(b), the employees in question will be equally entitled to exemption even on the very reasoning of the respondents 1 to 3. Even assuming for purposes of consideration that the petitioner is not entitled to infancy protection, the respondents 1 to 3 would have done well to assign the separate code number to the petitioner and take up the matter relating to the past period separately without leaving the fate of the workers nebulously in suspense. The reliance upon S. 6 and paragraphs 30(1) and 36B is not only inappropriate and irrelevant but they do not stand in the way of the petitioner to get a separate code number for them when once it has been found that they constitute a distinct and separate establishment and they are the employee of the employees engaged by them and working under them. These aspects are referred to only to indicate that the stand and approach of the respondents 1 to 3 are not only unreasonable but arbitrary and run counter to the very purpose and objectives of the very Act.
24. Consequently, for all the reasons stated above, the writ petition deserves to be allowed and the same shall stand accordingly allowed. No costs.