JUDGMENT
A.P. Shah, J.
1. This writ petition under Article 226 of the Constitution challenges order dated March 11, 1994, passed by the Regional Provident Fund Commissioner (I), Maharashtra and Goa under Section 7-A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, hereinafter referred to as “the Act”.
2. Facts giving rise to this petition are that the 2nd respondent is a partnership firm duly registered under the Indian Partnership Act. Since last 125 years the firm has been engaged in “trading and commerce activities”, having its office at Princess Street, Mumbai. Respondent No. 2 is duly registered under the Bombay Shops and Establishments Act. This establishment, hereinafter for brevity’s sake, is described as “trading establishment”. Respondent No. 2 has been dealing in umbrellas. In or around 1940 respondent No. 2 set up a factory to carry on manufacturing activities in the name and style of “National Umbrella”. The said factory is situated at Reay Road, Mumbai. The factory is registered under the Factories Act and holds separate licenses. The provisions of Section 1(3)(a) of the Act are applicable only to such factories which are engaged in an industry specified in Schedule 1 in which 20 or more persons are employed. The items manufactured by National Umbrella do not figure in Schedule I to the above referred Act. The manufacturing activity of National Umbrella factory is a non-scheduled activity.
3. Section 1(3)(b) of the Act empowers the Central Government to extend applicability of the Act to any other establishment employing 20 or more persons by issue of requisite notification in the official gazette. On March 7,
1962, the Central Government issued a notification bearing No, GSR-346 in exercise of powers conferred on it under Clause (b) of Sub-section (3) of Section 1 of the Act. By the said notification the provisions of the Act were
made applicable to “every trading and commerce establishment” employing 20 or more persons engaged in purchase, sale or storage of goods, including establishment of Exporters, Importers, Advertisers, Commission Agents and Brokers and Commodity and Stock Exchanges etc. The said notification is applicable to the respondent-establishment. Thus with effect from May 1, 1962 the Act became applicable to respondent No. 2.
4. On August 6, 1985 respondent No. 1 served a notice on respondent No. 2, under Section 7-A of the Act in order to determine the question as to whether National Umbrella factory, owned by respondent No. 2, was a separate establishment or whether the said factory was merely a branch or department of respondent No. 2 or formed part of a composite unit i.e. integral part of respondent No. 2. In reply to the said show cause notice, respondent No. 2 contended that National Umbrella factory was a separate establishment was set aside with liberty to respondent No. 1. and the. proceedings adopted in the matter by respondent No. 1 were misconceived. Respondent No. 2 asserted that National Umbrella was a separate and distinct establishment and both the establishments were independent. It was, therefore, submitted that the two units could not be clubbed together as the activities of the two units were different, distinct and separate. By order dated January 25, 1988 respondent No. 1 held that Ebrahim. Currim & Sons, respondent No. 2 herein, was bound to comply with the provisions of the Act with effect from May 1, 1962 in respect of the employees working in National Umbrella factory. Respondent No. 2 challenged the order by filing Writ Petition No. 727 of 1988 which came to be decided by Dhanuka, J. vide order dated February 4, 1993 and the order passed by respondent No. 1 was set aside with liberty to respondent No. 1 to pass fresh order after _ holding fresh inquiry and giving an opportunity of hearing to respondent No. 2 in the light of the observations made in the judgment. It was directed that respondent No. 1 must also consider as to from what date, if any, respondent No. 2 is liable to pay provident fund in respect of the employees in National Umbrella factory and whether the alleged liability can now be enforced from May 1, 1962, when the impugned proceedings were started only in the year 1985.
5. After the remand, respondent No. 1 granted hearing to respondent No. 2 establishment as well as to the petitioner-union on the question as to whether two units are liable to be clubbed for the purposes of the Act. Respondent No. 1, by the impugned order, inter alia, held that there is nothing common between the two units except ownership and consolidation of final accounts and there is hardly any inter-dependency for their survival. Respondent No. 1 held that, there is total absence of financial dealing between the establishments and transferability of employees which could be the most important indication for the purposes of considering the two establishments as a composite unit. In that view of the matter, respondent No. 1 held that National Umbrella cannot be considered as part and parcel or an integral part of respondent No. 2 establishment nor can it be considered as a contractor exclusively engaged by respondent No. 2. The legality and correctness of this order is sought to be impugned in the present petition.
6. Mr. Dharap, learned Counsel appearing for the petitioner, submitted that respondent No. 1 had committed serious error in holding that the two establishments are not inter-dependent. According to Mr. Dharap, there is sufficient material on record to establish the functional intergrality between the two units. He submitted that both the establishments are of common ownership. The raw materials required by National Umbrella are supplied by respondent No. 2 and the finished goods are sold exclusively to respondent No. 2. He submitted that the trading establishment depends solely on the manufacturing unit, namely, National Umbrella inasmuch as if the product is not sold by the manufacturing unit to respondent No. 2, then respondent No. 2 would not be able to carry out the business. In this connection, he pointed out that throughout the entire product of National Umbrella has been sold only to respondent No. 2. Thus according to the learned Counsel the trading establishment is fully dependent on the manufacturing unit i.e., National Umbrella. The counsel also drew my attention to the fact that the two units have composite balance sheets and the tax returns also go to prove unity of finance.
7. The submissions of Mr. Dharap are countered by Mr. Chitale, learned counsel appearing for respondent No. 2, by contending that except for the fact that respondent No. 2 owns both the units, there is nothing which can be said to be common between the two. The two units are two separate establishments and, therefore; it was rightly held by respondent No. 1 to treat them as different and distinct units. “National Umbrella” is a manufacturing concern whereas respondent No. 2 is a trading establishment. He further asserted that the workers of the two units are different and that same is the position in regard to maintenance of books of account. It is only for the purposes of Income-Tax Act and certain requirements of the Companies Act, that there is consolidation of accounts and other informations, but this cannot bring about a functional intergrality which alone has a bearing upon the application of Section 2-A of the Act. He pointed out that respondent No. 2 supply raw materials to various units including National Umbrella and get the product manufactured by them which are sold under the trade name “Stag”. He also pointed out that even when the factory had remained closed on account of strike, there was no disruption in the activity of the trading establishment of respondent No. 2. He, therefore, submitted that no interference is warranted with the well considered findings of respondent No. I.
October 28, 1999
8. After hearing Mr. Dharap for the petitioner and Mr. Chitale for respondent No. 2, I am of the opinion that respondent No. 1, has rightly come to the conclusion that the two units are two separate establishments. Section 2-A of the Act makes the expression ‘establishment’ as embracing departments or branches of an establishment irrespective of where they are located. Thus a difference in location of different departments and branches, provided they are one establishment, is not going to make the said departments or branches different establishments. The factors pointed out by learned counsel Mr. Dharap for the application of Section 2-A to the two units of respondent No. 2 have all been considered in different cases. Before I come to those cases, it is necessary to get a clear picture of the factual position. The respondent No. 2 owns the two units and it may be said that there is unity of ownership so far as respondent No. 2 is concerned. But as indicated, the trading establishment is 125 years old or thereabout while the National Umbrella factory, was established as late as in 1940. The trading establishment trades in umbrellas under the trade name “Stag” while the factory manufactures the umbrellas. The activities of these two establishments are thus separate, distinct and different. The workers of these establishments are also separate. Other facts and circumstances also militate against the contention on behalf of the petitioner that the two establishments are indeed one for the purposes of the Act. Thus, the trading establishment is registered under the Shops and Establishments Act whereas the factory is registered under the Factories Act. The two establishments also maintain separate books of accounts. It is only for the purposes of the Income-Tax Act and certain other requirements of the Companies Act that there is consolidation of the accounts and other information. The two establishments also have separate managerial staff. One also does not find any supervisory control by either of these establishments over the other. The two establishments do not have any inter-connection as such in the matter of supervisory, financial or managerial control. Thus, the conclusion is irresistible that these two units constitute distinctly different entities and separate establishments.
9. In Pratap Press v. Delhi Press Workers’ Union (1960-I-LLJ-497) the Supreme Court observed as under at p. 499:
“The most important test is that of functional intergrality meaning thereby such of finance, employment and labour. The Court has to consider how far there is “functional intergrality” meaning thereby such functional interdependence that one unit cannot exist conveniently and reasonably without the other and on the further question whether in matters of finance and employment the employer has actually kept the two units distinct or integrated.”
If this ratio is applied to the determination of the question in the instant case, it would be seen that the two units are located at different places, have different sets of workers engaged in different kinds of activities and have separate books of accounts. It is true that there is a common owner of both the units and there, is consolidation of accounts of both the units at the year’s end. But there is no bar to a company establishing more than one unit. Indeed, in this case, respondent No. 2 decided to establish a factory after carrying trading activity for several years. The mere fact that respondent No. 2 ultimately consolidated the accounts of the two units, for the purposes of the Companies Act and the Income-tax Act, cannot result in a conclusion that, therefore, the two units constitute one establishment. It is not unknown that where one and the same company establishes separate, distinct and different factories at different places with each having its own separate accounts, consolidation is annually effected for the purposes of the Companies Act and the Income-tax Act. In these circumstances, the petitioner’s claim for treating the two units as one establishment for the purposes of Section 2-A of the Act cannot be accepted.
10. Mr. Dharap strenuously argued that the trading establishment supply raw materials to the factory and the entire product of the factory is, in turn, purchased by the trading establishment. Would this circumstance make the two units a department or branch of each other. The trading establishment was established long prior to the establishment of the National Umbrella factory. The respondent No. 2 asserts that the trading establishment supply the raw materials to several other manufacturing units and buy products from them which is ultimately sold in the market under the trade name “Stag”. This assertion has to be accepted as reflecting the true position. Moreover, it has been found by respondent No. 1 that when the factory remained closed for a considerably long time on account of the workers’ strike, the said unit, namely, the trading establishment continued to function normally notwithstanding the closure of the factory and as such it could not be said that the trading unit could not function after the closure of the factory. Under the circumstances, the argument of Mr. Dharap that the trading unit is dependent upon the factory cannot be accepted. The test of functional intergrality between the two units is not established in the instant case.
11. Mr. Chitale, counsel appearing for respondent No. 2, placed reliance on a number of decisions and I may refer to some of those judgments. In an unreported decision of a Division Bench of this Court given on August 3, 1981, in Special Civil Application No. 198 of 1978 Kerala Rubber Company Pvt. Ltd. v. The Regional Provident Fund Commissioner and Ors., the petitioners were having a factory manufacturing rubber goods at Mumbai since 1942. To avail of certain concessions given to industrialists establishing industries in backward regions of the State, the petitioners established a new factory at Aurangabad. The said factory also was engaged in the manufacture of rubber goods. An attempt was made to treat the said two factories as a single establishment. This was taken exception to by the filing of the above mentioned special civil application. The Division Bench sustained the stand taken by the petitioners in that case and in doing so, it was observed:
“To attract the provisions of Section 2-A of the Act, it is necessary that the unit must be described or treated as a branch or the department of the main establishment. Such a branch or a department cannot have separate existence but is purely dependent on the main establishment. The branch or the department, even if a factory, are merely subsidiary, minor or feeding industries and which are started for the purpose of running one primary industry, then such feeding industries can be well described as branches or departments of the primary industry. In such a case, minor industries or the feeding industries merely serve as departments of the primary industry. But if the industries run by a factory and independent or are not so integrated as to be treated as part of the same industry, the question about the principal and the dominant character of one establishment as against the another would not arise”.
12. In the case of Metazinc Pvt. Ltd. v. R.M. Gandhi, The Regional P.P. Commissioner and Ors. 1991 I CLR 505, Daud, J. was seized with a similar problem. The learned Judge observed that the test of functional intergrality was relevant for the application of Section 2-A of the Act. The learned Judge quoted passages extensively from the judgment of the Supreme Court in the case of Pratap Press v. Delhi Press Workers’ Union, (supra) and the above referred Division Bench judgment in the case of Kerala Rubber Company Pvt. Ltd. referred to hereinabove, and reached the same conclusion. In para 7 of his judgment, the learned Judge noticed an important submission made on behalf of the Regional Provident Fund Commissioner to the effect that both the units were administratively served by an office located at Mumbai of attending to the purchase of raw materials and the sale of finished product for both the units and the test of functional intergrality was, therefore, satisfied. In this regard the learned Judge relied on a judgment reported in the case of P.S.M.S.A Chettiar and Co. (P) Ltd. v. The Regional Provident Fund Commissioner, Madras, reported in (1970-I-LLJ-296) (Mad) and rejected the submission made on behalf of the Regional Provident Fund Commissioner in para 8 of his judgment after quoting extensively from the above referred judgment.
13. In the case of Allana Sons P. Ltd. v. R.M. Gandhi, The Regional Provident Fund Commissioner of Maharashtra & Goa, 1991 I CLR 743, DAUD, J. again came to the similar conclusion. In this case, Allana Lines was described as a division of Allana Sons Pvt. Ltd. It was held by DAUD, J. that merely because Allana Lines was so described, it did not follow that it was a department or branch of Allana Sons P. Ltd. and not a separate establishment. In Dharamsi M. C. Co. Ltd. v. N. G. Desai, R.P.F.C., (1985-I-LLJ-433) (Bom), the question before this Court was whether benefit of reduced voluntary infancy period under Section 16(1)(b) is available when the new factory constitutes a distinct and different entity and separate establishment from the one already existing even though owned by the same company. PRATAP, J. as he then was, held that merely because at the initial stage a few employees were sent to the new factory to take advantage of their experience and expertise that by itself is of no consequence. The learned Judge held that there is no bar to a company establishing more than one factory. The mere fact that the company ultimately consolidated the accounts of the two factories for the purposes of the Companies Act and the Income-Tax Act are not indicative of the fact that the two factories constitute one establishment.
14. Considering in the light of these cases, except for the fact that respondent No. 2 owning the two units and the consolidation of their accounts, there is nothing which can be said to be indicative of the two units being department or branch of each other. onsequently, the view taken by respondent No. 1 is required to be confirmed. Petition is dismissed with no order as to costs.
Certified copy expedited.