JUDGMENT
S. Ali Ahmad, J.
1. The petitioner, a private limited company, has approached the Court by this application under Articles 226 and 227 of the Constitution of India praying to quash Annexure 1, 3, 4, 4/A and 5 to this writ application. Annexure 1 is a notice dated 5.3.1975 issued by the Regional Provident Fund Commissioner, Bihar, calling upon the petitioner to take immediate action to comply with the statutory requirements of the Employees Provident Fund and Family Pension Fund Act, 1952 (hereinafter referred to as ‘the Act’) and to deposit the outstanding dues in respect of the old employees as well as all the eligible employees and to submit statutory returns within 15 days of the receipt of the notice. Annexure 3 is another notice, dated the 23rd April, 1974 issued by the Provident Fund Inspector (Grade 1), Bihar, Patna, calling upon the petitioner to prepare and submit the returns detailed in the notice. Annexures 4 and 4/A again are notices dated the 27th April, 1974 and 18th May, 1974, respectively issued by the Regional Provident Fund Commissioner, Bihar, Patna under Section 7(A) of the Act calling upon the petitioner to appear before him on the dates specified in the two notices so that the amount due from the petitioner may be determined, Annexure 5 also is a notice issued by the Certificate Officer under Section 7 of the Public Demands Recovery Act informing the petitioner that a sum of Rs. 35,928.44 Paise is outstanding against the petitioner towards arrears of Provident fund. The petitioner therefore, through this notice (Annexure 5) was directed either to deposit the aforesaid amount by 18.6.1974 or to show cause as to why steps should not be taken under the Public Demands Recovery Act to realise the amount.
2. Although the point involved in the case is simple, the facts as stated in the petition and in the counter-affidavit are some-what lengthy beninning from 1950. I shall omit unnecessary details and will refer only to such of the facts and events which have bearing on the facts in issue and have been relied upon by the parties.
3. There was an establishment known as M/s. Hindustan Bicycle Manufacturing Industrial Corporation Ltd. (hereinafter referred to as ‘the Hindustan Bicycle Corporation’). It took about 30 acres of land in Mauza Phulwari sharif from the State of Bihar for a period of 50 years by an indenture of lease dated 5th September, 1950. The lease was effective from 13th July, 1939 and also contained a renewal clause.
The Hindustan Bicycle Corporation erected a factory over the aforesaid land and started production of bicycles and bicycle parts. The Hindustan Bicycle Corporation, later on, ran into difficulty and by an agreement dated 9th April, 1956, as further modified by a supplementary deed dated the 4th June, 1958, also the entire factory with all its assets including moveables and immoveables properties and the lease-hold right over the factory land to another company, namely, M/s Hindustan Vehicles Limited (hereinafter referred to as ‘the Vehicles Company) for a sum of Rs. … Rs. 31,00,000/-. The said Vehicles Company wanted to modernise and improve the quality of the cycle being manufactured, but as it did not have requisite amount to invest for improvement in the factory, it approached respondent No. 4, the Bihar State Financial Corporation (hereinafter referred to as the Financial Corporation’) for a loan of Rs. 10,00,000/-. Respondent No. 4 sanctioned a loan of Rs. 10,00,000/- for expansion of the Vehicles Company, The Vehicles Company, therefore, executed a registered English mortgage deed on 5th January, 1959 in favour of the Financial Corporation with respect to all its assets existing and future free from all liabilities and encumbrances. According to the agreement, the Vehicles Company had to repay the loan to the Financial Corporation within 10 years, the first instalment was to be paid after two years from the date of advance together with interest at the rate of 61/2 per cent per annum payable half-yearly on 30th September and 31st March every year which was subject to the rebate of half per cent for the punctual payment of instalments. Unfortunately the Vehicles Company could not make payment of the instalments as stipulated. The Board of Directors of the Financial Corporation, therefore, resolved in their meeting held on 27th February, 1965 to recall the loan under Section 30 of the State Financial Corporation Act, 1951. As the Vehicles Company had failed to discharge the liability to the Corporation, a miscellaneous case being Case No. 66 of 1965 was filed by the Financial Corporation under Section 31(1)(a) and (c) of the State Financial Corporation Act, 1958 in the court of the District Judge, Patna on 25.6.1965 for recovery of the dues of the Financial Corporation which then amounted to Rs. 9,95,446.68 Paise. The assets of the Vehicles Company, that is, the plant and machineries, building etc. were also attached by the District Judge at the instance of the Financial Corporation on 13th September, 1965. While the miscellaneous case was pending before the District Judge, the Central Government intervened in the matter. The Central Government was of the opinion that the affairs of the Vehicles Company were being managed in a manner which was highly detrimental to public interest, it, therefore, took over the management of the factory in exercise of the powers conferred under Section 18(A) of the Industrial (Development and Regulation) Act, 1951, for a period of five years under a Notification dated 24th September, 1965. Sri U.N. Rai was thereafter appointed as an authorised controller by the Central Government for controlling the management of the said Vehicles Company, who took over charge on 27.9.1965 on which day the factory again went into production. In a meeting held on 27th October, 1965, the Board of Directors of the Financial Corporation resolved that since the management of the Vehicles Company had been taken over by the Central Government, steps should be taken to have the order of attachment withdrawn so that the authorised controller could run the factory. It was further resolved in that meeting that the legal proceedings for recovery of the dues of the Financial Corporation should be continued. In pursuance of this resolution, an application praying to withdraw the order of attachment was made before the District Judge in the miscellaneous case. The prayer was allowed and the order of attachment as passed on 13.9.1965 was withdrawn by order dated 15.11.1965. Inspite of best efforts and the facilities available the authorised controller also could not run the factory after November, 1966. According to the petitioner, the authorised controller laid of the entire workmen and the staff, except a few, and finally the Management closed down the factory completely in the year 1969. The petitioner further claims that all the employees were retrenched after payment of retrenchment compensation as provided by law.
4. One Kunja Devi had obtained a decree against the Vehicles Company. She filed Execution case which was numbered as Execution Case No. 1 of 1967 before the Additional Subordinate Judge, Patna and prayed therein to attach the various assets of the Vehicles Company including the plants and machineries The prayer was allowed and the assets of the Vehicles Company including the plants and machineries were attached in the execution case on 21.11.1969.
5. It has been noticed earlier that the Central Government had taken over the management of the Vehicles Company for a period of five years only and on expiry of this period, the Financial Corporation once again moved the District Judge Patna, in the aforesaid miscellaneous case for attachment of the assets of the Vehicles Company. The prayer was allowed and the assets of the Vehicles Company were again attached by the District Judge in this miscellaneous case also.
6. The Directors of the Financial Corporation were anxious for an early recovery of their dues. They were of the opinion that the miscellaneous case pending before the District Judge was not likely to be decided at an early date. The Directors, therefore, in the meeting held on 27.11.1970 authorised the Managing Director of the Financial Corporation to take steps under Section 29 of the State Financial Corporation Act, 1951 read with Section 69 of the Transfer of Property Act, 1882 to advertise the mortgage properties for sale. A three-months notice was thereafter issued to the Vehicles Company and its guarantors and trustees of the mortgage debentures under Section 69 of the Transfer of Property Act read with Section 29 of the State Financial Corporation Act, on expiry of the notice period of three months, the assets of the company were advertised for sale. Mr. Phoolchand Agarwala, one of the promotors and Managing Director of the petitioner company made the highest offer. The Financial Corporation, therefore, decided that subject to the clearance by the court the mortgaged properties of the Vehicles Company be sold to the petitioner for a sum of Rs. 15.20 lacs. The District Judge, Patna, gave clearance to the proposed sale and the miscellneous case was disposed of and the order of injunction and attachment issued in the case were with drawn. Thereafter, by a sale deed dated 27.11.1971, the Financial Corporation sold the entire mortgaged assets of the Vehicles Company to the petitioner company. As a consequence to the aforesaid sale, the petitioner came in possession on 28.11.1971 over the closed factory premises of the said Vehicles Company and also over all other assets given to the petitioner by the Fnancial Corporation, except the main machinery block which was under the attachment in Execution Case No. 1 of 1967.
7. The claim of the petitioner further is that after taking over the factory premises of the said Vehicles Company it was discovered that every thing was in disorderly condition and most of the machines were not in operating conditions. The electric connection was also cut off by the Patna Electric Supply Company for non-payment of electric dues by the Cycle Company on 16.11.66″. According to the petitioner, after continuous efforts the attachment over the main machinery block was vacated by the Additional Subordinate Judge, 2nd court, Patna and the electric connection was restored. The machine had to be fully repaired to bring them in running condition. The employees also had been retrenched by Sri U.N. Rai, the authorised controller. Therefore, a fresh batch of employees had to be recruited.
8. The petitioner further asserts that it held a letter of intent from the Government of India for manufacture of passenger cars (motor oars)-vide letter No. DA/4(30)/68. dated the 16th January, 1971. Under the condition of this letter of intent for manufacturing small cars, the petitioner company had to send a prototype model car for its road worthiness trial and other tests, and accordingly, the petitioner-company sent the said prototype model oar for the purpose stated above to the Government on 15.7.1973. Since the approval to the pro to type car remained pending with the Government of India, it was decided that the company should, in the meantime, utilise its resources to manufacture cycle and cycle parts, road-roller and other miscellaneous items so that the company may be in a position to cover up its expenses during the preparatory period.
9. The grievance of the petitioner is that although the Provident Fund Commissioner (respondent No. 2) was fully aware that the factory in question which was previously owned by M/s Hindustan Vehicles Limited was closed and the petitioner has purchased only the mortgaged assets from the Financial Corporation free from all liabilities and encumbrances, he erroneously directed the petitioner by a notice dated 5.3.1974 (Annexure 1) that the Employees Provident Fund and the Family Pension Scheme, 1952 will apply to the petitioner’s establishment also because the previous owner, i.e., M/s. Hindustan Vehicles Limited was covered under the said Act and further directed the petitioner-company to clear off the dues of the Hindustan Bicycle Corporation amounting to Rs. 34,967.10 paise for the period from November, 1952 to September, 1955.
10. In reply to the aforesaid notice (Annexure 1), the petitioner placed relevant facts before respondents Nos. 1 and 2 and asserted that the liability of the previous owner could not be fastened to the petitioner company as the petitioner company had not set up an entirely new establishment and, as such, was entitled to the benefits of non-applicability of the Act by virtue of Section 16(1)(b) of the Act. A copy of the reply has been marked as Annexuie 2 to this writ application. Unfortunately, the reply given by the petitioner did not find favour with the authorities. Rather respondent No. 2 issued another notice dated 23rd April, 1974, saying that the petitioner company was liable to deposit the provident fund contribution from July, 1972, and, as such, it was directed to make deposits within ten days from the date of the receipt of the notice to avoid legal complications. It was further stated in that notice that the petitioner company was not entitled to any infancy period exemption as it could not be said to be a new factory within the meaning of the Act. The notice also stated that the family pension scheme was also applicable to the petitioner company. It was, therefore, directed by the notice to submit statutory returns and to report immediate compliance to avoid legal complications. Thereafter, the petitioner was served with two notices dated 27.4.1974 and 18.5.1974 under Section 7A of the Act directing it to produce certain registers and other papers for the purpose of determining the petitioner’s liability under the Act. A copy of the notice dated 27th April, 1974 has been marked as Annexure 4 to the writ application, while the notice dated 18 5.1974 has been marked as Annexure 4/A to the application. The Provident Fund Commissioner also, according to the petitioner company, ignoring the reply as contained in Annexure ‘2’ initiated a certificate proceeding against the petitioner on 1.5.1974 before the Certificate Officer, Patna, Sadar, vide Certificate Case No. 61/M.C. (54/55J of 1974 for realisation of the alleged dues amounting to Rs. 35,928.84 paise. A copy of the noitce issued under Section 7 of the Public Demands Recovery Act has been marked as Annexure 5 to the writ application.
11. The petitioner claims that the action of the respondent in issuing the notice under Public Demands Recovery Act was illegal and without jurisdiction inasmuch as the petitioner company had purchased, merely the assets of the Vehicles Company from the Bihar State Financial Corporation free from all liabilities and encumbrances and had not set up an entirely new establishment and, as such, was not liable for the dues of the previous employer. It is further asserted that total number of employees in the new establishment is less than 50 persons and in view of Section 16(1)(b) of the Act, the Act cannot be made applicable for five years from the date of its setting up. Further according to the case made out in the writ application, the old establishment was com pletely closed in the year 1969 and in no way could be said to have any connection with the present establishment.
12. Cause has been shown by respondents 1 and 2, namely, Regional Provident Fund Commissioner, Bihar and Provident Fund Inspector, Grade 1, Bihar, respectively. In the counter-affidavit filed on behalf of them, it has been, inter alia, stated that the services of many old workers and staff were retained and old employees were re-employed because of their experience by the petitioner-company. It has also been stated that it was not within the knowledge of the respondents that the petitioner went into production of cars but according to them the petitioner-firm was engaged in manufacture of eyole, cycle parts, road-rollers and other miscellaneous parts which form part of the schedule head of the Act. The assertion made in the writ application that the Act was not applicable to the petitioner-Company was also repudiated. According to them, the matter was duly considered and it was found that the previous firms, namely, Hindusthan Bicycle Company and Hindusthan Vehicles Ltd. under the different managements were covered under the Act. The petitioner-company had merely “stepped into the very shoes” and so the present management was equally liable to pay the arrears dues of the provident fund contribution of the workers and administrative charges amounting to Rs. 34,967. 19P. because it had taken over after purchasing it. Again in paragraph 9 of the counter-affidavit, the assertion that the petitioner had set up an entirely a new establishment has been denied.’ On the contrary, it has been stated that the petitioner-company is producing articles with the help of old machines and stock of raw materials. The fact that the establishment was closed on 1.9.1969 has been admitted in paragraph 15 of the counter-affidavit, but according to the respondents, this is not material as the petitioner purchased the same establishment on 17.1.1971 and went into production on 1.7.1972. According to them, therefore, Section 16(i)(b) of the Act has no application as the petitioner-company was not a new establishment, and, as such, it was covered under the Act and was also liable to pay the arrears under Section 17-B of the Act.
13. Learned counsel for the parties agree that in case Section 16(i)(b) of the Act applies to the petitioner-company then the Act will not be applicable to the company for the period mentioned in the section. It is also agreed that in case Section 16(i)(b) is not attracted then the Act will be applicable to the petitioner-company and as such it will be liable to pay the amounts to be determined. The crucial question, therefore, that has to be determined in this application is as to whether on the facts mentioned above, Section 16(i)(b) of the Act is attracted or not. It will be useful here to quote Section 16(i)(b) of the Act along with the explanation which reads as follows:
This Act shall not apply
(a) …
(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 change in its location.
14. According to Mr. Jain, learned Counsel for the petitioner, the petitioner-company was established on 27.11.1971 and had less than 50 persons as its employees. He, therefore, contended that by virtue of this sub-section the Act will not be applicable to the petitioner-company for a period of five years from that day, the day on which it was set up. Learned counsel for the respondents, on the other hand, submitted that the establishment was set up in the year 1950 by the Hindusthan Bicycle Corporation. The establishment later came under the management of the Hindusthan Vehicles Ltd., which remained with them till 27th September, 1965 when the management of the factory was taken over by Sri. U. N. Rai, authorised Controller under a notification dated 24th September, 1965 issued by the Central Government in exercise of the power under Section 18(A) of the Industrial (Development and Regulation) Act, 1951 for a period of five years. Learned Counsel further submitted that the petitioner-company purchased the factory in sale towards the dues of the Bihar State Financial Corporation under Section 29 of the Transfer of Property Act. On the basis of the aforesaid fact, learned Counsel submitted that the petitioner-company was the same establishment that was set up in the year 1950 and as such could not claim protection under Section 16(1)(b)of the Act.
15. Which class of establishment has been referred to under Section 16(i)(b) ? Does this Sub-section apply only to such establishment which have been newly and freshly set up or does it cover such establishments also which at one time existed but went into closure ? The question can best be answered by reference to a case in The Provident Fund Inspector, Trivandrum v. The Secretary, N.S.S. Co-operative Society, Changannacherry , on which Mr. Jain heavily relied. In that case, the respondent was being prosecuted under Section 14 of the Act on the ground of contravention of the provision of the Employees Provident Fund Scheme, 1952. The defence taken by the accused person in that ease was that Section 16(i)(b) of the Act being applicable to his establishment, neither the Act nor the scheme was applicable and, as such, there was no question of its violation. The Supreme Court found as a matter of fact that the printing press was established in 1946. It was sold in the year 1961 and was purchased by the accused, who became the new owner. The work of the press was stopped on sale and was restarted after a break of about three months, the machineries in the press were also altered, the persons employed previously were not continued in service while a fresh recruitment of employees took place amongst whom only six happened to be previous employees. Compensation was paid to the workmen at the time of sale by the previous owner. On these facts, the learned Judges held that the old establishment was completely closed when the transfer of ownership took place and an entirely a new establishment was set up three months later. The learned Judges, therefore, further held that the benefits of the non-applicability of the Act under Section 16(i)(b) of Act for a period of three years was available to the accused person. In view of this decision of the Supreme Court, there is no difficulty in holding that Section 16(i)(b) of the Act covers such establishments also the existence of which is interrupted by closure, etc. It is true that no hard and fast rule can be laid down to suggest that in what circumstance an establishment will cease to exist and another establishment will come into being and in what circumstance, the same establishment will continue to exist inspite of closure. The fact as whether a new establishment within the meaning of Section 16(i)(b) has been set up or not has to be decided on the facts of each case. Keeping in view the above principle, we have now to see as to whether the petitioner-company is a new establishment or is merely a continuation of the old one with change in ownership.
16. I have already mentioned the respective cases put forward by the parties in some detail. It is, therefore, not necessary to reproduce them here. It has been noticed that an industry was first set up in the year 1950 and was known as the Hindusthan Bicycle Corporation and went into production. Later on in the year 1958, the Hindusthan Bicycle Corporation was purchased by the Vehicles Company. This Vehicles Company also ran into financial crisis. The Financial Corporation, which had advanced rupees ten lacs to the Vehicle Company filed Misc. Case No. 66 of 1965 under Section 31(i)(a) and (c) of the State Financial Corporation Act, 1958 in the court of the District Judge, Patna. The entire assets of the Vehicles Company was attached. Since the management of the company was unsatisfactory, the Central Government intervened and took its management for a period of five years under Section 18(A) of the Industrial (Development and Regulation) Act, 1951. An authorised controller appointed by the Central Government took over charge on 27.9.1975. But he also could not run the factory. He, therefore, laid off the entire workmen and the staff, except a few, and finally the factory was closed down completely in the year 1969. The employees, who were retrenched were all paid retrenchment compensation as provided by law. After the expiry of five years the period for which the management was taken over by the Central Government expired, the Financial Corporation got the Vehicles Company sold under Section 29 of the State Financial Corporation Act, 1951 read with Section 69 of the Transfer of Property Act. After going into the necessary formalities, the Vehicles Company along with all its assets were purchased by the petitioner on 27th November, 1971. The petitioner, thereafter, came in possession of the factory premises and discovered that “every thing was in disorderly condition and most of the machines were not in operating conditions. The electric connection was also out off by the Patna Electric Supply Company for non-payment of electric dues by the Cycle Company on 16.11.66. “The petitioner got the electric connection restored and took other steps for the working of the factory, such as, repairing and overhauling of the machines and employment of some workers. The petitioner company thereafter went into production. These facts are not disputed by the respondents. All that has been said on their behalf is that the petitioner-company used the same plant and machineries which were installed by the Bicycle Company and the Vehicles Company and that it took back into employment a substantial number of workmen who were earlier employees of the Bicycle Company and Vehicles Company and were retrenched by the authorised controller in the year 1969. It is, therefore, contended that the present company is not a newly set up industry within the meaning of Section 16(i)(b) of the Act and is, therefore, liable to pay the outstanding dues. This argument does not appeal to me. The electric connection, which, undoubtedly, is necessary for the working of the factory was cut off in the year 1966. That means the working stopped in that year. Later when things became irredeemable, the company declared closure and retrenched its employees in the year 1969. The petitioner-company purchased the factory along with its plant and raw materials in the year 1971 and started production. That means for a period of at least five years the factory did not work and its employees had been retrenched. I do not think that when the petitioner company purchased it and started production, it can be said that the same establishment went into production with change of ownership only.
17. I may mention here that learned Counsel for the respondents referred to a case in Vittaldas Jagannathadas v. Regional Provident Fund Commissioner A.I.R. Madras 508, wherein the learned Judge observed as follows:
If in a particular case, it appears that the new establishment is not genuinely such, but is only an old one formally resuscitated in order to avoid the legal obligation, it is always open to the Court to hold that it is the old establishment which is substantially continuing and that the liability to contribute must be affixed to the apparently new form also. But where, in reality, the old establishment has come to an end, and there is a new establishment, where establishment is entitled to infancy protection in its own right, even if it happens by coincidence to have employed a large part of the personnel of the previsous establishment.
In fact, this portion of the judgment has been quoted and approved by their Lordships of the Supreme Court in the case (Supra). On the facts of this case, there can be no doubt that the previous establishment came to an end and a new establishment came into being when the petitioner purchased it in the year 1971. It has not been and on the facts of this case, it could not have been urged that the purchase of the Vehicle Company by the petitioner was not a genuine one. I am therefore, inclined to accept the case of the petitioner that on the facts of this case a new establishment was set up when the petitioner purchased it in the year 1971. Section 16(i)(b), therefore, was fully applicable to the petitioner-company and, as such, it was entitled to the benefit of non-applicability of the Act under that section.
18. Having held that the petitioner-company is a new establishment it is plain that it is entitled to infancy protection in its own right even if it has employed some of the personnel of the preivous establishment. The result is that the notices dated 5.3.1974, 23.4.1974, 27.4.1974 and 18.5.1974 (Annexures 1, 3, 4 and 4/A) respectively are to be quashed.
19. I have held above that the petitioner-company is a new establishment. The arrears of the Bicycle Company and the Vehicles Company which are about to be recovered from the petitioner are illegal and Annexure 5 which is a notice under Section 7 of the Public Demands Recovery Act is, therefore, bad and that also has to be quashed.
20. The result, therefore, is that the application succeeds and Annexures 1, 3, 4, 4/A and 5 are quashed. Let a writ be issued to that effect. In the circumstances of the case there will be no order as to costs.