Full Judgment Text
2025 INSC 849
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 9540 OF 2018
M/S TORINO LABORATORIES PVT.
LTD. ...APPELLANT(S)
VS.
UNION OF INDIA & ORS. ...RESPONDENT(S)
J U D G M E N T
K.V. Viswanathan, J.
1. The present appeal arises out of a judgment and order of
the Division Bench of the High Court of Madhya Pradesh,
Bench at Indore dated 22.04.2016 in Writ Petition No. 2503 of
2011. By the said judgment and order, the High Court
dismissed the writ petition under Article 227 of the
Signature Not Verified
Constitution of India filed by the appellant-herein and upheld
Digitally signed by
RADHA SHARMA
Date: 2025.07.15
17:51:23 IST
Reason:
the order of the Employees’ Provident Fund Appellate
1
Tribunal, (for short ‘the Appellate Tribunal’) New Delhi dated
24.01.2011 which order had, in turn, upheld the order dated
17.02.2006 passed by the Assistant Provident Fund
Commissioner, (for short ‘APFC’) Indore. The APFC had
held that the appellant was part and parcel of M/s Vindas
Chemical Industries Private Limited (hereinafter referred to as
‘Vindas’) – the third respondent herein for the purpose of
applicability of the Employees’ Provident Funds and
Miscellaneous Provisions Act, 1952 (for short the ‘EPF Act’)
with effect from September, 1995. Appropriate consequential
directions to remit the dues were also passed. Aggrieved by
the judgment and order of the High Court, the appellant has
preferred this appeal, by way of special leave.
BRIEF FACTS: -
2. Indisputably, on 22.11.1988, Dr. Darshan Kataria and
his brother Niranjan Kataria set up the respondent No.3-
Vindas for manufacturing injections and capsules of certain
specified drugs.
2
2.1 The factory was situated at Plot No.65, Sector-1,
Pithampur, District Dhar, Madhya Pradesh. Vindas was
incorporated with the Registrar of Companies, Madhya
Pradesh.
2.2 Subsequently, on 05.09.1990, Shri Vasudev Kataria and
Smt. Rajni Kataria, wife of Darshan Kataria incorporated the
appellant-Company with the Registrar of Companies in the
State of Maharashtra. Later it transpires from the record that
Mr. Darshan Kataria was also a director in the appellant-
Company.
2.3 However, the factory of the appellant was set up and
business of production of tablets and later liquid syrups was
set up at Plot No. 65/1, Sector-1, Pithampur, Dhar, Madhya
Pradesh. It is also undisputed that Vindas was covered under
the EPF Act.
2.4 Inspections were carried out at the appellant’s premises
on 17/20.01.2005 and a communication was sent on
24.01.2005 to deposit the provident fund contribution and
3
administrative charges w.e.f. 01.04.2004, though it was
mentioned that the date was liable to change and a final
decision would be taken after the inspection of previous
records.
2.5 The appellant, by its reply of 04.02.2005, opposed the
applicability of the EPF Act on the ground that the
workers/employees did not exceed the prescribed number. It
must also be pointed out that in the communication of
20.01.2005, the issue that was highlighted by the Department
was about the number of employees exceeding twenty.
2.6 Another inspection was carried out on 28.03.2005 and in
the inspection note it was categorically stated that the
establishment of the appellant was situated within the premises
of Vindas-the third respondent and common security was
employed for both the establishments and that the Managing
Director of Vindas was Dr. Darshan Kataria.
2.7 Thereafter, on 29.04.2005, a summons to appear in
person under Section 7A of the EPF Act was issued to the
4
appellant. Section 7A empowers the authorities to conduct
such enquiry as they may deem necessary and pass orders with
regard to disputes about coverage of establishments under the
EPF Act. The appellant was asked to produce all the attested
copies of the relevant records to determine the amount due for
the period April, 2004 to March, 2005.
2.8 The appellant, though by its reply dated 03.05.2005,
denied any liability however, stated that they were voluntarily
accepting coverage of the unit and will start contributing from
01.04.2005. Hence, this appeal really concerns the period
prior to 01.04.2005 and the liability thereon. The appellant
also responded to the summons by its letters of 13.06.2005,
10.10.2005 and 17.10.2005.
2.9 What is significant is in the submission of 10.10.2005,
the appellant adverted to the proceedings at the hearing on
23.09.2005 wherein they were informed that the authorities are
evaluating the possibility of clubbing the unit of the appellant
with Vindas-respondent No.3 and that the appellant was
5
provided with the inspection reports of the unit of Vindas-
Respondent No.3. The appellant also in the submission of
10.10.2005 dealt with in detail as to how clubbing with
Vindas-Respondent No.3 was not warranted and how the
appellant was an independent and separate entity.
2.10 It is also not in dispute that the Inspection Report of
28.03.2005 along with the Inspection Report of 17.01.2005
and 20.01.2005 have been furnished to the appellant on
10.10.2005, as set out in the written submissions filed before
us.
2.11 When matters stood thus, it appears that there was a
further report of 10.11.2005 where again clubbing of the two
units, namely, of the appellant and of Vindas was adverted to
by the Department to which the appellant filed its submission
on 20.12.2005 disputing the said position.
2.12 On 17.02.2006, the APFC passed an order rejecting the
contentions of the appellant, including the contention on the
locus standi of the Trade Union which had raised the issue of
6
the two units being the same by holding that the issue of locus
standi was immaterial if otherwise a case for clubbing was
established. The APFC found the following common factors:-
a) that both the units dealt with products of pharmaceutical
industry;
b) that both worked from the same premises with the
common entry and without any visible demarcation with
addresses of the appellant being Plot No. 65/1, Sector-1,
Pithampur and of Vindas – Respondent No.3 being Plot
No. 65, Sector-1, Pithampur, District Dhar;
c) that the telephone nos. of both the appellant and Vindas-
respondent No.3 were common and the order set out the
actual telephone no. That the entire factory was guarded
by the same security personnel, namely, M/s Benaras
Security Services;
d) that both the companies maintained their common
Administrative Office at 102, Prabhudeep Apartment, 11
7
Indrapuri Colony, Indore and the Administrative Office
had common telephone nos. and facsimile no.;
e) That the two companies shared the same website and
same e-mail IDs;
f) that the Registered Office of the appellant at 210, Adamji
Building, 413, Narsi Natha Street, Masjid Bunder Road,
Mumbai was the Head Office of Respondent No.3-
Vindas with same telephone no. and facsimile no.
g) That there was commonality of some Directors and that
too belonging to the same Hindu Undivided Family.;
h) That the source of finance was the same Hindu
Undivided Family in the name of Director, Creditor or
Shareholder;
2.13 In view of this, the APFC found that there was Unity of
Purpose and Functional Integrality as there was common
factory, common administration/Head Office/Registered
Office, common e-mail ID/website and common source of
finance. The APFC disregarded the aspect of separate
8
registration with the Registrar of Companies and different
Government Departments and held that the two units are one
and the same for the purpose of the EPF Act.
2.14 The appellant filed an appeal under Section 7-I of the
EPF Act before the Appellate Tribunal. According to the
appellant, after the Appellate Tribunal adjourned the hearing
to 09.12.2010, the files were not traceable and no further
notice of hearing after 09.12.2010 was received. In spite of
that, on 24.01.2011, the Appellate Tribunal dismissed the
appeal.
2.15 A Writ Petition being W.P. No. 2503 of 2011 filed before
the High Court of Madhya Pradesh, Indore Bench was
unsuccessful. That is how the case presents itself before us.
CONTENTIONS OF LEARNED COUNSEL: -
3. We have heard Mr. Gagan Gupta, learned Senior
Advocate, for the appellant and Mr. Siddharth, learned counsel
for the APFC-Respondent No. 2 Authorities and Mr. Brijender
9
Chahar, learned Additional Solicitor General for the Union of
India.
4. Mr. Gagan Gupta, learned Senior Advocate, contends
that initially the Authorities proceeded on the basis of the
numerical strength of the employees being in excess of 20 at
the appellant’s unit and the aspect of clubbing was introduced
as an afterthought. That notice of clubbing ought to have been
issued to Vindas-respondent No.3 instead of issuing to the
appellant; that Section 2A of the EPF Act cannot apply to two
juristic entities; that both the appellant and the respondent
No.3-Vindas are separately registered under the Drugs and
Cosmetics Act, 1940, the Factories Act, 1948 and the two
entities hold separate account numbers/registrations under the
Central Sales Tax, Central Excise, Service Tax, ESI and also
hold separate PAN and Corporate Identification Nos.
5. Learned Senior Advocate contends that the electricity
and water connections for both the establishments are separate
and that the Municipal Corporation Property Tax is being
10
separately levied. Learned Senior Advocate further contends
that the summon issued was for the period April, 2004 to
March, 2005. However, the APFC, by its order, has directed
compliance from September, 1995. Learned Senior Advocate
contents that admittedly there was no interchange of
employees. Learned Senior Advocate relied on the award of
the Labour Court dated 21.07.2010 where the stand of the
employees of the appellant that they should be permitted to
work at Respondent No.3-Vindas was rejected. Learned
Senior Advocate contended that there was no functional
integrality or interdependence between the two establishments
and that while the appellant manufactures tablets and syrup,
respondent No.3-Vindas manufactures injections and
capsules. Without prejudice, learned Senior Advocate
contends that in the event of the submissions being rejected,
the benefit of infancy protection be given for the period
26.09.1995 to 22.09.1997 under Section 16(1)(d) of the EPF
Act as it then stood. Learned Senior Advocate relied on the
11
judgments of this Court in Management of Pratap Press, New
Delhi vs. Secretary, Delhi Press Workers’ Union, Delhi and
Another , AIR1960 SC 1213, Regional Provident Fund
Commissioner and Another vs. Dharamsi Morarji Chemical
Co. Ltd., (1998) 2 SCC 446 and Regional Provident Fund
Commr. vs. Raj’s Continental Exports (P) Ltd , (2007) 4 SCC
239 in support of his submissions.
6. Mr. Siddharth, learned counsel for the EPF Authorities
countered the submissions by contending that the question as
to what constitutes an establishment is a mixed question of fact
and law which ought to be answered in the context of the facts
of the given case, keeping in mind the object of the statute.
The learned counsel contended that the appellant and
Vindas-Respondent No.3 constituted a common establishment
for the purpose of the EPF Act and that the findings of the
APFC on the aspect of the two entities being engaged in the
pharmaceutical business, carrying on the business in the same
factory premises by sharing the common telephone/facsimile
12
nos., same website and e-mail ID called for no interference.
According to the learned counsel the unity in management and
unity in finance and the existence of common
administrative/Head Office/Registered Office also pointed to
the functional integrality. Learned counsel contended that the
burden to establish that there was no unity was on the appellant
which the appellant failed to discharge; that since the appellant
and respondent No.3 would be collectively assessed but since
the liability will be only for the respective employees of the
units there was no need to issue separate summons to Vindas-
Respondent No.3; that the order of the Labour Court cannot
bind the authorities under the EPF Act as the rights under the
two Acts are different and that the Labour Court when it
decided that there was no unity of employment did not have
occasion to deal with the other aspects dealt with by the APFC.
Learned counsel refuted the arguments of the appellant that
they were not heard by the Tribunal since no document was
placed to establish the fact that no notice was issued to the
13
appellant by the Tribunal and that, in any event, the said
argument was not raised before the High Court. Learned
counsel relied on the judgments of this Court in Associated
Cement Companies Limited, Chaibassa Cement Works,
Jhinkpani vs. Workmen , AIR 1960 SC 56, L.N. Gadodia &
Sons vs. Regional Provident Fund Commissioner , (2011) 13
SCC 517, Shree Vishal Printers Ltd. vs. Provident Fund
Commissioner , (2019) 9 SCC 508 and Regional Provident
Fund Commissioner vs. Naraini Udyog , (1996) 5 SCC 522 to
make good his submissions.
7. We have considered the submissions of the respective
parties and carefully perused the records of the case.
QUESTION FOR CONSIDERATION : -
8. The question that arises for consideration is whether the
EPF Authorities were justified in treating the appellant and the
Vindas-Respondent No. 3 as one unit for the purpose of the
EPF Act?
14
CERTAIN PRELIMINARY ASPECTS : -
9. Before we deal with the main issue, we would, at the
outset, dispose of certain preliminary points raised for
consideration. The aspect of violation of natural justice before
the Tribunal was not argued before the High Court. In any
event, we are considering the matter in detail on merits here
and, as such, that aspect need not detain us any further. The
contention based on the award of the Labour Court dated
21.07.2010 also does not carry the case of the appellant any
further. First of all, the APFC, by its order of 17.02.2006,
elaborately considered the matter applying the various tests
and concluded that the two units are the same for the purpose
of the EPF Act. The issue before the Labour Court was about
the entitlement of the workers of the appellant to claim
employment in Vindas-respondent No.3 and while answering
that reference the Labour Court held that there was no clear
evidence regarding the aspect of the workers of the appellant
15
having worked in the unit of respondent No.3-Vindas. None
of the other indicia for clubbing referred to by the APFC were
considered relevant. In any case, in view of the multiplicity of
factors adverted to by the APFC, the award has no bearing for
the determination of the issue.
ANALYSIS AND REASONS: -
EPF ACT - A BENEFICIAL LEGISLATION
10. The EPF Act is a beneficial legislation intended to
provide for the institution of provident funds, pension fund and
deposit-linked insurance fund for employees in factories and
other establishments. It is a welfare legislation intended to
ameliorate the conditions of workmen in factories and other
establishments. This Court in Sayaji Mills Ltd. vs. Regional
Provident Fund Commissioner , 1984 Supp. SCC 610 has held
that the EPF Act should be construed so as to advance the
object with which it is passed and any construction which
would facilitate evasion of the provisions of the Act should be
avoided.
16
LAW ON CLUBBING: -
11. The crucial issue that arises for consideration in this case
is - whether the authorities were justified in treating the
appellant and Vindas-respondent No.3 as one unit for the
purpose of the EPF Act and were the correct tests to determine
the same applied? Section 2-A of the EPF Act reads as under:-
“ 2A. Establishment to include all departments and
branches .—For the removal of doubts, it is hereby
declared that where an establishment consists of
different departments or has branches, whether situate
in the same place or in different places, all such
departments or branches shall be treated as parts of the
same establishment.”
12. The argument of the learned Senior Counsel for the
appellant that since the appellant and Vindas-respondent No.3
are two different juristic entities and that would not be covered
within the sweep of Section 2A is only stated to be rejected.
While Section 2A sets out that the establishment will include
all departments and branches it does not deal with a scenario
as to the tests for determining whether two juristic entities are
17
set up as an artificial device and subterfuge to sidestep the
provisions of the Act.
13. The question in this case has to be answered by applying
the well-established theories to determine what would
constitute unity of ownership or unity of management and
control and the features that will demonstrate the presence of
functional integrality. This issue is no longer res integra and
has been settled by a long line of judgments of this Court.
14. The earliest case where this issue was discussed was in
Associated Cement Companies Ltd. (supra) where this Court
had to examine the question whether the lay off of the workers
in certain sections of the Chaibasa Cement Works due to a
strike on the part of the workmen at the Rajanka limestone
quarry was justified under Section 25-E (iii) of the Industrial
Disputes Act, 1947. Section 25-E (iii) of the I.D. Act stated
that no compensation was to be paid to workmen who have
been laid off due to a strike or slowing-down of production on
the part of workmen in another part of establishment. In the
18
process of examining the said question, this Court held as
under:-
“11. The Act not having prescribed any specific tests
for determining what is ‘one establishment’, we must
fall back on such considerations as in the ordinary
industrial or business sense determine the unity of an
industrial establishment, having regard no doubt to the
scheme and object of the Act and other relevant
provisions of the Mines Act, 1952, or the Factories
Act, 1948. What then is ‘one establishment’ in the
ordinary industrial or business sense? The question of
unity or oneness presents difficulties when the
industrial establishment consists of parts, units,
departments, branches etc. If it is strictly unitary in the
sense of having one location and one unit only, there
is little difficulty in saying that it is one establishment.
Where, however, the industrial undertaking has parts,
branches, departments, units etc. with different
locations, near or distant, the question arises what tests
should be applied for determining what constitutes
‘one establishment’. Several tests were referred to in
the course of arguments before us, such as,
geographical proximity, unity of ownership,
management and control, unity of employment and
conditions of service, functional integrality, general
unity of purpose etc. To most of these we have referred
while summarising the evidence of Mr Dongray and
the findings of the Tribunal thereon. It is, perhaps,
impossible to lay down any one test as an absolute and
invariable test for all cases. The real purpose of these
tests is to find out the true relation between the parts,
branches, units etc. If in their true relation they
constitute one integrated whole, we say that the
establishment is one; if on the contrary they do not
constitute one integrated whole, each unit is then a
19
separate unit. How the relation between the units will
be judged must depend on the facts proved, having
regard to the scheme and object of the statute which
gives the right of unemployment compensation and
also prescribes disqualification therefor. Thus, in one
case the unity of ownership, management and control
may be the important test; in another case functional
integrality or general unity may be the important test;
and in still another case, the important test may be the
unity of employment. Indeed, in a large number of
cases several tests may fall for consideration at the
same time. The difficulty of applying these tests arises
because of the complexities of modern industrial
organisation; many enterprises may have functional
integrality between factories which are separately
owned; some may be integrated in part with units or
factories having the same ownership and in part with
factories or plants which are independently owned. In
the midst of all these complexities it may be difficult
to discover the real thread of unity. In an American
decision ( Donald L. Nordling v. Ford Motor
Company, (1950 ) 28 AIR, 2d 272 there is an example
of an industrial product consisting of 3800 or 4000
parts, about 900 of which came out of one plant; some
came from other plants owned by the same Company
and still others came from plants independently
owned, and a shutdown caused by a strike or other
labour dispute at any one of the plants might
conceivably cause a closure of the main plant or
factory.”
15. As was rightly pointed out, it is impossible to lay down
any one test as an absolute and invariable test for all cases.
20
16. Associated Cement Companies Ltd. (supra) was
followed in Pratap Press (supra) . In Pratap Press (supra) ,
the issue was whether the profit or loss of the Press and the
publications “Vir Arjun” and “Daily Pratap” were to be pooled
for the question of deciding bonus. While the employer
contended that the press and Vir Arjun were one establishment
and Daily Pratap was a separate partnership firm, the workers
contended that the accounts of all the three should be taken
into account or alternatively only the Press should be taken
into account. While answering the issue, the Court
acknowledged that the question whether the two activities in
which the single owner is engaged are one industrial unit or
two distinct industrial units was not always easy of solution
and no hard and fast rule could be laid down. It was also
acknowledged that each case has to be decided on its own
peculiar facts. It was held that in some cases, two activities
would be so closely linked that no reasonable man would
21
consider them as independent industries. Para 2 of the said
judgment is set out hereunder:-
“2. The question whether the two activities in which
the single owner is engaged are one industrial unit or
two distinct industrial units is not always easy of
solution. No hard and fast rule can be laid down for the
decision of the question and each case has to be
decided on its own peculiar facts. In some cases the
two activities each of which by itself comes within the
definition of industry are so closely linked together
that no reasonable man would consider them as
independent industries. There may be other cases
where the connection between the two activities is not
by itself sufficient to justify an answer one way or the
other, but the employer's own conduct in mixing up or
not mixing up the capital, staff and management may
often provide a certain answer”.
17. This Court first examined the question whether the Press
and the paper were so interdependent that one could not exist
without the other. It concluded that there was no functional
interdependence between the press unit and the paper unit for
the two to be considered one industrial unit. Not stopping
there, this Court also held that it was necessary to further
consider the conduct of the businessman himself to see
whether he mixed up the capital of the two, the profits of the
22
two and the labour force of the two units. This Court also
considered whether there was evidence to show as to whether
the capital employed in the two units came out from one fund.
Para 6 and 7 of Pratap Press (supra) are extracted
hereinbelow:-
“6. Coming now to the facts of the present appeals we
find that the functions of the Press and the Vir Arjun
paper cannot be considered to be so interdependent
that one cannot exist without the other. That many
presses exist without any paper being published by the
same owner is common knowledge and is not seriously
disputed. Nor is it disputed that an industry of
publishing a paper may well exist without the same
owner running a press for the printing of the paper. The
very fact that Daily Pratap owned by a partnership
firm, was being printed at the Pratap Press belonging
to Shri Narendra itself shows this very clearly. It
cannot therefore be said that there is such functional
interdependence between the press unit and the paper
unit that the two should reasonably be considered as
forming one industrial unit.
7. Along with this it is necessary to consider the
conduct of the businessman himself. Has he mixed up
the capital of the two, the profits of the two and the
labour force of the two units? These are matters on
which the employer is the best person to give evidence
from the records of his concerns. No evidence has
however been produced to show that at any time before
the dispute was raised he treated the capital employed
in the two units as coming from one single capital
23
fund, nor anything to show that he pooled the profits
or that the workmen were treated as belonging to one
establishment. It is interesting to note that there is no
record showing whether for his own purposes he
treated the assets of the two units as forming one
composite whole or the assets of two distinct units has
been produced. The profit and loss accounts which we
find on the record appear to have been prepared
sometime in 26-12-1951, — apparently after the
reference had been made and the dispute whether these
units were one or two, had arisen. No weight can
therefore be attached to the fact that in this profit and
loss account — both the receipts from the press and the
receipts from the Vir Arjun were shown as the
income.”
Ultimately, this Court concluded that the Press was a
standalone unit.
18. The Honorary Secretary, South India Millowners’
Association and Others vs. The Secretary, Coimbatore
Distruict Textile Workers’ Union , [1962] Supp. 2 SCR 926,
was a case that arose in the context of award of bonus to
employees. This Court considered the question whether Saroja
Mills Ltd. Coimbatore and Thiagaraja Mills, Madurai run by
Saroja Mills Ltd. constituted separate units or they were to be
treated as one. While the Management contended that the
24
units were separate, the workmen contended to the contrary.
Answering the question, this Court while acknowledging that
the issue has to be determined in the light of the facts of each
case (at page 943) set out the following principles:-
“The question thus raised for our decision is not
always easy to decide. In dealing with the problem,
several factors are relevant and it must be remembered
that the significance of the several relevant factors
would not be the same in each case nor their
importance. Unity of ownership and management and
control would be relevant factors. So would the
general unity of the two concerns; the unity of finance
may not be irrelevant and geographical location may
also be of some relevance; functional integrality can
also be a relevant and important factor in some cases.
It is also possible that in some cases, the test would be
whether one concern forms an integral part of another
so that the two together constitute one concern, and in
dealing with this question the nexus of integration in
the form of some essential dependence of the one on
the other may assume relevance. Unity of purpose or
design, or even parallel or co-ordinate activity
intended to achieve a common object for the purpose
of carrying out the business of the one or the other can
also assume relevance and importance, vide
Ahmedabad Manufacturing & Calico Printing Co.
Ltd. v. Their Workmen [1951] 2 LLJ 657 .”
19. It will be seen that this Court held that several factors are
relevant and the significance and importance of the several
25
relevant factors would not be the same in each case. It was also
held that unity of ownership and management and control,
general unity of the two concerns; unity of finance;
geographical location, functional integrality would all be
relevant factors depending on the facts of each case. It was
further held that unity of purpose or design or even parallel or
coordinate activity intended to achieve a common object for
the purpose of carrying out the business of the one or the other
would also assume relevance and importance.
20. Specifically repelling the argument of the Management
that the test of functional integrality was the only test and
absent functional integrality the units will have to be
considered separate, this Court in South India Millowners’
Association (supra) held as under: -
“Mr Sastri, however, contends that functional
integrality is a very important test and he went so far
as to suggest that if the said test is not satisfied, then
the claim that two mills constitute one unit must break
down. We are not prepared to accept this argument. In
the complex and complicated forms which modern
industrial enterprise assumes it would be unreasonable
26
to suggest that any one of the relevant tests is decisive;
the importance and significance of the tests would vary
according to the facts in each case and so, the question
must always be determined bearing in mind all the
relevant tests and corelating them to the nature of the
enterprise with which the Court is concerned. It would
be seen that the test of functional integrality would be
relevant and very significant when the Court is dealing
with different kinds of businesses run by the same
industrial establishment or employer. Where an
employer runs two different kinds of business which
are allied to each other, it is pertinent to enquire
whether the two lines of business are functionally
integrated or are mutually inter-dependent. If they are,
that would, no doubt, be a very important factor in
favour of the plea that the two lines of business
constitute one unit. But the test of functional
integrality would not be as important when we are
dealing with the case of an employer who runs the
same business in two different places. The fact that the
test of functional integrality is not and generally
cannot be satisfied by two such concerns run by the
same employer in the same line, will not necessarily
mean that the two concerns do not constitute one unit.
Therefore, in our opinion, Mr Sastri is not justified in
elevating the test of functional integrality to the
position of a decisive test in every case. If the said test
is treated as decisive, an industrial establishment
which runs different factories in the same line and in
the same place may be able to claim that the different
factories are different units for the purpose of bonus.
Besides, the context in which the plea of the unity of
two establishments is raised cannot be ignored. If the
context is one of the claim for bonus, then it may be
relevant to remember that generally a claim for bonus
is allowed to be made by all the employees together
when they happen to be the employees employed by
27
the same employer. We have carefully considered the
contentions raised by the parties before us and we are
unable to come to the conclusion that the finding of the
Tribunal that the two mills run by the Saroja Mills Ltd.
constitute one unit, is erroneous in law.
In this connection, it would be necessary to refer
to some of the decisions to which our attention was
drawn. In the case of Associated Cement Companies
Ltd. and their Workmen, this Court held that on the
evidence on record, the limestone quarry run by the
employer was another part of the establishment
(factory) run by the same employer within the meaning
of Section 25-E(iii) of the Industrial Disputes Act. It
would thus be seen that the question with which this
Court was concerned was one under Section 25-E(iii)
of the Act and it arose in reference to the limestone
quarry run by the appellant Company and the cement
factory owned and conducted by it which are normally
two different businesses. It was in dealing with this
problem that this Court referred to several tests which
would be relevant, amongst them being the test of
functional integrality. In dealing with the question,
S.K. Das, J., who spoke for the Court, observed that it
is perhaps impossible to lay down any one test as an
absolute and invariable test for all cases. The real
purpose of these tests is to find out the true relation
between the parts, branches, units, etc. If in their true
relation they constitute one integrated whole, we say
that the establishment is one; if, on the contrary, they
do not constitute one integrated whole, each unit is
then a separate unit. It was also observed by the Court
that in one case, the unity of ownership, management
and control may be the important test; in another case,
functional integrality or general unity may be an
important test; and in still another case, the important
test may be the unity of employment. Therefore, it is
28
clear that in applying the test of functional integrality
in dealing with the question about the interrelation
between the limestone quarry and the factory, this
Court has been careful to point out that no test can be
treated as decisive and the relevance and importance
of all the tests will have to be judged in the light of the
facts in each case.”
21. In Management of Wenger and Co. vs. Their Workmen ,
(1963) Supp. 2 SCR 862, one of the questions considered was
whether industrial establishments owned by the same
management constituted separate units or they constituted one
establishment. In the said case, the question was whether the
wine shops and the restaurants form part of one establishment
or not. For the Management, in that case, it was contended
that absent functional integrality, it has to be necessarily
concluded that the units are separate in all cases. Rejecting
this argument, this Court held as under:-
“The question as to whether industrial
establishments owned by the same managements
constitute separate units or one establishment has
been considered by this Court on several occasions.
Several factors are relevant in deciding this
question. But it is important to bear in mind that the
significance or importance of these relevant factors
29
would not be the same in each case; whether or not
the two units constitute one establishment or are
really two separate and independent units, must be
decided on the facts of each case. Mr Pathak
contends that the Tribunal was in error in holding
that the restaurants cannot exist without the wine
shops and that there is functional integrality between
them. It may be conceded that the observation of the
Tribunal that there is functional integrality between
a restaurant and a wine shop and that the restaurants
cannot exist without wine shops is not strictly
accurate or correct. But the test of functional
integrality or the test whether one unit can exist
without the other, though important in some cases,
cannot be stressed in every case without having
regard to the relevant facts of that case, and so, we
are not prepared to accede to the argument that the
absence of functional integrality and the fact that the
two units can exist one without the other necessarily
show that where they exist they are necessarily
separate units and do not amount to one
establishment. It is hardly necessary to deal with this
point elaborately because this Court had occasion to
examine this problem in several decisions in the
past, vide Associated Cement Companies Ltd. v.
Their Workmen; Pratap Press, etc. v. Their
Workmen , Pakshiraja Studios v. Its Workmen;
South India Millowners' Association v. Coimbatore
District Textile Workers Union; Fine Knitting Co.
Ltd. v. Industrial Court and D.C.M. Chemical
Works v. Its Workmen.”
22. Hence, it is very clear that while the test of functional
integrality, namely, the test whether one unit can exist without
the other may be important in some cases, it may not be
30
stressed in every case without having regard to the relevant
facts of the case and it is not the correct legal position that
absent functional integrality the units have to be necessarily
concluded as separate. Thereafter, applying the law to the
facts, this Court held as under:-
“ Let us then consider the relevant facts in the present
dispute. It is common ground that wherever the
employer runs a restaurant and a wine shop, the
persons interested in the trade are the same partners.
The capital supplied to both the units is the same. Prior
to 1956, wine shops and restaurants were not
conducted separately, but after 1956 when partial
prohibition was introduced in New Delhi, wine shops
had to be separated because wine cannot be sold in
restaurants. But it is significant that the licence for
running the wine shop is issued on the strength of the
fact that the management was running a wine shop
before the introduction of prohibition. In fact, LII
licence to run wine shops has been given in many cases
to previous restaurants on condition that the wine
shops are run separately according to the prohibition
rules. It is true that many establishments keep separate
accounts and independent balance-sheets for wine
shops and restaurants; but that clearly is not decisive
because it may be that the establishments want to
determine from stage to stage which line of business is
yielding more profit. Ultimately, the profits and losses
are usually pooled, together. Thus, generally stated,
there is unity of ownership, unity of finances, unity of
management and unity of labour; employees from the
restaurant can be transferred to the wine shop and vice
31
versa. Besides, it is significant that in no case has the
establishment registered the wine shops and the
restaurants separately under Section 5 of the Delhi
Shops and Establishments Act, 1954 (7 of 1954). In
fact, when Mr Nirula, the Secretary of the Employers’
Association, was called upon to register his wine shop
separately, he protested and urged that separate
registration of the several departments was
unnecessary; and that clearly indicated that wine shop
was treated by the establishment as one of its
departments and nothing more. The failure to register
a wine shop as a separate establishment is, in our
opinion, not consistent with the employers' case that
wine shops are separate and independent units. Having
regard to all the facts to which we have just referred,
we do not think it would be possible to accept Mr
Pathak's argument that the Tribunal was in error in
holding that the wine shops and restaurants form part
of the same industrial establishments.”
23. Thus, it will be seen that this Court considered unity of
ownership, unity of finance, unity of management and unity of
labour and the transferability of employees as relevant indicia.
24. It will be clear from South India Millowners’
Association (supra), Wengers (supra) and Pratap (supra) that
Courts cannot stop with only examining whether the two units
are so functionally integrated that one cannot exist without the
other and absent functional integrality conclude that the units
32
are separate. In the facts of the present case, it is the case of
the appellant that while the appellant’s unit manufactures
tablets and syrups, the respondent No.3-Vindas manufactures
injections and capsules. According to the written submissions,
the appellant contends that the establishments have completely
different range of products and any movement of man and
material between the two of these may cause gross
contamination and there is no interdependence of any raw
material. On the other hand, the authorities contend that while
the manufactured products may be different the industrial
activity is common, namely, they are part of the
pharmaceutical industry.
25. In Rajasthan Prem Krishan Goods Transport Co. vs.
Regional Provident Fund Commissioner , New Delhi and
Others , (1996) 9 SCC 454, the authorities found unity of
ownership, management, supervision and control,
employment, finance, and general purpose to treat M/s
Rajasthan Prem Krishan Goods Transport Co. and M/s
33
Rajasthan Prem Krishan Transport Company as a single
establishment for the purpose of the EPF Act. This was on the
finding that ten partners were common for both the entities;
the place of business, address and telephone numbers were
common and the management was also common. It was also
found that the trucks plied by the two entities were owned by
the partners and were being hired through both the units. This
Court endorsed the finding of the authorities and upheld the
clubbing of the two units.
26. In Regional Provident Fund Commissioner, Jaipur vs.
Naraini Udyog and Others , (1996) 5 SCC 522, the question
was whether two entities M/s Naraini Udyog, Kota and M/s
Modern Steels, Kota were to be treated as one for the purpose
of the EPF Act. The authorities found that there was common
Head Office, common Branch Office, common telephone for
residence and factories. It was found that the submission of
the Department that the office of M/s Modern Steels was
situated in the premises of M/s Naraini Udyog and accounts of
34
the two units were maintained by the same set of clerks was
not controverted by the employer. The contention of the
employer was that they have registered the two entities
separately under the Factories Act, Sales Tax Act and ESIC
Act; that the units were located at a distance of three
kilometers apart and had separate central excise nos. and were
registered as separate small-scale industries and hence should
be treated as separate units. The employer also denied the
assertion of the authorities that workers of one unit were
working in the other. The authorities considered the aspect of
separate registration as a point devoid of merit. With regard
to denial of interchange of workers, the authorities held that
the aspect was not crucial to the point at issue. On a challenge
before the High Court, the Division Bench in the said case held
in favour of the employer by holding that since they were
registered under the Companies Act as two different individual
identities though represented by members of the same family,
and that the companies were independent. On a challenge to
35
the said judgment by the authorities, this Court held that the
findings of the High Court that due to the separate registration
under the Companies Act, they were different individual
identities was wholly unjustified. This Court held that there
was functional unity and integrality and that the authorities
were justified in clubbing the two units.
27. In Regional Provident Fund Commissioner and
Another vs. Dharamsi Morarji Chemical Co. Ltd. , (1998) 2
SCC 446, this Court held in favour of the employer on the
finding that there was no evidence of supervisory, financial or
managerial control and the only communicating link was that
both was owned by the common owner. It was held on facts
that that by itself was not sufficient unless there was
interconnection between the two units and there was common
supervisory, financial or managerial control. This case cannot
help the appellant as it turned on its own peculiar facts as was
clearly recorded in para five of the said judgment.
36
28. In Raj’s Continental Exports (P) Ltd. (supra) , this
Court found for the employer that there was total
independence of the two units and upheld the judgment of the
learned Single Judge and of the Division Bench. Here again,
the case turned on the peculiar facts of the case and can be of
no assistance to the appellant.
29. In Sumangali vs. Regional Director , Employees’ State
Insurance Corporation , (2008) 9 SCC 106, this Court found
that the authorities had held that the clubbing of the entities
was justified and there was functional integrality, unity in
management, financial unity, geographical proximity, unity in
supervision and control and general unity of purpose. It was
also found by the authorities and the High Court that even if
each unit had separate registration under different statutes, all
units were inter-dependent and were supplementary and
complementary to each for the sake of their textile business.
This Court upheld the finding of the authorities and the High
Court and dismissed the appeal of the employer.
37
30. In L.N. Gadodia and Sons and Another vs. Regional
Provident Fund Commissioner , (2011) 13 SCC 517, the issue
was whether the appellant - L.N. Gadodia and Sons and
appellant No.2 in that case M/s Delhi Farming and
Construction (P) Ltd. were rightly clubbed by the authorities
as one entity for the purpose of the EPF Act? The Registered
Office was common; one Director was admittedly common;
the authorities found that there was a common Managing
Director; that there were loans advanced by the appellant No.2
in that case to appellant No.1; two officers were found to be
common, the telephone numbers were common and even the
gram nos. “ Gadodia Son ” were common. The Tribunal
reversed the finding of the authorities on the ground that the
entities were separately registered. On a challenge by the
authorities before the High Court, the High Court restored the
finding of the Provident Fund Commissioner, after holding
that the Tribunal was swayed by the factum of the companies
being separate legal entities. On a further challenge to this
38
Court, this Court upheld the finding of the Provident Fund
Commissioner. Dealing with the question on the
interpretation of Section 2-A of the Act and the submission
that only different departments of an establishment can be
clubbed but not different establishments altogether, this Court,
while rejecting the submission held as under:-
“23. The petitioners have contended that the two
entities are two separate establishments. They have
tried to draw support from Section 2-A of the Act
which declares that where an establishment consists of
different departments or has branches whether situated
in the same place or in different places, all such
departments or branches shall be treated as parts of the
same establishment. It was submitted that only
different departments or branches of an establishment
can be clubbed together, but not different
establishments altogether. In this connection, what is
to be noted is that, this is an enabling provision in a
welfare enactment. The two petitioners may not be
different departments of one establishment in the strict
sense. However, when we notice that they are run by
the same family under a common management with
common workforce and with financial integrity, they
are expected to be treated as branches of one
establishment for the purposes of the Provident Funds
Act. The issue is with respect to the application of a
welfare enactment and the approach has to be as
indicated by this Court in Sayaji Mills Ltd. [1984 Supp
SCC 610.] The test has to be the one as laid down
in Associated Cement Companies Ltd. [AIR 1960 SC
39
56] which has been explained in Pratap Press [AIR
1960 SC 1213].”
31. Hence, it will be clear from this judgment that the
contention of the appellant herein that once there are two
separate juristic entities, theory of clubbing cannot be invoked
is completely untenable and is only stated to be rejected. It is
common knowledge that artificial devices, subterfuges and
facades are commonly resorted to, to create a smokescreen of
separate entities for a variety of purposes. The Court of law
faced with such a scenario has a duty to lift the veil and see
behind applying the well-established tests to determine
whether the entities are really separate entities or are they
really a single entity. Myriad fact situations may arise. Hence,
the contention that Section 2A cannot be applied if ostensibly
two separately registered entities under the Companies Act are
involved, has only to be stated to be rejected. This is especially
so when the Court is interpreting a beneficial legislation like
in the present case, namely, the EPF Act.
40
32. In L.N. Gadodia (supra) , dealing with the aspect of
burden of proof, this Court had the following pertinent
observations to make:-
“24. The Provident Fund Department had issued
notice to the petitioners on 11-6-1990 on the basis of
their inspection. It had relied upon the 1988 Audit
Report of the petitioners. The petitioners had full
opportunity to explain their position in the inquiry
before the Provident Fund Commissioner conducted
under Section 7-A of the Provident Funds Act. The
petitioners, however, confined themselves only to a
facile explanation. If according to them, the
management, workforce and financial affairs of the
two companies were genuinely independent, they
ought to have led the necessary evidence, since they
would be in the best know of it. When any fact is
especially within the knowledge of any person, the
burden of proving that fact lies on him. This rule
(which is also embodied in Section 106 of the
Evidence Act) expects such a party to produce the best
evidence before the authority concerned, failing which
the authority cannot be faulted for drawing the
necessary inference. In the facts and circumstances of
the present case, the Provident Fund Commissioner
was therefore justified in drawing the inference of
integrity of finance, management and workforce in the
two petitioners on the basis of the material on record.”
33. The last in the line that we propose to discuss is Shree
Vishal Printers Limited, Jaipur vs. Regional Provident Fund
41
Commissioner, Jaipur and Another , (2019) 9 SCC 508. This
Court emphasised that facts would have to be viewed as a
whole while each one of the facts by itself may not be
conclusive. What is important is to consider cumulatively the
facts of the case while applying the different tests laid down
(See para 40).
34. A survey of the cases cited hereinabove reveal that it will
be impossible to lay down any one test as an absolute and
invariable test for all cases. The real purpose of the test is to
find out the true relation between the Parts, Branches and
Units. If in their true relation they constitute one integrated
whole, it could be said that establishment is one and if not, they
are to be treated as separate units. Each case has to be decided
on its own peculiar facts, regard being had to the scheme and
object of the statute under consideration and in the context of
the claim. In a given case, unity of ownership, management
and control may be the important test, while in certain other
cases Functional Integrality or general unity may be the
42
determinative consideration. In some instances, unity of
employment could be the most vital test. Several tests may fall
for consideration at the same time since the mandate of the law
is that the facts will have to be viewed as a whole. While each
aspect may not by itself be conclusive, what is important is to
consider cumulatively the facts while applying the different
tests. The employer/management’s own conduct in mixing up
or not mixing up the capital, staff and management could in a
given case be a significant pointer. Mere separate registration
under the different statutes cannot be a basis to claim that the
units are separate. Similarly, maintenance of separate accounts
and independent financial statement is also not conclusive.
The onus lies on the employer/management to lead necessary
evidence to bring home their contention.
35. Applying the above principles to the case, the findings
arrived at by the APFC that the appellant and Vindas-
respondent No.3 were engaged in the same industry; they
carried on business in premises built on contiguous plots of
43
land; that they shared common telephone and facsimile
numbers; they shared common website and e-mail IDs; that
their Registered Office/Head Office and administrative office
were the same; they have employed common security to guard
the premises; that there was unity of management inasmuch as
while Dr. Darshan Kataria and Niranjan Kataria – the two
brothers were Directors of respondent No.3-Vindas; Dr.
Darshan Kataria was also the Director of the appellant while
the other brother Vasudev Kataria and Mr. Rajni Kumari –
wife of Darshan Kataria were Directors in the appellant-
Company; that there was unity of finance inasmuch as the
Hindu Undivided Family of Darshan Kataria and his family
members funded both the companies, cumulatively establish
beyond doubt that the two entities were rightly treated as
common for the purpose of the EPF Act. If a common man
were to be asked as to whether the two units are the same, the
answer will be an emphatic yes.
44
36. The claim for infancy protection under the erstwhile
Section 16(1)(d) would also not arise in view of our finding of
clubbing. Being an integrated unit of Vindas respondent no. 3
since 1995 no separate infancy protection will enure to the
benefit of appellant. Equally, untenable is the argument that
the show cause notice originally being issued for coverage
from 01.04.2004 the authorities were not justified to direct
deposit of dues from September 1995. In fact, as would be
clear from the factual narration hereinabove from the
submissions of 10.10.2005 of the appellant itself it is clear that
the authorities were evaluating the possibility of clubbing.
Apart from this, in the communication of 24.01.2005 it was
clearly indicated that the stipulated date of 01.04.2004 was
liable to change and a final decision was to be taken after
inspection of previous report. The further report of 10.11.2005
furnished to the parties clearly dealt with the aspect of
clubbing and appellant also responded to the same by its
submission of 20.12.2005. In view of the same, we have no
45
hesitation in rejecting the submissions of the appellant that the
authorities were not justified in seeking remittance of the dues
from September 1995. Similarly, the contention of the
appellant that notice of clubbing ought to have been issued to
Vindas-respondent No.3 also lacks merit. As rightly
contended for the Authorities since the ultimate contribution
was to be levied only for the respective employees of the units
and since employees of Vindas-respondent No.3 were already
covered for the period in question, there was no necessity for
issuing notice to Vindas-respondent No.3.
37. For the reasons stated above, we find no merit in the
appeal. The appeal is dismissed. No order as to costs.
…..…………………J.
(K.V. Viswanathan)
…....…………………J.
(Joymalya Bagchi)
New Delhi;
July 15, 2025.
46