Full Judgment Text
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PETITIONER:
PROVIDENT FUND INSPECTOR, TRIVNDRUM
Vs.
RESPONDENT:
SECRETARY, N.S.S. CO-OPERATIVE SOCIETY, CHAN-GANACHERRY
DATE OF JUDGMENT:
17/09/1969
BENCH:
BHARGAVA, VISHISHTHA
BENCH:
BHARGAVA, VISHISHTHA
HEGDE, K.S.
CITATION:
1971 AIR 82 1970 SCR (2) 481
1970 SCC (1) 50
CITATOR INFO :
D 1985 SC 323 (12)
ACT:
The Employees Provident Funds Act, 1952 (19 of 1952), s.
16(1)(b) --Exemption under--Whether available from date of
setting up of the establishment or from date when Act
became applicable--Change of ownership of
establishment--When results in setting up of new
establishment--Tests.
HEADNOTE:
The respondent cooperative society purchased a Press.
from another cooperative society on 21st March 1961. The
establishment had been set up by the vendor originally in
1946 and at the time of purchase by the respondent only 9
workmen were employed therein. As the number of workers
employed by the respondent went beyond 20 the Employees’
Provident Fund Act, 1952 and the Employees’ Provident Fund
Scheme 1952 became applicable to the: respondent’s
establishment with effect from April 1961. For not
complying with the provisions of the aforesaid Act and
Scheme the Provident Fund Inspector, Trivandrum (appellant
herein) launched prosecutions against the respondent. The
specific charges related to the failure, of the respondent
(i) to pay to the Employees’ Provident’ Fund the employees’
and the employer’s share of contributions together with
administrative charges ’for the twelve quarters comprised
between May 1961 and February 1964; (ii) to submit the
returns in Forms 5 and 10 for the same twelve quarters;
(iii) to send statements of recoveries of contributions in
Form 12 for the same quarters; and (iv) to send the; initial
return in Form 9 showing the particulars as on 30-4.-1961
along with Form 2 in the manner specified in the SCheme.
On trial the Magistrate recorded the finding that the
establishment as run by the respondent after 1961 could not
be held to be an old establishment set up in the 1946, it
had emerged as a new establishment in 1961, and
consequently for a period of three years from April 1961,
the provisions of the Act would not apply to. this
establishment because of the provisions. contained in s.
16(1)(b) of the Act. On this view the respondent was
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acquitted. The High Court in appeal did no,t agree with the
Magistrate that a new establishment came into being in 1961,
but nevertheless upheld the acquittal on the ground that
under s. 16(1)(b) of the Act an establishment is given
exemption for a period of 3 years from the date on which it
came within the: purview of the Act. On appeal to this
Court by special leave,
HELD.: (i) In view of the decision of this Court in R.
Ramakrishna Rao’s case the finding of the High Court that
the exemption under s. 16(1)(b) of the Act was available
for the first three years from the date when the Act
became applicable to an establishment, was wrong [486 A-C]
R. Ramakrishna Rao v. State of Kerala, [1968] 2 S.C.R. 819,
applied. (ii) However the acquittal of the respondent must
be upheld.
The burden of proving that the old establishment had
continued was on the appellant. The evidence showed: that,
at the time of the purchase a new owner came in place of the
previous owner; the work of the Press was stopped on sale
and was restarted after a break of about three
482
months; the machinery in the Press was 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; and
compensation was paid to the workmen at the time of the
sale. by the previous owner. On these facts, no other
conclusion could be drawn except that the old establishment
was completely closed when the transfer of ownership took
place and an entirely new establishment was set up three
months’ later, so that in this case the benefit of the Act
under s. 16(1)(b) of the Act for a period of three years was
available to the respondent from June or July 1961 when the
new establishment was set up,. [488 E-G]
Lakshmi Rattan Engineering Works v. Regional Provident
Fund Commissioner, Punjab & Ors. [1966] 1 L.L.J. 741
Jamanadas Agarwalla & Anr. v. The Regional Provident Fund
Commissioner, West Bengal & Ors. A.I.R. 1963 Cal. 513, M/s.
Bharat Board Mills Ltd. v. The Regional Provident Fund
Commissioner & Ors., A.I.R. 1957 Cal. 702 and Devi Press v.
Regional Provident Fund Commissioner, Madras & Anr. A.I.R.
1965 Mad. 462, distinguished.
Vittaldas Jagannathadas & Anr. v. Regional Provident Fund
Conmissioner & Anr. [1966] 1 L.L.J. 240, applied.
JUDGMENT:
CRIMINAL APPELLATE JURISDICTION: Criminal Appeals Nos. 145
to 156 of 1968.
Appeals by special leave from the judgment ’and order
dated September 6, 1967 of the Kerala High Court in Criminal
Appeals Nos. 114 to 124 of 1967.
R.H. Dhebar, Lily Thomas for S.P. Nayar, for the
appellant (in all the appeals).
A. S. Nambiar, for the respondent (in all the appeals).
The Judgment of the Court was delivered by
Bhargava, J. These twelve connected appeals arose out
of twelve prosecutions instituted by the .appellant,
Provident Fund Inspector, Trivandrum, against the
respondent, Secretary, N.S.S. Co-operative Society,
Changanacherry, for offences punishable under the Employees’
Provident Funds Act, 1952 (hereinafter referred to as "the
Act") on the ground of contravention of the provisions of
the Employees’ Provident Fund Scheme, 1952 (hereinafter
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referred to as "the Scheme"). The specific charges related
to the .failure of the respondent (1 ) to pay to the
Employees’ Provident Fund the employees’ and the employer’s
’share of contribution together with administrative charges
for the twelve quarters comprised between May, 1961 and
February, 1964; (2) to submit the returns in Forms 5 and 10
for the same twelve quarters; (3) to send statements of
recoveries of contributions in Form. 12 for the same 12
quarters; and (4) to send the initial return in Form 9
showing the particulars as on 30-4-1961 along with Form 2 in
the manner specified in the Scheme. The pay-
483
ment of the employer’s and employees’ contribution to
the Provident Fund, and the question of sending the various
statements arose in respect of a Press which was purchased
by the N.S.S. Co-operative Society on the 21st March, 1961
from the Travancore-Cochin Central Printing and Publishing
Co-operative Society, Ltd. According to the appellant, this
establishment of the Printing Press had ’been set up in the
year 1946 and it continued in existence even subsequently
when, in March, 1961, the Press was purchased by the N.S.S.
Co-operative Society. Until the purchase by the N.S.S. Co-
operative Society, the establishment was employing only 9
workmen; but, after the N.S.S. Co-operative Society started
working the Press, the number of workmen increased beyond
20, so that the Act became applicable to this establishment.
The case was that, since the Act became applicable w.e.f.
April; 1961, it was the duty of the respondent to comply
with the requirements of the Act and pay the contribution
and send the various returns which the respondent failed to
do On trial, the Magistrate recorded the finding that the
establishment as run by the N.S.S. Co-operative Society
after 1961 could not be held to be an old establishment set
up in the year 1946, had emerged as a new establishment in
1961, and, consequently, for a period of three years from
April, 1961, the provisions of the Act would not apply to
this establishment because of the provision contained in
section 16(1)(b) of the Act. On this view, the Magistrate
acquitted the respondent in all the cases. The respondent
appealed to the High Court of Kerala. The High Court
disagreed with the Magistrate and held that, even though
there was change of management, change of workers and change
of machinery. when the N.S.S. Co-operative Society purchased
the Press in 1961, the business that was carried on was the
same as it was at the time of purchase, so that it could not
be held that a new establishment had come into existence
different from the one which existed before the purchase.
The High Court, however, took the view in law that, under s.
16(1)(b) of the Act, an establishment is given exemption for
a period of 3 years from the date on which it came within
the purview of the Act, treating the establishment as an
infant establishment standing in need of protection. The
High Court, therefore, held that this establishment was
protected from the applicability of the Act for a period of
3 years from 21st March, 1961 which would cover the period
in respect of which prosecutions were launched by the
appellant. On this ground, the High Court upheld the orders
of acquittal passed by the Magistrate. The appellant has
now come up in these appeals against this decision of the
High Court by special leave granted by this Court.
It is quite clear that on the question of law decided by
the High Court in favour of the respondent, that decision
cannot be
484
upheld in view of the decision of this Court in R.
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Ramakrishna Rao v. State of Kerala(1) where it was held
that, under s. 16(1)(b), in the case of ’a new
establishment, the period of five years (laid down by
subsequent amendment) is counted forward from the date the
establishment is set up, but, in the case of an existing
establishment, from the date the establishment "has been"
set up In the present case, since the establishment was
first set up in the year 1946, the period of exemption for
purposes of applying s. 16(1)(b) of the Act would run from
the date on which the establishment had been set up and
could not be counted from April, 1961 when the Act became
applicable to this establishment. In view of that decision
of this Court, the acquittal of the respondent on the ground
given by the High Court cannot be maintained.
However, on behalf of the respondent, it was argued that,
on the evidence in this case, the High Court was not
justified in recording the finding that this establishment
as set up in the year 1946 continued to exist as it was
before, even after the purchase by the N.S.S. Co-operative
Society in 1961. It was urged that, on facts, the correct
finding that should have been recorded was that the old
establishment ceased to exist and an entirely new one was
set up in the year 1961. In support of this plea, we were
taken by learned counsel for the parties through the
evidence which was tendered during the trial before the
Magistrate and, after going through it, we are. inclined to
accept the submission made on behalf of the respondent.
The burden of proving that the old establishment had
continued and that a new establishment was not set up in the
year 1961 was on the appellant, as the appellant had filed
criminal cases for prosecution of the respondent. The first
prosecution witness was the Provident Fund Inspector,
Raghunathan, but most of his evidence relates to facts
discovered by him and not in his personal knowledge. It is
he who made a report for the prosecution of the respondent
and in that report itself he admitted that the strength of
the establishment was less than 20 till 16th April, 1961
when it was purchased by the N.S.S. Co-operative Society.
Headded that there were only 9 employees ’at the date of
purchase of these 9 employees, 6 were reemployed by the
purchasers. Significance attaches to the word "reemployed"
which implies that there was no continuity of employment
even of those 6 employees. That witness also admitted that,
after the purchase, the Press was removed from its original
place and additional machineries were purchased and added to
the Press. According to him, he also received information
that compensation due to the workers till the date of sale
was disbursed by the previous owner, T.C: Central Co-
operative Printers and publishers. He added that the
(1)[1968] 2 S.C.R.819.
485
persons working in the Press at the time of his evidence
were all persons who had been appointed by the N.S.S. Co-
operative Society. Thus, his evidence does not prove that
the establishment run by the N.S.S. Co-operative Society was
the same as the establishment which was being run by the
previous owner of the Press. The owner changed, me
machinery changed, the location of the Press was altered,
and even the employees were not the same as before. In
fact, none of the employees, according to his evidence,
was continued in service. Th‘e only witness on whom
reliance could be placed on behalf of the appellant to
prove continuity of the business was P.W. 2, Sadasivan Nair,
who claimed to be one of the employees in this Press of the
previous employer and who stated mat he continued to be
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employed by the N.S.S. Co-operative Society. His evidence
has rightly been criticised on the ground that he is a
disgruntled person who lost his service some years later
when the press was being run by the N.S.S. Co-operative
Society. Further, he stated on oath that the Press was taken
over with all its workers which is clearly a wrong statement
and is contradicted by P.W. 1, the Provident Fund Inspector
himself. It is also significant that, according to the
Provident Fund Inspector, compensation was paid to the
previous employees by the previous employer which clearly
shows that the previous employees were not continued in
service, and that they were paid compensation for
termination of their services on transfer of the Press
presumably in accordance with the provisions of section 25FF
of the Industrial Disputes Act. The prosecution could have
easily produced the accounts of the previous owner to show
that there were at least some employees who were continued
in service and who were not paid compensation, but no such
attempt was made on behalf of the appellant. Even the sale-
deed in favour of the N.S.S. Co-operative Society has not
been put in the paper-book before us and its absence is
significant in view of the statement made by D.W. 1, one of
the Directors of the N.S.S. Co-operative Society, who stated
that the N.S.S. Co-operative Society neither purchased the
establishment’ as a going concern, nor did it continue to
run the same establishment. According to D.W. 1. after the
purchase of the Press, there was a closure.for a period.of
about 3 months and a new business was started in June or
July, 1961 when a new establishment was set up. The workmen
employed by the previous owner were not taken over on their
old conditions of service. Fresh appointments were made and
all workers were newly recruited, though, at the time of
this recruitment, some of the old employees were also taken
in service. This evidence would clearly show that a new
establishment was set up by the N.S.S. Co-operative Society
after the purchase of the press by it from the previous
owner and that there was no continuity of the old
establishment. As we have
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486
said earlier, the appellant could have summoned the accounts
of the previous owner to show that these facts alleged by
D.W. 1 are not correct. Even the N.S.S. Co-operative
Society is maintaining accounts and registers; and no
attempt was made on behalf of the prosecution to seize or
summon those registers. It is true that the respondent
himself,f, on his own initiative, did not produce those
registers in defence but, in a criminal case, such a
circumstance cannot justify raising a presumption that the
registers would have contradicted the evidence of D.W. 1.
D.W. 1 also stated that there was a specific provision in
the sale-deed that none of the workers, who were working in
the press purchased, were to be taken in service and
nobody was, in fact, taken. This statement could easily
have been challenged before us if the saledeed had been
included in the Paper:book. In the absence of the sale-
deed, which has not been brought to our notice, we see no
reason to disbelieve the statement of D.W. 1 and we consider
that his evidence is decidedly preferable to that of P.W. 2
whose evidence we have mentioned above.
The only other prosecution witness who need be mentioned
is P.W. 3 who also employed by the N.S.S. Co-operative
Society in this Press after the purchase. He was, however,
not an employee in this press before its purchase by N.S.S.
Co-operative Society. He was employed in another press which
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was also purchased by this Co-operative Society, so that his
evidence about continuity of his service cannot indicate
that this particular establishment was a continuation of the
old establishment set up by the previous owner. On a
discussion of the entire evidence and in view of the fact
that the burden of proof lay on the appellant, we think that
the conclusions of fact which must be accepted are; that,
at the time of the purchase, a new owner came in place of
the previous owner; the work of the Press was stopped on
sale and was restarted after a ’break of about three
months; the machinery in the Press was 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; and
compensation was paid to the workmen ’at the time of the
sale by the previous owner. On these facts, no other
conclusion can be drawn, except that the old establishment
was completely closed when the transfer of ownership took
place and an entirely new establishment was set up three
months later, so that, in this case, the benefit of non-
applicability of the Act under s.16(1) (b) of the Act for a
period of three years was available to the respondent from
June or July, 1961 when the new establishment was set up.
In this connection, learned counsel appearing for the
appellant drew our attention to a few decision, including
one of this Court’ to urge that we should not hold that this
establishment was newly set up in the year 1961. The first
of these decisions is Lakshmi
487
Rattan Engineering Works v. Regional Provident Fund
Commissioner, Punjab, and others(1) in which this Court held
that a change in location of an establishment or a change in
the line of business would not have the effect that a new
establishment has been set up, provided there was continuity
of working. That case cannot apply to the facts as found by
us in the present case where there was no continuity of the
business and there were the additional factors of
termination of services of ’all the workmen and a new
establishment being set up by ,fresh recruitment of workmen,
in addition to alteration in machinery in the Press. The
decisions in Jamnaclas Agarwalla and Another v. The
Regional Provident Fund Commissioner, West Bengal &
Others,(2) and Messrs Bharat Board Mills Ltd. v. The
Regional Provident Fund Commissioner and Others(3), are also
inapplicable to the facts before us in the present case. A
good deal of reliance was placed on a decision of ’a learned
single Judge of the Madras High Court in Devi Press v.
Regional Provident Fund Commissioner, Madras and Another;(4)
but even in that case the facts were different. One of the
prominent facts before the Judge was that the particular
business transferred was being run under licences and those
licences were also transferred by the seller to the
purchaser. In view of this transfer, the learned Judge held
that it was a case of sale of a going concern and there was
continuity of business. Without expressing any opinion as to
whether the learned Judge was correct in holding that there
was continuity of business in that case, the very fact that
he held the establishment not to have been newly set up on
the ground that it was a case of a transfer of a going
concern distinguishes that case from the case before us. In
the present case, the facts established show that the old
business was close and was restarted as a new business after
recruiting new workmen. The principle to be applied in
arriving at a decision in such a case appears to us to have
been rightly explained in a decision of a learned single
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Judge of the Madras High Court in Vithaldas Jogannathadas
and/Another v. Regional Provident Fund Commissioner and
Another(5). The learned Judge held :-
"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, this
establishment is entitled to infancy
(1) [1966] 1 L.L.J. 741.
(2) A.I.R. 1963 Cal. 513.
(3) A.I.R. 1957 Cal. 702.
(4) A.I.R. 1965 Mad. 462.
(5) [1966] 1 L.L.J. 240.
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488
protection in its own right, even if it
happens by coincidence to have employed a
large part of the personnel of the previous
establishment."
This principle, applied to the facts of the present case,
can only lead’ to the conclusion that the N.S.S. Co-
operative Society had set up a new establishment and the
provisions of s. 16(1)(b) of the Act have to be applied on
the basis that the new establishment was set up in June or
July, 1961, so that there was no liability tO pay.
Provident Fund contributions or to file the various returns
during the period to which the prosecutions related. The
acquittal of the respondent was, therefore, fully justified.
The appeals are dismissed.
G.C
Appeals dismissed.
489