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PETITIONER:

SAYAJI MILLS LTD.

Vs.

RESPONDENT:

REGIONAL PROVIDENT FUND COMMISSIONER

DATE OF JUDGMENT21/12/1984

BENCH:

VENKATARAMIAH, E.S. (J)

BENCH:

VENKATARAMIAH, E.S. (J)

MISRA, R.B. (J)

CITATION:

1985 AIR 323 1985 SCR (2) 516

1984 SCC Supl. 610 1984 SCALE (2)967

ACT:

Employees' Provident Funds and Miscellaneous

Provisions Act 1952 (Act XlX of l952) section 16(1)(b) scope

of the appellant a public limited company purchasing '"Hirji

Mills Ltd." in certain liquidations proceedings from the

Official Liquidator and recommending the factory after an

year of its closure with the same machinery and with 70% of

the previous workmen after investment of some fresh capital

in the business and renovation of the machinery -Whether the

factory is a "new factory" within the meaning of S.16(1)(b)

and the provisions of the Act are not applicable on the date

of the suit to the factory-Interpretation of benevolent

legislation.

HEADNOTE:

At the sale held by the Official Liquidator under the

orders of the Bombay High Court, the appellant a public

limited company, purchased the "Hirji Textile Mills" minus

its goodwill and its workmen who were discharged earlier.

The appellant invested some fresh capital in the business,

renovated the machinery and employed workmen on fresh

contracts which included 70% of the workmen formerly working

in that factory and commenced to produce certain never types

of things at the factory w.e.f. November 12, 1955, after

obtaining a new licence to run it. When by the end of

February, 1956 the Regional Provident Fund Commissioner made

certain enquiries about the working of the factory in order

to enforce the provisions Provident Fund Act against the

appellant, the appellant wrote to him stating that The

factory was an infant factory having been established on

November 12,1955 and the period of three years had not

elapsed from that date within the meaning of Section 16(1)

(b) of the Act. When the Regional Provident Fund

Commissioner was not convinced about its explanation, the

appellant first filed a writ petition under Article 226 of

the Constitution before High Court of Bombay in

Miscellaneous Application No. 76 of 1957 challenging the

applicability of the Act to the factory and after

withdrawing it, filed Short Cause Suit No. 2088 of 1958

before the City Civil Court at Bombay for a declaration that

the Act and the scheme framed thereunder could not be

enforced against the factory until the expiry of three years

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from November 12, 1955 and that the appellant was not liable

to make any contributions under the Act. The trial Court

dismissed the suit holding, that in view of the several

facts established in the case it could not be presumed that

a new factory was established by the

517

appellant on November 12, 1955, that the continuity of the

old factory had A not been broken and as such the appellant

was liable to make contributions under the Act. The judgment

of the trial Court was affirmed by the Bombay High Court in

Appeal No.406/64. Hence the appeal by special leave.

Dismissing the appeal, the Court,

^

HELD: 1.1. Every statute should be construed so as to

advance the object with which it is passed and as far as

possible, avoiding any construction which would facilitate

evasion of the Act. [521-C]

1.2. In consonance with the directions enshrined in

Article 43 of the Constitution, Employees' Provident Fund

Scheme is intended to encourage the habit of thrift amongst

the employees and to make available to them either at the

time of their retirement or earlier, if necessary,

substantial amounts for their use from out of the provident

fund amount standing to their credit which is made up of the

contributions made by the employers as well as the employees

concerned. The Act being a beneficent statue and section 16

of the Act being a clause granting exemption to the employer

from the liability to make contributions, section 16 should

receive a strict construction

[521A-B, 522A]

2.1. The criterion for earning exemption under section

16(1)(b) of the Act is that a period of three years has not

yet elapsed from the date of establishment of the factory in

question. It has no reference to the date on which the

employer who is liable to make contributions acquired title

to the factory which once established may be interrupted on

account of factory holidays, strikes, lock outs, temporary

breakdown of machinery, periodic repairs to be effected to

the machinery in the factory, non-availability of raw

materials, paucity of finance etc., and also on account of

an order of court as in the present case. Interruptions in

the running of factory which is governed by the Act brought

about by any of these reasons without more cannot be

construed as resulting in the factory ceasing to the factory

governed by the Act and on its restarting it cannot be said

that a new factory is or has been established. On the

resumption of the manufacturing work in the factory it would

continue to be governed by the Act which does not state that

any kind of stoppage in the working of the factory would

give rise to a fresh period of exemption. In other words the

period of three years should be counted from the date on

which the factory was first established and the fact that

there had been a change in the owners p makes no difference

to the counting of period. [522A-D, 524D-E]

Lakshmi Rattan Engineering Work v. Regional Provident

Fund Commissioner, Punjab & Ors. [1966] 1 LLJ 741 SC,

reiterated.

Chaganlal Textile Mills Pvt. Ltd. Y.P.A. Bhaskar Misc.

Appln. No. 289 of 1956 disposed of on November 5, 1956: M/s.

Bharat Board Mills Ltd. v. The Regional Provident Fund

Commissioner & Ors. A.I.R. 1957 Cal. 702: Vegetable Products

Ltd. v. Regional Provident Fund Commissioner W. Bengal &

Ors. A.I.R. 1959 Cal. 783; Jamnadas Agarwala & Anr. v. The

Regional Provident Fund Commissioner West Bengal & Ors.

A.I.R. 1963 Cal. 513;

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518

Robindra Textile Mills v. Secretary Ministry of Labour Govt.

of India New Delhi & Anr A.I.R. 1936 Punjab-55. Hindustan

Electric Co. Ltd. v. Regional Provident Fund Commissioner

Punjub & Anr. A I.R 1959 Punjab 27 Regional Provident Fund

Commissioner Punjab & Anr. v Lakshmi Rattan Engineering

Works Ltd A.I.R. 1962 Punjab 507: M/s. R.L. Sahni & Co v.

Union of India represented by the Regional Provident

Commissioner Madras & Anr. A.l.R. 1966 Mad. 416; Kunnath

Textile v. Regional Provident Fund Commisioner A.I.R. 1959

Kerala 3; The New Ahmedabad v Bansidar Mills Pvt Ltd.

Ahmedabad v. Union of India & Ors. A I R. 1968 Gujarat 71;

approved.

Provident Fund Inspector Trivendrum v. Secretary N.S.

S. Co-operative Society Changanacherry [1970] 2 S.C.R. 481:

Vithaldas Jagnnathdas & Anr. v. The Regional Provident Fund

Commissioner Madras & Anr. A.I.R. 1965 Mad. 508;

distinguished.

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No.2139 of

1970.

From the Judgment and Decree dated August 25, 1969 of

the High Court of Bombay in Appeal No. 406 of ]964 from

Original n Decree.

N. H. Hingorani, Mrs. K. Hingorani and Mrs. Rekha

Pandey for the Appellant.

O. P. Sharma and Miss. ,4. Subilashini for the

Respondent.

The Judgment of the Court was delivered by

VENAKTARAMIAH, J. This appeal by Special Leave

involves the question whether the provisions of the

Employees' Provident Funds and Miscellaneous Provisions Act,

1952 (Act XIX of 1952) (herein after referred to as 'the

Act') were applicable on the date of the suit out of which

this appeal arises to the factory which was purchased by the

appellant in the year 1955 in certain liquidation

proceedings.

Prior to December, 1954 a company called 'Hirji Mills

Ltd.' was carrying on the business of manufacture and sale

af textile goods in its factory situated at Fergusson Road,

Lower Parel, Bombay. That company was ordered to be wound up

by the High Court of Bombay and its assets were ordered to

be sold by the Official Liquidator. At the sale held by the

Official Liquidator, the appellant which was a Public

Limited Company, purchased the above said factory. It is

stated that the workmen had been discharged earlier and the

goodwill of the company in liquidation had not been

519

acquired by the appellant. There was discontinuance of the

work of A the factory for some time. The appellant restarted

the factory on November 12, 1955. The appellant claims that

it invested some fresh capital in the business, renovated

the machinery and also employed workmen on fresh contracts

though about 70 per cent of the workmen were formerly

working in that factory. It is also contended that the

appellant commenced to produce certain new types of goods at

the factory after obtaining a new licence to run it. When by

the end of February, 1956 the Regional Provident Fund

Commissioner made certain enquiries about the working of the

factory in order to enforce the Act against it, the

appellant wrote to him stating that the factory was an

infant factory as it had established it on November 12, 1955

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and the period of three years had not elapsed from that

date. The appellant claimed exemption from the operation of

the Act relying upon section 16 (1) (b) thereof. When the

Regional Provident Fund Commissioner was not convinced about

its explanation the appellant filed a writ petition under

Article 226 of` the Constitution before the High Court of

Bombay in Miscellaneous Application No. 76 of 1957

challenging the applicability of the Act to the factory.

That petition was, however, withdrawn. Later on the

appellant filed a suit before the City Civil Court at Bombay

in Short Cause Suit No. 2088 of 1958 for a declaration that

the Act and the scheme framed thereunder could not be

enforced against the factory until the expiry of three years

from November 12, 1955 and that the appellant was not liable

to make any contributions under the Act. The appellant also

prayed for an injunction against the Regional Provident Fund

Commissioner restraining him from enforcing the Act against

the factory. The suit was resisted by the Regional Provident

Fund Commissioner. He contended that the Act was applicable

to the factory when it was in the hands of Hirji Mills Ltd.

(the company under liquidation) and hence it did not cease

to apply merely because there was discontinuance in the

working of the factory for a short period and there was

change Of ownership. It was also pleaded that the factory

could not be treated as having been newly established on

November ' 2, 1955 and hence the exemption under section 16

(1) (b) of the Act was not available. The trial court

dismissed the suit with costs. The trial court while

negativing the contention of the appellant observed thus:

"If a factory was closed down and after it had

gone into liquidation the factory is dismantled by the

liquidator and the liquidator sold the various assets

as scrap it would be a different matter but in the

present case having regard to the recitals in the Deed

of Conveyance dated 5th December 1955

520

Ex. A it cannot be disputed that the Plaintiffs have in

fact purchased all the assets (a) lands, hereditaments

and premises, (b) buildings, godowns, structures and

sheds and (c) the plant and machinery and other

movables from Hirji Mills (in Liquidation) and Official

Liquidator and others and what is more after making

such purchase they have been utilizing the said same

assets particularly same factory premises and same

plant and machinery with a few additions to carry on

the same business, namely, manufacturing textile goods

which was carried on by that factory when it was owned

by Hirji Mills Ltd. with 65 to 70 per cent of the old

staff and workmen of Hirji Mills Ltd. From these facts

it cannot be said that the intention while effecting

the transfer of all the several assets from the former

owners to the owners was that the old factory should

become defunct or non-existent and a new factory was

intended to be established. On the contrary these facts

affirm the continuity of the established factory,

notwithstanding the fact that the plaintiffs did not

purchase it as a going concern."

The trial court held that in view of the several facts

established in the case it could not be presumed that a new

factory was established by the appellant on November 12,

1955. It on the other hand held that the continuity of the

old factory had not broken and as such the appellant was

liable to make contributions under the Act. The judgment of

the trial court was affirmed by the Bombay High Court in

Appeal No. 406 of 1964. This appeal by Special Leave is

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filed against the judgment of the High Court.

The facts established in this case are that Hirji

Mills Ltd. had been carrying on the business of manufacture

of textile goods in the factory` from the year 1931 upto the

date of the winding up order which was made on December 17,

1954 and there was stoppage of manufacturing activity in`the

factory till November 12, 1955 on which date it was

recommenced by the appellants. The points for consideration

are whether in the circumstances in which the appellant came

to acquire the factory there was the extinction of the old

factory and the establishment of a new factory on November

12, 1955 and whether it could be said that the Act had

ceased to apply to the factory on the stoppage of the

manufacturing process in it owing to the winding up order.

521

At the outset it has to be stated that the Act has

been brought A into force in order to provide for the

institution of provident funds for the benefit of the

employees in factories and establishments. Article 43 of the

Constitution requires the State to endeavour to secure by

suitable legislation or economic organisation or in any

other way to all workers, agricultural, industrial or

otherwise among others conditions of work ensuring a decent

standard of life and full enjoyment of leisure. The

provision of the provident fund scheme is intended to

encourage the habit of thrift amongst the employees and to

make available to them either at the time of their

retirement or earlier, if necessary, substantial amounts for

their use from out of the provident fund amount standing to

their credit which is made up of the contributions made by

the employers as well as the employees concerned. Therefore,

the Act should be construed so as to advance the object with

which it is passed. Any construction which would facilitate

evasion of the provisions of the Act should as far as

possible be avoided. Section 1 (3) of the Act during the

relevant period declared that subject to section 16 thereof,

it applied to every establishment which a factory engaged in

any industry specified in Schedule I thereof and in which

fifty or more persons were employed. The material part of

section 16 of the Act as it stood at the relevant time

alongwith the marginal note read as follows:-

" 16, Act not to apply to factories belonging

to Government or Local Authority and also to infant

factories- F

(1) This Act shall not apply to-

(a) any factory belonging to the Government

or a local authority; and

(b) any other factory, established whether

before or after the commencement of this

Act, unless three years have elapsed

from its establishment.

Explanation:-For the removal of doubts, it is

hereby declared that the date of the establishment of a

factory shall not be deemed to have been changed merely

by reason of a change of the premises of the factory..

"

522

The Act being a beneficent statute and section 16

of the Act being a clause granting exemption to the employer

from the liability to make contributions, section 16 should

receive a strict construction. If a period of three years

has elapsed from the date of the establishment of a factory,

the Act would become applicable provided other conditions

are satisfied. The criterion for earning exemption under

section 16(1) (b) of the Act is that a period of three years

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has not yet elapsed from the date of the establishment of

the factory in question. It has no reference to the date on

which the employer who is liable to make contributions

acquired title to the factory. The Act also does not state

that any kind of stoppage in the working of the factory

would give rise to a fresh period of exemption. The work in

a factory which is once established may be interrupted on

account of factory holidays, strikes, lock outs, temporary

breakdown of machinery, periodic repairs to be effected to

the machinery in the factory, non-availability of raw

materials, paucity, of finance etc. It may also be

interrupted on account of an order of court like the one we

are confronted with in this case. Interruptions in the

running of a factory which is governed by the Act brought

about by any of the reasons mentioned above without more

cannot be construed as resulting in the factory ceasing to

be a factory governed by the Act and on its restarting it

cannot be said that a new factory is or has been established

On the resumption of the manufacturing work in the factory,

it would continue to be governed by the Act. In Chagganlal

Textile Mills Pvt. Ltd. v. P.A. Bhaskar(1) on the file of

the Bombay High Court which is one of the earliest decisions

delivered on the above question (which is unreported),

Justice Tendolkar observes thus:

"The important point to notice about this

provision is that the Act is made applicable to

factories and not to P the owners thereof; or, in other

words, it applies to factories irrespective of who the

owners from time to time may be."

The learned Judge proceeds:

"The question is whether the order of

liquidation and the consequent temporary discontinuance

of business until a lease was granted to Kotak and

Company has the consequence of making the factory which

was established cease

(1) Misc. Appln. No. 289 of 1956 disposed of on

November 5, 1956.

523

to be established. In my opinion the answer to this question

must be in negative. A temporary cessation of the activities

of an established factory cannot lead to the result that the

factory ceases to be established for the purposes of the

Employees' Provident Funds Act, for if it did, the class of

employers who spare no ingenuity in seeking to deprive the

employees of all the benefits conferred upon them by statute

would have convenient handle whereby the activities of an

established factory have to be discontinued for a few months

in order to deprive the employees of the benefits under the

Employees' Provident Funds Act. I take it that the

establishment of a factory involves that the factory has

gone into production and no more.. but once it goes into

production, a temporary cessation of its activities, for

whatever reasons that cessation takes place cannot in my

opinion, take the factory out of the category of an

established factory for the purposes of the Employee's

Provident Fund Act."

Towards the conclusion of his judgment, the learned

Judge says that: '

"Even a complete change in the whole body of

employees cannot make a factory which is established,

cease to be established. In any event, the Employees'

Provident Funds Act is a beneficial legislation for the

benefit of the employees and every construction of its

provisions which would defeat the object of the

legislation and lead to an evasion must be rejected,

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unless the clear language of the Act leaves no option

to the Court but to accept such an interpretation."

The above statement appears to us to lay down the law

correctly. We find that this view has been followed in

Messrs Bharat Board Mills Ltd. v. The Regional Provident

Fund Commissioner & Ors.,(1) Vegetable Products Ltd. v.

Regional Provident Fund Commissioner, W. Bengal & Ors.,(2)

Jamnadas Agarwalla & Anr v. The Regional Provident Fund

Commissioner, West Bengal & Ors.,(3) Robindra Textile Mills

v. Secretary, Ministry of Labour, Govt. Of India, New

(1) A.I.R. 1957 Cal. 702.

(2) A I.R. 1959 Cal. 783.

(3) A.I.R. 1963 Cal. 513.

524

Delhi & Anr.(1) and Hindustan Electric Co. v. Regional

Provident Fund Commissioner, Punjab & Anr(2), Regional

Provident Fund Commissioner Punjab & Anr. v. Lakshmi Ratten

Engineering Works Ltd.(3) (affirmed in item 2 infra). A

similar view has been taken by the Madras High Court in M/s.

R.L. Sahni & Co v. Union of India, represented by the

Regional Provident Commissioner, Madras & ,Anr (4) in which

it was held that it could not be postulated that each time

when there was a change of hands, a new establishment came

into existence. In Kunnath Textiles v. Regional Provident

fund Commissioner(6) and in The New Ahmedabad Bansidar Mills

Pvt. Ltd. Ahmedabad v. The Union of India &; Ors.(6) also

the same view has been taken.

In Lakshmi Ratten Engineering Works v. Regional

Provident fund Commissioner, Punjab & Ors (7) which was

filed by one of the parties to the appeal before the Punjab

High Court in Regional Provident Fund Commissioner, Punjab &

Anr. v. Lakshmi Ratten Engineering Works Ltd (supra) against

the judgment rendered therein, this Court has held while

affirming the said judgment that the words in section 16 (1)

(b) of the Act were quite clear and they left no room for

doubt that the period of three years should be counted from

the date on which the factory was first established and the

fact that there had been a change in the ownership made no

difference to the counting of that period

This is not a case where the old factory was reduced

into scrap and a new factory was erected in its place. Nor

can it be said that there was total discontinuity brought

about between the old factory and the factory which was

restarted after the appellant purchased it. The stoppage of

production was brought about temporarily as stated earlier

by the winding up order and the factory was restarted after

it was sold to the appellant by the Official Liquidator. The

finding of fact recorded by the trial court in this case

which is affirmed by the High Court clearly establishes that

it was the same old factory which recommended production on

November 12, 1955. What is of significance is that a

substantial number of workmen

(1) A.I.R. 1958 Punjab 55,

(2) A.I.R. 1959 Punjab 27.

(3) A.I.R. 1962 Punjab 507.

(4) A.l.R. 1966 Mad. 416.

(5) A.I.R. 1959 Kerala 3.

(6) A.I.R. 1968 Gujarat 71. 5

7) 1966 I Labour Law Journal 741.

525

and staff who were working under the former management had

been A employed by the appellant though it is claimed that

they had entered into new contracts of employment. Mere

investment of additional capital or effecting of repairs to

the existing machinery before it was restarted, the

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diversification of the lines of production or change of

ownership would not amount to the establishment of a new

factory attracting the exemption under section 16 (l) (b) of

the Act for a fresh period of three years.

On behalf of the appellant, reliance was placed on the

decision of this Court in Provident Fund Inspector,

Trivandrum v. Secretary, N.S.S. Co-operative Society,

Changanacherry.(1) That was a case in which the Secretary of

a Co-operative Society which owned a press had been

acquitted by the Magistrate of the charge of not complying

with the provisions of the Act. The High Court had confirmed

the order of acquittal. On appeal, this Court found that

there was no ground to interfere with the acquittal. The

defence of the accused in that case was that the Co-

operative Society of which he was the Secretary had acquired

the press in question in March, 1961 and had established a

new press subsequently and hence the Act was not applicable

to the press as the period of three years prescribed by

section 16 (l) (b) of the Act had not expired The evidence

in that case showed that after the purchase, a new owner had

come in the place of the former owner, the work of the press

was stopped on the date of its sale and was started again

after a break of three months, the machinery in the press

was also altered and the persons employed previously were

not continued in service. While a fresh recruitment of

workmen had taken place, out of those workmen only six

happened to be the former employees and compensation had

been paid to the workmen at the time of the sale by the

former owner. On these facts it was held that a new

establishment had come into existence. In the case before

us, it is seen that about 70 per cent of the former workmen

had been employed by the appellant and there was no change

of machinery. Further this is a case where the interruption

of work had taken place owing to the order in the winding up

proceedings. It is relevant to state here that this Court in

the course of its judgment in the above case did not

overrule the decision of the Calcutta High Court in Messrs

Bharat Board Mills Ltd. (supra) but only distinguished it.

The facts of that case more or less corresponded to the

facts of the case before us. It is true that this Court in

the above decision approved the decision of the

(1) [1970] 2 S.C.R. 481.

526

Madras High Court in Vithaldas Jagannathdas & Anr. v. The

Regional Provident Fund Commissioner, Madras & Anr.(1) but

that does not make any difference so far as the case before

us is concerned since in the Madras case there was a finding

that in reality the old establishment had come to an end and

there was a new establishment. In the case before us, the

finding of fact of the trial court is to the contrary. The

learned trial judge has held that the intention in this case

was to maintain the continuity of the old factory. Hence the

decision on which reliance is placed being distinguishable

on facts is not of much use to the appellant.

In the circumstances, we do not find that there is any

infirmity in the judgment under appeal. The appeal,

therefore, fails and is hereby dismissed with costs.

S.R. Appeal dismissed.

(1)A.I.R. 1965 Mad. 508.

527