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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 L2SupCI/70---19 486 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.               L2SupCI/70--20               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