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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