TaxTMI 
TaxTMI 
2025 (7) TMI 999
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....nd Miscellaneous Provisions Act, 1952 (for short the 'EPF Act') with effect from September, 1995. Appropriate consequential directions to remit the dues were also passed. Aggrieved by the judgment and order of the High Court, the appellant has preferred this appeal, by way of special leave. BRIEF FACTS: - 2. Indisputably, on 22.11.1988, Dr. Darshan Kataria and his brother Niranjan Kataria set up the respondent No.3- Vindas for manufacturing injections and capsules of certain specified drugs. 2.1 The factory was situated at Plot No.65, Sector-1, Pithampur, District Dhar, Madhya Pradesh. Vindas was incorporated with the Registrar of Companies, Madhya Pradesh. 2.2 Subsequently, on 05.09.1990, Shri Vasudev Kataria and Smt. Rajni Kataria, wife of Darshan Kataria incorporated the appellant-Company with the Registrar of Companies in the State of Maharashtra. Later it transpires from the record that Mr. Darshan Kataria was also a director in the appellant- Company. 2.3 However, the factory of the appellant was set up and business of production of tablets and later liquid syrups was set up at Plot No. 65/1, Sector-1, Pithampur, Dhar, Madhya Pradesh. It is also undisputed that....
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....h Vindas-Respondent No.3 was not warranted and how the appellant was an independent and separate entity. 2.10 It is also not in dispute that the Inspection Report of 28.03.2005 along with the Inspection Report of 17.01.2005 and 20.01.2005 have been furnished to the appellant on 10.10.2005, as set out in the written submissions filed before us. 2.11 When matters stood thus, it appears that there was a further report of 10.11.2005 where again clubbing of the two units, namely, of the appellant and of Vindas was adverted to by the Department to which the appellant filed its submission on 20.12.2005 disputing the said position. 2.12 On 17.02.2006, the APFC passed an order rejecting the contentions of the appellant, including the contention on the locus standi of the Trade Union which had raised the issue of the two units being the same by holding that the issue of locus standi was immaterial if otherwise a case for clubbing was established. The APFC found the following common factors:- a) that both the units dealt with products of pharmaceutical industry; b) that both worked from the same premises with the common entry and without any visible demarcation with....
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.... General for the Union of India. 4. Mr. Gagan Gupta, learned Senior Advocate, contends that initially the Authorities proceeded on the basis of the numerical strength of the employees being in excess of 20 at the appellant's unit and the aspect of clubbing was introduced as an afterthought. That notice of clubbing ought to have been issued to Vindas-respondent No.3 instead of issuing to the appellant; that Section 2A of the EPF Act cannot apply to two juristic entities; that both the appellant and the respondent No.3-Vindas are separately registered under the Drugs and Cosmetics Act, 1940, the Factories Act, 1948 and the two entities hold separate account numbers/registrations under the Central Sales Tax, Central Excise, Service Tax, ESI and also hold separate PAN and Corporate Identification Nos. 5. Learned Senior Advocate contends that the electricity and water connections for both the establishments are separate and that the Municipal Corporation Property Tax is being separately levied. Learned Senior Advocate further contends that the summon issued was for the period April, 2004 to March, 2005. However, the APFC, by its order, has directed compliance from September, 1995.....
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....s of the units there was no need to issue separate summons to Vindas- Respondent No.3; that the order of the Labour Court cannot bind the authorities under the EPF Act as the rights under the two Acts are different and that the Labour Court when it decided that there was no unity of employment did not have occasion to deal with the other aspects dealt with by the APFC. Learned counsel refuted the arguments of the appellant that they were not heard by the Tribunal since no document was placed to establish the fact that no notice was issued to the appellant by the Tribunal and that, in any event, the said argument was not raised before the High Court. Learned counsel relied on the judgments of this Court in Associated Cement Companies Limited, Chaibassa Cement Works, Jhinkpani vs. Workmen, AIR 1960 SC 56, L.N. Gadodia & Sons vs. Regional Provident Fund Commissioner, (2011) 13 SCC 517, Shree Vishal Printers Ltd. vs. Provident Fund Commissioner, (2019) 9 SCC 508 and Regional Provident Fund Commissioner vs. Naraini Udyog, (1996) 5 SCC 522 to make good his submissions. 7. We have considered the submissions of the respective parties and carefully perused the records of the case. QUE....
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....EPF Act and were the correct tests to determine the same applied? Section 2-A of the EPF Act reads as under:- "2A. Establishment to include all departments and branches.-For the removal of doubts, it is hereby declared that where an establishment consists of different departments or has branches, whether situate in the same place or in different places, all such departments or branches shall be treated as parts of the same establishment." 12. The argument of the learned Senior Counsel for the appellant that since the appellant and Vindas-respondent No.3 are two different juristic entities and that would not be covered within the sweep of Section 2A is only stated to be rejected. While Section 2A sets out that the establishment will include all departments and branches it does not deal with a scenario as to the tests for determining whether two juristic entities are set up as an artificial device and subterfuge to sidestep the provisions of the Act. 13. The question in this case has to be answered by applying the well-established theories to determine what would constitute unity of ownership or unity of management and control and the features that will demonstrate the....
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....tion they constitute one integrated whole, we say that the establishment is one; if on the contrary they do not constitute one integrated whole, each unit is then a separate unit. How the relation between the units will be judged must depend on the facts proved, having regard to the scheme and object of the statute which gives the right of unemployment compensation and also prescribes disqualification therefor. Thus, in one case the unity of ownership, management and control may be the important test; in another case functional integrality or general unity may be the important test; and in still another case, the important test may be the unity of employment. Indeed, in a large number of cases several tests may fall for consideration at the same time. The difficulty of applying these tests arises because of the complexities of modern industrial organisation; many enterprises may have functional integrality between factories which are separately owned; some may be integrated in part with units or factories having the same ownership and in part with factories or plants which are independently owned. In the midst of all these complexities it may be difficult to discover the real threa....
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....up or not mixing up the capital, staff and management may often provide a certain answer". 17. This Court first examined the question whether the Press and the paper were so interdependent that one could not exist without the other. It concluded that there was no functional interdependence between the press unit and the paper unit for the two to be considered one industrial unit. Not stopping there, this Court also held that it was necessary to further consider the conduct of the businessman himself to see whether he mixed up the capital of the two, the profits of the two and the labour force of the two units. This Court also considered whether there was evidence to show as to whether the capital employed in the two units came out from one fund. Para 6 and 7 of Pratap Press (supra) are extracted hereinbelow:- "6. Coming now to the facts of the present appeals we find that the functions of the Press and the Vir Arjun paper cannot be considered to be so interdependent that one cannot exist without the other. That many presses exist without any paper being published by the same owner is common knowledge and is not seriously disputed. Nor is it disputed that an industry of ....
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.... case (at page 943) set out the following principles:- "The question thus raised for our decision is not always easy to decide. In dealing with the problem, several factors are relevant and it must be remembered that the significance of the several relevant factors would not be the same in each case nor their importance. Unity of ownership and management and control would be relevant factors. So would the general unity of the two concerns; the unity of finance may not be irrelevant and geographical location may also be of some relevance; functional integrality can also be a relevant and important factor in some cases. It is also possible that in some cases, the test would be whether one concern forms an integral part of another so that the two together constitute one concern, and in dealing with this question the nexus of integration in the form of some essential dependence of the one on the other may assume relevance. Unity of purpose or design, or even parallel or co-ordinate activity intended to achieve a common object for the purpose of carrying out the business of the one or the other can also assume relevance and importance, vide Ahmedabad Manufacturing & Calico Prin....
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....nt places. The fact that the test of functional integrality is not and generally cannot be satisfied by two such concerns run by the same employer in the same line, will not necessarily mean that the two concerns do not constitute one unit. Therefore, in our opinion, Mr Sastri is not justified in elevating the test of functional integrality to the position of a decisive test in every case. If the said test is treated as decisive, an industrial establishment which runs different factories in the same line and in the same place may be able to claim that the different factories are different units for the purpose of bonus. Besides, the context in which the plea of the unity of two establishments is raised cannot be ignored. If the context is one of the claim for bonus, then it may be relevant to remember that generally a claim for bonus is allowed to be made by all the employees together when they happen to be the employees employed by the same employer. We have carefully considered the contentions raised by the parties before us and we are unable to come to the conclusion that the finding of the Tribunal that the two mills run by the Saroja Mills Ltd. constitute one unit, is erroneou....
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....Management, in that case, it was contended that absent functional integrality, it has to be necessarily concluded that the units are separate in all cases. Rejecting this argument, this Court held as under:- "The question as to whether industrial establishments owned by the same managements constitute separate units or one establishment has been considered by this Court on several occasions. Several factors are relevant in deciding this question. But it is important to bear in mind that the significance or importance of these relevant factors would not be the same in each case; whether or not the two units constitute one establishment or are really two separate and independent units, must be decided on the facts of each case. Mr Pathak contends that the Tribunal was in error in holding that the restaurants cannot exist without the wine shops and that there is functional integrality between them. It may be conceded that the observation of the Tribunal that there is functional integrality between a restaurant and a wine shop and that the restaurants cannot exist without wine shops is not strictly accurate or correct. But the test of functional integrality or the test whether....
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....s want to determine from stage to stage which line of business is yielding more profit. Ultimately, the profits and losses are usually pooled, together. Thus, generally stated, there is unity of ownership, unity of finances, unity of management and unity of labour; employees from the restaurant can be transferred to the wine shop and vice versa. Besides, it is significant that in no case has the establishment registered the wine shops and the restaurants separately under Section 5 of the Delhi Shops and Establishments Act, 1954 (7 of 1954). In fact, when Mr Nirula, the Secretary of the Employers' Association, was called upon to register his wine shop separately, he protested and urged that separate registration of the several departments was unnecessary; and that clearly indicated that wine shop was treated by the establishment as one of its departments and nothing more. The failure to register a wine shop as a separate establishment is, in our opinion, not consistent with the employers' case that wine shops are separate and independent units. Having regard to all the facts to which we have just referred, we do not think it would be possible to accept Mr Pathak's argument t....
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....s common Head Office, common Branch Office, common telephone for residence and factories. It was found that the submission of the Department that the office of M/s Modern Steels was situated in the premises of M/s Naraini Udyog and accounts of the two units were maintained by the same set of clerks was not controverted by the employer. The contention of the employer was that they have registered the two entities separately under the Factories Act, Sales Tax Act and ESIC Act; that the units were located at a distance of three kilometers apart and had separate central excise nos. and were registered as separate small-scale industries and hence should be treated as separate units. The employer also denied the assertion of the authorities that workers of one unit were working in the other. The authorities considered the aspect of separate registration as a point devoid of merit. With regard to denial of interchange of workers, the authorities held that the aspect was not crucial to the point at issue. On a challenge before the High Court, the Division Bench in the said case held in favour of the employer by holding that since they were registered under the Companies Act as two differen....
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....on (P) Ltd. were rightly clubbed by the authorities as one entity for the purpose of the EPF Act? The Registered Office was common; one Director was admittedly common; the authorities found that there was a common Managing Director; that there were loans advanced by the appellant No.2 in that case to appellant No.1; two officers were found to be common, the telephone numbers were common and even the gram nos. "Gadodia Son" were common. The Tribunal reversed the finding of the authorities on the ground that the entities were separately registered. On a challenge by the authorities before the High Court, the High Court restored the finding of the Provident Fund Commissioner, after holding that the Tribunal was swayed by the factum of the companies being separate legal entities. On a further challenge to this Court, this Court upheld the finding of the Provident Fund Commissioner. Dealing with the question on the interpretation of Section 2-A of the Act and the submission that only different departments of an establishment can be clubbed but not different establishments altogether, this Court, while rejecting the submission held as under:- "23. The petitioners have contended ....
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....Provident Fund Department had issued notice to the petitioners on 11-6-1990 on the basis of their inspection. It had relied upon the 1988 Audit Report of the petitioners. The petitioners had full opportunity to explain their position in the inquiry before the Provident Fund Commissioner conducted under Section 7-A of the Provident Funds Act. The petitioners, however, confined themselves only to a facile explanation. If according to them, the management, workforce and financial affairs of the two companies were genuinely independent, they ought to have led the necessary evidence, since they would be in the best know of it. When any fact is especially within the knowledge of any person, the burden of proving that fact lies on him. This rule (which is also embodied in Section 106 of the Evidence Act) expects such a party to produce the best evidence before the authority concerned, failing which the authority cannot be faulted for drawing the necessary inference. In the facts and circumstances of the present case, the Provident Fund Commissioner was therefore justified in drawing the inference of integrity of finance, management and workforce in the two petitioners on the basis of the ....
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....r Registered Office/Head Office and administrative office were the same; they have employed common security to guard the premises; that there was unity of management inasmuch as while Dr. Darshan Kataria and Niranjan Kataria - the two brothers were Directors of respondent No.3-Vindas; Dr. Darshan Kataria was also the Director of the appellant while the other brother Vasudev Kataria and Mr. Rajni Kumari - wife of Darshan Kataria were Directors in the appellant- Company; that there was unity of finance inasmuch as the Hindu Undivided Family of Darshan Kataria and his family members funded both the companies, cumulatively establish beyond doubt that the two entities were rightly treated as common for the purpose of the EPF Act. If a common man were to be asked as to whether the two units are the same, the answer will be an emphatic yes. 36. The claim for infancy protection under the erstwhile Section 16(1)(d) would also not arise in view of our finding of clubbing. Being an integrated unit of Vindas respondent no. 3 since 1995 no separate infancy protection will enure to the benefit of appellant. Equally, untenable is the argument that the show cause notice originally being issued ....