2023 LLR 327
GUJARAT HIGH COURT
Hon'ble Mr. Biren Vaishnav, J.
R/Special Civil Appl. No. 16794/2020, Dt/– 22-9-2022
Central Board Trustees Through Regional Provident Fund Commissioner
vs.
M/s. Frohberg Reality Pvt. Ltd.
Employees' Provident Funds and Miscellaneous Provisions Act, 1952 – Sections 2A and 7A—Default in contribution – Respondent was taking advantage that both the units were separate – Contention of respondent was denied on the ground that Director of both the units was same and one unit was subsidiary of other – Objection of respondent was allowed in appeal – Hence, present petition – Held both the companies had independent registration under the Companies Act – No functional unity or integrality was found between the two establishments – Only on the basis of a business transaction of a loan, the authorities came to the conclusion that both the units were one and the same – No fault in the order of Appellate Authority – Petition dismissed. Paras 6 and 7
For Petitioner: Mr. A.V. Nair, Advocate.
For Respondents: Mr Dipak R. Dave, Advocate.
IMPORTANT POINTS
Judgment
Biren Vaishnav, J.–1. Heard Mr. A.V. Nair, learned counsel for the petitioner, Mr. Dipak Dave, learned counsel for the respondents.
2. This petition has been filed by the Central Board of Trustees challenging the order of the Employees Provident Fund Appellate Tribunal dated 21.11.2014, by which, the appeal of the respondents challenging the order passed on 17.07.2013 in the matter of inquiry under section 7A of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952, has been allowed.
3. Facts in brief would indicate that M/s. Frohberg Reality Pvt Ltd., situated at Vadodara, was covered under the provisions of the Employees' Provident Fund Act (for short “EPF Act”)with effect from 01.01.2007. When an inquiry was undertaken under section 7A of the EPF Act, the authorities noticed that M/s. Frohberg Builders Limited which was already covered earlier under the provisions of the Act was a subsidiary unit of M/s. Frohberg Reality Pvt Limited. Inquiry proceedings were held, wherein, the submissions were made by the respondents that though the owner and the Director of the Company was the same, it cannot be concluded that the said Reality was a branch of M/s. Frohberg Builders Limited.
3.1 With regard to extending the loans, it was the case of the Company that it was purely a business transaction which would otherwise be done by a financial or a banking institution. Both the companies were independently running their business of construction projects, and therefore, cannot be clubbed together under section 2A of the EPF Act.
3.2 By the order of 17.07.2013, considering the contentions raised by the establishments, the Assistant Provident Fund Commissioner observed that “In this case, it is undisputed fact that M/s. Frohberg Reality Private Limited is a subsidiary unit of M/s. Frohberg Builders Limited as per the balance sheet of M/s Frohberg Builders Limited for the year 2007-2008 and M/ s. Frohberg Builders Limited is a holding company of M/s. Frohberg Reality Private Limited as per the balance sheets of M/s. Frohberg Reality Private Limited for the years 2006-2007”.
3.3 In view of this settled position, it can safely be taken that M/s. Frohberg Reality Private Limited is not a separate establishment but a branch of M/s. Frohberg Builders Limited for the purposes of applications of Employees' Provident Fund & Miscellaneous Provisions Act, 1952. That order was taken in appeal by the respondents and by the order impugned by the Trustees, the appeal was allowed.
4. Mr. A.V. Nair, learned counsel for the authorities would submit that the Appellate Authority committed an error, especially when the provisions of section 2A of the Act indicated that where establishment consists of different branches or departments and whether they are situated separately or at the same place, they must be treated as the part of the same establishment. The report of the Enforcement Officer found that the Director of both the establishments was the same, the balance sheet for the year 2006-2007 indicated providing of an unsecure loan by M/s. Frohberg Builders Limited to M/s. Frohberg Reality Limited, the nature of business activities was the same, the office address of the establishments were the same and the signatory to the establishment was one and the same. This in Mr. Nair's submission was sufficient enough to hold that both the establishments ought to have been clubbed together and held to be a common establishment for the purposes of the Act. The Reality Limited had 19 employees, whereas the Builders Limited has 147 employees, and therefore, the realities devise was a subterfuge to overcome the rigors of the Act. He would assail the order of the Tribunal, inasmuch as, the Tribunal committed an error in observing that availing of a loan was a common phenomenon now a days and the fact that both the companies were holding and subsidiary company were well established.
5. Mr. Dipak Dave, learned counsel for the respondent, would invite the Court's attention to the reasonings of the original authority which have been extensively referred to hereinabove to submit that except for the concept of extending of loan and therefore observing that one was the holding company of the other, the essential aspect of “functional integrity” was not proved so as to bring both the companies under one umbrella. In support of his submissions Mr. Dave, learned advocate, would rely on a decision in the case of Management of Pratap Press v. Secretary, Delhi Press Workers , AIR 1960 SC 1213. He would also rely on a decision in the case of The Regional Provident Fund Commissioner v. Dharamsi Morarji Chemical Company Limited , (1998) 80 FLR 561 (SC), and in the case of Nandinee Travels Private Limited v. Regional Provident Fund Commissioner , (2003) 2 LLJ 810. He would also put on record a communication of the year 2011 by which it is apparent that the Reality Private Limited which was otherwise not under the purview of the Act has now been covered under the Act with effect from 01.01.2007.
6. Considering the submissions made by the learned counsels for the respective parties, observations made by the original authority with regard to the conclusion that it did arrive at of bringing both the establishments under a common umbrella was essentially by focusing on the balance sheets of the respective establishments which indicated that one had extended a loan to the other and that itself was a pointer to the issue of they being common and being holding and subsidiary respectively.
6.1 Perusal of the order under appeal before the Appellate Authority in which the respondents succeeded would indicate that both the companies had an independent registration under the Companies Act. That the establishments had separate Income Tax registrations, separate modus for reporting to the various authorities under the Sales Tax and the professional tax and when it came to the question of proving functional unity or integrality, reliance was placed on the decision of the High Court of Karnataka in the case of New Pai Sales Corporation v. RPFC , (1996) 73 FLR 1283 (Karn), wherein, the relevant paragraphs of the decision when read indicates that even if the members of the family constitute the corporation, there is nothing irrational about the act.
6.2 Admittedly when separate commercial tax registration, Income Tax Registration and the registration of the labour laws is maintained, these are circumstances which indicate that they are separate entities and the cumulative effect of these circumstances would show that there is no functional unity or integrality between the two establishments. In the case before the Hon'ble Supreme Court in the case of Management of Pratap Press (supra), the Hon'ble Supreme Court, while considering the issue of commonality of establishments in para 5 propounded the fact that the most important test which brings into the question of integrality is the functional integrality and, the question of finance and employment of labour though are some of the tests but the primary question that needs to be answered is that of functional integrity. The authorities have to consider with care as to how far there is “functional integrality” meaning thereby that such functional interdependence is to the extent that one unit cannot exist conveniently and reasonably without the other.
6.3 Even in the case of Dharamsi Morarji (supra), the Hon'ble Supreme Court in para 4, held as under:
“4 It is true that if an establishment is found, as a fact, to consist of different departments or branches and if the departments and branches are located at different places, the establishment would still be covered by the nest of section 2A and the branches and departments cannot be said to be only on that ground not a part and parcel of the parent establishment. However, on the facts of the present case, the only connecting link which could be pressed in service by the learned counsel for the appellant was the fact that the respondent-Company was the owner not only of the Ambarnath factory but also of Roha factory. On the basis of common ownership it was submitted that necessarily the Board of Directors could control and supervise the working of Roha factory also and therefore, according to the learned counsel, it could be said that there was interconnection between Ambarnath factory and Roha factory and it could be said that there was supervisory, financial or managerial control of the same Board of Directors. “S” far as this contention is concerned the finding reached by the High Court, as extracted earlier, clearly shows that there was no evidence to indicate any such interconnection between the two factories in the matter of supervisory, financial or managerial control. Nothing could be pointed out to us to contradicate this finding. Therefore, the net result is that the only connecting link which could be effectively pressed in service by the learned counsel for the appellant for culling out interconnection between Ambarnath factory and Roha factory was that both of them were owned by a common owner, namely, the respondent-Company and the Board of Directors were common. That by itself cannot be sufficient unless there is clear evidence to show that there was interconnection between these two units and there was common supervisory, financial or managerial control. As there is no such evidence in the present case, on the peculiar facts of this case, it is not possible to agree with the learned counsel for the appellant that Roha factory was a part and parcel of Ambarnath factory or it was an adjunct of the main parent establishment functioning at Ambarnath since 1921.”
6.4 Reiterating the law laid down by the Hon'ble Supreme Court in the case of Management of Pratap Press (supra), the Bombay High Court in the case of Nandinee Travels (supra), in para 7 observed taking into consideration the case of Associated Cement Companies Ltd. v. Their Workmen , AIR 1960 SC 56, that the concept of one establishment has to be considered in light of the interdependence to such an extent that it would lead to only one conclusion of they being functionally integral. Apparently from the order passed in original by the EPF Authorities it indicates that only on the basis of a business transaction of a loan in this case that the authorities came to the conclusion that both the units were one and the same.
7. No fault can be found with the order of the Appellate Authority dated 21.11.2014 which has been challenged by the Board in the year 2018/2020. The Court has not gone into the aspect of limitation as it has been sufficiently explained in the additional affidavit. However, on merits no case is made out to entertain the petition and the petition is accordingly dismissed. Writ Petition Dismissed .