REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (CIVIL) NO. 11230 OF 2008

M/s L.N. Gadodia & Sons & Anr.                                   …Petitioner (s)

             Versus

Regional Provident Fund Commissioner                               …Respondents (s)

J U D G  E M E N T

H.L. GOKHALE J.

This  Special  Leave  Petition  raises  the  question  as  to  whether  the  

respondent  herein  had  erred  in  clubbing  the  two  appellant  concerns  for  the  

purposes  of  applying  the  provisions  of  the  Employees  Provident  Funds  and  

Miscellaneous Provisions Act, 1952 (hereinafter referred to as the Provident Funds  

Act).

Facts leading to this Special Leave Petition -

2. The facts leading to this petition are this wise.  The petitioner no.1  

herein and petitioner no.2 (M/s Delhi Farming and Construction Pvt.  

Ltd.) are sister concerns.  The office of the respondent wrote to them  

vide their letter dated 11.6.1990 calling upon them to comply with the

provisions of the Provident Funds Act, failing which legal action would  

be  initiated  against  them.   The petitioner  filed  an  application,  and  

disputed  clubbing  of  the  two  concerns  for  the  purposes  of  their  

coverage under the provisions of the said Act.  The application was  

accordingly  heard  by  the  Regional  Provident  Fund  Commissioner  

(Enforcement and Recovery) Delhi, under the provisions of section 7A  

of  the  Provident  Funds  Act.   He  heard  the  legal  advisor  of  the  

petitioners  as  well  as  the  enforcement  officer  representing  the  

provident  fund  department.   It  was  submitted  on  behalf  of  the  

petitioners that the second petitioner was incorporated in 1930 as the  

Delhi Cattle Farming Private Limited, and in the year 1983 it’s name  

was changed to the present name i.e. Delhi Farming and Construction  

Private Limited (‘Delhi Company’ for short).  The first petitioner was  

incorporated as another Private Limited Company in the year 1941,  

and there was no connection between the activities or business of the  

two companies.  They were different and separate legal entities, and  

should not be clubbed into one establishment.  It was pointed out that  

the main business of the second petitioner i.e. the Delhi Company was  

to  acquire  lands  and  farms  for  the  purpose  of  cultivation  and  to  

engage in other agricultural activities.  After its land was acquired by  

Delhi  Administration  in  1959  and  after  receiving  compensation,  the  

second petitioner shifted its business to purchase of gas cylinders and  

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giving  

them on hire,  supplying  security  equipments  to  the Government of  

India,  and supply of gray/processed fabrics  to readymade garments  

exports though this was only a side business.  It was pointed out that  

as far as the first petitioner is concerned, their business was only as a  

selling agent of Calico Mills and Tata Mills, Ahmedabad.  It was also  

trading in whole-sale cloth business.  It was not disputed that both the  

companies  have  their  registered  office  at  1112,  Kucha  Natwan,  

Chandni  Chowk,  Delhi-6  but  it  was  stated that  the  Delhi  Company  

carries its business and commercial  activities at 116, Hans Bhawan,  

Bahadur Shah Zafar Marg, New Delhi-110002.  Shri R.G. Gadodia and  

Shri T.P. Gadodia were no longer the Directors in either of the two  

companies,  and only Smt. Sudha Gadodia  was Director  in both the  

companies.

3. On the other hand, the enforcement officer pointed out that  

apart from the fact that the two companies had common registered  

office,  Shri  R.G.  Gadodia  and Shri  T.P.  Gadodia  were  the common  

Directors  in  both  the  units  at  the  time of  inspection  and clubbing.  

Apart from Smt. Sudha Gadodia being admittedly a Director in both the  

units, Shri T.P. Gadodia was the Managing Director in both the units.  

It was further pointed out that as per the Audited Report of the Delhi  

Company dated 24.4.1988, it had given a loan of Rs.5 lakh to the first  

petitioner.   Two officers  viz.  Shri  G.  Ventakeshwaran and Shri  S.K.  

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Shome  

were  employed  by  both  the  units  as  Technical  Manager  and  

Commercial Manager respectively.  The two companies had the same  

telephone nos. i.e. 2512890 and 2513009.  Both the units were using  

the same gram number which was ‘GadodiaSon’.

4. In  rebuttal,  the  petitioners  pointed  out  that  the  Delhi  

Company  had  its  own  separate  staff.   The  above  referred  two  

telephone nos. were in the name of the first petitioner and the second  

petitioner had another telephone no. i.e. 3318668.  As far as the loan  

aspect is concerned, it was pointed out that the loan of Rs.5 lakh was  

just one loan to the first petitioner, and the Delhi Company had given  

loans  to  the tune of  about  Rs.  27 lakhs  to  different  entities.   The  

enforcement officer however pointed out that at the time of inspection  

it was noticed that the employees were being swapped between the  

two  companies.  Although  the  first  petitioner  had  its  branches  at  

Bombay, Amritsar, Ahmedabad and Kanpur, the number of employees  

in the Delhi office of this company and the second petitioner were kept  

below 20 to avoid coverage under the Provident Funds Act.  Having  

considered all these facts and the submissions by both the parties, the  

Provident Fund Commissioner came to the conclusion that there was  

an integrity in the management, finance and the workforce of the two  

companies, and the entire business was being run by one family.  The  

management  and  the  supervision  was  in  the  hands  of  the  same  

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Managing Director, and the finances of one company were being used  

by the other.  In view of this, he held that both the units belonged to  

one  establishment,  and  they  have  to  be  clubbed  together  for  the  

purposes  of  application  of  the  Provident  Funds Act.   He therefore,  

passed  an  order  to  proceed  to  determine  the  dues  from  the  

petitioners,  and directed that further proceedings in the enquiry  be  

taken up by the concerned Presiding Officer.

5.  This  order  was  challenged  by  the  petitioners  before  the  

Employees  Provident  Fund  Appellate  Tribunal  by  filing  an  appeal  

No.ATA-167(4)/2000  under  Section  7D of  the  Provident  Funds  Act.  

The Tribunal accepted the submission of the petitioners that the two  

units were separate private limited companies, and since a company is  

a  juristic  person,  merely  because  there  is  a  common  Managing  

Director, the two units cannot be considered to be one establishment.  

One company taking a loan of Rs.5 lakh from another, does not make  

them  financially  integrated.   He  also  observed  that  there  was  no  

evidence to show that the two officers were mentioned as employed at  

the same time in the two companies.  He relied upon section 2A of the  

Act, and submitted that considering different departments or branches  

of  an  establishment  as  one  establishment  was  one  thing,  and  

considering  different  establishments  as  one  establishment  was  

another.  Merely  because  the  departments  or  branches  of  an  

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establishment are to be treated as a part of the establishment, two  

establishments cannot be taken to be one.  He, therefore, allowed the  

appeal and held that clubbing was not possible in the facts of the case,  

and set-aside the order of the first respondent.

6.  Being  aggrieved  by  that  order,  the  respondent  filed  a  

petition bearing No. W.P.(C) 5669/2001 in the High Court of Delhi.  A  

Single Judge of Delhi High Court who heard the matter examined the  

material on record, and considered the authorities cited by both the  

parties  governing  the  legal  position.   Having  considered  all  these  

aspects, he held that the Tribunal was swayed by the fact that the two  

companies  are  separate  legal  entities.   He noted that  the  law laid  

down by this Court on this aspect was clear. What is to be seen is the  

proximity of the two units and common management.  There was no  

error in the order passed by the Provident Fund Commissioner.  The  

Appellate Tribunal had no reason to interfere therein.  In his view, the  

order of the Tribunal was perverse and contrary to law.  He, therefore,  

set-aside the same and allowed the petition.

7.  The petitioners filed an appeal against the decision of the  

Single  Judge  being  LPA  No.399/2007.   After  examining  the  

submissions of both the parties, the Division Bench came to the same  

conclusion as the single Judge and dismissed the appeal by passing a  

detailed judgment and order dated 20.12.2007.

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8.    

The  present  Special  Leave  Petition  has  been  filed  to  

challenge this judgment and order dated 20.12.2007.  We have heard  

Mr.  S.K.  Dholakia,  Sr.  Advocate  for  petitioners,  and  Ms.  Shrabani  

Chakrabarty  for  the  respondent.   We  have  noted  the  submissions  

made by both the counsel, as well as the authorities relied upon by  

them.

Consideration of the rival submissions -

9. As noted earlier, the main question in this appeal is whether the two  

units are to be regarded as one establishment for the purposes of the Provident  

Funds Act.    Welfare economics, enlightened self interest and pressure of trade  

unions  led  the  larger  factories  and  establishments  to  introduce  the  schemes  of  

provident  fund for  the benefit  of  their  employees.   But  the employees  of  small  

factories and establishments remained away from these benefits.  With the increase  

in  the  number  of  smaller  factories  and  establishments,  there  was  a  need  of  a  

beneficial enactment for the employees engaged therein. The Provident Funds Act,  

is  a welfare enactment brought into force for that purpose. The Parliament was  

concerned with the issue of making an appropriate provision for the employees in  

the factories and the establishments after their retirement, and for the benefit of  

their dependents in case of early death of the employees.  That is how the Provident  

Funds  Act  came to  be  enacted  in  the  year  1952,  which  requires  a  compulsory  

contribution to the fund and which is independently managed by the Provident Fund  

Commissioner.  The employer and employees covered thereunder, both contribute  

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towards this fund.  As  

per the present provision of section 6 of the Provident Funds Act, both of them have  

to contribute to  the fund an amount equivalent  to  10% of the basic  wage and  

dearness  allowance  (and  retaining  allowance,  if  any)  per  month.   The  Central  

Government  has  the  power  to  raise  this  contribution  to  12% after  making  an  

appropriate enquiry.  The contribution to fund earns an appropriate interest thereon.  

As stated above, after the retirement of the employee or in the event of need of  

finance for specified reasons, or in the event of his death prior thereto, the amount  

becomes available.   

10. In  para  5  of  Sayaji  Mills  Ltd.  Vs.  Regional  Provident  Fund  

Commissioner  reported in  [AIR 1985 SC 323]  this Court has explained as to  

what should be the approach towards this legislation in the following words :-

“5. At the outset it has to be stated that the Act has been   brought 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…….”

        (emphasis supplied)

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The  present  

controversy with respect to the applicability of the Provident Funds Act has to be  

approached with this perspective.

11. Now,  on  the  question  as  to  whether  such  two  units  should  be  

considered  as  one  establishment  or  otherwise,  there  is  no  hard  and  fast  rule.  

However, guidelines have been laid down in two judgments of this Court rendered  

way back in the years 1959-60 and they are followed from time to time.  Thus, in  

The  Associated  Cement  Companies  Ltd.,  Chaibasa  Cement  Works,  

Jhinkpani Vs. Their Workmen reported in [AIR 1960 SC 56], a bench of three  

judges was considering the question as to whether the factory and the limestone  

quarry  belonging  to  the  appellant  company  should  be  considered  as  one  

establishment for the purpose of Industrial Disputes Act, 1947.  This Court observed  

therein as follows:-

“11. …….. What then is ‘one establishment’ in the ordinary industrial   or business sense? ……. It is, perhaps, impossible to lay down any one test   as an absolute and invariable test for all cases.  The real purpose of these   tests is to find out the true relation between the parts, branches, units etc.  If   in their true relation they constitute one integrated whole, 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 a 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.   The  difficulty  of  applying  these  tests  arises  because  of  the   complexities of modern industrial organization; 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.”

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Later  in  

paragraph 5 of Management of Pratap Press, New Delhi Vs. Secretary, Delhi  

Press Workers’ Union Delhi reported in [AIR 1960 SC 1213], another bench of  

three judges explained the above proposition in  Associated Cement Company  

(supra) in  the following words:-

“ ……While pointing out that it was impossible to lay down any   one test as an absolute and invariable test for all cases it observed that   the real purpose of these tests would be to find out the true relation   between the parts, branches, units etc.  This court however mentioned   certain tests which might be useful in deciding whether two units form   part  of  the  same  establishment.   Unity  of  ownership,  unity  of   management and control, unity of finance and unity of labour, unity of   employment and unity of functional “integrality” were the tests which   the Court applied in that case…….

12. Accordingly, depending upon the facts of the particular case, in some  

cases the concerned units were held to the part of one establishment whereas, in  

some  other  cases  they  were  held  not  to  be  so.   Regional  Provident  Fund  

Commissioner Vs. Dharamsi Morarji Chemical Co. Ltd. reported in [1998 (2)  

SCC 446] and Regional Provident Fund Commissioner Vs. Raj’s Continental  

Export (P) Ltd. reported in [2007 (4) SCC 239] are cases where the two units  

were  held  to  be  independent.   In  Dharamsi  Morarji (supra),  the  appellant  

company  was  running  a  factory  manufacturing  fertilizers  at  Ambarnath  in  Distt.  

Thane, Maharashtra since 1921.  The appellant established another factory at Roha  

in the adjoining district  in the year 1977 to manufacture organic chemicals  with  

separate set of workers, separate profit and loss account, separate works manager,  

plant superintendents and separate registration under the Factories Act.  The two  

were held to be separate for the purposes of coverage under the Provident Funds  

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Act.   In  Raj’s  

Continental Export (supra), Dharamsi Morarji was followed since the two entities  

had  separate  registration  under  the  Factories  Act,  Central  Sales  Tax  Act,  1956,  

Income Tax Act, 1961, Employee State Insurance Act, separate balance sheets and  

audited statements and separate employees working under them.

13. As against that in Rajasthan Prem Krishan Goods Transport Co.  

Vs. Regional Provident Fund Commissioner, New Delhi  reported in  [1996  

(9)  SCC  454]  and  Regional  Provident  Fund  Commissioner,  Jaipur  Vs.  

Naraini Udyog and others reported in [1996 (5) SCC 522] the concerned units  

were held to be the units of the same establishment.  In Rajasthan Prem Kishan  

Goods Transport Co. (supra) the trucks piled by the two entities were owned by  

their partners, ten out of thirteen partners were common, the place of business was  

common, the management was common, the letter-heads bore the same telephone  

numbers.   In  Naraini  Udyog (supra)  the  two  entities  were  located  within  a  

distance of three kilometers as separate small-scale industries but were represented  

by the members of the same Hindu undivided family.  They had a common head  

office at New Delhi, common branch at Bombay and common telephone at Kota.  

The  accounts  of  the  two  entities  were  maintained  by  the  same  set  of  clerks.  

Separate registration under the Factories Act, The Sales Tax Act and The ESIC Act  

were  held  to  be  of  no  relevance  and  the  two  units  were  held  to  be  one  

establishment for the purpose of Provident Funds Act.    

14. In  the  present  case  the  Directors  of  the  two  petitioner  companies  

belong to the same family.   The Managing Director  is  common. The two senior  

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officers  i.e  

Commercial  Manager  and  Technical  Manager  are  common.   At  the  time  of  

inspection,  the  Enforcement  Officer  noticed  that  the  employees  of  the  two  

companies were being swapped.  Both of them have same registered address and  

common telephone numbers and a common gram number.  The audited accounts  

revealed that the second petitioner company had given a loan of Rs. 5 lakhs to the  

first petitioner in the year 1988.   The two companies are family concerns of the  

Gadodia family.  Hence, in the facts of the present case we have to hold that there  

is an integrity of management, finance and the workforce in the two private limited  

companies.  The two companies have seen to it that on record each of the two  

entities  engage less than twenty employees,  although the number of  employees  

engaged by them is more than twenty when taken together.  The entire attempt of  

the  petitioners  is  to  show that  the  two  entities  are  separate  units  so  that  the  

Provident Funds Act does not get attracted. The material on record however, leads  

to only one pointer that the two entities are parts of the same establishment and in  

which case they get covered under the Provident Funds Act.  

15. As the preamble of  the Provident Funds Act states,  ‘it  is  an act  to  

provide  for  the  institution  of  provident  funds,  pension  fund  and  deposit-linked  

insurance fund for employees in factories and other establishments’.    The term  

factory is defined under section 2 (g) of the Act, however, there is no definition of  

an establishment or a commercial establishment in the statute.  Inasmuch as the  

petitioners are entities situated in Delhi, we may profitably rely upon the definition  

of  ‘establishment’  and  ‘commercial  establishment’  under  the  Delhi  Shops  and  

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Establishments  Act,  

1954.  The definition of establishment is available in section     2 (9) and that of  

commercial establishment in section 2 (5) thereof.  These two definitions read as  

follows:-

“Section 2(9) Establishment- “establishment”  means  a  shop,  a  commercial  establishment,   

residential hotel, restaurant, eating house, theatre or other places   of  public  amusement or entertainment  to which this  Act applies   and includes such other  establishments as Government may, by   notification in the Official Gazette, declare to be an establishment   for the purposes of this Act;

Section 2(5) Commercial establishment 2(5) “commercial establishment” means any premises wherein   

any trade, business or profession or any work in connection with,   or  incidental  or  ancillary  thereto,  is  carried  on  and  includes  a   society registered under the Societies Registration Act 1860 (XXI of   1860)  and  charitable  or  other  trust,  whether  registered  or  not,   which  carries  on  any  business,  trade  or  profession  or  work  in   connection with or incidental or ancillary thereto, journalistic and   printing  establishments,  contractors  and  auditors  establishments   quarries, and mines not governed by the Mines Act, 1952 (XXXV of   1952),  educational  or  other  institution  run  for  private  gain  and   premises  in  which  business  of  banking,  insurance,  stocks  and   shares, brokerage or produce exchange is carried on, but does not   include a shop or a factory registered under the Factories Act, 1948   (LXIII of 1948), or theatres, cinemas, restaurants, eating houses,   residential  hotels,  clubs or other places of  public  amusement or   entertainment;”

It cannot be denied that the two petitioners carry on a trade or business for private  

gain  from the  premises  wherein  the  two  companies  are  situated.   They  would  

therefore, fall within the definition of ‘commercial establishment’ and consequently,  

under the definition of ‘establishment’.  The only question is whether they are to be  

treated as two separate establishments or one establishment for the purposes of  

this act.

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16. The  

petitioners have contended that the two entities are two separate establishments.  

They have tried to draw support from section 2(A) of the Act which declares that  

where an establishment consists of different departments or has branches whether  

situated in the same place or in different places, all such departments or branches  

shall  be treated as parts of the same establishment.  It was submitted that only  

different departments or branches of an establishment can be clubbed together, but  

not different establishments altogether.  In this connection, what is to be noted is  

that, this is an enabling provision in a welfare enactment.  The two petitioners may  

not be different departments of one establishment in the strict sense.  However,  

when we notice that they are run by the same family under a common management  

with common workforce and with financial integrity, they are expected to be treated  

as branches of one establishment for the purposes of Provident Funds Act.  The  

issue is with respect to the application of a welfare enactment and the approach has  

to be as indicated by this Court in Sayaji Mills Ltd. (supra).  The test has to be the  

one  as  laid  down  in  Associated  Cement  Company (supra)  which  has  been  

explained in Management of Pratap Press (supra).

17. The 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 7A of  

the Provident Funds Act.  The petitioners, however, confined themselves only to a  

facile explanation.  If according to them, the management, workforce and financial  

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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 material on record.  

18. The Regional  Provident  Funds Commissioner  was therefore,  entirely  

justified in taking the view that on the facts and law, the two petitioners had to be  

clubbed together for the purposes of their coverage under the Provident Funds Act.  

The  Appellate  Tribunal  clearly  erred  in  re-appreciating  the  facts  on  record  and  

applying wrong propositions of law thereto.  The learned Single Judge was therefore  

required to set-aside the order of the Appellate Tribunal in view of his conclusion  

that  the order  was contrary  to  the facts  and the law,  and was perverse.   The  

Division Bench has rightly confirmed the order passed by the learned Single Judge.

19. In the circumstances, this petition is dismissed.  The concerned officer  

of respondent will now proceed for the determination and recovery of the provident  

fund dues from the petitioners in accordance with law.  There will be no order as to  

the costs.

                             …………………………..J.             ( J.M. Panchal )

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 ……………………………..J.  

         ( H.L. Gokhale ) New Delhi  

Dated :  September 26, 2011

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