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Judgment
Ramanujam, J.—This appeal is directed against the order of Mohan, J. in Writ Petition No. 627 of 1976 holding that the establishment of
the appellants is not a new establishment so as to have the benefit of the non-applicability of the Employees'' Provident Funds and Miscellaneous
Provisions Act, 1952, hereinafter referred to as the Act u/s 16(1)(b). The circumstances under which the said writ petition was filed by the
appellants may briefly be noted. One Messrs. Veekay Engineering Industries a firm of partnership was carrying on business as technical consultants
and designers. It had also an engineering establishment wherein they were engaged in fabrication and manufacture of structural and other
mechanical engineering products including conveyor belts. On 10th November, 1969 they closed the said engineering division and confined their
activities to rendering service as technical consultants and designers. The factory workers and staff who were employed in the engineering division
raised an industrial dispute contending that the closure was not bona fide and therefore the closure was not justified. That dispute went before the
Labour Court, which after due enquiry, held that there was a bona fide closure. A few days after the closure of the said business, Messrs. Veekay
Engineering Industries leased out the land, building and machinery to the appellants, M/s. Conveyor Equipment Company (Private) Limited.
According to the terms of the lease deed, the lessors, Messrs. Veekay Engineering Industries, had nothing to do with the business to be carried cm
by the lessees. The lease deed also refers to the fact that the lessors had given up and closed permanently their manufacturing activities. It also
proceeds on the basis that it was the responsibility of the lessees to apply for and obtain a factory licence for any business that they may carry on,
as per their memorandum, of association. The lease deed contains three schedules, schedule ''A'' dealing with land, schedule ''B'' dealing with the
superstructure and schedule ''C'' dealing with machinery, which are to be taken by the lessees as per the terms of the lease deed. After the said
lease deed, the appellants have chosen to carry on the business of fabrication and manufacture of structural and other engineering products, after
obtaining the requisite factory licence in their name. Thereafter the appellants on 27th October, 1972 approached the Regional Provident Fund
Commissioner seeking a clarification as to whether they can claim the benefit of non-applicability of the provisions of the Act for a period of three
years, since the inception of their establishment. The Regional Commissioner, Provident Funds, Madras, by his letter dated 17th November, 1972
directed the appellants to implement the scheme from 26.11.1969 onwards by submitting the requisite returns from November, 1969 onwards and
by remitting the provident fund contributions and administrative charges as provided in the Act. Thereafter the appellants sent a reply to the
Regional Commissioner, Provident Funds, by their letter dated 11th December, 1972 wherein they had explained that their company was started
newly as a separate and independent concern and was registered under the Companies Act; that it was also registered under the Factories Act,
after its formation in November, 1969; that the appellants did not purchase the undertaking or the business as such, which was run by Messrs.
Veekay Engineering Industries: nor did they purchase the same as a going concern and nor even did they continue to run the said establishment as
an old establishment. Along with their reply, a copy of the memorandum and articles of association, a copy of the factory licence and a copy of the
award of the Labour Court, Madras made in the industrial dispute between the workmen and management of M/s. Veekay Engineering Industries,
were enclosed and the appellants prayed that the Act and the scheme may be applied to their company only from the date on which the three year
period expired. The request of the appellants was, however, turned down and they were informed by a letter dated 23rd February, 1973 by the
Regional Commissioner, Provident Funds, that if the appellants were not implementing the provisions of the Act and the scheme within 15 days
thereof, action would be taken to recover the amounts due under the Act by having resort to the provisions of the Revenue Recovery Act.
Subsequently also there has been exchange of correspondence and ultimately the Regional Commissioner, Provident Funds, passed an order dated
29th November, 1975 threatening to take coercive proceedings for non-implementing the Provisions of the Act and the scheme with effect from
November, 1969. It is at that stage the appellants came to this Court by way of the above writ petition seeking to quash the said order of the
Regional Commissioner, Provident Funds dated 29th November, 1975.
In the writ petition the case of the writ petitioners-appellants was that their concern was entirely a new and different concern, that it had nothing
to do with Messrs. Veekay Engineering Industries, that it had obtained a separate and fresh factory licence and it was only on the basis of the said
factory licence the activity of fabrication and manufacture of conveyor belts was going on; that the appellants neither purchased the old concern as
a going concern nor did they continue to run the old establishment; that there was absolutely no continuity of the business of the old establishment
and that therefore their establishment should be taken to be a new establishment coming within the purview of Section 16(1)(b) of the Act. The
said writ petition was resisted by the Regional Commissioner, Provident Funds, contending that Messrs. Veekay Engineering Industries, which is a
partnership firm, still exists and carries on business and also makes its contributions under the Act; that the said firm is carrying on two businesses,
viz., (1) rendering service as consultants and designers; and (2) manufacturing engineering materials, and that it has merely leased out that part of
the business, namely, manufacturing engineering materials, to the appellants from 26th November, 1969; that what all had happened is only a
change in the management of the business, a mere change in the management of the business will not make the business a new one; that there is no
change of ownership also; and that therefore the establishment carried on by the appellants is not a new establishment so as to attract Section
16(1)(b) of the Act. It was also pointed out in the counter-affidavit that since the managing partner of Messrs. Veekay Engineering Industries is
also the Managing Director of the appellants Messrs. Conveyor Equipment Company (Private) Limited, the establishment carried on by the
appellants cannot be taken to be a new one. Mohan, J. after consideration of the facts set out in the pleadings and the contentions advanced by the
parties, found that the partnership firm, M/s. Veekay Engineering Industries, which was carrying on two businesses of consultants and of
manufacturing engineering materials had closed on 10th November, 1969 its manufacturing activity, and confined its business only to rendering
service as technical consultants and designers, that thereafter it leased out the site, building and machinery to the appellants and that it is only the
appellants'' company which is now carrying on the business of manufacturing conveyor belts. Based on the said findings, the learned Judge took the
view that the establishment run by the appellants cannot be taken to be a new establishment for the reason that the concept of lease and new
establishment are diametrically opposed to each other, and the fact that the appellants have taken a lease of the land, building and machinery itself
postulates continuance of ownership in the lessors. Thus, the learned Judge held that since the establishment run by the appellants is still owned by
the lessors, it is not a new one and as such they cannot claim the benefit of non-application of Section 16(1)(b) of the Act.
In this appeal, the decision of Mohan, J. has been questioned by the appellants. According to the appellants, the learned Judge has proceeded
on the basis of an error that there has been a lease of the establishment as such, while in the earlier part of the judgment the learned Judge has
himself referred to the fact that the earlier business was closed and that the lease is only as regards the land, building and machinery. The learned
Counsel for the appellants contends that only in the case of lease of an establishment as such, the lessee should be taken to continue the existing
establishment owned by the lessor and that on the facts of this case, there is no continuity of the running of the establishment and only in cases
where there is such continuity the benefit of Section 16(1)(b) of the Act could be denied.
On a due consideration of the matter, we are not inclined to agree with the reasoning of the learned single Judge that the establishment of the
appellants is not a new establishment within the meaning of Section 16(1)(b) of the Act. It is no doubt true that the appellants have taken on lease
the site, building and machinery. But the lease is not of the establishment as a whole or as a going concern. It is not also in dispute that none of the
workmen in the previous establishment was employed by the appellants in their company. As a matter of fact, on the closure of the establishment
by the partnership firm, Messrs. Veekay Engineering Industries, closure compensation was paid to the workmen. The factum of closure was also
questioned by the workmen and the Labour Court, on such a dispute, clearly held that the closure was genuine and bona fide and therefore the
factum of the closure could not be challenged. Thus, the facts as have been found by the learned single Judge and which also stand established
from the documents in this case, will clearly indicate that there had been a closure of the establishment run by M/s. Veekay Engineering Industries
and the starting of a new establishment by the appellants, who are the lessees of the land, building and machinery. The closure of the establishment
by Messrs. Veekay Engineering Industries was on 10.11.1969 and the lease of the land, building and machinery by the said firm to the appellants
was on 26.11.1969 and the appellants started manufacturing of conveyor belts with effect from 1st December, 1969. Thus, the facts established
will clearly indicate that earlier establishment as such was not leased out by the Messrs. Veekay Engineering, Industries to the appellants and that
the lease was only in respect of land, building and machinery. That the establishment as such could not have been leased out is also clear from the
fact that there has been closure of the establishment by Messrs. Veekay Engineering Industries, as has been held by the Labour Court on a dispute
having been raised by the workmen of the said establishment. In this case the learned single Judge himself has found that there has been a closure
on 10.11.1969 and that the land, building and machinery have alone been leased out on 26.11.1969 to the appellants. Though the interval is only
about 16 days, factually and legally there has been discontinuity of the old establishment and the starting of a new establishment by the appellants.
In such circumstances, the old establishment cannot be taken to have been continued.
The Labour Court in its award in I.D. No. 2 of 1970 on its file dealing with the question of genuineness of the closure of the establishment has
expressed:
It is not as if the same workshop was continued in a different name, although there is a different business started by M.W.1 and others by the name
Conveyor Equipment Company (P) Limited, under Ex.M-38. This is entirely a different concern and as such it cannot be stated that the
management have fraudulently closed the original business with a view to victimise the workers by retrenching them.
***
Hence this is not a case in which closure was done in a secret manner, with a view to victimise the workers. Later on under a different partnership
a new firm Conveyor Equipment Co., (P) Limited is formed. It pays rent to Veekay Engineering Co., as per Ex.M-34. The report of that company
is marked as Ex,M-35. M-39 shows the actual payment of rent. It was registered as per Ex.M-38. Hence the two companies are entirely different
companies.
More or less on a similar set of facts, the Supreme Court in The Provident Fund Inspector, Trivandrum Vs. The Secretary, N.S.S. Co-
operative Society, Changanacherry, has held that the benefit of Section 16(1)(b) of the Act will be available in a case where the establishment was
closed and a new establishment was established to run the same industry or business. In that case, a printing press established in the year 1946
was sold in 1961 and the work of the press was stopped on sale and the purchaser restarted the same press after a break of about three months.
The persons employed previously were not continued in service, but a fresh recruitment of employees took place among whom only six happened
to be previous employees and the other employees had been paid closure compensation at the time of the sale by the previous owner. On those
facts, the Supreme Court held 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 the benefit of non-applicability of the Act u/s 16(1)(b) thereof for a period of three years was
available to the purchaser from the date on which he re-started the business. The reasoning of the Supreme Court is contained in the following
extract:
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 u/s 16(i)(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.
The facts in the present case are substantially the same as have been found in the above case before the Supreme Court except that in the case
before the Supreme Court the interval between the closure of the establishment by the previous owner and the restarting of the business by the
purchaser was three months, while in the present case the interval is about 20 days. But such interval will not be a deciding factor in considering the
question as to whether there has been continuance of an establishment or not. Once there is a closure of the old establishment, whatever may be
interval of time between the closure by the previous owner and the restarting of the business by another management, it must be taken that the
establishment started was a new one and that it is not a continuance of the old establishment. The principle of the said decision, in our view
squarely applies to the facts of the case before us.
The learned Counsel for the appellants would however rely on a decision of the Supreme Court in Sayaji Mills Ltd. Vs. Regional Provident
Fund Commissioner, . But after going through the said decision, we are of the view that the said decision is not applicable to the facts of the
present case. In that case it has been actually found that there was no closure of the old establishment, but there was merely a stoppage or
interruption of the business of the establishment, as a result of an order of winding up passed against the company which owned the establishment.
Later the Official Liquidator, who came into the picture after the order of winding up, sold the establishment as a going concern and after purchase
the purchaser continued the business of the establishment. On those facts, it has been held by the Supreme Court that there is a continuity of the
establishment and that the mere interruption of the work of the establishment for some time would not amount to a closure of the establishment and
a starting of a new establishment by the purchaser. As a matter of fact, we find that the earlier decision of the Supreme Court in The Provident
Fund Inspector, Trivandrum Vs. The Secretary, N.S.S. Co-operative Society, Changanacherry, has been referred to and distinguished in Sayaji
Mills Ltd. Vs. Regional Provident Fund Commissioner, on the ground that while in the earlier case there is closure of the establishment, in the later
case there is only an interruption of the work owing to the order in the winding up proceedings and mere interruption of work cannot be
considered as a closure of the business. The Supreme Court, on the facts, found in Sayaji Mills Ltd. Vs. Regional Provident Fund Commissioner,
that the establishment continued right through and there was only a change of management and that mere change of management cannot give rise to
a new establishment, as it cannot be postulated that each time when there is a change of hands, a new establishment comes into existence.
We are of the view that the present case before us falls squarely within the ruling in The Provident Fund Inspector, Trivandrum Vs. The
Secretary, N.S.S. Co-operative Society, Changanacherry, and it will not fall within the ruling in Sayaji Mills Ltd. Vs. Regional Provident Fund
Commissioner, . In this case the evidence is that the partnership firm, Messrs. Veekay Engineering Industries, the previous owner, had closed a
part of its establishment and it is only after such closure, a lease of the land, building and machinery has been given to the appellants. There was a
complete stoppage of work as a result of the closure of the establishment and all the previous employees had been discharged on payment of due
closure compensation. Their attempt to challenge the validity of the closure has also failed, the Labour Court holding that the closure was genuine
and bona fide After such closure, a lease of land, building and machinery was given to the appellants and the appellants have later started the same
business as a new concern. As already stated, the persons employed previously were not continued in service by the appellants and there has been
a fresh recruitment of workmen by the appellants. Thus, the facts established in the case indicate that there has been a closure of the old
establishment run by Messrs. Veekay Engineering Industries and the setting up or starting of a new establishment by the appellants after they had
taken on lease the land, building and machinery from the former owner. As already stated, the lease is only in respect of land, building and
machinery and it is not of the establishment as such, that is, the industry as a going concern. The learned single Judge has proceeded on the basis
that once there is a lease of the land, building and machinery, the lease should be taken to comprise of the business as well. We are not in a
position to accept the said reasoning. It is no doubt true that if the business as such is transferred by way of lease, then it can be postulated that it is
only a change of management and not of ownership and that a mere change of management will not give rise to starting of a new business. But in
this case the lease could not have been of the industry or establishment as such as a going concern is clear from the fact that the establishment was
admittedly closed earlier to the lease and the terms of the lease also do not indicate that the lease is of the business as such.
In this view of the matter and following the decision of the Supreme Court in The Provident Fund Inspector, Trivandrum Vs. The Secretary,
N.S.S. Co-operative Society, Changanacherry, we allow the appeal and set aside the order of the learned single Judge and hold that the
appellants will be entitled to the benefit of non-applicability of the Act u/s 16(1)(b) of the Act. There will be no order as to costs.