M/s. Tip Top Drycleaners and Dyers, Amritsar vs The Union of India and others

Prem Chand Pandit, J.—This is a letters patent appeal filed by M/s. Tip Ton Drycleaners and Dyers of Amritsar, against the (sic) of a learned Single Judge of this Court by which their petition under Articles 226 and 227 of the Constitution of India had been dismissed.

According to the appellants it was a partnership firm carrying on the business of drycleaning and dying, registered under the Indian Partnership Act and the partnership deed was executed on 17th August, 1962. As a matter of fact, Bishan Singh and Harbhajan Singh originally started the said business in 1958, but later Kishan Singh and Smt. Harnam Kaur joined them for the first time in 1962, under the said partnership deed.

On 18th March, 1966, the Regional Provident Fund Commissioner Punjab issued a notice to the said Firm informing them that enquiries made by his Department revealed that their establishment fell under the class of "establishments" to which the Employees'' Provident Fund Act, 1952 (hereinafter called the Act) and the Scheme framed thereunder was applicable and further that the said establishment had employed 20 persons on 1st November, 1963. On 27th March, 1965, the firm acknowledged the said notice and informed the Commissioner that a few days back an Inspector visited their establishment and got the signatures of one of the partners of the firm on a paper on which the employment strength was noted. They had impressed upon him that their firm had come into existence on 17th August, 1962, and according to section 16 of the Act the said Act could not be made applicable to them for 5 years, that is, till 17th August, 1967. They were, therefore, not covered by the provisions of the Act. Instead of waiting for the reply of the Commissioner to their letter dated 27th March, 1966, the firm, on 16th April, 1966, addressed a communication to the Secretary, Government of India, Ministry of Labour and Employment, u/s 19-A of the Act, saying that the Commissioner had illegally applied the provisions of the Act and the scheme to them retrospectively with effect from 1st November, 1963, because their firm did not employ 20 or more persons continuously for a period of one year as provided by law. Their work depended upon the season and the customers and sometimes they had been employing labour on casual basis. Their employment strength had never been 20 or more for a continuous period of one year since 1963. They referred to the judgment of the Division Bench of the Andhra Pradesh High Court in Nazeena Traders (P) Ltd. and Others Vs. Regional Provident Fund Commissioner, Hyderabad and Others, in support of their plea. It was also stated in the said communication that the firm had come into existence on 17th August, 1962, and the same had not computed the five years'' infancy period contemplated u/s 16 of the Act. Besides, the Act could not be applied retrospectively. A prayer was therefore, made that necessary direction u/s 19-A be issued to the Commissioner for quashing his order.

On 23rd February, 1967, the Under Secretary, Ministry of Labour and Employment informed the firm by a letter that the Provident Fund authorities had reported that their establishment was registered with the Shops Inspector on 23rd July, 1958, and it had been carrying on the business of dry cleaning and dying since then. The deed of partnership, dated 17th August, 1962, showed that the firm was doing that business even prior to the said date and further that the employment strength of the establishment was 23 in November, 1963, and that fact was duly confirmed by one of their partners, namely, Kishan Singh. In the light of these facts, there appeared to be a prima facie case for treating 23rd July, 1958, as the date of the setting up of the establishment, and for coverage of the firm under the Act with effect from 1st November, 1963. It was also mentioned in the letter that before the Central Government passed an order u/s 19-A of the Act, the firm was asked to state their views within a month of the receipt of that letter. On 12th June, 1967, the firm replied that their employment strength had never been 23. In November 1963, it was only 17. There was apparently some discrepancy in the method of counting adopted by the Inspector which formed the basis of the statement in the records of the Department and which was alleged to have been countersigned by Kishan Singh. The statement was signed by the said gentleman in good-faith without actually going deep into the records prepared by the Inspector. After a careful, scrutiny, the firm had prepared a statement giving the exact number of the staff employed by them from January, 1963 to December, 1965 and the same was attached with their reply. From that it would be evident that except for 5 months of February 1964, December 1964. January February and March 1965, the said number had never risen beyond 17 or so. A prayer was, therefore, made that a reverification of the figures from the records be made. It appeared that the Inspector had counted even few days in a month, when only casual labour was employed for a short period. Their dry cleaning concern had a seasonal business and it was liable to expand and contract during the winter and summer months respectively. During the peak winter season the firm had been employing casual labour for short periods and dispensing with the same immediately their services were no longer required. As such any person beyond the number of 17 had never been in their employment for a continuous period of more than three or four months and under those circumstances their firm did not become liable under the provisions of the Act. It was applicable only to those concerns where the number of employees had remained more than 20 for a minimum number of 240 days in a year. The records showed that the firm had never more than 17 persons in their employment for continuous period of more than three or four months, not to speak of 240 days in a year Although the firm was registered with the Shops Inspector on 23rd July, 1958, but it was registered as a proprietorship concern and the same was converted into a partnership establishment only with effect from 17th August, 1962. With the partnership concern coming into being, the previous proprietorship business ceased to exist. That being so, it could not be said that 23rd July, 1958, was the date of the establishment of the present firm. The partners of the new firm were, therefore, entitled to the benefit of the five years'' grace period as provided by law. A prayer was then made that the provisions of the Act should not be made applicable to them. If this was not possible, then the date of the establishment of the business be determined as 17th August, 1962, and they be given the benefit of 5 years'' grace period upto 16th August, 1967.

On 29th September, 1967, the Government of India sent its reply to the firm informing the latter that the Central Government had directed u/s 19-A of the Act that their establishment had completed five years from the date of their setting up and employed 20 or more persons in November, 1963. It was also stated that the firm was registered with the Shops Inspector on 23rd July, 1958, although the partnership deed was executed on 17th August, 1962, but it revealed that 4 partners constituting the partnership were carrying on the business of drycleaning and dying in the same premises prior to 17th August, 1942, as a proprietorship concern under the name of Tip Top Drycleaners and Dyers. What happened on 17th August, 1962, was, therefore, a change in the ownership of the concern, without affecting the continuity of the business. A mere change of ownership did not affect the original date of the setting up of the establishment for purposes of section 16 (1) (b) of the Act. Accordingly, the contention of the firm in reckoning the said date as 17th August, 1962, instead of 23rd July, 1958, was not tenable. It was also said that the Act did not distinguish between casual and regular workers. The criterion of completion of 240 days service in a year was not material for treating a person as an employee within section 2 (f) of the Act and including him in the employment strength for the purpose of coverage under the Act. The said strength in November, 1963, had been admitted to be 23 by Kishan Singh, one of the partners of the firm. It was, therefore, not possible to agree that the same was 17 only in that month.

In order to challenge the decision of the Central Government the writ petition under Articles 226 and 227 of the Constitution was filed by the firm in October, 1967, and the same was dismissed by a learned Single Judge of this Court It was held by him that under the law it was not necessary that, in order to attract the provisions of the Act, there should be 20 or more than 20 employees on regular basis in an Establishment for a continuous period of one year. The Act, according to the learned Judge, became automatically applicable on the first date on which the number of the employees reached the figure of 20 or more. Thereafter, it would cease to apply only if for a whole year less than 15 persons remained employed in the establishment. The learned Judge found that the Act applied to the firm on the 1st day when the number of its employees was 20 or more provided other conditions for the application of the Act also existed. That date was determined as November 1, 1963, by the Regional Provident Fund Commissioner. The learned Judge also did not agree with the contention of the counsel for the firm that the "employees" did not include casual ones for the purpose of the Act. No such distinction according to the learned Judge, was discernible in the Act, wherein the word "employees" was used. It was only in paragraph 26 (a) of the Scheme that the word "employees" entitled to take benefit of the scheme was mentioned and it might be that casual employees were not able to take such advantage, unless they fulfilled the conditions of the scheme prescribed in that para. But that fact did not mean that casual employees had not to be counted in order to determine the number of employees in an establishment. The Regional Provident Fund Commissioner had determined the number of employees as 20 or more than 20, on November 1, 1963, on the basis of the statement of one of the partners of the firm, although the number of employees during the months of November and December. 1963, shown in the chart attached with the writ petition, was shown as 17 and 18 in January, 1964, and 21 in February 1964. Even according to that chart, the Act, according to the learned Judge, became applicable to the firm in February, 1964. In the writ petition, it had not been mad clear whether in the month of November, the petitioner firm had any casual employee It was for the firm to state in the petition the number of regular an casual employees, in order to contradict the information given to the Regional Provident Fund Commissioner by a partner of the firm. The learned Judge found that the Act was rightly made applicable to the firm with effect from November 1, 1963. The learned Judge also repelled the contention that the firm was constituted with effected from August 17, 1962, and, therefore, could have been granted 5 years exemption u/s 16 of the Act. The business had been started in 1958, and it was registered with the Shops Inspector with effect from July 23, 1958. That very business, which was previously owned by two persons, was continued by a firm of four persons including those two. It was a case of change of ownership of an existing establishment and not a case of a new establishment and according to law the date of establish neat of the firm was to be taken as July 1958, when it started its business and, therefore, the firm was not entitled to five years'' exemption with effect from August 17, 1962, as claimed by it. Against this decision, the present letters Patent appeal has been filed.

The only point for decision is whether the provisions of the Act have been correctly made applicable to the appellant-firm. The Act applies (a) to every establishment which is a factory engaged in any industry specified in Schedule I and in which 20 or more persons are employed and it will continue to be governed by the Act notwithstanding that the number of persons employed therein at any time fell below 20, provided that where for a continuous period for not less than one year the number of persons employed therein had been less than 15, the employer in relation to such establishment might cease to give effect to the provisions of the Act and any scheme framed thereunder with effect from the beginning of the month following the expiry of the said period of one year. (See in this connection section 1(3) (a) and (5) of the Act). There is no dispute that the appellant-firm is an establishment which is factory engaged in an industry which is specified in Schedule I and, therefore, the only question for determination is whether there are 20 or more persons employed in the said establishment. It is the case of the appellant that there were never 20 or more than 20 persons regularly employed in the course of the business of this establishment. The position taken by the appellant was that the work of drycleaning and dying, which had been Undertaken by the appellant, used to increase in the winter months and therefore as a temporary measure they engaged a few persons more at that time to carry on the work. But they were not employees on a regular basis and were merely temporary or casual workers. According to the appellant the required 20 employees must be in the employment for a continuous period of one year, before they could be held to be on regular basis and counted in the number twenty.

It may be stated that at the time when this case was decided by the learned Single Judge there were two views regarding this matter. One was taken by the Andhra Pradesh High Court in Nazeend Traders (P) Ltd''s. case (supra), and the other, was of the Madras High Court in East India Industries (Madras) Private Limited Vs. Regional Provident Fund Commissioner, . According to the Madras High Court it was not necessary that, that the employees should be working for full one year and it was sufficient, to bring the case within the purview of section 1(3) of the Act, even if 20 employees worked at least for one day in a year. The Andhra Pradesh High Court, on the other hand, took a different view and according to it "casual labour" fell outside the scope of section 1(3) of the Act and, consequently, the establishments, whose employees did not come up to 20, excluding casual labour, did not fall within the purview of section 1(3) of the Act and the provisions of the Provident Fund Scheme could not be applied to them. This controversy was set at rest by the Supreme Court in The The Regional Provident Fund Commissioner, Andhra Pradesh Vs. Sri. T.S. Hariharan, It neither agreed with the Madras High Court nor with tat Andhra High Court and held as under :--

The word ''employment'' means the employment in the regular course of business of an establishment. Such employment will not include employment of a few persons for a short period on account of some passing necessity or some temporary emergency beyond the control of the establishment.

The Act does not cease to apply to an establishment which regularly employs for its general business the required number of persons, for a major part of the year, merely became the employment does not extend to full one year.

According to the Supreme Court, therefore, "casual labour" would not be taken into consideration in counting the number 20, but it was not necessary that they should have been employed for full one year before they could be called regular employees and included in the said number.

The learned Single Judge has observed that when the number of employees in an establishment reaches the figure of 20 or more, the Act automatically becomes applicable from that day and if, subsequently, the number becomes less than 20, the Act will not cease to be applicable and'' that will happen only if for a whole year less than 15 employees remain in an establishment. It is needless to discuss this matter in the present case, especially after the proviso to sub-section (5) of section 1 of the Act has been deleted in the year 1971, vide Amendment Act No. 16 of 1971, because a finding has first to be recorded that the appellant establishment employed 20 persons or more on regular basis in the course of their business after excluding the casual labour which they employed on a temporary basis in some of the winter months. The present case, it appears, had been decided by the Regional Provident Fund Commissioner, the Central Government, and the learned Single Judge on the basis of rule of law laid down by the Madras High Court which, as already mentioned above, had held that casual labour or persons employed on temporary basis were also included in counting the number twenty. This view has been negatived by the Supreme Court. The learned Single Judge in his judgment has observed that the word "employees" include casual ones also for the purposes of the Act, because no such distinction is discernible in the Act wherein the word "employee" is only used. This view, as I have already said, has not been upheld by the Supreme Court It is true that the Supreme Court has also not approved of the view contended by the appellant that a person has to be in the employment for a continuous period of one year before he could be counted in the number twenty, because it has observed that it is enough if the establishment regularly employs for its general business, the required number of persons for a major part of the year. It will be fruitful to give below the observations of the said Court regarding the employment of temporary labour--

Considering the language of section 1(3)(b) in the light of the foregoing discussion, it appears to us that employment of a few persons on account of some emergency or for a very short period necessitated by some abnormal contingency which is not a regular feature of the business of the establishment and which does not reflect its business prosperity or its financial capacity and stability from which it can reasonably be concluded that the establishment can in the normal way bear the burden of contribution towards the provident fund under the Act would not be covered by this definition. The word ''employment'' must, therefore, be construed as employment in the regular course of business of the establishment ; such employment obviously would not include employment of a few persons for a short period on account of some passing necessity or some temporary emergency beyond the control of the company. This must necessarily require determination of the questions in each case on its own peculiar facts. The approach pointed out by us must be kept in view when determining the question of employment in a given case.

It was strenuously contended by the Learned Counsel for the respondents that the appellant had never set up the case of casual labour either before the authorities under the Act or in this Court and that being so, no enquiry was necessary on the point. But, I am unable to agree with this submission. While making an application dated April 16, 1966 u/s 19-A of the Act, the appellant clearly stated that they did not employ 20 or more persons continuously for a period of one year as would be apparent from sub-sections (3) and (5) of section 1 of the Act. it was also mentioned in that very application that the work of the appellant depended on the season and the customers and sometimes they had been employing persons on casual business and in that way their employment strength had never been 20 or more for a continuous period of one year since 1963. In fact reference was made to the Bench decision of the Andhra Pradesh High Court in the said application. In the reply given to that application by the Central Government Ministry of Labour and Employment it was said that the Provident Fund authorities had reported that the employment strength of the appellant''s establishment was 23, on 1st November, 1963, which fact was duly confirmed by one of their partners, namely, Kishan Singh, and the appellants was asked to state its views regarding that matter.

The appellant then sent a reply on 12th June, 1967, saving that the employment strength on their establishment had never been 23, As regards the confirmation of the employment strength by Kishan Singh, it was said that the statement in question was signed by him in good faith without actually going deep into the details of the records prepared by the concerned Inspector. The reply then went on to say--"after careful scrutiny of our records, we have now prepared a statement giving the exact number of staff employed by us from January, 1963 to December, 1965, which is attached herewith. From this you will kindly note that except for the five months of February, 1964, December, 1964, January, 1965, February, 1965 and March, 1965, the number of employees had never risen beyond 17 or so. A copy of the working chart indicating, right from the beginning of 1962 to the end of 1965, names etc. of all the staff employed by us at our various shops at different times is attached. If necessary, you can order a reverification of these figures from our records. It appears that for calculating the total strength of staff, your Inspector has counted even a few days in a month when casual labour was employed by us for short periods. In this connection, it may be added that ours is a Drycleaning concern which is a seasonal business and is liable to expand and contract during winter and summer respectively as evident from the attached chart. During the peak winter season, we have been employing casual hands for short periods and dispensing with their services immediately their services were no longer required. As such, any person beyond the number of 17 have never been in our employ for a continuous period of more than 3-4 months. On this score, therefore, our firm does not become liable to the application of the Employees'' Provident Fund Act, 1932 It is understood that the Employees'' Provident Fund Act, 1952 applies only to those concerns where the number of employees has remained more than 20 for a minimum number of 240 days in a year. This is the finding of the Andhra Pradesh High Court and may please be borne in mind while deciding our case. Even, if the Government has appealed against this decision, the decision given by the Andhra Pradesh High Court will not be ineffective until and unless it is revised by the Supreme Court. As evident from the records available in your office and also furnished by us we have never had more than 17 people in our employ for a continuous period of more than 3-4 months, not to speak of 240 days in a year. It is therefore, felt that the Employees, Provident Fund Act, 1952, should not be applicable to our firm on this score also.

The Central Government, in its communication dated 29th September, 1967, said as under :--

The Employees'' Provident Funds Act, 1952, does not distinguish between casual workers and regular workers. The criterion of completion of 240 days'' service in a year is not material for treating a person as an ''employee'' within the meaning of section 2(f) of the Act and for including him in the employment strength for the purpose of coverage under the Act. That factor is relevant for purposes of eligibility to membership of the Fund only. The employment strength in November, 1963, had been admitted to be 25 by Shri Kishan Singh, partner of your firm, in this signed statement (copy already supplied to you). In view of this, it is not possible to agree that the employment was 17 only in November, 1969.

Thus it will be seen from what has been stated above that the point regarding casual labour had been agitated by the appellant before the authorities under the Act.

Now coming to the writ petition that was filed in this Court, in para 4, it was stated as under :--

That the petitioner has been employing from time to time employees on regular basis as well as on casual basis. The nature of the business of the petitioner-firm is such that it is at its peak during winter season whereas during summer it is much reduced necessitating fluctuations in the number of employees required to be employed at a particular time. It is therefore necessary for the petitioner-firm to have casual employees as well occasionally. There has never been more than 20 employees in the service of the petitioner-firm on regular basis for a continuous period of one year. A statement duly prepared in accordance with the records of the petitioner showing the number of employees in the service of the petitioner in any particular month in the year 1963, 1964 and 1965 is attached herewith as Annexure A.

Then again in paragraph 7 (a) and (b) it was said :--

That the attention of the Central Government was invited to the grounds of appeal stating inter alia the provisions of law according to which Act was not applicable to the circumstances of the instant case and also to the Full-Bench judgment of Andhra High Court which supported the assertions of the petitioner. The Central Government has chosen to follow the views of Division Beach of Madras High Court in preference to the Fall Bench judgment of Andhra High Court reported as Nazeena Traders (P) Ltd. and Others Vs. Regional Provident Fund Commissioner, Hyderabad and Others, The impugned notice (Annexure B) and the order of the Central Government (Annexure G) are wholly illegal, mala fide and without jurisdiction for the following, amongst other reasons :--

(a) That the petitioner-firm has never employed 20 or more employees in its establishment regularly throughout the year and the underlying idea in section 1 (3) (b) of the Act is that the required number of 20 persons must be working continuously in the establishment throughout the year and that casual employees employed from time to time to meet the emergent needs are not entitled to be included therein. The judgment of the Madras High Court does not lay down the correct law and the Central Government should have followed the Full Bench judgment of Andhra High Court.

(b) That no enquiry has been made by the respondents as to the regular or casual employees in the service of the petitioner-firm from time to time. They have relied on a statement alleged to have been signed by a partner of the petitioner firm giving the strength of the employees in November 1963. It was incumbent on the respondents to have held a further enquiry as to the number of casual and regular employees and to have made it clear to the signing partner as to what was the nature of the information sought to be obtained from him. At any rate when the attention of the respondents was pointedly drawn to this fact. It was necessary for them under the law and principles of natural justice to have held such an enquiry before making the Act applicable.

The reply given by the Regional Provident Fund Commissioner regarding these paragraphs was as under :--

Denied, As per (R-III) appended, the management of the establishment have clearly admitted that it had employed 23 persons during November, 1963, which was sufficient to effect the coverage of the establishment under the Employees'' Provident Fund Act, 1952, with effect from November, 1963. Moreover it is not claimed in the statement furnished that is, R-III that some of the employees were casual. The Act, however, does not make distinction between casual and other employees. Further, it is not essential that in order to attract the provisions of the Employees'' Provident Funds Act and the Scheme framed thereunder, an establishment should employ 20 or more persons continuously for one year. There are no such provisions to this effect in the enactment. The correctness of Annexure ''A'' to the extent it is contrary to R-III is not conceded.

Denied. The Government of India after applying its mini reached the conclusion that the petitioner firm had rightly been covered under the Act. The findings of the Central Government are conclusive and the decision of the Madras High Court has rightly been followed by it, as the judgment of Andhra Pradesh High Court was being appealed against in the Supreme Court. Besides, the judgment of the Madras High Court it quite consistent with the provisions of the Act. Neither the order of coverage nor the decision of Government of India is illegal, mala fide and without jurisdiction as alleged by the petitioner.

(a) Denied. The Act as well as the Schema do not envisage any provision under which an establishment is required to employ 20 or more persons continuously for a year. The interpretation of section 1 (3) (b) made by the petitioners is wholly incorrect and inapplicable, particularly in view of the judgment of the Madras High Court referred to above. Further the Act does not make any distinction between a casual and regular employee and both of them are to be treated as on equal footing. The Central Government has rightly chosen to follow the decision of Madras High Court, which enunciates the correct law and is in accordance with the provisions of the Act.

(b) As the Act does not distinguish between the casual and regular employee no such enquiry was necessary. The partner of the petitioner''s firm had admitted the fact in writing that the Employment Strength of the establishment was above 20 in November, 19 3 (as per R-II appended), which was sufficient to bring the petitioner''s firm under the purview of the Act. The information was furnished by the partner with full knowledge of its consequences and without any pressure.

It is, therefore clear that this point was taken in this Court as well. The learned Judge, as I have already mentioned, did not agree with the contention of the appellant and that was done presumably on the basis of the view taken by the Madras High Court.

In the Supreme Court decision, referred to above, the appellant''s counsel had argued that the respondent had to employ a few persons every year regularly from June to September for supplying water to the hotel, because of failure of rains. This, according to him, would be regular employment and the High Court was wrong in holding to the contrary. White dealing with this argument, it was observed as under :--

There is no finding of the High Court to this effect and indeed no attempt was made before us also to substantiate this bald assertion. We are, therefore, unable to accept this contention on the present record. The general approach of the High Court to the problem raised in this case seems to the us to be, broadly speaking, correct; so is its find conclusion. The only observation of the High Court which required consideration is that the sub-section in question contemplates the required number of persons to work in the establishment continuously for one year. On this point we have clarified the legal position. As the High Court has dismissed the writ petition after clarifying the points of law raised leaving it to the appropriate authority to finally decide the controversy on a consideration of all the facts and circumstances we do not propose to say anything more in this appeal, which has been heard ex parte. With the aforesaid clarification of the legal position we dismiss this appeal.

After going through the facts of this case and hearing the counsel for the parties, I am of the view that before the authorities under the Act and in this Court during the writ petition, the case had been fought by the appellant on the basis of the view expressed by the Andhra Pradesh High Court, while the Regional Provident Fund Commissioner was taking his stand on what the Madras High Court had to say on this point. The Supreme Court now has made the position clear in The Provident Fund Inspector, Guniur''s case (supra). We, however, notice that even when the case was settled by the learned Single Judge the judgment of the Supreme Court had net been published and he had given his decision presumably on the view taken by the Madras High Court. I am further unable to accept the contention of the Learned Counsel for the respondents that the point regarding the casual labour having been employed by the appellant-firm had not been taken by them either before the authorities under the Act or in this Court. This point was being urged by them right from the very beginning and a finding regarding the same has now to be given by the appropriate authority under the Act, after considering the facts and circumstances of this case in the light of the law laid down by the Supreme Court in The Provident Fund Inspector, Gunter''s case (supra).

Before parting with this case, I may mention that the appellant did not argue the other point, namely, that the appellant-firm should have been granted five years'' exemption u/s 16 of the Act, although the same had been decided against them by the learned Single Judge.

In view of what I have said above, I would accept this appeal, set aside the judgment of the learned Single Judge and send the case back to the Regional Provident Fund Commissioner for decision in accordance with the observations mentioned above. In the circumstances of this, however, I will leave the parties to bear their own costs.

P.S. Pattar, J.

I agree.