Neyveli Lignite Corporation Limited vs The Regional Provident Fund Commissioner and Another

S.M. Abdul Wahab, J.—This writ petition has been filed by the Neyveli Lignite Corporation Limited represented by its Secretary against the

Regional Provident Fund Commissioner.

The prayer in the writ petition is for a writ of certiorarified mandamus to quash the order dated 27.5.1987 and to issue direction to the first

respondent and direct the first respondent to enforce the provisions of the Employees Provident Fund Act and the allied scheme against the second

respondent.

The case of the petitioner is that the Neyveli Lignite Corporation owns a guest house and it was leased out to the second respondent with effect

from 1.10.1983. The second respondent recruited their own personnel through agencies viz., the Self Employment Council to fill up the various

posts in the Guest House. All the employees employed in the Guest House were recruited and are under the control and supervision of the second

respondent. The petitioner '' has no connection or authority over the manner and the method of recruitment of personnel to the Guest House and to

their service conditions with effect from 1.10.1983. As per the terms and conditions, it is the duty of the second respondent to discharge all the

statutory liabilities, During Inspection by the Provider Fund Inspector, this fact was brought to his notice. Thereupon the Provident Fund Inspector

informed that N.L.C. Guest House no longer under the control and management of the petitioner with effect from 1.10.1983. On 11.8.1986, the

Provident Fund Officer, Cuddalore addressed a letter to the sec and respondent and requested it to implement the scheme. The second

respondent sent a reply on 10.9.1986 explaining the position clearly and unambiguously that N.L.C. Guest House at Neyveli was taken over by

him from 1.10.1983 and none of the employees of the previous establishment was continued after 30.9,1983. They are also running the catering

and house keeping of the Guest House with a afresh set of employees recruited by them. Thereupon a notice u/s 7-A of the Act was issued on

12.1.1987 and directed the petitioner to appear for personal enquiry on 4.2.1987. The notice was forwarded to the second respondent with

request to appear before the first respondent and comply with the directions of the first respondent. But the second respondent did not do so. The

first respondent sent another letter dated 25.2.1987 requesting the petitioner to instruct the management of the Guest House immediately to

produce the required documents to the Provident Fund Inspector. Accordingly, the petitioner gave proper instructions to the second respondent in

this regard. While so, the impugned order dated 27.5.1987 was served to the petitioner on 2.6.1987 demanding a sum of Rs. 42,230.45 by way

of employees and employers contribution under Employees Provident Fund and Allied Schemes framed thereunder, within a period of 3,0 days.

The petitioner further states in the affidavit that on 4.2. 1987, the Secretary of the Self Employment Council appeared before the first

respondent and presented a petition claiming that infancy protection of five years from the date, of take over of the establishment that is from

1.10.1983. This plea has been rejected. The first respondent has held the petitioner liable under the impugned order. He also threatens penal

action u/s 14-B of the Act. Hence, the petitioner has filed this petition.

A counter-affidavit has been filed by the first respondent. In the counter it is stated that the Guest House was under the control and management

of the petitioner. In view of the continued default, the Enforcement Officer, Cuddalore attached to the respondent''s office, addressed a letter to the

petitioner urging to comply with the provisions of the Act. The counter says that the petitioner is the principal employer. Hence, duty is cast upon

the employer to comply with statutory provisions not only in respect of employees who are employed directly but also in respect of their

employees who are employed through contractors. The claim of exemption under infancy protection does not hold any water. Hence, the

impugned order is legal and valid.

Further in paragraph 3 of the counter, it is stated that the petitioner''s contention that the second respondent is a lessee of the establishment is not

true and bears no relevance to the present context. The second respondent is not a lessee, but a contractor who is entrusted with house keeping

and catering of the petitioner''s Guest House. The employer first respondent gives instructions to the second respondent in respect of the day-to-

day functioning of the Guest House. The petitioner exercises Managerial control over the functioning of the Guest House. The counter further states

that the grounds set out in the affidavit filed in support of the petition are untenable.

The second respondent has not filed any counter.

Learned Counsel for the petitioner contended that the Guest House is a separate establishment and it has been leased out to the second

respondent from 1.10.1983. Therefore, the first respondent has to look to it only for payment of the contribution.

From the records it is seen that when a letter was addressed on 11.8.1986 to the petitioner, a reply has been sent on 10.9. 1986 categorically

stating that the catering and house-keeping of the Guest House was taken out by it from 1.10.1983 and none of the employees of the previous

establishment continued after 30.9. 1983. The catering and house-keeping was run with fresh set-off employees. In the said letter there is also

reference to the decision in The Provident Fund Inspector, Trivandrum Vs. The Secretary, N.S.S. Co-operative Society, Changanacherry, .

On 15.10.1986, the first respondent addressed a letter to the petitioner again stating that as a Principal Employer, the responsibility was on the

part of the petitioner. For this, on 22.11.1986 a reply was sent by the petitioner to the respondent No. 2 forwarding the said letter dated

15.10.1986 and requesting him to implement the provisions of the Employees Provident Fund and Family Pension Scheme in respect of the

employees working in the Guest House. On 15.12.1986 the second respondent has addressed a letter to the first respondent once again stating

that it has taken over the management from 1.10.1983 and as a new establishment, it is entitled for infancy protection u/s 16(1)(b) of the Act.

Thereupon, on 12.1.1987, the first respondent has addressed another letter to the petitioner to appear for enquiry on 14.2.1987 at 11.00 a.m.

This letter was forwarded to the second respondent by the petitioner on 22.1.1987.

On 25.2.1987, the first respondent addressed another letter to the petitioner stating that the records were not produced at the time of hearing

u/s 7-A on 4.2.1987. In the said letter there is a request to instruct the management of the Guest House immediately to produce the required

documents to the Provident Fund Inspector. On 17.3.1987 the petitioner has informed the first respondent that the present management'' has

claimed infancy protection u/s 16(1)(b) of the Act and the said claim has not been disposed of. Thereupon the first respondent has issued the

impugned order on 27.5.1987.

In the said order it is stated that the Secretary of the Self-employment Council appeared before the Provident Fund Commissioner in response

to the summons u/s 7-A of the Act and presented a petition dated 2.2.1987. After considering the case of the second respondent, the first

respondent has observed as follows:

The Neyveli Lignite Corporation Guest House has already been in existence even before 1.10.1983 and the present management continued to run

the business with effect from 1.10.1983. As such a lease cannot create a new establishment. The Madras High Court in the case R.L Sahni and

Co. v. Union of India and Anr. (1964) II L.L.J. 169, has held that there an establishment such as a factory has been set up and the owner of the

factory does not run the business on his own, but chooses to lease the factory from time to time it has been held that every fresh lease cannot give

rise to the setting up of the factory afresh.

Therefore, it is clear that the impugned order has been passed relying upon the said decision. The decision has been rendered on 6.1.1964.

But subsequently, with effect from 1.11. 1973, the Employees Provident Fund and Miscellaneous Provisions Act, 1952 has been amended and a

new Section 17-B has been introduced as per Amendment Act 40 of 1973. Section 17-B of the Act is as follows:

Liability in case of transfer of establishment Where an employee in relation. to an establishment, transfers that establishment in whole or in party, by

sale, gift, lease-or licence or in any other manner whatsoever, the employer and the person to whom the establishment is so transferred shall jointly

and severally be liable to pay the contribution and other sums due from the employer under any provision of this Act or the Scheme or the Family

Pension Scheme or the Insurance Scheme as the case may be, in respect of the period upto the date of such transfer: Provided that the liability of

the transferee shall be limited to the value of the assets obtained by him by such transfer.

A reading of the said Section shows that the liability of the employer in relation to an establishment shall continue upto the date of transfer by way

of sale, gift, lease or license or any other said manner. Therefore, the liability is upon the transferee after the transfer has been legally effected.

Therefore, the case relied upon by the first respondent cannot help to decide the present case because the present case is covered by Section 17-

B of the Act.

Learned Counsel for the first respondent cited the decision reported in P.M. Patel & Sons v. Union of India (1986) 1 S.C.C. 52, in support of

her contention that the petitioner will also be liable for payment of the Provident Funds under the Act. In the said judgment in paragraph 8 it is held

that the ''home worker'' are employees of a Beedi Factory. The Supreme Court, observed by the employer includes not only persons employed

directly by the employer but also persons employed through a contractor. Moreover, they include not only persons employed in the factory but

also persons employed in connection with the work of the factory. It seems that a home worker, by virtue of the fact that he rolls beedis, is

involved in an activity connected with the work of the factory. We are unable to accept the narrow construction sought by the petitioners that the

words ""in connection with"" in the definition of ''employee'' must be confined to work performed in the factory itself as a part of the total process of

the manufacture."" In the said case the Supreme Court has taken the view that to be an employee it is necessary to see whether master and servant

relationship exists between the parties or not. In the context of the conditions and the circumstances in which the home workers of a single

manufacturer go about their work, including the receiving of raw material, rolling the beedis at home and delivering them to the manufacturer

subject to the right of rejection there is sufficient evidence of the requisite degree of control and supervision for establishing the relationship of

mister and servant between the manufacturer and the home worker.

Here, from the records available is not to be seen that the workers employed in the Guest House are the servants of the petitioner. On the

other hand, it is repeatedly asserted by the second respondent that they were freshly recruited employees by it. Eventhough the first respondent

states that the lease agreement entered into between him and the management was not produced, in the latter paragraph he has admitted the

change of management with effect from 1.10.1983 and he has stated that the present management continued to run the business with effect from

1.10.1983 and as such the leas cannot create new establishment. Further, he has also stated that to claim an establishment as a new one, earlier

establishment must have been closed. But the question is as to who is liable for the contribution under the relevant Act. We are concerned with the

liability of the petitioner herein. Even if the establishment is run with the help of old employees, the liability will be only till the transferee as per

Section 17-B of the Act,'' 1952. Thereof I am satisfied that the first respondent has to proceed only against the second respondent and impugned

order against the petitioner is unsustained. Hence, the writ petition is allowed. However be no order as to costs.