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Judgment
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 May 27, 1987 and to issue direction to the first
respondent and direct the first respondent to enforce the provisions of the Employees'' Provident Funds 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 Teased out to the second respondent with effect
from October 1, 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 October 1, 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 Provident Fund Inspector, this fact was brought to his notice. Thereupon the
Provident Fund Inspector informed the N.L.C. Guest House no longer under the control and management of the petitioner with effect from
October 1, 1983. On August 11, 1986, the Provident Fund Officer, Cuddalore addressed a letter to the second respondent and requested it 1 to
implement the scheme. The second respondent sent a reply on September 10, 1986 explaining the position clearly and unambiguously mat N.L.C.
Guest House at Neyveli was taken over by him from October 1, 1983 and none of 1 the employees of the previous establishment was continued
after September 30, 1983. They are also running the catering and house keeping of the Guest House with a fresh set of employees recruited by
them. Thereupon a notice u/s 7-A of the Act was issued on January 12, 1987 and directed the petitioner to appear for personal enquiry on
February 4, 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 February 25, 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 May
7, 1987 was served to the petitioner on June 2, 1987 demanding a sum of Rs. 42,230.45 by way of employees'' and employer''s contribution
under Employees'' Provident Funds and Allied Schemes framed thereunder, within a period of 30 days.
The petitioner further states in the affidavit that on February 4, 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
October 1, 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 instruction 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 October 1, 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 August 11, 1986 to the petitioner, a reply has been sent on September 10,
1986 categorically stating that the catering and house-keeping of the Guest House was taken out by it from October 1, 1983 and none of the
employees of the previous establishment contin ued after September 30, 1983. The catering and house-keeping was run with fresh set of em
ployees. 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 October 15, 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 November 22, 1986 a reply was sent by the petitioner to the Respondent No. 2 forwarding the said letter
dated October 15, 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 December 15, 1986 the second respondent has addressed a letter to the first respondent once
again stating that it has taken over the management from October 1, 1983 and as a new establishment, it is entitled for infancy protection u/s 16(i)
(b) of the Act. Thereupon, on January 12, 1987, the first respondent has addressed another letter to the petitioner to appear for enquiry on
February 14, 1987 at 11.00 a.m. This letter was forwarded to the second respondent by the petitioner on January 22, 1987.
On February 25, 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 February 4, 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 March 17, 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 May 27, 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 February 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 October 1, 1983 and the present management continued
to run the business with effect from October 1, 1983. As such a lease cannot create a new establishment. The Madras High Court in the case of
R.L. Sahni and Company v. Union of India and Anr. 1964 II LLJ 169, has held that where 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 January 6,
1964. But subsequently, with effect from November 1, 1973, the Employees'' Provident Funds 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 employer in relation to an establishment, transfers that establishment in whole or in part, by sale, girt, 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 licence 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 and Sons and Others Vs. Union of India (UOI) and Others,
, in support of her contention that the petitioner will also be liable for payment of the Provident Fund under the Act, In the said Judgment in
paragraph 8 it is held that the home workers are employees of a Beedi Factory. The Supreme Court observed that 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 petitioner
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 beedies 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
master and servant between the manufacturer and the home worker.
Here, from the records available, it 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 October 1, 1983 and he has stated that the present management continued to run the business with effect
from October 1, 1983 and as such the lease 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 that of
the transferee as per Section 17-B of the Act, 1952. Therefore, 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 there will be no order as to
costs.