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Judgment
D. Murugesan, J.—This writ appeal is directed against the order dismissing the writ petition filed by the Appellant herein.
The Appellant is the Regional Provident FundCommissioner, Tirunelveli. The first Respondent,M/s. Prabha Beverages Private Limited,
Marthandam, is acompany registered under the Companies Act, 1956. Theprimary activity of the company is manufacturing of softdrinks and it
commenced its trial production on 04.08.1987. The company entered into a Franchise Agreement withM/s. Parle (Exports) Pvt. Ltd., Bombay,
which is a coveredestablishment under the Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter called as ''the Act''). Byvirtue of
the franchise agreement, the first Respondentcompany was permitted and authorised as bottlers to bottle,sale and distribute beverages known as
Gold Spot, Kismet,Limca, Rimzim, Thumsup and Bisleri Club Soda. On theground that the first Respondent-company is an agent of M/s. Parle
(Exports) Pvt. Ltd., an enquiry u/s 7-Aof the Act was conducted. The first-Respondent companyclaimed the benefit for the period from August
1987 toAugust 1990, as it would be entitled to the benefit ofSection 16 for a period of 3 years for payment of providentfund contribution.
However, the said claim was rejected and the Appellant, in his order dated 09.03.1998 directed thefirst Respondent to remit a sum of Rs.
2,71,572/-, a furthersum of Rs. 12,826.50, Rs. 45,750/-, Rs. 9,867/-and Rs. 197.35in various accounts for the above period. The
Appellantfurther directed, in the event the first Respondent-companyfails to pay the said amount, to initiate prosecution underSection 14 of the
Act.
Being aggrieved by the said order of the Appellant,the first Respondent-company preferred appeal before theEmployees Provident Funds
Appellate Tribunal and by orderdated 27.08.1998, the appeal was allowed. The AppellateTribunal held that the first Respondent-company is only
acontractor of M/s. Parle (Exports) Pvt. Ltd., pursuant tothe franchise agreement. The Appellate Tribunal also foundthat the first Respondent-
company is an independentmanufacturer and therefore, it is entitled to the infancybenefits u/s 16 of the Act.
The above order of the Appellate Tribunal wasquestioned by the Appellant in the writ petition, which wasdismissed. Hence, the present writ
appeal.
The only issue to be considered is as to whether thefirst Respondent-company is primarily carrying onmanufacturing activity and is a contractor
under thefranchise agreement or it is an agent of M/s. Parle(Exports) Pvt. Ltd., making it ineligible for payment ofprovident fund contribution during
the infancy period.
Section 16(1)(d) of the Act provided that the Actshall not apply to any establishment newly set up until theexpiry of the period of 3 years from
the date on which suchestablishment is or has been set up. The above provisionwas deleted by the Amendment Act X of 1998 with effect
from22.09.1997. The first Respondent-company was set up andstarted its trial production on 04.08.1987 and the actualmanufacturing process
was started on 17.08.1987. Placingreliance on the above provision of Section 16(1)(d), thefirst-Respondent company claimed that the provision
of theAct shall not apply for a period of 3 years from the datewhen the establishment was set up. This led to an enquiry conducted u/s 7-A of the
Act, which ultimatelyresulted in the order of the Appellant directing the firstRespondent company to pay the contributions from 04.08.1987.
Before the learned single Judge, two questions wereraised, viz., i) when the original authority, namely, theRegional Provident Fund
Commissioner himself has passed anorder on the basis of the enquiry conducted under Section7-A of the Act, whether he would be competent to
file awrit petition challenging the Appellate Tribunal''s orderreversing his order; and ii) whether the first Respondentcompany is a contractor of M/s.
Parle (Exports) Pvt. Ltd.,under the franchise agreement or is an agent. In the eventit is held that the first Respondent-company is only acontractor
of M/s. Parle (Exports) Pvt. Ltd. under thefranchise agreement, it should have the benefit of infancyperiod for 3 years from 04.08.1987. On the
other hand, ifit is held that it is an agent of M/s. Parle (Exports) Pvt. Ltd., then the said benefit is not available to the firstRespondent-company in
view of the fact that M/s. Parle(Exports) Pvt. Ltd., is an establishment covered under theAct.
As far as the first contention is concerned, thelearned Judge has observed that the Appellant is notentitled to file a writ petition questioning the
order ofthe Appellate Tribunal. In our opinion, the said finding of the learned Judge cannot be accepted. Though theAppellant has passed the order
on an enquiry under Section7-A directing the first Respondent-company to pay thecontribution, it cannot be said that in the event the saidorder is
reversed by the Appellate Tribunal, no further challenge could be made before the Court. If that argumentis accepted, in all cases in the event the
order of the original authority is reversed on appeal, the same would necessarily become final without any further challenge before any other forum
or before this Court. To this extent, we are not inclined to accept the said finding ofthe learned single Judge.
Coming to the next submission as to whether thefirst Respondent-company is a contractor or an agent ofM/s. Parle (Exports) Pvt. Ltd., this
being a question of fact, to decide such question of fact, the terms and conditions of the franchise agreement are relevant. Before we go into the
said question, we may refer the following judgments rendered under similar circumstances, wherein it has been held that a franchise agreement
holder is only acontractor.
In Parle Beverages (P) Ltd. v. Union of India and Ors. (1982 ELT 142 (Bom), the Bombay High Court had an occasion to consider the very
same issue, wherein M/s. Parle Beverages (P) Ltd. had entered into a franchise agreement. In that judgment, in fact an earlier Division Bench
judgment of the Delhi High Court in Poona Bottling Co. Ltd. and another Vs. Union of India and others, taking a similar view was quoted with
approval. It has been held by the Bombay High Court as follows:
... As mentioned hereinabove, an identical question came up for consideration before the Division Bench of Delhi High Court and the judgment
is reported in 1981 ELT 389 (supra). The Division Bench held on consideration of the terms of Franchise Agreement that the imposition of various
restrictions on the Petitioner company under the Franchise Agreement on buying the essence for the beverages, like maintenance of records,
chemical tests, sale and distribution of beverages, types of bottles or crowns to be used, control over retail franchise, company''s right of
inspection, were merely to safeguard the trade interests and cannot lead to the conclusion that the bottling companies are manufacturing for or on
behalf of the Parle (Exports) Pvt. Ltd. I am in agreement with the view taken by the Division Bench of Delhi High Court.
A similar view has also been taken by the by the Andhra Pradesh High Court in the judgment reported in 1991 (62) FLR 627 (Karachi Bakery v.
Regional Provident Fund 1991 (62) FLR 627) and by the Rajasthan High Court in the judgment reported in 2007 (11) FLR 394 (Regional
Provident Fund Commissioner(The) and Anr. v. Moti Warping Factory 2007 (11) FLR 394 By placing reliance on the above judgments, the
learned Judge held that the first Respondent-company had engaged only in manufacturing activity, which is entitled to the benefit of Section 16(1)
(d) of the Act.
The learned Judge has also considered Section 2-Aof the Act relating to the definition of ''Establishment''. Whether the first Respondent-
company is an establishment or not also could be decided only on the basis of thefranchise agreement. The franchise agreement was
dated15.01.1987. Clause 3 of the agreement provides that thefirst Respondent-company will buy from M/s. Parle (Exports)Pvt. Ltd. the
essence/syrup for the beverages at the prevailing prices and shall notify all bottles and crowns purchased by the first Respondent-company. The
clause also provides that no essence/syrup, cartons, crates, crowns or finished merchandise will be sold, loaned or delivered toady other Bottler
without prior written permission ofM/s. Parle (Exports) Pvt. Ltd.
Mr. Ramu, learned Counsel appearing for theAppellant, would submit that apart from the above clause, the first Respondent-company should
manufacture the beverages in a plant approved by M/s. Parle (Exports) Pvt. Ltd. and located within the described territory under the agreement.
He would draw our attention to various clauses of the agreement in order to submit that the firstRespondent-company is nothing but an agent of
M/s. Parle(Exports) Pvt. Ltd. These conditions of the agreement should be considered with reference to the actual activities carried on by the first
Respondent-company.
It is true that by virtue of the franchise agreement, the first Respondent-company is bound to purchase the essence, viz., the raw materials for
manufacturing the beverages. Nevertheless, factually it could be seen that the first Respondent-company, in order to set up the unit, availed a loan
of Rs. 65 lakhs from SIPCOT, Tamil Nadu, under the category that it is a new venture. It has also availed credit facilities from State Bank of
Travancore, Marthandam. The Government of Tamil Nadu recommended the registration of the first Respondentcompany as a new industrial
undertaking to the Deputy Director of General of Technical Development. The Tamil Nadu Electricity Board also sanctioned electricity supply with
special zone applicable to the new industrial units. It was also recognized as a small scale industrial unit by the Director of Industries and
Commerce. It has also obtained licence from the Ministry of Food and Civil Supplies, Government of India, under the Production Order1995.
Though the first Respondent-company has to manufacture beverages strictly in accordance with the terms and conditions under the franchise
agreement, the entire manufacturing activity is not controlled by M/s. Parle(Exports) Pvt. Ltd. The franchise agreement should be readin
consonance with the actual activities carried on by thefirst Respondent-company. By mere agreement of undertaking to manufacture beverages
only by using the essence supplied by M/s. Parle (Exports) Pvt. Ltd. with certain other clauses controlling the first Respondent-company only in
order tonsure the quality of the beverages, that would not change the character of the unit as a new venture.
Section 2(e) of the Act defines an employer meaning in relation to an establishment which is a factory. Section 2(g) defines a factory meaning
any premises including the precincts thereof, in any part of which manufacturing process is being carried on or is ordinarily so carried on. The
Appellate Tribunal had factually foundthat the first Respondent-company is carrying onmanufacturing activity, which factual finding has been upheld
by the learned single Judge. In our opinion, such afactual finding requires no interference.
Mr. Ramu, learned Counsel appearing for theAppellant would submit that in the event there is afunctional integrality between the two
companies, both the companies should be considered as one establishment and inthat event, the first Respondent-company cannot claim the benefit
that it is a new company entitling itself to the benefit of Section 16(1)(d), as it stood then. In support of the said submission, the learned Counsel
would rely upon the judgment of the Apex Court in The Associated Cement Companies Limited, Chaibassa Cement Works, Jhinkpani Vs. Their
Workmen, .
In the said case, the Supreme Court was considering the question as to whether a limestone quarry owned by the same company situate about
a mile and half from one placebo another would be considered for the purpose of one establishment. The Apex Court laid the test that
manufacturing unit is completely depending upon the principal raw material for the manufacture of cement and the other company is depending
exclusively for the supply of limestone on the said quarry. To put it otherwise, one company is depending upon the raw material of the other
company and in turn, for that raw material, the other company was depending upon the limestone quarry. Only in that context, the Apex Court
found that there was functional integrality. Even otherwise, the Apex Court, in order to find out the relationship between the two companies for
functional integrality, found that several points should be considered including (1) ownership, (2)control and supervision, (3) finance, (4)
management and employment, (5)geographical proximity and (6)general unity of purpose and functional integrality. In the case unhand, it is to be
seen from the franchise agreement that except supplying the raw material and for establishing the unit as per its specification, M/s. Parle (Exports)
Pvt. Ltd. has no control over the management and employment ofthe first Respondent-company. Further, the first Respondent is owned by the
company as such and the control and supervision for the manufacturing activity vest in thefirst Respondent-company only. Hence, the said
judgment cannot be made applicable to the facts of the present case.
The learned Counsel for the Appellant would also rely upon yet another judgment of the Supreme Court in Noor Niwas Nursery Public
School Vs. Regional Provident Fund Commr. and Others, and would contend that the first Respondent-company cannot exist conveniently and
reasonably without M/s. Parle (Exports) Pvt. Ltd. This is one of the tests to find out whether the establishments protected u/s 16 of the Act. In our
opinion, the said judgment is also not applicable to the present case. In that judgment, the Supreme Court was considering a case where two units
were run by the same society and they were located in one and the same address and thereby establishing geographical proximity. As both the
units are run by the same society and that on a factual finding that one unit cannot exist conveniently and reasonably without the other, the Apex
Court found that both the units are one and the same. However, in the present case, as has been pointed out earlier, except the supply of raw
materials and to prescribe the manner in which the unit is to be located, there is no other control over the manufacturity activity by M/s. Parle
(Exports) Pvt. Ltd.
The two establishments are independent and thefirst Respondent-company is only expected to manufacture beverages by using the raw
materials supplied by M/s. Parle(Exports) Pvt. Ltd. and upto their specification. Hence, both the units cannot be considered as either one unit or
the first Respondent-company is an agent of M/s. Parle(Exports) Pvt. Ltd. The first Respondent-company is an independent establishment as
provided u/s 2-A ofthe Act. Hence, the above contention of Mr. Ramu, learned Counsel for the Appellant is also liable to be rejected.
For all our above reasons, we are not inclined to interfere with the order of the learned single Judge. Accordingly, the writ appeal fails and the
same is dismissed. No costs.