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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.