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Judgment
Sathiadev, J.—Respondents in W.P. No. 2541 of 1979 are the appellants herein and the petitioner is the respondent herein.
Petitioner/respondent (ranking of parties as in W.P.) prayed for quashing the order of the first respondent dated 25-5-1979 and also that of the
Second Respondent dated 16-5-1979 and for consequential directions to be issued. Petitioner is a Weavers Cooperative Society registered under
Tamil Nadu Co-operative Societies Act, and its object is to improve handloom industry, and it purchases yarn and other raw materials and
advance the same to its members, who convert them into finished goods and deliver them to the Society, and thereafter it sells the finished goods in
the market to the best advantage of the Society. The by-laws provide for such an activity. It had constructed a colony of 100 houses for Weavers
and it runs an elementary school and a Community Hall with a Library. Dispensary facilities, etc. On 26-9-1968, it received a notice from third
respondent stating that on and from 1-7-1968 its factory and all its branches come within the purview of Employee''s Provident Funds Act, 1952
and the Scheme framed thereunder as it is a factory to which the Act is made applicable under S.1(3)(a). Textiles (Dyeing Unit) is one of the
Industries mentioned in Schedule I of the Act, and the petitioner is also engaged in the said activity. An appeal under S.19A was filed claiming that
the Dyeing Unit is only a feeder and incidental activity of the Society, and its predominant activity is production of various kinds of bed-sheet and
towel, and therefore, the Act is not applicable to the Society. Before the appeal was heard, third respondent passed an order on 2-9-1974 stating
that the main business of the Society is purchasing and storing of yarn and selling the finished goods manufactured by the Handloom weavers in
their own looms, and as such it comes under the category of ""trading and commercial establishment"". It was held that the Society will be covered
under S. 1(3)(b) though it may not come under S.1(3)(a). Aggrieved with this order, an appeal was preferred under S.19A on 11-11-1974
pointing out that the Director of Handlooms had classified the Society as ""Industrial Society"" and that is the predominant activity which should be
properly appreciated. Second respondent by order dated 16-5-1979 held that the activity of the Society would come under the head ""trading and
commercial establishment"". It is aggrieved with the said orders the Writ petition was filed.
Respondents in their counter affidavit claim that the Society is engaged in production of textile goods, and has a strength of 56 employed
persons including the workers in the dyeing unit. It purchases yarn, dyes it and distributes to its members with instructions to weave them according
to certain specifications, and thereafter sells the finished goods in open market and earns considerable profit.
Reliance was placed on the decision in Chhotalal Morarji Dhami Vs. Regional Provident Fund Commissioner and Others, , to exculpate it from
the applicability of the Act.
Learned Judge held that the Society''s predominant activity would not come under the heading ""trading and commercial establishment"" as
notified under S. 2 (4) (b) of the Act. It was further held that it is not the mere presence of one of the elements, i.e. purchase, sale and storage
would be enough, but it must indulge in trading and commercial activity to attract the applicability of the Act. Since it only purchases yarn and gets
the bed-sheets and towels manufactured by handloom weavers, which is its dominant activity; it cannot be called as a trading and commercial
establishment. Element of sale is only incidental to manufacture. Aggrieved with this decision, this writ appeal is preferred.
Mr. T. Somasundaran, learned counsel for the respondents, submits that the construction put upon G.S.R. 346 dated 17-3-1962 was not
correct, and that the activity of purchase, storage and sale are not covered by the said G.O., and when petitioner had got out of S. 1(3) (a) by
claiming that it is not engaged in manufacture; it cannot now with a volte face claim that it is only engaged in manufacture and not trading upon the
finished products. When its dominant activity comes within the four corners of S. 1(3) (b) and the aforesaid notification, and when extension of the
provision of the Provident Fund Act would benefit poverty stricken weavers who are living with no savings in the twilight days of their existence, a
beneficial legislation of this nature ought to have received a liberal construction.
C.S.R. 346, Gazette of India, dated 17-3-1962 reads as fellows:
Every trading and commercial establishment engaged in purchase, sale and storage of any goods, including establishments of importers, exporters
advertisers, commission agents and brokers and commodity and stock exchanges, but not including banks and ware houses establishment under
any State or Central Act with effect from 30-4-1962.
S.1(3) (a) and (b) reads as follows:
(3) Subject to the provisions contained in S.16, it applies....
(a) to every establishment which is a factory engaged in any industry specified in Schedule 1 and in which twenty or more persons are employed,
and
(b) to any other establishment employing twenty or more persons or class of such establishment which the Central Government may, by notification
in the Official Gazette, specify in this behalf.
Provided that the Central government may, after giving not less than two months'' notice of its intention so to do, by notification in the Official
Gazette apply the provisions of this Act to any establishment employing such number of persons less than twenty as may be specified in the
notification.
The learned Judge would then state:
......It is the common case that schedule I in so far as it mentions the manufacture of textiles made wholly or in part of cotton or wool or jute or silk,
whether natural or artificial will govern the petitioner''s Society, since it produces cotton handloom towels and bed-sheets..........
The learned Judge having applied the dominant activity test, it has to be seen whether the activity of the Society in the context of the common case
as put forth and above extracted would not make it a ""trading and commercial establishment"" which is engaged in purchase, sale and storage of any
goods. The Society admits that it purchases yarn for the purpose of manufacturing bed-sheets and towels. It does not manufacture yarn. The raw
material required for these finished products is admittedly purchased by it. Thereafter it dyes the yarn into different colours, and it has a dyeing
factory in which employees are engaged. Instead of laying considerable emphasis on the existence of dyeing factory, it would be better to take that
in manufacturing the finished product, one of the activities involved was dyeing of yarn. It is done by the Society. Thereafter, it distributes yarn to
weavers with directions as to what specification and design, they must be woven into by them. Societies adopt different methods relating to
remuneration, and disburse wages either at piece rate or at certain fixed rates on quantity of raw materials. In any event, the property in the goods
still continues to belong to the Society. For weaving, the weavers charge, and they are accountable to the Society for the yarn received by them.
The balance of the yarn, if any, in their hands will have to be returned to the Society. Thereafter, the Society sells its goods in the open market and
earns profit. During the relevant point of time, it has earned a profit of Rs. 32 Lakhs. All these activities are no different from activates carried on
by any private dealer, who produces bed-sheets and towels. It is only the nature of the activity carried on which should be the determinative factor
and not whether it is done by a private individual or a Cooperative Society. Therefore, factually the activities carried on by the Society cannot but
he treated as ""trading and commercial activity"". But yet, Mr. Sam, learned Counsel for the petitioner, relies upon the following decisions to claim
that none of these activities form the dominant activity of the Society, and under the by-laws, its object is to benefit handloom weavers, and
therefore, either the existence of the dyeing factory or the fact that yarn is converted into a finished product, would bring it within the ambit and
applicability of this enactment.
The Regional Provident Fund Commissioner, Bombay Vs. Shree Krishna Metal Manufacturing Co., Bhandara, is the decision of the Supreme
Court under Employees'' Provident Funds Act, 1952. On dealing with a composite factory, as to how its main business activity and incidental
activity will have to be deciphered, it was held that, whether the factory is engaged in an industry specified in Schedule I is a question of fact to be
determined on the facts and circumstances of each case, and the predominant test to be applied is; is it engaged in the industry specified in
Schedule I or a business of the appellant? It was also held that a composite factory would come within the ambit of S. 1(3) (a) of the Act. It was a
decision wherein emphasis was on the words ""engaged in any industry"" specified in Schedule I in respect of S. 1(3)(a) but not one in relation to the
notification and S. 1(3) (b) which are involved herein. Regarding one of the tests to find out as to what is the incidental activity, it was held:
......If the answer to this question is that the said product is sent out in the market for sale, then the activity in question cannot be treated as
incidental....
Hence this decision cannot assist the petitioner because it admittedly sells the manufactured bed-sheets and towels in open market with a profit
motive like any commercial enterprise.
The The Associated Industries (P) Ltd. Vs. The Regional Provident Fund Commissioner, Kerala Trivandrum, is also a decision of the Supreme
Court dealing with a composite factory, and it was held that a factory is an ""establishment"" under S.1(3) (a), if it satisfies the requirements of the
Section, they being: (1) ""that it is one or all industries fall under Schedule I of the Act; and (2) that it satisfies the numerical strength as prescribed
under the section."" It was also held that it is a question of fact when more industries are run by a factory, and if they are independent of each other,
S. 1(3) (a) will apply to the factory even if one or more, but not all, of the industries run by it fall under Schedule I. This is also a decision which has
no applicability to the facts and circumstances of this case.
Attar Hussein Vs. Fazli Brothers, Ltd., deals with the meaning of the word ""trader"" in Rule 199 of the Bombay High Court Rules (Original
Side), and the point involved therein was to find out as to whether the transaction involved between the parties will be within the definition of
commercial cause"" used in the said Rule. It is not made out as to how this decision could be looked into, for the point involved in the appeal.
Kumar Brothers (Bidi) v. R.P.F. Commr. 1968 Lab.I.C. 1578 is a Division Bench decision of the Patna High Court which dealt with a claim
relating to S.1(3) (b) and the concerned notification, and it was held that ""establishment"" engage in manufacture of beedi from finished tobacco
leaves purchased in the market, were not covered by notification. The manufacturers therein had obtained licence under the Factories Act for
manufacturing beedi, and they also get beedi manufactured by individual contractors, who were outside the factory premises. They claim that they
purchase tobacco leaves and manufacture beedi from those leaves and sell the beedis, and that the purchase and sale are incidental to the
manufacturing process. The learned Judges dealt with this point as a subsidiary question, and without dealing with the merits of this claim, held that
the ""purchase of tobacco leaves is necessary for the manufacture of Beedi and the sale follows from the manufacture"", and hence, establishments
are not covered by G.S.R. 346 dated 7-3-1962. The Supreme Court in the aforesaid two decisions had pointed out that the nature of the activity,
and as to whether it is a dominant activity or it is an incidental activity are questions of fact. In para 17, of Patna High Court''s Judgment, there is no
analysis found as to in what manner the manufacturing process was gone through. Hence, as stated above, when factual aspects are available, and
when they were considered in an appeal under S.19A, and no better material having been placed to contradict that factual finding and the activities
of the Society in the manner already culled out having not been disputed; the conclusion arrived at in this decision, cannot be applied to the instant
case. The same notification had come up before a Division Bench of the Mysore High Court in Chhotalal Morarji Dhami Vs. Regional Provident
Fund Commissioner and Others, and it was also emphasized therein:
It is only if, upon facts, it can be held that the dominant activity is the commercial activity, the petitioner''s establishment will come within the scope
of the notification mentioned.
Therefore, the factual aspects as to what is the activity of the petitioner and the like Co-operative Societies, will alone be guiding factors to find out
its dominant activity.
Learned Counsel for the respondent, would submit that none of the decisions referred to by the petitioner could be of any assistance to
determine the point involved herein, and he relies upon the decision reported in Varjivandas Hirji and Co. Vs. D.T. Ghatpande and Another, which
dealt with S. 1(3)(b) of the Act and notification in G.S.R. 346. It was a case where an establishment employed 19 persons in a factory in which
asafoetida was produced and 12 persons in the office, which dealt with the sale of its products, and under such circumstance, it was held that the
entire establishment would come within Cl.(b) of S.1 (3) because of S. 2A of the Act. It was contended that they are not ""trading or commercial
establishment"" because (a) their dominant activity is manufacture and their dealing in asafoetida is a minor activity and that (b) they sell only goods
manufactured by them. On this plea, it was held that a dealer would mean a trader or a person who buys goods and sells them without processing
them, and that the manufacturers therein do not buy and sell asafoetida, and that they manufacture and sell their own goods. Under such
circumstances it was held as follows:
......There is, therefore, no substance in the contention that they are not a commercial or trading establishment on this ground ...
Even if they sell goods manufactured by themselves, they would still be a trading or commercial establishment was the view taken by the Supreme
Court in Basantlal Jain v. Regional Provident Fund Commissioner W.P. No. 86 of 1962 dated 21-3-1963. This decision was relied upon by the
Division Bench of the Bombay High Court to reject the plea of the petitioner before it. It was a case in which Indian sweets were manufactured in
one premises employing 18 persons and sold by them in a separate retail shop where 16 persons are employed. It was held by the Supreme Court
that the finished product was still goods within the meaning of the notification, and therefore, the petitioner''s business consisting of two parts, viz.,
manufacture and sale of sweetmeats, came within the purview of the notification.
C.A.R. & A.V. Service v. Regnl P.F. Commr. 1979 Lab.I.C. 283, is a Division Bench decision of the Madhya Pradesh High Court holding
that the expression ""trading and commercial establishment"" must be given widest connotation, and profit motive is immaterial and a Society being
aided by churches and other charitable bodies would not make it anything less different from what it could be under the notification. In Organo
Chemical Industries v. Union of India 1979 Lab. I.C. 283, it was held that when a beneficial legislation is enacted to bring about social justice,
such an enactment should be construed liaberally.
Hence, in the light of the decision of the Supreme Court referred to in Varjivandas Hirji & Co. v. Chatpande AIR 1979 S.C. 1803, when
Petitioner Society not only purchases raw materials, but also stores them and thereafter sells by carrying out manufacturing process under its
supervision and control it carries on business as a ""trading and commercial establishment"" and therefore, its activities would squarely come within
the scope of S. 1 (3) (b) and within the purview of the notification G.S.R. No. 346, dated 7-3-1962. At this juncture, it must be pointed out that
thousands of weavers in this State would be benefited by extending the provisions of the Act, because they invariably die in penury, and they never
had any assistance from any quarters to know the benefits of this scheme. It is unfortunate that a legislation of this, nature had eluded them all these
20 years. Hence, this appeal is allowed with costs. Counsel fee Rs. 1,000.