The Regional Provident Fund Commissioner, Bombay vs Shree Krishna Metal Manufacturing Co.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos 361 and 387 of 1959

Decision Date: 14 March 1962

Coram: P.B. Gajendragadkar, K.N. Wanchoo

In this case the Supreme Court of India heard an appeal filed by the Regional Provident Fund Commissioner of Bombay against Shree Krishna Metal Manufacturing Co., Bhandara. The judgment was delivered on 14 March 1962. The bench comprised Justice P.B. Gajendragadkar and Justice K.N. Wanchoo. The parties are identified as the petitioner, the Regional Provident Fund Commissioner, Bombay, and the respondent, Shree Krishna Metal Manufacturing Co. The citation of the decision is reported in 1962 AIR 1536 and 1962 SCR Supplement (3) 815. Subsequent citations appear in E&F 1964 SC 314, F 1965 SC 1076 and RF 1971 SC 2577. The matter concerned the construction and grammatical context of the Employees’ Provident Funds Act, 1952, particularly the definition of “factory” under section 1(3)(a) in relation to composite factories that engage in different industries, and whether such establishments fall within the Schedule I industries specified in the Act. The headnote of the judgment describes the factual background. The respondent company, in the first appeal, operated a compound in which it manufactured brass, copper and “kasa” circular sheets used for making utensils. Within the same premises it also ran a paddy‑milling operation, a flour mill and a saw mill. A rolling mill was employed for the metal‑sheet business while separate mills were used for the other activities, and each set of operations employed its own group of workmen. Nevertheless, the company employed common clerks and other staff who served all the businesses in the compound. When the Employees’ Provident Funds Act came into force, the company was required to comply with its provisions. The company contested the applicability of the Act to its whole enterprise by filing a writ petition before the High Court at Nagpur. The High Court allowed the petition, holding that the Act did not apply to the company. In the second appeal the respondent consisted of mills that primarily manufactured hydrogenated vegetable oil. These mills also produced tin containers in a separate establishment solely for storing and marketing the oil. The tin‑container unit employed 31 workmen, whereas the oil‑manufacturing unit employed 211 workmen. The mills were similarly directed to comply with the Act, but they challenged the order on the ground that their principal industry was oil manufacture, which is not included in Schedule I, and that the container‑making activity was merely ancillary. They also obtained relief from the Nagpur Bench of the High Court, which held that the Act did not apply to them. Both appeals raised the issue of whether each respondent should be considered a “factory” within the meaning of section 1(3)(a) of the Act, and argued that the High Court had erred in construing the term otherwise.

The Court observed that the ordinary rules of grammar must be applied to a statutory provision only after considering the context of that provision and by referring to other related sections of the Act. It further held that the phrase “engaged in any industry specified in Schedule I” should be understood to mean that a person is primarily or mainly engaged in the industry, as opposed to being engaged only incidentally. Accordingly, minor or subsidiary activities undertaken merely to support the main industry do not determine the character of the industry for the purposes of the Schedule.

The Court explained that when two possible constructions of a provision exist, each leading to some inconsistency, the interpretation that best conforms to common sense and the ordinary contemporary meaning of the words should be preferred. Applying this principle, the Court held that the respondent in the first appeal was commercially engaged in a Scheduled industry together with other activities, and therefore the Act was applicable to that respondent. Conversely, the Court held that the respondent in the second appeal was chiefly engaged in an industry not listed in the Schedule and was involved in the Scheduled activity only incidentally, merely to supply input for the manufacture of containers; consequently, that respondent did not fall within the scope of the Act.

The judgment was issued in the Civil Appellate Jurisdiction under Civil Appeals Nos 361 and 387 of 1959, arising from the orders dated March 1957 of the Bombay High Court at Nagpur in petitions numbered 282 and 335 of 1955. Counsel for the appellants were B. Sen and P. D. Menon, while counsel for the respondent in Appeal No. 361 was I. N. Shroff, and counsel for the respondent in Appeal No. 387 were A. V. Viswanatha Sastri and V. J. Merchant. The judgment was delivered on 14 March 1962 by Justice Gajendragadkar.

The two appeals were heard together because they both required interpretation of section 1(3)(a) of the Employees’ Provident Funds Act, 1952. In each appeal, the Regional Provident Fund Commissioner of Bombay acted as the appellant, while Shree Krishna Metal Manufacturing Co. and Oudh Sugar Mills Ltd. were the respondents, respectively. Shree Krishna Metal Manufacturing Co. is a partnership firm registered under the Indian Partnership Act. Its business consists of four operations located within the same compound: (i) manufacturing brass, copper and “kasa” circular sheets and producing utensils from those sheets; (ii) milling paddy; (iii) operating a flour mill; and (iv) running a saw mill. The company uses a rolling machine for the metal‑sheet work and has separate installations for the rice, flour, and saw‑mill operations.

The company asserted that it employs distinct groups of workers for each of its four activities, with some employees such as clerks and watchmen serving all four sections. Workers are engaged on either permanent or temporary contracts. After the Act came into force, the company was required to comply with its provisions. The company protested, contending that it did not qualify as a “factory” within the meaning of section 1(3)(a) and therefore should not be subject to the Act’s obligations.

In the matter concerning Shree Krishna Metal Manufacturing Co., the company argued that the definition of “factory” contained in section 1(3)(a) of the Provident Fund Act did not apply to it, and therefore it could not be required to observe the provisions of that Act. The Regional Provident Fund Commissioner disagreed with that view. He concluded that the company indeed fell within the meaning of “factory” as set out in section 1(3)(a) and consequently threatened to use coercive measures to make the company obey the requisitions issued under the relevant provisions of the Act. In response, the company filed a writ petition before the High Court of Bombay at Nagpur, invoking article 226 of the Constitution. The petition sought an order restraining the Commissioner from enforcing the provisions of the Act against the company. The High Court allowed the petition and issued the writ that the company had requested. The Regional Commissioner appealed against that order, presenting a certificate issued by the High Court. For convenience in what follows, the Regional Provident Fund Commissioner was referred to as the appellant and Shree Krishna Metal Manufacturing Co. was referred to as the Company.

The other respondent, Oudh Sugar Mills Ltd., was a public limited company registered under the Indian Companies Act and was the respondent in civil appeal number 387 of 1959. The mills engaged in the manufacture of a hydrogenated vegetable oil called “Vanasada” and its by‑products such as soap and oil‑cakes. This manufacturing activity was carried out at Akola under the trade name “Berar Oil Industries”. Production at the mills began on 11 October 1948. After the oil was processed at Akola, it was packed in tin containers of specific sizes. These tins were fabricated within the mill’s own oil‑factory premises, used solely for packing the vegetable oil, not sold separately, and no additional charge was levied on customers for the tins. The fabrication of the tins commenced on 13 October 1948. In the tin‑fabrication section, only thirty‑one workmen were employed, whereas on 1 November 1952 the main oil‑manufacturing works employed two hundred eleven workers. The Central Government formulated a scheme under section 5 of the Provident Fund Act, which came into force in two stages on 2 September 1952 and on 6 October 1952. Under the scheme, an employer was required to contribute six and one‑quarter per cent of the total wage bill each year to the Fund and to pay an administrative charge of three per cent on the combined contributions of employer and employees. On 8 August 1955, the Regional Commissioner demanded that the mills deposit its contribution and the related administrative charges, amounting to about Rs 34,000, on the ground that the entire operation of the mills constituted a factory within the meaning of section 1(3)(a).

The Regional Commissioner asserted that Oudh Sugar Mills Ltd. was “a factory under s. 1(3)(a)” and therefore required to make the statutory deposit. The Mills refused to make the deposit, contending that it was not a factory to which the Act applied. In response, the Regional Commissioner warned that it would commence proceedings against the Mills for recovery of the amount specified under section 8 of the Act. The Mills then instituted a writ petition before the High Court of Bombay at Nagpur. The High Court allowed the writ petition and issued an order restraining the Regional Commissioner from enforcing any provision of the Act against the Mills. Dissatisfied with that order, the Regional Commissioner approached this Court, presenting a certificate issued by the High Court. For convenience, the Regional Commissioner will be referred to as the appellant, and Oudh Sugar Mills Ltd. will be referred to as the Mills. The appellant claims that the High Court erred in concluding that the company and the Mills did not constitute a “factory” within the meaning of s. 1(3)(a) of the Act.

At the relevant time, section 1(3) read as follows: “Subject to the provisions contained in section 16, it (i.e., the Act) applies in the first instance to all factories engaged in any industry specified in Schedule I in which fifty or more persons are employed, but 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 all factories employing such number of persons less than fifty as may be specified in the notification and engaged in any such industry.” An amendment made in 1956 renamed section 1(3) as section 1(3)(a); hence the reference to s. 1(3)(a) in the present proceedings.

Before interpreting this clause, it is pertinent to recall the purpose for which the Act was enacted. The Act was designed to provide a system of provident funds for employees in factories and other establishments. Its overarching objective, as set out in section 5, was to establish “The Employees’ Provident Funds Scheme” for the creation of provident funds for all workers to whom the Act applies. Section 6 obliges employers to make contributions, while section 9 recognizes the Fund constituted under the Act for income‑tax purposes. Section 10 protects the credit balances of members from attachment, and section 11 gives priority to the payment of contributions over other debts. In essence, the Act constitutes a welfare measure intended to benefit the workmen covered by it. This benevolent purpose must be kept in mind while construing the clause under consideration in the present appeals. The first question to be addressed is whether s. 1(3)(a) excludes composite factories from its scope.

In this case the question for determination was whether section 1(3)(a) of the Employees’ Provident Funds Act excluded composite factories from its operation. The respondents argued that composite factories should not fall within the scope of section 1(3)(a). Their contention was that only factories that are wholly engaged in an industry listed in Schedule I of the Act qualify, provided they also meet the requirement of employing at least fifty persons. The respondents supported this view by pointing out that when the Act was originally enacted in March 1952, the Schedule contained only six industries. They maintained that the Legislature intended to extend the benefits of the Act to workers on an industry‑by‑industry basis, proceeding step by step. Because the provision imposed a financial burden on employers, the Legislature, according to the respondents, deliberately limited the application of the Act to those six important industries specified in Schedule I. The respondents further argued that, although section 1(3)(a) gives the Central Government power to bring additional factories within the ambit of the Act by issuing notifications, such extensions must be made factory‑wise, referring only to factories that are engaged in the industries enumerated in Schedule I. They inferred that this requirement meant that only factories exclusively devoted to the specified industries could be brought within the scope of section 1(3)(a).

The Court found this line of reasoning unconvincing. It held that the expression “all factories engaged in any industry specified in Schedule I” does not lend itself to a construction that limits the reference to factories exclusively engaged in those industries. While the precise categories of factories that may be covered by the power clause would be examined later, it was sufficient at this stage to note that the Legislature, by describing factories as “engaged in any industry,” did not intend to restrict the reference to factories that were solely engaged in a particular Schedule I industry. Adding the word “exclusively” to the statutory language, as the respondents suggested, would amount to an impermissible alteration of the legislation. Moreover, the definition of “factory” in section 2(g) of the Act clarifies that a factory means “any premises, including the precincts thereof, in any part of which a manufacturing process is being carried on or is ordinarily so carried on, whether with the aid of power or without the aid of power.” Consequently, the term “factory” employed in section 1(3)(a) bears a comprehensive meaning and embraces any premises where any manufacturing process is actually being undertaken.

The Court observed that the definition of “factory” set out in the statute indicates that a factory described as being engaged in any industry listed in Schedule I does not have to be engaged exclusively in the particular industry named in that schedule. It noted that section 1(3)(a), which was amended in 1956, now refers to “every establishment which is a factory engaged in any industry specified in Schedule I.” The insertion of the term “establishment” demonstrates that the provision may cover a grouping of several factories that undertake different industries yet are treated as a single establishment, provided that the other conditions of section 1(3)(a) are satisfied. Furthermore, section 2A, introduced by the Amending Act 46 of 1960, clarifies that an establishment may comprise various departments or branches, whether located in the same place or in different places, and that all such departments or branches shall be regarded as parts of the same establishment. Consequently, the Court held that the comprehensive nature of the concept of “establishment,” as reflected by the 1956 amendment, defeats any argument that the factory contemplated by the provision cannot be a composite factory. In addition, the explanation to Schedule I added by Act 37 of 1953 shows that at least one of the industries originally listed in Schedule I in 1952 clearly envisages a composite factory, thereby supporting an interpretation of “factory” that includes composite factories within the scope of section 1(3)(a). The industry in question—electrical, mechanical, or general engineering products—covers twenty‑five distinct items, and a factory that manufactures one or more of these items is not confined to producing a single item; rather, it operates as a composite factory and nevertheless falls within section 1(3)(a). The Court therefore concluded that the contention that a composite factory engaged in different industrial operations lies outside the ambit of section 1(3)(a) cannot be sustained. The next issue for consideration was whether the requirement that a factory employ fifty or more workmen applies to the term “industry” or to the term “factory” in section 1(3)(a). The respondents argued that the numerical test must be satisfied by the industry, not by the factory, meaning that even if a composite factory were covered by section 1(3)(a), the Act could apply only if the specific unit of the factory engaged in the Schedule I industry employed at least fifty persons. The Court noted that accepting this view would place neither the mills nor the company within the mischief of the Act. The respondents supported their construction by asserting that the pronoun “which” ordinarily qualifies the noun that immediately precedes it, thereby attaching the requirement to “industry” rather than to “factory.”

The Court observed that the grammatical rule that a pronoun normally qualifies the noun immediately preceding it did not, in this case, bind the interpretation to the word “Industry.” It held that such grammatical rules were not immutable and could be displaced by the surrounding context. When the context indicated that the rule should not apply, the contextual requirement prevailed. The provision under discussion described “factories” as being qualified by two separate clauses. The first clause described factories as being “engaged in any industry specified in Schedule I,” while the second clause stated “in which 50 or more persons are employed.” Consequently, for a factory to fall within the ambit of the provision, it had to satisfy both conditions: it had to be engaged in a Schedule I industry and it had to employ at least fifty persons. The Court classified the first clause as essentially parenthetical, concluding that the clause beginning with “in which” necessarily qualified the word “factories” rather than the word “industry.” Therefore, the decisive question was whether the factory itself employed fifty or more persons, not whether the broader industry employed that number of persons. This interpretation was reinforced by the latter part of section 1(3)(a), which authorized the Central Government to bring additional factories within the Act’s scope. In that segment, the text specified that any such factories must (i) employ the number of persons not less than fifty and (ii) be engaged in any industry listed in Schedule I. The Court emphasized that the amended clause, now appearing as a proviso to sections 1(3)(a) and (b) following the 1956 amendment, removed any doubt. The proviso stated that the Central Government could, after giving at least two months’ notice, issue a notification in the Official Gazette applying the Act to any establishment employing a number of persons fewer than fifty as specified in the notification, provided the establishment was engaged in a Schedule I industry. This wording unequivocally indicated that the employee‑number requirement applied to the establishment, i.e., the factory, and not to the industry as a whole. The Court also noted, incidentally, that later legislation reduced the required number of employees from fifty to twenty, but this observation did not alter the principle that the numerical test pertained to the factory.

In the present case the statutory requirement that a factory employ at least fifty workers has been reduced to twenty employees by the Amending Act 46 of 1961. Another provision of the Act reinforces this interpretation. Section 19A, among other things, states that if any difficulty arises in applying the provisions of the Act—especially if there is doubt as to whether a factory employs fifty or more persons—the Central Government may, by an order, make any provision or give any direction that is not inconsistent with the Act but that it considers necessary or expedient to remove the doubt or difficulty. Such an order of the Central Government is deemed final. Although this clause has been amended subsequently, those amendments are irrelevant for the matter before the Court. The essential point of the provision is that the Central Government has been empowered to resolve any uncertainty about whether a factory or establishment employs the prescribed number of workers, and that this power demonstrates that the employee‑number requirement applies to the factory or establishment itself rather than to the industry as a whole. This leads to the question of how to interpret the phrase “engaged in any industry specified in Schedule I.” The Court acknowledges that this question presents difficulty. It has already rejected the argument that a composite factory is excluded from section 1(3)(a); consequently, the phrase “engaged in any industry” does not mean “exclusively engaged in any industry.” Two possible constructions are therefore open. The first construction holds that even a partial engagement of a factory in an industry listed in Schedule I satisfies the requirement, no matter how small or insignificant the extent of its operation in that industry. Under this view, a factory that carries out several industrial operations, one of which falls within Schedule I, would be deemed to meet the test of section 1(3)(a) even if the activity in the specified industry is merely minor, incidental or subsidiary. The alternative construction interprets “engaged in any industry” to mean that the factory must be primarily or mainly engaged in that industry. According to this approach, when a factory undertakes several industrial activities, one of which relates to a Schedule I industry, the enquiry must determine whether that particular activity is subsidiary, incidental or minor. If it is, the factory cannot be said to be engaged in that industry. Situations may arise where a factory’s main operations are in other industries and it undertakes an activity in a Schedule I industry solely to support its major activities; such undertakings are then considered subsidiary, incidental and minor.

In that situation, the factory could not be said to be engaged in the industry specified in Schedule 1. The Court recognised that both possible constructions of the phrase were viable, yet each construction produced some difficulty. Under the first construction, the implication would be that even if only a few employees—perhaps half a dozen—performed work in the activity falling within the industry listed in Schedule 1, the provisions of the Act would nevertheless extend to every workman employed throughout the entire factory. This result would arise because the factory would be deemed to have satisfied the test of being engaged in the specified industry, and the Court observed that such an outcome was plainly anomalous. Conversely, if the second construction were adopted, the Court noted that although more than fifty persons might be employed in an activity that was merely incidental or subsidiary to the industry listed in Schedule 1, the Act’s provisions would not apply to those workers because the factory as a whole would fail to satisfy the test of being engaged in that industry. The Court also found this consequence to be anomalous.

The Court acknowledged that when a statutory clause allowed two reasonably possible constructions, selecting the appropriate meaning was not straightforward, particularly because each alternative seemed to generate some inconsistency. After weighing the difficulties, the Court was inclined to interpret the expression “engaged in any industry specified in Schedule 1” as meaning “mainly engaged in any industry specified in Schedule 1.” Accordingly, if a factory conducted two industrial activities—one being its primary, principal or dominant activity and the other being a purely subsidiary, incidental, minor or feeding activity—the primary or dominant activity should determine the character of the factory under section 1(3)(a). The Court clarified that this interpretation did not add any word to the statutory provision; it merely gave meaning to the relevant phrase “engaged in any industry specified in Schedule 1.”

The Court further explained that when a person is described as being engaged in any business, the ordinary meaning is that the person is engaged mainly or principally in that business, and the same ordinary meaning should apply when the clause refers to an establishment engaged in a specified industry. This approach reflected the common‑sense understanding of the words “engaged in” and was consistent with the accepted usage of the term. The Court also indicated that one test sometimes employed is to examine whether the product of the incidental activity is intended for sale in the market or solely for internal use by another department of the factory. If the product is marketed for sale, the activity cannot be treated as merely incidental, and the factory may be said to be engaged in both activities, thereby qualifying as engaged in the industry specified in Schedule 1. However, the Court cautioned that the market‑sale test should not be regarded as a decisive or exhaustive criterion.

The Court observed that the definition of “manufacture” contained in section 2(1)(a) indicates that a factory may produce a commodity for purposes such as sale, transport, delivery, disposal, or for its own internal use. Consequently, the mere fact that a commodity is produced solely for use by another department of the same factory does not automatically demonstrate that the activity producing that commodity is not the factory’s principal activity. The Court further explained that when a factory is simultaneously engaged in several industrial activities and at least one of those activities relates to any industry listed in Schedule I, the factory may be said to be engaged in the industry specified in Schedule I. The existence of other industrial activities does not, by itself, remove the factory from the scope of section 1(3)(a). The Court suggested a broad, practical test: to determine whether the factory is, from a business standpoint, engaged in an industry listed in Schedule I. The answer to this question usually resolves the issue raised by section 1(3)(a). Accordingly, whether a factory is engaged in any industry in Schedule I is a question of fact that must be decided on the basis of the particular facts and circumstances of each case. The Court noted that this approach aligns with the view expressed by Balakrishna Ayyar J. in the decision of Madras Pencil Factory by its Properties v. Perumal Chetty & Sons by its partner V. Ananthakrishna Chetty v. The Regional Provident Fund Commissioner (1), a view with which the Court is broadly in agreement.

The Court then turned to the question of whether the High Court correctly held that the company and its mills fell outside the ambit of section 1(3)(a). It recalled that the company carries on four distinct kinds of industrial activity, one of which is the manufacturing of brass, copper and “kasa” circular sheets and the preparation of utensils from those sheets. For the production of metal circular sheets the company employs a rolling mill, and it is well‑settled that such work falls within Schedule I of the Act. If the company can be regarded as a factory engaged in the industry represented by this activity, the first limb of the test under section 1(3)(a) is satisfied. The Court emphasized that, because the company is engaged in four different activities, the activity that falls within Schedule I cannot be characterized as minor, subsidiary or merely incidental to the other activities. That activity is as integral to the company’s operations as the other activities, and therefore the company must be held to be a factory within the meaning of section 1(3)(a) for the purpose of the first test. With respect to the second limb concerning the number of employees, the company contended that at the relevant time the total number of its employees engaged in all its activities did not consistently exceed fifty. The Court observed that this issue was a factual dispute not suitable for determination in the present writ proceedings, and therefore it may be assumed, for the purpose of the writ, that the numerical strength requirement was satisfied.

In this case the Court observed that the four activities of the claimant company did not consistently employ more than fifty persons, and that the High Court had deliberately refrained from addressing this point because it was a disputed factual issue unsuitable for resolution in a writ proceeding. The appellant contended that, taken together, the total number of employees engaged by the company at the relevant time did exceed fifty, and that this contention formed the basis for the filing of the present writ petition. Consequently, without making a determination on the disputed factual question, the Court assumed for the purposes of the writ proceedings that the requirement concerning numerical strength was satisfied. On that basis the Court held that the High Court’s conclusion that the company fell outside the scope of section 1(3)(a) was legally erroneous and therefore had to be set aside. Accordingly, appeal No 361 of 1959 filed by the Regional Provident Fund Commissioner was allowed, the writ petition filed by the company was dismissed with costs throughout, and the respondent was ordered to comply with the requisition issued by the appellant under the appropriate provisions of the Act. Regarding the date from which the respondent must begin making statutory contributions to the Provident Fund, the Court indicated that the appellant should issue a directive after consulting the workmen, because from the date so specified both the respondent and its workmen would be required to make their respective contributions.

The Court then turned to the separate matter concerning the Mills. It noted that the principal industrial activity of the Mills consisted of the manufacture of the hydrogenated vegetable oil known as “Vanasada” and its by‑products, such as soap and oil‑cakes. While it was acknowledged that the Mills also fabricated tin containers, an activity that fell within Schedule I, the Court found that this line of work represented only a very minor portion of the Mills’ overall operations. Specifically, the number of employees engaged in the tin‑container activity was thirty‑one, whereas the total workforce of the Mills amounted to two hundred and eleven. Moreover, the containers were produced solely for the internal use of the Mills, were not intended for sale in the market, no price was charged to customers for them, and they were required even for the storage of the vegetable oil. The Court therefore concluded that the fabrication of tin containers was undertaken by the Mills merely as a feeder activity, integrally linked to its main business of producing and marketing vegetable oil, and thus constituted a minor part of its overall activity. Having regard to the facts admitted or proved, the Court was satisfied that the High Court was correct in holding that the Mills did not qualify as a factory within the meaning of section 1(3)(a). As a result, appeal No 387 of 1959 was dismissed with costs. The Court consequently affirmed that appeal No 361 of 1959 was allowed and appeal No 387 of 1959 was dismissed.

The Court concluded the proceedings by issuing an order of dismissal, indicating that the appeal brought before it was not allowed to proceed. In reaching this determination, the Court found that no further adjudication on the matters raised by the appellant was warranted. Consequently, the appellate application was terminated, and the parties received no further directions or relief from the Court. The dismissal signified the final resolution of the appeal, and the matter was thereby closed without any modification of the lower court’s decision.