The Associated Industries (P) Ltd vs The Regional Provident Fund Commissioner, Kerala, Trivandrum

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 324 of 1962

Decision Date: 9 April 1963

Coram: P.B. Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta, J.C. Shah, N. Rajagopala Ayyangar

The case titled The Associated Industries (P) Ltd versus The Regional Provident Fund Commissioner, Kerala, Trivandrum was decided by the Supreme Court of India on 9 April 1963. The judgment was authored by Justice P B Gajendragadkar, and the bench was composed of Justices P B Gajendragadkar, K N Wanchoo, K C Das Gupta, J C Shah and N Rajagopala Ayyangar. The petitioner was The Associated Industries (P) Ltd and the respondent was The Regional Provident Fund Commissioner, Kerala, Trivandrum. The decision was reported in 1964 AIR 314 and 1964 SCR (2) 905. The principal statutory provision under consideration was the Employees’ Provident Funds Act, 1952 (19 of 1952), particularly sections 1(3)(a), 2, (g) and (i) of the Act and Schedule I, as it related to the question of whether a composite factory carrying out two independent industries could be deemed an “establishment” within the meaning of section 1(3)(a).

The petitioner operated both a tile factory and an engineering works at Quilon. These two enterprises were distinct and independent of one another yet were conducted by the same company on the same premises. The tile factory had been established in July 1943, while the engineering works commenced in September 1950. The engineering works was included in Schedule I of the Employees’ Provident Funds Act and employed twenty‑four workers, whereas the tile factory employed more than fifty workers. The factory as a whole held a licence issued under the Factories Act, 1948, which covered the entire premises. The petitioner filed a writ petition before the Kerala High Court asserting that its combined factory did not fall within the ambit of section 1(3)(a) of the Employees’ Provident Funds Act. The High Court dismissed the writ petition and awarded costs against the petitioner, prompting the appeal to the Supreme Court.

The Supreme Court held that a factory qualifies as an “establishment” under section 1(3)(a) when it meets the statutory requirements, namely that one or all of its industries are covered by Schedule I of the Act and that it satisfies the prescribed numerical strength. The Court explained that the nature of the dominant or primary industry determines the applicability of the provision when a factory carries out both dominant and subsidiary activities. Furthermore, the Court observed that where a factory conducts more than one independent industry, section 1(3)(a) applies even if only some, but not all, of the industries fall within Schedule I. The Court found that neither the tile industry was dominant nor the engineering industry was subsidiary; rather, both were independent of each other. Consequently, the factory was deemed a composite factory, and the provisions of section 1(3)(a) were attracted by virtue of the engineering works, which fell within Schedule I. The Court approved the earlier decision of the Regional Provident Fund Commissioner, Bombay v. Shree Krishna Metal Manufacturing Co., Bhandara, reported in 1962 Supp. 3 SCR 815. The judgment was rendered as a civil appellate jurisdiction in Civil Appeal No. 324 of 1962, appealing from the judgment and decree dated August 1960 of the Kerala High Court.

The judgment dated April 9 1963 was delivered by Justice Gajendragadkar. The case concerned a petition filed in the Kerala High Court, citation O P No 97 of 1953, and was argued before the Supreme Court by counsel for the appellant and counsel for the respondent. The appellant, Associated Industries (P) Ltd., operated a tile factory and an engineering works located at Quilon. The tile factory commenced operations in July 1943, while the engineering works began in September 1950. Both enterprises were owned by the same company and occupied the same premises, and it was undisputed that the two businesses were separate and distinct industries. It was also undisputed that the company held a single licence issued under the Factories Act, 1948, which covered the entire premises and allowed the premises to be treated as one factory for the purposes of that Act and the rules made thereunder.

The Regional Provident‑Fund Commissioner of Vanchiyoor, Trivandrum, informed the appellant on March 10 1953 that the Employees’ Provident Funds Act, 1952 (No 19 of 1952), together with the scheme made under it, applied to the appellant’s factory. Accordingly, the commissioner requested that the appellant deposit the required contributions and administrative charges with the Sub‑Office of the Imperial Bank of India, as mandated by section 6 of the Act. The same request was reiterated in notices dated March 25 1953 and April 24 1953. The appellant contested the correctness of the commissioner’s view that the factory fell within the scope of the Act and therefore refused to comply with the requisitions.

In response, the commissioner sent a further notice on June 16 1953 stating that, should the appellant fail to make the prescribed deposits and submit the necessary returns, appropriate legal action would be taken to compel compliance with the Act. Following this, the appellant instituted a writ petition (O P No 97/1953) in the Kerala High Court, seeking a writ of certiorari to set aside the notices issued by the commissioner, to restrain the commissioner from proceeding further, and to obtain other incidental relief.

The principal submission made by the appellant before the High Court was that its factory was not an establishment to which section 1(3) of the Employees’ Provident Funds Act applied. The High Court rejected this contention. Thereafter, on behalf of the appellant, it was argued before the High Court that the notices issued by the commissioner were retrospective in nature and therefore illegal. The High Court also rejected this argument.

In the proceedings before the High Court, the appellant argued that the notices issued by the respondent were illegal, and the court rejected that contention. The appellant further asserted that, because the employees had not made any contributions for the relevant period, it would be unfair to compel the appellant to comply with the notices. The High Court observed that the respondent had admitted it did not intend to collect the employees’ share of the contribution for that period from the appellant. The court considered that admission to be appropriate and equitable, and concluded that the appellant’s claim of inequity or injustice in enforcing the notices lacked substance. Accordingly, the court dismissed the writ petition filed by the appellant and ordered the appellant to pay costs. Dissatisfied with that order, the appellant appealed to the Supreme Court, presenting a certificate issued by the High Court. The appeal was presented by counsel for the appellant, who identified a principal issue that relied upon a recent Supreme Court decision in The Regional Provident Fund Commissioner, Bombay v. Shree Krishna Metal Manufacturing Co. and Oudh Sugar Mills Ltd. The appellant contended that certain provisions of the Employees’ Provident Funds Act required interpretation, specifically section 1(3), sections 2(g) and 2(i), and section 6. Section 1(3)(a) provides, subject to the provisions of section 16, that the Act applies to every establishment that is a factory engaged in any industry listed in Schedule I and that employs fifty or more persons; the amendment made in 1960 reduced the employment threshold from fifty to twenty persons. Section 2(g) defines “factory” as any premises, including its surrounding area, in which a manufacturing process is carried on or ordinarily carried on, whether or not the process uses power. Section 2(i) defines “industry” as any industry specified in Schedule I and includes any other industry added to the Schedule by notification under section 4. Section 6 governs the levy of contributions and other matters that may be provided for in schemes, and under its authority the Employees’ Provident Fund Scheme of 1952 was framed. In the Bombay case, the Supreme Court held that the language of section 1(3)(a) does not limit its application to factories that are exclusively engaged in an industry enumerated in Schedule I. The Court observed that when the legislature described factories as factories engaged in any industry, it did not intend that such factories be engaged only in the particular industry listed in the Schedule.

In this case, the Court reiterated that the term “factory” appearing in section 1(3)(a) possesses a broad meaning and embraces any premises where a manufacturing process is carried on, as defined in the statute. Consequently, a factory that is engaged in any industry listed in Schedule I is not required to be engaged exclusively in that particular industry. While interpreting the scope of section 1(3)(a), the Court held that composite factories also fall within its ambit, and the mere presence of activities that are covered by the Schedule alongside activities that are not does not automatically remove the factory from the provision. After addressing that point, the Court turned to the question of whether the numerical requirement of employing at least fifty persons, as the section then stipulated, should be applied to the factory itself or to the industry as a whole. The Court answered that the test is to be applied to the factory rather than to the industry. From this, the Court concluded that for a factory to be attracted by section 1(3)(a) it must be engaged in an industry mentioned in Schedule I and must employ not fewer than fifty workers. The decision therefore clarified that section 1(3)(a) is not limited to factories that carry out only the industrial work described in Schedule I; it also includes composite factories that conduct some activities covered by the Schedule and some that are not. To state the legal position categorically, the Court explained that if a factory carries on a single industry that is listed in Schedule I and satisfies the prescribed employee count, it unquestionably falls within section 1(3)(a). If the factory conducts more than one industry and each of those industries is included in Schedule I, and the combined workforce meets the fifty‑person threshold, the factory likewise qualifies as an establishment under section 1(3)(a). Where a factory conducts several industries and one of them is the primary or dominant activity while the others are merely subsidiary, minor or incidental, the nature of the dominant activity determines the applicability of section 1(3)(a). If the dominant activity belongs to Schedule I, the existence of subsidiary activities outside the Schedule does not defeat the application of the provision. Conversely, if the dominant activity is not covered by Schedule I, even the presence of one or

In considering whether section 1 (3) (a) applies, the Court explained that the provision does not apply when a factory has several subsidiary, incidental, minor or feeding industries that all fall within Schedule I. Conversely, when a factory carries out more than one industry and those industries are independent and distinct from one another, the provision does apply even if only some of the industries, but not all, fall within Schedule I. The Court clarified that the issue of subsidiary, minor or feeding industries becomes relevant only when the factory was originally established to pursue a single primary industry and the additional industries exist merely to support or feed the objectives of that primary activity. In such a situation the minor industries function as departments of the primary industry. However, where the various industries operated by a factory are independent and not so integrated as to be regarded as parts of the same industry, there is no need to examine which industry is dominant and which is subsidiary.

The Court then referred to the earlier decision in The Regional Provident Fund Commissioner, Bombay (1), which dealt with two separate cases: Shree Krishna Metal Manufacturing Co. and Oudh Sugar Mills Ltd. In the Metal Manufacturing case, the company engaged in four different types of activities. The Court held that the activity falling under Schedule I was neither minor, nor subsidiary, nor incidental to the other activities; it was an independent industry. Because the question of one industry being subsidiary, minor or incidental did not arise, the factory was held to be covered by section 1 (3) (a). In contrast, the Oudh Sugar Mills case involved a primary activity of producing a hydrogenated vegetable oil known as “Vanasada” together with its by‑products such as soap and oil‑cakes. A separate department of the mill manufactured containers, and this part of the industrial activity fell within Schedule I. Evidence showed that container fabrication was undertaken solely as a feeder activity that was integrally linked to the mill’s main business of producing and marketing vegetable oil. Since the primary business lay outside Schedule I, the Court concluded that the factory as a whole fell outside the ambit of section 1 (3) (a). The Court noted that although both cases were decided in a single judgment, the test of determining the principal character of an industry in relation to a minor industry became necessary particularly because of the facts in the Oudh Sugar Mills case.

In this case the Court explained that the test for determining the principal character of a minor industry had become necessary principally because of the decision in the Oudh Sugar Mills case. However, the Court pointed out that in the earlier case involving the Company, the various activities were not merely minor or subsidiary but were independent of each other, and consequently the Court had held that the Company’s factory fell within the scope of section 1 (3) (a). On the basis of that precedent, the Court concluded that there was no ground for the present argument that the engineering business operated by the appellant could not be regarded as the primary or dominant activity and that the manufacture of tiles should be treated as the main industry.

The appellant’s counsel, Mr. Pai, sought to argue that although the engineering segment of the appellant’s factory was classified under Schedule I, it employed only twenty‑four workers, whereas the tiles segment employed more than fifty workers. He further emphasized that the tiles factory had been established in 1943 while the engineering works began in 1950, and he contended that, in view of the earlier commencement of the tiles business and the greater number of employees engaged therein, the tiles industry ought to be considered the dominant, primary, and main industry of the factory. Accordingly, he submitted that the factory as a whole should be held to be outside the ambit of section 1 (3) (a). The Court found this argument plainly untenable. It observed that when the two industries are independent of one another, there is no question of which is principal and which is subsidiary. Once it is shown that the factory is carrying on two distinct industries, one of which falls within Schedule I, the factory becomes a composite establishment to which section 1 (3) (a) applies.

The Court further explained that section 1 (3) (a) merely requires that a factory be engaged in any industry specified in Schedule I. Considerations of whether an activity is major or minor are relevant only where certain activities are dominant and others function merely as feeder or ancillary activities. When the industrial activities are independent and the factory operates separate industries within the same premises, under the same licence and as part of the same establishment, it is difficult to accept a line of enquiry that seeks to determine which of the industries is dominant or primary. Consequently, the Court held that the High Court was correct in rejecting the appellant’s contention that its factory did not attract the provisions of section 1 (3) (a) of the Act.

Mr. Pai also attempted to argue that classifying the appellant’s factory under section 1 (3) (a) could create complications because the rate of contribution originally prescribed by section 6 had been amended in 1962 by Amending Act No. 48 of 1962. He referred to the unamended provision, which provided that the employer’s contribution to the fund should be six and one‑quarter per cent of the basic wages, dearness allowance and retaining allowance, if any, payable to each employee, and that the employee’s contribution should be equal to the employer’s contribution. The amendment of 1962 had increased this rate to eight per cent for any establishment or class of establishments that the Central Government, after conducting an inquiry deemed appropriate, might specify by notification in the official Gazette. The appellant feared that if his factory were treated as an establishment covered by section 1 (3) (a) on the basis that it was a composite factory running several industries, one of which fell under Schedule I, the amended contribution rate would apply, leading to additional complications.

The Court explained that, under the original provision, the employer’s contribution to the fund was prescribed as six and one‑quarter percent of the basic wages, dearness allowance and any retaining allowance payable to each employee, while the employee was required to contribute an amount equal to the employer’s contribution for that employee. The same section also permitted an employee to make a higher contribution, provided it did not exceed eight and one‑third percent of the emoluments defined in the provision. By the amendment enacted in 1962, the rate applicable to any establishment or class of establishments could be raised to eight percent, subject to a notification issued in the official Gazette after the Central Government conducted an inquiry it deemed appropriate. The Court was informed that, concerning the engineering industry, the amended sub‑section had indeed been extended by means of such a notification. Mr. Pai expressed concern that, if the appellant’s factory were classified as an establishment governed by section 1(3)(a) because it operated as a composite factory that included at least one industry falling within Schedule I, the higher contribution rate might be imposed on the factory in its entirety. The Court noted that Mr. Pai conceded that, following the High Court’s decision on the appellant’s writ petition, the tiles industry had also been brought within Schedule I and the revised rate had subsequently been applied to it. Mr. Pai further argued that, should the factory be treated as falling under section 1(3)(a), a distinction ought to be drawn among the various industries operating in the factory for purposes of calculating the employer’s contribution to the Provident Fund. The Court declined to address that contention in the present appeal, observing that the issue was hypothetical, should be resolved by the respondent, and was not within the jurisdiction of the Court to determine at this stage. Consequently, the Court held that the appeal failed, ordered its dismissal, and awarded costs to the respondent.