Provident Fund Inspector, Trivndrum Vs.
Secretary, N.S.S. Co-Operative Society, Chan-Ganacherry  INSC 247 (17
17/09/1969 BHARGAVA, VISHISHTHA
BHARGAVA, VISHISHTHA HEGDE, K.S.
CITATION: 1971 AIR 82 1970 SCR (2) 481 1970
SCC (1) 50
D 1985 SC 323 (12)
The Employees Provident Funds Act, 1952 (19
of 1952), s.
16(1)(b) --Exemption under--Whether available
from date of setting up of the establishment or from date when Act became
applicable--Change of ownership of establishment--When results in setting up of
The respondent cooperative society purchased
from another cooperative society on 21st March 1961. The establishment had been set up by the vendor originally in 1946 and at
the time of purchase by the respondent only 9 workmen were employed therein. As
the number of workers employed by the respondent went beyond 20 the Employees'
Provident Fund Act, 1952 and the Employees' Provident Fund Scheme 1952 became
applicable to the: respondent's establishment with effect from April 1961. For
not complying with the provisions of the aforesaid Act and Scheme the Provident
Fund Inspector, Trivandrum (appellant herein) launched prosecutions against the
respondent. The specific charges related to the failure, of the respondent (i)
to pay to the Employees' Provident' Fund the employees' and the employer's
share of contributions together with administrative charges 'for the twelve
quarters comprised between May 1961 and February 1964; (ii) to submit the
returns in Forms 5 and 10 for the same twelve quarters;
(iii) to send statements of recoveries of
contributions in Form 12 for the same quarters; and (iv) to send the; initial
return in Form 9 showing the particulars as on 30-4.-1961 along with Form 2 in
the manner specified in the Scheme.
On trial the Magistrate recorded the finding
that the establishment as run by the respondent after 1961 could not be held to
be an old establishment set up in the 1946, it had emerged as a new establishment
in 1961, and consequently for a period of three years from April 1961, the
provisions of the Act would not apply to. this establishment because of the
provisions. contained in s. 16(1)(b) of the Act. On this view the respondent
was acquitted. The High Court in appeal did no,t agree with the Magistrate that
a new establishment came into being in 1961, but nevertheless upheld the
acquittal on the ground that under s. 16(1)(b) of the Act an establishment is
given exemption for a period of 3 years from the date on which it came within
the: purview of the Act. On appeal to this Court by special leave, HELD.: (i)
In view of the decision of this Court in R.
Ramakrishna Rao's case the finding of the
High Court that the exemption under s. 16(1)(b) of the Act was available for
the first three years from the date when the Act became applicable to an
establishment, was wrong [486 A-C] R. Ramakrishna Rao v. State of Kerala,
 2 S.C.R. 819, applied. (ii) However the acquittal of the respondent must
The burden of proving that the old
establishment had continued was on the appellant. The evidence showed: that, at
the time of the purchase a new owner came in place of the previous owner; the
work of the Press was stopped on sale and was restarted after a break of about
three 482 months; the machinery in the Press was also altered; the persons
employed previously were not continued in service, while= a fresh recruitment
of employees took place amongst whom only six happened to be previous
employees; and compensation was paid to the workmen at the time of the sale. by
the previous owner. On these facts, no other conclusion could be drawn except
that the old establishment was completely closed when the transfer of ownership
took place and an entirely new establishment was set up three months' later, so
that in this case the benefit of the Act under s. 16(1)(b) of the Act for a
period of three years was available to the respondent from June or July 1961
when the new establishment was set up,. [488 E-G] Lakshmi Rattan Engineering
Works v. Regional Provident Fund Commissioner, Punjab & Ors.  1
L.L.J. 741 Jamanadas Agarwalla & Anr. v. The Regional Provident Fund
Commissioner, West Bengal & Ors. A.I.R. 1963 Cal. 513, M/s. Bharat Board
Mills Ltd. v. The Regional Provident Fund Commissioner & Ors., A.I.R. 1957
Cal. 702 and Devi Press v. Regional Provident Fund Commissioner, Madras &
1965 Mad. 462, distinguished.
Vittaldas Jagannathadas & Anr. v.
Regional Provident Fund Conmissioner & Anr.  1 L.L.J. 240, applied.
CRIMINAL APPELLATE JURISDICTION: Criminal
Appeals Nos. 145 to 156 of 1968.
Appeals by special leave from the judgment
'and order dated September 6, 1967 of the Kerala High Court in Criminal Appeals
Nos. 114 to 124 of 1967.
R.H. Dhebar, Lily Thomas for S.P. Nayar, for
the appellant (in all the appeals).
A. S. Nambiar, for the respondent (in all the
The Judgment of the Court was delivered by
Bhargava, J. These twelve connected appeals arose out of twelve prosecutions
instituted by the .appellant, Provident Fund Inspector, Trivandrum, against the
respondent, Secretary, N.S.S. Co-operative Society, Changanacherry, for
offences punishable under the Employees' Provident Funds Act, 1952 (hereinafter
referred to as "the Act") on the ground of contravention of the
provisions of the Employees' Provident Fund Scheme, 1952 (hereinafter referred
to as "the Scheme"). The specific charges related to the .failure of
the respondent (1 ) to pay to the Employees' Provident Fund the employees' and
the employer's 'share of contribution together with administrative charges for
the twelve quarters comprised between May, 1961 and February, 1964; (2) to
submit the returns in Forms 5 and 10 for the same twelve quarters; (3) to send
statements of recoveries of contributions in Form. 12 for the same 12 quarters;
and (4) to send the initial return in Form 9 showing the particulars as on
30-4-1961 along with Form 2 in the manner specified in the Scheme. The pay- 483
ment of the employer's and employees' contribution to the Provident Fund, and
the question of sending the various statements arose in respect of a Press
which was purchased by the N.S.S. Co-operative Society on the 21st March, 1961
from the Travancore-Cochin Central Printing and Publishing Co-operative
Society, Ltd. According to the appellant, this establishment of the Printing
Press had 'been set up in the year 1946 and it continued in existence even
subsequently when, in March, 1961, the Press was purchased by the N.S.S. Co-operative
Society. Until the purchase by the N.S.S. Co- operative Society, the
establishment was employing only 9 workmen; but, after the N.S.S. Co-operative
Society started working the Press, the number of workmen increased beyond 20,
so that the Act became applicable to this establishment.
The case was that, since the Act became
applicable w.e.f. April; 1961, it was the duty of the respondent to comply with
the requirements of the Act and pay the contribution and send the various
returns which the respondent failed to do On trial, the Magistrate recorded the
finding that the establishment as run by the N.S.S. Co-operative Society after
1961 could not be held to be an old establishment set up in the year 1946, had
emerged as a new establishment in 1961, and, consequently, for a period of
three years from April, 1961, the provisions of the Act would not apply to this
establishment because of the provision contained in section 16(1)(b) of the
Act. On this view, the Magistrate acquitted the respondent in all the cases.
The respondent appealed to the High Court of Kerala. The High Court disagreed
with the Magistrate and held that, even though there was change of management,
change of workers and change of machinery. when the N.S.S. Co-operative Society
purchased the Press in 1961, the business that was carried on was the same as
it was at the time of purchase, so that it could not be held that a new
establishment had come into existence different from the one which existed
before the purchase.
The High Court, however, took the view in law
that, under s. 16(1)(b) of the Act, an establishment is given exemption for a
period of 3 years from the date on which it came within the purview of the Act,
treating the establishment as an infant establishment standing in need of
protection. The High Court, therefore, held that this establishment was
protected from the applicability of the Act for a period of 3 years from 21st
March, 1961 which would cover the period in respect of which prosecutions were
launched by the appellant. On this ground, the High Court upheld the orders of
acquittal passed by the Magistrate. The appellant has now come up in these
appeals against this decision of the High Court by special leave granted by
It is quite clear that on the question of law
decided by the High Court in favour of the respondent, that decision cannot be
484 upheld in view of the decision of this Court in R. Ramakrishna Rao v. State
of Kerala(1) where it was held that, under s. 16(1)(b), in the case of 'a new
establishment, the period of five years (laid down by subsequent amendment) is
counted forward from the date the establishment is set up, but, in the case of
an existing establishment, from the date the establishment "has been"
set up In the present case, since the establishment was first set up in the
year 1946, the period of exemption for purposes of applying s. 16(1)(b) of the
Act would run from the date on which the establishment had been set up and
could not be counted from April, 1961 when the Act became applicable to this
establishment. In view of that decision of this Court, the acquittal of the
respondent on the ground given by the High Court cannot be maintained.
However, on behalf of the respondent, it was
argued that, on the evidence in this case, the High Court was not justified in
recording the finding that this establishment as set up in the year 1946
continued to exist as it was before, even after the purchase by the N.S.S.
Co-operative Society in 1961. It was urged that, on facts, the correct finding
that should have been recorded was that the old establishment ceased to exist
and an entirely new one was set up in the year 1961. In support of this plea,
we were taken by learned counsel for the parties through the evidence which was
tendered during the trial before the Magistrate and, after going through it, we
are. inclined to accept the submission made on behalf of the respondent.
The burden of proving that the old
establishment had continued and that a new establishment was not set up in the
year 1961 was on the appellant, as the appellant had filed criminal cases for
prosecution of the respondent. The first prosecution witness was the Provident
Fund Inspector, Raghunathan, but most of his evidence relates to facts
discovered by him and not in his personal knowledge. It is he who made a report
for the prosecution of the respondent and in that report itself he admitted
that the strength of the establishment was less than 20 till 16th April, 1961
when it was purchased by the N.S.S. Co-operative Society.
Headded that there were only 9 employees 'at
the date of purchase of these 9 employees, 6 were reemployed by the purchasers.
Significance attaches to the word "reemployed" which implies that
there was no continuity of employment even of those 6 employees. That witness
also admitted that, after the purchase, the Press was removed from its original
place and additional machineries were purchased and added to the Press.
According to him, he also received information that compensation due to the
workers till the date of sale was disbursed by the previous owner, T.C: Central
Co- operative Printers and publishers. He added that the (1) 2 S.C.R.819.
485 persons working in the Press at the time
of his evidence were all persons who had been appointed by the N.S.S. Co- operative
Society. Thus, his evidence does not prove that the establishment run by the
N.S.S. Co-operative Society was the same as the establishment which was being
run by the previous owner of the Press. The owner changed, me machinery
changed, the location of the Press was altered, and even the employees were not
the same as before. In fact, none of the employees, according to his evidence,
was continued in service. The only witness on whom reliance could be placed on
behalf of the appellant to prove continuity of the business was P.W. 2,
Sadasivan Nair, who claimed to be one of the employees in this Press of the
previous employer and who stated mat he continued to be employed by the N.S.S.
Co-operative Society. His evidence has rightly been criticised on the ground
that he is a disgruntled person who lost his service some years later when the
press was being run by the N.S.S. Co-operative Society. Further, he stated on
oath that the Press was taken over with all its workers which is clearly a
wrong statement and is contradicted by P.W. 1, the Provident Fund Inspector
himself. It is also significant that, according to the Provident Fund
Inspector, compensation was paid to the previous employees by the previous
employer which clearly shows that the previous employees were not continued in
service, and that they were paid compensation for termination of their services
on transfer of the Press presumably in accordance with the provisions of
section 25FF of the Industrial Disputes Act. The prosecution could have easily
produced the accounts of the previous owner to show that there were at least
some employees who were continued in service and who were not paid
compensation, but no such attempt was made on behalf of the appellant. Even the
sale- deed in favour of the N.S.S. Co-operative Society has not been put in the
paper-book before us and its absence is significant in view of the statement
made by D.W. 1, one of the Directors of the N.S.S. Co-operative Society, who
stated that the N.S.S. Co-operative Society neither purchased the
establishment' as a going concern, nor did it continue to run the same
establishment. According to D.W. 1. after the purchase of the Press, there was
a closure.for a period.of about 3 months and a new business was started in June
or July, 1961 when a new establishment was set up. The workmen employed by the
previous owner were not taken over on their old conditions of service. Fresh
appointments were made and all workers were newly recruited, though, at the
time of this recruitment, some of the old employees were also taken in service.
This evidence would clearly show that a new establishment was set up by the
N.S.S. Co-operative Society after the purchase of the press by it from the
previous owner and that there was no continuity of the old establishment. As we
have L2SupCI/70---19 486 said earlier, the appellant could have summoned the
accounts of the previous owner to show that these facts alleged by D.W. 1 are
not correct. Even the N.S.S. Co-operative Society is maintaining accounts and registers;
and no attempt was made on behalf of the prosecution to seize or summon those
registers. It is true that the respondent himself on his own initiative, did
not produce those registers in defence but, in a criminal case, such a
circumstance cannot justify raising a presumption that the registers would have
contradicted the evidence of D.W. 1.
D.W. 1 also stated that there was a specific
provision in the sale-deed that none of the workers, who were working in the
press purchased, were to be taken in service and nobody was, in fact, taken.
This statement could easily have been challenged before us if the sale deed had
been included in the Paper book. In the absence of the sale- deed, which has
not been brought to our notice, we see no reason to disbelieve the statement of
D.W. 1 and we consider that his evidence is decidedly preferable to that of
P.W. 2 whose evidence we have mentioned above.
The only other prosecution witness who need
be mentioned is P.W. 3 who also employed by the N.S.S. Co-operative Society in
this Press after the purchase. He was, however, not an employee in this press
before its purchase by N.S.S. Co-operative Society. He was employed in another
press which was also purchased by this Co-operative Society, so that his
evidence about continuity of his service cannot indicate that this particular
establishment was a continuation of the old establishment set up by the
previous owner. On a discussion of the entire evidence and in view of the fact
that the burden of proof lay on the appellant, we think that the conclusions of
fact which must be accepted are; that, at the time of the purchase, a new owner
came in place of the previous owner; the work of the Press was stopped on sale
and was restarted after a 'break of about three months; the machinery in the
Press was also, altered; the persons employed previously were not continued in
service, while a fresh recruitment of employees took place amongst whom Only
six happened to be previous employees; and compensation was paid to the workmen
'at the time of the sale by the previous owner. On these facts, no other
conclusion can be drawn, except that the old establishment was completely
closed when the transfer of ownership took place and an entirely new
establishment was set up three months later, so that, in this case, the benefit
of non- applicability of the Act under s.16(1) (b) of the Act for a period of
three years was available to the respondent from June or July, 1961 when the
new establishment was set up.
In this connection, learned counsel appearing
for the appellant drew our attention to a few decision, including one of this
Court' to urge that we should not hold that this establishment was newly set up
in the year 1961. The first of these decisions is Lakshmi 487 Rattan Engineering
Works v. Regional Provident Fund Commissioner, Punjab, and others(1) in which
this Court held that a change in location of an establishment or a change in
the line of business would not have the effect that a new establishment has
been set up, provided there was continuity of working. That case cannot apply
to the facts as found by us in the present case where there was no continuity
of the business and there were the additional factors of termination of
services of 'all the workmen and a new establishment being set up by ,fresh
recruitment of workmen, in addition to alteration in machinery in the Press.
The decisions in Jamnaclas Agarwalla and Another v. The Regional Provident Fund
Commissioner, West Bengal & Others,(2) and Messrs Bharat Board Mills Ltd.
v. The Regional Provident Fund Commissioner and Others(3), are also
inapplicable to the facts before us in the present case. A good deal of
reliance was placed on a decision of 'a learned single Judge of the Madras High
Court in Devi Press v. Regional Provident Fund Commissioner, Madras and
Another;(4) but even in that case the facts were different. One of the
prominent facts before the Judge was that the particular business transferred
was being run under licences and those licences were also transferred by the
seller to the purchaser. In view of this transfer, the learned Judge held that
it was a case of sale of a going concern and there was continuity of business.
Without expressing any opinion as to whether the learned Judge was correct in
holding that there was continuity of business in that case, the very fact that
he held the establishment not to have been newly set up on the ground that it
was a case of a transfer of a going concern distinguishes that case from the
case before us. In the present case, the facts established show that the old
business was close and was restarted as a new business after recruiting new
workmen. The principle to be applied in arriving at a decision in such a case
appears to us to have been rightly explained in a decision of a learned single
Judge of the Madras High Court in Vithaldas Jogannathadas and/Another v.
Regional Provident Fund Commissioner and Another(5). The learned Judge held :-
"If in a particular case, it appears that the new establishment is not
genuinely such, but is only ,an old one formally resuscitated in order to avoid
the legal obligation, it is always open to the Court to hold that it is the old
establishment which is substantially continuing, and that the liability to
contribute must be affixed to the apparently new form also. But where, in
reality, the old establishment has come to an end and there is a new
establishment, this establishment is entitled to infancy (1)  1 L.L.J.
(2) A.I.R. 1963 Cal. 513.
(3) A.I.R. 1957 Cal. 702.
(4) A.I.R. 1965 Mad. 462.
(5)  1 L.L.J. 240.
L2SupCI/70--20 488 protection in its own
right, even if it happens by coincidence to have employed a large part of the
personnel of the previous establishment." This principle, applied to the
facts of the present case, can only lead' to the conclusion that the N.S.S. Co-
operative Society had set up a new establishment and the provisions of s.
16(1)(b) of the Act have to be applied on the basis that the new establishment
was set up in June or July, 1961, so that there was no liability to pay.
Provident Fund contributions or to file the
various returns during the period to which the prosecutions related. The
acquittal of the respondent was, therefore, fully justified.
The appeals are dismissed.
G.C Appeals dismissed.