Hotel Jaipur Ashok And Anr. vs Miss. K.P. Sarojni, Ministry Of ...
2004 Latest Caselaw 394 Del

JUDGMENT

Madan B. Lokur, J.

1. India Tourism Development Corporation (ITDC), Petitioner No. 2, is a public sector undertaking incorporated under the Companies Act, 1956. It has several aims and objects, one of which is:

"To take over and manage existing hotels and sell, construct, purchase, acquire, lease, take on lease, run and maintain hotels, motels, restaurants, canteens, guest houses and other places for the purpose of boarding, lodging and stay of tourists."

2. In fulfillment of its aims and objects, ITDC has established and it operates 19 hotels, 13 travellers and 3 forest lodges apart from other establishments all over the country. Petitioner No. 1 is one such hotel established by ITDC. The variety and number of establishments has gone up over the years.

3. On 16th May 1961, in exercise of powers conferred by Section 1(3)(b) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (the Act), the Central Government issued a Notification that the provisions of the Act will be applicable to hotels with effect from 30th June, 1961. Section 1(3) of the Act reads as follows:

"1. Short title, extent and application--

(1) & (2)    x x          x          x          x          x
 

(3) Subject to the provisions contained in Section 16, it applies--
  

(a)    to every establishment which is a factory engaged in any industry specified in Schedule I and in which twenty or more persons are employed, and
 

(b)    to any other establishment employing twenty or more persons or class of such establishments 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."

(4) & (5)    x x           x           x           x           x           x           x"
 

The Notification dated 16th May 1961 reads as follows:
  

"G.S.R. 704--In exercise of the powers conferred by Clause (b) of Sub-section (3) of Section 1 of the Employees' Provident Funds Act, 1952 (19 of 1952), the Central Government hereby directs that with effect from the 30th June, 1961 the said Act shall apply to the following classes of establishments, in each of which twenty or more persons are employed, namely.

(i)     Hotels
 

(ii)   Restaurants."
 

4. Two other provisions of law are important and they are Section 2A and Section 16(1)(b) of the Act. Section 2A reads as under:
  

"2A. ESTABLISHMENT TO INCLUDE ALL DEPARTMENTS AND BRANCHES:
 

For the removal of doubts, it is hereby declared that where an establishment
consists of different departments or has branches, whether situated in the
same place or in different places, all such departments or branches shall be
treated as parts of the same establishment."
 

Section 16(1)(b) of the Act reads as follows: 
  

"16(1) This Act shall not apply--
 

(a)    xx xx                                   xx
 

(b)   to any other establishment employing fifty or more persons or twenty or more, but less than fifty, persons until the expiry of three years in the case of the former and five years in the case of the latter, from the date on which the establishment, is, or has been, set up."
 

5. Petitioner No. 1 Hotel Jaipur Ashok (the Hotel) was set up by ITDC in December 1978. It received a letter dated 15th November, 1979 from the Regional Provident Fund Commissioner (RPFC), respondent No. 2 that since ITDC is an establishment to which the provisions of the Act are applicable; therefore, the provisions of the Act would also be applicable to the Hotel, being a unit of ITDC. Reference was made in this regard to the provisions of Section 1(3)(b) and Section . 2A of the Act. The Hotel was asked to report compliance with the provisions of the Act.

6. ITDC then made a representation dated 11th March, 1980 to the Central Government under Section 19A of the Act in which it claimed infancy protection for five years as per Section 16 of the Act. The Central Government, through its Legal Advisor, heard the Petitioners and by an order dated 2nd May, 1981 held that they are not entitled to any infancy benefits under the Act.

7. In the meanwhile, the RPFC pursued its letter dated 15th November, 1979 whereby the Hotel was asked to comply with the provisions of the Act. The Petitioners were asked to appear before the RPFC on 30th June, 1980, which they did. After giving them a hearing, the RPFC passed an order dated 22nd June, 1981 under Section 7A of the Act holding the Hotel liable to pay its dues under the Act for the period December, 1978 to April, 1980. The order of the RPFC passed under Section 7A of the Act was based on the order dated 2nd May, 1981 passed by the Central Government under Section 19A of the Act. As a consequence of the order dated 22nd June, 1981 a demand dated 24th September, 1981 for Rs. 50,491.15 was raised against the Petitioners.

8. The Petitioners, being aggrieved by the demand raised as mentioned above, filed the present writ petition challenging coverage of the Hotel under the Act, the resultant demand and claiming infancy protection under Section 16 of the Act. The Petitioners also challenged the constitutional validity of Sections 7A and 19Aof the Act. The Petitioners moved an application for interim relief for restraining the Respondents from taking any steps in furtherance of the impugned orders. An ex parte interim stay of the impugned orders was granted on 28th June, 1982 but it was vacated on 17th August 1982. The demand, I assume, has since been enforced.

9. Learned Counsels for the parties were heard on 12th, 19th, 26th and 27th February and on 4th March, 2004 when judgment was reserved. Learned Counsel for the petitioners did not press the challenge to the constitutional validity of Section 7A of the Act in view of a decision of the Full Bench of this Court in Jay Presstressed Products Ltd. v. Union of India, 2002 (1) LLJ 482. Learned Counsel, however, reserved his right to challenge the constitutional validity of Section 19A in the event I decided against the Petitioners on the merits of the controversy.

10. The main question to be determined is the relationship between the two Petitioners. The answer to this question will decide whether the Hotel is entitled to infancy benefits or not. The relationship between the Petitioners has been determined by the Central Government in its order dated 2nd May, 1981, What does it have to say in this regard?

11. The Central Government has held, and learned Counsel for the Respondents has supported this view, that a few significant facts lead to the inevitable conclusion that the Hotel is not very different from ITDC for the purposes of the Act; in fact, they are one establishment.

12. The aims and objects of ITDC include the setting up of hotels, which it has done by establishing Petitioner No. 1. It is said that according to information furnished by the Hotel, it is a unit of ITDC having its head office in New Delhi. Learned Counsel for the Petitioners says that the Hotel is not a branch or department of ITDC (as postulated by Section 2A of the Act) but one of its units. I don't think there can be a play on words in this regard, (see also Associated Cement Companies referred infra). One has to see the sum and substance of the relationship, in the broad context of the objects of the Act. Looked at in this light, it hardly matters if the Hotel is described as a unit and not a branch or department of ITDC. The respondents have placed reliance on a specimen copy of an appointment letter of one of the employees, which shows that an employee can be transferred from one unit of ITDC to any other unit of ITDC and in fact some employees have been so transferred. The probation period of an employee can be extended by ITDC and he cannot indulge in any trade or other activity unless permitted by the Chairman and Managing Director of ITDC. That the Hotel is registered under the local Shops and Establishments Act is of no consequence, because it must comply with the local laws. Significantly, it is said that the Hotel is under the control, supervision and management of ITDC. The balance sheet and profit and loss account of the Hotel, though independently maintained, forms a part of the balance sheet and profit and loss account of ITDC as reflected in its Annual Report. Reference has been made to the provisions of the Companies Act, 1956 and the proforma submitted by ITDC to conclude that the Hotel is a branch of ITDC. Reliance is also placed by learned Counsel for the Respondents on the counter affidavit filed in the connected writ petition being CW No. 2062 of 1989 (Hotel Ashok Yatri Niwas v. Union of India and Anr.) wherein it has specifically been stated that the units of ITDC like Hotel Samrat, Ashok Yatri Niwas, Hotel Kanishka and others make sales tax free purchases on the strength of a registration certificate granted to ITDC under the Delhi Sales Tax Act 1975 and the Central Sales Tax Act, 1956. It is also pointed out that the land on which Ashok Yatri Niwas is situated is either leased out to ITDC or belongs to ITDC.

13. Do all these facts show that ITDC and the Hotel are one establishment, as explained by the Supreme Court and by other Courts so as to deny infancy protection to the Hotel? Learned Counsels cited several judgments in support of their respective case and it is now but proper to discuss them.

14. In Sayaji Mills v. Regional Provident Fund Commissioner, the intention of the Act was explained in the following words:

"At the outset it has to be stated that the Act has been brought into force in order to provide for the institution of provident funds for the benefit of the employees in factories and establishments. Article 43 of the Constitution requires the State to endeavor to secure by suitable legislation or economic organisation or in any other way to all workers, agricultural, industrial or otherwise among others conditions of work ensuring a decent standard of life and full enjoyment of leisure. The provision of the provident fund scheme is intended to encourage the habit of thrift amongst the employees and to make available to them either at the time of their retirement or earlier, if necessary, substantial amounts for their use from out of the provident fund amount standing to their credit which is made up of the contributions made by the employers as well as the employees concerned. Therefore, the Act should be construed so as to advance the object with which it is passed. Any construction which would facilitate evasion of the provisions of the Act should as far as possible be avoided."

15. Therefore, it must be accepted that the Act is welfare legislation, intended to benefit employees, aimed at promoting and securing their well-being and to provide them some financial security. Consequently, it cannot be given a narrow interpretation that will have the effect of defeating the object and purpose of the Act. It must be liberally construed and interpreted. But in doing so, the scope and effect of the Act must not be expanded to cover situations and cases not otherwise intended by the framers of the law [see Regional Provident Fund Commissioner v. Naraini Udyog, ; Andhra University v. Regional Provident Fund Commissioner, 1986 Lab. IC 103 (SC); ESI Corporation v. Ramanuja Match Industries, ; and Gujchem Distillers India Ltd. v. Regional Provident Fund Commissioner, 1985 Lab IC 1714 (Guj.)]. Section 16 of the Act exempts the employer from its liability of making a contribution towards provident fund dues. As such, this provision must be strictly construed [Sayaji Mills]. The purpose of Section 16 of the Act is to give breathing time to new establishments and so the; period of infancy is to be calculated from the date of setting up of the establishment. [R. Ramakrishna Rao v. State of Kerala, and State of Punjab v. Satpal, =1970 Lab. IC 772].

16. The conclusions arrived at by the statutory authorities under the Act are essentially findings of fact or legitimate inferences drawn from the facts [see Rajasthan Prem Krishan Goods Transport Co. v. Regional Provident Fund Commissioner and Regional Provident Fund Commissioner v. Naraini Udyog, ].

17. Coming now to the nub of the controversy before me, that is, whether ITDC and the Hotel are one establishment for the purposes of the Act or not.

18. The leading case on the subject is Associated Cement Companies v. Their Workmen, . Although the dispute in that case arose in connection with the Industrial Disputes Act, 1947, to appreciate whether two units constitute "one establishment" the Supreme Court discussed the issue after taking into account the following six factors:

1. ownership.

2. Control and supervision.

3. Finance.

4. Management and employment.

5. Geographical proximity.

6. Unity of purpose and functional integrality.

19. It was then said in paragraph 11 of the Report that one test may be important in one case while another test may be important in another case; this will depend on the facts of each case. It was said (and it is worth quoting the passage):

"What then is 'one establishment' in the ordinary industrial or business sense? The question of unity or oneness presents difficulties when the industrial establishment consists of parts, units departments, branches, etc. If it is strictly unitary in the sense of having one location and one unit only, there is little difficulty in saying that it is one establishment. Where, however, the industrial undertaking has parts, branches, departments, units, etc. with different locations, near or distant, the question arises what tests should be applied for determining what constitutes 'one establishment'?. It is, perhaps, impossible to lay down any one test as an absolute and invariable test for all cases. The real purpose of these tests is to find out the true relation between the parts, branches, units, etc. If in their true relation they constitute one integrated whole, we say that the establishment is one; if on the contrary they do not constitute one integrated whole, each unit is then a separate unit. How the relation between the units will be judged must depend on the facts proved, having regard to the scheme and object of the statute which gives the right of unemployment compensation and also prescribes disqualification therefore. Thus, in one case the unity of ownership, management and control may be the important test; in another case functional integrality or general unity may be the important test; and in still another case, the important test may be the unity of employment. Indeed, in a large number of cases several tests may fall for consideration at the same time. The difficulty of applying these tests arises because of the complexities of modern industrial organisation; many enterprises may have functional integrality between factories which are separately owned; some may be integrated in part with units or factories having the same ownership and in part with factories or plants which are independently owned. In the midst of all these complexities it may be difficult to discover the real thread of unity."

20. In Management of Pratap Press v. Secretary, Delhi Press Workers Union, , the Supreme Court expressed the view that the most important test is the "functional integrality" test, unity of finance, unity of employment (or labour). It was said that where two units belong to one proprietor, there is almost always a likelihood of unity of management. "Functional integrality" was explained to mean, "such functional inter-dependence that one unit cannot exist conveniently and reasonably without the other and on the further question whether in matters of finance and employment the employer has actually kept the two units distinct or integrated."

21. In Noor Niwas Nursery Public School v. Regional Provident Fund Commissioner, the Supreme Court reiterated the three important factors to be considered:

Functional integrity between the two units, whether one unit cannot exist conveniently and reasonably without the other.

Financial matters.

Employment -- has the employer kept the two units distinct or integrated.

It was said in paragraph 4 of the Report:

"Whether two units are one or distinct will have to be considered in the light of the provisions of Section 2A of the Act which declares that where an establishment consists of different departments or has branches whether situated in the same place or in different places, all such departments or branches shall be treated as parts of the same establishment. In such cases, the Court has to consider how far there is functional integrity between the two units, whether one unit cannot exist conveniently and reasonably without the other, and on the further question, in matters of finance and employment, the employer has actually kept the two units distinct or integrated."

22. Transport Corporation of India v. Employees State Insurance Corporation, 2000 Lab. IC 203 (SC) was a case in which the appellant TCI had its registered head office at Secunderabad and a chain of branches all over the country, including Bombay. The question that arose was whether the branch office was governed by the provisions of the Employees State Insurance Act, 1948. Answering the question in the affirmative, it was held that--

It is through its all India branches that the main objects of TCI are carried out, get fructified and achieved.

Even though different branches maintain separate accounts for accounting purposes, a consolidated balance-sheet showing the business and activities of all branches is prepared comprehensively for TCI on all India basis.

Complete control, supervision and management of the branches are with the head office.

All the activities of TCI are carried out through the active co-operation and working of all branches and employees working at these branches.

The employees hold transferable jobs indicating a unity of relationship and integrality of working of the employees.

23. Taking an overall view of all these facts, it was held that the Bombay branch of TCI and its head office were one establishment for the purposes of the Employees State Insurance Act.

24. In Honorary Secretary, South India Millowners' Association v. The Secretary, Coimbatore District Textile Workers' Union, , one of the contentions raised was that functional integrality is an important test and it was argued that if the said test is not satisfied then the theory that two units constitute one establishment must break down. Rejecting this argument, it was held in paragraph 16 of the Report as follows:

"In the complex and complicated forms which modern industrial enterprise assumes it would be unreasonable to suggest that any one of the relevant tests is decisive; the importance and significance of the tests would vary according to the facts in each case and so, the question must always be determined bearing in mind all the relevant tests and co-relating them to the nature of the enterprise with which the Court is concerned. It would be seen that the test of functional integrality would be relevant and very significant when the Court is dealing with different kinds of businesses run by the same industrial establishment or employer. Where an employer runs two different kinds of business which are allied to each other, it is pertinent to enquire whether the two lines of business are functionally integrated or are mutually interdependent. If they are, that would, no doubt, be a very important factor in favor of the plea that the two lines of business constitute one unit. But the test of functional integrality would not be as important when we are dealing with the case of an employer who runs the same business in two different places. The fact that the test of functional integrality is not and generally cannot be satisfied by two such concerns run by the same employer in the same line, will not necessarily mean that the two concerns do not constitute one unit......."

25. Similarly, in Western India Match Co. Ltd. v. Their Workmen, , the principles earlier laid down by the Supreme Court were reiterated in paragraph 9 of the Report in the following words:

"The principles to be followed in deciding these problems have so often been considered by this Court and the tests that can be applied to assist their solution have so frequently been laid down that further detailed discussion is unnecessary. It is enough to mention that among the many tests that have been evolved, functional integrality, inter-dependence or community of financial control and management; community of man-power and of its control, recruitment and discipline, the manner in which the employer has organized the different activities, whether he has treated them as independent of one another or as inter-connected and inter-dependent, enjoy pride of place. But this list is by no means exhaustive."

26. Finally, in The Management of Wenger and Co. v. Their Workmen, , one of the issues raised was whether a wine shop is integral to running a restaurant. While dealing with this question, the Supreme Court said in paragraph 13 of the Report that the test of functional integrality cannot be stressed in every case nor can the test whether one unit can exit without the other necessarily show that two units are separate and do not form one establishment. The Supreme Court said:

"The question as to whether industrial establishments owned by the same managements constitute separate units or one establishment has been considered by this Court on several occasions. Several factors are relevant in deciding this question. But it is important to bear in mind that the significance or importance of these relevant factors would not be the same in each case; whether or not the two units constitute one establishment or are really two separate and independent units, must be decided on the facts of each case. Mr. Pathak contends that the Tribunal was in error in holding that the restaurants cannot exist without the wine shops and that there is functional integrality between them. It may be conceded that the observation of the Tribunal that there is functional integrality between a restaurant and a wine shop and that the restaurants cannot exist without wine shops is not strictly accurate or correct. But the test of functional integrality or the test whether one unit can exist without the other, though important in some cases, cannot be stressed in every case without having regard to the relevant facts of that case, and so, we are not prepared to accede to the argument that the absence of functional intergality and the fact that the two units can exist one without the other necessarily show that where they exist they are necessarily separate units and do not amount to one establishment."

27. Applying these principles laid down by the Supreme Court, it is clear from the records of this case that the Hotel was set up pursuant to the aims and objects of ITDC. There is, therefore, a clear unity of ownership and, therefore, a unity of management. The specimen copy of one of the appointment letters shows that the control over the employees is exercised by ITDC, which has power to transfer employees from one unit to another. The probation period can be extended by ITDC and permission of the Chairman and Managing Director of ITDC is required before an employee can indulge in any trade or other activity. The Central Government has found that the Hotel is in the control, supervision and management of ITDC. These are facts that ought not to be lightly interfered with and nothing substantial has been shown by learned Counsel for the petitioners to upset these findings of fact. Financial control of ITDC over the Hotel is quite obvious because even though the balance-sheet and profit and loss accounts of the Hotel are independently maintained, they form a part of the balance-sheet and profit and loss accounts of ITDC as reflected in its Annual Report. Maintaining separate accounts, as held by the Supreme Court in Transport Corporation of India, may be for accounting purposes and this does not by itself show that two units are independent of each other. From the records of CW No. 2062 of 1989, it has been pointed out, and this has not been denied by the Petitioners, that the units of ITDC make sales tax free purchases on the strength of a registration certificate granted to ITDC under the Delhi Sales Tax Act, 1975 and the Central Sales Tax Act, 1956. These units of ITDC are considered as one establishment along with ITDC. Even the land on which the hotel in CW No. 2062 of 1989 is located is either owned by ITDC or taken on lease by ITDC.

28. It is not of any consequence that ITDC maintains only a corporate office, as pointed out by learned Counsel for the Petitioners. At best, this shows that the activities of ITDC and the Hotel are different but, as held by the Supreme Court, the two lines of business may be different but once all the relevant tests are taken into consideration and correlated, it has to be seen whether both the units form one establishment or not (see also Andhra University). On the facts of this case, it is quite apparent that for all practical purposes, there is no difference between ITDC and the Hotel and that they constitute one establishment. Consequently, it must be held that the Hotel is not entitled to claim infancy benefits under the Act.

29. It was contended by learned Counsel for the Petitioners that out of all the hotels established by ITDC, only a few hotels have been singled out for being denied infancy benefits. According to learned Counsel, this is discriminatory. I am not at all impressed with this argument since the Regional Provident Fund Commissioner is exercising quasi-judicial powers while deciding whether a hotel is entitled to infancy protection under the Act or not. He is entitled to take a view different from other Commissioners and arrive at an independent conclusion based on the facts of the case.

30. It was further contended by learned Counsel that the appropriate Government in the case of the Hotel is the State Government as mentioned in Section 2(a) of the Act. This contention was not raised by the Petitioners before any of the authorities either under Section 19A or under Section 7A of the Act; nor has it been raised in this writ petition or in the other connected writ petitions. Learned Counsel for the Respondents rightly objected to this issue being raised for the first time after a lapse of over two decades. In any case, no factual foundation has been laid by learned Counsel for the Petitioners to entertain this contention.

31. It was contended by learned Counsel for the Petitioners that since Section 7A of the Act had been declared ultra vires by a Division Bench of this Court, no steps could have been taken by the Respondents under Section 7A of the Act. Admittedly, the decision of the Division Bench of this Court relied upon by learned Counsel for the Petitioners in the case of Wire Netting Stores v. Regional Provident Fund Commissioner, 1981 Lab. IC 1015 holding Section 7A of the Act as ultra vires was stayed by the Supreme Court. Moreover, the admitted position is that the constitutional validity of this provision has been upheld by a Full Bench of this Court in M/s. Jay Presstressed Products Ltd. The stay order as well as the decision of the Full Bench would have a retroactive effect. It is, therefore, futile to contend that no proceedings could have been taken under Section 7A of the Act. Additionally, the controversy sought to be raised by learned Counsel does not survive because the Full Bench of this Court has concluded that in Sunmedico Corporation v. Regional Provident Fund Commissioner, "it has been held that after establishment of the Tribunal the controversy has really become academic."

32. It was also contended by learned Counsel, relying upon Gujchem Distillers India Ltd. v. Regional Provident Fund Commissioner, 1985 Lab. IC 1714 (Gujarat), that the fact that the accounts of ITDC and the Hotel are maintained separately shows that there is no unity of finance. I am afraid this argument is no longer valid in view of the conclusions drawn by the Supreme Court in Transport Corporation of India. The maintenance of separate accounts may be for accounting purposes and that, by itself, is of no consequence for deciding whether ITDC and the Hotel are independent units or not.

33. In view of the above, I find no substance in the writ petition. However, since the right of the Petitioners to challenge the constitutional validity of Section 19A of the Act was reserved and this can be adjudicated upon only by the Division Bench, this limited issue is referred to the Division Bench for consideration. To this extent, the matter be listed before an appropriate Division Bench for consideration on 26th April, 2004, subject to the orders of Hon'ble the Chief Justice.

34. Except to the extent mentioned above, the writ petition is dismissed.