# PROVIDENT FUND INSPECTOR, TRIVNDRUM v. SECRETARY, N. S.S. CO-OPERATIVE SOCIETY, CHAN· GANA CHERRY

- **Citation:** [1970] 2 S.C.R. 481
- **Court:** Supreme Court of India
- **Decided:** 1969-09-17
- **Case number:** Criminal Appeals Nos. 145 to 156 of 1968
- **Bench:** V. Bhargaya, K. S. Hegde
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/provident-fund-inspector-trivndrum-v-secretary-n-s-s-co-operative-society-chan-4849
- **Pages:** 8

## Headnote

The Employees Provident Funds Act, 1952 (19 of 1952), s. 16(1)(b)
-Exemption. under-Whether available from
date of settl'ng up of the.
establishment or from date when
Act became applicable-Change of
ownership of establishment-When results in setting up of new establish1nent-Tests.
The re.;pondent cooperative
society purchased a Press 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
worlrers employed by the respondent went beyond 20 the Employees' Provident Fund Act, 1952 and the Employees' Provident Fund &heme !952
became applicable to the respondent's establishment with effect from April
1961.
Far 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 quatters; (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 r"'pondent 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
df the
provisions contained in
s. 16(l)(b) of the Act. On this view the respondent was acquitted. The
High Court in appeal did not 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(l)(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. Ran1akrishna
Rao's case the finding of the High Court that the exemption under
s. 16(1)(b) elf the Act was available for the first three years from the
date when the Jct became applicable ti{) an establishment, was wrong [486
A-C]
.
R. Ramakrishna Rao v. State of Kera/a, [1968] 2 S.C.R. 819, applied.
(ii) However the acquittal of the respondent must be upheld.
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 "" stopped on sale and was restarted after a break of about three_
482
SUPREME COURT REPORTS
[1970] 2 S.C.R.
months; the machinery in the Press was also altered; the person.s employed previously were not continued in service, while a fresh recruitment oi
employees took place amongst whom oniy six happened to be previous employees; and co-mpensation 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
\\.'as
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 availa'>le to the
respondent from June or July 1961 when the new ~tablishment was set
up. [488 E-Gl
Lakshmi Rattan Engineering Works v. Regional Provident Fund Con1niissicner, Punjab & Ors. [1966] 1 L.L.J. 741. Jamanadas Agarwalla &
Anr. v. The Regional Provident f'und Conunissioner

## Text

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481
PROVIDENT FUND INSPECTOR, TRIVNDRUM
v.
SECRETARY, N. S.S. CO-OPERATIVE SOCIETY, CHAN·
GANA CHERRY
September 17, 1969
[V. BHARGAYA AND K. S. HEGDE, JJ.J
The Employees Provident Funds Act, 1952 (19 of 1952), s. 16(1)(b)
-Exemption. under-Whether available from
date of settl'ng up of the.
establishment or from date when
Act became applicable-Change of
ownership of establishment-When results in setting up of new establish1nent-Tests.
The re.;pondent cooperative
society purchased a Press 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
worlrers employed by the respondent went beyond 20 the Employees' Provident Fund Act, 1952 and the Employees' Provident Fund &heme !952
became applicable to the respondent's establishment with effect from April
1961.
Far 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 quatters; (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 r"'pondent 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
df the
provisions contained in
s. 16(l)(b) of the Act. On this view the respondent was acquitted. The
High Court in appeal did not 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(l)(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. Ran1akrishna
Rao's case the finding of the High Court that the exemption under
s. 16(1)(b) elf the Act was available for the first three years from the
date when the Jct became applicable ti{) an establishment, was wrong [486
A-C]
.
R. Ramakrishna Rao v. State of Kera/a, [1968] 2 S.C.R. 819, applied.
(ii) However the acquittal of the respondent must be upheld.
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 "" stopped on sale and was restarted after a break of about three_
482
SUPREME COURT REPORTS
[1970] 2 S.C.R.
months; the machinery in the Press was also altered; the person.s employed previously were not continued in service, while a fresh recruitment oi
employees took place amongst whom oniy six happened to be previous employees; and co-mpensation 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
\\.'as
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 availa'>le to the
respondent from June or July 1961 when the new ~tablishment was set
up. [488 E-Gl
Lakshmi Rattan Engineering Works v. Regional Provident Fund Con1niissicner, Punjab & Ors. [1966] 1 L.L.J. 741. Jamanadas Agarwalla &
Anr. v. The Regional Provident f'und Conunissioner, We.H Bengal & Ors.
A.LR. 1963 Cal. 513, Mis. Bharat Board Mills Ltd. v. The Regional Provident Fund Comn1issioner & Ors., A.LR. 1957 Cal 702 and Devi Press
v. Regional Provident Fund Commissioner, Madras & Anr. A.LR. 1965
Mad. 462, distinguished.
Virtaldas Jagannathadas & Anr. v. Regional Provident Fund Conunissioner & Anr. [19_66] I 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.
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. R. H. Dhebar, Lily Thomas for S. P. Nayar, for the appellant
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(m all the appeals).
A. S. Nambiar, for the respondent (in all the appeals).
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, aga~nst 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' Provide,nt 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 Fonns 5 and 10 for the same twelve
quarters; (3) to send statemeints 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 Fonn 2 in the manner specified in the Scheme.
The payF
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PROVIDENT FUND INSP. v. N. s. s. SOCIETY (Bhargava, J.) 483
ment of ithe employer's and employees' conttibutio,n to the
Provident Fund, and the question of sending the various statemelfts arose in respect of a Press which was purchased by the
N.S.S. Co-operative Society on the 21st March, 1961 from the
Tr11vancore-Cochin Central Print\ng and Publishing Co-operative
Society, Ltd. According to the appellant, this e;;tablislunent of
the Printing Press had been set :ip 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 establislunent
was employing only 9 workmen; but, a.fter 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 aplicable w.e.f.
April, 1961, it was the duty of the respondent to comply with the
requiremeints of the Act and pay the contribution and send the
various returns which the respondent failed to do.
On trial, the
Magistrate recorded the fiD.ding' that the establishment as run by
the N.S.S. Co-operative Society after 1961 could not be held tu•
be an old establishment set up in the year 1946, had emer~d
as a new establishment in 1961, and, ccmsequently, for a period
of three years from April, 1961, the provisions of the Act would
not apply to this establislunent because of the provision contained
in section 16(l)(b) of the Act.
On this view, the Magistrate
acquitted the respondent in al! the cases.
The respQildent 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 wai carried on was the same as it was at the time
of purchase, so that it could J!IOt 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
;n law tlrat, under s. 16 ( 1) (b) of the Act, an establislunent is
given exemption for a period of 3 years from the date on which
it came within the purview of the Act, treating the establislunent
as an infant establislunent standing in need of protection.
The
High Court, therefore, held that this estab!islunent was protected
from the applicability oE. the Act for a period of 3 years from 21st
March, 19§1 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 de9ision of the High Court by spP.cial leave granted by
this. Court.
It iS quite clear that, on the questiqn of law decided by the
Hi)!h Court in .favour of the respondent, t!:at decision cannot be
484
SUPREME COURT REPORTS
[1970] 2 S.C.R.
upheld in view of 'the decisiop. of this .Court in R. Ramakrishna Rao
v. State of Kera/a(') where it was held that, under s. 16(1)(b),
in the case of a new establi$ment, the period. of five years (laid
.down by subseque,nt 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 "haJ been" set up.
In the present case, since the establishment was first se~ up in the
year 1946, the period o,f exemption for purposes of applyil!j;
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
Apr;!, 1961 when the Act became applicable to this establishment.
In view of that decision of this Court, the acquittal of the respon-
·dent on the ground given by the High Court caninot be maintained.
However, on behalf of the resp~ndent, it was argued that, on
the evidence in this case, the High Court was not justified in
recording the finding that this establishmemt as set up in the year
1946 continued to exist as it was before, even after the purchase
by the ]'!.S.S. Co-operative Society in 1961. It was urged that,
on facts, the correct finding that should have been. recorded was
that thei old establishment ceased to exist and an entirely new
one was set up in the year 1961.
In support oi this plea, we were
taken by learned counsel for the parties through the evidence
which was t~ndered 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 establishm.ent 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 o.f
the respondent and in that report itself he admitted that the
strength of the establishment was Jess than 20 till 16th April, 1961
when it was purchased by the N.S.S. Co-operative Society.
He
added that there were only 9 employees at the date of purchase.
·Of these 9 employees, 6 were re-employed by the purchasers.
Significance attaches to the word "re-employed" 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 Pre~s. 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
.(O) [1968] 2 S.C.R.819.
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PROVIDENT FUND INSP. v. N.S.S. SOCIETY (Blwrgava, J.
48 5
persons working in the Press at the time of his evidence were all
persons who !)ad been appointed by the N .S.S. Co-operative
Society.
Thus, his evidence does not prove that the estabushment
run by the N .S.S. Co-0perative Society was the same as the
establlshment which was being run by the· previous owner of .the
Press.
The owner chlljllged, the 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. fhe only witness on whom
reuance could be placed on beha1f of the appellant to prove
continuity ot 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 state,([ that he continued to be employed ~Y the
N.S.S. Co-operative Society. His evidence has rigbtly 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. lt 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 tennination of their services on
transfer of the Press presumably in accordance with the provisions
of section 25FF of the lnctustrial Disputes Act. The prosecution cnuld haw easily produced the accounts of the previous
owner to show that there were at lea.st 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 eonfinue 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, 196! 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 o.f this _recuitme?t, s?me of the old empl~yees w;re also
taken. m .service.
This evidence would clearly show that a new
establishment was set up by the N.S.S. Co-operative Society after
the purd1asc of th~ press hy it from th,· previous owner and that
there wa; u,1 continuity ot the old e'lnblishment. ,,, we have
L2SupCl/70--t9
486
SUPREME COURT REPORTS
[ 1970] 2 s.c.R.
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.
Evep. 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 su1l11llon those registers.
It is true
that the respondent himseM', on his own initiative, did not produce
those ;egisters in def~nce 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 !ljlld nobody was, in fact, taken.
This
statement could easily have been challenged before us if the saledeed 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 ~n 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 o.f the entire evidence and in view of the
fact that the burden of proof lay on the appellant, we tl..tmk that
the condusions of fact which must be accepted are; that, at the
time . of the purchase, a new owner came in place o.f the previous
owner; the work of the Press was stopped on sale and was restarted after a break of about three m~nths; 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
1iy the !Jrevious owner. On these facts, no other conclusion can
be drawn, except that the old establishme_nt was completely closed
when the tramfer of ownership took place and an entirely new
establishment was set up three months later, so that, in this c~se,
the benefit of non-applicability o.f 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 11;ppellant
drew our attention to a few decision, including one of tlhs 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
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PROVIDENT FUND JNSP. V. N. s. s. SOCIETY (Bhargava, J.) 487
Rattan Engineering Works v. Regional ProviderU Fund Cammi·
ssioner, Punjab, and others(') 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 aind 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 altef'.ltion in machinery in the Press.
The
decisions in Jamnadas Agarwa//a and Another v.
The Regional
Provident Fund Commissioner, West Bengal & Others,(') and
Messrs Bharat Board Mills Ltd. v. The Regional Provident Fund
Commissioner and Others('), are also inapplicable to the facts
before us in the present case. A good deal of reliance was placed
on a d.ecision of a learned single Judge of the Madras High Court
in Devi Press v. Regional Provident Fund Commissioner, Madras
and Another;(') but even in that case the facts were different.
One of the prom~nent facts before the Judge was that the particular business transferred was being run under licences and those
licences were also transferred by the ~eller to the purchaser. In
view c.f this transfer, the learned Judge held that it was a case of
sale of a going concern "nd 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 re-started 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 h~ve been rightly explained in a
decision of a learned single Judge of the Madras High rourt in
Vithaldas Jogannathadas and Another v. Regional Provident Fund
Commissioner and Another('). The teamed Judge held:-
"If, in a particular case, it appears that the new establishm~nt is not genuinely such, but is only an olC: one
f?rm~l~ resuscitated in order to avoid the legal obligation, 1t 1s 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
estabhshmeni, this establishment is entitled to
infancy
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0) [1966] \ L.L.J. 741.
0) A.l.R. 1957 Cal. 702.
(5) [1966] 1 L.L.J. 240.
L2SupCl/70-20
(2) A.LR. 1963 C·>I. 513.
(4) A.LR. 1965 Mad. 462.
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SUPREME COURT REPORTS
[1970] 2 S.C.R.
protection in its own right, even if it happens by coinciA
dence to have employed a large part of the personnel of
foe 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
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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.
Ap/Jeals dismissed. c