Alaghu Pharmacy (B) Rep. by Its Proprietrix J. Selvarani Vs. Regional Provident Fund Commissioner and Assistant Provident Fund Commissioner, Enforcement - Court Judgment

Excerpt:
- constitution of india article 141; [a.p. shah, c.j., f.m. ibrahim kaliffulla &v. ramasubramanian, jj] reference to larger bench - precedent - full bench decision held, it is binding on the division bench. only if the full bench comes to conclusion that earlier full bench decision is incorrect, there is scope for making reference to larger bench. division bench doubting correctness of full bench decision cannot direct registry for placing papers before chief justice to make reference to larger bench. prabha sridevan, j.1. the regional provident fund commissioner held that the three units, viz., alagu pharmacy 'b' at krishna towers in nanjappa road, the appellant herein, alagu pharmacy at mettupalayam road and alagu pharmacy - c at r.s. puram are one unit and there is functional integrality and therefore, the employees of the respective units should be treated as employees of one unit and so calculated, the number of persons working in all the three units are 20. the appellant is, therefore, aggrieved.2. the appellant established the proprietary concern pharmacy in 14.4.1991. there are two other concerns and it is seen that the husband of the appellant a.l. jayabalan is connected with the other two concerns, in the sense that alagu pharmacy is a proprietary concern where the proprietor is a.l. jayabalan himself and alagu pharmacy - c is a partnership firm where the minor son of the appellant is a partner, who is represented by the father a.l. jayabalan. however, it was contended by the appellant that the three establishments are distinct and different and there are clinching materials to show that. it was also specifically averred that each concern has separate licence from the drug controller, separate balance sheets and profit and loss account and they are separately assessed under the tamil nadu general sales tax and central sales tax as well as under the income tax act. 3. the commissioner filed his counter stating that though the quasi-judicial authority had accepted the case of the appellant and found that the act cannot be made applicable to the establishment, it was found that there was financial integrality between the different units and unity of management and therefore, had decided to examine the possibility of clubbing the 3 units. it is specifically stated that in the balance sheet for the mettupalayam road unit, the shop building of the proprietary concern in nanjappa road was included and since all the three units purchase and sell medicines and have the same name and enjoy the same goodwill, the factum of functional integrality stands proved. the commissioner was also persuaded by the fact that a.l. jayabalan had managerial control over the three units.4. the learned single judge, after having dealt with the facts as well as the decisions cited by the respective counsel, came to the conclusion that it is possible 'to see that there is a well knit operational sphere in running all the three units and functional integrality and financial integrality so far as all the three units are concerned ... and therefore this court is of the view that all the three concerns make only one unit for the purpose of the act...' aggrieved by this, the present appeal is filed.5. the learned senior counsel appearing for the appellant submitted that there are specific tests laid down for deciding whether there is functional integrality. the fact that three units may have the same name or the fact that there is an extent of identity in control of various units are not the tests to decide whether there is functional integrality. the supreme court had laid down certain specific tests and unless these conditions are satisfied, the provisions of the act cannot be invoked by clubbing the three units as one and treating all the employees as being the employees of one establishment. the learned senior counsel had relied upon the following judgments:i) : (2007)2llj553sc (regl. provident fund commr. v. raj's continental exports (p) ltd.);ii) : (1997)illj1167kant (d.s. associates and ors. v. r.p.f. commr. );iii) : (1960)illj497sc (pratap press v. delhi press workers' union);iv) 1998 i llj 1060 (r.p.f.commr. and anr. v. dharamsi morarji chemical co. ltd.);v) 2009 3 mlj 202 (south india corpn. ltd. v. regional p.f. commissioner);vi) : (2000)illj624bom (k.s.t.c. v. asst. p.f. commr. , goa);vii) : (2000)illj1225bom (mumbai mazdoor sangh v. r.p.f. commr. ); andviii) : (1997)illj71mad (senthilnathans pharmaceuticals v. r.p.f. commr. ).6. the learned counsel for the provident fund commissioner relying on : (1996)iillj163sc (regl. provident fund commissioner v. naraini udyog) and the judgment of this court dated 13.11.2008 in w.a. no. 594 of 2006 (between india pistons limited. v. regional provident fund commr. and anr.) submitted that there were sufficient materials to come to the conclusion that there was functional integrality and the same shall not be disturbed.7. before proceeding to decide the matter, we requested the learned counsel to furnish us with a copy of the proceedings of the enquiry conducted by the regional commissioner on 26.9.1996, since there is a reference to it in the impugned order dated 30.12.1996 and it is also specifically mentioned in the counter at paragraph 12-a that reasons have been explicitly discussed in the order for treating the three units as one unit. the copy of the enquiry proceedings would show that the employment strength of the appellant establishment was less than 19. since the requirement for applicability of the act is employment of 20 persons, they took into account the employment of a car driver, who was actually the driver of alagu pharmacy - a. the original conclusion appears to be that 'it cannot be established that m/s.alagu pharmacy - b has employed 20 persons and that the act cannot be made applicable to this establishment alone with effect from 1.6.94'. but it is only thereafter, on going through the records that the decision to club the three units was made. though the representative of the appellant had specifically stated that the three units are having separate drug licence and are registered separately and are also assessed under the relevant tax acts differently, the fact that the head of the family, namely, jayabalan is managing the affairs of the three units appears to have persuaded the authorities to come to the conclusion that there was functional integrality. they also relied on the order passed in w.p. no. 10869 of 1985 filed by m/s.a.d.s. textiles, where this court held that the facts proved that all the five units constitute a single unit for the purpose of invoking the act.8. let us see the ratio laid down in the decisions relied upon by the respective counsel. in : (2000)illj624bom (k.s.t.c. v. asst. p.f. commr. , goa), the division bench of the bombay high court has considered the decisions in 1998 i llj 1060 (r.p.f. commr. and anr. v. dharamsi morarji chemical co. ltd.) and : (1997)illj71mad (senthilnathans pharmaceuticals v. r.p.f. commr. ). that was a case where the employer was kadamba transport corporation limited (ktc), a government company and one of the department/branch was kadamba sub urban transport corporation limited (kstc). the board of directors of ktc and kstc were different, the shareholders were different and the employees were directly recruited by kstc and not taken from ktc. the division bench relied specifically on dharamsi morarji chemical's case and held that the fact that the factories are owned by a common owner was not sufficient, unless there was clear evidence that there was inter connection between the two units and common supervisory function and managerial control and finally while concluding held that,in the light of the material on record, the conclusion arrived at by the respondent cannot be sustained as we do not find functional integrality of the two units or dependence of the petitioner company on ktc to such an extent that if ktc was closed, it will mean automatically closure of the petitioner company.9. in 2009 3 mlj 202 (south india corpn. ltd. v. regional p.f. commissioner), this court held that the aforesaid judgments would go to show that merely because the two establishments are integral part of a single proprietor and are carrying on different activity that cannot be considered as one unit in order to attract the provisions of section 2a of the act.10. in : (1960)illj497sc (pratap press v. delhi press workers' union), the supreme court while deciding the question whether several activities together form one industrial unit or are distinctly separate industrial units with regard to the claim of bonus, held that no hard and fast rule can be laid down and further held that,in some cases the two activities each of which by itself comes within the definition of industry are so closely linked together that no reasonable man would consider them as independent industries. there may be other cases where the connection between the two activities is not by itself sufficient to justify an answer one way of the other, but the employer's own conduct in mixing up or not mixing up the capital, staff and management may often provide a certain answer.11. in : (2007)2llj553sc (regl. provident fund commr. v. raj's continental exports (p) ltd.), the management claimed infancy protection. the commissioner was of the view that it was nothing but a department of one m/s. continental exporters. in that case, as in the case on hand, the two units were separately assessed under the central sales tax act and income-tax act and they had separate balance sheets and the high court held that there was total independent exercise of power. the supreme court confirmed the findings of the high court as follows:though the manufacturing of goods was in respect of the same article, that by itself was not sufficient to hold that it was a branch or department of m/s. continental exporters. the high court as a matter of fact found that there was total independence in exercise of the management and control of the affairs, the employees were separately appointed and controlled. taking into account these factors it was held that the respondent company and m/s. continental exporters were not one and the same.12. in : (1997)illj71mad (senthilnathans pharmaceuticals v. r.p.f. commr. ), a learned single judge of this court dealt with a case of pharmaceutical firm called senthilnathans pharmaceuticals. there the commissioner held that the petitioner is a partnership firm running pharmaceutical business in the name of senthilnathans pharmaceuticals and there was functional integrality with one r.r. pharmaceuticals, since the same premises were occupied by both the units. the learned single judge held that just because the establishment was commenced on the next day of the closure of the erstwhile establishment, it does not mean that it is the same establishment, which is being continued and held that the establishment is a new one and had nothing to do with the establishment, which was closed.13. in : (1997)illj1167kant (d.s. associates and ors. v. r.p.f. commr. ), the karnataka high court, after referring to various judgments described how the tests for deciding whether there was functional integrality should be applied as follows:12. to answer and to satisfy the test of functional integrality, the respondent has applied only the fact of common ownership of the two units and the location of two units in the common premises. in my view, the fact recorded and the test applied by respondent 1 is not the relevant test to consider the applicability of section 2a of provident fund act. the predominant test as enunciated by supreme court and this court in ganapathy bhandarkar's case (supra), is whether subsequent unit viz., m/s. mody sales and service could survive on closure of m/s. devesh sandeep associates and whether in matters of finance and employment, the employer has actually kept the two units distinct or integrated. mere fact of common ownership of the two units and mere location of the two units in common premises by itself is not sufficient to satisfy the test of functional integrality and further mere common object of the two units to carry on the business of sale and servicing of wall papers and similarly when two units work for each other would also not answer the test of functional integrality. the first and foremost to establish the test of functional integrality would be whether the second unit would survive in the absence of first unit or when the first unit is closed whether the second unit continues to do its business activity.14. in w.a. no. 594 of 2006 (between india pistons limited. v. regional provident fund commr. and anr.), the division bench of this court held that though common annual reports were prepared for the two factories, one at sembium and the extended branch at maraimalai nagar, there is functional integrality and managerial control between the two units. but, as we have seen from the judgment of the supreme court in pratap press's case (supra), each case has to be decided on the facts of the said case. 15. here, there are three pharmacies which buy and sell medicines. there is nothing to indicate that the closing down of one unit will result in the closing down of all the units. it is clear that each of the three units is capable of existing on its own and to that extent, they are independent. no doubt, the same person has some kind of control over the running of all the three units, in one case, he is the proprietor himself, in one case he is the husband of the proprietrix and in that sense, perhaps he has some control over the running of the unit and in the third case, he is the father of one of the partners, the said partner being a minor. the assessment under the various tax enactments are independent of one another.16. in 1998 i llj 1060 dharamsi morarji chemical's case, there was originally a company in ambarnath at thane district, which was established even in 1921. in 1977, a new concern at roha in kolaba district was established. the case of the management was that the new concern had nothing to do with the old factory at ambarnath. even though the owner of ambarnath factory was also the owner of the roha factory and on the basis of the common ownership, necessarily the board of directors would control and supervise the working of roha factory, the supreme court held that there is no evidence to indicate interconnection between the two factories in the matter of supervisory, financial or managerial control and the common ownership alone will not be a criterion to decide functional integrality unless there was clear evidence to that effect.17. in : (2005)iillj629mad [regional director, e.s.i. corporation v. aruna stores], a division bench of this court had occasion to consider the concept of functional integrality in the context of e.s.i. act. there, the insurance inspector found that the two entities were interdependent, electricity connection and building were common, cash counter and packing section were common, there was common supervision, common security, the same person was controlling both the units; as far as custom house was concerned, one unit was only a section of the other, and there was no independent entrance. the division bench, after relying on : (1963)iillj459sc [pratap press v. their workmen], held that the concept of functional integrality in industrial law is well known and even though for the purpose of sales tax etc. they are treated as separate units, 'the principles of industrial law are different from the principles of other branches of law'. in that case, applying the law laid down by the supreme court, the division bench was of the opinion that there was functional integrality. we have already referred to pratap press' case (supra) where the supreme court had held that there is no hard and fast rule for deciding the test of functional integrality and it would depend upon the peculiar facts. in the present case, it is not merely because the units are separately assessed under the tax enactments that we hold that there is no functional integrality, but we can understand how this close interdependence should be gauged from the judgment in aruna stores' case (supra). the word 'integrality' itself indicates that there is a complete whole and one is included as part of a whole. so, perhaps that is why the karnataka high court observed that if one cannot exist without the other, there is functional integrality. in this case, we are not able to see any evidence of such interdependence between the two units except for the supervision being done by jayabalan and use of the services of the driver of one unit for one month. we do not think these indicia are sufficient to pass the test of functional integrality. 18. in the present case, in fact, the original conclusion arrived at during the course of the enquiry was that there is nothing to say that alagu pharmacy-b had employed 20 persons. it is only because the three units were owned by the same family and were engaged in the same activity, viz., purchase and sale of medicines, it was decided to examine the possibility of clubbing the three units. so, it appears there should be functional integrality, e.g., the closing down of one unit will result in the closing down of the other or there is such pervasive interdependence between the several units, which makes it difficult to extricate the activity of one from the other. if we apply the aforesaid decisions of the supreme court as well as that of karnataka high court and bombay high court, referred to above, one will have to hold that in the present case, the units are separate for the purpose of invoking the act and when the test is so applied, we find that there is nothing to show that the three units can be treated as one.19. in these circumstances, we allow this writ appeal. no costs. consequently, connected w.a.m.p. no. 1285 of 2006 is closed.