TAJ KERALA RESORTS LTD V. REG.PROVIDENT FUND COMMR,KALOOR,KOCHI

OP/34304/2000

AI Insights

The case revolves around the dispute concerning the applicability of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, to various hotel units owned by Taj Kerala Hotels & Resorts Ltd. The petitioner argued that each hotel unit operates independently without functional integrality or interdependence, and thus, each should be considered a separate establishment eligible for 'infancy protection' under the Act. The Regional Provident Fund Commissioner and the Employees Provident Fund Appellate Tribunal, however, treated these units as branches of a single establishment, leading to the dismissal of the petitioner's claims. The High Court found that the lower authorities had not adequately considered the evidence of independence presented by the petitioner.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 744295 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 20-08-2010
• Assessment Year: misc
• Other Referred Cases: Regional Provident Fund Commissioner and Another v. Dharamsi Morarji Chemical Co. Ltd [(1998) 2 SCC 446], The Regional Provident Fund Commissioner v. Raj's Continental Exports (Private), Ltd. [2007 (3) L.L.N. 67], Pratap Press v. Workmen [AIR 1960 S.C. 1213]
• Laws Referred To: Employees' Provident Funds and Miscellaneous Provisions Act, 1952
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: N N SUGUNAPALAN; S GOPAKUMARAN NAIR
• Assessee Lawyers: E K NANDAKUMAR
• Keywords: Functional integrality; Interdependence; Infancy protection; Establishment; Branch unit
• Section: 16; 7A; 2A

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN FRIDAY, THE 20TH AUGUST 2010 / 29TH SRAVANA 1932 OP.No. 34304 of 2000(H) ---------------------------------- PETITIONER: ------------------- M/S. TAJ KERALA HOTELS & RESORTS LTD., SHANMUGHAM ROAD, COCHIN – 682 011, REPRESENTED BY ITS AUTHORIZED SIGNATORY, SRIDHAR REDDY. BY ADV. SRI.E.K.NANDAKUMAR. RESPONDENTS: ------------------------ 1. THE REGIONAL PROVIDENT FUND COMMISSIONER, EMPLOYEES PROVIDENT FUND ORGANISATION, SUB REGIONAL OFFICE, KALOOR, COCHIN – 682 017. 2. THE EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL, 7TH FLOOR, 60 SKYLARK BUILDING, NEHRUE PLACE, NEW DELHI – 110 019. R1 & R2 BY SRI. N.N. SUGUNAPALAN, SENIOR ADVOCATE. ADV. SRI. S. GOPAKUMARAN NAIR. THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 20/08/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: O.P. NO.34304/2000-H: APPENDIX PETITIONERS' EXHIBITS: EXT.P.1: COPY OF THE NOTICE DTD. 01/08/96 ISSUED BY THE R.1. TO THE PETITIONER. EXT.P.2: COPY OF THE LETTER ADDRESSED BY THE GEN. MANAGER OF TAJ RESIDENCY. EXT.P.3: COPY OF THE STATEMENT FILED BY THE PETITIONER IN RESPECT OF TAJ GARDEN RETREAT, KUMARAKAM. EXT.P.4: COPY OF THE STATEMENT FILED BY THE PETITIONER IN RESPECT OF TAJ RESIDENCY, ERNAKULAM. EXT.P.5: COPY OF THE REPLY TO THE PETITIONER'S STATEMENT FILED BY THE DEPARTMENT. EXT.P.6: COPY OF THE ADDL. STATEMENT FILED BY THE PETITIONER. EXT.P.7: COPY OF THE ORDER OF THE R.1. EXT.P.8: COPY OF THE APPEAL PETITION FILED BY THE PETITIONER BEFORE THE R.2. EXT.P.9: COPY OF THE ORDER OF THE R.2. RESPONDENTS' ANNEXURE: ANNEXURE-I: COPY OF THE MEMORANDUM OF SETTLEMENT DTD. 21/10/1994. //TRUE COPY// P.A. TO JUDGE. Prv. S. SIRI JAGAN, J. - - - - - - - - - - - - - - - - - - - - - - - O.P. No. 34304 of 2000 - - - - - - - - - - - - - - - - - - - - - - - Dated this the 20th day of August, 2010 J U D G M E N T The petitioner is a company registered under the Companies Act, having its registered office at Ernakulam. The company was incorporated on 17.05.1991. The company identified 5 hotel projects at Ernakulam, Kumarakam, Varkala, Trivandrum and Thekkady. The hotels at Ernakulam, Kumarakam, Varkala and Thekkady have commenced operations and the project at Trivandrum had not yet been commissioned at the time of filing of the original petition. According to the petitioner, each hotel is independent of the others and there is no functional integrality between any two units. They would submit that, the terms and conditions of service of employees in each establishment are distinct and separate and separate long- term agreements have been entered into with different unions in respect of each hotel unit. They would further O.P. No. 34304 of 2000 -2- contend that, there is no mutual interdependence between any of the two hotel units and each hotel can function without the other. Separate accounts are maintained and separate profit and loss accounts are worked out for each hotel establishment although they are consolidated for the purpose of the Income Tax Act and the Companies Act, since the same company owns all the hotels. Therefore according to the petitioner, each establishment is distinct and separate and separately eligible for infancy protection under the erstwhile Section 16 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. By Ext.P1 notice dated 01.08.1996, one of the units namely Taj Residency was asked to furnish information to examine the applicability of the Act in relation to the establishment. The petitioner objected to the same. In the meanwhile, similar notice was issued to another unit namely Taj Garden Retreat, Kumarakam directing coverage of the establishment. The matter was adjudicated under Section 7 A of the Act. Despite the petitioner's objections, Ext.P7 O.P. No. 34304 of 2000 -3- order was passed by the 1st respondent, denying infancy protection to the units at Kumarakam and Ernakulam treating all the units as departments of the same establishment. Aggrieved by Ext.P7 order of the 1st respondent, the petitioner filed an appeal before the 2nd respondent as provided under the Act, which was dismissed by Ext.P9 order. The petitioner challenges Exts.P7 & P9 orders in this original petition. 2. The contention of the petitioner is that, each hotel unit, although owned by the same company, is totally independent and separate without any interdependence with any of the other units without having any functional integrality and therefore each establishment is a separate establishment for the purpose of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. Consequently each unit was separately entitled to infancy protection under the erstwhile Section 16 of the Act, which was subsequently repealed. According to the petitioner, by Ext.P7 order, the 1st respondent, without considering the O.P. No. 34304 of 2000 -4- elaborate evidence adduced by the petitioner to prove that each establishment has independent and separate existence, only on the ground that all units are owned by the same company and for the purpose of Income Tax Act, common income tax assessments are made held that all these units are liable to be treated as branch units under Section 2A of the Act that they are not entitled to separate infancy protection under Section 16 of the Act. According to the petitioner, in Ext.P9 order, the appellate authority also committed the same mistake by relying on one clause in the long term agreement with the unions regarding transferability of the employees and the fact that both units are hotel industries to dismiss the appeal. Petitioner would contend that, the impugned orders are contrary to the decisions of the Supreme Court in Regional Provident Fund Commissioner and Another v. Dharamsi Morarji Chemical Co. Ltd [(1998) 2 SCC 446] and The Regional Provident Fund Commissioner v. Raj's Continental Exports (Private), Ltd. [2007 (3) L.L.N. 67]. O.P. No. 34304 of 2000 -5- 3. A statement has been filed on behalf of the 1st respondent, wherein the 1st respondent would seek to justify the impugned orders on the ground that all these establishments are branches of the same establishment liable to be treated as such under Section 2A of the Act. 4. I have considered the rival contentions in detail. 5. It is settled law that whether an establishment is a branch or department of another for the purpose of Section 2A of the Act has to be considered not on the basis of one singular factor, which may go into such a decision but taking into account the very many factors which would conclusively prove functional integrality between two or other establishments. Mere ownership of all these establishments by one company or even one individual may not be conclusive proof of the establishments being branches or departments of the other. The fact that, for the purpose of income tax assessment and the Companies Act all these establishments are put together also may not be conclusive proof of interdependence with each other. Those O.P. No. 34304 of 2000 -6- are all incidence of common ownership. Ownership, as I have already stated, is not the determinative factor to decide the question which is very clear from Section 1(3) of the Act itself. Section 1 (3) of the Act reads as under: “[(3) Subject to 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.]” What is covered under the Act is an establishment and not an owner. One owner is perfectly justified in having different establishments kept separately totally independent with other establishments of his own. If he does so, unless the Provident Fund Organization proves that there is functional integrality and interdependence between the two establishments, the two establishments cannot be clubbed together under Section 2A of the Act. In this case, the O.P. No. 34304 of 2000 -7- petitioner claims that, all these separate hotels are kept exclusively separate for all purposes. According to them, except the very top level management to whom the long term agreement is not applicable, no employee whatsoever is transferred from one hotel to another. Of course, in the long term agreement, there is a clause which enables the management to transfer employees from one hotel establishment to another hotel establishment. I am of opinion that unless at any time the petitioner has transferred one employee at least from one establishment to another, simply because of the long term agreement contains a clause enabling the management to transfer an employee is not conclusive proof of interdependence or functional integrality between the two. Neither in Ext.P7 nor in Ext.P9 is there any finding to the effect that, there was in fact such a transfer of employees at any time. The fact that, two establishments run the same business namely hotel establishment is also not conclusive proof of the fact that, the two hotels are interdependent having functional O.P. No. 34304 of 2000 -8- integrality. Functional integrality should be found from all the attendant factors a a totality. In Pratap Press v. Workmen, [AIR 1960 S.C. 1213], which was followed in Raj Continental's case supra, the Supreme Court inter alia held thus: “The question whether the two activities in which the single owner is engaged are one industrial unit or two distinct industrial units is not always easy of solution. No hard-and-fast rule can be laid down for the decision of the question and each case has to be decided on its own peculiar facts. 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 or 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”. In Dharamsi Morarji Chemical's case the Supreme Court held thus: “4. It is true that if an establishment is found, as a fact, to consist of different departments or branches and if the departments and branches are located at different places, the establishment would still be covered by the net of Section 2-A and the branches and departments cannot be said to be only on that ground not a part and parcel of the parent establishment. However, on the facts of the present case, the only connecting link which could be pressed in service by the learned counsel for the appellant was the fact that the respondent-Company was the owner not only of the Ambarnath factory but also of Roha factory. On the basis of common ownership it was submitted that necessarily the Board of Directors could control and supervise the working of Roha factory also and therefore, according to the learned counsel, it could be said that there was interconnection between Ambarnath factory and Roha O.P. No. 34304 of 2000 -9- factory and it could be said that there was supervisory, financial or managerial control of the same Board of Directors. So far as this contention is concerned the finding reached by the High Court, as extracted earlier, clearly shows that there was no evidence to indicate any such interconnection between the two factories in the matter of supervisory, financial or managerial control. Nothing could be pointed out to us to contraindicate this finding. Therefore, the net result is that the only connecting link which could be effectively pressed in service by the learned consul for the appellant for culling out interconnection between Ambarnath factory and Roha factory was that both of them were owned by a common owner, namely, the respondent-Company and the Board of Directors were common. That by itself cannot be sufficient unless there is clear evidence to show that there was interconnection between these two units and there was common supervisory, financial or managerial control. As there is no such evidence in the present case, on the peculiar facts of this case, it is not possible to agree with the learned counsel for the appellant that Roha factory was a part and parcel of Ambarnath factory or it was an adjunct of the main parent establishment functioning at Ambarnath since 1921.” In Ext.P4 statement filed by the petitioner before the 1st respondent, the petitioner has contended as follows: “2. The company has identified five hotel projects in Ernakulam, Kumarakom, Varkala, Thiruvananthapuram and Thekkady. The hotels at Ernakulam, Kumarakom and Varkala have commenced operations and the projects at Trivandrum and Thekkady have not been commissioned so far. The hotels are independent of each other and there is no functional integrality between these establishments. The terms and conditions of service of employees in each establishment are distinct and separate. Separate long term agreements have been entered into with different unions in respect of each of the hotel units. There is no mutual inter independence between each of the hotel units. Each hotel unit can function without the other and there is no functional integrality between these hotel units. Separate Accounts are maintained and separate Profit & Loss Account worked out for each establishment. In the circumstances, it is submitted that the establishment viz. Hotel Taj Residency is to be treated as a separate establishment and hence eligible for infancy protection under Section 16 of the Employees Provident Fund O.P. No. 34304 of 2000 -10- & Miscellaneous Provisions Act, 1952. 3. Vide notice referred to above, the Department has addressed the Director of the company informing him that the company has been treated as an establishment under the Act and that the provisions of the Act will apply with effect from 30-10-94 to all branches and departments of the company. It is submitted that the Act is applicable to the establishment as such and not to the owner and hence treating the company as an establishment is illegal. As far as the company is concerned, it is only the owner of the various establishments situated in different places having independent existence. The establishments are not in any way dependent on each other and are to be treated as separate in all respects. It is well settled that there can be a common employer for more than one establishment and the common employer may be a legal person or an individual. It cannot be said that each establishment owned by such person is inter dependent. There may be independent establishment which are owned by a single person. Each one need not necessarily depend on the other. Each one can survive in the absence of the other. In such circumstances, it cannot be said that each establishment is a branch or department of the owner of those establishments. In Bells control case reported in 1988 LIC 1002 the Karnataka High Court held as follows:- “It is quite possible that the same person may have two or more establishment under his control which are independent of each other, but he may be a common employer in respect of all of them”. In the present case, Taj Kerala Hotels & Resorts Ltd are the owners of the various establishments at Ernakulam, Kumarakom and Varkala. All these hotels are independent and one is not a branch of another. Each hotel can survive without the other. The stand of the Department that the company is an establishment is therefore not correct. 4. It may also be pointed out that unity of management is only at the highest level viz. the Board of Directors of the Company and as regards all other aspects of day to day operations, each hotel is independently managed. As mentioned earlier, the terms and conditions of service of employees of each hotels are distinct and separate. So far the company has not transferred any of its employees from one hotel to another except the top executives who have been deputed. O.P. No. 34304 of 2000 -11- 5. It is submitted that the date of commencement of operation in respect of Hotel Taj Residency is 9-9-94 and hence the establishment is entitled to protection under Section 16 (1) (d) and the Act will become applicable only after 9-9-1997. The finding regarding the commencement of operation is therefore incorrect. It is understood that the said date has been noted on the basis of the fact that the Boat division of the company commenced operation in the year 1991. It is submitted that the boat was taken on lease from the Tourists Resorts (Kerala) Ltd, Thiruvananthapuram. The Boat Division of the company operate for hotels like Malabar Hotel which belongs to a different company. The boat is given on contract to a contractor who engages his own personal and on the basis of monthly payment. The contract is entered into by the company with the contractor and the employees are the employees of the contractor and not that of the company. At the time when the boat was operating in 1991 there was no hotel which had commenced business. The business of the hotel commenced only with effect from 9-9-94. Copies of the 1st two bills issued by Hotel Taj Residency dated 10-9-94 is produced herewith as Annexures B and C respectively. A copy of the Annual Report of the Company for the year 1994-95 is produced herewith as Annexure D. A copy of the agreement entered into by the Company with the contractor who was engaged to run the boat is produced herewith as Annexure E. It is submitted that the date of commencement of the business by the Boat Division cannot be taken as the date of commencement of business of the establishment. The establishment viz. Hotel Taj Residency commenced operation only with effect from 9-9-94 and hence it is eligible for infancy protection for a period of three years from that date. “ In this connection, I note that, the petitioner has got a specific contention that, the department themselves have treated one of the hotel establishments namely, the one at Varkala as a separate establishment having separate number which has actually been given infancy protection under Section 16 of the Act. Neither in Ext.P7 order nor in O.P. No. 34304 of 2000 -12- Ext.P9 that very material fact has not even been adverted to. Of course, in Ext.P7 many judgments of various courts have been referred to and extracted from. But the discussion on the evidence available for coming to a definite conclusion as to whether there is functional integrality and interdependence between these various units is conspicuously absent. I am of opinion that, without discussion of all those aspects going to a conclusion as to the reasons for treating these units as departments or branches of each other, the respondents could not have arrived at a conclusion that, these establishments are liable to be clubbed together for the purpose of the provisions of the Act. Both the impugned orders are sadly lacking in such a definite conclusion based on proven facts. Instead taking into one or two factors which by themselves would not lead to a conclusion that these units are interdependent on each other a conclusion has been arrived at that they are. That being so, both orders are liable to be quashed. I do so. If the 1st respondent so wishes, he may initiate fresh O.P. No. 34304 of 2000 -13- proceedings and pass fresh orders after affording an opportunity of being heard to the petitioner. But he shall pass fresh orders considering each and every evidence produced by the petitioner and entering a definite finding as to why those evidences do not support the contentions of the petitioner that, these units are separate and independent without any interdependence or functional integrality. The original petition is allowed as above. S. SIRI JAGAN JUDGE shg/ "