Supreme Court clarifies applicability of Employees’ Provident Fund Act to umbrella manufacturing units (2023)

Introduction

Date of the Judgment: 7 November 2023

Citation: 2023 INSC 987

Judges: Abhay S. Oka, J. and Sanjay Karol, J.

Can an umbrella manufacturing and selling unit be considered a “commercial establishment” under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952? The Supreme Court of India recently addressed this question, clarifying the scope of the Act’s applicability to businesses that both manufacture and sell goods. This judgment is significant for businesses that may not be explicitly covered under the Act’s Schedule I, but still engage in commercial activities. The bench comprised of Justice Abhay S. Oka and Justice Sanjay Karol.

Case Background

The appellant, Thankamma Baby, runs a business that manufactures, assembles, and sells umbrellas. The Regional Provident Fund Commissioner, Kochi, Kerala, issued a notice on 30th December 1997, asserting that the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (the 1952 Act) applied to the appellant’s business. The Commissioner argued that the appellant’s business fell under the category of ‘trading and commercial establishments’ as per a notification issued by the Central Government on 7th March 1962, under clause (b) of sub-Section (3) of Section 1 of the 1952 Act.

Following an inquiry under Section 7A of the 1952 Act, the Commissioner concluded that the appellant’s business was indeed covered by the 1962 notification. A review petition filed by the appellant was rejected, as was an appeal to the Appellate Authority. Subsequently, a Writ Petition was filed by the appellant, which was also dismissed by the learned Single Judge of the High Court. The Division Bench of the Kerala High Court upheld the Single Judge’s decision in a Writ Appeal filed by the respondent.

Timeline

Course of Proceedings

The Regional Provident Fund Commissioner initiated proceedings against the appellant, asserting the applicability of the 1952 Act. The appellant contested this, leading to a series of appeals. The Appellate Authority upheld the Commissioner’s decision. The appellant then filed a Writ Petition in the High Court of Kerala, which was dismissed by the learned Single Judge. The Division Bench of the High Court also dismissed the Writ Appeal filed by the appellant, affirming the Single Judge’s order. This led to the present appeal before the Supreme Court.

Legal Framework

The core of the dispute revolves around the interpretation of Section 1(3) of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.
The relevant provision is:

“1. Short title, extent and application .— [(1) This Act may be called the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.]
(2) It extends to the whole of India.
[(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.]”

Clause (a) applies to factories engaged in industries listed in Schedule I of the Act, employing 20 or more persons. Clause (b) extends the Act to other establishments or classes of establishments specified by the Central Government through an official notification, also employing 20 or more persons. The appellant’s case hinges on whether her umbrella manufacturing and selling unit falls under clause (b) as a ‘trading and commercial establishment’.

Arguments

Appellant’s Submissions:

• The appellant argued that clause (a) of Section 1(3) of the 1952 Act applies only to factories engaged in industries specified in Schedule I of the Act.
• Since the appellant’s umbrella-making unit is not an industry included in Schedule I, it cannot be covered under clause (a).
• Clause (b) of Section 1(3) does not refer to factories, therefore, it cannot include any factory.
• The appellant contended that their establishment cannot be considered a trading and commercial establishment under the notification dated 7th March 1962.
• The appellant relied on the case of Regional Provident Fund Commissioner V. Shibn Metal Works to support their argument.

Respondent’s Submissions:

• The respondent argued that the appellant’s business involves not only manufacturing or assembling umbrellas but also selling them.
• The respondent contended that the appellant’s business falls under the category of ‘trading and commercial establishments’ as per the notification dated 7th March 1962.
• The respondent emphasized that the lower authorities have concurrently held against the appellant.

Innovativeness of the Argument: The appellant’s argument was innovative in contending that clause (b) of Section 1(3) cannot include factories, even if they are not in Schedule I. This was a novel interpretation of the provision, aiming to exclude factories not explicitly mentioned in Schedule I from the purview of clause (b).

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the appellant’s establishment, engaged in manufacturing and selling umbrellas, falls within the ambit of ‘trading and commercial establishments’ as specified in the notification dated 7th March 1962, issued under clause (b) of sub-Section (3) of Section 1 of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ The Supreme Court followed the Constitution Bench decision in Mohmedalli and others V. Union of India and another [1963 Supp (1) SCR 993]*, which held that the 1952 Act is a social justice measure intended to bring all kinds of employees within its fold.

✓ The Supreme Court distinguished the case of Regional Provident Fund Commissioner V. Shibn Metal Works [1965 (2) SCR 72]*, stating that it does not deal with clause (b) of sub-Section (3) of Section 1 of the 1952 Act.

✓ The Supreme Court explained the provisions of Section 1(3)(a) and Section 1(3)(b) of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, and held that the appellant’s establishment falls under clause (b).

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to uphold the social welfare objectives of the Employees’ Provident Fund Act, 1952. The Court emphasized the broad scope of the Act, designed to protect employees in various establishments. The Court’s reasoning was driven by the following points:

• Purposive Interpretation: The Court adopted a purposive interpretation of the Act, emphasizing its social justice nature. This approach ensures that the Act’s benefits extend to as many employees as possible.
• Inclusivity of Clause (b): The Court clarified that clause (b) of Section 1(3) is not limited to non-factory establishments. It can include factories not covered by Schedule I, provided they are notified by the Central Government.
• Commercial Nature of the Appellant’s Business: The Court found that the appellant’s business, involving both manufacturing and selling umbrellas, falls under the category of ‘trading and commercial establishments’. This made it subject to the notification issued under clause (b).
• Concurrent Findings: The Court noted that the lower authorities had consistently ruled against the appellant, and there was no reason to overturn those findings.

Fact:Law Ratio

Logical Reasoning:

The Court considered the argument that clause (b) of Section 1(3) cannot include factories. However, the Court rejected this interpretation, holding that clause (b) is broad enough to include factories not covered by Schedule I, provided they are notified by the Central Government. The Court emphasized the need to adopt a purposive interpretation of the Act to ensure its social welfare objectives are met.

The Court’s decision was based on a comprehensive assessment of the facts and the law, emphasizing the need for a purposive interpretation of social welfare legislation. The Court held that the appellant’s business, involving both manufacturing and selling umbrellas, falls under the category of ‘trading and commercial establishments’ and is therefore covered by the Act.

The Court quoted the following from the judgment:

“Therefore, to give effect to the legislature’s intention , the Court will have to adopt a purposive interpretation.”

“Thus, the establishment of the appellant is a commercial establishment. It is an establishment predominantly carrying on commercial activity.”

“In the circumstances, the case of the appellant will be governed by the said notification issued under clause (b) of sub -Section (3) of Section 1.”

There were no minority opinions in the judgment. The decision was unanimous by the bench of two judges.

Key Takeaways

• The Employees’ Provident Fund Act, 1952, applies to establishments that are not only engaged in manufacturing but also in selling goods, if they fall under the category of ‘trading and commercial establishments’.
• Clause (b) of Section 1(3) of the Act can include factories not covered by Schedule I, if they are notified by the Central Government.
• Courts will adopt a purposive interpretation of social welfare legislation to ensure its benefits reach the maximum number of employees.
• Businesses engaged in both manufacturing and selling activities should be aware of their potential obligations under the Employees’ Provident Fund Act.

Directions

The Supreme Court granted the appellant three months to pay any monetary liability incurred due to the orders of the respondent, considering the age of the appeals.

Specific Amendments Analysis

There is no specific amendment discussed in the judgment.

Development of Law

The ratio decidendi of this case is that the Employees’ Provident Fund Act, 1952, applies to establishments engaged in both manufacturing and selling activities if they fall under the category of ‘trading and commercial establishments’ as notified by the Central Government under clause (b) of sub-Section (3) of Section 1. This clarifies that clause (b) is not limited to non-factory establishments and can include factories not covered by Schedule I. This decision reinforces the purposive interpretation of social welfare legislation and broadens the scope of the Act’s applicability.

Conclusion

The Supreme Court’s judgment in Thankamma Baby vs. The Regional Provident Fund Commissioner clarifies that businesses involved in both manufacturing and selling, such as umbrella manufacturing units, can be considered ‘trading and commercial establishments’ under the Employees’ Provident Fund Act, 1952. This decision reinforces the broad scope of the Act as a social welfare measure and emphasizes the importance of purposive interpretation in such cases. The Court has effectively broadened the reach of the Act to include establishments not explicitly mentioned in Schedule I, provided they are notified by the Central Government.