Supreme Court Upholds EPF Act Application to Educational Institutions Run by Same Society: M/s Mathosri Manikbai Kothari College of Visual Arts vs. The Assistant Provident Fund Commissioner (2023) INSC 909 (12 October 2023)

Date of the Judgment: 12 October 2023

Citation: (2023) INSC 909

Judges: Hima Kohli, J., Rajesh Bindal, J.

Can two educational institutions, seemingly separate, be treated as one for the purpose of applying the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act)? The Supreme Court of India recently addressed this question, focusing on whether the two institutions had functional integrity, common management, and financial interdependence. This judgment clarifies the criteria for clubbing institutions under the EPF Act, impacting numerous educational establishments run by the same society or trust.

The Supreme Court, in this case, examined whether the Mathosri Manikbai Kothari College of Visual Arts and the Ideal Institute of Fine Arts, both managed by the Ideal Fine Arts Society, should be treated as a single establishment for the purposes of the EPF Act. The court considered whether the two institutions were functionally integrated, had common management, and shared financial resources.

The judgment was delivered by a bench comprising Justice Hima Kohli and Justice Rajesh Bindal, with the opinion authored by Justice Rajesh Bindal.

Case Background

The Ideal Fine Arts Society manages two educational institutions: the Ideal Institute of Fine Arts, established in 1965, which offers diploma courses, and the Mathosri Manikbai Kothari College of Visual Arts, established in 1985-86, which offers degree and postgraduate degree courses. Both institutions operate within the same campus. The Ideal Institute had 8 employees, while the Arts College had 18. The Assistant Provident Fund Commissioner, based on a report from the Enforcement Officer dated 01.07.2003, determined that the total of 26 employees in both institutions meant that the establishment was covered under the EPF Act, effective 01.03.1988. This led to a notice and subsequent order on 23.09.2005 under Section 7-A of the EPF Act, assessing the contributions to be made by the appellant.

The appellant challenged this order, arguing that both institutions were independent entities with separate management and finances. The appellant contended that since neither institution individually employed 20 or more persons, they should not be clubbed together for the purpose of EPF Act coverage.

Timeline

Course of Proceedings

The Assistant Provident Fund Commissioner passed an order on 23.09.2005, under Section 7-A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act), assessing the amount of contributions to be made by the appellant. The appellant then filed a statutory appeal before the Employee Provident Fund Appellate Tribunal, which was dismissed on 24.12.2010. Subsequently, the appellant filed a Writ Petition before the High Court, which was dismissed by a learned Single Judge on 10.06.2011. The Division Bench of the High Court upheld the order of the learned Single Judge vide order dated 30.09.2011, leading to the present appeal before the Supreme Court.

Legal Framework

The primary legal framework in question is the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act). Specifically, Section 1(3)(b) of the EPF Act states that the Act applies to every establishment which is a factory engaged in any industry specified in Schedule I and in which twenty or more persons are employed. The core issue revolves around the interpretation of “establishment” and whether two separate institutions under the same management can be considered as one for the purpose of the EPF Act.

Section 7-A of the EPF Act provides for determination of dues payable under the Act. Section 7-B of the EPF Act provides for review of the order passed under Section 7-A of the EPF Act.

Arguments

Appellant’s Arguments:

• The appellant argued that the Ideal Institute and the Arts College are independent entities, merely managed by the same society.
• There is no financial integrity between the two institutions.
• Both institutions offer different courses and have affiliations from different authorities.
• The Ideal Institute receives 100% grant-in-aid, while the Arts College receives 70% from the Government of Karnataka.
• The Ideal Institute was established in 1965, whereas the Arts College was established in 1985-86.
• Since neither institution employs 20 or more persons individually, they should not be clubbed for coverage under the EPF Act.
• The appellant relied on Management of Pratap Press, New Delhi v. Secretary, Delhi Press Workers’ Union Delhi etc., AIR 1960 SC 1213 to support their argument that the two institutions should be treated as distinct entities.

Respondent’s Arguments:

• The respondent argued that the tests laid down in L.N. Gadodia & Sons v. Provident Fund Commissioner, (2011) 13 SCC 517, indicate that the two institutions should be clubbed under the EPF Act.
• The appellant failed to provide sufficient material to prove that the institutions are independent and have no common management.
• The audit report placed on record was not presented before the High Court.
• The onus was on the appellant to controvert the notice regarding the application of the EPF Act by providing relevant material.
• The appellant failed to produce records and appear regularly before the Commissioner.
• The fact that both institutions are run by the same society indicates common management.
• The bank account statement does not establish that the institutions are independent.
• The respondent relied on Noor Niwas Nursery Public School v. Regional Provident Fund Commissioner and others, (2001) 1 SCC 1 and Shree Vishal Printers Limited, Jaipur v. Regional Provident Fund Commissioner, Jaipur and another (2019) 9 SCC 508 to argue that the institutions should be clubbed.

Submissions of the Parties

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

1. Whether the two institutions, namely, Ideal Institute and Arts College, being run by the same society i.e., Ideal Fine Arts Society, can be clubbed for the purpose of coverage under the EPF Act.

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 Court considered Associated Cement Co. v. Workmen, AIR 1960 SC 56* to understand that no single test is absolute for determining if two units form one establishment.
• The Court considered Management of Pratap Press, New Delhi v. Secretary, Delhi Press Workers’ Union Delhi etc., AIR 1960 SC 1213* to understand the principles of clubbing of two establishments, but distinguished the facts of the case.
• The Court considered Regional Provident Fund Commissioner v. Naraini Udyog, (1996) 5 SCC 522* to show that functional integrity and common management are important factors for clubbing.
• The Court considered Noor Niwas Nursery Public School v. Regional Provident Fund Commissioner and others, (2001) 1 SCC 1* to show that no straight jacket formula can be laid down for clubbing of two establishments, and found that the facts of the case were similar.
• The Court considered L.N. Gadodia & Sons v. Provident Fund Commissioner, (2011) 13 SCC 517* to show that companies with common management and financial integration can be clubbed, and applied the same principle.
• The Court considered Shree Vishal Printers Limited, Jaipur v. Regional Provident Fund Commissioner, Jaipur and another (2019) 9 SCC 508* to support the respondent’s argument regarding the clubbing of establishments.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Functional Integrity: The court emphasized the functional interdependence between the two institutions, noting that they operated within the same campus and were managed by the same society.
• Common Management: The fact that both institutions were managed by the same society was a significant factor in the court’s decision.
• Financial Interdependence: The court noted the financial transactions between the Society and both institutions, highlighting the financial integrity between them.
• Total Number of Employees: The combined total of employees in both institutions exceeded 20, which is sufficient for coverage under Section 1(3)(b) of the EPF Act.
• Appellant’s Lack of Evidence: The court noted that the appellant failed to provide sufficient evidence to prove that the institutions were independent and had no common management.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

The court’s reasoning was a blend of factual analysis and legal interpretation. The court considered the factual aspects of the case, such as the common management, financial interdependence, and the location of the two institutions. The court also considered the legal framework, including the EPF Act and the precedents set by previous cases.

Logical Reasoning

The Court rejected the appellant’s argument that the two institutions should be treated as separate entities. The court found that the two institutions were not independent, and therefore, they could be clubbed together for the purpose of EPF Act coverage. The court also rejected the appellant’s contention that the institutions should not be clubbed because they had different courses, affiliations, grant-in-aid percentages, and establishment dates. The court held that these factors were not relevant for the purpose of clubbing under the EPF Act.

The Supreme Court’s decision was based on a thorough examination of the facts and the relevant legal precedents. The court emphasized the importance of functional integrity, common management, and financial interdependence in determining whether two institutions can be clubbed together for the purpose of the EPF Act. The court also highlighted the appellant’s failure to provide sufficient evidence to prove that the institutions were independent.

The court quoted from the judgment:

“From a perusal of various orders and documents produced on record, it is evident that the appellant had taken the case very casually.”

“Even the documents pertaining to the subsequent period weaken the appellant’s case.”

“For the reasons mentioned above, the appeal is dismissed.”

There were no dissenting opinions in this case. Both judges concurred with the final decision.

Key Takeaways

• Educational institutions managed by the same society or trust can be clubbed together for the purpose of EPF Act coverage if they have functional integrity, common management, and financial interdependence.
• The total number of employees in all such institutions will be considered for determining the applicability of the EPF Act.
• The onus is on the establishment to prove that the institutions are independent and have no common management.
• Factors such as different courses, affiliations, grant-in-aid percentages, and establishment dates are not relevant for determining whether institutions can be clubbed under the EPF Act.
• This judgment clarifies the criteria for clubbing institutions under the EPF Act, impacting numerous educational establishments run by the same society or trust.

Directions

There were no specific directions given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that educational institutions run by the same society or trust can be clubbed for the purpose of coverage under the EPF Act if they have functional integrity, common management, and financial interdependence. This case reinforces the principles laid down in previous cases such as L.N. Gadodia & Sons v. Provident Fund Commissioner, (2011) 13 SCC 517 and Noor Niwas Nursery Public School v. Regional Provident Fund Commissioner and others, (2001) 1 SCC 1. There is no change in the previous position of law, but this case clarifies the application of the law to educational institutions.

Conclusion

The Supreme Court upheld the High Court’s decision, ruling that the Mathosri Manikbai Kothari College of Visual Arts and the Ideal Institute of Fine Arts could be clubbed together for the purpose of EPF Act coverage. The court found sufficient evidence of functional integrity, common management, and financial interdependence between the two institutions. This judgment reinforces the principle that the substance of the relationship between institutions, rather than their formal separation, will determine their treatment under the EPF Act.