Provident Fund | When Can Two Establishments Be Clubbed Together For EPF Act Coverage? Supreme Court Explains

A Division Bench of the Supreme Court recently determined the legal position pertaining to the clubbing of different institutes for the purpose of coverage under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act).

After referring to several decisions with respect to the subject matter, the Court concluded that there is a financial integrity between the two institutes and thus, they can be interconnected and can be clubbed for the purpose of coverage.

In the matter at hand, both the Institutes were being run by the same Society i.e., Ideal Fine Arts Society. While one institute named the Ideal Institute was set up in the year 1965, whereas the other one i.e., the Arts College (the appellant) was set up around after 20 years i.e, in the year 1985-86. If the employees employed in both the institutes are added, the total number of employees would be 26, which will be sufficient for coverage in terms of Section 1(3)(b) of the EPF Act, which stipulates that an institute employing 20 or more persons is liable to be covered under the provisions of the EPF Act w.e.f. March 01, 1988. Moreover, both the institutes were being run in the same campus.

The Bench of Justices Hima Kohli and Rajesh Bindal, after examining the relevant documents, held:

“From a perusal of the material available on record and the settled position of law, it can be safely opined that there is financial integrity between the Society of the appellant as well as the Ideal Institute as substantial funds have been advanced to the Institutes by the Society. Further, both the Institutes are functioning from the same premises.”

Detailed Background and Previous Stages of Proceedings

The facts of the present case are such that the Ideal Fine Arts Society runs two institutions, namely, the ‘Ideal Institute of Fine Arts’ and ‘Mathosri Manikbai Kothari College of Visual Arts’. Both, the Ideal Institute as well as the Arts College are being run in the same campus. The Ideal Institute was set up way back in the year 1965, offering Diploma Course in drawing and painting, whereas the Arts College was set up in the year 1985-86, offering Degree and Post Graduate Degree in drawing and painting.

It was claimed that the Ideal Institute employed 8 persons, whereas the Arts College had 18 employees. The issue arose with reference to their coverage and application of the EPF Act. Based on the report of the Enforcement Officer dated July 01, 2003, it was reported that there being total 26 employees working in both the Institutes, which are managed by the same Society and within the same premises, the establishment would be covered under the provisions of the EPF Act.

Thereafter, a notice was issued to the establishment and accordingly an order was passed by the Commissioner on September 23, 2005, under Section 7-A of the EPF Act, assessing the amount of contributions to be made by the appellant under various schemes of the EPF Act. The aforesaid order was challenged by the Arts College through statutory appeal before the Tribunal, however, the same was dismissed. Following this, the appellant also filed a Writ Petition challenging the order passed by the Tribunal before the High Court, which was dismissed by the Single Judge as well as the Division Bench of the High Court.

Contentions of the Parties

At the outset, appellant submitted that the impugned orders passed by the Commissioner, the Tribunal, as well as the High Court are not legally sustainable. It was argued that both the Institutes, namely, Ideal Institute and Arts College are independent from each other and are merely being managed by the same Society. There is no financial integrity between the two Institutes and both the Institutes are offering different courses, having permission/affiliation from different authorities.

Per contra, the counsel, appearing for the respondent, argued that there is no error in the orders passed by the Commissioner, the Tribunal or the High Court, directing coverage of both the Institutes run by the Society, under the EPF Act.

Apart from this, respondent also submitted that it is a case in which neither the appellant nor the Ideal Institute or the Society, had placed any material before any adjudicating authorities i.e, Commissioner, the Tribunal and even the High Court to dislodge the facts found by the Enforcement Officer and establish that both the Institutes are independent and have no common management.

Court’s Observations

To begin with, the Court highlighted that under the provisions of the EPF Act, if any establishment employs 20 or more persons, the same shall be covered under the provisions of the EPF Act for grant of various benefits thereunder to the employees working there.

Moving forward, the Court also narrowed the issue raised in the present appeal and clarified that the same is not regarding the calculation of dues under the EPF Act, rather it is regarding the coverage of the EPF Act by clubbing of two Institutes.

It thereafter relied upon several precedents that laid down the law regarding the adjudicated issue. These decisions included Associated Cement Co. v. Workmen, AIR 1960 SC 56, wherein it was opined that it is impossible to lay down any one test as absolute and invariable for all cases to determine the issue regarding clubbing of two establishments for the purpose of coverage under the EPF Act. The real purpose is to find out true relations between the two establishments and finally opine thereon. In one case, ‘unity of ownership, management and control’ may be an important test whereas in another ‘functional integrity’ or ‘general unity’ may be important. There can also be a case where the test can be of the ‘unity of employment’.

The Court also placed its reliance upon Noor Niwas Nursery Public School v. Regional Provident Fund Commissioner and others, (2001) 1 SCC 1 wherein it was held that no straight jacket formula or test can be laid down for the purpose of clubbing of the two establishments and coverage under the EPF Act.

After perusing various orders and documents produced on record, the Cout was of the opinion that the appellant had taken the case very casually. At the foremost, the Court observed that after the inspection of the institute, report was submitted by the Enforcement Officer on July 01, 2003, wherein it was stated that the establishment would be covered under the provisions of the EPF Act.

The coverage was confirmed vide order dated August 12, 2003. At this, the Court pointed out that both these orders were not challenged by the appellant. It is only after the order was passed by the Commissioner on September 23, 2005, under Section 7-A of the EPF Act, that the proceedings were initiated.

When the matter travelled to the Tribunal, therein it was recorded that the onus to prove that the employees were less than 20 for exclusion of the applicability of EPF Act before the Commissioner, was on the appellant and the appellant had failed to discharge the same. Thus, it did not interfere with the order of the commissioner.

At the end, the Court opined that the documents produced by the appellant themselves show that it is not an independent establishment but an arm of the Society.

Pertinently, one of the documents was the letter dated 09.12.1987 from the University Grants Commission conveying the Registrar, Gulbarga University, Gulbarga, about the inclusion of the appellant college in the list of the approved colleges under the non-Government colleges, teaching upto Bachelor’s degree. The name of the college was mentioned as ‘The Ideal Fine Arts Society’s College of Visual Art’.

It is in this context, the Court held that “the College is nothing but an extended arm of the Society”, while refusing to accept the appellant’s contentions and dismissing the appeal.

Case Title: M/S Mathosri Manikbai Kothari College Of Visual Arts V. The Assistant Provident Fund Commissioner, Civil Appeal No.4188 Of 2013

Citation : 2023 LiveLaw (SC) 905

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