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2017 DIGILAW 1125 (KER)

Deputy Director v. Varun Impex Ltd.

2017-08-07

K.HARILAL, P.SOMARAJAN

body2017
JUDGMENT : P. Somarajan, J. This appeal is preferred against the judgment dated 19.8.2010 in I.C.No. 54/2008 on the file of Employees' Insurance Court, Alappuzha, by the E.S.I. Corporation, who is the respondent in the original application. The original application was filed under Section 75 read with section 77 of the Employees' State Insurance Act, 1948 (for short 'the Act'), seeking a declaration that the assessment and demand of Rs. 1,29,921/- towards ESI contribution against the applicant for the periods of 1997-1998, 1999-2000 and 2000-2001 is unsustainable. 2. The case of respondent is that their establishment was engaged in the business of exporting of processed materials such as Dry Ginger, Black Pepper, Turmeric etc. and they had entered into a contract with another firm M/s. Varun Agro for the supply of the above processed materials and the materials so processed were exported by the applicant. The respondent paid the charges for supplying the processed products to M/s Varun Agro under the heading of processing charges. So, the case advanced by the respondent is that the processing charges would not constitute wages for the purpose of contribution. It is also alleged that treating of M/s. Varun Impex Ltd and M/s. Varun Agro as a single unit is not sustainable. The Employees' Insurance Court, on hearing both parties and on consideration of respective pleadings, found that these are two entirely different firms and, as such, it was ordered that the demand issued is not sustainable. The said order is under challenge. 3. The main dispute is cantered around the question with respect to the identity of the two firms M/s. Varun Impex Ltd. and M/s. Varun Agro. In the application made by the petitioner, the partnership firm M/s. Varun Agro or any of the partners therein, had not been made as a party, to resolve the dispute whether the firm M/s. Varun Impex Ltd., a registered company, and M/s. Varun Agro really constitute in substance, one and the same firm and whether M/s Varun Agro is a brother or sister concern of M/s. Varun Impex Ltd. The question who are the partners of M/s. Varun Agro assumes importance at this juncture. If it is the very same persons who constitute the company in the name and style of M/s. Varum Impex Ltd, it will really tell upon what is behind it in the creation of another firm by name M/s. Varun Agro. If it is the very same persons who constitute the company in the name and style of M/s. Varum Impex Ltd, it will really tell upon what is behind it in the creation of another firm by name M/s. Varun Agro. Nothing was brought to the notice of this Court or in the Employees' Insurance Court regarding who are the partners of M/s. Varun Agro. It can be resolved only making the said firm as a corespondent in the application by issuing notice to the partners, who actually constitute M/s. Varun Agro, without which no effective decision can be drawn on the dispute involved. It is relevant to consider, at this juncture, section 69 of the Indian Partnership Act, 1932. If the partnership firm is not a registered one, its entity cannot be recognized to enforce a right either arising from a contract or conferred by Indian Partnership Act, 1932. The registration of a partnership firm would be a sine qua non to enforce a right arising from a contract or conferred by the Indian Partnership Act, 1932, through a suit or proceedings. Nobody shall be permitted to circumvent any provisions of law or wriggle out of any liability by constituting an internal arrangement either by way of partnership or otherwise. An actual partnership should be recognized with the requirement as mandated under the Indian Partnership Act, 1932; namely the requirement for its constitution and registration under Section 59, alteration, if any, under Sections 60 and 62, dissolution of firm under Section 63, rectification of mistake under Section 64 and effect of non-registration under Section 69 of the Act. Further, partnership is a joint business by several persons. If the very same person, which constitute the petitioner firm, formed themselves into a partnership firm, it is only an internal arrangement and it may not have a separate entity. For that purpose, we are of the view that it is necessary to have an enquiry regarding the identity of the partners of M/s. Varun Agro as on the date of inspection and demand notice issued by the respondent. 4. For that purpose, we set aside the order passed by the Employees' Insurance Court, Alappuzha, and the matter is remanded back to the Employees' Insurance Court, Alappuzha, for fresh disposal in accordance with law. 4. For that purpose, we set aside the order passed by the Employees' Insurance Court, Alappuzha, and the matter is remanded back to the Employees' Insurance Court, Alappuzha, for fresh disposal in accordance with law. It is made clear that if the partnership is not registered, the consequence of section 69 of the Indian Partnership Act would come into play. This has to be assessed in order to find out whether the partnership firm M/s. Varun Agro is only an internal arrangement so as to wriggle out of the liability or not. If it is device by way of an arrangement, there may not be any separate entity for the partnership firm apart from the petitioner firm. So, it shall be decided afresh by Employees Insurance Court, Alappuzha. 5. The appeal is allowed in part. Both the parties shall appear before the Employees' Insurance Court, Alappuzha on 13.09.2017, or any other date that may be notified by that Court in that behalf. Both parties are at liberty to adduce further evidence, if so requires. No order as to costs.