TaxTMI 
TaxTMI 
1998 (7) TMI 493
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Government as provided by clause (iii) of the proviso the person appointed to manage the affairs of the factory by the Government is to be deemed the occupier. The appellant, Indian Oil Corporation Limited, is a Government company as defined by section 617 of the Companies Act, 1956. It is almost wholly owned and controlled by the Government. It is, inter alia, engaged in the supply and distribution of petroleum and petroleum products including LPG. In order to ensure an effective and efficient supply system it is required to establish and maintain storage facilities at many places in the country. At Namkum, in Ranchi District, it already had large storage facility. With the object of increasing storage capacity at Namkum it established a new storage unit in 1992 after obtaining approval of the Central Government. As storage facilities are also covered by the definition of "factory" as defined by the Factories Act, the depot manager posted at the Namkum Depot made an application on April 10, 1992, for obtaining a licence for the new unit. He also made an application on December 30, 1991, for renewal of the licence of the existing unit. While granting the licence earlier, for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irector as the occupier. Following the decision of this court in J.K. Industries Limited v. Chief Inspector of Factories and Boilers [1997] 88 Comp Cas 285 ; 90 FJR 65 ; [1996] 6 SCC 665, wherein it is held that in the case of a company, which owns a factory, it is only one of the directors of the company who can be notified as the occupier of the factory for the purpose of the Factories Act and the company cannot nominate any other employee as the occupier of the factory, the High Court answered the first question accordingly. In view of this decision the learned Attorney-General appearing for the Corporation has not raised that point before us. On the second point, the High Court held that proviso (ii) to section 2(n) would apply to the storage depots at Namkum. It gave the following three reasons for taking that view : (1) the storage depots are owned by the company and not by the Central Government, though the company itself is owned, to a very large extent, by the Central Government, (2) proviso (ii) to section 2(n) is applicable to all the companies as it does not make any distinction between a private company and a Government owned company, and (3) the depot manager has not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case of the appellant-Corporation it will have to be held that the ultimate control over the affairs of all the factories of the Corporation is really of the Central Government, and, therefore, all the factories of the Corporation should be regarded as factories owned and controlled by the Central Government. As there is a special provision governing factories owned or controlled by the Central Government the general provision made with respect to companies, will not apply. On the other hand, learned counsel for the contesting respondents, supported the judgment of the High Court on the first two grounds given by it and further contended that on a correct and harmonious interpretation of clauses (ii) and (iii) of the first proviso to section 2(n) it should be held that clause (iii) applies only to those factories which are run by the Government departmentally. He submitted that the appellant-Corporation is just like any other company, has its own share capital, has a board of directors in whom the power to manage the affairs of the company vests and profit and loss made by it would be its own. Thus, it is not merely a separate legal entity but is quite independent and different....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the directors thereof may be prosecuted and punished under this Chapter for any offence for which the occupier of the factory is punishable: Provided that the company may give notice to the inspector that it has nominated a director, who is resident within India, to be the occupier of the factory for the purposes of this Chapter and such director shall so long as he is so resident, be deemed to be the occupier of the factory for the purposes of this Chapter, until further notice cancelling his nomination is received by the inspector or until he ceases to be a director: Provided further that in the case of a factory belonging to the Central Government or any State Government or any local authority the person or persons appointed to manage the affairs of the factory shall be deemed to be the occupier of that factory for the purposes of this Chapter ..." While amending section 2(n) in 1987 a significant change was made by the Legislature. Section 100 was deleted and instead in section 2(n) itself a stricter provision was made by introducing the first proviso. In J.K. Industries Limited v. Chief Inspector of Factories and Boilers [1997] 88 Comp Cas 285, 311; 90 FJR 65 ; [1996] 6 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....purposes and in certain areas of law, it does not necessarily follow that for the effective enforcement of fundamental rights under our constitutional scheme, the court should not scan the real character of that entity, and if it is found to be a mere agent or surrogate of the State, in fact owned by the State, in truth controlled by the State and in effect an incarnation of the State, constitutional lawyers must not blink at these facts and frustrate the enforcement of fundamental rights despite the inclusive definition of article 12 that any authority controlled by the Government of India is itself State. The true test is functional, not how the legal person is born but why it is created. Apart from discharging functions or doing business as the proxy of the State, wearing the corporate mask there must be an element of ability to affect legal relations by virtue of power vested in it by law. After taking into consideration the fact that control by the Government over the Corporation is writ large in the Act and in the factum of being a Government company and the circumstances under which the Bharat Petroleum Corporation Limited was made a Corporation, this court further held that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntenance duality of ultimate control. If the transfer of the control to another person is not complete, meaning thereby that the transferor retains its control over the affairs of the factory, the transferee, whosoever he may be, (except a director of the company, or a partner in a partnership firm) cannot be considered to be the person having ultimate control over the affairs of the factory notwithstanding what the resolution of the board states. The litmus test, therefore, is who has the "ultimate control" over the affairs of the factory. It is also held therein that the deeming provision made in proviso (ii) does not override the substantive provision of section 2(n) but clarifies it. The above discussion fully supports the contention of the learned Attorney-General that for the purpose of section 2(n) what is to be seen is who has the "ultimate control" over the affairs of the factory. The relevant provisions regarding establishment of the Corporation and its working leave no doubt that the ultimate control over all the affairs of the Corporation, including opening and running of factories, is with the Central Government. Acting through the Corporation is only a method employe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o can be said to be in ultimate control but also with respect to the object for which the factory is set up. In a democratic set-up of Government, it may not be possible to say with certainty as to who is having the ultimate control. In a welfare State, the Government does not carry on such activity for its own profit or benefit but for the benefit of the people as a whole. Moreover, it is the Government which looks after the successful implementation of the provisions of the Factories Act, and, therefore, it is not likely to evade implementation of the beneficial provisions of the Factories Act. That appears to be the reason why the Legislature thought it fit to make a separate provision for the Government and the local authorities. Ordinarily, for running the factories owned or controlled by the Central Government or any State Government, or any local authority, a person or persons would be appointed by it to manage the affairs of the factory, because the Government or the local authority as a whole would not run the factory. Therefore, the Legislature appears to have provided that in the case of a factory owned or controlled by the Central Government, the State Government or the....