Unity of Purpose over Separate Incorporation – Supreme Court’s Expanded Test for Clubbing Establishments under the EPF Act

1. Introduction

The Supreme Court’s decision in M/S Torino Laboratories Pvt. Ltd. v. Union of India (2025 INSC 849) has settled a long-standing controversy: can two separately incorporated companies be treated as a single “establishment” for provident-fund obligations even when each enjoys its own statutory registrations? The Court answered in the affirmative, holding that where the factual matrix discloses unity of purpose, functional integrality, common management and pooled finance, the cloak of separate incorporation will not defeat the protective sweep of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”).

2. Summary of the Judgment

• The Supreme Court dismissed Torino’s appeal and upheld clubbing with Vindas from September 1995.
• Separate company registration, tax numbers and factory licences are not conclusive; they may be “artificial devices, subterfuges and facades”.
• Section 2A EPF Act is wide enough to rope in different juristic entities if the factual tests show an integrated establishment.
• The governing tests: cumulative evaluation of unity of ownership/management, functional integrality, financial unity, common infrastructure and general unity of purpose.
• “Functional integrality” (whether one unit can exist without the other) is not the sole or decisive yardstick.
• Infancy protection under (the then) Section 16(1)(d) is unavailable once clubbing is proved.

3. Analysis

3.1 Precedents Cited & Their Influence

1. Associated Cement Companies Ltd. v. Workmen, AIR 1960 SC 56 – Established multiple, non-exclusive tests (unity of ownership, functional integrality, etc.) to decide what constitutes one establishment.
2. Management of Pratap Press v. Delhi Press Workers’ Union, AIR 1960 SC 1213 – Highlighted that conduct of the employer (mixing capital, staff) is relevant.
3. South India Millowners’ Association case (1962 Supp 2 SCR 926) – Clarified that functional integrality is a factor, but not always decisive; weight of each test varies case-wise.
4. Management of Wenger & Co. v. Workmen (1963 Supp 2 SCR 862) – Reiterated absence of functional integrality alone doesn’t compel treating units as distinct.
5. Dharamsi Morarji Chemical Co. (1998) 2 SCC 446 – Relied on by Torino; court distinguished it on facts (no common management/finance in that case).
6. L.N. Gadodia & Sons (2011) 13 SCC 517 – Confirmed that two corporations under common management could still be clubbed; the 2025 judgment echoes and expands this principle.
7. Shree Vishal Printers (2019) 9 SCC 508 – Emphasised holistic view; followed by the present Court in adopting a cumulative approach.

3.2 Court’s Legal Reasoning

• Cumulative test, not single touchstone: The Court synthesised the above precedents, holding that no single factor is decisive; what matters is the overall relationship between units.
• Unity indicators present:
  • Contiguous factory plots (65 and 65/1, Sector 1, Pithampur).
  • Joint security, same telephone/fax lines, common e-mail IDs, common website.
  • Shared head-office and administrative office; same Mumbai address.
  • Overlapping directors within one Hindu Undivided Family; pooled finances.
  • Same business genre – pharmaceuticals – even if product lines differ.
• Lifting the corporate veil: Separate incorporation can be ignored when used as a “subterfuge” to escape social-welfare legislation.
• Section 2A is declaratory, not exhaustive: Though couched in terms of “departments or branches”, it does not preclude application to distinct corporate entities where facts justify.
• On notice & retrospective liability: The Court found Torino was aware, participated in the Section 7A enquiry and could not complain of surprise when coverage was rolled back to 1995.
• Infancy protection rejected: Once the establishment is treated as continuous since 1995, Torino cannot claim fresh infancy benefits for itself.

3.3 Impact of the Decision

The judgment fortifies employee social-security rights and sends a clear compliance signal:

• Wider reach of EPF Act: Companies can no longer rely solely on corporate structuring or multiple registrations to evade provident-fund liabilities.
• Compliance Strategy: Businesses operating sister concerns on shared infrastructure must reassess PF coverage, payroll processes and prospectively regularise dues to avoid penalties.
• Adjudicatory Guidance: Authorities under Section 7A now have a Supreme Court blueprint on how to evaluate clubbing – look at holistic, practical unity, not legal form alone.
• Deterrent Effect: The case lowers the threshold for piercing the veil in social-legislation contexts, reducing incentives for artificial fragmentation.
• Litigation Predictability: By reconciling seemingly divergent earlier rulings, the Court offers a consolidated test, improving consistency in future adjudication.

4. Complex Concepts Simplified

• EPF Act: A welfare statute mandating employers to contribute to workers’ retirement and insurance funds.
• Section 2A: Provision declaring that different departments/branches of a business are treated as one establishment for PF coverage.
• Lifting/Piercing Corporate Veil: Ignoring separate legal personality of companies when used to defeat law or commit wrongdoing.
• Functional Integrality: A test asking whether activities or units are so inter-dependent that one cannot reasonably function without the other.
• Section 7A Enquiry: Proceedings before EPF authorities to decide coverage disputes and determine dues.
• Infancy Protection (old Section 16(1)(d)): A two-year exemption from contributions for newly set-up establishments, now unavailable if the unit is not genuinely new or separate.

5. Conclusion

The Supreme Court has reaffirmed that the protective reach of the EPF Act is determined by economic reality, not by the labels businesses choose for themselves. Where common ownership, shared management, integrated finance and unified purpose converge, separate incorporations dissolve into one establishment for provident-fund obligations. The decision lays down a comprehensive, fact-sensitive blueprint for authorities and courts, ensuring that employee social-security rights cannot be undermined by corporate cosmetology. Going forward, enterprises must critically audit their group structures; failure to honour this enlarged doctrine of “unity of purpose” could result in significant retrospective liabilities and penal consequences.