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Case Number

Writ Petitions Nos. 5767 and 5768 of 1990, 18788 of 1988, 3228 of 1989 and 22903 to 22905 of 1989

Attorney(S)

Sri K. Kasturi, Sri K. Lakshminarayana Rao, Sri Murthy, Sri Kumar and Sri B.C Prabhakar.
Sri D. Shylendra Kumar and Sri N. Devadas.

Judges

S. Rajendra Babu, J.

Acts

S. 2(n) as amended by Act 20 of 1987 of the Factories Act, 1948 (hereinafter referred to as the Act), as violative of Arts. 19(1)(g) and 14 of the Constitution.
Act 20 of 1987)Section 103
Act 20 of 1987. Section 100

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

This batch of petitions challenged the constitutional validity of Section 2(n) of the Factories Act, 1948 as amended by Act 20 of 1987, on the ground that the amendment violates Articles 19(1)(g) and 14 of the Constitution. The petitioners are operators of various factories seeking registration or renewal of factory licences. When they filed the required applications, the applications were not acted upon; instead the petitioners were directed by endorsements from the Chief Inspector of Factories and Boilers to file applications signed by the “director of the company which owns the factory.” The authorities would not accept board resolutions authorising another responsible officer (for example, a general manager) to be the “occupier.”

The petitions raised both the challenge to the amendment's constitutionality and objections to the administrative practice of insisting that only a director may be nominated as occupier. The Court considered the statutory language (original and amended S.2(n) and S.100), examined prior decisions and interpretive principles (in particular about deeming clauses), and addressed the administrative endorsements. The Court quashed the impugned endorsements and directed respondents to reconsider the applications in accordance with the Court’s interpretation of the statute. The Court declined to decide the constitutional challenge as unnecessary for the result.

Legal Issues Presented

Whether Section 2(n) of the Factories Act, as amended by Act 20 of 1987, is constitutionally invalid as violative of Articles 19(1)(g) and 14 of the Constitution.
Whether administrative endorsements requiring that applications for registration or renewal must be signed by a director (nominating a director as the “occupier”) are lawful, and whether a board resolution nominating a different responsible officer (e.g., general manager) can be rejected by the authorities.
How the proviso (a deeming clause) in the amended S.2(n) should be interpreted in relation to the main clause that defines “occupier” as the person with ultimate control over the affairs of the factory.

Arguments of the Parties

Petitioners' Arguments

Section 2(n) as amended restricts freedom to carry on business under Article 19(1)(g) because the Companies Act governs company activities and directors’ rights and liabilities; the amendment artificially confines the role of “occupier” to a director, interfering with business freedom.
A director is only one kind of officer; other responsible officers (e.g., a general manager) could as reasonably be nominated as “occupier” if authorised by the company. The amendment discriminates and is therefore violative of Article 14.
The authorities’ refusal to accept board resolutions nominating an authorised responsible officer (other than a director) was unreasonable and contrary to prior Supreme Court decisions which allow nomination of an occupier who is not necessarily a director or owner (petitioners relied on several Supreme Court authorities to this effect).

Respondents' Arguments

The endorsements are in conformity with the amended statutory language; the Legislature legitimately defined “occupier” to promote the object and intent of the Act and to resolve judicial controversy about whether the occupier must be a director or owner.
The amendment clarifies and deems certain categories (partners, directors, appointed managers) to be occupiers; this is not violative of Articles 14 or 19 because it serves the objects of the Act.
The respondents' interpretation is consistent with the Allahabad High Court decision in Bhatia Metal Containers (P) Ltd. v. State of U.P., and therefore is a plausible construction that should not be interfered with.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Income-tax v. Indo Mercantile Bank Ltd. [A.I.R. 1959 S.C. 713]	Relied upon by petitioners in support of the proposition that nomination/choice of occupier need not be confined to directors.	Listed among authorities relied upon by petitioners; used to support petitioners' contention that occupier need not be a director.
Abdul Jabar Butt v. State of Jammu and Kashmir [A.I.R. 1957 S.C. 281]	Relied upon by petitioners for the general principle that nomination/selection of responsible officer can determine who is treated as occupier.	Included in petitioners' list of supporting cases; court records reliance but does not elaborate further within the opinion.
Vishesh Kumar v. Shanti Prasad [(1980) 2 SCC 378]	Relied upon by petitioners in support of their interpretation that occupier need not be necessarily a director or owner.	Referenced among petitioners' authorities; court acknowledges reliance as part of petitioners' argument.
Dwaraka Prasad v. Dwaraka Das Saraf [(1976) 1 SCC 128 : A.I.R. 1975 S.C. 1758]	Relied upon by petitioners to support nomination principles regarding occupier liability.	Included in petitioners' cited authorities; court notes these decisions as part of petitioners' submissions.
Consolidated Coffee, Ltd. v. Coffee Board [(1980) 3 SCC 358]	Relied upon by petitioners for the proposition that occupier need not be director/owner and nomination can determine liability.	Noted among petitioners' authorities; court references it as part of the corpus relied upon by petitioners.
Mohammad Mumtaz v. Smt. Nandini Satpathy [(1987) 1 SCC 269 : A.I.R. 1987 S.C. 865]	Relied upon by petitioners as supporting authority (context not further elaborated in the opinion).	Mentioned in the list of cases relied upon by petitioners; court records the reliance.
Employees' State Insurance Corporation, Indore v. Kailash-chandra [1989 L. & I.C. 760]	Relied upon by petitioners (cited among other decisions).	Noted as cited by petitioners; the opinion does not elaborate the specific principle taken from this case beyond its listing.
Suresh Tulsidas Kilachand v. Collector of Bombay [1984-I L.L.N 312]	Relied upon by petitioners as part of the authority for their position (no separate elaboration in the text).	Included in petitioners' list; court notes reliance without detailed application.
Daypack Systems (Private), Ltd. v. Union of India [(1988) 2 SCC 299 : A.I.R. 1988 S.C. 782]	Explained the nature and purpose of a deeming clause (useful for interpreting the proviso in S.2(n)).	Used as the leading authority to explain that a deeming provision can create a fiction or put beyond doubt an uncertain meaning; court relied on it to interpret the proviso as clarificatory, not as overriding the main clause.
Commissioner of Income-tax, Bombay Presidency v. Bombay Trust Corporation Ltd. [1930 P.C. 54 at 56]	Earlier authority referenced concerning the interpretation and purpose of deeming provisions.	Referenced as part of the line of authorities explaining deeming clauses; court treated it as supporting the interpretive approach adopted.
Hira H. Advani Etc. v. State Of Maharashtra [(1969) 2 SCC 662 : A.I.R. 1971 S.C. 44]	Referenced in support of the interpretive approach to deeming clauses.	Included in the list of authorities informing the court's understanding of deeming provisions.
St. Aubyn (L.M) v. Attorney-General [1951 (2) All E.R. 473]	Referenced as an authority on the use and meaning of deeming provisions.	Used as part of the legal background for interpreting the deeming clause in the proviso.
Bhatia Metal Containers (Private) Ltd. v. State of Uttar Pradesh [1989-II L.L.N 736] (Allahabad High Court)	Relied upon by respondents; treated as holding that the proviso excludes the meaning of the main clause (per the opinion's description).	The Court rejected the view of the Allahabad High Court, stating that it did not consider the effect of the proviso on the main provision and wrongly treated the proviso as overruling the main clause.
S.L.P. No. 4141 of 1979 (Supreme Court)	Referred to by the Court as consistent with the Court's interpretation (that nomination by resolution can make a non-director the occupier).	Cited to support the Court's conclusion that prior Supreme Court jurisprudence allows nomination and does not require occupier to be a director or owner.

Court's Reasoning and Analysis

The Court proceeded by setting out the text of S.2(n) both as originally enacted and as amended (including the proviso) and also reproduced Section 100 (as amended or extant) which contains similar language regarding nomination and prosecution of partners/directors as occupiers.

The key analytical steps were:

Statutory construction: The main clause of S.2(n) defines “occupier” as the person who has ultimate control over the affairs of the factory. The proviso then states that, in specified categories (firms, companies, government-owned factories), certain persons shall be deemed to be occupiers (any one partner/member; any one director; or appointed managers in public sector cases).
Comparison with S.100: Courts had previously interpreted S.100 to permit nomination of any other person by board resolution as occupier (i.e., it is permissible for a company to nominate an occupier who is not necessarily a director). Those decisions indicate that an occupier need not necessarily be the owner or a director and that nomination by resolution could determine who is to be treated as occupier for prosecution and liability.
Interpretation of the proviso/deeming clause: The Court examined the nature and purpose of deeming clauses (citing Daypack Systems and other authorities). It observed that “deemed” can create a statutory fiction or clarify an uncertain meaning and is commonly used either to create a fiction or to put beyond doubt a meaning that might otherwise be uncertain. The proviso therefore elaborates or clarifies the substantive provision, but does not automatically oust the main clause.
Effect on nomination and administrative practice: Reading S.2(n) as a whole, the Court concluded that the main clause (ultimate control) remains operative and that the persons in the proviso are also “deemed occupiers” for relevant purposes — but this does not eliminate the possibility that an officer authorised by the company (by board resolution) who actually has ultimate control can be the occupier. Consequently, an application for registration or renewal may be signed by an officer authorised in that behalf even though that officer may not be a director, partner or member.
Rejection of the contrary High Court view: The Court specifically rejected the view of the Allahabad High Court in Bhatia Metal Containers, finding that court had not considered the effect of the proviso on the main provision and had treated the proviso as if it overrode the main clause — an approach the present Court found erroneous. The Court emphasized the rule that a proviso does not “eat away” the main provision unless expressly indicated.
Practical considerations: The Court observed real-world situations (e.g., sleeping partners, nominee directors from financial institutions, professional directors not involved in factory management) to underline that deeming directors or partners automatically as occupiers without regard to actual ultimate control would be inappropriate and inconsistent with the main clause's emphasis on ultimate control.
Conclusion from analysis: The authorities (inspectors) had failed to apply their minds to these statutory distinctions and interpretive principles; their endorsements insisting on nomination by a director and rejecting board-nominated officers were therefore unsustainable.

Because the Court's statutory interpretation and administrative-law analysis disposed of the controversy, it was unnecessary for the Court to decide the constitutional challenge; the Court stated that such a constitutional examination would be undertaken only if absolutely necessary.

Holding and Implications

Holding: The petitions were allowed and the impugned endorsements and proceedings issued by the Inspector of Factories (or other respondents) were quashed.

Consequential directions and implications:

The respondents were directed to re-apply their minds and decide the registration/renewal applications afresh in light of the Court’s interpretation of S.2(n) (i.e., recognising that an authorised officer who has ultimate control may sign and be treated as occupier even if not a director).
Interim orders previously granted by the Court shall enure to the benefit of the petitioners until the authorities finally dispose of the applications.
The Court did not address or decide the constitutional challenge to the amendment (Articles 14 and 19(1)(g)) because deciding it was unnecessary for the relief granted; therefore, no constitutional ruling on that question was made in this judgment.
The immediate practical effect is to invalidate the administrative practice of refusing to accept applications signed by an authorised non-director officer on the basis that only a director can be the occupier; it obliges the authorities to reconsider with proper application of statutory interpretation principles. The opinion does not purport to create a broader precedent beyond the statutory interpretation applied to these facts and the directions given to the authorities.

Rule made absolute. The Court explicitly refused to examine the constitutional questions because the statutory interpretation and quashing of the administrative endorsements resolved the dispute.

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W.S Industries (India), Ltd., Bangalore, And Another v. Inspector Of Factories, Bangalore, And Others

JUDGMENT

1. In this batch of cases the petitioners have called in question the constitutional validity of S. 2(n) as amended by Act 20 of 1987 of the Factories Act, 1948 (hereinafter referred to as the Act), as violative of Arts. 19(1)(g) and 14 of the Constitution. They have also contended that the endorsements issued by the Chief Inspector of Factories and Boilers calling upon the petitioners to file an application for renewal of registration or licence of their respective factories by nominating the director as the “occupier.”

2. The petitioners are all running factories of various kinds and are seeking either registration or renewal of their factories' licence. When they filed applications in the necessary forms the same having not been acted upon but the petitioners have been asked to file applications signed by the “director of the company which owns the factory.” It is also stated that the authority cannot act upon the Board resolution authorising the general manager to be the “occupier” of the factory.

3. The contentions raised by the petitioners are as follows: That S. 2(n) of the Act restricts the freedom to carry on business inasmuch as the Companies Act controls the activities to be carried on by a company and the rights and liabilities of the director are controlled under that Act. By giving an artificial definition of “occupier” restricting that such responsibility should be entrusted only to a director of a company, the Legislature has interfered with the freedom to carry on business and the restriction imposed therein is not reasonable. It is submitted that a director of a company is as much an officer of a company as any other officer and as such there could be no distinction in the matter of nominating any officer as an “occupier” as long as such nomination is of a responsible officer of the company. It is, therefore, submitted that the provision is also violative of Art. 14 of the Constitution. It is further submitted that interpretation placed by the authorities in not acting upon the application signed by an officer who is duly authorised by a resolution of Board of Directors could not have been rejected on unreasonable grounds and by no stretch of imagination could it be said that the petitioners ought to nominate only a director as an “occupier” and have, in this context, relied upon various decisions of the Supreme Court in Commissioner of Income-tax v. Indo Mercantile Bank, Ltd. [A.I.R 1959 S.C 713], Abdul Jabar Butt v. State of Jammu and Kashmir [A.I.R 1957 S.C 281], Vishesh Kumar v. Shanti Prasad [(1980) 2 SCC 378], Dwaraka Prasad v. Dwaraka Das Saraf [(1976) 1 SCC 128 : A.I.R 1975 S.C 1758], Consolidated Coffee, Ltd., etc. v. Coffee Board, Bangalore, etc. [(1980) 3 SCC 358], Mohammad Mumtaz v. Smt. Nandini Satpathy [(1987) 1 SCC 269 : A.I.R 1987 S.C 865], Employees' State Insurance Corporation, Indore v. Kailash-chandra [1989 L. & I.C 760] and Suresh Tulsidas Kilachand v. Collector of Bombay [1984-I L.L.N 312].

4. Controverting these contentions the respondents contended: that the endorsements made by the respondents are fully in conformity with the provisions of the Act, that it was open to Legislature to give a definition to promote the intent and objects of the Act and overcome certain decisions wherein it had been held that the “occupier” of a factory need not necessarily be either a director or an owner of a factory and the Legislature has, therefore, provided the meaning or definition of the word “occupier” separately. That to set the matter at rest and to resolve the controversy as to expression “occupier” of factory the Legislature has defined the meaning of “occupier” by the amendment to S. 2(n) of the Act, impugned herein. It was also submitted that inasmuch as the amendment carried out the objects of the Act the same could not be said to be violative of either Art. 14 or Art. 19 of the Constitution. It was also submitted that the interpretation placed by the respondents is consistent with the decision of the Allahabad High Court in Bhatia Metal Containers (Private), Ltd. v. State of Uttar Pradesh [1989-II L.L.N 736], and, therefore, the meaning attributed by the respondents is plausible and need not be interfered with.

5. In order to appreciate the contentions raised on behalf of the rival parties it is necessary to set out the provisions of the Act as per the original and amended Acts:

“2(n) ‘occupier’ of a factory means the person who has ultimate control over the affairs of the factory, and where the said affairs are entrusted to a managing agent, such agent shall be deemed to be the occupier of the factory:

(as it stood originally)

“2(n) ‘occupier’ of a factory means the person, who has ultimate control over the affairs of the factory, and

Provided that—

(i) in the case of a firm or other association of individuals, any one of the individual partners or members thereof shall be deemed to be the occupier.

(ii) in the case of a company, any one of the directors shall be deemed to be occupier.

(iii) in the case of a factory owned or controlled by the Central Government or any State Government or any local authority, the person or persons appointed to manage the affairs of the factory by the Central Government, the State Government, or the local authority, as the case may be, shall be deemed to be the occupier.

(as it stood after amendment by Act 20 of 1987)

Section 103 which was part of the Act as it stood originally was omitted by Act 20 of 1987. Section 100 reads as follows:

“100. Determination of occupier in certain cases.— (1) Where the occupier of a factory is a firm or other association of individuals, any one of the individual partners or members thereof may be prosecuted and punished under this chapter for any offence for which the occupier of the factory is punishable:

Provided that the firm or association may give notice to the Inspector that it has nominated one of its members, residing within India to be the occupier of the factory for the purposes of this chapter, and such individual 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 partner or member of the firm or association.

(2) Where the occupier of a factory is a company, any one 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.

(3) Where the owner of any premises or building referred to in S. 93 is not an individual, the provisions of this section shall apply to such owner as they apply to occupiers of factories who are not individuals.”

6. An analysis of the proviso to S. 2(n) as introduced by the amendment by Act 20 of 1987 will indicate that in the case of a firm or other association of individuals any one of the individual partners or members and in the case of a company any one of the directors and in the case of a factory owned by a public sector undertaking or Union, State or any local authority, the person appointed to manage the affairs of the factory shall be deemed to be the occupier. When interpreting the provisions of S. 100 of the Act which clearly indicated an identical language the Courts have interpreted and stated that notwithstanding what is stated in S. 100 it is permissible to nominate any other person as an occupier if the Board of Directors so resolved for it. The ratio of those decisions is that where a company is an occupier of a factory only one of the directors can be prosecuted and punished as the occupier of the factory and the choice and selection of that director rests on the prosecuting agency but when a company has made nomination as to the occupier of the factory the choice of the prosecuting agency disappears and only the nominated person will have to be prosecuted. It is made clear in several decisions of the Supreme Court that it is not necessary that the occupier must be necessarily the owner or the director of the factory and if by a resolution a person is nominated to be the occupier who is in the ultimate control of the affairs that person or officer would be treated as the occupier in terms of the Act. In the absence of the nomination of the occupier the owner is the occupier and, therefore, where a company does not nominate an occupier the Board of Directors as representing the owners of the company would be taken as occupier because the ultimate control would vest in them. But in the present provision what is stated is an occupier of a factory means a person who has ultimate control over the affairs of the factory and the proviso refers to certain categories of persons in respect of whom the Act deems them to be the occupiers. The proviso does not override the main clause but on the other hand clarifies the meaning given to occupier as to those persons described in the proviso to be also occupiers although there may be another person who may be in charge or ultimate control of the affairs of the factory and it is for them to indicate as to who had been put in ultimate control of the affairs of the factory as required under S. 101 of the Act, the word “deemed” which is used in the proviso has been subject-matter of consideration by several authorities and the leading authorities on the point indicate that the expression “deemed” is normally used to create a fiction but may also be used to put beyond doubt a meaning which may otherwise be uncertain or to give the statutory language a comprehensive description that it includes what is obvious and what is uncertain and what is in ordinary sense impossible. The purpose and meaning of the deeming provision has been explained in Daypack Systems (Private), Ltd. v. Union of India [(1988) 2 SCC 299 : A.I.R 1988 S.C 782], which follows the earlier decisions in Commissioner of Income-tax, Bombay Presidency v. Bombay Trust Corporation, Ltd. [1930 P.C 54 at 56], Hira H. Advani Etc. v. State Of Maharashtra† [(1969) 2 SCC 662 : A.I.R 1971 S.C 44] and St. Aubyn (L.M) v. Attorney-General [1951 (2) All E.R 473]. The subject-matter of the proviso may have the effect of elaborating the substantive provision in the enactment having regard to the object of amendment. Hence the effect of reading the whole of S. 2(n) is that, not only the person in ultimate control of the factory but also the persons categorised in the proviso are liable to be deemed as occupier subject to other operative provisions of the Act. Hence, an application for registration of a factory or renewal thereof can be signed by an officer of the company authorised in that behalf even though he may not be a director, partner or an individual of an association of persons and he may also be shown to be an occupier in full control of the factory. In that event the persons named in the proviso, though not actually occupiers are “deemed occupiers” and are accordingly liable depending upon the other provisions of the Act.

7. The decision rendered by the Allahabad High Court in Bhatia Metal Containers (Private), Ltd. v. State of Uttar Pradesh [1989-II L.L.N 736] (vide supra), does not deal with the relevant questions that have been raised in these cases. It was merely stated or taken for granted that the proviso excludes the meaning given in the main clause without dealing with the meaning to be attributed to a deeming clause. For the following reasons I cannot accept the view expressed by the Allahabad High Court:

Firstly, it has not considered the effect of a proviso on the main provision.

Secondly, rule of interpretation is that proviso does not eat away the main provision unless it is indicated therein.

There is no such indication in the present case. Further, the proviso being a deeming clause can be understood only in the normal sense of a deeming clause and full effect will have to be given to the same. If understood thus there could be an officer of the concern who can be an occupier of a factory having been nominated to be in the ultimate control of the affairs of the concern as also the directors of company or a partner of a firm or an individual of an association of persons who could also be deemed to be liable as an occupier. Such an interpretation is not inconsistent with the provisions of the Act. Moreover, this view is consistent with the view of the Supreme Court in S.L.P No. 4141 of 1979.

8. The contention raised on behalf of the respondents, that in the light of the amendment that has been made a company has got to nominate only one of the directors or partners, or an individual of an association of persons as an occupier, therefore, cannot be accepted. This position becomes clear if the realities are taken into consideration. In the case of a partnership, on many an occasion there can be sleeping partners who merely are so but do not participate in the affairs of the concern. So also in the case of a company several financial institutions nominate directors who may have contributed their capital or advanced loans for the purpose of running the business of the company. In such cases those directors or partners cannot be held to be responsible in running the factory for they only know matters relating to finance and not those matters dealt with in the Act in question. It cannot be expected that certain professional men who are nominated on the Board for their skill in any specialised field can be taken to be in charge of the factory by reason of the definition. The proviso does not say that the nominated partner of a firm or that the nominated director of a company would be the occupier. The fact that the definition says that in the case of a firm or association of individuals any one of the individual partner or members thereof or a director in the case of a company shall be deemed to be the occupier, it gives no choice either to the firm or to the company. Bat the main clause provides that occupier shall be one who has ultimate control of the affairs of the company. This clause read with the operative provisions of the Act makes it clear that the occupier of a factory could be a person nominated by the Board or by the firm notwithstanding the fact that such a partner or director could also be liable and the liability in respect of the operative provisions in respect of such director or partner will have to be established. Therefore, on the interpretation of the provisions of the Act the conclusion is irresistible that the authorities have not applied their mind to the relevant provisions of the Act in the manner discussed by me. In that view of the matter, the endorsements or orders issued by the authorities will have to be quashed. If that is done it is unnecessary to go into the constitutional validity of the provisions of the Act as it is too well settled that such contentions will not be examined only to serve an academic interest but only when it is absolutely necessary to deal with the same.

9. In the result, the petitions stand allowed and the impugned endorsements issued by the Inspector of Factories or any other respondent and proceedings relating thereto in each of the petitions shall stand quashed. The respondents are directed to once again apply their mind and decide the matter afresh in the light of what has been stated above in the course of this order and in accordance with law. The interim orders granted by this Court shall enure to the benefit of the petitioners until the disposal of such applications by the authorities. Rule made absolute.

W.S Industries (Indi... v. Inspector Of Factori...