' This is an appeal under section 64 of the Social Security Ordinance, 1965 (hereinafter referred to as the Ordinance) from the judgment dated 25-7-1918 passed by the Social Security Court.
2. The appellant Pakistan Shipping Corporation is a statutory Corporation constituted under section 3 of the Pakistan Shipping Corporation Act, 1976. Two establishments known as Messrs Muhammad Engineering Works Ltd. And Messrs East & West Steamship Company were taken over by the Federal Government under section 5 of the Pakistan Maritime Shipping (Regulation & Control) Act, 1974 alongwith other shipping companies. After the taking over of the aforesaid two companies the provisions of the Ordinance were extended to both these companies whereafter these companies started paying Social Security Contribution in respect of their secured workers. However vide Notification No, S. R.
0. 48 (K. E.)/76 dated 29-10-1976 issued by the Federal Government under subsection (1) of section 29 of the Pakistan Shipping Corporation Act, 1976, the ownership of all the shares in the capital of the aforesaid first mentioned company and Management of both companies were transferred to and vested in the appellant-Corporation.
3. Consequent upon the transfer of the aforesaid two companies to the appellant corporation the latter raised a dispute with the Sind Employees' Social Security Institution, the respondent herein and withheld the payment of the Social Security Contribution on the plea that since all the employees of the taken over establishments by operation of law had become the employees of the appellant Corporation the Social Security Scheme ceased to be operative as the provisions of the Ordinance have not been extended to the appellant-Corporation as such.
4. The dispute was referred to the Institution under section 57 of the Ordinance. By order dated 21- 11-1978, the Institution, however, rejected the stand of the appellant-Corporation and held that the employees of the two establishments continue to be secured under the Ordinance and therefore the Social Security Contribution was payable in respect of them. The appellant-Corporation challenged the decision of Institution in appeal before the Sind Social Security Court but the appeal was dismissed and the order of the Institution was upheld. The appellant-Corporation is now seeking to challenge the decision of the Sind Social Security Court by the present appeal.
5. Before adverting to the contentions advanced by the counsel for the parties it will be of advantage to refer to the relevant provisions of the Act of 1975 under which the appellant- Corporation has been established and to the provisions of the Act of 1974 under which the Management and operation of Maritime Shipping is regulated. Section 5 of the Act of 1974 authorises the Federal Government to take over the Management of any establishment dealing in Maritime Shipping Industry and under section 6 may appoint a Managing Director in respect of such establishment who is to work under a Board of Management set up by the Government.
Under section 13 the Federal Government may transfer the Management of taken over establishment to a corporation wholly owned or controlled by Government or a corporation set up for the purpose and may also transfer the shares or proprietary interests to such corporation. Now sections 16 and 22 of the Act of 1974 provide as under :- ' Section 16. Continuation in service.-In the case of managed establishment, all persons employed in, by or for the purpose of the business of the establishment, by whomsoever appointed or engaged, shall continue in their respective employments on the same remuneration and other conditions of service as were applicable to them immediately before the appointment of the Managing Director in respect of that establishment, unless the Managing Director directs otherwise in a particular case or their terms and conditions of service are altered in accordance with the law or any rules applicable to such establishment.
' Section 22. Continuance in service of employees on transfer to a Corporation.-(1) Where the Management of a managed establishment is transferred to a corporation under section 13, every whole time employee of the establishment who was employed by the establishment immediately before the date of such transfer shall, on and from the date of such transfer, become an employee of the corporation and shall hold his office therein on the same terms and conditions, including remuneration, tenure of office, rights and privileges as to pension and gratuity and other matters, as were applicable to him immediately before the date of transfer, until his employment in the Corporation is terminated or his terms and conditions of service are altered in accordance with law or any rules applicable to such Corporation.
(2) Where any employees of a managed establishment have, under the provisions of subsection (1), become the employees of a Corporation, the corporation may, for the purpose of rationalising the pay scales of such employees or for any other good and adequate reason, alter the terms and conditions of service of the employees as to their remuneration in such manner as it thinks fit and, if the alteration is not acceptable to any employee, the Corporation may terminate his employment by giving him compensation equivalent to his remuneration for three months or, if his contract. Of service provides for a shorter notice for termination of employment, for the period so provided. Explanation.-The compensation payable to an employee under this subsection shall be in addition to, and not in derogation of, any of his rights as to pension, gratuity, provident fund money or other benefit to which he may be entitled under his contract of service.
(3) If any question arises as to whether any person was a whole time employee of an establishment immediately before its management was transferred to a corporation under section 13, the question shall be referred to the Federal Government whose decision shall be final.
(4) The transfer of the services of any employee of an establishment to a corporation shall not, except as provided in this section, entitle any such employee to any compensation and no such claim shall be entertained by any Court, Tribunal or other authority.
6. The Pakistan Shipping Corporation has been established by the Federal Government under section 3 of the Act of 1976. Section 28 of the said Act provides that the Federal Government shall in exercise of the powers conferred on it by subsection (3) of section 13 of the Act of 1974 transfer to the Corporation the management of the managed establishments listed in the second schedule which includes the two establishments in question in this appeal. Upon the transfer to the corporation of the management of these establishments the Board of Management set up under the previous Act shall cease to exercise or perform any power or functions in relation to such establishments. Under section 29 the ownership of shares in case of a company and proprietary interest in other cases in the managed establishments listed in the second schedule can be transferred to and vested in the Corporation. The sections 31 and 32 of the said Act provide as under :- ' Section 31. Transfer to the Corporation of the undertaking of acquired establishment.-(1) The Federal Government may. By notification in the official Gazette, transfer to and vest in the Corporation the undertaking of any acquired establishment, and on such date as may be specified in the notification the entire undertaking of the acquired establishment shalt stand transferred to and vested in the Corporation.
(2) The undertaking so transferred and vested shall include all assets, rights, powers, authorities and Privileges, and all property, movable and immovable, including lands, work, workshops, ships, vessels, vehicles, cash balances reserve funds, investments and book debts, whether within or outside Pakistan. And all other rights and interests arising out of such property, as were immediately before the transfer to and vesting in the Corporation of the undertaking in the ownership, possession or power of the acquired establishment, and all books of account and documents relating thereto, and, subject to section 20 of the Act, all borrowings, liabilities and obligations of whatever kind then subsisting of the acquired establishment.
(3) Subject to section 20 of the Act, all contracts, agreements and other instruments of whatever nature subsisting or having effect immediately before the transfer to and vesting in the Corporation of the undertaking of an acquired establishment, to which such acquired establishment was a party or which were in favour of such acquired establishment, shall have full force and effect against or in favour of the Corporation, and may be enforced or acted upon as fully and effectively as if, instead of the acquired establishment, the Corporation had been a party thereto or as if they had been entered into or issued in favour of the Corporation.
(4) if, on the date of the transfer to and vesting in the Corporation of the undertaking of an acquired establishment, any suit, appeal or other proceeding of whatever nature is pending by or against such acquired establishment, it shall. Not abate, be discontinued or be in any way prejudicially affected by reason of such vesting or transfer or anything done under this Act but the suit, appeal or other proceedings may be continued, prosecuted and enforced by or against the Corporation.
' Section 32. Certain existing arrangements to continue.-All contracts and working arrangements made and all liabilities incurred by the Federal Government or the Board of Management constituted under section 7 of the Act before the vesting of any undertaking under section 31 in connection with or for the purposes of the Corporation or the acquired establishment the undertaking of which is transferred to and vested in the Corporation shall be deemed to have been made or incurred by the Corporation and have effect accordingly.
7. The Federal Government in exercise of its powers under subsection (3) of section 13 of the Act of 1974 transferred the Management of the two establishments to the appellant Corporation by notification dated 16-9-1976. On the same date the Government also published the order under section 28(2) winding up the Board earlier set up for the management of the managed establishments including the two in question. Para. 3 of the said order stated thus : - ' All contracts, agreements and other instruments of whatever nature subsisting or having effect immediately before the appointed date to which the Board is a party or which are in favour of it, shall have full force and effect against or in favour of the Corporation, and may be enforced or acted upon as fully and effectively as if references in such contracts, agreements and instruments to the Board were references to the Corporation.
8. On 21-8-1977 the Federal Government vide the Gazette of Pakistan dated 25-8-1977 in exercise of its powers under section 31(1) of the Act of 1976 transferred to and vested in the appellant Corporation with effect from 1-7-1977 the entire undertaking of several acquired establishments including the East and West Steamship Company. It may be stated that the Muhammadi Engineering Works Limited is a private limited company whereas the East and West Steamship Company is a partnership firm. There is nothing on the record to indicate whether the Government has transferred to and vested in the appellant Corporation the entire undertaking of the Muhammadi Engineering Works Limited.
9. Now it is the case of the appellant that so far as East and West Steamship Company is concerned, the entire undertaking having been transferred to the appellant-Corporation under section 31 of the Act of 1976, the original establishment or undertaking has disappeared and the partnership firm stands dissolved. The notification under section 1(3) of the Ordinance has consequently lapsed with the result that the Social Security Contribution is no longer payable.
Reliance is placed on sections 31 and 32 of the Ac of 1976. On the other hand the argument on behalf of the respondent is that the said establishment is an engineering works consisting of machinery, tools, equipment, fittings, installations and staff all of which exist even now, which fact is not denied and therefore the establishment exists as an organization but has only become a part of a bigger organization of the appellant Corporation. The liability to contribute to the Social Security Fund arises by operation of section 20 of the Ordinance which enjoins that the employer shall in respect of every employee pay to the institution, a contribution in accordance with the rules. The word "employee" as defined in section 2, clause (8) of the Ordinance means any person working in or in connection with the work of an industry, business, undertaking or establishment and the word "employer" as defined in clause (9) of the same section inter alia means the owner of the industry, business, undertaking or establishment in which an employee works. It is therefore clear that the liability to pay contribution once arising under the provisions of section 20 does not cease by mere change of ownership of the establishment etc. And would continue to be payable, in respect of every employee employed therein. I might refer at this stage to the observations of the Supreme Court as to the interpretation of the relevant provisions of the Ordinance in Kohinoor Chemical Co. Ltd. v. Sind Employees' Social Security Institution. Their Lordships observed that this legislation is a beneficial or remedial legislation whose object is the amelioration of the lot of the working classes and as such it should be so contrued as to advance the remedy and suppress the mischief otherwise the object of the legislation would be frustrated. It was then observed at page 205 of the report :- "Viewed in this light, the term establishment as defined in clause (11) of section 2 of the Ordinance, does not appear to me to be confined in its scope to merely the for-walls of the physical premises where the notified establishment may be located ; on the contrary, the definition speaks of an organization whether industrial, commercial, agricultural or otherwise. In its literal sense an organization connotes a systematic arrangement for a definite purpose. In the legal sense it described a system, a body, a function. It follows, therefore, that an organization is not necessarily co terminus with the physical premises where it may be located. It is possible that a part of its1 structure may be situated elsewhere but it must nevertheless be integral to its main functions and objects.............The essential test in such a case would be whether the person concerned is indeed working in connection with the work of the notified establishment."
' Referring to sections 20 and 21 of the Ordinance it was observed at page 207 of the report as under :- "Reading the 2 sections together, it appears to me that once a notification has been issued under subsection (3) of section 1 of the Ordinance notifying the areas, class of persons and industries or establishments to which the Ordinance is to apply, then the obligation of the employees spelt out in sections 20 and 21 come into play and it is incumbent upon them to make the necessary contribution and keep the necessary record and furnish the necessary reports as may be prescribed by the Social Security Institution under rules or regulations made under the Ordinance.
These regulations are not dependent upon any action to be taken or initiated on the part of the Institution ; on the contrary, they are statutory obligations incurred under the relevant provisions of the Social Security Ordinance."
In view of the interpretation placed by their Lordships on the term "establishment" and the admitted factual position that the establishment of the East and West Steamship Company continues to exists as an organization. I am c clearly of the opinion that all employees working in or in connection with the work of the establishment, whether they are physically located in the notified premises or not must be regarded as secured workers entitled to the specified benefits under the Ordinance as extended to the establishment by virtue of the notification issued under section 1(3) of the Ordinance. The question in the present appeal is not whether any particular employee or a group of employees is entitled to the benefits provided by the Ordinance but whether the appellant-Corporation has ceased to be liable to the statutor obligations under section 20 of the Ordinance on account of the transfer of ownership or management of the respective establishments. As long as the establishment, business or industry exists as an organization to which the provisions of the Ordinance were extended by the notification under section 1(3), the employer for the time being would be subject to the statutory obligations. In this view of the matter the appellant Corporation is clearly liable to contribute to the Social Security fund as the provisions of the Ac continue to apply to it in respect of the establishment of the East and West Steamship Company.
10. The position as regards the Muhammadi Engineering Works Limited is clear than the other establishment. In this case the entire undertaking has not been transferred to the appellant- Corporation but only the shareholding of the company and its Management has been transferred.
The existence of the company as a corporate body continues as owner of the establishment. It was however contended that where the Management of a managed establishment is transferred to the Corporation, by virtue of section 22 of the Act of 1974 every employee of such establishment becomes an employee of the Corporation and therefore unless the Corporation itself is notified under section 1(3) of the Ordinance, its provisions will not be applicable to such a new employees of the Corporation for the reason that such employees cease to be the employees of the previous establishment and become the employees of the Corporation. The argument has no merit. As long as the employees continue to work in or in connection with the work of the establishment, they will continue to be employees within the meaning of section 20 of the Ordinance, irrespective of the question as to who is their employer for the time being. As already pointed out the Company who owned the business and its establishment still subsists notwithstanding the transfer of its shareholding and Management to the Corporation, and therefore it is clear that the establishment as an organization continues to be in existence. It therefore follows that the provision of the Ordinance will continue to apply to the establishment of this company as originally notified. The definition of the word "employee" as provided by section 2 clause (9) of the Ordinance includes any agent, manager or representative of the owner. In accordance with the beneficial rule of interpretation, therefore, the appellant Corporation being the present management of the establishment will be deemed to be the employer in connection with the establishment for the purposes of the Ordinance. My conclusion therefore is that in respect of the establishments of both the East and West Steamship Company and Muhammadi Engineering Works Limited, the appellant-Corporation will be liable to the contribution under the provisions of the Ordinance in respect of all the employees working therein or in connection with the work of these two establishments.
11. For the foregoing reasons I find no merit in this appeal and dismiss it with costs. PLD 1977 SC 197