The Deputy Director v. M/S Kallam Agro Products & Oil Lt.d

THE HONOURABLE SRI JUSTICE RAVI NATH TILHARI A THE HONOURABLE SRI JUSTICE CHALLA GUNARANJAN CIVIL MISCELLANEOUS APPEAL NO: 635/2008 JUDGMENT:- (per Hon’ble Sri Justice Ravi Nath Tilhari) Heard Sri Venna kalyan Chakravarthi, learned counsel representing Sri U.R.P.Srinivas, learned Standing Counsel for the appellant-ESI Corporation.

#3. No representation for the respondents. This appeal under Section 82 of the Employees’ State Insurance Act, 1948 (in short ‘ESI Act’)has been filed by the Deputy Director of ESI Corporation challenging the order dated 31.01.2007 in ESI O.P.No.29 of 2000 passed by the Presiding Officer, Labour Court, Guntur.

#4. The respondent No.1 - M/s. Kallam Agro Prodcuts & Oil Limited filed petition being ESI O.P.No.29 of 2000 under Section 75 of ESI Act with the prayer to declare it as seasonal factory and not covered under the ESI Act. The respondent No.1 a company incorporated under Indian Company’s Act situated at Ankireddipalem. The case set up was that it dealt in extraction of oil from cotton seeds, which is exclusively a seasonal one and it used to function hardly for 5 to 7 months in a year. It was a seasonal factory within the meaning of Section 2(19A) of ESI Act. The respondent No.1 in ESI/the present appellant issued a show cause notice dated 31.08.2000 stating that the petitioner is liable to pay the contribution under ESI Act. The respondent No.1 herein was not given any opportunity. V. 2 \

#5. The appellant/respondent No.1 in ESI OP filed counter. The case set up was that the inspector of the Regional Director, ESI Corporation visited the establishment on 29.11.1995 and verified Form-01 submitted by the factory. It was found that the respondent No.1 has been purchasing seeded cotton, ginning the cotton and selling the cotton lint and extraction of oil from the cotton seeds. It employed not less than 76 persons for wages. Consequently the notice dated 31- 08-2000 was issued.

#6. The learned Presiding Officer, Labour Court, Guntur framed the following points for consideration; “i) Whether the petitioner factory is a seasonal factory under Section 2(19A) or shop within the meaning of Section 1 (5) of ESI Act? ii) Whether the petitioner is liable to pay ESI contributions for the workers working under the petitioner? iii) To what relief?”

#7. On behalf of petitioner in ESI OP (respondent No.1 herein), K.Mohan Reddy and K.Anjaiah were examined as PWs.1 & 2 and on behalf of the respondent therein (appellant herein), RW1 - K.Yesu was examined. The parties also filed their respective documentary evidences.

#8. The Presiding Officer recorded the finding that the respondent No.1- factory was a seasonal factory within the meaning of Section 2(19A) of ESI Act as it was engaged in main and pre-dominate activity of cotton ginning and oil extraction. It could not be treated as establishment. The presiding officer recorded respondent NO.1 running two separate factories one at Dokiparru and another at Ankireddipalem. The unit at Dokiparru has been purchasing cotton / 3 seeds from the unit at Ankireddipalem. The respondent No.1 has been dealing these units separately one as cotton division and another as oil division. Both these divisions are separate. It is further recorded that the cotton division has been selling cotton seeds to the oil division and oil division used to purchase cotton seeds not only from cotton division, but also from the ryots for extraction of oil. So both the units are having separate entitles, though they are being run by Kallam Agro Product and Oil limited. Oil extraction is not incidental activity of respondent No.1 herein for the other unit which is being run at Ankireddipalem. Oil extraction is dominant activity in decoction unit sells its cotton oil. Therefore, it is not treated as seasonal factory. The Unit at Dokiparru is not a seasonal factory but it runs throughout the year by storing cotton seeds and the same isbeing sold in the open market for profit by taking into consideration of market fluctuations. Apart from it, these units are located separately in two different villages. The Presiding Officer held as under: “Hence, workers working in hold that the petitioner is liable to pay ESI contributions for the oil division. Whereas, he is exempted from paying ESI contributions for the orders working in cotton division at Ankireddipalem. Accordingly this point is partly found in favour of the petitioner and partly found in favour of the respondent.”

#9. The Presiding Officer partly allowed the petition of respondent No.1 as under: In the result, the petition is partly allowed setting aside the notice dated 31.08.2000 declaring that the cotton division of the petitioner situated in Ankireddipalem is a seasonal factory and consequently holding that it is not 4 to pay ESI Contributions are from the workers working cotton dectrone in Ankireddipalem for the workers working in oil Division at Dokiparru.” I

#10. The ESI O.P. of respondent No.1 herein was partly allowed by an order dated 31.01.2007.

#11. Challenging the order dated 31.01.2007, the present appeal has been filed.

#12. Learned counsel for the appeHant submitted that the respondent No.1 factory is not a seasonal factory. It was also engaged in purchasing and selling of cotton. He placed reliance in the case of The Employees’ State Insurance Corporation, Hyderabad v. M/s. Jayalakshmi Cotton & Oil Products (p) ltd. 1 Delhi Gymkhana Club Ltd., v. Employees State Insurance Corporation^, R.C.C.(sales) Private Limited v. E.S.I.Corporation^, M/s. Vardhman Textiles Ltd., V. State of H.P.'"

#13. We have considered the aforesaid submissions and perused the material on record.

#14. We shall consider the submission that the respondent - factory is not a seasonal factory.

#15. Section 2(19A) of ESI Act defines Seasonal Factory, as under: “(19A) “seasonal factory” means a factory which is exclusively engaged in one or more of the following manufacturing processes, namely, cotton ginning, cotton or jute pressing, decortication of groundnuts, the ^ 1980 see Online AP 45 ^2014 AIR sew 6214 ^ AIR 2015 Hyderabad 134 V.,AIR 2008 Himachal Pradesh 53 \ 5 manufacture of coffee, indigo, lac, rubber, sugar (including gur ) or tea or any manufacturing process which is incidental to or connected with any of the aforesaid processes and includes a factory which is engaged for a period not exceeding seven months in a year - (a) in any process of blending, packing or repacking of tea or coffee; (b) in such other manufacturing process as the Central Government may, by notification in the Official Gazette, specify;”

#16. In M/s.Jayalakshmi Cotton & Oil Products (supra) upon which learned counsel for the appellant placed reliance, the factory was doing decortications of cotton seeds and oil extraction from December to June every year in addition to cotton ginning and pressing. The Co-ordinate Bench of this Court held that the other manufacturing process viz., decortications and oil extraction and solvent extraction were only adjuncts to the primary manufacturing process of cotton ginning and pressing. The activities factory were interconnected. Therefore, the factory was a seasonal factory. The co-ordinate bench laid down the essential conditions requisite for a factory to be called a seasonal factory.

#17. Para Nos. 8 to 10 of M/s. Jayalakshmi Cotton & Oil Products (supra) read as under:

#8. The essential conditions requisite for a factory to be called as a "seasonal factory" are; "(1) the factory must be engaged exclusively; (2) in one or more of the manufacturing process, viz., cotton ginning, cotton or jute pressing, decortication of groundnuts; or (3) any manufacturing process which is incidental to or connected with any of the aforesaid processes. The first two conditions; exclusive engagement in the manufacturing process of cotton ginning, cotton pressing, decortication of groundnuts do not present 6 s. i any-difficulty. But the real problem is: as to what is incidental to or connected with the aforesaid manufacturing processes.”

#9. It is the contention of the learned counsel for the Corporation that the decortication of cotton seeds and oil extraction are not incidental to or connected with the cotton ginning or cotton pressing. He fervently pleads that the oil section and solvent extraction unit work all-through the year and one unit of the factory cannot be branded as seasonal and the rest not and that the factory as a whole liable for contribution. According to him, is the entire premises that constitutes a factory. He submits that the four units of the factory, viz., cotton ginning and pressing, cotton seeds, decortication, oil extraction and solvent extraction are located in the same premises and that the main activity in the factory premises is cotton seed oil extraction and the last three sections are perennial and it is only the first section, i.e., ginning and pressing that is seasonal. According to him, the main activity in the factory is not cotton ginning and pressing and, therefore, the factory does not fall within the fold of the seasonal factory defined in S. 2(12) of the Act. The learned counsel placed reliance on a decision of the Supreme Court in Nagpur Electric Light and Power Company, Ltd. v. Regional Director, Employees' State Insurance Corporation [A.I.R. 1967 S.C. 1364], wherein the Supreme Court observed: "Any premises including the precincts thereof, (excepting a mine and railway running shed) constitute factory if- (1) twenty or more persons are working or were working thereon on any day of the preceding twelve months; and (2) in any part thereof a manufacturing process is being carried on with the aid of power. If these two conditions are satisfied, the entire premises including the precincts thereof constitute a factory, though the manufacturing process is carried on in only a part of the premises."

#10. In Employees' State Insurance Corporation v. S.M. Sriramulu Naidu [AIR 1960 Mad 248], the Madras High Court held: "The essential requisites of a factory under the Act are- (1) a premises, a geographical area within a certain boundary; (2) in a part of which at least manufacturing process should be carried on with the aid of power; and 7 (3) twenty or more persons should be working in the premises. It is not necessary that all the twenty persons should be working in the same section or department. So long as the efforts all the departments are coordinated to achieve the main object of the factory, that is, the manufacture, the decision whether a particular place is a factory or not, would depend largely on the question, whether those activities are carried on within the premises of the factory. The premises need not be a single building; a number of buildings within a single compound might constitute a factory."

#18. In M/s. Jayalakshmi Cotton & Oil Products (supra) further held as under in para Nos. 11 & 12; 11 The perplexing question is whether the decortication of seeds, oil extraction and solvent extraction are incidental to or connected with the cotton ginning and pressing. It is common ground that the factory is not exclusively engaged in cotton ginning or pressing. But it is an admitted fact that the petitioner-factory started only with the cotton ginning are pressing in March 1973, and subsequently added the cotton seed decortication section and oil mill and solvent extraction sections It is also admitted that the cotton ginning and pressing is a seasonal activity but the cotton seed oil extraction and solvent extraction are perennial. Thus the activities in the factory are interconnected and solvent extraction and oil seeds sections though perennial are closely connected with or incidental to cotton ginning and pressing. In Royal Talkies, Hyderabad v. Employees' State Insurance Corporation [1978 - II L.L.N. 2681], the Supreme Court had occasion to consider whether the employees of cycle stand and canteen run in a cinema theatre by contractors are covered by the definition of "employee" under S. 2(9) of the Act. The Supreme Court observed in Para 14, at pages 274 and 275; “No one can seriously say that a canteen or cycle stand or cinema magazine booth is not even incidental to the purpose of the theatre. The cinema goes ordinarily find such work an advantage, a facility, an amenity and sometimes a necessity. All that the statute requires is that the work should not be irrelevant to the purpose of the establishment. It is sufficient if it is incidental to it. A thing is incidental to another if it merely appertains to something else as primary. Surely such work should not be extraneous or contrary to the purpose of the establishment but need not be integral to it either. Much depends on time and place, habits and appetites, ordinary expectations and social the two operations in the present case, namely, keeping a cycle-stand and running a canteen are incidental or adjuncts to the primary purpose of the theatre." circumstances. our view, clearly In

#12. Here, as there, the primary manufacturing process is cotton ginning and pressing. The other manufacturing process, viz., decortication and oil 8 extraction solvent extraction adjuncts primary manufacturing process of cotton ginning and pressing. We have, therefore, no hesitation in holding that the petitioner-factory is a seasonal factory.

#19. The law as laid down in the aforesaid case is that even if the factory is not exclusively engaged in cotton ginning or pressing but is also engaged in manufacturing process which are only adjuncts to the primary manufacturing process, it will still be a seasonal factory.

#20. In the present case it has not been disputed that the primary and predominant activity is cotton ginning or/and cotton pressing. It could also not be argued that sale and purchase of cotton was the predominant activity nor that such sale or purchase of cotton was not incidental or unconnected to the predominant activity. Whether the sale or purchase is incidental or connected would depend upon various factors and would be a question, not a pure question of law. Consequently, the finding recorded by the learned court that merely because of sale of cotton lint, the factory would not loose its characteristic of ‘seasonal’ in nature, in our view neither calls for interference nor gives rise to any substantial question of law in the present appeal.

#21. In Delhi Gymkhana Club (supra) Hon’ble Apex Court observed that the ESI Act is a beneficial piece of social welfare legislation aimed at securing the well-being of the employees and the court will not adopt a narrow interpretation which will have the effect of defeating the objects of the Act. Similarly in R.C.C.(Sales) Private Limited (supra), it was held that the ESI Act is a beneficial legislation and the main purpose of the enactment, is to provide for certain benefits to employees of a factory under certain circumstances. There is / 9 no dispute on the aforesaid proposition of law but for the applicability of the ESI Act, it must be a ‘factory’ and not a 'seasonal factory’, which is excluded from the purview of the Act. We are of the view that if the factory is covered under the expression seasonal factory, the provisions of the ESI Act would not be extended, only on the ground of the ESI Act being the beneficial legislation. The exemption from applicability of the ESI Act has been granted by the Act itself.

#22. M/s. Vardhman Textiles Ltd., (supra) the cotton bales and cotton wastes, were said to fall within the definition of cotton ginned and unginned of the agricultural produce, within meaning of Himachal Pradesh Agricultural and Horticulture Produce Marketing (Development and Regulation) Act. That is not the point involved in this appeal.

#23. As considered above, the present case, the finding that the respondent No.1 is a seasonal factory and it could not be shown as to how the respondent No.1 is not a seasonal factory and not covered under the definition of a seasonal factory Section 2(19A) ESI Act, predominant/primary manufacturing process is cotton ginning etc as mentioned in Section 2(19A) of ESI Act. So, the submission fails.

#24. We are of the considered view that the respondent No.1-factory is a seasonal factory as held by the Labour Court and so out of the purview of the ESI Act.

#25. There is no illegality in the order under challenge.

#26. The appeal does not involve any substantial question of law and is dismissed. 10 No order as to costs. As a sequel thereto, miscellaneous petitions, if any pending, shall also stand closed. To, //TRUE COPY// Sd/- E. KAMESWARA RAO JOINT REGISTRAR SECTION OFFICER

#1. The Presiding Officer, Labour Court, Guntur. 2. One CC to Sri U.R.P. Srinivas, Advocate [OPUC] 3. One CC to Sri Darsi Bala Raju, Advocate [OPUC] 4. Two CD Copies YM RAM HIGH COURT -< DATED:09/05/2025 JUDGMENT CMA.No.635 of 2008 CIVIL MISCALLANEOUS APPEAL IS DISMISSED WITHOUT COSTS