THE HONOURABLE MR v. Joint Regional Director and Deputy Director

IN THE HIGH COURT OF JUDICATURE AT MADRASDATE: 15.04.2009CORAM:THE HONOURABLE MR.JUSTICE P.R.SHIVAKUMARC.M.A.No.766 of 2001E.A.Peeran Sahib Sons byPartner E.A.P.Akbar Basha Peervan Bidi Merchants,No.17, Meeran Mohideen Street,Erode-1.: AppellantVs.1.Joint Regional Director and Deputy Director, Sub-Regional Office, Employees State Insurance Corporation, 333, Cross Cut Road, Coimbatore – 641 012.2.Deputy Regional Director, Employees State Insurance Corporation 333, Cross Cut Road, Coimbatore-641 012.: RespondentsPrayer: Civil Miscellaneous Appeal filed under Section 82 of theEmployees' State Insurance Act, 1948 against the order dated11.09.2000 passed in ESIOP.No.1 of 1997 by the Principal DistrictJudge of Erode District.For Appellant : Mr.C.Chinnaswamy,Senior Counselfor Mr.S.ArunachalamFor Respondents : M/s.S.Jayakumari ******JUDGMENTThis Civil Miscellaneous Appeal preferred under Section 82 ofthe Employees' State Insurance Act, 1948 is directed against thejudgment of the Employees State Insurance Court (Principal DistrictJudge), Erode dated 11.09.2000 made in E.S.I.O.P.No.1 of 1997.2.The petitioner in the E.S.I.O.P. before the Court below isthe appellant herein. The respondents are the Joint Regional https://hcservices.ecourts.gov.in/hcservices/ Director and Deputy Regional Director of Employees' State InsuranceCorporation, Coimbatore. E.A.Peeran Sahib Sons is a partnershipfirm doing business as Beedi Merchants in Erode. They aremanufacturing and marketing beedies in the name of Peeran Beedi.Claiming that the establishment run by the appellant comes underthe definition of factory as per Section 2(12) of the Employees'State Insurance Act, 1948, the Deputy Regional Director of theEmployees' State Insurance Corporation at the first instance issueda communication dated 31.03.1995 calling upon the appellant hereinto register its establishment under the Employees' State InsuranceAct, 1948 and to pay contribution in respect of its employeescovered under the Act. The appellant raised his objection for thesame and contended in his letter dated 13.05.1996 addressed to theDeputy Regional Director of Employees' State Insurance Corporation,Coimbatore that the appellant's establishment did not come underthe definition of factory as found in Section 2(12) of theEmployees' State Insurance Act, 1948 and hence, the provisions ofthe Employees' State Insurance Act, 1948 could not be madeapplicable to the establishment of the appellant. After exchangeof several communications between the appellant and the Employees'State Insurance Corporation Authorities, the Deputy RegionalDirector of Employees' State Insurance Corporation informed theappellant in his communication dated 26.12.1996 that the appellantshould comply with the provisions of Employees' State InsuranceAct, 1948 immediately with effect from January 1993. The DeputyRegional Director, namely the second respondent herein ultimatelypassed a final order in his communication No.56-44139-100/Ins.IIdirecting the appellant to pay a sum of Rs.4,61,932/- within 15days along with an interest at the rate of 15% for each day ofdefault from the due date till date of payment. The saidcommunication also warned the appellant that appropriate legalaction for non-compliance under the Employees' State Insurance Act,1948 would be initiated, in case of failure on the part of theappellant to comply with the said direction. 3.The Said order of assessment of contribution and thedirection to make payment of the same and comply with theprovisions of the Employees' State Insurance Act, 1948 waschallenged by the appellant by filing the above said E.S.I.O.P.No.1of 1997 before the Employees' State Insurance Court under Sections76 and 77 r/w Section 75 of the Employees' State Insurance Act,1948, wherein the appellant prayed for a declaration that theestablishment of the appellant, namely E.A.Peeran Sahib Sons wasnot covered under the provisions of the Employees' State InsuranceAct, for a declaration that the final letter NO.56-44139-100/Ins-IIdated 09.05.1997 issued by the Deputy Regional Director to be voidand unenforceable and for a direction not to implement and enforcethe provisions of the Employees' State Insurance Act against theestablishment of the appellant. 4.The petition was resisted by the respondents contending thaton inspection, the authorities of the Employees' State InsuranceCorporation found the appellant establishment to be a factory asper the definition found in Section 2(12 of the Employees' State https://hcservices.ecourts.gov.in/hcservices/ Insurance Act, 1948 and that the same was made based on the reportof the Inspector of Employees' State Insurance Corporation and inthe light of the failure on the part of the appellant to producethe records relating to payments of contribution under theEmployees' Provident Funds and Miscellaneous Provisions Act, 1952,despite a direction to the appellant to produce the same. 5. In the enquiry before the Court below, one witness wasexamined on either side as P.w.1 and R.W.1 respectively. 8documents were marked as Exs.A.1 to A.8 on the side of thepetitioner (appellant herein) and 8 documents were marked on theside of the respondents as Exs.B.1 to B.8. The Court belowconsidered the evidence brought before it, in the light of thearguments advanced on either side and came to the conclusion thatthe establishment run by the appellant was a factory as definedunder Section 2(12) of the Employees' State Insurance Act, 1948 Actand on that basis, dismissed the said ESIOP without costs by itsorder/judgment dated 11.09.2000. Aggrieved by and challenging thesame, the appellant has brought forth this Civil MiscellaneousAppeal under Section 82 of the Employees' State Insurance Act, 1948on various grounds set out in the memorandum of appeal.5.Section 82 of the ESI Act reads as follows:-"82.Appeal_ (1) Save as expressly provided in thissection, no appeal shall lie from an order of anEmployees' Insurance Court.(2)An appeal shall lie to the High Court from anorder of an Employees' Insurance Court if it involved asubstantial question of law.(3)The period of limitation for an appeal under thissection shall be sixty days.(4)The provisions of Sections 5 and 12 of theLimitation Act, 1963 (36 of 1963), shall apply to appealsunder this Section."Clause 1 of the above said section makes it clear that noappeal shall lie from an order of Employees' Insurance Court, saveas expressly provided in Sub-Section 2. Sub-section 2 says thatan appeal shall lie to the High Court from an order of anEmployees' Insurance Court, it is involves a substantial questionof law. It is now well settled that an appeal on facts in theabsence of involvement of a substantial question of law against theorder of the Employees' State Insurance Court is not maintainable.A proper interpretation of the said sub-clauses preserve that anappeal from the order of the Employees' Insurance Court shall lieto the High Court on a substantial question of law.6.The appeal has been admitted on the following substantialquestion of law:- https://hcservices.ecourts.gov.in/hcservices/ "Whether the lower Court has not erred in construingthe definition of employee under the provisions of theEmployees State Insurance Act and Employees ProvidentFund act to be one and the same?"7. The submissions made by Mr.C.Chinnaswamy, learned SeniorCounsel appearing on behalf of the appellant and byM/s.S.Jayakumari, learned counsel appearing on behalf of therespondents were heard. The relevant records were also perused.8. The learned Senior Counsel for the appellant would submitthat the Court below adopted an erroneous approach to thedefinition of factory envisaged in Section 2(12) of the Employees'State Insurance Act, 1948, by assuming that the definition ofestablishment and employer found in the Employees' State InsuranceAct, 1948 and the Employees' Provident Funds and MiscellaneousProvisions Act, 1952, are one and the same, whereas in fact, it isnot so. The learned counsel for the respondents is not in aposition to deny the correctness of the above said submission madeby the learned Senior Counsel for the appellant. 9. Section 2(g) of the Employees' Provident Funds andMiscellaneous Provisions Act, 1952 Act defines 'factory' asfollows:-"factory means any premises, including theprecincts thereof, in any part of which a manufacturingprocess is being barred on or is ordinarily so carriedon, whether with the aid of power or without the aid ofpower."The said section simply says that the premises, whereinany manufacturing process is being carried on irrespective of thenumber of persons employed therein, shall be a factory for thepurpose of application of the Employees' Provident Funds andMiscellaneous Provisions Act, 1952, whereas a remarkable deviationfrom the same is found in the definition of factory adopted for theEmployees' State Insurance Act, 1948 in Section 2(12) of the saidAct, which reads as follows:-2(12). – "factory" means any premises including theprecincts thereof -(a)Whereon ten or more persons are employed orwere employed for wages on any day of the precedingtwelve months, and in any part of which a manufacturingprocess is being carried on with the aid of power or isordinarily so carried on, or(b) whereon twenty or more persons are employed orwere employed for wages on any day of the precedingtwelve months, and in any part of which a manufacturingprocess is being carried on without the aid of power oris ordinarily so carried on." https://hcservices.ecourts.gov.in/hcservices/

10. In case a manufacturing process is carried on with orwithout the aid of power in any part of the premises and not lessthan the prescribed number of persons are employed or were employedfor wages or any day of the preceding 12 months, then the sameshall be a factory for the purpose of application of the Employees'State Insurance Act, 1948. If power is used in the manufacturingprocess, then the minimum number of persons employed to make it afactory coming under the purview of the Employees' State InsuranceAct, 1948 shall be ten. If no power is used for carrying on amanufacturing process, the minimum number of persons employedshould be 20 to make it a factory that comes under the purview ofthe Employees' State Isurance Act, 1948. Therefore, the mere factthat an establishment is deemed to be a factory under theprovisions of the Employees' Provident Fund and MiscellaneousProvisions Act, 1952 shall not make it ipso facto a factory comingunder the provisions of the Employees' State Insurance Act, 1948.11. As rightly pointed out by the learned senior counsel forthe appellant, the court below, without considering the scope ofdefinition of factory under the Employees' State Insurance Act,1948 to find out whether the appellant's establishment would comeunder the purview of the Employees' State Insurance Act, 1948,seems to have carried away by the fact that contributions to theEmployees' Provident Funds and Miscellaneous Provisions Act, 1952were made by the appellant in respect of the home workers and thepersons employed by immediate employers, namely contractors forrolling the beedies and that the final touch given to the rolledbeedies in the head quarters of the appellant for making itmarketable, namely labelling and bundling was also part ofmanufacturing process. It is not the case of the appellant that nokind of manufacturing process is being carried on in theestablishment of the appellant at its head office. On the otherhand, it is the contention of the appellant that in the saidestablishment, no power is sued for such manufacturing process andthe persons employed were less than 20 to bring it under thedefinition of factory under the Employees' State Insurance Act,1948. It is the case of the appellant, as per the evidence ofP.W.1, that the maximum number of persons employed, at any point oftime, was only 12 and that now the persons employed are only 10.12. On the other hand, the sole witness examined on the sideof the respondents would contend that in the head office of theappellant, 17 persons were employed. He would add that there were125 contract employees and 54 other persons were employed throughcontractors. According to his conclusion, there were totally 196persons employed under the appellant. The name of the homecontract employees have not been furnished. As many as fourcontractors' names have been found in the report of the Employees'State Insurance Corporation Inspector (R.W.1) marked as Ex.B2. Allthe four contractors are having work sites at various places, likeRasipuram, Salem and Namakkal. Except one A.A.Subhan, all othershad employed less than 20 persons in their respective work sites.A.A.Subhan is said to have his work site at Namakkal, wherein https://hcservices.ecourts.gov.in/hcservices/ according to the report, he had employed 24 persons. If at all thesaid contractor has got a separate work site in which more than 20persons have been employed the said work site alone shall beconstrued to be a factory and not the work site of the appellantwhich has been described to be the head office. It is candidlyadmitted that the appellant does not use power for anymanufacturing process in its establishment. It is also not thecase of the respondents that the alleged work site of A.A.Subhan atNamakkal was under the control and supervision of the appellant.Under such circumstances, this court has to countenance theargument advanced by the learned senior counsel for the appellantthat the decision arrived at by the court below that theappellant's establishment is a factory to which the provisions ofthe Employees' State Insurance Act, 1948 are applicable is patentlyerroneous. Even there is no proof to the effect that the allegedcontractor, having his work site at Namakkal, namely A.A.Subhan,had employed not less than 20 persons on any day. Admittedly nopower was used by him for manufacturing purpose. The Employees'State Insurance Act, 1948 is made applicable as as per Section 1(4)of the Act to all factories other than seasonal factories.However, as per Section 1(5) of the Act, the appropriateGovernment, in consultation with the Employees' State InsuranceCorporation, may extend the provisions of the Act to any otherestablishment or class of establishments. As per Section 1(6) ofthe Act, the factory or establishment to which the Act appliesshall continue to be governed by the Act notwithstanding the factthat the number of persons employed may fall below the limitspecified or the manufacturing process carried on therein may ceaseto be carried on with the aid of power.13. A comparative study of these provisions will show that forapplication of the provisions of the Act to an establishment, itmust come within the definition of establishment to which theprovisions of the Act are specifically made applicable by theappropriate Government. In this case, there is no material placedbefore the court to show that the provisions of the Act are madeapplicable to beedi factories irrespective of the fact whether itcomes under the definition of factory as found in Section 2(12) ofthe Employees' State Insurance Act, 1948. In fact, the intra-departmental communication and the representations made by thetrade union show that since Beedi Workers Welfare legislations andregulations made for the benefit of beedi and cigar workers aremore beneficial, they have claimed exemption for beediestablishments from ESI coverage. S.Kasi Viswanathan, Member, ESIRegional Board, Tamil Nadu has written a letter to the DirectorGeneral of Employees' State Insurance Corporation on 13.08.1996stating that the reasons why the beedi workers were not willing tobe covered by Employees' State Insurance Act, 1948. The reasonsare found in paragraph-5 of the said letter which reads asfollows:-"5. The beedi workers are not willing to coverthemselves under ESI Act, because: https://hcservices.ecourts.gov.in/hcservices/ (a)They are already getting medical benefit fromthe Welfare scheme for which they are not paying anycontribution, while they have to bear the burden ofpaying contribution to ESI in duplication of Welfarefacilities.(b)They cannot avail the medical facilities fromthe hospitals run by the Welfare scheme and from the ESIhospital at the same time.(c)The Welfare scheme given an over all coverageincluding medical facilities while ESI's benefits arelimited."14. AITUC also passed a resolution on 24.11.1996 stating thatthe beedi workers should continue to be exempted from EmployeesState Insurance Act, as they were covered under the Beedi WorkersWelfare Fund. From the said communications, it is obvious thatthere was a demand that beedi manufacturing units should beexempted from the Employees State Insurance Act, even though theycome under the definition of factory under Section 2(12) of theAct, as they found the benefit conferred on them under the BeediWorkers' Welfare Scheme were more beneficial to them. We are notconcerned with the same in this case, because the contention of theappellant herein is not that the Employees' State Insurance Actwill not be applicable to any factory in which beedi ismanufactured and that the employees of beedi manufacturingfactories are exempted from the Employees' State Insurance Act. Onthe other hand, it is the specific contention of the appellant thatthe manufacturing unit of the appellant is not a factory as per thedefinition found in Section 2(12) of the Employees' State InsuranceAct, as no power is used for manufacturing process and less than 20persons are employed therein.15. It is the admitted case of the respondents that in theappellant's unit, no power is used for manufacturing process andless than 20 persons are employed. The considerations forcontribution towards the Employees' Provident Fund are on differentfooting. As per the scheme found in the Employees' Provident Fundsand Miscellaneous Provisions Act, 1952, the term factory defined inthe said Act is not qualified by the number of employees employedtherein. Therefore, the order of the court below holding that theappellant unit shall come under the definition of factory underSection 2(12) of the Employees' State Insurance Act, for the simplereason that contributions were collected towards Employees'Provident Fund under the Employees' Provident Fund andMiscellaneous Provisions Act, 1952 is erroneous. The appellant hasclearly made out a case for interference with the order of thecourt below on the above said substantial question of law. Thesubstantial question of law is answered in favour of the appellantand against the respondents. https://hcservices.ecourts.gov.in/hcservices/

16. For all the reasons stated above, this court comes to theconclusion that the order of the court below holding that theappellant establishment comes under the purview of Employees' StateInsurance Act is erroneous and infirm and that the same deserves tobe set aside.17. While arriving at such a conclusion, this court wants tomake it clear that the judgment will not come in the way of theauthorities of the Employees' State Insurance Corporation onceagain inspecting the appellant's premises to find out the number ofemployees employed, subsequent to the earlier proceedings and findout whether the same has become a factory as per the definitionfound in the Act because of employment of more number of persons.The officials of the Employees' State Insurance Corporation alsoshall be at liberty to proceed against the so-called contractor, ifthe work site under his control comes under the definition offactory as per the Act.18. For the reasons stated above, the appeal is allowed andthe order dated 11.09.2000 passed in E.S.I.O.P.No.1 of 1997 by thePrincipal District Judge, Erode District is set aside. ESIOPNo.1/1997 shall stand partly allowed and a declaration that thepetitioner establishment M/s.P.A.Peeran Sahib Sons at No.17, MeeraMohideen Street, Erode, was not covered by the provisions of theEmployees' State Insurance Act as on the date of impugnedcommunication is granted. A further declaration that the finalletter/communication No.56-44139-100 INS/II dated 09.05.1997 asvoid and unenforceable, is also granted.19. However, it is made clear that the authorities of theEmployees State Insurance Corporation may once again inspect theappellant's premises to find out the number of employees employedtherein subsequent to the earlier proceedings and find out whetherthe same has become factual as per the definition found in the Act.The officials of the Employees' State Insurance Corporation shallbe at liberty to proceed against the so-called contractor, if thework site under his control comes under the definition of thefactory. There shall be no order as to costs.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar. sml/asr https://hcservices.ecourts.gov.in/hcservices/ To1.The Principal District Judge, Erode District2.The Section Officer, V.R.Section, High Court, Madras.+ 1 CC To M/s.S.Jayakumari, Advocate SR NO.14202 Judgment inC.M.A.No.766 of 2001KG {CO}TP/14.5.2009.