Employees' State Insurance Corporation v. M/s Pondicherry Agro Service and Industries Corporation Limited & Ors.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 23.12.2010CORAMTHE HONOURABLE MR.JUSTICE K.CHANDRUW.P.NO.19054 of 2008Employees' State Insurance Corporation,rep by its Regional Director,Pondicherry... PetitionerVs.1.M/s.Pondicherry Agro Service and Industries Corporation Limited, (A Government of Pondicherry Undertaking), Pondicherry.2.The Government of Puducherry, Labour Department, rep. by its Joint Secretary to Government (Labour), Puducherry... RespondentsThis writ petition is preferred under Article 226 of theConstitution of India praying for the issue of a writ of certiorarito call for the records from the second respondent Governmentrelating to its order dated 18.02.2008 bearingRef.No.10080/Lab/G/91 published in the Gazette of Puducherry dated04.03.2008 and to quash the same. For Petitioner : Mr.S.Vaidyanathan (Standing counsel for ESIC)For Respondents : Mr.T.P.manoharan for R-1 Mrs.N.Mala, GA (Puducherry) for R-2 ORDERThe short question arises for consideration in this writpetition is whether the petitioner Employees' State InsuranceCorporation (ESI) is entitled to challenge an order passed by thesecond respondent Union Territory of Puducherry in grantingexemption by exercise of its power under Section 87 of the ESI Act.2.It is an unique case where the ESI Corporation (which isa creature by the ESI Act, 1948) has come forward to challenge astatutory notification issued by the second respondent UnionTerritory of Puducherry, dated 18.02.2008 in granting exemption infavour of the first respondent by virtue of its power exercised https://hcservices.ecourts.gov.in/hcservices/ under Section 87 of the ESI Act. By the impugned notification, thefirst respondent company which is a Government owned undertakingrun by the second respondent was exempted from the provisions ofthe ESI Act. The said power is sought to be exercised in terms ofSection 1(4) of the ESI Act. 3.Since the said order of exemption is under challenge, itis necessary to reproduce the order in its entirety for betterappreciation of the case, which is as follows:GOVERNMENT OF PUDUCHERRYLABOUR DEPARTMENTNo.10080/Lab./G/91Puducherry, the 18th February 2008.ORDERWhereas M/s.Pondicherry Agro Service and IndustriesCorporation Limited (A Government of Puducherry Undertaking),Puducherry (hereinafter referred to as PASIC), applied for grant ofexemption under section 87 of the ESI Act, 1948 vide their letterNo.6-272/PASIC/Estt./91, dated 19-7-1991;And whereas it was informed to PASIC that as per proviso tosub-section (4) of section 1 of the Employees State Insurance Act,1948, (hereinafter referred to as the ESI Act), establishmentsunder the control of the Government, whose employees are in receiptof benefits, substantially similar or superior to the benefitsprovided under the ESI Act have been excluded from the coverage ofthe ESI Act, vide letter No.10080/91/Lab./K/ESIS, dated 18-9-1991;And whereas M/s.PASIC, Puducherry has applied for grant ofexemption from the provisions of the ESI Act by invoking theproviso to section 1(4) of the Employees State Insurance Act, 1948for the reason that the establishment belongs to the Government andthat they are extending various benefits that are better than thebenefits provided by the Government to its employees and forsuperior than the benefits provided under the Act, and accordinglyrequested to issue appropriate notification in this regard videtheir letter No.4908/PASIC/Estt,/ESI/2003, dated 4-5-2005 enclosingan application, dated 16-9-2004;And whereas M/s.PASIC, Puducherry have stated in theirrepresentations, dated 17-2-2006 and 7-7-2006 that the benefits areextended to all the workers of the Corporation including dailyrated and casual workers; https://hcservices.ecourts.gov.in/hcservices/ And whereas the management of PASIC vide their letterNo.4908/PASIC/Estt./ESI/03, dated 17-2-2006 and 7-7-2006 and thePASIC Employees Federation have unanimously requested thisdepartment for grant of exemption under the ESI Act, 1948 videtheir letters No.15/PEF/2005-2006, dated 13-5-2005 andNo.30/PEF/2005-06, dated 31.1.2006 by submitting individual optionletters from the employees including regular, daily rated andcasual workers to continue to avail the benefits provided by thePASIC and not to extent ESI Act;And whereas the management of PASIC vide its letterNo.4098/PASIC/Estt./ESI/03, dated 14.9.2006 have also stated thatthey had not at all received/enjoyed any benefits from theEmployees State Insurance Corporation since its inception and thatthe Employees State Insurance Corporation has so far not registeredand allotted any registration number to any of the employees of thePASIC for getting medical benefits;And whereas PASIC is a Corporation, owned and controlled bythe Government of Puducherry and is extending benefits to itsemployees on par with those provided to the employees of theGovernment of Puducherry;And whereas in response to the Labour Department's letterNo.10080/Lab./K/91, dated 11.1.2007 calling on the Employees StateInsurance Corporation for a discussion on 19.1.2007 with regard tothe medical benefits extended by the management of M/s.PASIC to itsemployees, by their letter No.55/P/13/11/35-IP (Exemption), dated18.1.2007 the Corporation had furnished a comparative study of thebenefits available under the Employees State Insurance Scheme andthose provided by the employer viz., M/s.PASIC for being taken onrecord and have at the same time not recommended the grant ofexemption from the purview of the ESI Act as sought for byM/s.PASIC;And whereas simultaneously M/s.PASIC were called upon for adiscussion on the said date viz., 19.1.2007 for the same purposereferred to in pre para and in pursuance of the said discussionM/s.PASIC by letter No.4098/PASIC/Estt./ESI/03, dated 20.2.2007have furnished their justification for non-applicability of theprovisions of the ESI Act to their establishment;And whereas after careful consideration of the submissionsmade by both viz., the Employees State Insurance Corporation andM/s.PASIC and also the documents produced by them, it is found thatthe medical benefits provided by M/s.PASIC to their employees aresubstantially similar to those provided by the Employees StateInsurance Corporation;Now, therefore, since the Pondicherry Agro Services andIndustries Corporation, Puducherry is an establishment belonging toand under the control of the Government and whose employees arecategorised as being in receipt of substantially similar orsuperior to the benefits provided under the ESI Act, the said https://hcservices.ecourts.gov.in/hcservices/ Corporation is squarely covered by the proviso to sub-section (4)of section 1 of the ESI Act, 1948 by virtue of which the provisionsof the said Act have been made inapplicable to the saidCorporation.(By order of the Lieutenant-Governor)S.D.Sundaresan,Joint Secretary to Government (Labour).4.The writ petition was admitted on 7.8.2008. Pending thewrit petition this court granted an interim stay. Subsequently,after one extension, on 26.10.2010, the interim stay was madeabsolute. On notice from this court, the first respondent has fileda counter affidavit, dated 24.9.2008. The second respondent hasalso filed a counter affidavit, dated 25.6.2009.5.Mr.S.Vaidyanathan, learned counsel appearing for the ESICorporation made the following submissions:(a)The impugned order, dated 18.2.2008 inasmuchas passed under Section 1(4) of the ESI Act that toowith retrospective effect is not valid. The provisioto Section 1(4) was introduced by the Central Act,29/1989 with effect from 20.10.1989. Therefore, theUnion Territory administration could not have passedthe order earlier to introduction of the proviso.Hence it is invalid. (b)The Union Territory on an earlier occasion,i.e. on 14.9.2004 rejected the request of the firstrespondent for exemption. Therefore, it cannot pass ananother order ignoring the same. The present impugnedorder came to be passed after consulting thepetitioner ESI Corporation, but ignoring the opiniongiven by it.(c)This Court earlier in W.P.No.34205 of 2004,dated 12.4.2005 directed the second respondent toconsider the application of the first respondent,dated 16.9.2004, which order came to be passed withoutnotice to them.(d)The power of exemption can be exercised onlywhen there are materials to show that the benefitsgiven by the employer are substantially similar orsuperior to the benefits extended by the Act and thenonly such exemption can be granted. In the presentcase, there are no materials with the secondrespondent to arrive at the conclusion as per theimpugned order, and(e)In any event, when the petitionerCorporation had rejected the plea made by the first https://hcservices.ecourts.gov.in/hcservices/ respondent, the first respondent ought to haveproceeded before the ESI Court and established onfacts that they are providing similar or superiorbenefits than the ESI Act by filing a petition underSection 75. 6.In the counter affidavit, the second respondent hadstated that the management of the first respondent had furnished acomparative study of benefits available under the ESI scheme. Theyare of the opinion that the benefits provided by the firstrespondent was substantially similar or superior to the benefitsunder the ESI Act and hence the exemption was granted. 7.The first respondent in their counter affidavit hadstated that there are 373 employees working in their organization.They have given letters, dated 13.5.2005 and 31.1.2006 stating thatthey did not want the application of ESI Act and wanted thebenefits given by the first respondent to continue. It was alsoclaimed that by coercive process, the petitioner ESI Corporationthrough a garnishee order had taken away a sum of Rs.37,27,475.93from the bank account without any justification. The writ petitionis defective inasmuch as the employees who have a right under theexemption order were not made as parties to the writ petition. 8.It was also stated that from the date of theestablishment of the first respondent, they are providing by PASICStaff Welfare Rules, 1993 the benefits like sickness, medical,maternity, accident, injury, disablement, death, education, etc.They are also providing medical reimbursement to their employees.Some of them had got treated in the very many big hospitals atChennai. For the year 2003 alone, they had spent Rs.60 lakhs forthe health care of their workers, which is five times more than thecontribution payable to the petitioner Corporation. 9.Before going into the rival submissions, first of all, itmust be determined whether the petitioner ESI Corporation has anylocus standi to question the exemption order passed by the secondrespondent which is impugned in the writ petition. Hence it isnecessary to refer to certain provisions of the Act. Section 1(4)of the Act reads as follows:"1(4)It shall apply, in the first instance, to allfactories (including factories belonging to the[Government]) other than seasonal factories.[Provided that nothing contained in this sub-section shall apply to a factory or establishmentbelonging to or under the control of the Governmentwhose employees are otherwise in receipt of benefitssubstantially similar or superior to the benefitsprovided under this Act.]."10.Section 90 providing for exemption of establishmentsbelonging to the Government or any local authority, reads asfollows: https://hcservices.ecourts.gov.in/hcservices/

90.Exemption of factories or establishmentsbelonging to Government or any local authority.-Theappropriate Government may, [after consultationwith the Corporation], by notification in theOfficial Gazette and subject to such conditions asmay be specified in the notification, exempt anyfactory or establishment belonging to any localauthority, [from the operation of this Act] if theemployees in any such factory, or establishment areotherwise in receipt of benefits substantiallysimilar or superior to the benefits provided underthis Act."11.Section 91-A providing for exemption even withretrospective effect reads as follows:"[91-A.Exemptions to be either prospective orretrospective.-Any notification granting exemptionunder section 87, section 88, section 90 or section91 may be issued so as to take effect eitherprospectively or by retrospectively on such date asmay be specified therein.]12.The Government had referred to Section 1(4) as its powerfor the grant of exemption. But, actually the power of exemption isfound under Chapter VIII more particularly Sections 90 to 91-A ofthe ESI Act, which are extracted above. As per Section 91-A whichwas introduced by the Central Act 44/1966 with effect from17.6.1967, exemption can be granted even retrospectively providedthe Government is of the opinion that the establishment belongingto the Government is providing benefits substantially similar orsuperior than what was provided under the ESI Act. Therefore, itcannot be said that the Union Territory of Puducherry is lackingpower to grant exemption even though a wrong provision of law mighthave been quoted in the impugned order. So long as the power existsand is exercised, reference to a wrong provision will not denudethe power of an appropriate authority. Reliance placed upon toproviso to Section 1(4) is misconceived. Even though proviso toSection 1(4) was introduced only with effect from 20.10.1989, powerunder Section 91-A is always available to them even before thatdate. Therefore, the first submission made by the petitioner mustfail.13.The other submissions made by the petitioner that theparties must move the ESI Court under Section 75 to establish thatthey are granting similar or superior benefits than the schemeunder ESI Act is also misconceived. The ESI Court constituted underSection 75 has no jurisdiction to take up or sit over the decisiongiven under section 87 of the Act granting an exemption. On thecontrary, the power to grant exemption is a plenary power given toan appropriate Government. The court constituted under Section 75cannot decide such matters including the validity of an exemptionnotification or that it should provide the basis for grant of anexemption. https://hcservices.ecourts.gov.in/hcservices/

14.In this context, it is necessary to refer to thejudgment of a division bench of the Andhra Pradesh High Court inRegional Director, Employees State Insurance Corporation, HyderabadVs. M/s.Zuari Cement Ltd. and others reported in 2008 Lab I.C 1602.The following passage found in paragraph 14 may be usefullyextracted below:"14.....There is no power specifically conferredthereunder to provide any sort of remedy likeappeal, revision or review to fall well within thepowers of jurisdiction under Section 75 of the Actto consider, go into or sit over any decision ororder which has been taken under Section 87 of theAct. The power of exemption is provided for in adifferent Chapter i.e. Chapter-VIII. The said poweris specifically conferred on the Government todecide on the question of exemption of an industryfrom the operation of the Act. The reasons could bemany, especially, including the benefits which theemployer provides are substantially similar orsuperior to the benefits which the Act provides.However, as against the said order, either way,granting or refusing to grant exemption, no remedyby way of appeal or revision has been provided forunder the Act. Therefore, any order passed thereinbecomes final unless taken in appropriateproceedings under Article 226 of the Constitution ofIndia by way of writ. Thus, a reading of these twoprovisions amply shows that the ESI Court actingunder the powers as conferred under Section 75 ofthe Act has no jurisdiction to take up or sit overthe decision given under Section 87 of the Act. Evenif it is found that the employer is providing farbetter benefits or similar benefits, it would notalso constitute any basis or ground to interdict thedecisions under Section 87 of the Act by the Courtunder Section 75 of the Act. Irrespective of thefact whether the order passed under Section 87 ofthe Act is in any way can be assailed by way ofappropriate grounds, be it for want of reasons orlacunae or violation of principles of naturaljustice, it is not for the Employees Insurance Courtacting under Section 75 of the Act to assail or setaside the same. The said order granting or rejectingexemption under Section 87 of the Act is very muchbinding and conclusive on the Employees InsuranceCourt as constituted under Section 74 of theAct...." (Emphasis added)15.As found in Section 90 of the ESI Act, the StateGovernment can exercise its power after consultation with the ESICorporation. In the present case, the impugned order shows that thepetitioner corporation was consulted and they were also called fora discussion on 19.1.2007. The Corporation had furnished a https://hcservices.ecourts.gov.in/hcservices/ comparative study of the benefit available with them and with thefirst respondent. The word "consultation" does not mean a consent.Therefore, the petitioner ESI Corporation do not have veto power intorpedoing a decision made by the appropriate Government. The term"consultation" as found under Article 217 of the Constitution cameto be considered by the Supreme Court vide decision in S.P.GuptaVs. Union of India reported in 1981 (Supp) SCC 87. It was heldthat the word "consultation" does not mean "consent".16.The writ petition also suffers from non impleadment ofworkers while challenging the order of exemption granted by theGovernment. In the present case, the impugned order clearly showedthat the trade union representing the workers, i.e. PASIC EmployeesFederation unanimously requested for the grant of exemption. Theyhad also submitted individual option letters from the employees.Therefore, in challenging the said notification, the workers arenecessary and proper parties before this court. The petitioner hadnot made any one of them as party.17.In this context, it is necessary to refer to thejudgment of the Supreme Court in State of Tamil Nadu Vs. K.Sabanayagam reported in 1998 (1) LLN 383 = (1998) 1 SCC 318,wherein the Supreme Court had held that the Government before grantof exemption must necessarily hear the workers, who are vitallyinterested in having the welfare legislation in their favour.Though the said judgment arose under the Payment of Bonus Act, thelaw laid down by the Supreme Court will squarely apply to the caseon hand. 18.Very recently, the Supreme Court in Employees' StateInsurance Corporation Vs. Bhakra Beas Management Board and anotherreported in 2009 (10) SCC 671 has held that even before the ESICourt while hearing a matter under Section 75 regarding thecoverage, workers must be made as parties either in individualcapacity or in a representing capacity. It is necessary to refer toparagraphs 4 and 5 of the said judgment which is as follows:"4.This Court has recently held in Fertilizer &Chemicals Travancore Ltd. v. ESI Corpn.1 as under:(SCC pp. 487-88, paras 5-10)“5. It may be noted that in its petitionbefore the Employees’ Insurance Court, theappellant herein only impleaded theEmployees’ State Insurance Corporation andthe District Collectors of Alleppey,Palaghat and Cannanore as the respondentsbut did not implead even a single workmanas a respondent. Labour statutes are meantfor the benefit of the workmen. Hence,ordinarily in all cases under labour statutes the workmen, or at least some ofthem in a representative capacity, or thetrade union representing the workmenconcerned must be made a party. Hence, in https://hcservices.ecourts.gov.in/hcservices/ our opinion the appellant (petitionerbefore the Employees’ Insurance Court)should have impleaded at least some of thepersons concerned, as respondents.6. The case of the appellant was that, infact, none of the persons concerned was itsemployee and it was difficult to identifythem. In this connection we may refer toSection 75(1)(a) of the Act which statesthat if any question or dispute arises asto whether any person is an employee of theemployer concerned, or whether the employeris liable to pay the employer’scontribution towards the said persons’insurance, that is a matter that has to bedecided by the Employees’ Insurance Court.Hence, in our opinion, the person concernedhas to be heard before a determination ismade against him that he is not an employeeof the employer concerned.7. The rules of natural justice requirethat if any adverse order is made againstany party, he/she must be heard. Thus, if adetermination is given by the Employees’Insurance Court that the persons concernedare not the employees of the petitioner,and that determination is given evenwithout hearing the persons concerned, itwill be clearly against the rules ofnatural justice. It may be seen thatSection 75 of the Act does not mention whowill be the parties before the InsuranceCourt. Since the determination by theInsurance Court is a quasi-judicialdetermination, natural justice requiresthat any party which may be adverselyaffected or may suffer civil consequencesby such determination, must be heard beforepassing any order by the authority/court.8. In our opinion, wherever any petition isfiled by an employer under Section 75 ofthe Act, the employer has not only toimplead ESIC but has also to implead atleast some of the workers concerned (in arepresentative capacity if there are alarge number of workers) or the trade unionrepresenting the said workers. If that isnot done, and a decision is given in favourof the employer, the same will be inviolation of the rules of natural justice.After all, the real parties concerned inlabour matters are the employer and theworkers. ESI Corporation will not be in any https://hcservices.ecourts.gov.in/hcservices/ way affected if the demand notice sent byit under Sections 45-A/45-B is quashed.9. It must be remembered that the Act hasbeen enacted for the benefit of the workersto give them medical benefits, which havebeen mentioned in Section 46 of the Act.Hence, the principal beneficiary of the Actis the workmen and not ESI Corporation. ESICorporation is only the agency to implementand carry out the object of the Act and ithas nothing to lose if the decision of theEmployees’ Insurance Court is given infavour of the employer. It is only theworkmen who have to lose if a decisionis given in favour of the employer. Hence,the workmen (or at least some of them in arepresentative capacity, or their tradeunion) have to be necessarily made aparty/parties because the Act is a labourlegislation made for the benefit of theworkmen.10. In the present case the workmenconcerned were not made parties before theEmployees’ Insurance Court, nor was noticeissued to them by the said court.”5.Neither the workers of Respondent 1 nor any oneof them in representative capacity were impleadedeither before the Employees’ State Insurance Courtor before the High Court. In our opinion, this isin violation of the principles of natural justice."If the employees are necessary parties either at the time of grantof exemption or before the ESI Court in a petition under Section75, they are necessary and proper parties before this court in apetition challenging an exemption notification. Therefore, thepresent writ petition also is liable to be rejected on the groundof non joinder of proper and necessary parties.19.Though it was contended that in the earlier order, theGovernment had declined to grant exemption, that does not mean in achange of circumstances, a fresh request cannot be considered. Inthe present case, there was a direction by this court to considerthe case of the first respondent. Even otherwise such issues can begone into only when proper parties i.e. employer or employees, camebefore this court and challenged an order granting exemption fromthe ESI Act.20.De hors the rival contentions made, the fundamentalquestion that has to be decided in the present case is whether thepetitioner ESI Corporation which is a creature under the ESI Act isentitled to challenge the exercise of the power of an appropriateGovernment in granting exemption under Chapter VIII of the ESI Act. https://hcservices.ecourts.gov.in/hcservices/

21.As can be seen from Section 90, the role of the ESICorporation is only a consultative body and not beyond that. Thus,in case where a dispute is determined under Section 75, a decisionof the ESIC may be set aside by the ESI Court. In thosecircumstances, the ESI Corporation can certainly file an appealunder Section 82 before this court or challenge it in a given caseby filing a writ petition under Article 226 of the Constitution. Incases where the very order of the ESI was negatived or nullified bythe ESI Court, they may have locus standi to file an appeal or writpetition. But where an exemption is granted thereby the very Actitself is made inapplicable there is no scope for the ESICorporation to challenge the same. In other words, they do notexist in the eye of law in respect of an establishment which isexempted under the Act. They cannot be said to be an aggrievedparty in challenging such an order. The Act do not give any suchlocus standi to the ESI Corporation to challenge such orders.22.Before concluding the case, the prayer made by the firstrespondent must be considered. In paragraph 19(A) of the counterfiled by the first respondent, it was averred as follows:"19(A)As stated above, the petitioner has malafide,illegally and forcibly taken away a sum ofRs.37,27,475.93 from the Bank Account of the 1strespondent and keeping the same with it from20.01.2006. Hence, it is bound to refund the saidamount along with interest at 24% p.a. to the 1strespondent. Therefore, the 1st respondent has sentletters dt.14.03.2008 & 30.04.2008, requesting thepetitioner to refund the said amount along withinterest. However, the petitioner had not refunded thesaid amount and the 1st respondent was insisting it torefund the same. Now, only in an attempt to delay anddefeat the said demand for refund, the petitioner hasfiled the above W.P., praying to quash the orderdt.18.02.2008...."23.The Allahabad High Court vide its decision in U.P. StateRoad Transport Corporation Vs. ESIC reported in 2009 (2) LLN 130 =2009 (1) LLN 247 has held that when once the ESI Act exempts anestablishment, the ESIC must refund the amounts collected from theestablishment with interest. In view of the fact that the amountshave been recovered through garnishee order payable by the firstrespondent, the petitioner ESI Corporation is hereby directed torefund the amount of Rs.37,27,475.93 which was recovered throughcoercive process within eight weeks from the date of receipt of theorder. However, this court is not inclined to order any interest onthe payment as claimed by the first respondent. The writ petitionis dismissed with the above directions. No costs.Sd/-Asst.Registrar/True Copy/Sub.Asst.Registrar https://hcservices.ecourts.gov.in/hcservices/ vvkTo1.M/s.Pondicherry Agro Service and Industries Corporation Limited, (A Government of Pondicherry Undertaking), Pondicherry.2.The Joint Secretary to Government (Labour), The Government of Puducherry, Labour Department, Puducherry.+ 1 cc to Mr.t. P. Manoharan, Advocate SR.31+ 1 cc to Government Pleader Sr.92313W.P.NO.19054 of 2008SAI(CO)Eu 20.1.11