IN THE HIGH COURT OF KERALA AT ERNAKULAM
Ins.APP.No. 55 of 2003(A)
1. THE REGIONAL DIRECTOR, E.S.I.CORPORATION
... Petitioner
Vs
1. M.JOY VARGHEESE, MANAGING PARTNER,
... Respondent
For Petitioner :SRI.P.SANKARANKUTTY NAIR
For Respondent :SRI.A.M.SHAFFIQUE (SR.)
The Hon'ble MR. Justice K.M.JOSEPH
The Hon'ble MR. Justice M.L.JOSEPH FRANCIS
Dated :25/05/2009
O R D E R
K. M. JOSEPH &
M.L. JOSEPH FRANCIS, JJ.
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INS.A.No. 55 of 2003
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Dated this the 25th day of May, 2009
JUDGMENT
Joseph, J.
This is an appeal filed under Section 82(2) of the
Employees State Insurance Act (hereinafter referred to as ‘the
Act’). The respondent filed the application before the E.S.I.
Court under Section 75 r/w. Section 77 of the Act seeking a
declaration that the assessment of Rs.4,59,300/- towards E.S.I.
contribution in respect of production charges in the Books of
Account of the respondent for the period from 1.4.1991 to
31.3.1995 is unsustainable.
2. The establishment of the respondent is engaged in
manufacture and sale of Micro Cellular Sheets, Hawai Chappals
and Straps. The establishment is covered under the E.S.I. Act.
According to the respondent, as his factory lacks facility to
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manufacture the required quantum of straps and chappals for
marketing, he used to place orders on contract basis to outside
manufacturing units. It was their case that to maintain the quality of
chappals, it supplied Micro Cellular sheets and straps to the
manufacturing units and the contractors were instructed about the
details of the items to be manufactured. After the manufacturing
process is over, the respondent’s staff used to go over to the units and
check the products and take delivery of the same. If the manufactured
items were not keeping with the requirements, it would be rejected.
The case of the appellants is that the payments made shown as
production charges are amounts paid as wages to the employees of the
contractors and they are to be treated as the employees of the
respondent and they were bound to deduct the amounts under the Act,
failing which action shall be taken.
3. There was an inspection by the Inspector. He found that
large amounts were shown in the accounts as production charges.
Therefore, Form C-18 notice proposing determination of contribution
INS.A.No. 55 of 2003
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due on adhoc basis amounting to Rs.4,59,300/- was issued on
16.3.1998. According to the appellant, there was no response and
therefore the respondent was constrained to conclude the assessment
ex parte and passed an order assessing Rs.4,59,300/- towards E.S.I.
contribution on production charges for the period from 1.4.91 to
31.3.1995.
4. On the side of the respondent PWs. 1 to 5 were examined
and Exts. P1 to P33 were marked. The appellant gave evidence as
DW1 and produced Exts.D1 to D5A. The Insurance Court, on a
consideration of the entire matter, allowed the application and declared
that the assessment of demand of E.S.I. contribution on production
charges is unsustainable. Feeling aggrieved by the said order this
appeal has been filed by the E.S.I. Corporation.
5. We heard the learned counsel for the appellant and the
learned counsel for the respondent.
6. The following questions are raised as substantial questions of
law.
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i) The scope and ambit of passing orders under
Section 45A of the E.S.I. Act is properly analysed by the
E.S.I. Court in strict conformity with the section while
setting aside the order under challenge.
ii) Whether the E.S.I. Court is justified in interfering
the orders under Section 45A of the Act by declaring the
order as illegal even without giving another opportunity to
pass fresh orders by the quasi judicial authority under the
Act.
iii) Speculative anlysis of evidence can form the basis
of a judgment.
iv) When an assessment is made on the basis of the
documentary admission made in the acocunt books whether
the conclusion of the E.I. Court that the assessment is made
in speculative exercise of power is justifiable in law.
v) Whether the employees employed by the
contractors are employees as defined under Section 2(9) of
the E.S.I. Act.
INS.A.No. 55 of 2003
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vi) Whether the contractors are immediate employees
coming under Section 2(13) of the E.S.I. Act.”
7. According to the learned counsel for the appellant. this is a
case where pursuant to the notice issued to the respondent, there was
no response on his part. Noting huge amount as production charges in
the accounts, taking note of the fact that contractors were also
engaged in the business and other materials it was concluded by
determination order that the employees of the contractors were being
effectively supervised by the respondent and consequently they would
constitute employees within the meaning of the Act. The respondent
failed to respond to the notice. Thereafter, according to the learned
counsel for the appellant, when the liability is determined, it may not
be open to the respondent to require the Court to go into the matter
afresh as it were the original adjudicating authority. He further points
out that, since the point of issue that arises for consideration and
decision was whether there was supervision by the principal employer
within the meaning of the definition ’employee’, as there was clear
INS.A.No. 55 of 2003
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documentary evidence in the form of entries in the account, that the
respondent was incurring supervisory charges, the true purport of the
said expression could not be got over by tendering oral evidence. He
would submit that it is a case where the finding is perverse. The
appellant has raised a substantial question of law, which warrants
consideration by this Court and in the facts of the case the answering
of the same in favour of the appellant is necessary, he contends.
8. The learned counsel for the respondent on the contrary
submits that this is a case where notice was issued on the basis of the
inspection conducted. The case is set up on the basis of the amounts
styled as production charges as also supervisory charges in the
accounts. The counsel also points out that in view of the availability
of jurisdiction under Section 75 of the Act, where the entire materials
have been produced and evidence adduced, the mere fact that the
respondent has not produced materials before the authority could not
detract from the availability of jurisdiction with the court to decide the
issue.
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9. The Tribunal has found apparently on the strength of the
depositions of PWs. 1 and 2, who are the employees of the respondent
as also on the strength of the depositions of PWs. 3 to 5, who are some
of the contractors, to whom the work was given, that the expression
supervisory charges are nothing, but the amount expended by the
respondent for the purpose of taking delivery of the product from the
contractors.
10. The Insurance Court has extracted the definition of the word
’employee’. We would also refer to the same. It reads as follows:
“Employee” means any person employed for wages
in or in connection with the work of a factory or
establishment to which this Act applies and
i) who is directly employed by the Principal
employer on any work of or incidental or preliminary to or
connected with the work of, the factory or establishment,
whether such work is done by the employee in the factory
or establishment or elsewhere; or
ii) who is employed by or through an immediate
employer on the premises of the factory or establishment
INS.A.No. 55 of 2003
8or under the supervision of the principal employer, or his
agent on work which is ordinarily part of the work of the
factory or establishment or which is preliminary to the
work carried on in or incidental to the purpose of the
factory or establishment, or
iii) xx xxx “
11. Undoubtedly the case of the respondent would not fall
within the ambit of the first portion. The entire focus is whether the
respondent’s case would fall within the scope of the latter clause.
There can be dispute that either the employment must be done within
the premises of the principal employer or it is carried on in another
premises, where there must be supervision of the work by the principal
employer. The court has placed reliance on the decision of the Calcutta
High Court to take the view that merely for the reason that the
principal employer retains right to accept or reject the goods after the
manufacturing is over, it would not amount to a case of principal
employer supervising the employee within the meaning of the
definition. In fact the learned counsel for the appellant also does not
INS.A.No. 55 of 2003
9
essentially dispute the correctness of this proposition. What he would
submit is the conduct of the respondent in not responding to the notice
and attempting to explain away the expressions found in the
documentary evidence by oral evidence.
12. In a proceedings under Section 75 of the Act, the powers of
the E.S.I. Court are that of a Civil Court. The law contemplates
adducing of oral evidence, production of documents and material
objects. In fact necessarily it is just as a power which could have been
exercised by a Civil Court . Section 75 of the Act speaks of matters to
be decided by the E.S.I. Court. It reads as follows:
“S.75. Matters to be decided by Employees’
Insurance Court.- (1) If any question or dispute arises
as to –
a) whether any person is an employee within the
meaning of this Act or whether he is liable to pay the
employee’s contribution, or
b) the rate of wages or average daily wages of an
employee for the purposes of this Act, or
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c) the rate of contribution payable by a principal
employer in respect of any employee, or
d) the person who is or was the principal employer
in respect of any employee, or
e) the right of any person to any benefit and as to
the amount and duration thereof, or
(1)ee) any direction issued by the Corporation
under Section 55A on a review of any payment of
dependents’ benefit, or
(2) xx
g) any other matter which is in dispute between a
principal employer and the Corporation, or between a
principal employer and an immediate employer or
between a person and the Corporation or between an
employee and a principal immediate employer, in
respect of any contribution or benefit or other dues
payable or recoverable under this Act, or any other
matter required to be or which may be decided by the
Employees’ Insurance Court under this Act.
INS.A.No. 55 of 2003
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such question or dispute subject to the provisions of sub-
section (2A) shall be decided by the Employees’
Insurance Court in accordance with the provisions of this
Act .”
13. If that be so, in a case where matters are such that they are to
be decided by the Court under Section 75 read with the powers
available to it under Section 78, it can safely be said that the
proceedings before the E.S.I. Court is in the nature of an original
proceedings. It cannot be said to be an appeal as such. The disputes
are to be finally decided by the designated authority, viz. the Insurance
Court and none other. We further notice that in this case, as already
noticed, both sides have adduced evidence. It is true as the learned
counsel pointed out, that it has been brought to the notice of the
Insurance Court that the respondent did not respond to the notice. But
can it be said that the E.S.I. Court was without jurisdiction to decide
the issue? The Insurance Court did have the jurisdiction to decide the
issue. Once it is found that the E.S.I. Court did have the jurisdiction to
decide the issue, at worst it could be said that the conduct of the
INS.A.No. 55 of 2003
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respondent was a matter, which was to be weighed by the Insurance
Court.
14. On a perusal of the entire evidence, the Insurance Court has
come to the conclusion that the respondent is not liable to pay the
amount, as the employees of the contractors are not to be treated as his
employees. The case of supervision set up by the appellant was found
not acceptable. The very same principle has been accepted by the Full
Bench of the Madras High Court in E.S.I. Corporation rep. by its
Regional Director v. Bethal Engineering Company, rep. by Ms.
S.V. Umayal (2008 (1) LLJ 278). Essentially it may amount to a
question of fact as to whether there is supervision. Applying the
doctrine to the facts of this case, it may not give rise to a substantial
question of law.
15. It is true that the expression used in the account book is
supervision charges. It appears to be a little incongruous to say that it
is to be treated as expenses. In this case, it should be noted that PWs. 3
to 5 are persons who are contractors to whom work was given. They
have given evidence as to the system in practice. They specifically
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spoke about absence of supervision. PWs. 1 and 2 have gone into the
box and spoke about the amount representing supervision charges
being expenses. We cannot say that it is a finding which is perverse.
It is a view taken by the Court accepting the version of the respondent
and its witnesses. In this view of the matter, we do not think that the
appellant has made out a case for interference.
16. The appeal fails and it is dismissed.
(K. M. JOSEPH)
Judge
(M.L. JOSEPH FRANCIS)
Judge
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