IN THE HIGH COURT OF KERALA AT ERNAKULAM
MFA No. 337 of 2000
1. THE REGIONAL DIRECTOR, ESI CORPN
... Petitioner
Vs
1. HINDUSTAN LEVER LTD
... Respondent
For Petitioner :SMT.RAJALAKSHMI
For Respondent :SRI.ANTONY DOMINIC
The Hon'ble MR. Justice P.R.RAMAN
The Hon'ble MR. Justice K.T.SANKARAN
Dated : 04/07/2005
O R D E R
.PL 54
P.R.RAMAN & K.T.SANKARAN, JJ.@@
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M.F.A.No. 337 of 2000@@
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Dated this the 5th day of July, 2005@@
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JUDGMENT@@
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M.F.A.NO.337 OF 2000
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.HE 1
Raman, J.@@
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.SP 2
The appellant is the Regional Director of the
Employees’ State Insurance Corporation, Thrissur. The
appellant challenges the order passed by the Employees’
Insurance Court in I.C.No.76 of 1996 to a limited extent.
Respondent herein is a company incorporated under the
Companies Act and is an establishment covered under the
Employees’ State Insurance Act and who was the applicant
before the Employees’ Insurance Court. Though the
application was originally filed by M/s.Brooke Bond
Lipton India Ltd., since M/s.Hindustan Lever Limited took
over the said company, a plea was made to amend the cause
title, which was allowed by the court below and
thereafter, the matter was prosecuted by M/s.Hindustan
Lever Limited, the respondent herein.
2. The respondent is engaged in the
manufacturing, marketing and exporting of various
products including tea and is having office at Willingdon
Island, Kochi. The employees of the respondent Company
are covered under the Employees’ State Insurance Scheme.
However, on an inspection conducted by the Employees’
State Insurance Corporation through its officers, it was
found that certain items were omitted to be taken into
consideration for the purpose of payment of contribution.
The items which were thus excluded for the purpose of
payment of contribution were: (1) repair and maintenance
of quarters; (2) processing charges; (3) processing,
conversion and packing; and (4) repair and maintenance of
office building.
3. It was contended that the omitted items were
not wages paid to the employees, but only payments made
to various organisations for carrying out certain works
on contract basis and that the contracting establishments
were employing sufficient number of employees to cover
themselves independently under the ESI Scheme. The above
contention was not accepted by the ESI Corporation. When
they took coercive steps for recovering the amount, the
respondent approached the Employees’ Insurance Court for
necessary reliefs.
4. The Employees’ Insurance Court found that
major portion of the contribution demanded relates to
service charges, packing and conversion charges paid to
three contracting establishments. It was contended by
the respondent that payments were made to those
contracting agencies on the basis of the terms and
conditions of the contract and it cannot be treated as
wages for the purpose of assessment and collection of
contribution. It was also contended that those agencies
are independent establishments carrying on similar work
not only for the respondent but also for some other
establishments who are also engaged in the export of tea,
coffee, spices etc. The Employees Insurance Court found
that the three contracting agencies are registered
establishments and that the present demand is not
confined to the wage part of the contracting agencies,
but it would cover the whole payment made which includes
the contracting agencies’ other expenses and profit.
What portion of the amount paid by the respondent to the
three contracting agencies will satisfy the definition of
the term “wages”, however, does not, being a question of
fact, arise for consideration in this Appeal and no such
determination is made by the Employees Insurance Court.
However, the E.I.Court found that the three contracting
agencies could themselves be covered as independent
establishments under the Act. Therefore, it was held
that it would be appropriate on the part of the appellant
to issue notice of coverage to all the three
contracting agencies and only if it is found that none of
them would come under the purview of the ESI Scheme, the
liability will be shifted to the respondent in the
capacity as the principal employer for the purpose of
payment of contribution at the first instance. The above
said finding give rise to a substantial question of law.
5. It is not disputed that the processing,
conversion and packing were done for the respondent
Company on contract basis by three independent agencies.
There is also no dispute that the actual work is carried
on in the respondent’s premises. The question whether
the three independent agencies have more than the
required minimum strength to cover them as establishments
under the ESI Act and if so whether that will absolve the
liability of the principal employer under Section 40 of
the Employees’ State Insurance Act, arise for
consideration. As per Section 40 of the Employees’ State
Insurance Act the principal employer shall pay in respect
of every employee, whether directly employed by him or by
or through an immediate employer, both the employer’s@@
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contribution and the employee’s contribution. The rest
of the provisions contained in Section 40 may not have
any relevance in the present case. Section 41 provides
for recovery of contribution from the immediate employer.
As per Section 41, a principal employer, who has paid
contribution in respect of an employee employed by or
through an immediate employer, shall be entitled to
recover the amount of contribution so paid (that is to
say the employer’s contribution as well as the employee’s
contribution, if any) from the immediate employer, either
by deduction from any amount payable to him by the
principal employer under any contract, or as a debt
payable by the immediate employer.
6. The word “immediate employer” is defined
under Section 2(13) of the Employees’ State Insurance Act
as follows:
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.SP 1
“”immediate employer”, in relation
to employees employed by or through him,
means a person who has undertaken the
execution, on the premises of a factory or
an establishment to which this Act applies
or under the supervision of the principal
employer or his agent, of the whole or any
part of any work which is ordinarily part
of the work of the factory or establishment
of the principal employer or is preliminary
to the work carried on in, or incidental to
the purpose of, any such factory or
establishment, and includes a person by
whom the services of an employee who has
entered into a contract of service with him
are temporarily lent or let on hire to the
principal employer and includes a
contractor;”
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.SP 2
So also the word “principal employer” is defined under
Section 2(17) of the Act, which reads as follows:
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.SP 1
“”principal employer” means-
(i) in a factory, the owner or occupier@@
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of the factory and includes the
managing agent of such owner or
occupier, the legal representative
of a deceased owner or occupier,
and where a person has been named
as the manager of the factory under
the Factories Act, 1948 (63 of
1948), the person so named;
(ii) in any establishment under the@@
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control of any department of any
Government in India, the authority
appointed by such Government in
this behalf or where no authority
is so appointed, the Head of the
Department;
(iii) in any other establishment, any@@
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person responsible for the
supervision and control of the
establishment;”
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.SP 2
7. It is thus clear from the definition of the
term “immediate employer” that it is sufficient if he
undertakes the execution on the premises of a factory or
an establishment of the principal employer or is done
under the supervision of the principal employer or his
agent, of the whole or any part of any work which is
ordinarily part of the work of the factory or
establishment of the principal employer or is preliminary
to the work carried on in, or incidental to the purpose
of, any such factory or establishment. That the three
contracting agencies who have thus undertaken the
execution of any part of the work which is part of the
work of the establishment of the principal employer,
namely, the respondent Company herein, would therefore,
satisfy the definition “immediate employer”. The
“immediate employer” may be an individual, a company
incorporated under the Companies Act or a firm or a
statutory corporation as the case may be, who may
themselves be registered establishments under the
Employees’ State Insurance Act. But for the application
of Section 40 of the Employees’ State Insurance Act, the
fact that the immediate employer itself is a covered
establishment is not relevant. It is not the case of any
of the three contracting agencies or that of the
respondent Company before the court below that employees
of the three contracting agencies who were actually doing
the work in the principal employer’s business premises
were registered under the ESI Scheme or that contribution
was paid by any one of them in respect of the wages they
earned while doing the work at the premises of the
principal employer. Hence the mere fact that the three
contracting agencies have sufficient number of employees
to cover themselves independently under the Act will not
however take away the statutory liability fastened on the
principal employer to pay the contributions, both
employer’s and employee’s, as contemplated under Section
40. Further the principal employer is enabled by Section
41 to recover such amounts which they have discharged on
behalf of the immediate employer, to adjust the same
against any payment due to the immediate employer from
the principal employer or to treat the same as a debt
recoverable.
8. In this connection we may refer to the
decision of the Apex Court in Saraswath Films v.@@
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Regional Director, E.S.I.Corporation (2003 (1) KLT 886@@
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(SC)), wherein the question as to whether the duties of
security guards who were engaged on the premises of a
cinema theatre are directly and intrinsically part of the
work of the establishment was considered. It took notice
of the definition contained in Section 2(9) of the
Employees’ State Insurance Act as well as the definition
of the term “immediate employer” and “principal employer”
under Sections 2(13) and 2(17) of the Act. It was held
that on a plain reading of the definition of the
expressions “principal employer” and “immediate employer”
the position is manifest that the appellant is the
principal employer of the security guards in the case.
It may be that their immediate employer is the security
agency with whom there has been a contract either by the
lessor or the lessee of the cinema hall for the purpose
of the service. On a fair reading of the relevant
statutory provisions and keeping in view the object and
purpose for which the legislation was enacted, it was
held that in the case on hand the security guards came
within the purview of “employee” as defined in Section
2(9) of the Act. There also a contention was raised that
the two security guards were not to be included as
employees of the establishment for the purpose of
determining the total number of employees employed by the
cinema theatre. It was also contended that there was no
employer-employee relationship between the said cinema
theatre and the security guards, which was however
repelled.
9. We are, therefore, of the considered view
that merely because the “immediate employer” have
sufficient strength to cover them as independent
establishment under the Act by itself is not a reason to
hold that the liability of the principal employer under
Section 40 is taken away. In a case where there is a
principal employer and an immediate employer as in the
present case, the liability to pay contribution at the
first instance is on the principal employer who in turn
has remedy to recover the same from the immediate
employer. Hence we set aside the judgment passed by the
court below and remand the matter for fresh consideration
on the other questions. It is open to the ESI
Corporation to produce relevant materials to show as to
what portion of the amount represents wages on which
contribution is liable to be paid by the principal
employer, respondent herein. Both sides shall be given
an opportunity to adduce additional evidence in this
regard.
Appeal is allowed as above.
.SP 1
.JN
P.R.RAMAN@@
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.HE 2
.JN
.SP 2
P.R.RAMAN & K.T.SANKARAN, JJ.@@
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R.C.R.No. 337 of 2000 C @@
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JUDGMENT@@
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5th July, 2005
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.JY