JUDGMENT
Thakur, J.
1. This appeal under Section 82 of the ESI Act is directed against an Order made by the ESI Court at Bangalore whereby an application filed by the appellant under Section 75 of the Act aforementioned has been dismissed and the appellant held liable to pay contribution of a sum of Rs. 7,02,106.50/- for the period between 27.01.1985 to 31.3.1988.
2. The appellant is a Co-operative Society in which the State Government is a major share holder. The Society is engaged in the marketing of fertilizers and pesticides to farmers in the State of Karnataka. It has for that purpose established 31 branches all over the State. The administrative and marketing control over these branches is exercised by the Head Office of the Society with the help of nearly 450 employees.
3. The respondent – Corporation appears to have initiated proceedings in which the appellant – Society was called upon to pay the contribution in terms of the ESI Act. That demand was opposed by the appellant on the ground that it was not amenable to the provisions of the Act as the Society was not engaged in any manufacturing activity. The appellant also argued that it did not constitute a ‘shop’ and that since none of the branches had employed more than twenty persons, no direction for payment of contribution could be issued. These contentions were overruled by the Corporation in terms of an Order dated 7.12.1988 holding that the appellant was a ‘Shop’ hence amenable to Section 15 of the Act. That Order was followed by another Order dated 20.4.1989 passed under Section 45A of the Act whereby an amount of Rs. 7,02,106.50/- was provisionally determined as the contribution payable by the appellant. Aggrieved by the said two orders, the appellant filed an application under Section 75 of the Act before the ESI Court at Bangalore. That application has been dismissed by the Court in terms of the Order impugned in this appeal and the demand raised against the appellant for the period 27.1.1985 to 31.3.1988 upheld. The present appeal assails the correctness of the said Order as noticed earlier.
4. Appearing for the appellant Mr.Acharya submitted that the appellant was engaged in the distribution of pesticides and fertilizers to the federating Societies on a ‘no profit no loss’ basis and since the federation was not making any sales to the farmers directly, it could not be treated to be a ‘Shop’ within the meaning of the ESI Notification issued under Section 1(5) of the Act or brought within the purview of the Act. He argued that two distinct features of the appellant’s activity distinguished it from the attributes of a ‘shop’ e.g.
(1) the supplies were made only to federating societies and
(2) the supplies were made on a ‘no profit no loss’ basis.
5. It was also contended that the Government had in exercise of the power vested in it under Sections 90 and 91-A of the exempted the Federation from the provisions of the Act for the period 1.12.1999 onwards thereby showing that the appellant is not indeed a ‘shop’ that could or was meant to be covered by the provisions of the Act.
6. Ms. Geetha Devi, learned Counsel appearing for the respondent – Corporation, on the other hand, argued that the appellant was engaged in a commercial activity on a systematic basis and could therefore be construed as a ‘shop’. She submitted that even if an element of profit was relevant for determining whether an establishment is a ‘shop’, there was no material on record to show that the federation was carrying on its activities on a ‘no profit no loss’ basis. She urged that the ESI Court was justified in holding that the demand raised against the appellant was legally valid and the appellant’s objections to the application of the Act unfounded.
7. The ESI Act has been enacted to provide certain benefits to the employees in case of sickness, maternity and employment injury and to make provisions for certain other matters in relation thereto. The Act aims at providing a remedy for the wide spread evils resulting from national poverty and is a piece of social security legislation. In terms of Section 1(4) the Act was made applicable to all factories, but the scheme of the Act envisaged extension of the benefit of the provisions to the employees of any other industry, commercial or agricultural establishments. The benefit conferred by the Act therefore was meant to and has actually covered a large cross section of employees beyond those engaged in factories. The legislation is on a plain reading of the provisions of the Act beneficial and welfare in nature. The endeavor of the Court called upto to interpret the provisions of the Act or the statutory notifications issued thereunder has therefore to be to give a liberal construction to the same in order to promote the purpose for which the law has been enacted.
8. The Corporation does not in the instant case justify the Order passed by ft on the ground that the appellant Is a factory. It has struck to its stand that the appellant is a ‘shop’ within the meaning of the statutory notification issued under Sub-section (5) to Section 1 of the Act. The expression ‘shop’ has not however been defined either under the Act or in the notification. The absence of such a definition notwithstanding the expression has been given a wide meaning and construed liberally by numerous decisions of the Supreme Court. In HINDU JEA BAND, JAIPUR v. REGIONAL DIRECTOR, ESI CORPORATION, JAIPUR, the Supreme Court held that a ‘shop’ need not be a place where goods are sold. A place where services are sold on retail basis is also a ‘shop’. That was a case where the appellant-firm was carrying on its business of playing music on occasions such as marriages and other social functions. The Court held that sale of such services even when the same were rendered by employees engaged by the firm intermittently or during marriage seasons answered the meaning of the term ‘shop’ used in the notification.
9. To the same effect is the decision of the Supreme Court in INTERNATIONAL ORE AND FERTILIZERS (INDIA) PVT. LTD. v. EMPLOYEES’ STATE INSURANCE CORPORATION. In that case, a company carrying on the business of importing fertilizers had challenged the Order of the Corporation applying the provisions of the Act to it. The argument was that the establishment at the central office of the company did not constitute to a ‘shop’ to which the Act could be applied by virtue of the statutory notification. The activities carried on by the company did not according to it constitute trading activities nor were the goods imported from abroad actually brought to the Head Office for delivery to the Purchasers. The Supreme Court repelled the contention and held that the delivery of goods sold to the purchaser is only one aspect of the trading activity. Negotiation of the terms of sale, carrying on the survey of the goods imported, arranging for delivery of goods etc., were all trading activities and any premises where such activities were carried on would answer the description of a ‘shop’.
10. In COCHIN SHIPPING CO., v. E.S.I. CORPORATION, the appellants were carriers engaged in clearing and forwarding operations. The argument against the application of the Act was that the clearing and forwarding activity was undertaken in the Customs House, hence the establishment could not be said to be a ‘shop’. Rejecting the contention, the Court held that clearing and forwarding even when the same is done in the Customs House formed a part of a carrier’s job and that any person doing the said business is rendering services to cater to the needs of the exporters and importers. The Court also rejected the contention that since the notification mentions other establishments which are akin to shops, a narrow meaning to the word ‘shop’ should be given. The Court observed:
“Merely because other establishments which are akin to shop are enumerated, the Court is not obliged to give a narrow meaning to the word ‘shop’ nor does it in any way dilute the meaning of ‘shop’. What is to be noted is that the object is to envelope as many establishments as possible without leaving any room for doubt. That is precisely what the notification intends to do. It, therefore, cannot be said that as other kinds of establishments which can easily fall within the definition of ‘shop’ have been enumerated a specific enumeration of the business activity in question so as to include it in the term ‘shop’ is to be insisted upon.”
11. To the same effect are the decisions of the Supreme Court in ESI CORPORATION v. R.K. SWAMY AND ORS., SOUTHERN AGENCIES, RAJAMUNDRY v. ANDHRA PRADESH ESI CORPORATION, AIR 2000 SC 3718 KIRLOSKAR CONSULTANTS LTD. v. ESI CORPORATION AIR 2000 SC 3720 and TRANSPORT CORPORATION OF INDIA v. ESI CORPORATION AND ANR. In the last of these decisions, the establishment had a registered Office in one State and branch offices in other States. The provisions of the Act were sought to be extended to the Head Office by Notification of the State Government concerned. The question was whether the Branch Offices that were situate in other states would get automatically covered by the Act. Answering the question in the affirmative, the Court held that the branch offices in other States would also get covered if the same were directly controlled by the Head Office. It also declared that the ESI Act being a beneficial legislation, the provisions thereof ought to be interpreted liberally to advance the purpose underlying the legislation.
12. A Division Bench of this Court had in THE BANGALORE TURF CLUB LTD. v. THE REGIONAL DIRECTOR, ESI CORPORATION, ILR 2002 KAR 4563 also had an occasion to examine the provisions of the Act and third applicability to voluntary associations like clubs. The Corporation had in that case applied the provisions of the Act to the Bangalore Turf Club Ltd. The question was whether the Club was carrying on any activity that could be said to involve the sale of services to the members of the Club or to the general public. The question was answered in the affirmative and the Club held amenable to the provisions of the Act keeping in view the nature of the activities that it was engaged in.
13. There is in the light of above pronouncements little room for any doubt that an establishment, which is carrying on any commercial activity on a systematic basis, would constitute a ‘shop’ within the meaning of the Act and the notification issued thereunder. Applying the said test to the instant case, it is evident that the appellant – Federation is engaged in a systematic commercial activity of buying fertilizers and pesticides from the manufactures and selling the same to its member societies who in turn sell the stocks to the farmers. Merely because the federation does not make any sale to the farmers directly does not imply that the activity carried on by the federation is either non- commercial or different from those that constitute the attributes of a ‘shop’. If for the purpose of establishing a more efficient retail network, the distribution of fertilizers and pesticides is assigned to the respective federating societies, it does not mean that the federation is not itself engaged in a commercial activity. It is immaterial whether the stocks of fertilizers or pesticides are sold by the federation directly to the farmers or with the help of the societies as intermediaries. What is important is that the federation is at a larger scale pioneering the supply of fertilizers and pesticides with the network of branches from where the supply of stocks to the federating societies take place. All these branches are admittedly controlled by the head office of the society situate in Bangalore thereby ensuring functional integrity of the entire organisation backed by the work force of 450 employees. There is in that view no difficulty in holding that the distinction sought to be pressed into service by Mr. Acharya is without any difference for purposes of determining whether the organisation is or is not a ‘shop’.
14. That brings us to the second facet of the argument of Mr. Acharya, that the federation carries on its activities on a ‘no profit no loss’ basis. The Bye-laws of the appellant – Federation, a copy whereof has been produced during the course of the hearing do not support the contention that the Federation carries on its activities on a ‘no profit no loss’ basis. On the contrary, Chapter – VIII of the Bye-laws dealing with the finances leaves no manner of doubt that the federation is a profit making body which profit has to be distributed in the manner prescribed under Bye-Law 153 in accordance with the Karnataka Co-operative Societies Act and the rules framed thereunder. Bye-law 152 may in this regard be extracted:
“Before arriving at net profit, the Board of Directors shall provide for all operating cost, working expenses including interest payable on borrowings, losses incurred in the course of the business, bad and doubtful debts and depreciation on assets and the amount provided for redemption of Government share capital contribution shall be carried to capital redemption of Government share capital contribution shall be carried to capital redemption reserve fund. The net profit so arrived at, shall be declared and appropriated at the ordinary (Annual General) Meeting of the Federation”.
The relevant portion of Bye-Law 153 is as under: “PROFIT:
153. At the Annual General Body Meeting, the net profit earned by the Federation in the year shall be distributed in accordance with KCS Act, Rules and Bye-laws xxx xxx
15. In the light of the above, it is difficult to see how the Federation can claim to be a non-profit making organisation. In any event, the question whether the activities are carried on by the Federation on a ‘no profit no loss’ basis was a question of fact which ought to nave been urged and satisfactorily proved by relevant evidence before the ESI Court. No plea to the effect that the organisation carries on its activities on a ‘no profit no loss’ basis was taken nor any evidence led to substantiate the same. In any case, the plea even if raised would in the face of the specific provision in a Bye-law have been futile.
16. That leaves us with the question whether the grant of exemption by the Government for the future should affect the validity of the demand raised against the appellant (or the previous years. It is not the case of the appellant – Federation that the orders of exemption are retroactive in nature. Copies of the notifications issued by the Government in this regard clearly identify the period for which the exemption is granted. None of these notifications relate to the period for which the Corporation has raised a demand. If that be so, it is difficulty to see how the issue of an exemption notification for the future would invalidate the demand raised by the Corporation for a previous period.
17. In the result, this appeal fails and is hereby dismissed, but in the circumstances without any orders as to costs.