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IN THE HIGH COURT OF JUDICATURE OF BOMBAY
BENCH AT AURANGABAD
FIRST APPEAL NO. 1557 OF 2007
1. Maharashtra State Cooperative
Marketing Federation Limited,
Karnmu House, Narsi Mehta Street,
Post Box No. 5080 Bombay.
2. Maharashtra State Cooperative
Marketing Federation Limited,
Bhagirath Granulated Fertilizers
Factory, Plot No.4, Aurangabad. APPELLANTS
VERSUS
The Joint Director,
Employees State Insurance Corporation
Nagpur - 18
Panchdeep Bhavan, Ganeshpeth,
RESPONDENT
.....
Mr. V.N. Upadhye, advocate for the appellants.
Mr. V.D. Sonawane, advocate for the respondent.
…..
[CORAM: V.R. KINGAONKAR, J.]
DATE : 5th December, 2008
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ORAL JUDGEMENT :
1. Substantial question of law involved in this
appeal is as follows :
“Whether the exemption granted vide Government
Notification, issued under section 88 read
with section 91A of the Employees’ State
Insurance Act, 1948, in respect of
establishment of the Apex body of a
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(2)Cooperative Marketing Federation Limited,
would be applicable and valid so as to claim
exemption from payment of Employees State
Insurance (ESI) contribution in respect of
other units of the Co-operative Marketing
Federation ?”
2. By consent, the appeal is finally heard at
stage of admission.
3. The appellants filed an application under
section 75 read with sections 77 and 78 of the
Employees’
State Insurance Act, 1948 (hereinafter
referred to as “the ESI Act”), before the Industrial
Court, Aurangabad. The applicant No. 1 is a
registered Cooperative Society under the Maharashtra
Cooperative Societies Act, 1960 and the appellant No.
2 is a unit dealing in manufacturing of granulated
fertilizers at its factory situated within the
industrial area of Chikalthana (Aurangabad). They
asserted that the appellant No. 2 is not required to
contribute for ESI amount under the ESI Act in as much
as the State of Maharashtra has exempted the appellant
No. 1 from application of the ESI Act vide
notification dated 28th April, 1992 with effect from
1st February, 1996. They further asserted that the
competent officer of the respondent visited the
factory of the appellant No. 2 and noticed nonpayment
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of contribution of the ESI amount. By communication
dated 30th July, 1993, the respondent directed payment
of certain amounts towards contribution of the ESI.
The appellant No. 2 raised certain objections vide
communication dated 11th August, 1992. It was
asserted that the construction work at the factory was
carried out by contractors and the employees engaged
for said work were under the domain of such
contractors. It was contended that the appellant No.
2 was not the principal employer in relation to those
employees who worked for the construction work. The
respondent No. 2 – the Recovery Officer, by order
dated
6th August, 1993, called upon the appellant No.
2 to pay an amount of Rs. 42,56,927/- towards the ESI
contribution. The appellant No. 2 informed, vide
letter dated 19th August, 1993, that there was
exemption available from payment of the ESI
contribution with effect from 1st February, 1996 in
accordance with the Government Notification dated 28th
April, 1992 and, therefore, urged for withdrawal of
the notice of recovery. Subsequently, by order dated
12-11-1993, again the respondent called upon the
appellant No. 2 to make payment of Rs. 5,19,337/-
which was finally determined and that of interest
amount of Rs. 22,839/-, for period till end of
December, 1993.
4. Being aggrieved by the said order and the
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communication pertaining to recovery of ESI
contribution, the appellants filed an application
before the Industrial Tribunal seeking quashing of the
recovery order and the demand notice issued by the
respondents.
5. By their written statement (Exh-10), the
respondents resisted the application. They asserted
that the exemption granted vide notification referred
by the appellants is only limited to the extent of the
Head Office at Mumbai and it does not cover the
factory unit at Aurangabad. They contended that the
factory
unit at Aurangabad is a separate legal entity
and is liable to contribute towards the ESI
contribution in respect of the employees working on
its Establishment. They came out with a case that the
appellants have attempted to misconstrue the
Government Notification. They, therefore, supported
the order issued in respect of recovery of the ESI
contribution amount. It is the case of the respondent
that a separate Code was assigned to the appellant No.
2 and the appellant No. 2 was required to furnish
details of the wages and deductions of the ESI
contribution. The appellant No. 2 did not submit
proper returns. The appellant No. 2 had paid certain
contribution amount in the past but failed to pay such
amounts as required under section 40 of the ESI Act.
They contended that the application is devoid of
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substance and, therefore, liable to be dismissed.
6. The learned Member of the Industrial Court
framed issues below Exh-2. The appellants did not
adduce any oral evidence. The respondents filed
affidavit of DW Madhav Tukaram Kawade in support of
defence. He is Insurance Inspector. He was subjected
to cross-examination during trial.
7. Heard learned counsel for the parties.
8. Before I embark upon the exercise of examining
legal
aspects of the matter, it would be appropriate
to deal with the legal status of the appellants. The
appellant No. 1 is Marketing Federation duly
registered under the Maharashtra Cooperative Societies
Act, 1960. The appellant No. 1 is the Apex body of
several units, including the appellant No. 2, which
are affiliated to it. The appellant No. 1 and other
affiliated units work in a league. There is a Joint
45th Annual Report for 2003-2004 placed on record. A
bare perusal of the Annual Report reveals that the
financial transactions of the appellants alongwith
other units, which are affiliated to the appellant No.
1, have been included in the Report. The appellant
No. 1 is the controlling body of all the units of the
Marketing Federation. The appellant No. 1 is having
financial control over the units. Needless to say,
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the appellant No. 1 has financial and administrative
control over the other units of the appellant No. 1.
The appellant No. 1 and other units may be of the
factory which manufactures cattlefeed in the name and
style “Vaibhav Pashu Khadya” or may be the factory
which manufactures granulated fertilizers in the name
and style “Bhagirath Danedar Mishra Khat” are
functional at different places, but are annexed to the
apex body i.e. the appellant No. 1 for the purpose
of financial and administrative control.
9. Mr. V.D. Sonawane, learned counsel for the
respondents, strenuously argued that the appellant No.
2 is completely separate entity and is responsible for
the internal affairs of the factory unit at Aurangabad
and, therefore, cannot claim exemption from payment of
ESI contribution only because the Government
Notification provides such kind of exemption to the
Head Office at Mumbai. He would further submit that
when the separate Code number was assigned to the
appellant No. 2 after due inquiry, as contemplated
under the ESI Regulation No. 10B, now it is not open
to the appellant No. 2 to turn volte-face and claim
such exemption. He would submit that the appellant
No. 2 never made representation for such exemption
under the Government Notification and made no efforts
to ask for exemption as provided under the law. He
would point out that previously, the appellant No. 2
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had paid the contribution in respect of the ESI
contribution. According to Mr. Sonawane, the
appellant No. 2 acquiesced the legal position in view
of the payment for subsequent period. Hence, he urged
for dismissal of the appeal.
10. The expression “Federal Society” is defined
under section 2 (13) of the Maharashtra Cooperative
Societies Act, 1960. There is no dispute about the
fact that both the appellants are registered
Cooperative Societies under the provisions of the
Maharashtra Cooperative Societies Act, 1960. The
expression
“Federal Society” is defined under section
2 (13) with reference to the federation of societies
dealing in various kinds of business. The provision
reads as follows :
“2(13) ‘federal society’ means a society –
(a) not less than five members of which
are themselves societies, and
(b) in which the voting rights are so
regulated that the members which are societies
have not less than four -fifths of the total
number of votes in the general meeting of such
society;”
11. The State Government has notified certain
classes of the societies. One of the classes of such
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federal society is the Maharashtra State Cooperative
Marketing Society, which includes –
(i) Agricultural Marketing Societies;
(ii) Agricultural Processing Societies
other than sugar factories; and
(iii) Non-credit resources societies.
12. It would be manifestly clear that the
Maharashtra State Cooperative Marketing Society would
include the above three (3) kinds of the societies
dealing in the activities, which are envisaged under
sub-category
ig (i) to (iii). Section 90 of the
Maharashtra Cooperative Societies Act, 1960 lays down
the power to levy supervision charges on constitution
of a Federal Authority as recognized under the Act.
The vires of Section 90 was subject matter of
challenge in "Shetkari
Shetkari Sahakari Ginning and Oil Mills
Society Ltd., Katol, District Nagpur v. State of
Maharashtra and another”, 2005 (4) Mah.L.J. 319.
319 It
has been held that Section 90 is not ultra vires to
the provisions of the Maharashtra Cooperative
Societies Act.
13. The meaning of the word "federal" in the
context of the structure of the appellants need to be
ascertained. The Black's Law Dictionary defines the
word “federation” as stated below :
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“Federation. A joining together of states or
nations in a league or association, the league
itself.”
14. The word “Federation” is defined in the Law of
Lexicon as follows :
“Federation. Government based on federal
principles; group of states for political
purposes; federated society. It is
Federation of various States, which were
designated under the constitution for the
purpose of efficient administration and
governance of the country. A Union of
societies or organisations; a political unit
with a central government and consisting of
several States each of which claims control of
its internal affairs.”
15. Mr. Sonawane invited my attention to the
decision of a Division Bench of Madras High Court in
“M.
M. Karunnanidhi v. The Union of India” AIR 1977
MADRAS 192.
192 A Division Bench of Madras High Court
considered legal import of the expression
“”federation” in the context of the subject matter of
challenge in respect of notification issued by the
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Department of Personnel and Administration Reforms,
Government of India, under section 3 of the
Commissions of Inquiry Act, 1952. It would be
appropriate to refer to certain observations of the
learned Judges of the Division Bench in this context.
It is observed :
“We feel that the words ‘federation’,
‘autonomy’ and ‘federating States’ have
varying meanings and what a particular word
means will depend upon the context. For
example, there may be a federation of
independent States, as it is in the case of
United States of America. As the name itself
denotes, it is a union of States, either by
treaty or by legislation by the concerned
States. In those cases, the federating units
gave certain powers to the federal Government
and retained some. To apply the meaning of
the word ‘federation’ or ‘autonomy’ used in
the context of the American Constitution, to
our Constitution will be totally misleading.”
16. The concept of ‘federalism’ in relation to the
Central Government and State Government would defer
from one nation to another. The concept of
‘federation of cooperative societies’ will also vary
from one kind of the organisation to another,
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depending upon nature of functioning and the
supervisory powers available to the Apex Body. In the
present case, it is explicit that various Cooperative
Societies work in a league and their financial control
is with the appellant No. 1. Not only that, all the
units are jointly assessed for their performance. A
Joint Annual Report is submitted in respect of the
financial activities of all the units including that
of the appellant No. 2. The appellant No. 1 and all
the other units work in a league. To put it
differently, it may be said that the appellant No. 1
and other units like the appellant No. 2 form a chain
of business
notwithstanding the fact that their
activities are multifarious.
17. Though the appellant No. 2 might have paid
contribution afterwards for certain period, yet, it
would not cause estoppel by conduct when the legal
plea of exemption is put forth in view of the
Government Notification referred by the appellants.
The Government Notification relied upon by the
appellants (P-17) purports to show that in the
exercise of powers conferred under section 88 read
with section 91A of the ESI Act, the State Government
has exempted “the persons employed in the
establishments of Maharashtra State Cooperative
Marketing Federation Limited, Kanmoor House, Narsi
Mehta, Bombay 400009” from the operation of the
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provisions of the said Act. The prior notification
dated 28th April, 1992 (P-15) purports to show that
the exemption was granted prospectively upto 31st
March, 1993. Significantly, the State Government is
empowered to grant such exemption in an appropriate
case under sections 87 and 88 of the ESI Act. Section
88 reads as follows :
“88.
88. Exemption of persons or class of
persons The appropriate Government
may, by notification in the Official Gazette
and subject to such conditions as it may deem
fit
to impose, exempt any person or class of
persons employed in any factory or
establishment or class of factories or
establishments to which this Act applies from
the operation of this Act.”
18. A plain reading of section 88 would make it
amply clear that the State Government is empowered to
exempt “class of persons employed in any factory or
establishment, or class of factories or
establishments, to which the Act is applicable.” It
does not restrict application of the exemption to a
particular place. Section 88 does not refer to a
place pertaining to exemption. However, section 87
refers to the exemption in respect of any specific
area.
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19. The scheme of the ESI Act, 1948 is elaborately
discussed and stated in “Transport
Transport Corporation of
India v. Employees’ State Insurance Corporation &
another” 2001 I CLR 38.
38 The Apex Court held that once
it is found that the employees of the branch office of
an Undertaking dealing in transport of goods are doing
the same work which is the main work of the principal
establishment at the main office covered by the
exemption, then the exemption would be available to
such a branch office too. The Apex Court observed :
“In
our view, the aforesaid observations on
the scheme of the Act for covering the
activities of head office and branches of the
establishment are well sustained. In the
light of the statutory scheme envisaged
thereunder, there is no escape from the
conclusion that each branch, having functional
integrality and being under the direct
supervision and control of the parent office,
would be part and parcel of the main
establishment and all such branches have to be
treated as miniatures of the main office. They
cannot be considered as separate independent
entities on the factual data in the present
case on which there is no dispute between the
parties. As discussed by us earlier there is
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branch is an appendage and part and parcel of
the main establishment at Secunderabad and is
almost a shortened mirror image thereof.”
20. Mr. Upadhye also seeks to rely on “M/s
M/s
Southern Agencies, Rajamundry vs. Andhra Pradesh
Employees’ State Insurance Corporation” 2001 (88) FLR
347.
347 It has been held that the administrative office
is nothing but a controlling office to supervise the
sales and would fall within the definition of
expression ‘shop’.
21. Mr. Sonawane relied upon certain observations
in "All
All India I.T.D.C. Employees' Union vs.
Employees’ State Insurance Corporatin and others” 2000
(84) FLR 869.
869 The Apex Court held that remedy by way
of writ petition was not proper since the dispute
could be resolved by filing an application under
section 91 of the ESI Act. With due respect, this
authority has no bearing on the issue involved in the
present case.
22. A cumulative consideration of the relevant
aspects would make it manifest that the appellants
work conjointly and are members of a league formulated
under the provisions of the Maharashtra Cooperative
Societies Act, 1960. One can not be oblivious of the
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intention of the legislature in enacting the
Maharashtra Cooperative Societies Act. The internal
cooperation and the motto “all for one and one for
all” is the backbone of the cooperative movement. It
is of common knowledge that the Government is expected
to endeavour for giving booster dose to the
cooperative movement in the State. The exemption
granted from the operation of the ESI Act is one kind
of the endeavour of the State Government to give
helping hand to the appellants. It is within the
powers of the State Government to grant exemption from
operation of the ESI Act. There cannot be duality of
opinion that
the ESI Act is a social beneficial
legislation. At the same time, in parallel field, the
cooperative sector also is being given due support by
way of subsidies or exemptions as permissible under
the Government policies. It is also a social welfare
legislation. In keeping with such intention of the
Government while issuing notification in question, I
am of the opinion that mere reference in the
Government Notification that it would be applicable to
the appellant No. 1, with reference to the address
given of the Head Office, would not disentitle the
appellant No. 2 from claiming such exemption. Nor
the fact that in the past contribution of the E.S.I.
amount was made by the appellant No. 2 will operate
as estoppel from seeking exemption from legal
liability to pay the same. It cannot be said that the
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appellant No. 2 is a completely separate and
segregated unit without having any nexus with the
business of the appellant No. 1. Taking a composite
view of the financial activities of the appellants and
the fact that they are in league with each other in
the cooperative business, I have no hesitation in
holding that the exemption granted under the
Government Notification, referred to hereinabove,
would be equally available to the appellant No. 2
likewise that of the appellant No. 1. In this view
of the matter, the impugned judgement is quite
unsustainable and will have to be set aside.
23. In the result, the appeal is allowed. The
impugned judgement is set aside. The recovery
orders/certificate challenged by the appellants is
quashed and the application filed by them be deemed as
allowed. No costs.
[ V.R. KINGAONKAR ]
JUDGE
NPJ/FA1557-07
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