JUDGMENT
Tirath S. Thakure, J.
1. The short question that falls for consideration in this appeal under Section 82 of the Employees’ State Insurance Act, 1948, is whether the appellant-Bangalore Turf Club Limited is a factory within the meaning of Section 2(12) of the Act or a shop within the meaning of notification dated 5-1-1985 issued under Section 1(5) thereof. The question arises in the backdrop of the following facts:
2. The respondent-Regional Director of the ESI Corporation by an Order dated 13-10-1988 passed under Section 45-A of the Employees’ State Insurance Act, 1948, [‘ESI Act’ for short] called upon appellant-club to register its employees, submit the prescribed returns and pay ESI contribution in terms of the Act and the regulations framed thereunder. The order proceeded on the premise that the appellant-company had been established to carry on the business of a race club and providing various amenities to public as well as to the members of the club. From the audited balance-sheet, profit and loss statement and the annual report of the appellant-company, the Regional Director concluded that the company was carrying on a commercial activity with the motive of making profit and that it had established a workshop, a printing press, besides setting up refreshment stalls. The company was also found to be doing the business of selling horses by auction or lease and running a Riders Institute apart from a Stud Farm. It was also running a Rehabilitation-cum-Health Resort for the race-horses and a departmental canteen. Its income included 5% commission on betting which was collected directly as well as through the authorised bookies numbering 22 or so. Licence fees from various stalls and admission charges collected from the public also constituted the business income of the company. The respondent found that although the appellant’s name suggested that it was a club, its activities as also the amenities provided by it were not limited only to the members of the club. It was according to the Regional Director rendering services to its members and to the public directly as well as through its agents. Considering the nature of the business being conducted by the appellant, the Regional Director held that the appellant was a shop within the meaning of the notification referred to earlier.
3. Aggrieved by the order aforementioned, the appellant approached the Employees’ State Insurance Court at Bangalore under Section 75 of the Act for setting aside the order made by the respondent and for a declaration that the provisions of the ESI Act were not applicable to it. The Employees’ State Insurance Court framed three issues, recorded evidence adduced by the parties and by the order impugned in this appeal held that the appellant was a shop within the meaning of the notification issued under the Act, hence liable to make the contribution demanded by the respondent. The application filed by the appellant was accordingly dismissed. The present appeal calls in question the correctness of the said order as noticed earlier.
4. Appearing for the appellant, Mr. B.C. Prabhakar argued that the Regional Director as also the Employees’ State Insurance Court were in error in holding that the appellant-club was a shop within the meaning of the notification issued under the Act. Relying upon the decision of the Supreme Court in Dr. K.R. Lakshmanan v State of Tamil Nadu and Anr.,
he urged that horse-racing is a sport which depends entirely on the special skill and ability acquired by the horses and its rider. It is a game where the winning depends substantially upon the skill of the better trained jockey who touches the winning post before the rest. Any gaming or betting with the club is related to a game of mere skill which did not change the nature of the sporting activity that the club organised for its members or others who are granted admission on payment of an entry fee. The predominant object underlying the establishment of the club and its continuance being promotion of a recognised sport, the Regional Director as also the Employees’ State Insurance Court were in error in holding that what was going on within the club was no different from what goes on in a shop. Reliance was also placed by the learned Counsel upon a Division Bench decision of this Court in Bangalore Club v Regional Director, ESI Corporation, Bangalore,
in support of his submission that even when the catering section in a club may amount to a factory if 10 or more persons are employed in the same, yet any such catering service being incidental to the main activity of the club and not vice versa, it did not turn the main activity of the club as an activity related to a factory. The employees working in other sections of the club unrelated to the catering section could not in that view be treated as employees of a factory so as to bring the catering section under the purview of the Act. Reliance was placed by him upon the decisions of the Supreme Court in Management of Safdarjung Hospital, New Delhi v. Kuldip Singh Sethi,
, Workmen of Tirumala Tirupathi Devasthanam v. Management and Anr.,
and V. Sasidharan v. Peter and Karunakar and Ors.,
in support of his submission that it is the domi-
nant purpose of an establishment which determines whether the establishment is or is not a shop.
5. On behalf of the respondents, it was argued by Ms. Geetha Devi that the appellant was not a club in the true sense, inasmuch as its activities were not confined to or undertaken for the benefit of its members but available to the general public also. It was urged that even when horse-racing may be a sport, the same did not imply that no commercial activity relating to any such sport could be carried on either with or without a profit motive. The profit motive was in any case alien to the question whether the establishment was or was not a shop within the meaning of the Act. It was pointed out that the appellant-company had already started its contribution under the Act insofar as the printing press established by it was concerned. The Amateur’s Riders Institute established by the appellant-company had also been held to be a shop by a Single Bench of this Court in Bangalore Amateur Riders’ Institute v Regional Director, ESI Corporation, Bangalore and Anr.., ILR 2001 Kar. 3029
What remained to be covered are the employees working in other sections of the club including the catering section which was on the analogy of the decision of this Court in Bangalore Club’s case, supra, to be declared to be a ‘factory’ within the meaning of the ESI Act and a ‘shop’ within the meaning of the notification issued thereunder.
6. The appellant-club was initially incorporated in the year 1962 in the name and style of “Bangalore Race Club Limited”. Its name was later changed to “Bangalore Turf Club Limited” in the year 1967. The objects of the club are set out in its Memorandum of Association. They include among others the following:
“(a) To carry on the business of a Race Club in all its branches and in particular to lay out and prepare any lands for the running of horse-race, steeple chases or races of any other kind or any kind of athletic sports including cricket, bowls, golf, lawn tennis, polo etc.;
(b) To hold horses and other shows and exhibitions and to utilise the company’s properties and sites and to give and contribute towards prizes, cups, stakes etc.;
(c) To establish any clubs, hotels or other conveniences in connection with the company’s property;
(d) To buy, maintain and sell horses and ponies for racing, breeding and training either directly or through Riding Clubs, Studs or other agencies;
(e) To carry on any other business which may seem to the club capable of being conveniently carried on in connection with the above or calculated directly or indirectly to enhance the value of or rendering profitable any of the club’s properties or rights”.
7. It is pursuant to the above objects that the appellant has established a race-course at Bangalore and Mysore. It has in addition, set up a workshop, a printing press and refreshment stalls. The company also carries on business in the sale by auction or lease of horses and runs a Riders Institute apart from a Stud Farm which according to Mr. Prabhakar is now closed. In connection with its activities at Bangalore, the club has authorised bookies and issues licences for running of various stalls within the club premises. It also permits non-members from the public to enter the club premises and make use of the facilities available therein in regard to races being organised and betting on the same. 5% commission on the betting amount collected by the bookies represents one of the sources of income for the club. The fact that the printing press established by the appellant employs more than 10 persons and is also brought within the purview of the Act as also the fact that the Riders Institute has been held to be a shop are not in dispute.
8. From the statement made by Sri D. Bhaskar, A.W. 1 before the Employees’ State Insurance Court, it is evident that the appellant-club had employed in all nearly 300 employees while the total membership is limited to 350 members only. The witness has stated that the source of income for the Bangalore Turf Club is the gate collection and the commission on the amount collected in betting. The witness has further stated that during the relevant period, the appellant was carrying on some activity of selling of horses under auction sales although the same was not a regular activity. In cross-examination, the witness states that apart from a refreshment centre located inside the club premises, there is an evening bar also. The evening bar remains open throughout the year while the refreshment centre available to the members are open only during the time the races are conducted. The witness goes on to state that the club was running on a profit.
9. It is in the context of the facts that emerge from the record that the question whether the appellant is either a factory or a shop within the meaning of the provisions of the ESI Act, 1948, has to be considered. It is for that purpose necessary to look to the objects underlying the Act and the provisions contained therein. The Act it is evident from a plain reading of the preamble meant to provide certain benefits to the employees working in factories and other notified establishments in regard to sickness, maternity and employment etc. The legislation, there is no gainsaid, is beneficial in nature. The provisions contained therein shall therefore have to be given a liberal interpretation so as to promote rather than impede the attainment of objects underlying the same. That is precisely how the Courts in this Country have approached the legislation while interpreting different provisions contained therein.
10. Let us now examine as to what would constitute a factory within the meaning of the Act or a shop within the meaning of the notification issued thereunder. The term ‘factory’ has been comprehensively defined by Section 2(12) of the ESI Act. The interpretation of that expression does not present much difficulty. We shall presently advert to that aspect in the context of what the Courts have held insofar as catering
sections of membership clubs. Before we do so, it is pertinent to examine the true import of the term ‘shop’ as used in the notification issued under the ESI Act. The said term has come up for interpretation before the Supreme Court on more than one occasion. In Hindu Jea Band, Jaipur v. Regional Director, Employees’ State Insurance Corporation, Jaipur,
the Supreme Court held that a place where goods are sold alone is not a shop. A place where services are sold on retail basis is also a shop. The place of business of a firm which arranges music on occasions, such as, marriages and other social functions on payment of a stipulated price by engaging the services of the members of a group of musicians employed by it, was held to be a shop within the meaning of the notification.
11. In International Ore and Fertilizers (India) Private Limited v. Employees’ State Insurance Corporation,
the company was carrying on business of importing fertilizers and represented certain foreign principles for the sale of their products in India. Sales were finalised at its Central Office but actual clearing of shipments and delivery of goods were handled by its branch offices. More than 20 persons were employed at the Central Office of the company. The question arose whether the Central Office was a shop. It was answered in the affirmative and the Central Office of the company held to be a shop. The Court observed that it was not necessary that the delivery of goods to the purchaser should take place at the premises in which the business of buying and selling is carried on, for delivery of goods to the purchaser is only one aspect of a trading activity. Negotiations for sale, survey of goods imported and arrangement of delivery of the goods sold, collection of the prices of the goods sold were all held to be trading activities which made the Central Office of the company a shop.
12. To the same effect is the decision of the Supreme Court in Cochin Shipping Company v. E.S.I. Corporation,
where the Court rejected the argument that just because other establishments which are akin to a shop are enumerated in the notification, the Court should give a narrow meaning to the word “shop” or dilute the meaning to be attached to that expression. An establishment carrying on business as a clearing and forwarding agent was held to be amenable to the provisions of the Act.
13. Reference may also be made to the decision of the Supreme Court
in Employees’ State Insurance Corporation v. R.K. Swamy and Ors.,
where the Court declared an advertising agency engaged in selling its
expert services to clients in launching an effective advertising campaign
for its products to be a shop. The Court held that the service rendered by
an advertising agency could also constitute a sale and the premises from
where the service is offered a ‘shop’ if the activity was a systematic
commercial activity. ___
14. We may now refer to a few decisions that specifically deal with the question whether sporting or other clubs can be treated as a shop, factory or an industrial establishment for purposes of different enactments. In Cricket Club of India v. Bombay Labour Union and Anr., the Supreme Court had taken the view that a club was not an industry within the meaning of Industrial Disputes Act. That view was reversed by a Constitution Bench of the Apex Court in Bangalore Water Supply and Sewerage Board v. A. Rajappa and Ors. .
The Court declared that promotion of sports and games was by itself no reason for excluding an organisation whic’h carried on such games from being an industry if all the necessary ingredients were present. The view taken in Cricket Club of India’s case, supra, was held to be erroneous in the following words:
“It is a huge undertaking with activities wide-ranging, with big budgets, array of staff and profit making adventures. Indeed, the members share is the gains of these adventures by getting money’s worth by cheaper accommodation, free or low priced tickets for entertainment and concessional refreshments; and yet Bhargava, J., speaking for the Court held this mammoth industry a non-industry. Why? Is the promotion of sports and games by itself a legal reason for excluding the organisation from the category of industries if all the necessary ingredients are present? Is the fact that the residential facility is exclusive for members an exemptive factor? Do not the members share in the profits through the invisible process of lower charges? When all these services are rendered by hired employees, how can the nature of the activity be described as self-service, without taking liberty with reality? A number of utilities which have money’s worth, are derived by the members. An indefinite section of the community entering as the guests of the members also share in these services. The testimony of the activities can leave none in doubt that this colossal ‘club’ is a vibrant collective undertaking which offers goods and services to a section of the community for payment and there is co-operation between employer and employees in this project. The plea of non-industry is unpresentable and exclusion is possible only by straining law to snapping point to salvage a certain class of socialite establishments. Presbyter is only priest writ large. Club is industry manu brevi”.
(emphasis supplied)
15. Following the above decision, a Single Bench of the Bombay High Court has in Cricket Club of India Limited and Ors. v. ESI Corporation and Anr., 1993-I-LLJ-642 (Bom.)
held that the Cricket Club is amenable to the provisions of the ESI Act as it was a factory within the meaning of that enactment.
16. To the same effect is the decision of the Punjab and Haryana High Court in Employees’ State Insurance Corporation v. Jalandhar Gymkhana Club , 1993-I-LLJ-477 (P and H)
where Jalandhar Gymkhana Club was held to be a factory within the meaning of the provisions of the ESI Act.
17. In Bangalore Club’s case, supra, the question that arose for consideration was whether catering section of the club was a factory within the meaning of the ESI Act, even when it was run only for the benefit of the members of the club and even when no profit motive was behind the establishment or running of the said section, A Division Bench of this Court answered the question in the affirmative. The catering section of the club was held to be a factory within the meaning of the Act notwithstanding the fact that it was meant only to cater to the requirements of the members and was being run on a no profit no loss basis. What is important is that even when the catering section was held to be a factory, the other activities of the club were not treated as incidental to the work in the catering section. The Court declared that just because the other activities of the club were carried on in the same compound where the catering section was located, it could not be said that persons employed in those sections of the club were also employees in the catering section. The Court observed that the other employees working in other sections of the club do not come within the purview of the Act.
18. It would appear from a conspectus of the above decisions that catering sections of private clubs even when the same are run without any profit motive and even when the same are established only for the benefit of the members of the club, have been treated to be factories and the benefit of the provisions of the ESI Act extended to the employees working in the same provided the number of such employees is ten or more. The number of employees working in the catering section of the appellant-club being less than ten, Ms. Geetha Devi, learned Counsel for the respondent made a feeble attempt to argue that so long as a manufacturing activity was going on within the premises of the appellant-club, the mere fact that less than ten employees were working in connection with any such activity did not make any difference as the employees working in other sections of the club could be counted for purposes of determining whether the catering section of the appellant-club was or was not a factory. We find no merit in that contention. The reasons are not far to seek. The definition of the term “factory” as provided by Section 2(12) of the ESI Act apart, the contention that employees working in other sections of the club can also be counted as employees of the catering section is not supported even by the definition of the term “employee” as given in Section 2(9) of the Act. The term “employee” has been defined to mean any person employed for wages in or in connection with the work of a factory or an establishment to which this Act applies and who is employed in the circumstances set out in Sub-clauses (i), (ii) and (iii) to Section 2(9) of the Act. What is important is that the person is employed in a factory or in connection with the work of a factory or establishment to which the Act applies. Such employment must be for any work of the factory or establishment or inci-
dental or preliminary to or connected with such work regardless whether the work is done by the employee in the factory or establishment itself or elsewhere. The dominant purpose of the establishment must itself be that of a factory with employees discharging different duties connected with or incidental to such purpose. Employees working in a capacity which is neither incidental nor preliminary to nor even connected with the work of the factory cannot be said to be employees working in a factory. A distinction has to be made between situations where the factory itself is incidental to some other activity being carried on by the establishment and others where other activities are incidental to the factory, For instance, in the case of a club the catering section is a factory but the said factory is itself incidental to the larger or other diverse purposes for which the club has been set up. The decision in Bangalore Club’s case, supra, deals with that situation. In the second situation where the running of the factory is the main purpose even when the employees are working in different sections they will be deemed to be employees of the factory no matter they are not actually employed in the place where the manufacturing process is going on. It follows that the employees working in other sections of the club cannot be said to be employees working in a factory or doing any work which is preliminary or incidental to any such factory. Since the number of employees working in the catering section is admittedly less than 10, the catering section cannot in itself be a factory within the meaning of the ESI Act.
19. The nature of the activities that the club carries on however sufficiently indicates that the activities are in no way different from those involving sale of services to the members of the club and even to the general public in one form or the other. The Memorandum of Association of the club itself declares the objects of the club to include “carrying 6n business of a race club, conduct of horse shows and exhibitions, establishment of clubs, hotels and other conveniences and sale and purchase of ponies for racing, breeding and training etc.”. The objects underlying the incorporation of the club are therefore akin to any other business or commercial establishment. The fact that horse-racing has been recognised as a sport would not mean that the same cannot be the centre of a commercial activity or that services cannot be sold to the members of the club and even outsiders for a price. The fact that the club is not exclusive to its members assumes considerable importance in this regard. It is common ground that any member of the public can upon purchase of an entry ticket have access to the counters established within the premises of the club for betting and other purposes. The catering section of the club, sale counters established by the bookies, the area where the races are witnessed are all accessible to the non-members with a broad classification of who can sit or stand where when the races are going on. What is significant is that the club has by organising the sport of horse-racing, provided not only to its members but even to general public on payment of an entry fee services relating to such races which enables those interested in watching the races or betting in the same to avail of such services. But for the club’s foray in this area those interested in either watching the sport or participating in the same would not have had the facility to do so. While no goods may be sold by the club except in the catering section, the fact remains that the club is engaged in an organised activity pivoted around a sport which involves
sale of services to members of the club and to outsiders for a price. It is therefore reasonable to say that while the club may not be a ‘shop’ in the traditional sense it would certainly be so within the meaning of the ESI Act and the notification issued thereunder. The club has an active membership of around 300 with an organised manpower of nearly 350. That manpower is not employed only to serve the members of the club nor are the activities confined to the members only. The workforce admittedly serves the club’s interest in all its activities including the printing press, the catering section, the Amateur’s Riders Institute, the Stud Farm, the liquor bar and the race-course itself. There is no gainsaid that if the participation of the general public in the activities of the club is eliminated, the club can hardly sustain itself or carry on what is according to Mr. Prabhakar nothing but a sporting activity. It is the participation of the public who is let into the premises of the club that makes the entire venture financially viable. It is the gate money collected from the public and the commission that the club recovers from the bookies that sustain the activities of the club. The printing press established by the club and the Amateur’s Riders Institute having already been brought under the purview of the ESI Act, it is difficult to see how the reminder of the activities which constitute the main stay of the club in terms of its financial viability can be excluded.
20. We accordingly hold that the appellant-club is a ‘shop’ within the meaning of the ESI Act and the notification issued thereunder. The Employees’ State Insurance Court was therefore justified in dismissing the application filed by the club and upholding the demand raised by the Regional Director, Employees’ State Insurance Corporation.
21. There is no merit in this appeal which fails and is hereby dismissed with costs assessed at Rs. 2,000/-.
