IN THE HIGH COURT OF KERALA AT ERNAKULAM
Ins.APP.No. 4 of 2004()
1. THE REGIONAL DIRECTOR,
... Petitioner
Vs
1. CHOICE BOARDS & WOODS INDUSTRIES,
... Respondent
For Petitioner :SMT.T.D.RAJALAKSHMI
For Respondent : No Appearance
The Hon'ble MR. Justice M.N.KRISHNAN
Dated :26/05/2008
O R D E R
M.N. KRISHNAN, J.
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INS. APPL. NO. 4 OF 2004
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Dated this the 26th day of May, 2008.
J U D G M E N T
This appeal is preferred against the order of the
Industrial Tribunal, Kozhikode in EIC 36/00 whereby the said
tribunal held that the demand of Rs.17,555/- towards
contribution on omitted wages is unsustainable. It is
challenging that the present appeal is filed. Substantial
questions of law 1 and 2 are raised in this appeal and they
are as follows:
(1) Whether on the facts and circumstances
of the case and Sec.2(9) clause (ii) of the ESI Act
the Court below was right in declaring that the
demand of Rs.17,555- towards contribution on
omitted wages is unsustainable?
(2) Is not the E.I. Court bound by Sec.41 of
the ESI Act which categorically state that the
Principal employer is entitled to recover from the
immediate employer any contribution paid on behalf
of them.
INS. APPL. 4 OF 2004
-:2:-
Points 1 and 2:
2. The point that arises for determination in the
appeal is regarding the correctness of the order passed by
the Industrial Tribunal. An application was filed before the
Tribunal to hold that the claim by the Employees State
Insurance Corporation towards contribution for the work
done by a outside agency namely M/s Famous Timber
Industries is not valid. A perusal of the award would reveal
that the respondent/company herein is mainly engaged in
black board frame manufacturing. It is also submitted that
they have given some work to the other Company and
therefore the said Company will be the immediate employer
who is liable to pay and as per the provisions of S.40 of the
Employees’ State Insurance Act the principal employer is
bound to pay the contribution first and later recover it under
Sec.41 from the immediate employer.
3. The learned counsel appearing for the appellant
had drawn my attention to the definition of employee under
Section 2(9) of the Employees’ Insurance Act.
“Employee” means any person employed for
wages in or in connection with work of a factory or
INS. APPL. 4 OF 2004
-:3:-
establishment to which this Act applies and –
(i) who is directly employed by the
principal employer, or 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.”
4. In such cases under Section 40 of the Act, the
principal employer shall pay in respect of every employee,
and under Section 41 the principal employer’s right is
preserved to collect it from the immediate employer.
5. A reference to the facts in this case admittedly
would reveal that the respondent is a factory mainly dealing
with the manufacture of black boards. What it has done is to
direct M/s Famous Timber Industries to do certain works
through their employees. Now it is contended before the
Tribunal since Famous Industries is an independent firm
having independent existence the wages paid by them to the
said employees cannot be take on as the wages paid by the
respondent and therefore there cannot be any claim for
contribution.
INS. APPL. 4 OF 2004
-:4:-
6. At the first blush the argument raised by the
respondents may appear to be persuasive. But the fact
remains that it is by entrustment of the responsibility to do a
part of the work which they are expected to do with the
known firm namely M/s Famous Timber Industries, they had
done the work. When such work is not done in a satisfactory
manner there is always power left with the respondent
company herein to reject it. The definition of employee
takes in the very work done elsewhere as well and such
positions are clearly covered by Sections 40 and 41 by use of
the word direct employer and immediate employer. This
position has been considered by this Court in a decision
reported in Regional Director, E.S.I. Corporation v. Ramlal
Textiles (1990 (1) KLT 548) which has held as follows:
“Work is admittedly done by workers
engaged by the master weavers in premises
outside the establishment of the respondent.
Finished fabrics are returned to the
respondent who makes payments. Amounts
required to be paid as wages are separately
shown in the accounts. It is evident that the
master-weavers will retain their commission
INS. APPL. 4 OF 2004
-:5:-or remuneration due to them for their
investment in time. Right of rejection of
substandard cloth spells out effective degree
of supervision and control. Identical work as
is done by outside workers is done in the
premises of the factory of the respondent who
employ employees for that purpose. The
out-workers who are paid wages through
contractor are employees as defined in S.2
(9)(ii) of the Act since they do the work
which is ordinarily part of the work of the
factory of the respondent and which is
incidental to the purpose of the factory and
which is subject to the supervision of the
principal employer. This conclusion cannot
be faulted merely because respondent has
tried to camouflage the real relationship by
creating smoke-screen of sale of yarn and
purchase of woven cloth.”
7. Therefore the entire case law on the subject has
been discussed and the Court came to the conclusion that it
is done by the outside agency and when the power is there
with the principal employer to reject the work then
necessarily it will come under the ambit of the definition of
the employee under Section 2(9) of the ESI Act to which
INS. APPL. 4 OF 2004
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Sec.40 and 41 will apply. When it is so in the present case it
has to be held that the Court below has erred in giving an
interpretation that M/s Famous Timber Industries is an
independent establishment, it has nothing to do with the
principal employer. The amount has been paid to the
Famous Timber Industries for the work which was ordered to
be done by the respondent/company and therefore Famous
Timber Industries can only be considered as an immediate
employer as defined under Section 41 and the liability as
fixed in S.40 and 41 of the Act. Therefore the order under
challenge suffers from infirmity and so it is set aside and the
Employees’ State Insurance Corporation is permitted to
proceed in accordance with law for the realisation of the
amount.
M.N. KRISHNAN, JUDGE.
ul/-