IN THE HIGH COURT OF KERALA AT ERNAKULAM
MFA No. 565 of 1996
1. VRINDAVAN HOTELS (P) LTD.
... Petitioner
Vs
1. E.S.I. CORPN.
... Respondent
For Petitioner :SRI.M.V.JOSEPH
For Respondent :SRI.TPM.IBRAHIM KHAN
The Hon'ble MR. Justice K.A.ABDUL GAFOOR
The Hon'ble MR. Justice K.M.JOSEPH
Dated : 14/06/2005
O R D E R
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K.A. ABDUL GAFOOR & @@
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K.M.JOSEPH, JJ.@@
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M.F.A.No.565 of 1996 E@@
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Dated this the 14th day of June, 2005.@@
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JUDGMENT@@
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.HE 1
Abdul Gafoor, J.@@
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A private limited company is the appellant. It
came into existence on 1.2.1994. It is a company
engaged in a family business of conducting hotel. Even
before the formation of the company, the hotel business
was being conducted. There was a restaurant and a bar
attached to the hotel by name Dwaraka Hotel. As
regards the coverage of the employees engaged in the
hotel including the bar, there were disputes including
as to whether bar was a different establishment.
Finally, the matter went up to the Supreme Court and
the employer could not succeed. Later, the employer
filed an application seeking de-coverage from the Act
from 1.10.1989. That was not accepted by the
Employees’ State Insurance Corporation on the ground
that bar and restaurant were part and parcel of the
hotel business. It was thereafter the company was
formed with the name “Vrindavan Hotels Limited”. The
restaurant facility available in the hotel was being
run by a lessee, who had been employing his own
workmen. In spite of that, the Employees’ State
Insurance Corporation clubbed the lodge as well as the
restaurant together for the purpose of coverage and
issued Ext.C18 notice of assessment and Ext.C19
recovery notice. It was in the above circumstances,
the employer filed an application before the Employees’
Insurance Court for a declaration that his
establishment became de-covered from the purview of the
E.S.I.Scheme with effect from 1.10.1998. Taking into
account the history of the establishment it was
contended that the restaurant was an inseparable part
of the hotel business of the company that the lodge and
restaurant were integral part and that the employees in
both the sections have to be taken together for the
purpose of coverage under the Act and the Scheme. In
support of this contention, the ESI Corporation relied
on the memorandum of association of the company wherein
one among the main objects was to carry on business of
the restaurant as well.
2. Appreciating this contention and the
evidence on record, the EI court found that the lessee
was really an agent of the company and therefore, the
restaurant was not a separate establishment and the
employees in both the sections have to be taken for the
purpose of coverage under the ESI scheme. This is
under challenge in this appeal at the instance of that
company.
3. It is contended by the appellant that
though the memorandum of association contains that the
company does have an object of conducting restaurant,
it is not obligatory always to conduct the restaurant.
It can also lease out the space in its ownership to
another to conduct the restaurant on lease basis and
really a lease deed was executed as is revealed by
Ext.D3. It provided that the lessee has to arrange his
own workmen. Therefore the lessee is the employer and
not the company – the lessor.
4. In support of this contention, a decision
of the Andhra Pradesh High Court reported in K.V.Ratnam@@
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v. Government of India and another {1987 Lab.I.C.1288}@@
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is relied on. Another decision of this court in
K.C.Thomas v. Regional Director, ESI Corporation@@
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{1997(1) K.L.J 321}is also relied on. It is further@@
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contended that there ought to have been a show cause
notice under Section 45(a) of the Employees’ State
Insurance Act, 1948 before determination. Therefore,
the recovery, without such show cause notice and
hearing is illegal. Reliance is much placed on the
decision reported in Fenner Garments v. E.S.I.C.,@@
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Madras {1994(2) LLJ 754}.@@
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5. On the other hand, it is submitted by the
E.S.I.Corporation that the restaurant is an integral
part of the hotel business of the appellant. Merely
because a lease arrangement is made between the
parties, it will not make it a different establishment
having a distinct entity. Even in the lease deed
Ext.D3, the appellant company is insisting about
employment of necessary persons and running the
restaurant in a proper manner. That itself is
sufficient to make it clear that restaurant is not a
separate business of the company. The lessee is none
other than the husband of one among the major share
holders in the company. Much reliance is placed on the
decision reported in Madona Textiles v.@@
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E.S.I.Corporation {20002 (2) K.L.T. 741}. There is@@
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unity of ownership, management and control and unity of
employment and with its functional integrity and unity,
the lodging house as well as the restaurant shall have
to be taken as joint establishment run by the company.
When it is viewed so, the number of employees will be
more than 20 resulting in coverage. So, there is no
reason to interfere with the impugned order.
6. Ext.D3 is a lease deed even admittedly by
the respondent. Merely because the lessor had insisted
proper running of the restaurant after employing the
necessary workmen by the lessee, it cannot be taken
that the restaurant is under the same management of the
company. Of course, the decision in K.C.Thomas’s@@
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case{1997(1) K.L.J.321} relied on by the appellant does@@
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not have application to the facts of this case. It is
regarding leasing out a factory altogether to a lessee
whereby the owner will cease to become liable to pay
contribution. But the fact situation in the decision
of the Andhra Pradesh High Court in Ratnam’s case is@@
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similar to the one arising on the case on hand. In
Ratnam’s case, there was a lodge and a restaurant and@@
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the restaurant was leased out to a different person.
Considering such a situation, the Andhra Pradesh High
Court held that:
“To attract the application of the act in@@
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respect of the employees engaged in the
restaurant section being clubbed with the
employees engaged in the lodging section, these
two in my judgment are different and
independent establishments and, therefore, for
each establishment the criteria laid down under
the Act will have to be satisfied before
attracting the application of the Act.”
Merely because the lessee is the husband of one among
the major share holders of the company, it cannot be
taken that the restaurant is a part of the same
establishment as the lodge run by the company.
7. It is true that the running of the
restaurant is also one of the main objects of the
company as per the memorandum of association. But that
does not mean that the company shall always run the
establishments and businesses mentioned in the
memorandum of association. Even if sufficient space is
owned by the company to do such business, nothing
prevents the company from leasing out the premises for
doing some other business. Therefore, the stipulation
in the memorandum of association of the company cannot
go against the contention of the company.
8. In such circumstances, we are inclined to
accept the view taken by the Andhra Pradesh High Court
to hold that the restaurant run on lease basis has to
be taken as a separate establishment and the employees
therein cannot be clubbed to the employees in the
lodging house to decide coverage. The decision in
Madona Textiles cited by the respondents do not have@@
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any application to the facts situation of this case.
There is no unity of ownership, management and the
company does not have control in that business, as the
restaurant is run, based on a lease by a different
person. It has to be managed by the lessee and the
employees are to be controlled by him and the lessor
does not have any role in that regard. So, there is no
functional integrity even.
Accordingly the appeal is allowed and the order
under challenge is set aside. No costs.
.SP 1
.JN
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JUDGE.@@
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(K.M.JOSEPH)@@
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sk/-
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K.A.ABDUL GAFOOR &@@
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K.M.JOSEPH, JJ.@@
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M.F.A.No.565 of 1996 E@@
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JUDGMENT@@
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14th June, 2005.@@
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