The Supreme Court has recently quashed an order passed by the High Court of Allahabad stating that the employees of the Nagar Nigam are not covered under the Employees’ State Insurance Act, 1948.
A division bench of Justice B.R. Gavai and Justice Sandeep Mehta stated that rather than interfering in the matter in the exercise of the writ jurisdiction, the Nagar Nigam should have been relegated by the learned Single Judge to approach the Insurance Court by filing an application under Section 75(1)(g) of the Act of 1948.
Brief Facts of the Case:
The appellant has preferred the instant appeal with a pertinent plea that the respondent operates a Central Workshop, where activities of repairing and maintaining different types of vehicles are carried out. As per the appellant, the workshop is covered by the definition of a ‘factory’ within the meaning of the Employees State Insurance Act, 1948.
Under Section 40 of the Act of 1948, the employer is obligated to pay mandatory contributions in respect of every employee working in the factory. The respondent made these statutory contributions till the year 1978, whereafter it stopped paying without any reason. Owing to the non-payment of the statutory contributions the Authorized Officer of the appellant issued a notice to the respondent directing it to pay a fine and to appear before them. However, they neither appeared nor did they file any response to the notice. The appellant directed the Recovery Officer to recover the amount of contribution along with interest from the Respondent and this amount subsequently came to be deducted from the bank account of Respondent.
On 3rd February, 2009 the Recovery Officer issued a recovery notice to the respondent to recover damages under Section 85B of the Act of 1948. Being aggrieved by it the respondent filed a Writ before the Allahabad High Court challenging the said recovery notice and seeking a direction to restrain the appellant from realizing the amount. The learned Single Judge proceeded to allow the writ petition holding that the respondent was not covered under the Act of 1948 and as a consequence, recovery notice dated 3rd February, 2009 was quashed and the amount already realized by the appellant was directed to be refunded within three months.
Contentions of the Appellants:
The Learned counsel had placed reliance on the judgment of Employers’ State Insurance Corporation v. Kakinada Municipality and Others and stated that it fully covers the controversy involved in the present appeal. It has been clearly held that in respect of factory belonging to the local authority, unless power of exemption is exercised by the Government, it would be covered by the provisions of Section 1(4) of the Act of 1948 and thus, liable to pay contribution.
It was further contended that in order to get the exemption the respondent had to apply to the appropriate Government and procure an order of exemption and only thereafter, could it seek exemption from making payment of the employer’s contribution. The Learned counsel further urged that the ground taken in the writ petition is not applicable as in the proceeding for recovery of contribution no such plea was taken by the respondent, that the workshop is not covered by the definition of ‘factory’ or that no manufacturing process is carried out in the workshop.
The Counsel further contented that the recovery certificates dated 22nd July, 1976 was voluntarily satisfied by the respondent. However, compliance was stopped after the year 1978, without intimation to the appellant. Subsequently, rather than availing the statutory remedy under the Act of 1948, the respondent invoked the writ jurisdiction of the High Court without any justification. He thus, implored the Court to accept the appeal and set aside the impugned order of the High Court.
Contentions of the Respondents:
The Learned counsel contended that there is no material on record to show that any manufacturing activity was being undertaken in the Workshop of the respondent. The employees were occasionally assigned the task of in-house repairs of the equipment and machinery and thus, by no stretch of the imagination, can it be concluded that the workshop was a ‘factory’ within the meaning of the Act of 1948 where any manufacturing process was being undertaken.
He thus urged that the learned Single Judge of the High Court was justified in exercising the writ jurisdiction and quashing the impugned recovery notice dated 3rd February 2009 which was ex-facie unsustainable in the eyes of law. He contended that the impugned order does not suffer from any infirmity warranting interference of this Court and the appeal should be dismissed.
Observations of the Court:
The Court at the outset looked at the case of Kakinanda Municipality(supra)which has similar facts to the case at hand. After extensive consideration of the records and detailed analysis of the statutory provisions, the Court came to a conclusion that the first respondent therein (Municipality/local body) was running a ‘factory’ as defined under the Act of 1948. It was also held that the Act of 1948 applies to all factories including factories belonging to the Government other than the seasonal factories. Subsequently, neither in the pleadings of the writ petition nor in the counter affidavit filed on behalf of the respondent in this Court, is there any indication that the respondent ever sought for or was granted exemption by the appropriate Government by exercising powers under Section 90 of the Act of 1948.
The Court observed that in between 1964 to 1978, the respondent made regular contributions thereby conceding to the position that its workshop was covered under the definition of ‘factory’. If, at all, this situation had changed in the period subsequent to 1978 the respondent would be required to demonstrate the same by providing appropriate evidence to the Authorized Officer and establish that it was not covered under the definition of ‘factory’ and that no ‘manufacturing process’ was being undertaken in its premises. Examining such an issue would require the collection of evidence and the appreciation thereof. Hence, only the Insurance Court constituted under Section 74 of the Act of 1948 would be in a position to examine such disputed questions of facts. The court felt that rather than interfering in the matter in exercise of the writ jurisdiction, the respondent should have been relegated by the learned Single Judge to approach the Insurance Court.
The Decision of the Court:
The Court concluded that “In the wake of the discussion made hereinabove, we are of the opinion that the learned Single Judge of the High Court clearly erred in entertaining the writ petition and interfering with the recovery notice dated 3rd February, 2009 while exercising the extraordinary writ jurisdiction conferred under Article 226 of the Constitution of India.” In consequence, the appeal was allowed and the impugned order was quashed and set aside.
However, the court stated that the above observations shall not prejudice the rights of the Respondent to seek benefit of exemption as contemplated under Section 90 of the Act of 1948.
Case Title: The Employees State Insurance Corporation Ltd. Vs. Nagar Nigam, Allahabad and Anr., 2024 Latest Caselaw 353 SC
Case Details: Civil Appeal NO(S). 1833 OF 2024
Coram: Hon'ble Mr. Justice B.R. Gavai and Hon'ble Mr. Justice Sandeep Mehta
Citation: 2024 Latest Caselaw 353 SC
Advocates for Petitioner: Mr. Manish Kumar Saran
Read Judgement @LatestLaws.com
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