FA 517.06.odt 1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR
FIRST APPEAL NO.517 OF 2006
Employees State Insurance Corporation,
Panch Deep Bhawan, Ganeshpeth,
Nagpur. .. APPELLANT
(Original Respondent)
.. VERSUS ..
The Central India Institute of Medical
Sciences, 88/2, Bajaj Nagar,
Nagpur. .. RESPONDENT
(Original Applicant)
..........
Mrs. Bharti Maldhure, Advocate for Appellant,
Shri Sharad Bhattad, Advocate for Respondent.
..........
CORAM : KUM. INDIRA JAIN, J.
DATED : AUGUST 24, 2017.
ORAL JUDGMENT This appeal takes an exception to the order dated 24.4.2006 passed by the Employees State Insurance Court, Nagpur (for short "ESI Court") in Application (ESI) No.3/1999. By the said order, ESI Court allowed the application under Section 75 of the Employees State Insurance Act, 1948 (for ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 2 short ESI Act) filed by respondent and set aside the communication issued by appellant informing respondent that institute of respondent falls within the coverage of provisions of the Employees State Insurance Act, 1948. 2] By the order dated 14.11.2006, this court framed the following substantial question of law :
"Whether the respondent Hospital which is having a Pathological Laboratory caters to the needs of outsiders as well as the indoor patients, is a Factory within the meaning of Section 2 (12) (a) of the Employees State Insurance Act, 1948.?
3] The factual backdrop of the case relevant for the purpose of disposing of this appeal may be stated thus :
(i) Respondent is a Scientific Research Institute registered under the Societies Act, 1879 and also registered as Charitable Trust under the Bombay Trust Act, 1950. Respondent carries out research activities and runs a hospital for indoor and outdoor treatment. The hospital is having four departments (a) Radiology and Cath Department (b) Cardial Labs (c) Neurophysology Labs and
(d) Pathology and Biochemistry. In Pathology and Biochemistry department various tests are carried out for diagnostic purposes. According to respondent, the institute ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 3 is highly sophisticated research institute in Central India and recognized by Government of India, Ministry of Science and Technology, New Delhi as Scientific Research Organisation.
(ii) On 6.7.1998, Insurance Inspector visited the hospital run by respondent. After inspection, he had drawn the observation-sheet. Respondent received communication dated 18.8.1998 informing that the hospital has been provisionally covered under the ESI Act and the scheme framed thereunder. Respondent was allotted Code number by the said communication and was called upon to submit the prescribed form immediately.
4] Respondent replied the communication on 21.9.1998 and informed the appellant that in view of the notification pathological laboratory has been exempted from the coverage of ESI Act. Reliance was also placed on the judgment of the Hon'ble Supreme Court in case of International Ore and Fertilizers India (Private) Limited .vs. Employees State Insurance Commissioner, New Delhi. By the said reply, respondent requested for an opportunity of personal hearing. No response was received on the reply submitted by the respondent.
::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 4 5] Vide letter dated 18.2.1999, Employees State Insurance Corporation again reiterated the provisional coverage of respondent's establishment under the ESI Act. The said action of Employees State Insurance Commissioner was challenged by the institute under Section 75 of the ESI Act before the ESI Court.
6] Application was resisted by Employees State Insurance Commissioner vide written statement Exh.10. It is pleaded that department of radiology and pathology are meant for indoor and outdoor patients. The total strength of these two departments was twenty employees, seven in radiology and thirteen in pathology departments. It was submitted that the establishment was covered under the notification and as a 'factory' under Section 2 (12) (a) of the ESI Act. The contention was that pathology department carried on activities of blood tapping, collecting cross- machine and bottling with the aid of power. These activities would amount to manufacturing and, therefore, departments are covered under the provisions of ESI Act. ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 5 7] Based on the above pleadings, following issues came to be framed by the court :
Sr.No. Issues Findings (a) Does the applicant prove that the order Yes.
of coverage dated 18.8.1998 is liable to be quashed.?
(b) Whether the applicant is not liable Yes.
to be covered under ESI Act and Rules and Regulations framed thereunder.?
(c) Whether the Code No.23/3836/90 Yes.
is liable to be quashed.?
(d) To what relief the applicant is As per final
entitled ? order.
(e) What order ? As per final
order.
8] To substantiate their pleadings, institute examined
AW-1 Dr. Girdhar s/o Madangopalji Taori and Employees State Insurance Commissioner examined Shri B.P. Pande, Insurance Inspector. Both placed reliance on the documentary evidence too.
9] The ESI Court, on appreciation of evidence both oral and documentary, came to the conclusion as follows :
(1) Applicant is a scientific research institute working on the principles of charity.
(2) Pathological Laboratory is meant for the hospital.::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 6
(3) Pathological Laboratory is exempted by Circular, dated 6.1.1989.
(4) The letter/order of coverage dated 18.8.1998 is against the circular issued by the department.
(5) The institution does not fall within the purview of Section 2 (12) (a) of the ESI Act and is not coverable.
(6) The order of provisional coverage with provisional code number is not sustainable.
10] On the basis of above conclusion ESI Court allowed the application under Section 75 of the ESI Act and set aside the communication dated 18.8.1998. Aggrieved thereby, Employees State Insurance Commissioner preferred the present appeal.
11] Mrs. Bharti Maldhure, learned counsel appearing for appellant submits that circular dated 6.1.1989 is not applicable to the factory as the same is in respect of shop. The submission is that in case of factory, no such exemption from the coverage of the provisions of ESI Act is available to the respondent and the court has wrongly observed that respondent-institute is exempted in view of circular dated 6.1.1989.
::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 7 12] Another submission of the learned counsel is that controversy is squarely covered by the judgment of Division Bench of Calcutta High Court in Employees' State Insurance Corporation and others .vs. Duncan Gleneagles Hospital Limited and another [2005 (106) FLR 1029] in which the Division has held that as soon as it is established that laboratory attached to a hospital caters to the needs of the outsiders other than the patients admitted in the hospital, application of the ESI Act cannot be overruled. 13] According to the learned counsel, the witness examined on behalf of the institute has admitted in unequivocal terms that blood testing particularly of blood gases was carried by the applicant institute in emergency cases and the testing was made with charges as or equal the charges for the indoor patient. On the basis of these admissions elicited in the cross-examination of AW-1, learned counsel submits that the activities on the basis of which diagnosis was made would come within the definition of 'manufacturing process' defined under Section 2 (k) of the Factories Act, 1948 and the institute being a 'factory' under section 2 (12) (a) of the Act would be covered by the ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 8 provisions of ESI Act. She further submits that since the respondent is undertaking all such activities, communication dated 18.8.1998 was rightly issued by appellant- Corporation. A grievance is made that by placing reliance on the circular which is not at all applicable to the present case and ignoring the principles laid down by the Division Bench of Calcutta High Court, ESI Court came to the wrong conclusion that the respondent-institute is exempted from the coverage of the provisions of the ESI Act. 14] Per contra, Shri Bhattad, learned counsel appearing for respondent submits that the activities carried on by the institute is limited. The same is restricted to testing of blood and giving the report as per the blood examination. Learned counsel submits that the issue before the Calcutta High Court was basically in respect of blood bank and, therefore, even in view of the observations of the Division Bench, respondent institute would be exempted from the purview of ESI Act. Referring to the observations of the Division Bench in paragraph 8, learned counsel submitted that pathological tests carried on by a laboratory attached to a hospital would not amount to a manufacturing process for the purpose of attracting the application of the ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 9 ESI Act.
15] The next submission of the learned counsel for the respondent is based on the definition of "Factory" in Section 2 (12) of the ESI Act and "Manufacturing process" under Section 2 (k) of the Factories Act. It is submitted that in the absence of tapping or storing of blood or selling, it cannot be said that respondent-institute is carrying on manufacturing process and in the absence of manufacturing process, the institute will not come within the definition of factory under Section 2 (12) of the ESI Act. In support of the submissions, learned counsel placed reliance on :
(i) Dr. P.S.S. Sundar Rao .vs. The Inspector of Factories [1985) LAB.I.C. 555.
(ii) Christian Medical College .vs. Employees' State Insurance Corporation [(2001) 1 SCC 256]
(iii) Employees' State Insurance Corporation and others .vs. Duncan Gleneagles Hospital Limited and another [2005 LAB.I.C.2118]
(iv) Indraprastha Medical Corporation Limited .vs. NCT of Delhi and others [2006-II-LLJ, 231]
(v) Vijaya Diagnostic Centre and another .vs.
Employees' State Insurance Corporation, Hyderabad [2006-II-LLJ, 443] ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 10 16] In order to ascertain whether activities carried on by pathological laboratory of the respondent-institute is covered by the ESI Act, one has to see in the light of the judgment of the Hon'ble Supreme Court in Christian Medical College (supra), whether it is a factory within the meaning of Section 2 (12) of the ESI Act and the activity carried on is a manufacturing process under Section 2 (14-AA) of the ESI Act, which provides that the term manufacturing process shall have the meaning assigned to it in the Factories Act. Section 2 (k) of the Factories Act defines the term manufacturing process. For ready reference, definition of 'factory' and 'manufacturing process' under Section 2 (12) of the ESI Act and 2 (k) of the Factories Act respectively is reproduced here as under :
"2(12) "factory" means any premises including the precincts thereof -
(a) whereon ten or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on, or
(b) whereon twenty or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power or is ordinarily so carried on. but does not include a ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 11 mine subject to the operation of the Mines Act, 1952 or a railway running shed."
Section 2(14AA) of the ESI Act provides that the term "manufacturing process" shall have the meaning assigned to it in the Factories Act.
17] Section 2 (k) of the Factories Act defines the term "manufacturing process" as follows:
"2(k) "manufacturing process" means any process for -
(i) making, altering, repairing,
ornamenting, finishing, packing, oiling,
washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to use, sale, transport, delivery or disposal, or
(ii) pumping oil, water, sewage or any other substance; or
(iii) generating, transforming or transmitting power, or
(iv) composing types for printing, printing by letter-press, lithography, photogravure or other similar process or book-
binding; or
(v) constructing, reconstructing,
repairing, refitting, finishing or breaking up ships or vessels, or
(vi) preserving or storing any article in cold-storage."
18] The Division Bench of Calcutta High Court in Employees' State Insurance Corporation and others (supra) considering the definition of factory under Section 2 (12) ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 12 and manufacturing process under Section 2(14-AA) of the ESI Act, held thus :
"12. "The definition of word 'manufacturing process' includes otherwise treating or adopting any article or substance with a view to its use, sale, transport, delivery or disposal. The outcome of the test is recorded through various machineries electronically operated or otherwise. In some cases, these are recorded on special kind of papers or any photo plates or X-ray plates or certain kind of devices recording ultra-sonographic tests. The process of these tests were not carried on either for making, altering repairing ornamenting, finishing or otherwise treating or adopting any article or substance, namely, the X-ray plates or the papers or the sonographic records with a view to its use, sale, transport, delivery or disposal. These articles or substance were used in aid of the process for the examination or the tests carried on. It is the report of the test, which is produced. It is the service of preparing the report or diagnosis is the services rendered. The process is not undertaken for the purpose of production of any article or substance in the form of developed X-ray films or Sonographic records or anything else. If we interpret in such a manner, in that event, even printing floppies or writing disks or typing of papers in course of any business or commerce or any office or administration would also amount to undertaking of manufacturing process since floppies, disks, Xerox and typing are undertaken for the use or disposal. But if the pathological laboratory undertakes tapping of blood and process the same and use the same for the purpose of sale or transfusion or otherwise use thereof, the same may be a manufacturing process. But the pathological tests would not amount to manufacturing process even though the production of the developed X-ray films or Sonography reports ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 13 may amount to manufacturing process otherwise in some other context. It has to be reconciled with the purpose and object for which it is being used or utilized. It is the ultimate produce that will determine the issue the process adopted for study and research in order to diagnose would not be a manufacturing process."
19] The Division Bench of Delhi High Court in case of Indraprastha Medical Corporation Limited (Supra) observed in para 20 and 21 as follows :
20. However, in our opinion, an establishment would be a factory if the main work of the establishment is the work of making, altering, repairing, finishing, packing, oiling, washing, cleaning, breaking up or generating, transforming power or composing types for printing, or preserving or storing any article in a cold storage. Such activity will come within the ambit of Section 2(k) provided it is the main activity of the establishment. For instance, if there is a laundry shop which is doing the main work of washing and cleaning clothes, it will amount to a manufacturing process because the definition of "manufacturing process" is wide enough to include washing and cleaning. Similarly, if there is power station doing the main work of generating power, or if there is cold storage doing the main work of storage of food and other articles, it will amount to a manufacturing process. However, where such activities of cleaning, washing, generating of power, preserving articles in cold storage etc., are only incidental activities, then that will not make the establishment a factory.
21. The main activity of a Hospital is to cure diseases and ailments and not to do washing, cleaning, generating, cold storage ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 14 etc. These latter are only incidental activities. In other words, to determine whether an establishment is a factory or not under Section 2(m) of the Factories Act, we have to see what is the main activity which is being conducted in the establishment. If the main activity is of repairing, washing, cleaning, power generating etc. then it will certainly be a factory, but not if that is only an incidental work.
20] The emphasis as per the observations of the Division Bench of Delhi High Court is on the main work of the establishment. The Division Bench observed that if the activity is an incidental activity, then that will not make the establishment factory.
21] The Single Bench of the Andhra Pradesh High Court in case of Vijaya Diagnostic Centre's (supra) dealing with an identical issue observed that drawing of blood sample for diagnosis did not include treating or adapting it with a view to its use, sale etc. The Court observed that in the absence of further use of blood as 'drug' by the appellants, the process resorted to by them would not amount to any 'manufacturing process' as defined in Section 2(k) of the Factories Act, 1948.
::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 15 22] The word "manufacture" has not been defined under the ESI Act. Under Section 2(14AA) of the ESI Act, it is stated that 'manufacturing process' shall have the meaning assigned to it in the Factories Act, 1948. The definition of 'manufacturing process' under Section 2(k) of the Factories Act, 1948, as reproduced above, clearly indicates that each of the words has got independent meaning and itself constitutes the manufacturing process i.e. altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing. If none of the activities are covered by these words, then the Legislature in its wisdom intended to cover any such other activities by extending the definition as otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal.
23] It is needless to state that the ultimate end of the 'manufacturing process is to yield the production. In the case on hand, pathology department of respondent is not tapping the blood for the purpose of diagnosis, not storing the same and not using the blood for sale purpose. It is not in dispute that the blood samples are collected by pathological lab, those samples are examined and the ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 16 reports are accordingly issued to the outside patients. It is not the case of appellant that respondent is collecting the blood samples with a view to its use, sale, transport, delivery or disposal. Mere receiving blood samples, examining them and issuing reports as per the examination would not amount to 'manufacturing process' as defined under Section 2(k) of the Factories Act. Learned Counsel for appellant submitted that the witness examined by respondent admitted in unequivocal terms that testing is made on charges equal to the charge for indoor patients. On the basis of this admission elicited in cross-examination of AW-1 Dr. Girdhar Taori, learned Counsel submitted that the pathological laboratory of respondent-hospital is carrying on the commercial activities by examining the blood samples and earning profit thereof. In this premise, submission is that the activities carried on by pathological laboratory/diagnostic center of respondent would fall within the definition of 'manufacturing process' under Section 2(k) of the Factories Act and the 'factory' under Section 2(12) of the ESI Act.
24] Though the submission appears to be attractive, it has no substance in view of absence of any material ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 17 indicating usage of blood for any of the purposes as defined under Section 2(k) of the Factories Act. Therefore, in view of the judgments of Calcutta High Court in Employees' State Insurance Corporation and others (supra) and of Andhra Pradesh High Court in Vijaya Diagnostic Centre and another (supra), this Court is of the opinion that process adopted and resorted by the center of respondent would not amount to any manufacturing process as defined under Section 2(k) of the Factories Act so as to cover the respondent- establishment under the ESI Act.
25] In that view of the matter, though observations made by the ESI Court regarding notification and applicability of the judgment of Subodh S. Shah and others .vs. Director, Food and Drugs, Food and Drugs Control Office, Ahmedabad and another [AIR 1997 Gujarat 83] are unsustainable, conclusion arrived at by the ESI Court appears to be correct. The order passed by ESI Court holding that the activities that are being undertaken by the respondent would not come within the meaning of 'manufacturing process', since requirement of definition of 'factory' under Section 2(12) of the ESI Act and 'manufacturing process' under Section 2(k) of the Factories ::: Uploaded on - 05/09/2017 ::: Downloaded on - 07/09/2017 00:33:30 ::: FA 517.06.odt 18 Act are not fulfilled, is legal and proper. Thus on overall scrutiny of the material, this court answers the substantial question of law accordingly and proceed to pass the following order :
ORDER
(i) First Appeal No.517/2006 stands dismissed.
(ii) No order to costs.
(Kum. Indira Jain, J.)
Gulande/Waghmare, PA
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