FA 280.06.odt 1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR
FIRST APPEAL NO.280 OF 2006
Employees' State Insurance Corporation,
Sub-Regional Office, Panchdeep Bhawan,
Ganeshment, Nagpur-18, through its
Assistant Director. .. APPELLANT
.. VERSUS ..
Messrs Shilpa Re-Rollers Limited,
Plot nos.2,3,4 Wanjra Layout,
Kamptee Road, Nagpur-26
through its Managing Director. .. RESPONDENT
..........
Smt. B.P. Maldhure, Advocate for Appellant,
Shri N.W. Almelkar, Advocate for Respondent.
..........
CORAM : KUM. INDIRA JAIN, J.
DATED : SEPTEMBER 26, 2017.
ORAL JUDGMENT This appeal takes an exception to the order dated 16.2.2006 passed by the Employees' State Insurance Court at Nagpur in Application (ESI) No.18/1995 thereby setting aside order dated 6.6.1995 passed by the Corporation under Section 45-A of the ESI Act.
::: Uploaded on - 04/10/2017 ::: Downloaded on - 05/10/2017 00:38:08 ::: FA 280.06.odt 2 2] Vide order dated 23.1.2007 present appeal has been admitted on the following substantial questions of law :
(i) Whether the independent contractor engaged by the respondent could fall within the definition of "Employee" under section 2 (9) (ii) of the Employees' State Insurance Act, 1948.?
(ii) Whether the amount paid to the
independent contractor towards the
cutting charges of blooms would also
include the wages as defined in section 2 (22) of the Act.?
3] For the sake of convenience parties are referred in their original status as applicant and respondent. 4] The facts giving rise to the appeal may be stated in brief as under :
(i) Applicant is re-rolling mill. The blooms are supplied to the re-rolling mills by the Steel Authority of India Limited. Applicant used to give contract for cutting the blooms into pieces. Applicant-mill is covered under the ESI Act.
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(ii) On 7.2.1994, ESI Inspector visited the establishment of applicant and found that huge amount was paid to contractor for cutting blooms into pieces. It was noticed that contribution involved in such payment to the contractor was not made.
(iii) After an inquiry, Inspector submitted report. Competent Authority accepted the proposal of Inspector and assessed labour charges equivalent to 10 per cent of the contractual amount. Accordingly, impugned order dated 6.7.1995 (Exh.23) came to be passed and the establishment was called upon to make contribution of Rs.11,804/- as per the assessment.
5] Being aggrieved, establishment filed an application under section 75 of the Employees State Insurance Act, 1948 before the Employees' State Insurance Court. According to applicant, contractor is not an "employee" of the establishment. The work was done by contractor himself. As the entire process of cutting blooms into pieces was through machine, no additional labour was required. It was submitted that demand of contribution of Rs.11,804/- was illegal and needs to be set aside.
::: Uploaded on - 04/10/2017 ::: Downloaded on - 05/10/2017 00:38:08 ::: FA 280.06.odt 4 6] Application was strongly resisted by Corporation vide written statement (Exh.10). According to Corporation, after sparing 90% of the amount earned by contractors, only 10% labour charges were being calculated for the purpose of assessment of contribution. It was submitted that as blooms were cut into pieces and pieces were used in manufacturing process, applicant is required to contribute 10% labour charges amounting to Rs.11,804/-. It was submitted that the order is perfectly legal and valid. Corporation prayed for dismissal of application. 7] On rival contentions, ESI Court framed issues at Exh.12. Applicant examined two witnesses. AW-1 Anil s/o Baburao Fadnavis and AW-2 Hariprasad s/o Jagannath Rathi. Corporation placed reliance on the record submitted by establishment. Considering the oral and documentary evidence, ESI Court came to the conclusion that the demand under section 45-A of the ESI Act was not in accordance with the law and consequently allowed the application filed by establishment setting aside the impugned order. Being dissatisfied with the said order, Corporation preferred this appeal.
::: Uploaded on - 04/10/2017 ::: Downloaded on - 05/10/2017 00:38:08 ::: FA 280.06.odt 5 8] Heard Smt. B.P. Maldhure, learned counsel for appellant and Shri N.W. Almelkar, learned counsel for respondent.
9] The short controversy in the present appeal relates to the two substantial questions of law (i) whether independent contractor engaged by the establishment could fall within the definition of "employee" under section 2 (9)
(ii) of the Employees State Insurance Act, 1948 and (ii) whether amount paid to independent contractor towards cutting charges of blooms would include the charges, as defined in Section 2 (22) of the Act.
10] Before adverting to the facts of the present case, it would be apt to reproduce here definition of "employee" under section 2 (9) of the Act, which reads thus :
"2(9) "employee" means any person employed for wages in or in connection with the work of a factory or establishment to which this act applies and -
(i) who is directly employed by the principal employer on 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; or
(ii) who is employed by or through an immediate employer on the premises of the ::: Uploaded on - 04/10/2017 ::: Downloaded on - 05/10/2017 00:38:08 ::: FA 280.06.odt 6 factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or
(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service, and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment (or any person engaged as an apprentice not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961) (and includes such person engaged as apprentice whose training period is extended to any length of time) but does not include"
(a) any member of [the Indian] Naval,
military or air forces, or
(b) any person so employed whose
wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government], a month.
Provided that an employee whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government] a month at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period." ::: Uploaded on - 04/10/2017 ::: Downloaded on - 05/10/2017 00:38:08 ::: FA 280.06.odt 7 The term "wages" is defined in Section 2 (22) of the Act as under :
"2 (22) : "wages" means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes [any payment to an employee in respect of any period of authorised leave, lockout, intervals not exceeding two months], but does not include -
(a) any contribution paid by the employer to any pension fund or provident fund, or under this Act;
(b) any travelling allowance or the value of any travelling concession;
(c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or
(d) any gratuity payable on discharge".
11] The submission of learned counsel for appellant is that for the purposes of coverage profit earned is not to be taken into account as wages. It is submitted that huge amount was paid to contractors in the years 1991-1992 and 1992-1993. Employer did not produce any record to show that labour charges involved in the cutting charges were determined as no wage record came to be maintained by the employer. The submission is that in the absence of relevant record, Inspector recommended 10% as reasonable element of the wages out of the huge amount spent for ::: Uploaded on - 04/10/2017 ::: Downloaded on - 05/10/2017 00:38:08 ::: FA 280.06.odt 8 cutting charges. Learned counsel submits that witness examined by establishment admitted that labour charges are involved in the operation of cutting of heavy blooms by machines and despite clear admission on behalf of the witness, ESI Court came to the conclusion that determination of contribution under section 45-A is not legal. 12] Another submission on behalf of appellant is that labour charges only to the extent of 2.14% of the total payment assessed by the competent authority is meager and considering huge amount paid to contractors contribution assessed is justified.
13] Per contra, learned counsel for respondent- establishment submits that entire process of cutting blooms into pieces is by a machine and the equipment owned by the contractor. No labours are engaged in such a process and, therefore, contractor cannot be termed as an "employee" under the ESI Act, rules and regulations. It is submitted that bifurcation was made as insisted by inspector and, in fact, such bifurcation cannot be made regarding labour charges as stated by Corporation. The submission is that entire attempt on the part of ESI ::: Uploaded on - 04/10/2017 ::: Downloaded on - 05/10/2017 00:38:08 ::: FA 280.06.odt 9 Inspector was just to drag the establishment into the definition of an "employee" and the order passed under Section 45-A of the Act does not fall within the framework of the provisions of ESI Act.
14] It can be seen from the facts which are not in dispute that the provisions of ESI Act are applicable to the applicant-company. It is no where denied that all the regular employees working on the establishment of applicant are covered under the ESI Act. The moot question is whether contractors engaged by applicant-company are the employees under section 2(9) of the ESI Act. According to applicant-company, whenever occasion arises, it engages the contractors for cutting the blooms into pieces and as of routine contractors are not engaged. It is apparent from the order passed under section 45-A of the Act that on the basis of payments to the contractors, guess work was made and 10% contribution came to be determined. There is no basis for such calculation. It is categorically stated by applicant- company that the entire process of cutting the blooms into pieces is through machine and the equipments owned by contractors. It is specifically stated by the witness examined by applicant-company that no contractor had engaged any ::: Uploaded on - 04/10/2017 ::: Downloaded on - 05/10/2017 00:38:08 ::: FA 280.06.odt 10 labour to cut the blooms into the pieces. This evidence has remained unshaken throughout. Thus, in the absence of any material to the contrary, it cannot be said that contractors engaged by establishment would be covered under the definition of "employee" in Section 2(9) of the ESI Act. 15] Further the test inspection report indicates that establishment had engaged seven contractors for cutting the blooms and huge amount came to be paid to those seven contractors. Considering the number of contractors engaged and the huge amount paid, test inspection officer recommended that establishment is liable for contribution. Even if it is assumed that huge amount was paid for the years 1991-1992 and 1992-1993 to seven contractors that ipso facto would not include the contractors in the definition of "employees" under the Act. There is no iota of evidence to indicate that contractors rendered their services as employees and, therefore, ESI Court was right in holding that whatever amount was earned was the exclusive earning of contractors.
16] In the light of the above and upon close scrutiny of relevant provisions of the ESI Act, this court answers the ::: Uploaded on - 04/10/2017 ::: Downloaded on - 05/10/2017 00:38:08 ::: FA 280.06.odt 11 substantial questions of law in the negative and proceed to pass the following order.
ORDER
(i) First Appeal No.280/2006 stands dismissed.
(ii) No order to costs.
(Kum. Indira Jain, J.)
Gulande, PA
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