Regional Director, E.S.I.C. vs Golden Gate Restaurant
2001 Latest Caselaw 951 Bom

ORDER

R.J. Kochar, J.

1. The Appellant is the Regional Director of the Employees' State Insurance Corporation, a statutory Corporation, established under the Employees' State Insurance Act, 1948 for the benefits of the persons employed in the establishment covered by the said Act. The appellant is aggrieved by the judgment and order dated December 20, 1996 passed by the Employees' Insurance Court, Mumbai in exercise of its powers under Section 75 of the Act in the two separate Applications filed by the Respondent-Restaurant to challenge the orders passed by the Appellant-Corporation for the recovery of the amounts mentioned in the impugned orders to the tune of Rs. 56,772.21 and Rs. 49,176.15 towards the contribution in respect of the employees employed by the employer for two different periods viz. January 1980 to October 1982 qua 37 persons and April 15, 1983 to August 1985 qua seven persons.

2. The facts are straight and, simple. The employer is a Restaurant catering to the needs of the customers to serve them food. There is no dispute that the employer-restaurant is an establishment which is duly covered by the Act and is paying contribution under the Act as far as the admitted strength of employees of 34. The employer has refused to pay the contribution in respect of the other two sets of persons viz., 36 and 7 employees who were found working in the Restaurant at the relevant time, when the Vigilance Officer of the Appellant Corporation who gave visit on October 19, 1982. It is the case of the Appellant Corporation that in the surprise, visit by the Vigilance Officer and the Asstt. Regional Director on October 19, 1982 they found that total 71 persons were working in the Restaurant including its kitchen. The said officers found a list of the said workers on the roll. Both the officers were accompanied by Shri Ashok Chabria, a partner of the Respondent- Restaurant and gave visits to the various Sections of the Restaurant. Both the officers verified/checked and signed the muster rolls and attendance registers for the kitchen staff, Restaurant's waiters and general office staff. It is the case of the Corporation that the Vigilance Officer had taken in his possession the said records viz. Muster/attendance registers as they found that the Respondent-Restaurant was maintaining duplicate records. At that time Shri Chabria, however, did not produce any other record viz. Books of Accounts, such as ledgers, cash books, wage records etc. on the plea that the said records were not readily available and that it was with their Chartered Accountant. It is the case of the Appellant Corporation that inspite of calling upon the Respondent to produce the relevant records it produced the same as late as on November 18, 1982. The Record produced included attendance register of 71 employees and duplicate set of Attendance Register along with the Registers of 34 employees in respect of whom contribution was paid by the Respondent-Restaurant. This record included 37 persons who were included in the list of first set of attendance register and who were not covered under the Act. The Respondent-Restaurant also produced other relevant records such as separate bills and vouchers etc. The representative of the Respondent-Restaurant was asked to file a statement of explanation in respect of non-coverage under the Act of the 37 persons who were found working in different departments. He was also called upon to produce the wage registers and other relevant account books but the Respondent did not produce the same though ample opportunity was given to them to produce the same. It further appears that at the belated stage certain record was produced by the Respondent Restaurant in the course of investigation held by the Corporation. To be precise, the case of the Respondent Restaurant was that the aforesaid 37 persons were the relatives of the employees in the Restaurant and that they had come for the purpose of taking training in the Restaurant. They were allowed to work in the restaurant to enable them to learn the work and they were given free food and free residential accommodation. It was the case of the respondent-restaurant that they were not paid any wages in cash to the aforesaid 37 persons who were allowed to get training in the restaurant. The fact that 71 persons were found working in the Restaurant was not denied or disputed on behalf of the Respondent Restaurant. Their clear and simple case throughout has been that the 37 persons were not in their employment and were not their employees but were only the trainees or apprentices who were found doing the work during their period of training without any wages or remuneration. According to the Respondent, there was no employer employee relationship with the aforesaid 37 and 7 persons who were found present in the restaurant at the relevant time only as trainees and not as employees. The Respondent, therefore, disowned any liability to pay any contribution on behalf of the aforesaid 37 and 7 persons as they were not their employees within the meaning of the Act.

3. According to the Appellant Corporation, the attendance register shown to the Vigilance Officer at the time of surprise visit, contained 71 names including the names of 34 employees and 37 and 7 alleged trainees. From the inspection report produced before the Trial Court the 37 and 7 persons were found doing the work as Store Keepers, Waiters, Helpers and as Kitchen Staff. They were doing the work even of the skilled category and that they were paid their regular wages but the Respondent Restaurant did not produce the relevant wage register in respect of the aforesaid 37 and 7 persons to avoid their liabilities to make payment of contribution payable under the Act. The Appellant Corporation therefore, 1 computed the liability of the Corporation under Section 45-A of the Act, and called upon the Respondent Restaurant to make payment of the stipulated amounts.

4. According to the appellant-Corporation the notices issued to the respondent were perfectly legal and valid and the application giving challenge to the legality and validity of the said notices must fail. Both the parties completed their pleadings and produced documentary evidence before "the Employees Insurance Court though it is mentioned in paragraph 15 of his Judgment that "No evidence is recorded in both the above mentioned ESI Applications," it appears to be a factually inadvertent error. In the very next paragraph the learned Judge has referred to the oral evidence adduced by both the parties. The learned E. I. Court has accepted the contention of the employer that 37 persons were not employees of the respondent-restaurant and that they were found on the premises only as trainees and that they were not paid any wages and therefore they did not fall within the definition of employees given in Section 2(9) of the Act. On the basis of the material before him the learned Judge has allowed the applications and rejected the recovery claim of the appellant Corporation as illegal and invalid.

5. The appellant Corporation is aggrieved by the said judgment and order passed by the learned Judge and has therefore filed the present appeal under Section 80 of the E.S.I Act, 1948.

6. Shri Shah the learned advocate for the Respondent restaurant has raised a preliminary point that there is no substantial question of law arising in the present first appeal as contemplated under Section 80 of the Act. From the subsequent discussion it would be crystal clear what substantial question of law has arisen in the present appeal. In my judgment dated February 8, 2000 reported in Rainbow Industries v. Regional Director, E.S.I. Corporation 2001-I-LLJ-1261 (Bom), I have discussed this question as to what is the substantial question of law after following the case law laid down by the Supreme Court. In the present appeal the question which has arisen is of general public importance and it also involves the rights of the parties and it has not been finally settled by this Court or by any other Court, whether the unpaid apprentices of trainees actually working in the premises of employer covered by the ESI Act would fall in the definition Section 2(9) of the Act as "employees". I am, therefore, not in a position to throw this appeal out on the ground that there ' is no substantial question of law involved in the present appeal. There are a large number of new entrants scrambling in for employment in various establishments. They get engaged in various establishments in various trades either I as Apprentices or as Trainees to learn the trade or work or skill at the same time to do the work required to be done in such establishment with a definite hope of absorption in the establishment. Such class of unemployed persons are always likely to be engaged as they need jobs very badly and they are very anxious and keen to enter one or the other employment, very often even without any remuneration. In the present case the Respondent restaurant has engaged 37 persons in the garb of trainees who were allegedly related to the employees already in employment of the Respondent Restaurant. If they were getting any stipend or remuneration in that case perhaps no difficulty would have arisen. However, it is the emphatic plea of the Respondent Restaurant that the 37 persons were working in the establishment only as trainees without any wages and therefore, they do not fall within the four corners of definition of "employee" and the other provisions of the Act. It is no doubt true that there is no documentary or oral evidence or any other material to show that the aforesaid 37 persons were receiving any wages from the Respondent Restaurant. It is however an '. admitted position that the aforesaid 37 persons were given free lodging and free boarding by the Respondent Restaurant in lieu of their working in the establishment. The aforesaid 37 persons were getting free training in the establishment of the Respondent Restaurant. In the aforesaid circumstances, can it be said that such persons were the persons employed for wages? It would be relevant to reproduce the definition of 'employee' given in Section 2(9) of the Act at the relevant time:

"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 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; but does not, include-].

In the present case the definition of 'wages' also is necessary to be reproduced.

"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, lock-out, strike, which is not illegal or. lay-off and] other additional remuneration, if any, [paid at 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;"

According to Shri Shah the 37 persons were not paid any wages in cash, and therefore, they cannot be considered as the employees of the Respondent Restaurant for whom it cannot be held liable to pay contribution under the Act. Shri Shah is right to the extent that there is no material on record to show that the said 37 persons were paid their wages in cash as remuneration. I am however, not able to believe that the 37 persons who were found working in different posts were working without any remuneration in cash. It is pertinent to note that in the attendance register produced before the Vigilance Officers the names of 71 persons including the 37 persons were found. All the71 persons were in one common list of employees. It appears that the Respondent Restaurant found it difficult to deny the physical presence of the 37 persons who were actually found doing the work in the restaurant and who were also found in the attendance register. The respondent advanced a very clever plea to evade the liability under the Act to pay contribution in respect of the said 37 persons that they were not paid wages in cash. Firstly as a matter of course and common sense 1 am not prepared to believe the story of the Respondent Restaurant that they had allowed 37 persons to enter in the establishment because they were related to their employees and that they were allowed to learn the work for which they were getting free food and free accommodation. Ordinarily no bona fide and genuine employer would enter the names of the learners or trainees in the common attendance register along with other employees. Secondly no bona fide and genuine employer would give them posts such as store keepers, waiters, cashiers, cooks etc. in the establishment if they were really learners, trainees or apprentices. On lifting veil I am able to see the reality. It is crystal clear to me that the Respondent Restaurant had engaged the 37 persons in various posts as disclosed in the report of the Vigilance Officer of the Corporation. The report also acquires significance as it was prepared by the Vigilance Officer and the -other responsible person of the Corporation viz. Asstt. Regional Director. Both of them had no axe to grind against the Respondent Restaurant and there is not even a whisper of allegation of mala fides against the said officer. It is further significant to note that the said officers found the respondent maintaining duplicate, muster/attendance registers. It is also significant to note that the respondent did not produce any other record immediately or soon thereafter to satisfy the appellant Corporation that the 37 persons were not paid wages. It appears that some record was produced by the Respondent Restaurant subsequently to show that the Respondent had employed only 34 employees and that 37 were working as trainees. It is further necessary to observe that the Respondent has not examined any of the 37 persons allegedly engaged as trainees to say that they were actually not getting any wages. In the aforesaid circumstances I am not able to believe the version of the Respondent Restaurant that they were not making payment of wages to they 37 persons and that they were working without any remuneration. Further assuming that no cash payment was made to them the respondent had allowed them free lodging and free boarding for doing work. The free lodging and free boarding can also be legitimately called remuneration in kind. It is very difficult for the officers of the Corporation to discover and prove to the hilt that the Respondent Restaurant was not paying any wages to the 37 persons/trainees. The officers of the Corporation had called upon the Respondent to produce the wage register and other relevant documents but the said documents were held back from the (sic) and therefore the appellant Corporation has determined the contribution under Section 45-A of the Act in accordance with the prescribed manner. The Corporation was justified to draw inference from the attendance register produced at the time of the surprise visit wherein the names of 71 employees were recorded. It was a clever afterthought on the part of the restaurant to say that out of 71 employees 37 were trainees without cash payment as wages. The learned E.I. Court has not applied its mind to the effect of non-production of wage register and also the effect of attendance register which contained 71 names of the persons who were actually found working. The E.I. Court has also not considered the effect of the free lodging and free boarding given by the Respondent-Restaurant to the 37 persons for their working in the establishment. In my opinion even assuming that no actual cash payment was made to the said 37 persons they were certainly getting remuneration in the form of free lodging and free boarding for the work done by them in various different capacities.

7. The very fact that the attendance register produced by the Respondent Restaurant on the day of the surprise visit creates a presumption that all of them were in employment of the restaurant particularly when they were found doing work in accordance with the posts given to them. There is no presumption that they were doing work without receiving their wages or remunerations. The burden was entirely on the Respondent to prove that they did not pay any wages to the 37 persons. It is therefore not possible for me to accept the findings of the E.I. Court that the 37 persons were doing the work in the establishment of the Respondent Restaurant without getting any remuneration as wages in cash payable by the Respondent Restaurant. It is an admitted position that the Respondent had given free food and free accommodation to the said 37 persons and the value of the said two facilities can be regarded as remuneration. It is therefore erroneous to hold that the 37 persons were not the employees of the Respondent Restaurant and that they were allegedly not 5 covered under the Act and that the respondent was not liable to pay contribution in respect of the said 37 persons. The E.I. Court has, inter alia, gone wrong to conclude that the said 37 persons did not fall in the definition of employee given under Section 2(9) of the Act.

8. Shri Mehta, the learned counsel for the appellant Corporation, has urged that the Act is a beneficial legislation and therefore it should receive a liberal interpretation to achieve the purpose for which it has been enacted in the interest of the working class. It is a piece of social legislation and therefore, canon of construing a social legislation would be different from the canon of construing a taxation law. He has relied on a judgment of Division Bench of this Court reported in 1957-I-LLJ-448 J.G. Vakharia v. Regional Provident Fund Commissioner, Bombay, the Chief Justice CHAGLA had observed as back as all in 1956 as under at p. 451 of LLJ:

"It is well-settled canon of taxation law that a subject is entitled to avoid paying tax if legally he can do so. Even that canon is looked at rather askance in the context of times that we are living in, but the Act that we are dealing with is not a taxation law. It is a social legislation and the canon of construing a social legislation is very different from the canon of construing a taxation law. The Court must not countenance any subterfuge which would defeat the provisions of a social legislation and the Court must even if necessary strain the language of the Act in order to achieve the purpose which the legislature had in placing this legislation on the statute book. Therefore, not only the Court must disapprove all subterfuges to defeat a social legislation but must actively try to prevent such subterfuges succeeding in their object. In our opinion, this is a clear case of a subterfuge and this subterfuge cannot be permitted to succeed so as to defeat the rights of employees who are benefited by the Employees Provident Funds Act."

Applying the said test in the present case it is crystal clear that the Respondent employer wants to avoid to apply and extend the benefits of the Act to the 37 persons who were definitely found working in the establishment of the Respondent Restaurant. The Respondent has tried to take a very clever plea of non-payment of wages to escape the liability cast upon it under the Act and to defeat the object of this social beneficial legislation. The purpose of the Act would be destroyed and defeated if such interpretation is accepted. Even assuming the false plea taken by the Respondent that no wages in cash were paid to the 37 persons, they were certainly given remuneration in the form of free lodging and boarding for their work done in the Restaurant.

9. Shri Mehta has also relied on another judgment of the Supreme Court reported in C.E.S.C. Limited and Ors. v. Subhash Chandra Bose and Ors. . The Supreme Court has observed as under at p. 486 of LLJ:

"31. In World Labour Report-1, at Chapter 9 (Safety and Health) it is sated that "in every three minutes somewhere in the world one worker dies and in every second that passes at least three workers are injured". In India on an average everyday 1100 workers are injured and three are killed in "industrial establishments" vide (Lawyer October 1987 page 5). In 26th JLO Convention held in Philadelphia in April 1944, recommendation No. 69 laid down norms for medical care for workers. In October 1943, the Government of India appointed Health Survey and Development Committee known as Sir Joseph Bhore Committee which laid emphasis on ''Preventive Schemes", ILO Asian Regional Conference held in Delhi in 1947, resolved that "in every scheme for medical care in any Asian country the need for the prevention of disease and the improvement of the general standard of health must be considered as of utmost importance". The Act had culminated in its birth of these recommendations providing in a limited area social security to the employees from health and occupational hazards."

The Supreme Court has further followed the ratio laid down in the case of M. Pentiah v. Muddala Veeraallappa has observed as under:

"Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence."

I have applied the aforesaid test laid down by the Supreme Court while interpreting the. definition of employee as well as definition of wages to include in the term of remuneration the benefit of free lodging and free boarding given by the Respondent Restaurant for the work done by the 37 persons,

10. Shri Mehta has also drawn support from the judgment of the Division Bench of the Andhra Pradesh High Court [Andhra Pradesh (P) Ltd. v. E.S.I. Corporation, Hyderabad 1996-II-LLJ-389 (A.P.) that the Act is beneficial piece of legislation- to protect the interests of the workers and that the employer cannot be allowed to circumvent the Act in the disguise of ambiguous designations. The following observation of the Division is significant at p. 391 of LLJ:

"The Employees' State Insurance Act is a beneficial piece of Legislation to protect the interests of the workers. Therefore, the interpretation of the provisions of the Act have to be made keeping in view the objects of the Statute. The employer cannot be allowed to circumvent the provisions of the Act in the disguise of ambiguous designations. Though the designation Apprentices/Trainees gives an impression at the first blush that they are not regular employees, but if the veil is lifted and the real facts are ascertained, they are in fact found to be working as regular employees Thus, the employer cannot be permitted to flout the Law."

(emphasis is given by me)

11. Shri Shah on the other hand has cited a judgment of the Supreme Court reported in Employees State Insurance Corporation and Anr. v. Tata Engineering & Locomotive Co. Ltd. and Anr. . There is no quarrel with the law laid down by the Supreme Court that an apprentice was not an employee within Section 2(9) of the Act. In our case though the 37 persons were not paid wages in cash as remuneration they were certainly given benefit of free food and free accommodation for the work done by them. In the case before the Supreme Court there was a written contract or agreement as contemplated by the Apprentices Act and both the parties were bound by such agreements. In the present case there was no such agreement entered by the parties under the Apprentices Act. In the present case the names of the 37 persons were found in the regular attendance register and they were given free boarding and free lodging by the respondent for the work done by them. The facts in the present case are entirely different. The aforesaid judgment is not applicable to the facts of the present case.

12. Shri Shah has also relied on a judgment of the learned single Judge of the Punjab High Court Ishar Doss and Anr. v. Employees State Insurance Corporation 1967-II-LLJ-550 on the point of substantial question of law under Section 82 of the Act. There is absolutely no quarrel with the observation that an appeal under Section 82(2) would lie only when there is a substantial question of law and not when there is a pure finding of fact based on appreciation of evidence.

13. It is also significant to note that by a subsequent amendment in the definition of "employee" in Section 2(9) the legislature has tried to remove the apparent lacuna. The definition includes all those persons who are engaged as trainees or apprentices. The amended portion reads as under:

[Or any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961, (52 of 1961) or under the Standing Orders of the establishment; but docs 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];

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;]

14. I have already decided the substantial question of law in the present case as held by the Supreme Court and I have also found as a matter of fact that the appeal involves a substantial question of law as discussed by me hereinabove. It cannot be said by any stretch of imagination that the appeal docs not involve any substantial question of law. In the circumstances the impugned judgment and order of the E.I. Court is quashed and set aside and appeal is allowed. No order as to costs.

15. Shri Shah has applied for stay of this order. Shri Mehta fairly makes a statement that the Corporation would not initiate any recovery proceedings for a period of eight weeks from today.

16. Certified copy is expedited.