Employees State Insurance Cor vs The Central India Institute Of ...
2017 Latest Caselaw 6508 Bom

 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

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

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.

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.

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.

(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.

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

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

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]

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

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)

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

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

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.

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

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

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

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