Employee\'S State Insurance ... vs Shilpa Re-Rollers Ltd
2017 Latest Caselaw 7575 Bom

 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.

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.

(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.

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.

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

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."

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

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

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

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

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