Hotel Pal Palace, Nagpur Thr. Its ... vs Employees State Insurance ...
2018 Latest Caselaw 814 Bom

                                        1                                                               fa680.05


              IN THE HIGH COURT OF JUDICATURE AT BOMBAY,
                        NAGPUR BENCH, NAGPUR.

                         FIRST APPEAL (FA) NO. 680 OF 2005


Hotel Pal Palace,
A Partnership Concern Carrying
on the activity of Residential Hotel
at 25, Central Avenue, Nagpur
440 018 through its Partner 
Prithipal Singh s/o Surendrasingh Vij.                           ... APPELLANT


                                          VERSUS


Employees State Insurance
Corporation, ESIC Bhavan,
Ganesh Peth, Nagpur through its
Asstt. Regional Director Incharge.                               ... RESPONDENT


                                               ....

Shri A.P. Wachasunder, Advocate for the appellant.
Smt. B.P. Maldhure, Advocate for the respondent.

                                               ....


                                        CORAM : MANISH PITALE, J.

DATE OF RESERVING JUDGMENT  : 15TH JANUARY, 2018.

DATE OF PRONOUNCING JUDGMENT : 23RD JANUARY, 2018.


JUDGMENT : 

By this appeal, the appellant has challenged the judgment and

order dated 14th October, 2005 passed by the Employees State Insurance

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Court, Nagpur in Application (ESI) No. 5 of 1989, whereby an application

filed by the applicant under Section 75 of the Employees State Insurance

Act, 1948 (hereinafter referred to as the ESI Act) has been dismissed and

the liability fixed upon the appellant under the provisions of the ESI Act

has been confirmed.

2. The appellant is a partnership firm. It undertook the

construction of hotel at Nagpur in the year 1981. The construction of the

ground floor and first floor of the building was completed some time in the

year 1984 and the second floor was completed in the year 1986. the hotel

commenced business on 25.04.1984, while the construction of the

remaining portion of the building continued.

3. On 24.07.1984, an inspector of the respondent/Employees

State Insurance Corporation visited the hotel premises and conducted

inspection. On the basis of inspection, a Preliminary Inspection Report,

marked as Exh.35, was prepared, wherein it was recorded that 15

employees were working in the hotel in May, 1984 and that 25 employees

were working in the months of June and July, 1984. It was also recorded

that power was being used for manufacturing process in the said premises

and that there was lodging and boarding available.

4. On the basis of the said Preliminary Inspection Report,

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proceedings under the ESI Act were initiated against the appellant. This

culminated in order dated 29.08.1988 under Section 45(A) of the ESI Act,

whereby the appellant was directed to pay specified amounts towards

contribution under the ESI Act along with interest. Aggrieved by the said

order and the fact that provisions of the ESI Act stood applied on the

appellant/Establishment, on 27.03.1989, the appellant filed an application

under Section 75 of the ESI Act before the Employees State Insurance

Court, Nagpur, praying for quashing of the recovery proceedings initiated

by the respondent/Corporation. It was contended on behalf of the

appellant that at no point in time, during the relevant period, did the

appellant employ 20 or more employees in the establishment. It was

claimed that the number of employees during the relevant period in the

appellant/Establishment were between 11 and 14. On this basis, it was

contended that the establishment of the appellant did not satisfy the

definition of "factory" under Section 2(12) of the ESI Act. The definition

relevant for the present case is as it was present on the statute book before

the amendment of the Act in the year 1989.

5. The respondent/Corporation opposed the contentions of the

appellant before the Employees State Insurance Court, Nagpur, pointing

out that the Inspection Report and other material on record clearly

demonstrated that there were 25 employees working with the appellant/

Establishment and that, therefore, the order passed by the Assistant

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Regional Director of the respondent/Corporation under Section 45(A) of

the ESI Act dated 29.08.1988 was justified. The Employees State Insurance

Court, Nagpur considered the rival submissions and passed the impugned

judgment and order dated 14.10.2005, rejecting the contentions of the

appellant. It was held that the evidence and material on record

demonstrated that the appellant/Establishment was covered under the

definition of "factory" under Section 2(12) of the ESI Act and that,

therefore, there was no substance in the application. On this basis,

application of the appellant was dismissed.

6. Aggrieved by the said judgment and order of the Employees

State Insurance Court, Nagpur, the appellant had filed the instant appeal

under Section 82 of the ESI Act. By order, dated 18.01.2007, this Court

admitted the appeal on the following substantial questions of law.

"1. Whether the construction of further floors of the building could be treated as expansion of the originally completed floors for the purposes of coverage under ESI act where the original plans contemplated completion of entire building but the building was completed in stages ?

2. Whether the establishment of hotel would be liable to coverage under the Act on employing 10 employees pending completion of such building by taking into account the workmen employed by the construction contractor for the purpose of completion of such

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unfinished work ?"

7. Shri A.P. Wachasunder, learned Counsel appearing on behalf of

the appellant/Establishment submitted that the Employees State

Insurance Court, Nagpur, has committed an error in passing the impugned

order because while ascertaining the number of workers found at the site,

the Inspector of the respondent/Corporation had wrongly included the

construction workers who were working at the site for completing the

construction of building of the hotel. It was further submitted that the

preliminary investigation report dated 24.07.1984 (Exh.35) prepared by the

Inspector simply mentioned that there were 25 employees found at the site

of the appellant in the months of June and July, 1984. No details regarding

the names of employees and the type of work being done by them, was

recorded during the inspection. The Inspector did not make a list of the

employees with such details and their signatures. Learned Counsel for the

appellant also relied upon muster rolls of employees produced before the

Court to contend that during the relevant period, the number of

employees were between 11 and 14. Since there was not enough material

on record to show that there were indeed 20 or more employees on the site

at the time of inspection, it was contended that the appellant/

Establishment could not have been included under the definition of

"factory" under Section 2(12) of the ESI Act, as it then stood. Reliance has

been placed on the judgment and order of this Court in First Appeal No.

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751 of 2004 in support of the contention that in the absence of names of

identifiable persons being stated in the inspection report, the appellant/

Establishment could not have been covered under the provisions of the

ESI Act.

8. Learned Counsel for the appellant also sought to contend that

there was no manufacturing process with the aid of power being

undertaken on the site and that, therefore, the establishment of the

appellant could not have been covered under the provisions of the ESI Act.

But, since the appeal has not been admitted on this question, the said

submission raised on behalf of the appellant is irrelevant. A number of

judgments have been cited on the aforesaid issue of manufacturing

process and use of power, but since the appeal has not been admitted on

the said question, I am not referring to the said judgments.

9. On the other hand, Smt. Maldhure, learned Counsel for the

respondent/Corporation submits that a perusal of the Preliminary

Inspection Report dated 24.07.1984 and other material on record

demonstrated that there were more than 20 employees working with the

appellant/Establishment at the relevant time. It was further contended

that even if the construction workers had been taken into account by the

Inspector of the respondent/Corporation while determining the number of

employees of the appellant/Establishment, it was permissible, because the

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construction work was nothing but an expansion of the hotel

establishment and that in such a situation even the construction workers

could be taken into account. Reliance was placed on the judgment of the

Hon'ble Supreme Court in the case of Regional Director, Employees' State

Insurance Corporation, Madras .v. South India Flour Mills (P) Ltd.

(reported in 1986(3) SCC, 238).

10. In order to consider the rival submissions, it is necessary to

refer to the definition of the expression "factory" used in Section 2(12) of

the ESI Act as it stood before the amendment of the Act in the year 1989.

This is because the instant case pertains to the period from 1984 to 1988.

The provision at the relevant time read as follows :

"12. "factory" means any premises including precincts thereof 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 with 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 : "removal factory" means a factory which is exclusively engaged in one or more of the following manufacturing processes, namely, cotton spinning, cotton or jute pressing, decortication of groundnuts, the manufacture of coffee, indigo, lac, rubber, sugar (including gur) or tea or any manufacturing process which

8 fa680.05

is incidental to or connected with any of the aforesaid processes and includes a factory which is engaged for a period not exceeding seven months in a year -

(a) in any process of blending, packing or repacking of tea or coffee, or

(b) in such other manufacturing process as the Central government may, by notification in the official Gazette, specify ;

The expression "manufacturing process" and "power" shall have the same meanings respectively assigned to them in the Factories Act, 1948."

11. A perusal of the above quoted provision shows that if an

establishment was to be included in the definition of "factory" under the

ESI Act, at least 20 employees ought to have been found working at the

relevant time. The Preliminary Inspection Report in the instant case at

Exh.35 dated 24.07.1984 records that there were 25 employees found

working in the appellant/Establishment in the months of June and July,

1984. There is no list of 25 employees found to have been working in the

establishment. There are no details regarding the names, type of work,

wages paid or signatures of such 25 employees found working in the

appellant/Establishment at the time of inspection. The Inspector who

appeared as a witness for the respondent/Corporation before the

Employees State Insurance Court, Nagpur, also did not depose anything in

respect of the aforesaid details of 25 employees found to have been

9 fa680.05

working in the appellant/Establishment as per the Preliminary Inspection

Report. It is only stated by the said witness that 25 employees were

engaged from June, 1984. It is also stated by the said witness in cross-

examination that he did not mention the name of the contractor doing the

work of construction of the hotel or the number of workers engaged by the

contractor at the site of the hotel.

12. A partner of the appellant/Establishment appeared as a witness

for the appellant and stated that minimum staff was employed from May,

1984 onwards for running of the hotel and that at any given point of time,

during the relevant period, there were only 11 to 14 employees working in

the appellant/Establishment. The said witness relied upon the muster roll

of the relevant period which gives the names and other details of the

number of employees working in the appellant/Establishment. The names

of employees were given and on the basis of document Nos.11, 12, 13 and

14, being copies of muster rolls, it was stated that at any point of time,

during the relevant period, a maximum of only 14 employees were working

in the appellant/Establishment.

13. The learned Counsel appearing on behalf of the respondent/

Corporation has strenuously argued that the Preliminary Inspection

Report dated 24.07.1984 specifically stated that 25 employees were found

working in the appellant/Establishment, which was enough to cover the

10 fa680.05

appellant under the definition of "factory" under Section 2(12) of the ESI

Act thereby making it amenable to the provisions thereof. The learned

Counsel for the respondent/Corporation heavily relied on the judgment of

the Hon'ble Supreme Court in the case of Regional Director, Employees'

State Insurance Corporation, Madras .v. South India Flour Mills (P) Ltd.

(cited supra), particularly paragraphs 12 to 15 thereof, to contend that even

if the construction workers working at the site for carrying out

construction work of the hotel, were included in the number of employees

stated in the Preliminary Inspection Report, it was permissible and that the

appellant cannot escape liability under the ESI Act by contending that the

construction workers of the contractor could not be included as its

employees. Applying the ratio of the aforesaid judgment of the Hon'ble

Supreme Court, it would be clear that the appellant/Establishment cannot

escape liability under the ESI Act by merely pleading that employees found

on the site by the Inspector of the respondent/Corporation included

construction workers and that, therefore, if the number of construction

workers was subtracted, less than 20 employees were present when the

inspection was conducted. The evidence placed on record by either side

does not show as to what was the number of construction workers and

what was the number of employees working in the

appellant/Establishment for providing services in the hotel.

14. Thus, the most crucial aspect in the instant case becomes the

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material on record showing details of names and other particulars of the

employees working on the site. While, the respondent/Corporation has

relied upon the Preliminary Inspection Report dated 24.07.1984 wherein it

has been recorded that 25 employees were working with the appellant/

Establishment in May and June, 1984, the appellant has relied upon the

muster rolls for the relevant period showing the number of employees

between 11 and 14. These muster rolls have been proved by the witness

appearing on behalf of the appellant/Establishment, as details of the

names and other particulars have been brought on record.

15. In this context, the judgment relied upon by the appellant

assumes significance. In the said judgment and order dated 13.04.2016

passed in First Appeal No. 751 of 2004 (The Joint Regional Director .v. M/s

Saggu Industries), this Court has held as follows :

"2. With the assistance of the learned counsel appearing for the parties, I have gone through the record and proceedings. The reliance has been placed by the appellant solely upon t he Inspection Report dated 19.06.1990 and the order dated 08.05.1991 passed on that basis under Section 45-A of the said Act. Neither in the Inspection Report nor in the said order I find the names of identifiable persons who were working in the establishment of the respondent on 19.06.1990. The Inspector, who visited the establishment of the respondent

12 fa680.05

should have noted down the names of 10 or more persons found to be working in the premises of the respondent on the dater of inspection. The employees so working could have been identified from the employer or the agency through which the employees were engaged in the premises of the respondent. The case of the respondent is that the certain Security Guard from another agency i.e. Bombay Intelligence Security (India) Limited were employed on the establishment of the respondent and the said security agency has registered those employees with the appellant - Corporation for the purposes of payment of E.S.I. contribution. Certainly, it is not possible to verify in the absence of the names of employees being recorded in the Inspection Report or in the order impugned.

3. In view of this, no substantial questions of law arises for consideration by this court in this appeal. The appeal is dismissed."

16. The law laid down by this Court in the aforesaid judgment

clearly shows that the respondent/Corporation has to place on record the

details of the names and other particulars of the employees found working

with the establishment at the time of inspection and a mere mention of the

number of employees found at the site would not suffice. This is necessary

because there should be identifiable persons for whom the contribution

under the ESI Act is to be collected and disbursed. The respondent/

Corporation cannot successfully apply the provisions of the ESI Act on an

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establishment by merely stating in the Inspection Report and other

documents that at the relevant time, more than 20 employees were found

working in the establishment. If only the mention of the number of

employees results in covering an establishment under the provisions of ESI

Act, it would not be possible to disburse the benefits to the employees of

the establishment because there would not be any material to identify the

persons to whom such benefit is to accrue.

17. Therefore, even if the contention raised on behalf of the

respondent/Corporation is to be accepted that construction workers

working on the establishment of the appellant at the time of inspection

could be included as the employees of the appellant, the provisions of ESI

Act could not have been applied in the facts of the present case, in the

absence of details of names and other required particulars of the

employees found working at the time of inspection. The questions of law

framed at the time of admission were concerned with the aspect of

whether the construction of further floors of the hotel building could be

treated as expansion and whether the workmen employed by the

construction contractor for such work of expansion could be taken into

account for coverage under the provisions of ESI Act. It is evident that

even if the said questions are answered in the affirmative, the appellant/

Establishment could still not be covered under the definition of "factory"

as per Section 2(12) of the ESI Act as it stood at the relevant time, because

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as per law laid down by this Court, in the absence of details of names and

other particulars of the employees allegedly found to be working at the

time of inspection in the appellant/Establishment, the provisions of ESI

Act cannot be applied.

18. In the instant case, as stated above, apart from mere mention

of the number "25" for the months of June and July, 1984 in clause-8 of the

Preliminary Inspection Report (Exh.35) dated 24.07.1984 pertaining to

month-wise employment position for the period covered by inspection, no

further detail has been given. There is no other material placed on record

on behalf of the respondent/Corporation to show that any such data

pertaining to the aforesaid details of the alleged 25 employees of

appellant/Establishment were placed on record. On the other hand, the

appellant had indeed placed on record detailed muster rolls for the

relevant period that showed only 11 to 14 employees working in the

appellant/Establishment at the relevant period of time.

19. Therefore, it is evident that the Employees State Insurance

Court, Nagpur, committed an error while passing the impugned order

dated 14.10.2005 by rejecting the contentions of the appellant/

Establishment and holding that it was covered under the provisions of the

ESI Act.

15 fa680.05

20. In the light of the above, the appeal is allowed, the impugned

order dated 14.10.2005 passed by the Employees State Insurance Court,

Nagpur as also the order dated 29.08.1988 passed by the Assistant Regional

Director of respondent/Corporation under Section 45(A) of the ESI Act are

quashed and set aside. There shall be no order as to costs.

JUDGE

*rrg.