[Cites 11, Cited by 0]
Bombay High Court
Mah. State Handlooms Corporation Ltd. ... vs Dy. Regional Director, Employees State ... on 22 December, 2025
2025:BHC-NAG:14824
fa 777-2010.odt 1/24
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR
FIRST APPEAL NO.777/2010
MAHARASHTRA STATE HANDLOOMS
CORPORATION LIMITED A
Government of Maharashtra Undertaking and a
Company incorporated under the Companies
Act, 1956, bearing-certificate of Incorporation
No. 15409 of 1971-72, being represented
through its Legal Officer and Constituted
Attorney Shri Shankar Aged-48 years, and
having Registered/Head Office at 'MSHC'
Complex Umred Road, Nagpur-440 009,
Tahsil & District-NAGPUR (Maharashtra
State)
... APPELLANT
...VERSUS...
DEPUTY REGIONAL DIRECTOR,
EMPLOYEES' STATE INSURANCE
CORPORATION, Sub-Regional Office,
ESIC Bhawan-, Ganeshpeth, Nagpur,
Tahsil & District- NAGPUR [M.S.]
...RESPONDENT
---------------------------------------------------------------------------------------------
Shri H.D. Dangre, Advocate for appellant
Mrs. B.P. Maldhure, Advocate for respondent
--------------------------------------------------------------------------------------------
CORAM : PRAVIN S. PATIL, J.
DATE OF RESERVING THE JUDGMENT: 11.12.2025
DATE OF PRONOUNCEMENT OF JUDGMENT: 22.12.2025
JUDGMENT
1. Heard.
2. The present appeal is preferred by Maharashtra State
Handlooms Corporation Limited, challenging the judgment and
order dated 18.01.2010 passed by the Industrial Court, Akola, in
ESIC Application No.3/1988, whereby it is held that the unit run by
the appellant Corporation at the Akola Sale Depot is covered under
the provisions of the Employees' State Insurance Act, 1948
(hereinafter referred to as "the ESI Act of 1948"), and by
determining the amount of contribution payable for the relevant
period in respect of the employees working at the Akola Sale Depot
was directed to deposit the amount as per order of respondent
dated 15.04.1988.
3. Before adverting to the merits of the matter, the
certain facts, which are necessary to be recorded in the matter, are
as under:
The appellant is a statutory authority, and its affairs are
managed by its Board of Directors. The head office of the
Corporation is situated at Nagpur, and it controls and supervises
the entire functioning of its subordinate units spread throughout
the State of Maharashtra. The nature of the units through which
the appellant carries out its activities can be appropriately
categorized as follows:
i) Production Centres;
ii) Sale Depots;
iii) Weaving Sheds, Dye Houses, Design Centres, Processing Units,
and Printing Units.
4. According to the appellant, in the production centres,
the clothes are weaved by the handloom weavers in their respective
houses/cottages on their looms. The centre does not have any
production or manufacturing activities carried out in the premises.
Only clerical cadre work, as per the instruction and posting by the
head office, the work is done in the production centre.
5. In Sale Depots, it is pointed out that these depots were
established so as to make it convenient and facilitate the weavers to
sell the weaved clothes collected from the handloom weavers. In
sale depots, again no production or manufacturing activities are
carried out. Sale depots only work as extension points of the head
office for the purpose of sale of weaved clothes collected from
handloom weavers. Hence, it was never required to the appellant to
register the sale depots under the Maharashtra Shops and
Establishments Act, 2017.
6. The weaving shed, Dye house design Centre,
Processing and Printing Unit, wherein the processing and
manufacturing activities were carried out. In the weaving shed,
handloom weavers used to assemble in turn, they assigned with
hops to weave clothes. In Dye house, the process of dyeing of yarns
were being carried out. Then in the design centre, designing of
clothes is carried out. These premises were duly registered under
the Factories Act as well as under the Employees' State Insurance
Act depending upon the number of employees working there.
7. In support of this submission, the appellant has also
placed on record the list of units under the control of head office,
Nagpur on 31.03.1988. In the list shown, there are total 55 units
working on 31.03.1988, but except for one at Nagpur, all are
closed.
8. The appellant has further relied upon the Maharashtra
State Handloom Corporation Limited Recruitment Rules, 1977.
From the said Rules, it is pointed out that specific provision is made
for the employees for maternity leave under Rule 48 and medical
attendance under Rules 52 and 53. As such, by these Rules, the
Corporation has taken care to provide all medical facilities of their
employees and said Rules considered sickness, maternity and
employment injury of the Corporation.
9. In the background of above said factual position, the
respondent issued a notice dated 15.07.1986 stating that at Sale
Depot, Akola, of the Corporation, there are seven employees and
one supervising officer i.e. total eight, since the opening of the
branch from 27.12.1978 and thereby directed the Corporation to
pay the contribution arrears in respect of employees at Sale Depot,
Akola from 27.12.1979 and also assigned the Code No.23-1628-
101 (Akola).
10. The appellant Corporation disputed the applicability of
the act to the Sale Depot, Akola of the Corporation on the ground
that the provisions of ESI Act cannot be made applicable to the said
unit. It was the contention of the appellant that said Depot does not
cover under the various provisions of the ESI Act, 1948 and the
Factories Act 1948. However, the same was not considered and
order dated 15.04.1988, came to be passed against the present
appellant.
11. The said order was the reason to challenge before the
Employees Insurance Court/Industrial Court, Akola vide application
No.3/1988. In the said appeal, the submission of the appellant was
that as per the provisions of the Act of 1948, the Akola Sale Depot
does not cover under the provisions of the Act and, therefore, the
action initiated by the respondent is prima facie illegal and,
thereby, entire order and proceedings initiated by respondent
authority is liable to be quashed and set aside.
12. The said application was strongly objected by the
respondent authority by filing their written statement before the
Industrial Court, Akola.
13. In light of the controversy arose between the parties,
the appellant before the Industrial Court, entered into the witness
box and established their case. It was their specific submission that
the respondent authority has wrongly applied the provisions of ESI
Act in the matter and more particularly to the Akola Sale Unit
because in any case said unit does not cover under the provisions of
the ESI Act and not under the Factory Act of 1948. No evidence
was led on behalf of respondent before the Industrial Court.
14. In the background of above said factual position, the
Industrial Court by impugned judgment and order dated
18.01.2010 dismissed the application filed by the appellant and
confirmed the order passed by the ESI authority.
15. The said order of Industrial Court was immediately
challenged before this Court. This Court has heard this matter and
by order dated 22.11.2010, admitted the appeal on the following
substantial question of law:
"Whether the Sales Depot of the appellant-Corporation
could be held to be covered under the provisions of
Employees State Insurance Act, 1948?"
And in the meantime, granted stay subject to deposit of
amount with the Registry of this Court.
16. I have heard both the Counsel for appellant and
respondent. I have perused the record and the relevant provisions
of law, which are pointed out by the parties in the matter.
17. The appellant has pointed out that the object of the
ESI Act, 1948, which is clear from its statement of object and
reasons that same was brought into force by the legislature to
provide certain benefits to employees in case of sickness, maternity
and employment injury and to make provisions for certain other
matters in relation thereto. Section 1(4) of the ESI Act, 1948,
further states that the act would be applicable to all factories other
than seasonal factories. The proviso specifically states that nothing
contained in Sub Clause 4 shall apply to factory or establishment
belonging to or under the control of the Government whose
employees are otherwise in receipt of the benefits, substantially
similar or superior to the benefits provided under this Act. It will be
relevant to reproduce Section 1 (4) and (5) to understand the
extent and application of the Act in the matter. The same is
reproduced as under:
"1. (4) It shall apply, in the first instance, to all
factories (including factories belonging to the
Government) other than seasonal factories:
[Provided that nothing contained in this sub-section
shall apply to a factory or establishment belonging to or
under the control of the Government whose employees
are otherwise in receipt of benefits substantially similar
or superior to the benefits provided under this Act.]
(5) The appropriate Government may, in consultation
with the Corporation and [where the appropriate
Government is a State Government, with the approval of
the Central Government], after giving [one months']
notice of its intention of so doing by notification in the
Official Gazette, extend the provisions of this Act or any
of them, to any other establishment or class of
establishments, industrial, commercial, agricultural or
otherwise:
[Provided that where the provisions of this Act have
been brought into force in any part of a State, the said
provisions shall stand extended to any such
establishment or class of establishments within that part
if the provisions have already been extended to similar
establishment or class of establishments in another part
of that State.]"
18. The appellant then relied upon the definition of factory
provided under Section 2 Sub Clause 12 of the Employees' State
Insurance Act, 1948. The same is defined as under:
"Section 2(12):- Factory- any premises including the
precincts thereof wherein ten or more persons are
employed or were employed on any day of the
preceding twelve months, and in any part of which
manufacturing process is being carried on or is
ordinarily so carried on, but does not include a mine
subject to the operation of the Mines Act, 1952 (35 of
1952) or a railway running shed."
19. According to the appellant, the word 'manufacturing
process' is used in the definition of factory. Therefore, he has
referred the definition of manufacturing process under Section 2
(14-AA), which says that the meaning assigned to it in the
Employees' State Insurance Act, 1948. For the perusal of same, the
definition of manufacturing process recorded under Section 2 (14-
AA) is reproduced as under:
"Section 2 (14-AA):- "manufacturing process" shall have
the meaning assigned to it in the Factories Act, 1948."
20. In view of the definition of "manufacturing process,"
the relevant provision to be looked into under the Factories Act,
1948. Under Section 2(k), the term "manufacturing process" is
defined. The same reads as under:
"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 its 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;]"
21. In light of this provision, the appellant has pointed out
the recruitment rules of the appellant Corporation and the facilities
provided to them while carrying out the work of Corporation and
its production Centre, Sale Depots and Weaving shed, Dye house,
design Centre, processing and printing units.
22. According to the appellant, the Recruitment Rules,
1977, particularly Rule 48 provides 'maternity leave' and Rules 52
and 53 provides 'medical attendance' to its employees. Hence,
considering the provisions of the ESI Act, 1948, which are
reproduced above, it is crystal clear that in light of specific Rules
framed by the Corporation and more particularly under Section
1(4) of the ESI Act, 1948, the provisions of Employees' State
Insurance Act are not applicable to the sale units run by the
appellant Corporation.
23. Appellant then pointed out that no work of
manufacture is done in Sale Depot. As such, sale depot run by
Corporation do not come under the definition of Industry. It is
pointed out no oral or documentary evidence brought on record by
respondent to establish the fact, depot is covered under the
definition of depot. Appellant, pointed out that the Corporation
runs business in different establishment and respondent treated
sale depot as different class and never made applicable the
provisions of ESI Act considering it's nature of work since inception
of running of sale depot.
24. The appellant then pointed out the relevant documents
which are relevant to decide the controversy arose in the matter.
Firstly, it is pointed out the communication of appellant
Corporation to the Government of India dated 04.12.1980.
According to this communication, the appellant has requested the
Government of India that amongst various units run by them for
upliftment of weavers, especially the Dye houses and common
weaving shade, which has been established to process the raw
material and for which the respondent authority has already made
applicable the ESI scheme by allotting code numbers, exemption be
granted to the said establishment as they belonging to the public
sector. In the said communication, the names of the units were
specifically mentioned under their code numbers, which are as
under:
i) Model Dyehouse, Sadar Nagpur, Code No.23/1627/19 SF
ii) Model Dyehouse, Umred Road, Nagpur, Code
No.23/1628/19 SF
iii) Common Weaving Shed, Nagpur, Code No.23/1632/101.
25. According to the appellant, this letter was answered by
the Deputy Regional Director of the ESI Corporation on 26.10.1981
and it was informed that only the Head Office, is covered under the
provisions of ESI Act, 1948 and same has been exempted with
effect from 27.11.1976 from the provisions of ESI Act, 1948.
However, remaining units as mentioned in the communication
dated 04.12.1980 will remain covered under the provisions of ESI
Act, 1948 and appellant has to make compliance of the same in
respect of those units.
26. In light of these two documents, it is the submission of
the appellant that the provisions of ESI Act, were applicable to
those units mentioned in the communication dated 04.12.1980
and, therefore, exemption was specifically sought to those units as
they are the part and parcel of the public sector. It is also the
submission of the appellant that the respondent has specifically
answered to their communication and made clear that only the
Head Office is exempted and not other units.
27. The appellant then pointed out that first time the
respondent authority issued the communication dated 15.07.1986,
in the name of M/s Model Dyehouse, Umred Road, Nagpur, stating
thereby that the Insurance Inspector has visited this branch office at
Akola and found that seven employees and one Supervisor were
working in the said unit. It is also stated that the branch at Akola is
working since 27.12.1979 and, therefore, M/s Model Dyehouse
should cover such employees under the Act and pay contribution
arrears from 27.12.1979 to their office.
28. The appellant has pointed out M/s Model Dyehouse,
Umred Road, Nagpur, is one of the units run by the appellant
Corporation under the head of weaving shed, Dyehouse, design
Centre, processing and printing unit and admittedly, the provisions
of ESI Act are applicable to the same. The Akola Depot is run under
the caption of Sale Depot and work in both the branches was
totally different. Therefore, there was no reason for the respondent
to issue the communication to M/s Model Dyehouse, Umred Road,
Nagpur. At the most, said communication could have been made to
the appellant Corporation. Hence, the basic document by which
controversy initiated itself illegal.
29. According to the appellant, this material fact was
brought to the notice of the Industrial Court and thereby prayed
that considering this factual as well as legal position, the order
passed by the respondent authority is itself illegal in the matter.
However, the learned Industrial Court relied upon the letter of
respondent to M/s Model Dyehouse dated 15.07.1986, and thereby
reached to the conclusion that the Akola Depot and its employee
should be brought under Model Dye Unit/office and by recording
that the exemption was sought by the appellant to the respondent
authority for the Model Dye Unit, which was rejected and thereby
upheld the order passed by the respondent authority. Therefore, it
is the submission of the appellant that the impugned order passed
by the Industrial Court is liable to be quashed and set aside.
30. The respondent in support of the judgment of the
Industrial Court has relied the letter dated 15.07.1986, addressed
by respondent to the appellant and stated that in the cross-
examination of the witness of the appellant, he has admitted that
the Akola Unit used the goods, which were supplied to their Unit
from Nagpur and Kalmeshwar Centre Go-down and, therefore, it is
the submission of the respondents that Akola Unit is interconnected
with M/s Model Dyehouse, Umred Road, Nagpur. It is further
stated that as the Model Dyehouse was already covered under the
provisions of ESI Act and same being interconnected with Akola
Unit, the letter dated 15.07.1986 was issued in the matter. In other
words, it is the submission of the respondent that the employees of
Akola Unit being interconnected with M/s Model Dyehouse at
Nagpur, they come under the definition of employees and,
therefore, the provisions of ESI Act are applicable in the matter.
31. In support of the submission, the respondent has relied
upon the judgment of the Hon'ble Supreme Court of India in case
of Hyderabad Asbestos Cement Products Ltd. Hyderabad vs.
Employees Industries Court reported in 1977 LawSuit (SC) 340,
wherein the Hon'ble Supreme Court held that if the offices or units
are of the same company are located in various cities, then as per
the amended definition of 'Employees', includes the person on any
work connected with the administration of the factory or any part,
department or branch thereof or with the purchase of raw materials
or for distribution or sales of product of the factory. Accordingly,
relied on paragraph No.13 of the judgment which reads as under:
"13. It was submitted that the test as to whether an
employee is an employee "in a factory" is the test of not
physical presence or absence outside the precincts of the
factory but the test is whether he is under the control of
the factory and is on the factory wage roll, or other
similar tests. We are unable to accept the contention for
on a reading of the relevant sections it is clear that the
word "employee" would include not only persons
employed in the factory but also person connected with
the work of the factory. The employee may be working
within the factory or outside the factory or may be
employed for administrative purposes or for purchase of
raw materials or for sale of the finished goods all such
employees are included within the definition of
"employee". A recent decision of the Bench of the
Madras High Court in W.Ps. 144-149 and 331 of 1971
dated 14th October, 1976 (Mad) has also taken a
similar view. We agree with the view taken by the
judgments of the Andhra High Court and of the Calcutta
High Court and dismiss these appeals with costs."
32. In the present matter, after hearing both the parties, it
is clear that the entire controversy was arose in the matter because
of the communication of respondent to M/s Model Dyehouse dated
15.07.1986. However, from the submission recorded above, it is
crystal clear that M/s Model Dyehouse was one of the units run by
the appellant Corporation under the head of weaving shed,
Dyehouse, design Centre, processing and printing unit. Appellant
himself admitted the fact that said unit was doing the processing
and manufacturing activities and comes under the category of
factory and the provisions of ESI Act applicable to said unit. But at
the same time demonstrated that Akola Unit, which runs under the
head of Sale Depot never have any manufacturing process nor
respondent established on record this fact hence sale depot being a
separate establishment does come under the definition of
processing and manufacturing. Only because the some products of
the Dyehouse were supplied to the Akola for the purpose of sale
cannot be the reason to hold that the provisions of ESI Act are
applicable to the unit of Akola.
33. In my opinion, the findings recorded by the Industrial
Court in this regard, seem to be prima facie contrary to the factual
as well as legal position in the matter. The learned Industrial Court
failed to consider the fact that the Model Dyehouse works as well
as Akola Unit works under the appellant Corporation. As such, the
employer of both the units was same. Both units are separate
establishment and thereby provisions of the ESI Act were made
applicable depending upon the nature of work carried out in
establishment. So also, it is admitted fact, though appellant was
running various units at various station, the provisions of the ESI
Act was not made applicable to them. Therefore, the contention of
the respondent that Dyehouse was supplying certain products to
Akola unit cannot be ipso facto made Akola unit as a part and
parcel of the M/s Model Dyehouse. It was for the respondent to
establish on record how they reached to said conclusion, and must
have established on record, in absence of any manufacturing
process as required under the provisions of law, how sale depot
was covered by them. But, to that effect, there is no evidence
recorded nor considered in the impugned judgment of the
Industrial Court.
34. It is established on record by the appellant that
appellant Corporation was running different units under different
heads. The authorities of the ESI Department are aware of the
various units run by the appellant Corporation. But, they have only
made applicable the provisions of ESI Act, 1948 to the units run
under the weaving shed, Dyehouse, design center, processing and
printing units. It is also established on record that there are near
about 55 units under the Sale Depot, but at the relevant time,
provisions of ESI Act were not made applicable to any of the units.
It is not established on record by the respondent that all the units
to which products were supplied by the Dye unit are come under
the purview of the ESI Act. Hence, in absence of any evidence
available on record, merely on the basis of communications dated
15.07.1986 and 04.12.1980 impugned order issued by respondent
is prima facie perverse in nature.
35. One another aspect which was specifically brought to
my notice that the specific recruitment rules framed by the
appellant Corporation for the welfare of corporation employees. I
am of the considered opinion that the recruitment rules framed by
the appellant Corporation prima facie shows that they have taken
due care of their employees and as per the said rules, the
employees are substantially benefited. Therefore, this aspect ought
to have been considered by the learned industrial court while
deciding the matter. But there is no reasoning recorded in that
regard. In my view, considering the Section 1 (4) of the Insurance
Act, 1948, provisions of Employees' State Insurance Act 1948
cannot be made applicable to the appellant corporation.
36. One more aspects which, according to me is required
to be recorded in the matter is that the Industrial Court failed to
consider that basic aspect which was required to be considered
under the provisions of Insurance act, is that there should be 10 or
more persons employees in the unit so that said unit comes under
the definition of factory. Here in the present case, admittedly in
the communication dated 15.07.1986, it is recorded that there
were seven employees and one supervisor was found by the
Insurance Inspector of respondent authority. If this fact is accepted,
it is prima facie clear that the Akola Sale Depot by any means does
not come under the purview of factory and on this count also the
provisions of Insurance act 1948 are not applicable in the matter.
37. It is further specifically recorded that in the present
case, admittedly appellant Corporation is the employer and under
whose jurisdiction, the various units were run throughout the State
of Maharashtra. So also, it is clear from the letter of respondent
dated 26.10.1981, which was issued in response to the
communication of appellant Corporation dated 04.12.1980, that
only the unit of weaving shed, Dyehouse will continue to be
governed by provisions of ESI Act. Thus, it is clear understanding
that though there were other units run by appellant Corporation,
will not come under the purview of ESI Act. Therefore, merely
because one unit has supplied some products to other units cannot
be said that the employees of other units come under the definition
of employee.
38. Respondent's case cannot be considered on the ground
that merely because Dyehouse has supplied product to Akola sale
depot and thereby as per the judgment of Hon'ble Supreme Court,
all the employees of both unit came under definition of employee
of same employer. In the present case, it is admitted fact on record
that respondent authority by its communication dated 26.10.1981
has exempted Head Office from the provisions of the ESI Act with
effect from 27.11.1976. If submission of respondent is accepted
then in present case, the employer himself being exempted from
the provisions of the ESI Act, then, certainly all the employees
working under the various units would stand exempted in the
matter. But, this is not the criteria adopted by the respondent
authority while applying the provisions of the ESI Act in the matter.
Hence, in light of above, the initial letter dated 15.07.1986, is itself
incorrect and illegal in the matter.
39. Consequently, the impugned judgment passed by the
Industrial Court, is not sustainable in the eyes of law and
accordingly, same deserves to be quashed and set aside. For the
aforesaid reasons, I proceed to pass the following order.
ORDER
i) The appeal is allowed.
ii) The impugned order passed by respondent the ESI authority
under Section 45-A of the Employees' State Insurance Act, 1948
dated 15.04.1988 (Annexures 11-12) and the judgment passed by
the Industrial Court in ESIC Application No.3/1988 dated
18.01.2010 is hereby quashed set aside.
iii) It is held that the provisions of the Employees' State
Insurance Act, 1948 is not applicable to the Sale Depot at Akola
and accordingly, the said unit does not cover under the provisions
of the Employees' State Insurance Act, 1948.
40. The First appeal is disposed of in above terms. No
order as to the costs.
(PRAVIN S. PATIL, J.)
R.S. Sahare
Signed by: Mrs. Ranjana Sahare
Designation: PA To Honourable Judge
Date: 23/12/2025 14:34:43
