Ela Designer Pvt. Ltd. & Anr vs Employees' State Insurance ...
2024 Latest Caselaw 14 Cal/2

Calcutta High Court

Ela Designer Pvt. Ltd. & Anr vs Employees' State Insurance ... on 3 January, 2024

                 IN THE HIGH COURT AT CALCUTTA
                CONSTITUTIONAL WRIT JURISDICTION
                          ORIGINAL SIDE

BEFORE:
HON'BLE JUSTICE RAJA BASU CHOWDHURY


                           WPO/2292/2022

                    Ela Designer Pvt. Ltd. & Anr.
                               Versus
            Employees' State Insurance Corporation & Ors.


For the petitioners        :     Mr. Soumya Majumdar
                                 Mr. Biswajit Kumar

For the Respondents        :     Mr. S. C. Prasad

Heard on                   :     3rd October, 2023.

Judgment on                :     3rd January, 2024.


RAJA BASU CHOWDHURY, J:

1. The petitioner no.1 is engaged in the business of trading of embroidery

on sarees. The petitioner no.2 is one of the directors of the petitioner

no.1. According to the petitioners, the job of embroidery is carried out

by independent traders/artisans in their respective premise or through

engagement of unidentified persons, on whom your petitioners do not

have any control. Once the finished products are brought to the

premise of the petitioners, the management decides as to whether the

products can be accepted on payment of consideration or the same

would be rejected.

2. On acceptance of the products in the manner indicated above, the

petitioners pay the cost for the job charges inclusive of all materials

used. On the contrary, if ultimately, the products are rejected, the

artisans and traders pay the cost price of the clothing to the

petitioners and take away the garments. The petitioners claim that the

aforesaid arrangement is on principal to principal basis.

3. In usual course, the petitioners have taken on leave and licence a

portion of the first floor of premises no. 25/1 Shakespeare Sarani,

Kolkata-700017, admeasuring 1700 sq.ft., super built up area. It is

also the petitioners' case that since, the said premises is owned by four

co-sharers, separate leave and licence agreements had to be executed

by and between the petitioner no.1 and the owners of the respective

shares of the said premises. The first floor of the said premises is

exclusively used for show-room of the petitioner no.1.

4. In usual course, the artisans/weavers and traders claim payment from

the petitioners by raising invoices. The payment is made through

online transfer system, or through cheque, or at times in cash. In

ordinary course, the work of embroidery requires to be polished and

the finished products also require to be polished/dry-cleaned before

those are put up on the display in the show-room or sent to the buyers

of the petitioners. The payment made to the dry cleaner is recognised

as polishing charges and the payment made to the

artisans/karigars/traders is recognised as making charges.

5. For the period 2014 to 2015, the ESI authorities while determining

contributions payable by the petitioners had passed an order dated

19th June, 2019 under Section 45A of the Employees' State Insurance

Act, 1948 (hereinafter referred to as the "said Act"), thereby, saddling

the petitioner no.1 with diverse liabilities under various heads,

however, on the said occasion, the making charges and the polishing

charges had been specifically excluded, as the same cannot attract the

liability of contributions under the said Act.

6. The petitioners contend that for the subsequent period from 2016 to

2017, a notice in Form C-18 dated 3rd April, 2019 was issued alleging

non-payment of contributions under certain heads, which also

included making charges and polishing charges. Pursuant to the

aforesaid, a hearing was conducted by the Authorised Officer and

ultimately by an order dated 24th May, 2019 passed under Section 45A

of the said Act, the respondent no.3 had determined an amount of

Rs.25,44,935/- for the period from 4 th April, 2016 to March, 2017 in

respect of five out of thirteen heads of accounting as mentioned in the

notice in Form C-18. Although, the petitioners had preferred a

statutory appeal, yet the petitioners before the Appellate Authority had

agreed to deposit contributions in respect of three out of five heads

which included salary, general charges, repair and maintenance. The

issue therefore boiled down to the payment of contributions against

making charges and polishing charges. The same was decided by the

respondent no.2 by an order dated 21 st December, 2021, whereby, the

objections taken by the petitioners were rejected.

7. Being aggrieved, the instant writ petition has been filed.

8. Mr. Majumder, learned advocate representing the petitioners, submits

that both the respondent nos.2 and 3 by misconstruing the provisions

of the said Act and by irregularly construing the leave and licence

agreements had, inter alia, concluded that the aforesaid agreements

raise presumption as regards multiple premises of the petitioners and

proceeding on such premise had observed that it cannot be negated

that the job work carried out by the labours were not at the employer's

tenant premises. It is submitted that the aforesaid reasoning provided

in the order impugned is perverse.

9. By drawing attention of this Court to Section 2(9) of the said Act, it is

submitted that the said definition takes into consideration the broader

aspect, one in relation to direct employment by the principal employer

on any work of, or incidental or preliminary to or connected with the

work of, the factory or the establishment and secondly, works done by

the employer in the factory or establishment or elsewhere. It is

submitted that in case of direct employment under the principal

employer, the test is the nature of work performed by the employee

concerned, where the site of the work is not important. However, in

case of indirect employment, the element of supervision is the most

important criteria to be taken note of. In support of his contention, he

has placed reliance on the following judgments:

(i) C.E.S.C. Limited & Ors. v. Subhash Chandra Bose & Ors.,

reported in (1992) 1 SCC 441.

(ii) Managing Director, Hassan Coop. Milk Producer's Society

Union Ltd. v. Assistant Regional Director, ESI Corpn.,

reported in (2010) 11 SCC 537.

10. Having regard to the aforesaid, it is submitted that the

impugned order should be set aside.

11. Per Contra, Mr. Prasad, learned advocate representing the

respondents, has placed in detail the documents on record, inter alia,

including the order dated 21st December, 2021. He submits the issue

that falls for consideration is whether the petitioner had the ultimate

control and supervision of the works over the karigars since, the

karigars were executing the work at the premises, which is under the

exclusive control and supervision of the petitioners.

12. Although, the matter pertains to disputed questions of facts and

ordinarily should not be decided by this Court in exercise of its

extraordinary writ jurisdiction as the ESI Court is available yet, having

regard to the submissions made by the petitioners and the factual

position, he submitted that there is no irregularity in the order passed

by the respondents. By placing reliance on the case of M/s. P.M. Patel

& Sons & Ors. v. Union of India & Ors., reported in (1986) 1 SCC

32, it is submitted that the Hon'ble Supreme Court while construing

the provisions of the said Act in relation to Beedis prepared by workers

elsewhere, which involved, acceptance and rejection, had concluded

that the same constituted an effective degree of supervision and

control. Following the aforesaid, he submits the benefit of the said Act

was extended to the Beedi workers employed through contractors. The

word "employee" under Section 2(9) of the said Act is to be construed

liberally. He also relies on the judgement delivered by the Hon'ble

Supreme Court in the case of C.E.S.C. Limited & Ors. v. Subhash

Chandra Bose & Ors., reported in (1992) 1 SCC 441, the case of

Royal Takies, Hyderabad & Ors., v. Employees State Insurance

Corporation. reported in (1978) 4 SCC 204 and the case of

Mangalore Ganesh Beedi Works and Ors. v. Union of India and

Ors., reported in (1974) 4 SCC 43.

13. Heard the learned advocates appearing for the respective parties

and considered the materials on record.

14. On the basis of the admitted facts as indicated hereinabove and

to appreciate the rival contentions of the parties, it is relevant to

consider the provisions of Section 2(9) of the said Act, the same is

extracted hereinbelow:

"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:

Provided that an employee whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government 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;

15. It would appear from the above definition of the term "employee"

that the same can be broadly classified in four distinct sets of category

persons who are either, directly employed by the principal employer or

by the immediate employer (contractor).

Firstly, the same includes persons who are directly employed by

the principal employer on any work of, or incidental to or

preliminary to or connected with the work of, the factory or the

establishment, whether such work is done by the employee in

the factory or establishments or elsewhere.

Secondly, the definition of the term employee also means and

includes persons who are employed by or through the 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 factory or establishment or

which is preliminary to the work carried on in or incidental to

the purpose of the factory or establishment.

Thirdly, persons 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 services.

Fourthly, persons who are 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. And also

includes an apprentice, not being an apprentice engaged under

the Apprentices Act, 1961. There are, however, certain

exceptions which are not relevant for the present purpose.

16. I find that Mr. Majumder, learned advocate representing the

petitioners by laying stress on the expression 'premises' and

'supervision' used in the aforesaid Section has tried to make out a case

that since, artisans/karigars are not working in the premises of the

factory or the establishment, and are not under the supervision or

control of the petitioners, the said Section is not attracted. According

to him, the expression 'supervision' is interlinked with the ownership

or control of the premises and cannot be divorced therefrom. However,

the entire argument proceeds on the premise of involvement of an

immediate employer being a contractor. In this context, it would be

relevant to consider the judgment delivered by the Hon'ble Supreme

Court in the case of Mangalore Ganesh Beedi Works & Ors. (supra)

wherein the Hon'ble Supreme Court while distinguishing between the

principal employer and independent contractor in paragraph 86 was,

inter alia, pleased to observe as follows:

"86. Take the definition of the word "contractor". Insofar as it says that it means "a person who, in relation to a manufacturing process, undertakes to produce a given result by executing the work" it is not objectionable and refers to a contractor ordinarily understood. But when the words "through contract labour" are added it leads to complications. "Contract labour" is defined as "any person engaged or employed in any premises by or through a contractor".

Therefore, all labour employed by a contractor is contract labour. If any manufacturer employs any person through a contractor, the labour would be contract labour. Then again "contractor" also means "a person who engages labour for any manufacturing process in a private dwelling house". In such a case even a principal employer who engages labour for any manufacturing process would be a contractor. The further definition of the word "contractor" includes a sub- contractor, agent, munshi, thekedar or sattedar. These are obviously included to cover a class of persons dealt with by this Court in certain decision including Chintaman Rao case. An "employer" is defined to be, in relation to contract labour, the principal employer. I have already pointed out that contract labour would include labour employer even by the manufacturer himself direct. "Principal employer" is defined as "a person for whom or on whose behalf any contract labour is engaged or employed in an establishment". Therefore, when contract labour is employed for a person he is a principal employer. When contract labour is engaged or employed on behalf of a person he is also a principal employer. What distinction could be made between the two is a little difficult to understand. However, in the second part of definition of "employer" in relation to labour other than the

contract labour in clause 2(g)(b) -- though in view of what I have said earlier it is difficult to see what that other labour could be -- there can be no objection to the person who has the ultimate control over the affairs of any establishment being considered the employer, as also any person to whom the affairs of the establishment are entrusted, whether such other person is called the managing agent, manager, superintendent, or by any other name. But to call a person who has, by reason of his advancing money, supplying goods or otherwise, a substantial interest in the central of the affairs of any establishment, also an employer is very difficult to justify. It is apparently intended to cover cases where a person runs business benami i.e. in another's name. There can be no objection to such a provision. But merely because a person lends or advances money or supplies goods he cannot be called an employer. He may have a substantial interest in the control of the affairs of the manufacturing establishment in the sense that the security for the money advanced depends upon the manufacturing establishment being run properly or even in the sense that a person supplying goods might also be interested in the control of the affairs because he may be supplying goods on credit. I think the words "or who has, by reason of his advancing money, supplying goods or otherwise, a substantial interest in the control of the affairs of any establishment" should be struck down."

17. However, it must be noted that the aforesaid judgment was

delivered by the Hon'ble Supreme Court while dealing with the Beedi

and Cigar Workers (Conditions and Employment) Act, 1966. In the

case of C.E.S.C. Limited & Ors. (supra) which considers the case of

Royal Talkies, Hyderabad & Ors. v. Employees State Insurance

Corporation, reported in (1978) 4 SCC 204 and the case of M/s. P.M.

Patel & Sons & Ors. (supra), the Hon'ble Supreme Court while

considering the impact of the word 'supervision' as appearing in

Section 2(9) of the said Act, in paragraph 13 had been pleased to

observe as follows:

"13. In whatever manner the word 'employee' under Section 2(9) be construed, liberally or restrictedly, the construction cannot go to the extent of ruling out the function and role of the immediate employer or obliterating the distance between the principal employer and the immediate employer. In some situations he is the cut-off. He is the one who stumbles in the way of direct nexus being established, unless statutorily fictioned, between the employee and the principal employer. He is the one who in a given situation is the principal employer to the employee directly employed under him. If the work by the employee is conducted under the immediate gaze or overseeing of the principal employer, or his agent, subject to other conditions as envisaged being fulfilled, he would be an employee for the purpose of Section 2(9). Thus besides the question afore-posed with regard to supervision of the principal employer the subsidiary question is whether in the instant case the contractual supervision exercised by the immediate employer (the electrical contractors) over his employee was exercised, on the terms of the contract, towards fulfilling a self-obligation or in discharge of duty as an agent of the principal employer."

18. The above matter, however, dealt with the engagement of

electrical contractors by CESC Ltd., who in turn employed labourers to

carry out diverse job of excavation, conversion of overhead electric

lines and laying of underground cables under public roads, as well as

for repair and maintenance of the aforesaid works. In this context, I

must note, for the sake of clarity and at the cost of repetition that the

entire argument of Mr. Majumdar revolves around the second category

of persons classified in the definition of the term employee as noted

above which necessitates involvement of an immediate employer (like a

contractor), unlike the first category, which does not require the

involvement of the immediate employer at all. I may, however, note

that in paragraph 3 and 4 of the writ petition, the petitioners have

stated on oath that the petitioner no.1 provides the raw materials

which are collected by independent artisans from the petitioners'

premises and after the work is completed, the finished products are

bought to the petitioners' premises, whereupon it is decided either to

accept or to reject the same. In case of acceptance, the petitioners pay

the cost for the job charges. On the contrary, if the same is rejected,

the artisans/karigars pay the cost price of clothing to the petitioners

and take away the garments. The relationship between the weavers

and artisans with that of the petitioners has been identified as an

arrangement on principal to principal basis. Another category of

persons have also been identified as traders so as to bring in an

element of involvement of an immediate employer. No particulars have

been disclosed as regards the contracts executed either by individual

artisans/karigars employed by the petitioners or by the traders. It is

also not clear as to how many items have been rejected and the

amount received from such traders towards the cost price of the raw

materials. The contracts entered into between the artisans, traders

and the respective karigars have also not been disclosed. It is,

therefore, apparent and clear that at least the relationship between the

petitioners and the artisans/karigars/ weavers is direct and

contractual, though, the exact nature of contact has been conveniently

held back. There, however, may be some element of doubt as regards

the relationship between the traders and the petitioners.

19. Having regard to the aforesaid and taking into consideration the

definition of the term 'employee' including the word 'supervision'

occurring therein, although, the term 'supervision' as occurring in the

said Section in relation to the principal employer or his agent, is

relatable to the term 'work' at the places envisaged and the expression

'work' can neither be construed as broadly to be the final act of

acceptance or rejection of work, nor so narrowly so as to supervise at

all times, all steps of the work, however, when no documents are

forthcoming to establish the exact nature of contract between the

artisans/karigars and the petitioners and taking note of, the admitted

position as regards direct employment of such artisans/karigars by

the petitioners and, the first category of the term 'employee' in the

definition as noted hereinabove, these artisans/karigars cannot stand

excluded from the term employee as appearing in Section 2(9) of the

said Act.

20. Having regard to the aforesaid, since, it is clear that the

artisans/karigars are employed directly by the petitioners, for work of

the establishment, it is immaterial whether they work within the

factory or the establishment. The material consideration being the

work of or incidental or preliminary to or connected with the work of

the factory or establishment. Since, it is not in dispute that the work

done by the artisans/karigars are work of or incidental or preliminary

to or connected with the work of the factory or establishment, they fall

under the first category of the term employee, and there is no necessity

for any supervision, for the artisans/karigars to come under the

purview of the definition of the term employee. What is important is

the direct employment of the artisans/karigars by the principal

employer, in this case being the petitioners, and the nature of work

carried on by them.

21. In the instant case, it, however, appears that the respondent

nos. 2 and 3 have both applied the wrong test. Simply because the

petitioners have been incurred expenses on account of rent and

maintenance, the same does not raise the presumption as regards

multiple premises of the petitioners. Further, the determination has

proceeded on the basis that the job carried out by the labours, were on

the extended premises of the petitioners. From the documents

disclosed, it would, however, appear that the multiple agreements are

in relation to showroom of the petitioners.

22. Although, the reasoning provided and the basis for the order

passed by the respondent nos.2 and 3, for determining contributions

payable by the petitioners may not be correct, however, this Hon'ble

Court in exercise of its extraordinary jurisdiction, when called upon to

examine the correctness of the order impugned, is competent enough

to determine the applicability of the provisions of the said Act, in

relation to the artisans and karigars directly employed by the

petitioners for carrying out work connected with the work of the

establishment.

23. In view thereof, the order impugned cannot be sustained. The

same is accordingly set aside. The respondent no.3 is directed to pass

a fresh reasoned order upon determining the contributions payable by

the petitioners by treating the artisans/karigars to be the direct

employees of the petitioners. The petitioners are directed to submit

details and particulars of the artisans/karigars, employed by the

petitioners including the contracts executed, if any, between the

traders and the petitioners for the respondent no. 3 to take a decision

in the matter. If the petitioners fail to make appropriate disclosure, it

shall be open to the respondent no. 3 to pass such orders as it may

deem fit. The aforesaid process must be completed within ten weeks

from the date of communication of this order, upon giving an

opportunity of hearing to the petitioners or its representatives.

24. With the aforesaid observations and directions, the writ petition

stands disposed of.

25. There shall be no order as to costs.

26. Urgent Photostat certified copy of this order, if applied for, be made

available to the parties on priority basis upon compliance of all

formalities.

(RAJA BASU CHOWDHURY, J)