M/S Shankar Talkies vs The Joint Director
2021 Latest Caselaw 7138 Kant

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           IN THE HIGH COURT OF KARNATAKA
                   DHARWAD BENCH

      DATED THIS THE 23RD DAY OF DECEMBER, 2021

                            BEFORE

           THE HON'BLE MRS.JUSTICE M.G.UMA

                  MFA.NO.9320/2009 (ESI)
                  C/W MFA.NO.9321/2009

IN MFA NO.9320/2009

BETWEEN

M/S SHANKAR TALKIES
CHITRADURGA
REPRESENTED BY ITS PARTNER
MS. TEJAS M SATI
                                               ...APPELLANT

(BY SRI.C.K.SUBRAMANYAM, ADV. FOR
    SRI.MALLIKARJUNSWAMY B.HIREMATH, )

AND

THE JOINT DIRECTOR
EMPLOYEES STATE INSURANCE CORPORATION
SUB REGIONAL OFFICE,
SARVODAYA CIRCLE, KESHWAPUR, HUBLI

                                              ...RESPONDENT

(BY SMT.G.MEERABAI, ADV.)

THIS APPEAL IS FILED U/S 82(2) OF ESI ACT TO SET ASIDE THE ORDER DT. 17.9.2009 PASSED IN E.S.I. APPLICATION NO.24/2003 ON THE FILE OF THE E.S.I COURT, HUBLI AT HUBLI.

IN MFA NO.9321/2009

BETWEEN

M/S MALLIKARJUNAIAH & SONS, NO. 63, V.P.EXTENSION, CHITRADURGA REPRESENTED BY ITS PARTNER SRI.MALLIKARJUNAIAH.

...APPELLANT

(BY SRI.C.K.SUBRAMANYAM, ADV. FOR SRI.MALLIKARJUNSWAMY B.HIREMATH, )

AND

THE JOINT DIRECTOR EMPLOYEES STATE INSURANCE CORPORATION SUB REGIONAL OFFICE, SARVODAYA CIRCLE, KESHWAPUR, HUBLI

...RESPONDENT

(BY SMT.G.MEERABAI, ADV.)

THIS APPEAL IS FILED U/S 82(2) OF ESI ACT TO SET ASIDE

THE ORDER DT. 17.9.2009 PASSED IN E.S.I. APPLICATION

NO.22/2003 ON THE FILE OF THE E.S.I COURT, HUBLI AT HUBLI.

THESE APPEALS HAVING BEEN HEARD AND RESERVED FOR

JUDGMENT ON 19.11.2021 COMING ON FOR PRONOUNCEMENT OF

JUDGMENTS THIS DAY, THE COURT DELIVERED THE FOLLOWING:

COMMON JUDGMENT

MFA No.9320/2009 is preferred by the appellant i.e., M/s

Shankar Talkies and MFA No.9321/2009 by the appellant M/s

Mallikarjunaiah and Sons seeking to set aside the order dated

17.09.2009 passed by the Employees State Insurance Court,

Hubballi ('the ESI court' for short) in ESI Application Nos.22 and

24 of 2003.

2. Brief facts of the case are that, two separate

applications were filed by the appellants herein before the ESI

court seeking to set aside the impugned order passed by the

respondent dated 10.07.2003 under Section 45A of the

Employees' State Insurance Act, 1948 ('the Act' for short)

holding that there is functional integrity between the appellants

in these two appeals and that they have employed 20 employees

and therefore, the establishment as defined under Section

2(12)(b) of the Act. The appellants and the respondent led

evidence before the trial court and the ESI application Nos.22

and 24 of 2003 were disposed of by a common order which is

impugned herein.

3. Heard the learned counsel Sri.C.K.Subramanyam for

learned counsel Sri.Mallikarjunswamy B.Hiremath for the

appellants and learned counsel Smt.G.Meerabai for the

respondent.

4. Learned counsel for the appellants contended that

the appellants in these two appeals are different and separate

entities and there is no functional integrity between the two.

Both entities incorporated separately and carrying on its

businesses in different fields. Under such circumstances, the

respondent could not have held that there is functional integrity

between the two. He further submitted that the report submitted

by the respondent that the establishment engaged the services

of more than 20 employees and it is covered under the definition

of establishment under the Act is also erroneous, since at no

point of time, the appellants have engaged services of 20 or

more employees. The ESI Inspector had never visited the

establishment, but issued the report blindly without verification.

As per the list submitted by the ESI Inspector, there were 20

employees including one Mr.Palaiah, and one Mr.G.P.Kumar who

is examined before the ESI court as AW2 wherein he has

specifically stated that he is not an employee or workman under

the appellants, but he is a film distributor. The name of

Mr.Palaiah mentioned twice in the report without any basis. If

these two names are deleted, then there will be 18 employees

who were working in the establishment even according to the

respondent. Moreover, the respondent has not given the details

or particulars of each of the employees as required as per the

judgment of the Hon'ble Apex Court in the case of Employees

State Insurance Corporation vs M/s M.M.Suri &

Association (P) Ltd.1. Since there is no dependency between

the two establishments and at any point of time the

establishments have never employed 20 employees, the order

passed by the respondent under Section 45A of the Act is

erroneous and the same is liable to be set aside. Accordingly, he

prays for allowing both the appeals.

AIR 1999 SC 803

5. Per contra, learned counsel for the respondent

opposing the submissions made by the learned counsel for the

appellants in both the cases, contended that the ESI Inspector in

his official capacity visited the establishments and found that

there is functional integration between the two establishments.

Both the establishments run by the partnership firm under the

single partnership deed having common partners. The business

in question are being run by the partnership firm and therefore,

there is functional integration. The witness examined before the

ESI court and the documents produced as Ex.A1, disclose that

there is only one partnership firm which is running two

establishments. Moreover, when the ESI Inspector visited the

establishment, he found that there were 20 employees working

in the establishments and therefore, the contribution is to be

made by the establishments toward ESI as per Section 45A of

the Act. There is no illegality in the report submitted by the ESI

Inspector and the determination of the contribution to be made

by the appellants. The ESI court considered all these facts and

circumstances in proper perspective and passed the impugned

order, which does not call for any interference by this court.

6. Learned counsel further submitted that on

verification of the names and other details of the employees

found in the establishment, the same are mentioned in the list

and therefore, the contention of the appellants that the names of

Palaiah is mentioned twice or that G.P.Kumar is a film distributor

and not the employee, cannot be accepted. Hence, she prays for

dismissal of both the appeals.

7. Perused the material on record. The point that would

arise for my consideration is:

Whether the impugned order dated 17.09.2009

passed in ESI Application Nos.22 and 24 of 2003 call

for interference in these appeals?

My answer to the above point is in the 'partly in the

affirmative' for the following:

REASONS

8. As per the materials that are placed before the

Court, Shankar Talkies is a partnership firm which was

established in 1942 and was registered under the Karnataka

Shops and Commercial Establishments Act, 1961. During 1980

this establishment Shankar Talkies was taken over by

Sri.Mallikarjunaiah and the partnership firm is re-constituted

under the name and style as M/s Mallikarjunaiah & Sons which

was also registered under the Karnataka Shops and Commercial

Establishments Act, 1961.

9. It is the specific contention of the learned counsel for

the appellants that these two establishments are different and

distinct and there is no functional integrity between the two. To

prove this contention, the appellants have examined two

witnesses before the ESI court. The partnership deed is marked

as Ex.A1 in ESI application No.22/2003. According to which,

father and two sons are partners. The recitals found in the

document disclose that the partnership firm is running Shankar

Talkies. AW.1 is Sri.S.N.Shivasharan in ESI application

No.24/2003 and during cross-examination he categorically

stated that M/s Mallikarjunaiah & Sons is the partnership firm

and it is also running Shankar Talkies. He further admits that

accounts pertaining to Shankar Talkies is maintained by M/s

Mallikarjunaiah & Sons and that the said M/s Mallikarjunaiah &

Sons is getting income from film exhibition by Shankar Talkies.

The admission given by AW.1 coupled with the recitals found in

Ex.A1 which falsifies the contention taken by the appellants that

there are two partnership firms and the establishments are

separate and independent. From the partnership deed and the

evidence referred to above, it is clear that both the

establishments are having common entities which are run by one

partnership firm. Therefore, I do not find any merit in the

contention of the learned counsel for the appellants in this

regard.

10. The next contention raised by the appellant is that,

at no point of time there were 20 employees working in the

establishment. In this regard, respondent is relying on the report

submitted by the ESI Inspector wherein it is stated that there

were 22 employees working in the establishments. It is stated

that as per the wage roll maintained in Shankar Talkies, there

were 13 employees. There were 6 temporary employees paid

through vouchers and 2 employees employed in the canteen and

one in cycle stand. Thus, it is the establishment as defined under

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Section 2(12)(b) of the Act and the contribution towards ESI is

collected.

11. Learned counsel for the appellants admitted that

Shankar Talkies employed 13 employees but disputed that there

were 2 Palaiah's working as employees. He also disputes that

G.P.Kumar is the employee of either Shankar Talkies or M/s

Mallikarjunaiah & Sons. On going through the evidence of AW.1,

it is suggested during cross-examination that there were casual

employees who are being paid through vouchers and the said

suggestion is admitted by the witness. the casual employees

who are engaged casually either as electricians or plumbers

cannot be termed as employees of the firm to hold that total

number of employees employed in the establishment are either

20 or 22. Moreover, as rightly contended by the learned counsel

for the appellants that there are no details of the employees who

were employed in the establishments were taken when the ESI

Inspector visited the establishment. In M.S.Suri & Associatio

(P) Ltd. (supra), the Hon'ble Apex Court made it clear that it is

not sufficient that 20 persons are employed in an establishment

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to bring it within the ambit of an establishment liable for

contribution towards ESI, those persons should be employees

with Section 2(9) of the Act. In the absence of any details or

identification of those employees, it cannot be said that the

establishment had employed more than 20 employees to bring it

within the ambit of an establishment. Thus, the contention of the

respondent in that regard cannot be accepted. Hence, I am of

the opinion that the Shankar Talkies and M/s Mallikarjunaiah &

Sons are being run by a single partnership firm and there is

functional integration. However, the contention of the

respondent that the establishment had employed 20 or more

employees at a given point of time is not proved in accordance

with law.

12. I have gone through the impugned order passed by

the ESI court wherein it is held that the respondent has proved

functional integrity of two establishments which is to be upheld.

However, I do not find any cogent reasons assigned by the ESI

court to hold that there were 20 employees working the

establishment. Accordingly, the impugned order is liable to be

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modified. Hence, I answer the above point 'partly in the

affirmative' and proceed to pass the following:

ORDER

Both the appeals are allowed in part.

The impugned order dated 17.09.2009 passed in ESI

application Nos.22 and 24 of 2003 is modified.

It is held that M/s Mallikarjunaiah & Sons and Shankar

Talkies are having functional integrity and the same are being

run by single partnership firm. However, the contention of the

respondent that the establishments having engaged the services

of 20 or more employees at the given point of time, is rejected.

SD/-

JUDGE

MBS/-