Esi Corporation vs M/S Prakash Home Industries
2022 Latest Caselaw 2544 Kant

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        IN THE HIGH COURT OF KARNATAKA
                DHARWAD BENCH

  DATED THIS THE 16th DAY OF FEBRUARY, 2022

                        BEFORE

      THE HON'BLE MR. JUSTICE R. NATARAJ

             M.F.A.NO.24129/2010 (ESI)

BETWEEN

ESI CORPORATION,
REP. BY ITS JOINT DIRECTOR,
ESI CORPORATION, SUB-REGIONAL OFFICE,
NO. H-42, GROUND FLOOR, NIKETAN,
DOLLARS COLONY,
ADJ. NEW CENTRAL BUS STAND, HUBLI.
                                            ...APPELLANT
(BY SRI.VINAY S KOUJALAGI, ADV. FOR
 SRI.V M SHEELVANT, ADV.)

AND

M/S PRAKASH HOME INDUSTRIES,
NEAR RANI CHANNAMMA NAGAR,
2ND STAGE, UDYAM BAG,
BELGAUM, REP. BY ITS MANAGER.
                                          ....RESPONDENT
(BY SRI. RAVI HEGDE, ADV.)

     THIS MFA FILED U/SEC.82(2) OF THE E.S.I.ACT, 1948,
AGAINST THE JUDGEMENT AND ORDER DATED:31.07.2010,
PASSED IN ESI APPLICATION.NO.29/2008, ON THE FILE OF THE
EMPLOYEE'S STATE INSURANCE COURT, HUBLI, AT HUBLI,
ALLOWING THE PETITION FILED U/SEC.75(2) OF THE
EMPLOYEES STATE INSURANCE ACT, 1948.

     THIS APPEAL COMING ON FOR FINAL HEARING, THIS DAY,
THE COURT MADE THE FOLLOWING:
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                           JUDGMENT

1. This appeal under Section 82(2) of the Employees'

State Insurance Act, 1948 (for short, 'the ESI Act, 1948') is filed

by the ESI Corporation challenging the order dated 31.07.2010

passed by the Employees' State Insurance Court at Hubli

(henceforth referred to as 'the ESI Court') in ESI Application

No.29/2008.

2. The respondent is an establishment which is covered

under the ESI Act, 1948, which was engaged in the manufacture

of machine tools and used to outsource the work to contractors,

to finish the job using their own labourers and return the finished

goods. The Inspector attached to the ESI Corporation visited the

respondent on 01.02.2007. After verifying the records for the

period April 1996 to March 2004, he held that the respondent

had failed to pay contribution on the wages paid to the workers

engaged by the outsourced agencies. Based on his observations,

the ESI Corporation passed an order under Section 45-A of the

ESI Act, 1948 and claimed contribution of Rs.88,681/- on the

wages of Rs.13,64,317/-. The ESI Corporation contended that

the work entrusted to the outsourced agencies is incidental to

the activity of petitioner and the employees engaged in such

incidental activities are the employees of the respondent as

defined under Section 2(9) of the ESI Act, 1948. It therefore

contended that the respondent was a principal employer and the

employees engaged for execution of the job were all covered

under Section 2(13) of the ESI Act, 1948.

3. The respondent on the other hand contended that

the employees engaged by the outsourced agencies did not work

for the respondent and were neither the employees of the

petitioner nor were they paid wages directly by the petitioners.

Therefore it contended that it was not liable to pay any

contribution.

4. Nonetheless, an order was passed under Section 45-

A of the ESI Act, 1948 claiming contribution of Rs.88,681/- for

the period April 1996 to March 2004.

5. Being aggrieved by the aforesaid order, the

respondent filed ESI application No.29/2008 under Section 75(2)

of the ESI Act, 1948. This was contested by the ESI Corporation.

The Accounts Manager of the respondent was examined as AW1,

who marked documents as Exs.A1 to A7. The ESI Corporation

examined its Assistant Director as RW1 and the Inspector as

RW2 and marked documents as Exs.R1-R13. The ESI Court after

considering oral and documentary evidence as well as the

arguments canvassed held that the employees engaged by the

Contractor are not "employees" as defined under Section 2(9) of

the ESI Act, 1948. It rejected the contention of the ESI

Corporation that the respondent has the ultimate say in checking

the quality of the finished goods which amounted to control and

supervision by the respondent. The ESI Court relied upon the

judgment of the Madras High Court in the case of Poonam

Easwardas, Proprietrix, Kaleel Corporation V. Employees'

State Insurance Corporation (Letters Patent Appeal No. 82

of 2000) and held that the work executed by the employees

outside the establishment are not the employees for the purpose

of Section 2(9) of the ESI Act, 1948 and therefore the

contribution demanded by the appellant-Corporation was not

sustainable. Hence, it allowed the ESI application No.29/2008

and declared that the amount paid to the outside agency by the

respondent was not wages as defined under Section 2(22) of the

ESI Act, 1948.

6. Being aggrieved by the aforesaid order, the ESI

Corporation has filed this appeal.

7. Learned counsel for the appellant-Corporation

submitted that though the respondent had outsourced the work,

yet the right to reject the finished goods was reserved by the

respondent and therefore there was a clear control and

supervision by the respondent. Hence, the employees of the said

outsourced agencies are to be deemed as the employees of the

respondent.

8. Per contra, learned counsel for the respondent

submitted that similar question of law came up for consideration

before the Apex Court in the case of Tata Tea Ltd. Vs.

Employees' State Insurance Corporation reported in

2000(86) FLR page 248. He also relied upon the judgment of

the Coordinate Bench of this Court in M.F.A.No.23561/2009,

which was based on similar facts. This Court held that the

employees of outsourced agencies cannot be termed as

immediate employees of the employer.

9. I have considered the submissions made by the

learned counsel for the parties.

10. It is not in dispute that the respondent was involved

in the manufacture of machine tools. It is not in dispute that the

respondent routinely outsourced the job of converting the raw

material to finished goods. The amount paid to such outsourced

agencies cannot be entirely treated as wages. Even otherwise,

since there is no relationship between the respondent and the

employees of the outsourced agencies, they cannot be termed as

immediate employees as defined under Section 2(13) of the ESI

Act, 1948. It may be that the outsourced agencies could be using

its labour resource to execute the works for other manufacturers

also. Therefore, the payment made to such outsourced agencies

cannot be termed to be wages and hence the respondent was

exempt from paying any contribution. The ESI Court has

thoroughly appreciated the material on record and there is no

reason why the appreciation of evidence and finding of fact

should be interfered with. Hence, this appeal is dismissed.

Sd/-

JUDGE KGK