Karnataka High Court
Tata Tea Limited vs The Joint Director on 1 March, 2024
Author: H.P. Sandesh
Bench: H.P. Sandesh
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 1ST DAY OF MARCH, 2024
BEFORE
THE HON'BLE MR. JUSTICE H.P. SANDESH
M.F.A. NO.4739/2011 (ESI)
BETWEEN:
1 . TATA TEA LIMITED
NO.62, 3RD CROSS,
II PHASE, INDUSTRIAL SUBURB,
YESWANTHAPUR
BANGALORE-560022,
REPRESENTED BY ITS
SENIOR MANAGER-PERSONNEL
MR. KRISHNAPPA (MAJOR)
... APPELLANT
(BY SRI K.KASTURI, SENIOR COUNSEL FOR
SRI J.PRADEEP KUMAR, ADVOCATE)
AND:
1. THE JOINT DIRECTOR
EMPLOYEES STATE INSURANCE CORPORATION
NO.10, BINNY FIELDS, BINNYPET
BANGALORE-560023.
2. WHITE CLIFF TEA PVT. LTD.,
HAING ITS REGISTERED OFFICE
AT A-2, BALLYGUNGE PARK TOWER
678, BALLYGUNGE CIRCUIT ROAD
KOLKATTA-700019.
... RESPONDENTS
(BY SMT.GEETHA DEVI M.P., ADVOCATE FOR R1; R2 - SERVED)
2
THIS M.F.A. IS FILED U/S 82(2) OF THE EMPLOYEES
STATE INSURANCE ACT, AGAINST THE ORDER DATED 31.3.2011
PASSED IN ESI APPLICATION NO.7/2009 ON THE FILE OF
EMPLOYEES STATE INSURANCE COURT, BANGALORE,
DISMISSING THE APPLICATION FILED U/S 75 OF EMPLOYEES
STATE INSURANCE ACT, CHALLENGING THE ORDER DATED
24.4.2009 U/S 45-A OF THE ESI ACT DEMANDING
CONTRIBUTION OF RS.2,40,320/- FOR THE PERIOD 2004 TO
JULY 2007.
THIS M.F.A. HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 14.02.2024 THIS DAY, THE COURT
PRONOUNCED THE FOLLOWING:
JUDGMENT
Heard the learned counsel for the appellant and learned
counsel for the respondent No.1.
2. The factual matrix of the case of the respondent
No.1-Employees State Insurance Corporation ('ESI' for short) is
that on 11.06.2007, 22.06.2007 and 20.08.2007, the Insurance
Inspector visited the appellant-establishment at Bangalore and
noticed non-payment of contribution. Hence, issued a letter
directing the appellant to produce the records immediately
before the Insurance Inspector after fixing his prior appointment.
On 19.11.2007, the appellant replied to the letter sent by the
respondent No.1 and in view of non-satisfaction of reply, on
17.04.2008, the respondent No.1 issued a C-18 notice and in
pursuance of the same, the appellant submitted a letter before
the Deputy Director in person on 22.04.2008. The respondent
No.1 passed an order dated 24.04.2009 under Section 45-A of
the Employees State Insurance Act, 1948 ('ESI Act' for short)
directing the appellant herein to pay the omitted contribution in
a sum of Rs.2,40,320/- for the period from 2004 to 2007. The
same is challenged before the ESI Court and the ESI Court
having considered the application filed by the appellant under
Section 75 of the ESI Act, considered the grounds which have
been urged and dismissed the E.S.I. Application No.7/2009.
Being aggrieved by the said order of rejection, the present
appeal is filed.
3. Learned counsel for the appellant would contend that
the order passed by the respondent No.1 is arbitrary and without
jurisdiction. The respondent No.2-White Cliff Tea Pvt. Ltd. is a
separate Private Limited Company registered under the
Companies Act, 1956 and having its registered office. The
respondent No.2 has a separate ESI Code No.53-13809-82,
under which it makes contribution to its employees. The
appellant has entered into manufacturing agreements from time
to time with respondent No.2 and those agreements were also
produced before the Insurance Inspector at the time of
inspection and clearly explained to him that appellant and
respondent No.2 are different companies having no connection
whatsoever and are two different legal entities. It is contended
that respondent No.2, as per the manufacturing agreement,
packs the tea for the appellant at its manufacturing facility at
Hyderabad. The agreement between the appellant and
respondent No.2 is on a principal basis as per Clause No.11 of
the said manufacturing agreement. The appellant is not having
any supervision of work and there is no relationship of principal
employer and a contractor. That apart, respondent No.2 is not a
contractor as per the Contract Labour under the Contract Labour
(Regulations & Abolition) Act. It is contended that appellant pays
respondent No.2 only packing charges as per the agreement
based on the quantity packed and fixed charges as
administration expenses. The packing charges are also annexed
to the manufacturing agreement. It is further contended that no
labour invoice is raised by respondent No.2 on the appellant. As
per Clause No.1.5 of the manufacturing agreement, invoice
means invoice raised for manufacturing activity only. It is
submitted that respondent No.2 has a separate factory licence
for its facility at Hyderabad. It is submitted that despite
explaining the facts very clearly time and again, the ESI
Corporation, only to harass the appellant has passed the order
under Section 45-A of the ESI Act and the same is without
jurisdiction.
4. Learned counsel also would vehemently contend in
his argument that double contribution cannot be made, since
both the appellant and respondent No.2 are having their own
registered separate code and they are making payment. When
there was no supervision, the question that the appellant is
liable to pay the contribution does not arise and the
interpretation of Section 2(9) of ESI Act is not correct. The
counsel would vehemently contend that the Court has to frame
substantial questions of law whether the manufacturing
agreement between two entities on piece rate and on physical
employer to principal employer basis, be categorized as a
system of Contract Labour under the Contract Labour
(Regulations & Abolition) Act and the very conclusion reached by
the ESI Court was not right in law, in coming to the conclusion
that there exist the relationship of principal employer and
immediate employer and the ESI Court committed an error in
appreciating the judgment of the Apex Court. The counsel
further in his argument would vehemently contend that the ESI
Court committed an error in rejecting the application filed under
Section 75 of the ESI Act.
5. The counsel, in support of his argument, relied upon
the judgment of this Court in TATA TEA LTD., BANGALORE
VS. E.S.I. CORPORATION, BANGALORE reported in 2000-I-
LLJ. The counsel referring this judgment would contend that
there is no right of supervision within the meaning of Section
2(9) of ESI ACT, 1948. A right to reject the items brought (by)
job contractors for wanting any quality of work as per job
specification by principal employer could not be said to be an act
of supervision under Section 2(9)(ii), nor for the said reason job
contractor could be held to be immediate employer under
Section 2(13) of the Act. Neither clause (i) nor clause (ii) of
Section 2(9) of the Act was attracted to the facts of this case.
The counsel referring this judgment would vehemently contend
that when similar issue was raised, this Court has held that
demand made by the ESI Corporation is liable to be set aside.
6. Per contra, learned counsel for the respondent No.1
would vehemently contend that the respondent No.1 rightly
passed the order under Section 45-A which is marked as Ex-A6
and taken note of the fact that as principal employer in relation
to the said factory, failed to pay contributions for the period from
2004 to 2007 and show cause notice was issued and they
objected for payment of contribution. The Insurance Inspector,
who verified the records found non-payment of contribution and
there is no dispute with regard to the payment of contribution
for the period of three years i.e., 2004 to 2007 and different rate
of contributions are made. Though in 2004-2005, contribution
was made at 64.6%, for 2005-2006 contribution was made at
42.17% and for the year 2006-2007, contribution was made only
at 49.53% and order was passed to pay the difference amount,
as the same was not at the percentage of 60% of the amount.
Learned counsel also brought to notice of this Court that the
agreement which is marked as Ex.A7 is very clear with regard to
entrusting the work of packing and Clause No.4.1 in the
manufacturing agreement at Ex.A8 is very clear with regard to
the fact that appellant shall supply to the manufacturer the
different varieties of tea and the packaging material, for
manufacture of the product/s. The manufacturer undertakes to
manufacture the product/s in accordance with the specifications
provided by Tata Tea from time to time, by utilizing the raw
material and packaging material supplied by Tata Tea, at the
manufacturing facility, on the terms and conditions specified
under this agreement and the said manufacturing agreement
also specify the nature of work.
7. The counsel also brought to notice of this Court
Clause Nos.4.2, 4.3 and 4.6 of the manufacturing agreement at
Ex.A8. Even under Clause No.4.6, the appellant reserves the
right to replace the defective material and/or packaging material
in the event it is satisfied that such defects have not developed
on account of poor storage or mishandling of the raw material
and/or packaging material while it was in the possession of the
manufacturer and under Clause No.4.9, the appellant shall be
entitled to permanently depute the required number of its
personnel at the manufacturing facility to oversee the
manufacturing of the product/s. The learned counsel also
brought to notice of this Court Clause No.4.5 of the said
agreement. The counsel also relied upon the document of Ex.A9
for having made the payment. The counsel referring these
documents i.e., Exs.A7, A8 and A9 would contend that entire
establishment is under the control of the appellant and there was
supervision by the appellant. The counsel also would submit
that Section 40 of the ESI Act states that the principal employer
to pay contribution in the first instance and work entrusted to
the respondent No.2 shall fall within Section 41 of the ESI Act.
The counsel also would vehemently contend that for the year
2004-2005 they paid the contribution at the rate of 64.6%, but
later not paid the contribution and hence, order has been passed
invoking Section 45-A of the ESI Act and no dispute with regard
to payment of contribution at 60% for the year 2004-2007.
Hence, the question of interfering with the order passed by the
respondent No.1 does not arise.
8. In reply to the argument of the learned counsel
appearing for the respondent No.1, learned counsel for the
appellant would contend that the issue involved between the
parties is that the respondent No.2 is having its branch at
Hyderabad and the appellant is having its unit at Bengaluru and
Insurance Officer has not verified the records in a proper
manner. The counsel would vehemently contend that they are
not the employees of the appellant and they are the employees
of respondent No.2. Hence, Section 2(9) of the ESI Act is very
clear that there cannot be any liability on the appellant.
9. Having considered the grounds urged in the appeal
as well as the contentions of the learned counsel for the
appellant and learned counsel for the respondent No.1, the
substantial questions of law that arise for consideration before
this Court are:
(1) Whether a manufacturing agreement between
two entities on piece rate and on principal
employer to principal employer basis, be
categorized as a system of Contract Labour
under the Contract Labour (Regulations &
Abolition) Act?
(2) Whether the ESI Court was right in law in
passing an order invoking Section 45-A of the
ESI Act with reference to the interpretation of
Section 2(9) of the ESI Act?
Substantial questions of law Nos.(1) and (2)
10. Having heard the respective counsels and also on
perusal of the material available on record, this Court has to
examine whether the claim made by the respondent No.1-ESI
Corporation against the appellant is proper and whether the
applicant had no control or supervision over the work entrusted
to the respondent No.2 relating to payment made during 2005-
2006 and 2006-2007. The ESI Court has also taken note of the
fact whether the appellant is liable to pay the contribution or not.
11. Having considered the material on record, it is not in
dispute that in terms of Ex.A6, the claim is made by the
Corporation. It is also important to note that the Court has to
take note of the documents, particularly Exs.A7 and A8. It is not
in dispute that an agreement was entered into between the
appellant and respondent No.2 in terms of Ex.A7. It is also not
in dispute that the work is entrusted to respondent No.2 for
packing the tea products. In terms of agreement at Ex.A7, even
the appellant had agreed to entrust necessary machinery and
equipment together with other miscellaneous items. The major
repairs and replacements of the machinery will be jointly co-
ordinated and will be to the account of the appellant. Routine
maintenance and repairs will be to the account of respondent
No.2. The appellant decision in this regard shall be final and
binding. It is also important to note that the details or work
entrusted is also incorporated in the agreement. It is also
important to note that under Clause No.2.5 of the agreement, it
shall be the responsibility of respondent No.2 to properly
supervise and control the work at the Centre and the appellant
shall have no responsibility in such matters. However, the
appellant have the right to depute its representative(s) to
inspect the premises during working hours on any day, without
prior intimation. Such representative(s) will have full and free
access to all premises, production and packing and to all records
and accounts pertaining thereto, with the right to take copies
and make audits for verification etc.
12. It is also important to note that under Clause No.2.6
of the agreement at Ex.A7, the respondent No.2 shall be liable
for the payments to be effected to those employed directly by
them and shall also be responsible for any liability in respect of
the Employees' with regard to Employees' State Insurance
Corporation; Employees' Provident Fund; Workmen's
Compensation Act; including the Industrial Disputes Act. The
main work of the respondent No.2 is packing and blending gains
during the production process which will be to the account of the
appellant. It is also important to note that one more
manufacturing agreement is entered into between the appellant
and the respondent No.2 and Clause No.4 of the said agreement
is very clear with regard to manufacture of products and the
manufacturer undertakes to manufacture the product/s in
accordance with the specifications provided by the appellant
from time to time, by utilizing the raw material and packaging
material supplied by the appellant. Clause No.4.6 of the said
agreement is very clear that the manufacturer shall also inspect
the raw material and/or packaging material prior to use and if
the same do not meet the required quality and specification, the
manufacturer shall be solely responsible for all the raw material.
Clause No.4.9 of the agreement is clear that the appellant shall
be entitled to permanently depute the required number of its
personnel at the manufacturing facility to oversee the
manufacturing of the product/s. The manufacturer shall co-
operate with such personnel in all respects and provide them
adequate office space at the manufacturing facility and Clause
No.4.10 provides that the personnel deputed by the appellant
may identify any product/s or material in process of
manufacture, which are defective/inappropriate and intimate the
manufacturer in this regard.
13. Having considered the agreements at Exs.A7 and A8,
it is clear that there was agreements between the appellant and
respondent No.2 with regard to work entrusted to the
respondent No.2. The respondent No.1 has also taken note of
non-payment of 60% of the contribution and though contribution
was made at 64.6% in the first year i.e., for 2004-2005, for the
year 2005-2006 contribution was made at 42.17% and for the
year 2006-2007 contribution was made only at 49.53%. It is
also important to note that ESI Court has also taken note of
agreements between the appellant and respondent No.2 and as
per Clause No.2.6 of the agreement at Ex.A7, it is clear that
respondent No.2 shall, if any claim is made on the appellant in
respect of the labour engaged by them in any Labour Enactment,
the appellant shall fully indemnify all such claims/future claims.
The same was taken note by the ESI Court and the ESI Court
also taken note of Clause No.5 that the appellant will have the
right to depute its representative(s) to inspect the premises
during working hours on any day, without prior intimation.
Such representative(s) will have full and free access to all
premises, production and packing and to all records and
accounts pertaining thereto, with the right to take copies and
make audits for verification, no doubt wages of the employees of
the respondent No.2 are paid by the respondent No.2 only.
14. It is also important to note that the applicant is
examined before the ESI Court and he admitted in the cross-
examination that appellant was marketing the products blended
and packed by the respondent No.2. Further, Clause No.1.1 of
the agreement at Ex.A7 is clear that the appellant shall entrust
necessary machinery and equipments together with other
miscellaneous items. The major repairs and replacements of the
machinery will be jointly co-ordinated and will be to the account
of the appellant. Routine maintenance and repairs will be to the
account of the respondent No.2. It is also important to note that
though applicant examined a witness as A.W.1, even not chosen
to examine respondent No.2, though it is contended that they
are also having their separate statutory code and payments are
made. However, here is a case where payment is made by
separate entities in respect of their separate entries is
concerned. The dispute between the parties is with regard to
payment was made for the period 2004-2005 at 64.6%, but in
respect of the years 2005-2006 and 2006-2007, deficit
contribution is made and issue is made with regard to deficit
contribution made for the particular period.
15. Though learned counsel for the appellant in his
argument would vehemently contend that there is a double
contribution, the same cannot be made, since the appellant and
the respondent No.1 are having their separate registered ESI
code and the issue is with regard to deficit contribution is
concerned for the particular period. It is also important to note
that Section 2(9) of the ESI Act is pressed into service while
arguing the matter which reads as hereunder
"2(9) "employee" means any person employed
for wages in or in connection with the work of a
factor or establishment to which this Act applies i.e.,
(i) who is directly employed by the principal
employer, or 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".
16. Having taken note of Section 2(9) of the ESI Act and
also the contentions urged by the learned counsel for the parties
and the provision with regard to Section 40 of the ESI Act i.e.,
Principal employer to pay contribution in the first instance and
Section 41-Recovery or contribution from immediate employer is
concerned, this Court has to examine the material available on
record.
17. Having perused the agreement at Ex.A6, it is clear
that demand is made under Section 45-A of the ESI Act with
regard to deficit contribution for the period 2005-2006, wherein
contribution is made only at 42.17% and for the year 2006-
2007, the contribution is made only at 49.53%, but not made
the contribution at 60% on total wages paid. Hence, the
respondent No.1 has made the claim of Rs.2,40,320/-. No doubt,
the learned counsel for the appellant relied upon the judgment of
this Court referred (supra), wherein this Court has held with
regard to Section 2(9) of the ESI Act and also Section 2(13) of
the ESI Act, in Para No.9 of the judgment, this Court has come
to the conclusion that no such supervision is alleged nor any
right to reject the packing. Even otherwise, a right to reject the
items brought from outside agency/job contractors for wanting
any quality of work as per job specification by the principal
employer cannot be said to be an act of supervision by him
under Section 2(9)(ii) nor for the very said reason the outside
agencies/job contractors can be held to be immediate employer
under Section 2(13) of the Act.
18. Having perused this judgment, though this Court
discussed in detail with regard to Section 2(9) of the ESI Act, but
failed to take note of Sections 40 and 41 of the ESI Act and the
same has to be kept in mind, keeping in view the document of
agreements at Ex.A7 and A8 and those two documents are the
agreements entered into between the parties and right was
retained by the appellant for inspection and for deputing their
representatives(s) to monitor the quality and also packing. I
have already discussed in detail about the documents of Exs.A7
and A8. It is important to note that the claim is made in respect
of deficit contribution and I have already pointed out that for the
year 2004-2005, contribution was made at 64.6% and for the
remaining years i.e., 2005-2006 and 2006-2007, the
contributions are made to the extent of 42.17% and 49.53%
respectively as mentioned above and with regard to the deficit
contribution is concerned, claim is made by the respondent No.1.
19. It is important to note that the ESI Court has also
taken note of this fact into consideration in Para No.10 of the
order and in Para No.15, discussed in detail with regard to the
documents and also non-production of detail bills and vouchers
and even though the learned counsel for the appellant would
contend that there cannot be double payment, to show that the
respondent No.2 has also made payment, not chosen to examine
respondent No.2 and even not made any efforts to place the
same before the ESI Court for having made the payment. Even
though it is the claim of respondent No.1 that there is double
payment and accepted the contention that both the appellant as
well as the respondent No.2 are incorporated under the
Companies Act, ought to have placed the material before the
Court for having made the contribution and no such material is
placed and respondent No.2 has not examined any witness to
prove that they have made the payment and in the absence of
any material for having made the contribution, I do not find any
error committed by the ESI Court in rejecting the claim of
appellant. When such being the case, in the absence of any
material for having made the payment, the very contention that
the ESI Court committed an error in categorizing the same as a
system of Contract Labour and ESI Court was not right in law in
coming to the conclusion that appellant and respondent No.2 are
principal employer and immediate employer is erroneous cannot
be accepted. The Court has to take note of proviso of Section
2(9) of the ESI and has to conjointly read Sections 40 and 41 of
the ESI Act and when work was entrusted to respondent No.2 for
packing and blending and though supervisory power is given to
respondent No.2, the appellant had retained the power of
supervision and control as to quality, manufacturing, packing
and blending is concerned and agreements at Exs.A7 and Ex.A8
is very clear to that effect. Hence, I do not find any error
committed by the ESI Court in rejecting the application filed
under Section 75 of the ESI Act. Therefore, I answer the
substantial questions of law accordingly.
20. In view of the discussion made above, I pass the
following:
ORDER
The appeal is dismissed.
Sd/-
JUDGE
ST
