Madras High Court
M/S.Sales Service Company vs The Deputy Director on 10 December, 2021
C.M.A.Nos.833 & 843 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 27.04.2022
PRONOUNCED ON: 12.05.2022
CORAM
THE HONOURABLE Ms. JUSTICE P.T. ASHA
C.MA.Nos.833 & 843 of 2022 and
C.M.P.Nos.5956 & 6108 of 2022
M/s.Sales Service Company
186, Thambu Chetty Street
Chennai-600001.
Rep. by Rajesh Malhotra
Managing Partner ...Appellant/Petitioner
[Common in both the CMAs]
Vs.
The Deputy Director
The Employees's State Insurance Corporation,
Regional Office (Tamil Nadu)
143, Sterling Road
Chennai-600034.
...Respondent/Respondent
[Common in both the CMAs]
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C.M.A.Nos.833 & 843 of 2022
PRAYER in CMA.No.833 of 2022: Appeal is filed under Section 82
of the Employees' State Insurance Act, to set aside order and decree of
Employees State Insurance Court (Principal Labour, Court, Chennai)
in EIOP.No.59 of 2015 dated 10.12.2021.
PRAYER in CMA.No.843 of 2022: Appeal is filed under Section
82(2) of the Employees' State Insurance Act, to allow the appeal and
set aside order and decree of Employees State Insurance Court
(Principal Labour Court, Chennai) in EIOP No.26 of 2005 dated
23.11.2021.
For Appellant : Mr.Anand Gopalan
for M/s Gopalan & Co.
For Respondent : Mr.S.P.Srinivasan
[Standing Counsel]
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C.M.A.Nos.833 & 843 of 2022
COMMON JUDGMENT
Aggrieved by the dismissal of their petitions in EIOP Nos.59 of 2015
and 26 of 2015 by the Employees Insurance Court (Principal Labour Court)
Chennai, the appellant is before this Court by filing CMA Nos.833 of 2022
and 843 of 2022. The brief facts are as follows:
2. Facts
of the case:
i). The facts are common for both the appeals excepts that there are
two orders which are challenged in the above two appeals. The appellant is
an establishment which according to them did not engage more than 20
workmen at a given point of time who would qualify to be covered under the
provisions of the Employees State Insurance Act, hereinafter, for the sake of
brevity referred to as the ESI Act.. While so, on 17.03.2004 drawing
strength from a Government order extending the provisions of the ESI Act to
Establishments, the respondent/Corporation had issued a coverage notice
treating the petitioner as provisionally covered under the ESI Act. The
appellant has responded by contending that the establishment has never
employed more than 20 coverable employees on their premises. The
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appellant, to prove the above had provided the attendance register, salary
register etc., for the scrutiny of the respondent.
ii). The appellant had engaged the services of M/s. Skilled Security
Services for providing security to their premises. The said security service
was an independent establishment under the cover of the ESI Act. The said
Skilled Security Services has deployed four of their workmen as a security
guards in the appellant premises. The Insurance Inspector had inspected the
premises of the appellant and he had treated these four security guards as
employees of the Appellant/ Establishment and held that the provisions of
the ESI Act would apply to the Appellant/Establishment.
iii). Thereafter, a C-18 notice dated 16.08.2004 was issued on the
basis of assumed wages for 22 employees at the rate of Rs.3,557/- per
month. The appellant had submitted their objections vide letter dated
17.01.2005. They had contended that their employees were always less than
20 in number and these security guards cannot be treated as their employees
for the purpose of coverage under the Act. However, the respondent
proceeded to pass orders under Section 45(A) of the ESI Act, rejecting the
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contentions of the appellant. The appellant was therefore, constrained to file
EIOP No.26 of 2005 before the Employees State Insurance Court (Principal
Labour Court) Chennai. By an order dated 23.11.2021 the ESI Court had
dismissed the said petition. Aggrieved by which the appellant establishment
is before this Court in C.M.A.No.843 of 2022. While the proceedings in
EIOP No.26 of 2005 was pending a C-18 notice was issued once again on
the basis that the appellant/establishment had on its rolls 22 coverable
employees and contribution was calculated at the rate of Rs.8,250/- per
month. The representatives of the employer namely, the appellant herein
attended the hearing and brought to the notice of the Authority that the total
number of coverable employees was less than 20.
iv). Despite receiving the said explanation the authority proceeded to
pass an order under Section 45(A) of the ESI Act, rejecting the contentions
of the appellant that the four security officers cannot be treated as the
employees of the Appellant. Challenging the said order the appellant had
filed the petition before the Employees State Insurance Court ( Principal
Labour Court, Chennai) in EIOP No.59 of 2015. However, by order dated
10.12.2021 the ESI, Court rejected the contention put forward by the
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appellant and dismissed the petition. Aggrieved over which the appellant is
before this Court by filing CMA.No.833 of 2022.
v). The primary ground of challenge in the above appeals to the
impugned demand is that the authority has committed an error in counting
the four Security Guards as employees of the appellant. These four
employees are assessed under the ESI Act in their establishment namely,
M/s. Skilled Security Services. The contention of the appellant is that they
have only 18 coverable employees and therefore the provisions of the ESI
Act would not be attracted. The appellant would also state that the judgment
reported in (2010) 11 SCC page 553 - Saraswath Films Vs. Regional
Director, Employees State Insurance Corporation, Trichur which was
relied upon by the Respondent/Corporation would not apply to the facts of
the present case, since the question as to whether the contract workmen who
are already covered under the scheme under their immediate employer
would still be reckoned for the purpose of coverage of principal employer
was not the matter in issue in the said case.
3. From a perusal of the two appeals the following substantial
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questions of law which arise for the consideration of the Court were framed:
i) Whether the four security guards could be
treated as employees as defined under Section
2(9)(iii) of the ESI Act, in order to appreciate the
establishment within the coverage of the ESI Act.
ii) Whether the four security guards whose
contributions to the ESI is already been done
through their immediate employer namely, skill
security services. They could be treated as
employees of the appellant for the sake of
contribution.
4. Submissions:
i). Mr. Anand Gopalan appearing on behalf of the appellant in both
the appeals would submit that Section 38 of the ESI Act proposes that all the
employees who are coverable in a factory/establishment should be insured in
the manner provided by the ESI Act. Section 39 talks about all the
contributions payable under the ESI Act.
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ii). He would draw the Court's attention to the judgments of this Court
reported in 2011 SCC Online Mad 1350 - The Madurai District Central
Cooperative bank Ltd, Vs. Employees' Provident Fund Organisation and
Another, where the Court has observed that the employees of a contractor
by no stretch of imagination can be treated as employees of the principal
employer. However, the Court held that the liabilities of an unregistered
contractor falls on a petitioner therein who was the principal employer. The
issue in the said writ petition related to the payments of contributions.
iii). He would also rely upon the judgment reported in 2015 SCC
Online Mad 2944 - M/s.Brakes India Ltd. Vs. The Employees Provident
Fund Organisation. The arguments advanced therein, on the side of the
principal employer was that the contractor has been allotted a separate PF
code and therefore, the principal employer would not be liable to pay the
contribution. The learned Judge relying upon the judgment in The Madurai
District Central Cooperative bank Ltd cited supra held that applying the
ratio of this Judgment the contractor had to be treated as an independent
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employer and therefore, the recovery proceedings initiated against the
petitioner company therein was not maintainable. The learned counsel would
submit that the very same analogy has to be applied to the case on hand and
the four security guards should therefore, be held to be the employees of the
Security Service and cannot be considered for coverage of the ESI Act to the
appellant/establishment.
iv). Per contra, Mr.S.P.Srinivasan appearing on behalf of the
corporation would contend that the security guards were taken into
consideration for the sake of bringing the appellant/establishment within the
ambit of the ESI Act and not for collecting contributions. He would argue
that the very object of the Act is to ensure coverage for all the workmen who
are coverable and therefore, this intent is sought to be achieved by
considering the definition of the word employee as provided under Section
2(9) of the ESI Act. He would rely upon the judgment of the Hon’ble
Supreme Court reported in (1998) 8 SCC page 111 – Employees’ State
Insurance Corporation Vs. M M.Suri & Associates (P) Ltd., wherein the
Hon’ble Supreme Court relying upon an earlier judgment reported in ESI
Corporation Vs. Apex Engineering Pvt. Ltd. reported in 1997 (77) F.L.R.
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878 = (1998) 1 SCC 86 had extracted the characteristics laid down to
consider a person to be an employee qua the service condition. The Hon’ble
Supreme Court had set out six conditions/characteristics. Mr.S.P.Srinivasan
would rely upon characteristic no.4 therein to contend that the four security
guards have to definitely be treated only as employees of the
appellant/establishment. He would also rely upon the judgment reported in
(2010) 11 SCC page 553 - Saraswath Films Vs. Regional Director,
Employees’ State Insurance Corporation, Trichur. In the above case
before the Hon’ble Supreme Court, the issue was whether the two security
guards working in the premises could be considered as the employee of the
Principal employer therein. The Hon’ble Supreme court after referring to the
Act and the earlier judgments in this regard had held that the work of the
security guards was directly and intrinsically a part of the work of the
establishment and therefore, they had to be considered as the employees of
the Principal employer therein. He would submit that the ratio laid down in
the above judgment would squarely apply to the facts on hand and therefore,
the order passed by the learned Principal Labour Court, Chennai does not
require to be set aside.
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v). Heard the learned counsel on either side.
5. Discussion:
i). The Employee State Insurance Act was first enacted in the year
1948 and the object of the Act was to provide a scheme of health Insurance
for Industrial Workers. The scheme envisaged was one of compulsory State
Insurance providing for certain benefits in the event of sickness, maternity
and employment injury to workmen employed in or in connection with the
work in the factories other than seasonal factories. The war time had
brought about the necessity for such scheme. The Act has been amended
over six times thereafter and the last of the amendments was in the year
2010 vide the amendment Act 18 of 2010. If the statement and objects of
this Act with its various amendments are taken into consideration, it can be
seen that the underlying object was to bring within the umbrella of the Act
more number of employees. The object is evident from a reading of Section
38 of the ESI Act which reads as follows:
" Section 38 - All employees to be insured - Subject
to the provisions of this Act, all employees in factories or
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establishments to which this Act applies shall be insured
in the manner provided by this Act.
ii). This is further reiterated while reading Section 1(6) of the Act.
Section 1(6) states that the Act would apply notwithstanding that with the
reduction in number of persons employed and employees who are retained
fall below the limit specified in the Act or where the manufacturing process
ceases to be carried on. Therefore, it is evident that the legislature had
envisaged that once the establishment gets covered it will continue to be
covered even if, the number of employees fall short of the statutory number
or where the manufacturing process has also ceased. Therefore, a reading of
these provisions and the objectives would make it clear that the aim of the
legislature is to bring within the cover of the Act more number of employees
and also to continue to provide the cover to the employees who have once
been covered. It is for this reason that the earlier amendments had increased
the wage limit for employees to be covered under the ESI Act so as to enable
a larger section of employees to avail the benefit of the Act. Section 2(9)
defines an employees as follows:
Section - 2(9) “ employee ” means any person
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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
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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 3 [the Indian] naval, military or air
forces ; or
[(b) any person so employed whose wages (excluding
remuneration for overtime work) exceed 5 [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;]
iii). If the Section is analysed the following categories of employees
are sought to be covered by the Act:-
a) Those directly employed by the principal
employer.
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b) Employed by or through the immediate
employer under the supervision of the principal
employer or his agent.
c) Employed through a contract of service which is
temporarily lent or let on hire to the principal
employer.
iv). Therefore, from the facts that have been culled out the four
security guards will come within the 3rd category. The issue for
consideration is whether the four security guards can be counted as
employees of the appellant/establishment for the purpose of extending the
coverage of the Act and whether the appellant/establishment can be asked
to pay contribution for the four security guards along with the employees of
the appellant/establishment by extending the coverage of the Act although
they are already covered by the ESI Act as employees of M/s. Skilled
Security Services.
v). The Hon’ble Supreme Court in the Judgment reported in
Saraswath Films Vs. Regional Director, Employees’ State Insurance
Corporation, Trichur – (2010) 11 SCC 553, which arose with reference to
the dispute as to whether the two security guards could be considered as
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employees of the appellant had answered in favour of the
respondent/corporation. The Hon’ble Supreme Court had extracted the core
question for consideration in para nos.4 and 5 of the judgment as follows:
“4. The core question that arises for consideration
is whether the establishment of the appellant comes within
the purview of the Act. The answer to the question in the
context of the case of the parties, depends on
determination of the question whether the security guards
are employees within the meaning of Section 2(9) of the
Act. Section 2(9) of the Act reads as follows:
“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
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(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 ;
“5. In this connection the definitions of the
expressions “immediate employer” under Section
2(13) and “principal employer” under Section 2(17)
are also relevant. They are quoted below:
“2.(13). “ immediate employer ” in relation to
employees employed by or through him, means a person
who has undertaken the execution on the premises of a
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factory or an establishment to which this Act applies or
under the supervision of the principal employer or his
agent, of the whole or any part of any work which is
ordinarily part of the work of the factory or establishment
of the principal employer or is preliminary to the work
carried on in, or incidental to the purpose of, any such
factory or establishment and includes a person by whom
the services of an employee who has entered into a
contract of service with him are temporarily lent or let on
hire to the principal employer and includes a contractor.
(15) 'occupier' of the factory shall have the meaning
assigned to it in the Factories Act, 1948 (63 of 1948)
(17) “ principal employer ” means —
(i) in a factory, the owner or occupier of the factory
and includes the managing agent of such owner or
occupier, the legal representative of a deceased owner or
occupier, and where a person has been named as the
manager of the factory under the Factories Act, 1948 (63
of 1948), the person so named ;
(ii) in any establishment under the control of any
department of any Government in India, the authority
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appointed by such Government in this behalf or where no
authority is so appointed, the head of the department ;
(iii) in any other establishment, any person
responsible for the supervision and control of the
establishment ;
vi). The learned Judges thereafter went on to hold that the provisions
in Section 2(9) is wide and of a comprehensive nature where persons who
are lent temporarily are also considered to be an employee of the
establishment particularly when the work carried out is incidental to the
process of the establishment. The learned Judges ultimately held that the
security guards would come within the purview of the expression employee
of the establishment as defined under Section 2(9) of the ESI Act.
6. Conclusion
i) Bearing in mind the object of the Act and the ratio laid down in the
judgments supra it naturally follows that the four security guards have to be
treated as the employees of the Appellant/Establishment. Once they are so
treated, the number of coverable employees of the appellant/establishment
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would stand increased from 18 to 22 thereby making the ESI Act applicable
to the Appellant/Establishment. We cannot loose sight of the fact that an
unscrupulous employer who wants to avoid coming within the net of the ESI
Act would take on their rolls employees who would be coverable under the
ESI Act just short of the mandatory number. They would then engage the
services of an contractor to do the other works that are intrinsically related to
the main/core work of the establishment. By doing so the employees who fall
within the cover of the ESI Act of such establishments are deprived of the
benefit. It is to overcome such devious methods that Section 2(a) (iii) defines
an employee to include contract workmen. Therefore, considering the fact
that the four security guards fall within the definition of the word 'employee'
they have to be treated as the employees of the Appellant/Establishment.
Consequently, the 1st question of law has to be answered in favour of the
respondent.
ii) The next question that falls for consideration is whether the
Appellant/establishment is duty bound to pay the contribution of these
contract workmen particularly when their immediate employer is already
covered under the Act and is paying the contribution. The counsel for the
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appellant had produced a circular of the Employees State Insurance bearing
No.P-12-(11)-11/83/05-Rev.II dated October, 2007. This circular has been
issued pursuant to the representations received from different Associations
of Employees, Expert Bodies of Employees and Individual Employees from
various regions expressing the difficulties faced by them in covering the
employees engaged by them through immediate employers/contractors on
jobs outsourced. The respondent/corporation taking into consideration the
judgments of the High Court of Madras, Madhya Pradesh and Karnataka
had deputed personnel to undertake a field study and after perusing the data
collected by them had issued guidelines to handle different categories of
cases. The 1st of such category is the one that is relevant to the case on hand
which reads as follows:
"2(A). The Jobwork done inside the
factory/establishment premises through
Contractors/immediate Employers having independent
Code Nos:
Under this category, the contribution is not to be
claimed from the Principal Employer in respect of the
employees of the Job Contractors/Immediate Employers
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who are independently covered. In this category the
supervision is implied. However, at the time of inspection,
the Insurance Inspector should verify the records of the
Principal Employer in respect of Contractors/Immediate
Employers required to be maintained by the Principal
Employers, according to the provisions of Section 41(1A)
and Regulation 32 (1) (a). The Revenue Branch Officers
should keep this aspect in view while passing 45-A order."
This clearly provides that where an employee of an Immediate
Employer is independently covered, contribution cannot be claimed from the
Principal Employer.
iii) Therefore, taking into consideration the above circular it is clear
that the appellant cannot be called upon to pay the contribution for the four
security guards who are already covered under their immediate employer
M/s. Skilled Security Services. The finding of the Principal Labour Court,
Chennai is therefore erroneous in this regard.
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iv) Therefore, on a conspectus of the above discussion it is held that:-
a) The four security guards shall be treated as
employees of the appellant/corporation for the purpose of
bringing the appellant/establishment under the cover of the
ESI Act.
b) The appellant/establishment cannot be made to pay
the contribution for the four security guards who are already
assessed under their immediate employer M/s. Skilled
Security Services. Therefore, the Substantial Question of Law
No.1 is answered against the appellant and the Substantial
Question of Law No.2 is answered in favour of the appellant.
v) The above Civil Miscellaneous Appeals therefore stands partly
allowed. No costs. Consequently, the connected Miscellaneous Petitions are
closed.
12.05.2022
Index : Yes/No
Internet : Yes/No
shr
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To
1.Employees State Insurance Court
(Principal Labour, Court) Chennai.
2.The Deputy Director
The Employees's State Insurance Corporation,
Regional Office (Tamil Nadu)
143, Sterling Road
Chennai-600034.
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C.M.A.Nos.833 & 843 of 2022
P.T. ASHA, J,
shr
Pre-Delivery Judgment in
C.MA.Nos.833 & 843 of 2022
and
C.M.P.Nos.5956 & 6108 of 2022
12.05.2022
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