Madras High Court

M/S.Sambandam Spinning Mills Ltd vs Assistant Director on 13 June, 2022

                                                                                        CMA.No.3297 of 2022


                                    IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                       DATED : 13.06.2022

                                                               CORAM

                                      THE HONOURABLE MS. JUSTICE P.T.ASHA

                                                   CMA.No.3297 of 2017

                     M/s.Sambandam Spinning Mills Ltd
                     Rep. by its Managing Director- S.Devarajan
                     Kamaraj Nagar Colony,
                     Salem-636014.                                        ... Appellant/ Petitioner
                                                        Vs
                     1. Assistant Director
                        Employees State Insurance Corporation,
                        39/57, Three Roads,
                        Salem - 636009.

                     2. R.Ganapathi.           ... Respondents/ Respondents

                     PRAYER: Appeal filed under Section 82(2) of the Employees State
                     Insurance Act, 1948, to set aside the Judgement and Order of the Labour
                     Court, Salem dated 14.09.2017 in ESIOP.No.1 of 2011 confirming the order
                     of       the     1st   Respondent         dated   10.05.2010     in    proceedings
                     no.63000097960000101/SRO/SALEM 615/10 and allow the appeal.


                                      For Petitioner       :      Mr.S.Ravindran, Senior Counsel
                                      For Respondents      :      M/s. Jayakumari [R.1]
                                                                  No appearance [R.2]



                     1/11
https://www.mhc.tn.gov.in/judis
                                                                                       CMA.No.3297 of 2022


                                                         JUDGEMENT

The issue involved in the above appeal is whether the finding of the

authorities below is correct in law that trainees would come within the

definition of an employee under Section 2(9) of the Employees Insurance

Act, 1948, prior to its amendment on 01.06.2010. In order to appreciate the

above contention it is necessary to briefly consider the facts of the case.

2. The appellant/company was engaged in the business of

manufacturing cotton yarn. The establishment had been brought under the

cover of the Employees State Insurance Act, (hereinafter referred to as the

ESI Act), from the year 1984. All the eligible employees were covered under

the ESI Act, and the appellant/company has been remitting the contributions

promptly without any delay.

3. While so, on 10.05.2010, a C-18 notice was issued to the appellant

calling upon them to show cause as to why a contribution of Rs.33,80,862/-

should not be recovered for the contribution for the non-registered

employees/casual employees, employees employed through immediate

employer in respect of the wages/stipend paid to the trainees/Apprentice and

https://www.mhc.tn.gov.in/judis CMA.No.3297 of 2022

trainee staff for the period 2003-04 and 2004-05. The appellant/company

would submit that under Clause 11 of the certified standing orders of the

Company which permitted to engage trainees/Apprentice over a period of 3

years, the appellant/ company was also engaging such Apprentice/trainees.

The appellant would contend that prior to its amendment in 2010 as per

Section 2(9) of the ESI Act, had excluded apprentice engaged under the

certified standing order of the establishment. Therefore, it is the contention

of the appellant that the respondent cannot claim contribution for these

trainees.

4. This fact was also acknowledged in an earlier proceeding between

the parties with reference to an earlier period. The respondent had filed a

detailed reply, however without considering the response, the

respondent/Corporation had proceeded to pass an order under Section 45 A

of the ESI Act, directing the petitioner to remit a sum of Rs.33,80,868/- as

contribution for stipend paid to trainees staff/appretices/depot for the period

2003-04 and 2004-05. Challenging the same the appellant had filed ESIOP

No.1 of 2011 on the file of the Labour Court, Salem.

https://www.mhc.tn.gov.in/judis CMA.No.3297 of 2022

5. A counter statement was filed by the Corporation before the Labour

Court in which they had contended that when the Inspector of the

respondent/Corporation had visited the premises of the appellant on

30.09.2009 and inspected the records for the period April 2003 to March

2005, they had found a huge omission of wage/salary and the contribution

was assessed at 6.5% as Rs.34,08,247/-. The appellant had only remitted a

sum of Rs.27,385/- and failed to remit the remaining. During the personal

hearing pursuant to the C-18 notice, the appellant’s representative had

submitted that wage/salary and stipends paid to apprentices/trainees cannot

be taken into account for the coverage. The respondent had further

submitted that the appellant's company was deliberately disguising workmen

as apprentice to evade payment of contribution. The Corporation had

submitted that they had arrived at the above sum of Rs.34,08,247/- only on

the basis of the records submitted by the appellant.

6. The appellant/company had examined a witness P.W.1 and marked

Ex.P.1 to Ex.P.27. On the side of the respondent one Mr.Ashok Kumar was

examined as R.W.1 and no Exhibits have been marked on their side. The

https://www.mhc.tn.gov.in/judis CMA.No.3297 of 2022

learned Presiding Officer, on perusing the evidence on record held that the

appellant had not produced documents during the Section 45A enquiry.

Though as per the standing orders prior to the amendment Act 18 of 2010

apprentices were engaged other than those mentioned under the Apprentice

Act, the appellant has not been able to explain as to how many apprentices

were actually engaged, therefore, the appellant was bound to pay the

contributions. The learned Judge had also observed that not all apprentices

engaged were apprentices but that some of them were regular employees

camouflaged as Trainees. Therefore, the petition filed by the appellant was

rejected. Challenging this order the appellant is before this Court.

7. Heard learned Senior counsel Mr. Ravindarn for the appellant and

M/s. Jaya Kumari for the respondent.

8. The contention of the appellant is that prior to the amendment Act

18 of 2010 Section 2(9) would read as follows:

" Employee" means any person employed for wages in or in connection with the work of a factory or establishment to wich this Act applie and --

https://www.mhc.tn.gov.in/judis CMA.No.3297 of 2022

(i) who is directly employed by the principal employer on any work of, or incidental or peliminary 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 facotry or establishment: or

(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the peron whose services are so lent or let on hire has entered into an contract of service; and includes any person employe 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;

1 [ or any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), or under the standing orders of the establishment:

but does not inlcude]--

https://www.mhc.tn.gov.in/judis CMA.No.3297 of 2022

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] a month:

Provided that an employee whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government] a month at any time after (and not before) the begining of the contribution period, shall continue to be an employee until the end of that period."

9. Subsequent to the amendment Act 18 of 2010 which came into

effect on 01.06.2010 Section 2(9) of the ESI Act would read as follows:-

" Employee" means any person employed for wages in or in connection with the work of a factory or establishment to wich this Act applie and --

(i) who is directly employed by the principal employer on any work of, or incidental or peliminary 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

https://www.mhc.tn.gov.in/judis CMA.No.3297 of 2022

(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 facotry or establishment: or

(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the peron whose services are so lent or let on hire has entered into an contract of service; and includes any person employe 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

https://www.mhc.tn.gov.in/judis CMA.No.3297 of 2022

wages as may be prescribed by the Central Government] a month:

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 begining of the contribution period, shall continue to be an employee until the end of that period."

10. Therefore, by reason of the amendming Act 18 of 2010 the words

"or under the standing order of the establishment" has been deleted. This

amendment has come into effect only on 01.06.2010. In the case on hand

the contributions are demanded for the period 2003-2004 and 2004-2005.

Admittedly, the appellant/company has standing order and as per the terms

of the standing orders the appellant company could engage the services of

apprentices/trainees. Therefore, prior to amendment Act 18 of 2010

trainees/apprentice engaged under the standing orders of the establishment

were exempted from the coverage of the ESI Act. Both the Authorities below

have not considered this fact from its correct perspective.

11. In the Judgment reported 2019(4) LNN 785 (Mad.) - Diamond

https://www.mhc.tn.gov.in/judis CMA.No.3297 of 2022