Punjab-Haryana High Court
State Of Pb vs Regional Dir Esic Chd Etc on 19 November, 2025
RSA No.1266 of 1995(O&M) 1
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
(202) RSA No.1266 of 1995(O&M)
Reserved on : 14.11.2025
Pronounced on: 19.11.2025
Uploaded on: 19.11.2025
State Of Punjab Through Executive Engineer, P.W.D , Public health
(Goverment works), Division Patiala
... Appellant
Versus
Regional Director, Employees State Insurance Corporation, Chandigarh
And Others
... Respondents
CORAM: HON'BLE MR. JUSTICE VIRINDER AGGARWAL
Present: Mr. I.S.Kingra, Senior DAG,Punjab
for the appellant/State.
Mr. Adarsh Malik, Advocate
for the respondents.
*****
VIRINDER AGGARWAL, J.
1. The instant Regular Second Appeal under Section 100 of the Code of
Civil Procedure, 1908 (CPC), has been filed by the State of Punjab (hereinafter
referred to as "the Appellant") against the judgment and decree dated
02.12.1994 passed by the Additional District Judge, Patiala, whereby the appeal
filed by the Appellant against the judgment and decree dated 25.07.1991 passed
by the Senior Sub Judge, Patiala was dismissed. The suit was filed by the
Appellant seeking a declaration that Notice No. 921 dated 29.06.1987(EX-P1)
issued by the Assistant Collector, Class-II, Patiala, demanding recovery of Rs.
31,855.46/- towards Employees' State Insurance (ESI) contributions is illegal,
null and void, and for a consequential permanent injunction restraining the
Respondents from effecting such recovery.
BACKGROUND FACTS
2. The Appellant-State installed a laundry plant in Rajindra Hospital,
Patiala, exclusively to provide laundry services to the Government Hospital at
Patiala. The plant is operated by regular work-charged Government employees
who are entitled to all benefits under the Punjab Civil Services Rules,
Government instructions, and the Workmen's Compensation Act, 1923. These
benefits include medical leave, earned leave, medical reimbursement under
Punjab Medical Attendance Rules, 1940, pension, gratuity, family pension in
case of death, and other superior entitlements, which surpass those available
under the Employees' State Insurance Act, 1948 ( hereinafter referred to as ESI
Act). An inspection by the ESI Inspector revealed the operation of the plant
with washing machines powered by electricity, involving 10 regular work-
charged employees and 15 helpers. Notices(Ex.D2 to Ex.D14) were issued
from 1982 onwards demanding ESI contributions, culminating in the impugned
notice of 29.06.1987(Ex.P1) for recovery of arrears. The Appellant contested
the coverage, arguing that the plant does not qualify as a "factory" under
Section 2(12) of the ESI Act, as it employs fewer than 20 persons, involves no
"manufacturing process," and is not run for commercial purposes but solely for
internal Government use. Further, no exemption notification under Section 87
of the ESI Act was required, as the plant falls outside the Act's ambit.
3. The learned trial court (Senior Sub Judge, Patiala) dismissed the suit,
holding the plant covered under the ESI Act as a factory satisfying the threshold
of 20 or more workers engaged in a manufacturing process with power. Issues
regarding jurisdiction and maintainability were decided in favour of the
Respondents. On appeal, the Additional District Judge affirmed these findings,
observing that washing and ironing constitute a manufacturing process under
ESI Act, and no exemption under Section 87 was notified. Aggrieved, the
Appellant filed the present second appeal.
CONTENTIONS
4. Learned counsel for the Appellant vehemently argued that the plant does
not meet the definitional threshold of a "factory" under Section 2(12) of the ESI
Act, as it employs only 15 persons since installation, and washing/ironing does
not constitute a "manufacturing process" under Section 2(m) of the Factories
Act, 1948 (incorporated by reference). Further, Learned counsel for the
Appellant, relied on the judgement of Employees' State Insurance
Corporation v. Triplex Dry Cleaners, 1998(1) SCC 196 and argued that prior
to the insertion of Section 2(14-AA) in the ESI Act via the 1989 amendment
(effective 20.10.1989), processes like washing and ironing in laundries did not
qualify as a "manufacturing process" under Section 2(12). The impugned notice
dated 29.06.1987 issued prior to this and thus making the demand
retrospectively invalid. He contended that the laundry plant's governmental,
non-commercial character and employee count below 20 further exclude it. It
was urged that the balance of convenience and irreparable loss favor staying
enforcement, and the appeal merits allowance.
5. Learned counsel for the Respondents defended the lower courts' findings,
contending that the said laundry plant satisfies the 20-worker threshold
(including helpers), uses power for manufacturing processes like cleaning and
ironing, and no exemption was notified under Section 87 by state Government.
Learned counsel Contends Said learned counsel contended that the laundry
plant was covered even under the pre-amendment definition of the ESI Act, as it
involved powered operations such as washing and ironing, which qualified as a
manufacturing process, and met the required worker threshold of 10 or more
persons as detailed in the ESI Inspector's report (Ex. P1). Furthermore, the
learned counsel urged that the judgement of Triplex Dry Cleaners(Supra) is
inapplicable to the present case. Additionally, the learned counsel affirmed that
the civil court lacks jurisdiction to entertain the suit due to the bar under Section
77 of the ESI Act.
OBSERVATIONS AND FINDINGS
6. I have heard learned counsel for the parties at length and perused the
record, including the judgments of the learned courts below, exhibits, and cited
precedents.
7. The following substantial question of law arise, with the core pivoting on
the temporal applicability of statutory definitions:
"Whether the courts below erred in applying the post-1989 definition of
"manufacturing process" under the ESI Act to the impugned notice dated
29.06.1987, ignoring the prospective effect of the amendment inserting
Section 2(14-AA) effective 20.10.1989?"
8. To resolve this, the controlling authority is the judgment of the Hon'ble
Supreme Court in Employees' State Insurance Corporation v. M/s Triplex Dry
Cleaners,1998 (1) SCC 196. The Court held unequivocally that dry-cleaning,
washing, or ironing of clothes does not constitute a "manufacturing activity"
within the meaning of the ESI Act as it stood before the statutory amendment
introduced on 20.10.1989. It was emphasised that such activity does not bring
into existence any new product, and therefore, establishments engaged in
washing/cleaning could not be treated as factories under Section 2(12) for that
earlier period. The relevant portion of the authority is reproduced below:
"6. We, however, hasten to point out that we are here concerned
with the show cause notice dated January 21,1978. At that point or
time, Section 2(14aa) had not been inserted in the Act which
defines manufacturing process as having the same meaning which
is assigned to it under the Factories Act, 1948. The provision was
inserted with effect from October 20,1989. We, therefore, express
no opinion with regard to the applicability of the Act to an
establishment engaged in the business of dry cleaning after
October 20, 1989 in asmuch as Section 2(14aa) attracts the
applicability of Section 2(k) of the Factories Act, 1948 which
defines manufacturing process which may conceivably include the
process of repairing, washing or cleaning of any articles with a
view to its use. However, sofar as this appeal is concerned, in as
much as it relates to a period prior to October 20,1989 when there
was no such definition of manufacturing process applicable to the
Act, it must fail and is accordingly, dismissed. There will be no
order as to costs."
Therefore, the Hon'ble Supreme Court expressly clarified that its decision was
confined to a period prior to 20.10.1989, because the definition of
"manufacturing process" as having same meaning as that under Factory
Act,1948 did not apply to the ESI Act until the insertion of Section 2(14-AA),
effective from that date. The Court noted that only after 20.10.1989 did the ESI
Act begin to borrow the broader definition from Section 2(k) of the Factories
Act, 1948, which may conceivably include washing or cleaning.
9. This clarification is determinative. The impugned demand in the present
case arises out of inspections and notices issued between 1982 and 1987 ,
culminating in the notice dated 29.06.1987 (Ex.P1). The entire period under
consideration falls squarely within the pre-20.10.1989 era, when the ESI Act
did not contain the expanded definition of manufacturing process. Therefore,
the legal position applicable to the Appellant is exactly the legal regime applied
in Triplex Dry Cleaners(supra), where the Hon'ble Supreme Court held that
washing and dry-cleaning activities could not be treated as manufacturing
processes and hence the establishment could not be treated as a "factory."
Accordingly, any reliance by the respondents on the post-1989 expanded
definition is misplaced. The amendment cannot be applied retrospectively, nor
can a concept introduced in 1989 be invoked to justify coverage for assessment
years preceding it. As the Hon'ble Supreme Court itself held, the ESI Act, as it
existed before the amendment, did not permit laundries or dry-cleaning units to
be treated as factories, and such establishments lay outside the Act's ambit.
10. For these reasons, and applying the ratio of Triplex dry clearner (Supra),
this Court holds that the laundry of Rajindra Hospital, Patiala, did not constitute
a factory under Section 2(12) of the ESI Act during 1982-1987, and the demand
of ESI contributions for that period is legally unsustainable. Therefore the
judgments/decrees of the courts below are patently erroneous, based on
misappreciation of law and facts, warranting interference under Section 100
CPC.
11. Accordingly, the present appeal is allowed. The judgment and decree dated
02.12.1994 passed by the Additional District Judge, Patiala, and the judgment
and decree dated 25.07.1991 passed by the Senior Sub Judge, Patiala are set
aside. The suit of the Appellant is decreed, declaring Notice No. 921 dated
29.06.1987 illegal, null, void, and ineffective. The Respondents are
permanently restrained from recovering Rs.31,855.46/- or any ESI contributions
pertaining to the laundry plant.
19.11.2025 (VIRINDER AGGARWAL)
Saurav Pathania JUDGE
(i) Whether speaking/reasoned : Yes/No
(ii) Whether reportable : Yes/No
