Madras High Court
The Deputy Director vs The Management Of Forbes Gokak Limited on 1 August, 2023
C.M.A.No.2529 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 22.06.2023
PRONOUNCED ON : 01.08.2023
CORAM
THE HONOURABLE MR.JUSTICE C.KUMARAPPAN
C.M.A.No.2529 of 2022
and
CMP.No.19643 of 2022
The Deputy Director,
Employees State Insurance Corporation,
Regional Office (Tamil Nadu),
143, Sterling Road, Chennai - 600 034. ... Appellant
- Vs -
The Management of Forbes Gokak Limited,
40, Anna Nedunchalai, Perungudi,
Chennai - 96. .. Respondent
Civil Miscellaneous Appeal is filed under Section 82 (2) of the
Employees State Insurance Act 1948, against the Order and decree dated
13.11.2018 and made in EIOP. No. 115 of 2007 on the file of the Employees
Insurance Court, Principal Labour Court, Chennai.
For Appellant : Mr.S.P.Srinivasan
For Respondent : M/s. S.Haroon for
M/s. T.S.Gopalan and Co
https://www.mhc.tn.gov.in/judis
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C.M.A.No.2529 of 2022
JUDGMENT
The present appeal has been filed by the Employee's State Insurance Corporation against the order passed in E.I.O.P.No.115/2007 dated 13.11.2018 by Employee's Insurance Court, Principal Labour Court, Chennai.
2. For the sake of convenience, the parties will be referred to as per their litigative status.
3. The brief facts which gives rise for filing the instant appeal is that, the respondent is covered under the provision of the Employee State Insurance Act (in short Act), and has been regularly paying the ESI contribution. They further submits that in respect of certain jobs like deflashing, moulding of plastic components, screen printing and aluminum die-casting, the respondent used to outsource the work and get the job done through 3rd party establishments. According to the respondent, in such work, they did not exercise any supervisory control over the employees of the third party establishments. However, the appellant-Corporation issued notice dated 13.03.2007 in Form C-
18. Inspite of the reply given by the respondent, the ESI Corporation has passed order under Section 45A of the Act directing the respondent to pay a sum of Rs.4,34,690/- as contribution for the period 2003-2004 to 2005-2006. https://www.mhc.tn.gov.in/judis 2/10 C.M.A.No.2529 of 2022
4. The respondent filed counter statement contending that, the appellant's inspector visited the factory premises of the respondent, verified the records, and came to know about the non payment of contribution for the labour charges. Based on such inspection report, the notice in Form C-18 was issued. Though, the respondent submitted an explanation, the contribution was determined as the work done through third party establishment was contiguous to the manufacturing process of the respondent, and that they had exercised supervisory control upon the quality of the end product. Therefore, the employees of the third party establishment would come under the definition of employee as defined in Section 2(9) of the ESI Act and consequently, contribution of Rs.4,34,690/- was determined for the outside labour charges.
5. Before the Tribunal, on behalf of the petitioner,one witness was examined as PW1, and 4 documents were marked as Ex.P1 to Ex.P4. On behalf of the respondent/Corporation two witnesses were examined as RW1 & RW2, and 7 documents were marked as Ex.R1 to Ex.R7.
6. The Tribunal, after taking into consideration of the pleadings and materials on records, arrived at a conclusion that since there was no supervision or control exercised by the petitioner over the employees of the third party establishment, allowed the petition filed by the respondent herein on https://www.mhc.tn.gov.in/judis 3/10 C.M.A.No.2529 of 2022 09.07.2007. Aggrieved by the above order, the appellant corporation has filed the present appeal before this Court.
7. The learned counsel for the appellant would contend that, since the job work done was contiguous to the manufacturing process of the petitioner and that they have a right to reject the product owing to poor quality, it would indicate the exercise of supervision by the respondent. Therefore, contended that the employees of the third party would come within the definition of Section 2(9) and hence prayed to set aside the order of the ESI Court by confirming the order passed under Section 45(A) of the Act.
8. Per contra the learned counsel for the respondent herein, would vehemently contend that this is a case of outsourcing, and that even according to the evidence of the respondent-Corporation, it is an admitted case that the petitioner did not have any supervisory control. Therefore, the employees of the third party will not come within the definition of Section 2(9) of the Act. Hence the learned counsel would pray to dismiss the appeal by confirming the order dated 13.11.2018 passed by the ESI Court.
9. I have given my anxious consideration to either side submissions.
10. The main contention on the part of the respondent-Corporation is that, since the job work done was contiguous to the manufacturing process, and https://www.mhc.tn.gov.in/judis 4/10 C.M.A.No.2529 of 2022 that the right of rejection was with the petitioner, there is an implied supervision by the petitioner. Therefore, submitted that the employees of the third party vendor will come under the definition of 'employee' as defined under Section 2(9) of the ESI Act. Therefore, the objections are two fold. The first is the contiguous work undertaken with the third party vendors. Secondly, the respondent has got control over quality and right of rejection.
11. For ready reference the order passed by the respondent-Corporation, which was challenged before the ESI Court are as follows:-
"All their pleas are taken on record. He is informed that the job works done is contiguous to the manufacturing process and the right to rejection is there and hence supervision is implied and thus the job works is treated as contiguous to the manufacturing process and the employees involved are treated as employees under Section 2 (9) of the ESI Act and the amount paid is treated as wages under Section 2 (22) of the ESI Act."
12. Now, let us consider whether the above findings of the appellant/ Corporation is correct, legal and valid. To understand the correctness and the validity of the finding, this Court deem it appropriate to extract Section 2(9) of the ESI Act herein below:-
"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 https://www.mhc.tn.gov.in/judis 5/10 C.M.A.No.2529 of 2022 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 carried on in or incidental to the purpose of the factory or establishment;"
13. As per Section 2 (9) (i) of the ESI Act, when the employees are in the roles of the principal employer and doing work incidental or preliminary work, which are connected with the work of the factory, either in the factory or elsewhere, then such employee has to be covered under the ESI Act. Therefore, in order to bring a person,who discharges a work incidental and ancillary to the work of the factory, then it become very much necessary that such employee should have been directly employed by the principal employer.
14. In our case, admittedly the petitioner has not employed the persons who undertook the work in the outsourcing agency. In fact, even the appellant- Corporation admits that the 3rd party establishment, who undertook outsourcing work, have engaged their own employees. Therefore, merely because job work was entrusted to third party vendor, unless there is supervision exercised by the petitioner, it will not bring those employees under Section 2(9)(ii) of the ESI Act.
https://www.mhc.tn.gov.in/judis 6/10 C.M.A.No.2529 of 2022
15. The next ground to consider is whether the right of rejection exercised by the respondent would be construed as supervision. Before going into this aspect it is proper to refer the Full Bench Judgment of this Court reported in 2007 (3) LLN 934 - ESI Corporation Vs. Bethall Engineering Company. The relevant portion of the Judgment is as follows:-
" 9. In our opinion, there is no conflict between the judgments of the Division Benches, since the fact situations are totally different. So far as the issue referred to us is concerned, we answer the same in the negative and hold that the right of the principal employer to reject or accept the work done by the contractor through his employees is by itself cannot be construed as effective and meaningful, " supervision" as envisaged under Section 2(9) of the Act. "
16. It is also relevant to refer the Supreme Court Judgment reported in 1992 (1) SCC 441 C.E.S.C. Limited vs.Subash Chandrabose and others. As per this Judgment, in order to bring any employee within the purview of supervision by the principal employer, then the said employee should be under the immediate gaze and overseeing of the principal employer or his agent. In our case it is fairly clear that no such overseeing was done by the respondent and in fact, it is an admitted case of the appellant-Corporation that the activity was not at all carried out in the petitioner premises. https://www.mhc.tn.gov.in/judis 7/10 C.M.A.No.2529 of 2022
17. In yet another recent judgment of this Court, ordered in CMA.Nos.1361, 1362, 1374 of 2021 vide order dated 20.10.2021 (GRT Hotels and Resorts Private Limited vs. ESI Corporation), it was held that it is the duty of the appellant-Corporation to prove the supervision exercised by the principal employer over the outside agencies. In our case, except the assumed supervision by way of the right of rejection exercised by the appellant, no other documents were produced before this Court to prove the actual supervision.
18. According to the evidence of the Inspector who inspected the respondent's premises, the job work has been carried on by the contractor, outside premises of the respondent, and that he did not know anything about the alleged supervision. However, the respondent proceeded to construe supervision upon the control of the petitioner over the quality of the end product, as they have right of rejection. It is further relevant to mention here that the job work were carried on out side the petitioner's premises. In the instant case, the Trial Court has categorically found that no Supervision was proved. Therefore, as rightly contended by the learned counsel for the petitioner, there is no ground for interference with the impugned order dated 13.11.2018 passed by the Employees Insurance Court, Principal Labour Court, Chennai.
https://www.mhc.tn.gov.in/judis 8/10 C.M.A.No.2529 of 2022
19. In the result, this Civil Miscellaneous Appeal is dismissed. No costs. Consequently, connected miscellaneous petition is closed.
01.08.2023 av Index : yes/no Speaking/Non Speaking Order To
1. The Employees Insurance Court, Principal Labour Court, Chennai.
2. The Section Officer, V.R.Section, High Court, Madras.
https://www.mhc.tn.gov.in/judis 9/10 C.M.A.No.2529 of 2022 C.KUMARAPPAN, J.
av Pre-Delivery Judgment in C.M.A.No.2529 of 2022 01.08.2023 https://www.mhc.tn.gov.in/judis 10/10