Karnataka High Court
Employees' State Insurance ... vs Karnataka State Seeds Corporation Ltd. on 22 June, 2001
Equivalent citations: (2002)IILLJ1068KANT, 2002 LAB IC (NOC) 86 (KAR), 2002 AIR - KANT. H. C. R. 457, (2002) 2 LABLJ 1068, (2002) 100 FJR 715
Author: D.V. Shylendra Kumar
Bench: D.V. Shylendra Kumar
JUDGMENT D.V. Shylendra Kumar, J.
1. This is an appeal by the Employees' State Insurance Corporation under the provisions of Section 82(2) of the Employees' State Insurance Act, 1948 ("the Act" for short), directed against the order dated September 23, 1998, passed by the E.I. Court, Bangalore, in ESI Application No. 108 of 1989, being aggrieved by the allowing of the said application whereby the E.I. Court had set aside the order of the appellant-Corporation calling upon the respondent to implement the various provisions of the Act in respect of employees in its office at Bangalore and various branches outside Bangalore and demanding contributions under the Act.
2. The endeavour of the appellant-Corporation is to cover the employees of the respondent-Karnataka State Seeds Corporation under the provisions of the Act so that the benefits flowing under the provisions of the Act endure to the employees of the respondent-Corporation whereas the respondent-Corporation appears to be quite averse to this course of action by the ESI Corporation and would like to avoid the same and in this context, has set up several legal hurdles by way of defence and this appeal is filed by the Corporation to surmount those legal hurdles.
3. Having regard to the controversy as it arises in this appeal, the question that falls for consideration is as to whether the provisions of the Act will be applicable to the respondent-Karnataka State Seeds Corporation and its branches in the peculiar facts and circumstances obtained in the given case and in the light of the provisions of the Act and notifications issued under the Act.
4. The brief facts are that the respondent is a State undertaking and a "Government company" within the meaning of the same under the Companies Act and is an undertaking set up for the purpose of production, processing and drying, storing, distribution and transportation of all agricultural seeds including forest, vegetable and horticultural seeds of all kinds. Classes and description in all its branches or any of the processes and marketing the same either as finished products or in any other semi-finished manner to buy, sell, grow, procure for market, import, export and deal in seeds of all kinds and to implement the State Seeds Project and to undertake the production of certified seeds in sufficient quantities, etc., in sum and substance it is essentially a State undertaking set up for the purpose of causing production of quality seeds to be distributed among the farming community so that the farming community is benefited by sowing such quality seeds in their fields. For such purpose, the respondent-company has set up as many as 17 centres in the State for buying, selling and processing of seeds and is having its head office and administrative office at Bangalore, The total staff strength at the Bangalore office exceeds the minimum prescribed under the Act and there is no dispute about the same. It is the case of the respondent-company that the nature of its Bangalore office is purely administrative and no manufacturing activity as such is carried on at its administrative office at Bangalore. The controversy arises in the light of a notification dated January 5, 1985, issued under the provisions of Section 1(5) of the Act which is effective from January 27, 1985, issued by the Government of Karnataka and as per the said notification, the provisions of the Act are made applicable to all kinds of establishments where ten or more persons are employed and activities are carried on with the aid of power and also in respect of shops, road motor transport establishments, cinema including preview theatres and newspaper establishments, etc. The stand of the appellant-Corporation in the light of the said notification is that the respondent-Seed Corporation is liable to be covered under the provisions of the Act as being a shop within the meaning of the description of "establishments" occurring at Sl. No. 2 of the Schedule to this notification. The area that is sought to be covered by the notification is Bangalore city and suburbs, municipal limits of the Corporation of the city of Bangalore, as also some of the villages in and around Bangalore. Based on this notification, the respondent-Corporation had issued a proposition notice dated May 20, 1998, apprising the respondent that its establishment in Bangalore comes within the purview of Section 1(5) of the Act from the date notified under the said notification and as such they are required to comply with the provisions of the Act. The respondent disputed the coverage by way of a reply dated November 17, 1988, and in view of the dispute, the authority under the Act passed an order under Section 48-A of the Act and as a follow up of the said order, the order dated January 17, 1989, determining the contribution payable by the respondent at Rs. 1,84,141 was issued to the respondent-Seeds Corporation. It was in the light of such requirement to contribute and in the context of the respondent being apprised that it is covered by the provisions of the Act, the dispute arose and to get over the order passed by the appellant-Corporation, the respondent-Seeds Corporation establishment approached the E.I. Court by filing Application No. 108 of 1989.
5. In the light of the respective stands and contentions as urged in the application and the counter-affidavit, the E.I. Court had framed the issues, namely, as to whether the establishment proves that the provisions of the ESI Act are not made applicable to it as per the notification dated January 5, 1985, issued by the Government of Karnataka under the provisions of Section 1(5) of the ESI Act and if so, as to whether the demand for contribution is liable to be set aside. The E.I. Court answered the issue relating to the applicability of the notification to the respondent establishment in the affirmative and held that the Act is not applicable to the establishment of the respondent. As a consequence, the demand for contribution was also set aside. Aggrieved by this order of the E.I. Court, the appellant-Corporation is before this Court in appeal.
6. Smt. Geetha Devi, learned counsel appearing on behalf of the appellant has taken the Court through the order passed by the E.I. Court, various provisions of the Act and has vehemently submitted that the Act being a piece of welfare legislation, is required to be understood and interpreted in a manner so as to further the object of the Act and to extend its applicability to all establishments which are sought to be covered under the Act. In this context, the submission made is that the respondent-establishment at Bangalore, which is described as an administrative office, nevertheless carries on the controlling and supervision of all the 17 production centres of the respondent-establishment located in different parts of the State; that virtually the 17 establishments, though located outside are all part and branches of the controlling offices at Bangalore which is termed as "administrative office"; that the definition of the word "establishment" as occurring in the notification and under the Act is wide enough to cover an establishment of the nature of the respondent organisation; that judicial interpretation, opinion and understanding has been consistently and authoritatively to give the widest possible meaning and scope to the word "establishment" and it will be a misnomer and a very wrong interpretation to understand the word "establishment" occurring under the notification as a place where essentially only a trading activity of buying and selling takes place, which, though it may be a traditional concept, cannot bear the test of scrutiny particularly in the development of law and taking into consideration such expanded meaning of the word "establishment" there is no escape for the respondent organisation to comply with the provisions of the Act inasmuch as the notification squarely covers an organisation of the nature of the respondent within its fold and the respondent is required to comply with the contribution demanded from them. It is also submitted that the E.I. Court has applied wrong principles ; has not properly dealt particularly in the light of the various Supreme Court decisions which are coming for consideration and the order of the E.I. Court requires to be set aside and the order of the appellant-Corporation calling upon the respondent-Seeds Corporation to make contributions to be restored.
7. In support of her submissions, learned counsel has placed reliance on the following decisions:
(i) Hindu Jea Band, Jaipur v. Regional Director, Employees' State Insurance Corporation, .
(ii) International Ore and Fertilizers (India) Pvt. Ltd. v. Employees' State Insurance Corporation, .
(iii) Cochin Shipping Co. v. ESI Corporation, .
(iv) ESI Corporation v. R.K. Swamy, .
(v) Reunion Engineering Co. Pvt. Ltd. v. Regional Director, E.S.I. Corporation, 1993-I-LLJ-31 (Kant-DB)
(vi) Kirloskar Brothers Ltd. v. ESI Corporation, .
8. Placing reliance on these decisions, the submission of learned counsel for the appellant-Corporation is that the respondent organisation can be definitely termed as an "establishment" within the meaning of "shop" under the provisions of the Act and the Act is applicable to the administrative office at Bangalore and the administrative office at Bangalore having control over the 17 branches, the control being both managerial and financial, the employees being transferable from one branch to another branch as also to the administrative office, the entire salary being paid from the administrative office and ultimately the entire profit and loss account of the organisation being arrived at only at the administrative office, and all the tests for integrality of the administrative office and the branches having been satisfied, the respondent-organisation is required to cover all its employees both at the administrative office and the 17 branches and are also required to make contributions as contemplated under the Act. The other submission is that the activities that are being carried on in the branches can also be covered independently having regard to the nature of the work that is being carried on but in view of the fact that the head office itself is covered by the notification even describing it as a "shop", that itself is sufficient to justify coverage of all employees.
9. Per contra, Sri B.C. Prabhakar, learned counsel appearing for the respondent-Seeds Corporation has made two-fold submission. It is firstly contended that the notification in question which seeks to cover establishments in the nature of shops located within the area of Bangalore and its vicinity, is not applicable in respect of its administrative office located at Bangalore. In this regard, it is the submission of learned counsel for the respondent-Seeds Corporation that the administrative office, cannot, by any stretch of imagination, be termed as an establishment in the nature of a shop and no buying and selling activity takes place at the administrative office. Even assuming that the administrative office has control and supervision of the employees of the 17 branches of the respondent-Corporation located in different places, it is submitted that because of such control and supervision of the employees at the branches, the administrative office does not get itself transformed into one which is well within the meaning of the word "establishment". It is also submitted that the branches by themselves are not covered inasmuch as the places where the branches are located are all areas which are not covered by any notification issued by the ESI Corporation covering the nature of the activities carried on in those branches and made applicable for compliance under the provisions of the Act. In this regard, the submission of learned counsel is that assuming that the administrative office is required to be covered for any reason, the branches cannot be covered automatically by calling in aid a notification extending the applicability of the Act in respect of shops.
10. Sri B.C. Prabhakar, learned counsel for the respondent-Seeds Corporation has also made a submission that the words occurring in the said notification seeking to cover certain establishments which read as under:
"...... .shops, road motor transport establishment, cinema including preview theatres and newspaper establishments....."
should be so understood and interpreted by applying the rule of ejusdem generis and if so understood, the meaning of the word "establishment" could be understood only as in the nature of an organisation which carries on activity akin to the organisations mentioned therein which are illustrative of the kind of "establishments" that are sought to be covered under the notification. In the light of such submission, learned counsel for the respondent urges that it is not the intention of the notification to cover an establishment which is exclusively in the nature of an administrative office, inasmuch as even in respect of other types of establishments which are not essentially carrying on the trading activities mentioned in the notification, they are all establishments wherein certain commercial activity is being carried on and not work exclusively of administrative nature. In view of this position, learned counsel urges that the respondent organisation cannot be covered under the notification and prays for dismissal of the appeal".
11. Counsel for the respondent has placed reliance on the decision of the Supreme Court in Whirlpool of India Ltd. v. Employees' State Insurance Corporation, wherein the Apex Court, while interpreting the word "wages" occurring in Section 2(22) of the Act observed that though normal rule of construction while interpreting words and phrases occurring in such welfare legislations was to prefer an interpretation for the benefit of the workman, still the Courts cannot ignore the true and plain meaning of the language of a provision and if the language was clear and unambiguous, the same cannot be given a go-by by calling in aid the rule of interpretation. The question was as to whether certain payments made to the workman under a production incentive scheme envisaged by the management and which was being paid once in three months would come within the meaning of the definition of "wages". It was held that it did not come within the definition of "wages" for the purpose of compelling the employer to make payment of contribution in respect of this "wages" also. There cannot be any dispute with regard to the proposition laid down in the above decision but the question is as to the extent of applicability of such interpretation of the present situation and on the facts as are obtained in this case.
12. I shall deal with these aspects in the light of the decision referred to above and in the light of the submissions made by learned counsel for the respective parties. The dispute or area of controversy lies in a very narrow compass. There is no dispute regarding the number of employees or on the aspect that the 17 branch offices are controlled and supervised by the administrative office at Bangalore. Integrality of management and finance as between the administrative office and the 17 branches is not in dispute between the parties. Even with regard to the nature of the activities that are being carried on either at the administrative office or at the branch office there is no dispute. The thrust of the submission on behalf of the respondent-Corporation is that the administrative office as such does not become a "shop" and the notification in question cannot seek to cover it for applying the provisions of the Act. On the other hand, the stand of the ESI Corporation is that the administrative office of the respondent organisation at Bangalore can be termed a "shop" for the purposes of the notification under the Act and when once it is covered, its branch offices are also automatically covered.
13. Based on the judicial interpretation and opinion which emerges on a perusal of the decided cases referred to by learned counsel for the appellant, it can be positively held that if the administrative office at Bangalore is coverable by the notification in question, the branch office of the respondent-Seeds Corporation will also be inevitably covered as being arms and wings of the administrative office being controlled by the administrative office and spread over different locations.
14. Now, the first question is as to whether the notification in question can cover the administrative office of the respondent organization at Bangalore as a "shop" within the meaning of notification dated January 5, 1985, issued under Section 1(5) of the Act. The dispute and controversy with regard to the scope and extent of applicability of the word '"shop" had arisen repeatedly before the Courts. And in the cases cited and relied upon by learned counsel for the appellant referred to above, this aspect has been discussed in detail. One of the earlier cases arising under the Act itself was the case of Hindu Jea Band, Jaipur v. ESI Corporation, Jaipur (supra). It was held in this decision by the Apex Court that the meaning of the word "shop" cannot be restricted to a place where goods are bought or sold. The traditional and conventional concept of such trading activity being carried on in a shop was held to be not apt in the context of such word occurring in the ESI Act which is a piece of social welfare legislation and it was held that services in the nature of catering to provide artistic talents in marriages and other social functions for a price by a group of musicians and the place where such services are provided for or contracted for was held to be a "shop" within the meaning of the provisions of the Act for the purpose of a notification issued under Section 1(5) of the Act. Likewise, any organisation carrying on the business of import of goods and a central office of such organisation which was situated far away from the place where actually receipt or delivery of goods were taking place, was also held to be a "shop" within the meaning of the notification under Section 1(5) of the Act.
15. In the case of Cochin Shipping Co. v. ESI Corporation (supra), again the Apex Court had occasion to look into the scope and extent of the word "shop" for the purposes of the notification issued under Section 1(5) of the Act and held that a shop carrying on the activity of clearing and forwarding operations like clearing agent and where such activity was carried on was also a shop for the purposes of the said notification. Here again, the Apex Court took note of the object of the Act which is a piece of welfare legislation and reminded that principally that interpretation should be put on the notification which seeks to extend the benefit to such organisation and the employees employed thereunder. In this decision, the Apex Court also rejected the contention that the meaning of the word "shop" should be restricted to such of those organisations or business activities akin to other enumerated establishments mentioned in the notification itself. It is to be noticed in this context that the submission of learned counsel for the respondent on the second aspect urged before the Court that the meaning of the word "shop" should be restricted to the organisations of the nature referred to in the notification itself, namely, all organisations similar to road motor transport establishments, cinema including preview theatres and newspaper establishments, etc. Such a restricted meaning cannot be attributed to the word "shop" in the context of the ESI Act in the notification issued thereunder as laid down by the Apex Court in Cochin Shipping Co.'s case (supra). In the case of ESI Corporation v. R.K. Swami (supra), the Apex Court has yet again pointed out that premises where activities of advertising agency are carried on are also a "shop" within the meaning of the notification issued under Section 1(5) of the Act.
16. A Division Bench of our High Court in the case of Reunion Engineering Co. Private Ltd. v. Regional Director (supra), following the decision of the Apex Court in Hindu Jea Band's case (supra), and International Ore Fertilisers (India) Pvt. Ltd.'s case (supra) held that the meaning of the word "shop" should be as extensive as possible and it should neither be confined nor given a restricted meaning and while so holding, held that any organisation carrying on certain engineering contracts, also is a "shop" for the purposes of the Act and the notification.
17. Yet another decision of the Apex Court is Kirloskar Brothers Ltd. v. Employees' State Insurance Corporation (supra). In this case it was held that if the provisions of the Act are applicable in respect of the principal employer having the head office or place of business at a place even where the Act was not made applicable, but the regional office and other branches of such an establishment are located at places and area where the employees therein are covered under the notification under the Act, the entire establishment including the head office will be covered under the provisions of the Act.
18. The preponderance of the judicial opinion and interpretation based on these decisions are clearly that, the word "shop" should be given as wide and as liberal an interpretation as is possible and when once the provisions of the Act are applicable either to the head office or even when it is applicable to some parts of the organisation which can be termed as regional office or branch office, the provisions will be applicable to the entire organisation whether they are located within the area covered by the notification or not.
19. In the light of such judicial opinion and the authoritative and binding decisions and the ratio laid down by the Apex Court in the case referred to above, I do not find any difficulty in holding that the respondent organisation is an establishment within the meaning of the word "shop" under the notification dated January 5, 1985 made applicable with effect from January 27, 1985, and the administrative office of the respondent organisation at Bangalore is a "shop" covered under the provisions of the Act. The respondent-organisation is required to comply with the provisions of the Act and make contributions in respect of its employees including its employees working in the various branch offices.
20. Before parting with this appeal, I am constrained to make an observation. A welfare legislation in the nature of Employees' State Insurance Act is intended to benefit the employees and provide certain needy facilities to the employees and it is made statutorily available to the employees so that it is not left to the vagaries or contingencies or the whims and fancies of an employer. The applicability of the provisions of the Act to an establishment should, in the normal course, be welcomed by the employers and the employees would definitely jump at it and would feel elated if the benefits are extended to them. Unfortunately, the scenario as it prevails, is not in this manner. The tendency of the employer is always to avoid applicability of the Act as far as possible and even the employees, many a time, are not very enthusiastic if the provisions of the Act are made applicable, which is certainly not a very encouraging prospect, inasmuch as the object of the legislation is to extend certain benefits to the employees. In such a situation, the only inference that can be drawn is that the object of the Act is not being achieved as of now and there is something wrong in the implementation of the provisions of the Act. In fact employees of many well established and good employers always seek for opting out of the Act as it is said that they are getting better benefits than are being provided as of now by the statutory authorities which are either inadequate or totally lacking. If that is the situation, the purpose of the Act is frustrated. Unfortunately when such organisations are brought within the ambit of the State ESI Act, it turns out to be for the benefit of the employees of the ESI Corporation rather than for the benefit of the class of employees or labourers for whom it is meant for. It is high time that such a trend is arrested or reversed by the Corporation. ESI Corporation, Employees' Provident Fund and the like should gear up to the requirements and should realise that it is not an organisation set up or brought into existence for the welfare of its own employees, but for the larger interest of the society and the employees-class in general. Otherwise, the very existence of this organisation cannot be justified. It is earnestly hoped that the organisation will take note of such trends and ensure in future at least that the real object of the social welfare legislation is achieved.
21. Accordingly, the appeal is allowed in terms indicated above. The application of the respondent-Seeds Corporation made under Section 75 of the Act challenging the order dated January 17, 1989, passed by the appellant, stands rejected. The respondent is required to contribute the amounts indicated in the order dated January 17, 1989, and further contributions from April 1, 1988 onwards.
22. Appeal allowed. No costs.