Regional Director vs Ganesh Oil Mills & Grinding Factory on 21 February, 2014

[Cites 16, Cited by 1]

Gujarat High Court

Regional Director vs Ganesh Oil Mills & Grinding Factory on 21 February, 2014

Bench: R.M.Chhaya

        C/FA/1389/2006                              JUDGMENT



       IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                 FIRST APPEAL  NO. 1389 of 2006
                              TO 
                 FIRST APPEAL NO. 1391 of 2006
 
      For Approval and Signature: 
      HONOURABLE MR.JUSTICE R.M.CHHAYA                     Sd/
=====================================================

Whether Reporters of Local Papers may be 1 NO allowed to see the judgment ?

2 To be referred to the Reporter or not ? NO Whether their Lordships wish to see the 3 NO fair copy of the judgment ?

Whether this case involves a substantial question of law as to the interpretation 4 NO of the constitution of India, 1950 or any order made thereunder ?

Whether it is to be circulated to the 5 NO civil judge ?

=================================================== REGIONAL DIRECTOR....Appellant(s) Versus GANESH OIL MILLS & GRINDING FACTORY....Defendant(s) =================================================== Appearance:

MR HEMANT S SHAH, ADVOCATE for Appellant(s) No. 1 MR DIPAK R DAVE, ADVOCATE for Defendant(s) No. 1 =================================================== CORAM: HONOURABLE MR.JUSTICE R.M.CHHAYA Date : 21/02/2014 ORAL (COMMON) JUDGMENT (1) As common question of law and facts arise in this group of appeals and the evidence adduced before the trial Court is also same and even the judgment impugned is common, these appeals were heard together and are hereby decided by this common judgment.

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C/FA/1389/2006 JUDGMENT (2) By this group of appeals filed under Section 82(2) of the Employees State Insurance Act, 1948 (the ESI Act) against common judgment and order dated 28.01.2005 passed by the Employees State Insurance Court, Ahmedabad (ESI Court) in E.S.I. Application Nos.1214 of 1994.

(3) The facts which can be culled out from the record are that the respondents in these appeals are ginning and processing industries as well as oil industries and are, inter alia, engaged in manufacturing process of ginning and process of extract oil from cotton seeds. That provisions of the Act was made applicable to the respondents w.e.f. 16.10.1991 and Form C11 was issued to the respondents accordingly. As against such order, the respondents approached the ESI Court under Section 75 of the Act.

(4) It was contended by the respondents that the respondents are engaged in the business of oil and ginning, they have one electric connection and they are situated in one campus/premise. That their predominant business is of cotton ginning.

That season of cotton begins in the month of October and farmers bring raw cotton (kapasia) to the ginning which is placed in open and after moisture gets evaporated, by a process in ginning the cotton is packed in bales and the cotton Page 2 of 19 C/FA/1389/2006 JUDGMENT seeds are separated. That the cotton seeds so obtained are either sold in the open market or oil is extracted by the process undertaken in Expeller. The oil is sold in the market, which is known as "cotton seed oil". That the respondents do not buy cotton seeds from the open market but they extract oil only from the cotton seeds, which are obtained from the ginning process. That both the ginning and oil mills remain closed during monsoon season i.e. till September and during that period only 45 employees are there. That the production and sale of ginning department is five times that of the oil department. It is on record that the business of both the industries i.e. ginning and oil is only one and even account books are maintained jointly. That as the ginning industry is a seasonal industry and as the oil industry is depending upon the raw material derived from the cotton seeds that are separated from the process of ginning even the oil industry is a seasonal industry and it remains closed from MayOctober.

(5) The appellantCorporation contented before the ESI Court that the respondent industries are covered from 16.10.1991 and accordingly Form C11 was issued. It is the case of the appellant Corporation that the industry remains closed for three months i.e. JulySeptember otherwise it Page 3 of 19 C/FA/1389/2006 JUDGMENT remains functional for the remaining nine months and therefore it is contended that provisions of the Act would apply to the respondent industries.

(6) The appellantCorporation as well as the respondents adduced evidence and contended that though the "ginning industry" is a seasonal industry so far as the oil industry is concerned, the same is not excluded from coverage of provisions of the Act. The appellantCorporation has specifically contended that the word "factory" as defined under Section 2(12) of the Act would cover "oil industry" separately. The ESI Court, after appreciating the evidence on record by the impugned common judgment and order dated 28.01.2005 allowed the applications filed by the respondents. Being aggrieved by the same, the appellantCorporation has approached this Court by way of these appeals.

(7) Heard Mr.Hemant S. Shah, learned advocate for the appellantCorporation, and Mr.Dipak R. Dave, learned advocate for the respondent industries. Have perused the record and proceedings of the ESI Court.

(8) Mr.Hemant S. Shah, learned advocate for the appellantCorporation, has mainly contended as under:

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C/FA/1389/2006 JUDGMENT

(i) oil industry, which is carried out by the respondent(s), is not excluded from the purview of the Act;

(ii) operation, ownership and management of all the units is common;

(iii) in oil industry, which is situated in the same premise there are more than 10 employees and therefore the oil units are covered under the Act and the same are not excluded from the scope and ambit of the Act;

(iv) the oil industry is excluded in the word "factory" as defined under Section 2(12) of the Act;

It is therefore contended that the findings given by the ESI Court are not justified and proper. The oil industry should be considered distinctly and not to be considered as seasonal factory.

(9) Per contra, Mr.Dipak R. Dave, learned advocate for the respondent industries, has raised the following contentions:

(i) that both the establishments of ginning and oil units in all these appeals are managed and supervised by one person and the units cannot be bifurcated.

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C/FA/1389/2006 JUDGMENT

(ii) all the units are situated in one premise;

(iii) there is no challenge to the fact that the ginning industry is not a seasonal industry;

(iv) the oil industry is an incidental activities of the extraction of oil based on ginning activities;

(v) that the onus is on the appellantCorporation to prove that the oil industry is not a seasonal industry and considering the fact that the oil industry is depending upon the cotton seeds, which is the basic raw material i.e. derived from ginning process and therefore even the oil industry being incidental activity would fall within the purview of Section 2(19A) of the Act.

It was therefore contended that the impugned common judgment and order is legal and proper.

(10) Learned advocate for the respondent industries has also relied upon the following judgments to substantiate the case of the respondents:

(i) Amul Potteries Vs. Employees State Insurance Corporation, 2006 (2) GCD 1176 (Guj);

(ii) Employees' State Insurance Corporation, Hyderabad Vs. M/s.

Jayalakshmi Cotton and Oil Products (P) Ltd., Perecherla, 1980 LAB. I.C. 1078 (A.P.); AND Page 6 of 19 C/FA/1389/2006 JUDGMENT

(iii) E.S.I.C., Bangalore and Brooke Bond India Ltd., 1982 II L.L.J. 395 (Karnataka).

No further or other submissions are made by the learned counsel for the respective parties.

(11) Upon considering the contentions raised by the learned counsel for the parties and on perusal of the evidence on record, following picture emerges.

(12) All the three respondents industries are having same management, one license and are engaged in the activities of ginning and processing of cotton and also oil extraction activity from the cotton seeds. On perusal of the evidence on record of the ESI Court, it is revealed that it is contended by the respondent industries before the Court in the application filed under Section 75 of the Act that their factory is mainly doing work of cotton ginning and the oil is extracted from the cotton seeds that are separated during process of cotton ginning and subsidiary is extracting oil. It is also contended that every year during monsoon season both the process of cotton ginning and oil milling remain closed. It is further contended that as the main and/or predominant business is that of ginning there is vast difference between production and sale between both manufacturing Page 7 of 19 C/FA/1389/2006 JUDGMENT processes. It is also contended that even though both industries are situated in the same compound, the process is different and even they have separate sets of machine. It is also contended that there are different set of workers, who are not interchangeable between the two manufacturing process. It is specifically contended that ginning industry is admittedly a "seasonal factory" as defined under Section 2(19 A) of the Act and the oil extraction being incidental to and/or connected with the process, the same would also be a "seasonal industry" as defined under Section 2(19A) of the Act. It is contended that as the process is "seasonal process" and the manufacturing process is undertaken for less than seven months, the provisions of the Act are not applicable.

(13) It appears that the appellantCorporation filed its reply to the aforesaid application (Exh.5) wherein it is, inter alia, contended that only as the cotton ginning process is seasonal, the oil industry is not excluded from the purview of the Act. It is contended that exemption cannot be granted to cotton ginning factory and coverage considered only for oil mill as the process of both units is considered to be continuous in view of the common raw material used. It is also contended that even at the time of inspection it Page 8 of 19 C/FA/1389/2006 JUDGMENT was found that both units are situated in the same premise and same raw material is used. It was noticed that it is a continuous process. The same cannot be separated and considered as seasonal factories and in fact the industries are run for more than seven months in a year.

(14) AppellantCorporation has also produced on record review sheet of the file (Exh.21), which indicates that there were 312 employees in Shree Ganesh Oil Mill and Ginning Factory as per Inspection Report dated 27.07.1993 and even notices issued under Sections 45C to 45I of the Act are also produced (Exh.23). The only oral evidence, which is adduced by the respondents is that by one Shri Laljibhai Jayram Patel (Exh.30) in the form of affidavit as examinationinchief dated 31.01.2003 and the said witness has deposed that the factory was commenced in the year 1983. That the main work of the factory is of cotton ginning and during process of ginning the cotton seeds, which are obtained are crushed and oil is extracted. It is deposed that there are 72 wheels (charkhas) for ginning, whereas there are six Expellers for extracting oil. That electric power connection of both units are one. That for the purpose of ginning the cotton is purchased from farmers. That the cotton is pressed in bales and the same is sold either to the traders or to the Page 9 of 19 C/FA/1389/2006 JUDGMENT societies. That the cotton seeds (kapasia), which are obtained from the process of ginning can be sold in open market, however, they crush the same and extract oil from it which is directly sold to the traders. That industry of ginning begins somewhere near Diwali i.e. in October and it continues till April or May and as cotton seeds, which are obtained from ginning are used in oil mill, the oil industry remains open during that period only. It is specifically deposed that during monsoon for 45 months ginning as well as oil mills remain closed. During season 110 workers work in ginning mill, whereas 20 workers work in oil industry. It is deposed that workers working in ginning industry as well as its turn over are 78 times than that of oil industry. That this fact is also mentioned in the inspector report prepared by Inspector Shri Panchal dated 27.03.1996.

(15) It further appears from the deposition of the said witness that Shri Panchal, ESI Inspector, has mentioned in his report that even the account books are same. It is deposed that except the cotton seeds which are obtained by the process of ginning they do not undertake process of oil extraction from any others oil seeds.

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C/FA/1389/2006 JUDGMENT (16) It may be noted that from the record it is found that there is no crossexamination taken by the appellant even though it appears that the matters were adjourned at the instance of the appellant for the said purpose. It is further found from the record that the matter was adjourned by the ESI Court for study of files. On perusal of the paper book as well as record and proceedings, the appellantCorporation has not even produced the Inspector Report before the ESI Court.

(17) Section 2(19A) of the Act reads as under:

"2(19A) "Seasonal factory means a factory which is exclusively engaged in one or more of the following manufacturing processes, namely, cotton ginning, cotton or jute pressing, decortication of groundnuts, the manufacture of coffee, indigo, lac, rubber, sugar (including gur) or tea or any manufacturing process which is incidental to or connected with any of the aforesaid processes and includes a factory which is engaged for a period not exceeding seven months in a year

(a) in any process of blending, packing or repacking of tea or coffee; or

(b) in such other manufacturing process as the Central Government may, by notification in the Official Gazette, specify;

(18) Section 2(12) of the Act defines word "factory", which reads as under:

"2(12) 'factory' means any premises including the precincts thereof whereon twenty or more persons are working or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on but does not include a mine subject to the operation of the Page 11 of 19 C/FA/1389/2006 JUDGMENT Indian Mines Act, 1923 (IV of 1923) (or a railway running shed)."

(19) On perusal of the word "seasonal factory" it is crystal clear that cotton ginning industry is admittedly a seasonal factory. It is also further provided that manufacturing process which is incidental to or connected with any of the aforesaid process would be covered under the definition of word "seasonal factory."

(20) On perusal of the impugned judgment and order and on appreciation of evidence on record, it transpires that the main business of the factory of the respondent is that of ginning, which runs from OctoberMay, which is admittedly a seasonal business and therefore is a seasonal factory. Evidence on record clearly establishes the fact that the raw material for the oil industry is the cotton seeds, which are obtained by the respondent while undertaking process of ginning. There is no evidence on record and neither it is the case of the appellantCorporation that the respondents purchase cotton seeds and/or other types of oil seeds from open market and undertake process of oil extraction. Respondents have brought on record the evidence to prove that the oil industry is depending upon the cotton seeds that are obtained by the process of ginning and therefore it can safely be said that oil industry Page 12 of 19 C/FA/1389/2006 JUDGMENT is incidental to that of the ginning activity, which is the main manufacturing activity carried out by the respondents. ESI Court, after appreciating the evidence on record and after considering the judgments cited before it, has come to the conclusion that the respondent industries are seasonal factories as defined under Section 2(19A) Of the Act. Mr.Dipak R. Dave, learned advocate for the respondent industries, has correctly contended that onus was upon the appellantCorporation to prove to the contrary. This Court finds that the appellant Corporation has not even brought on record the inspection report to prove the said contention.

(21) Division Bench of Andhra Pradesh High Court in the case of Employees' State Insurance Corporation, Hyderabad (supra), while dealing with almost an identical issue has observed thus:

"7. Section 1(4) of the Act postulates differential treatment between perennial and seasonal factories are excluded from the purview of the Act apparently on the ground of administrative exigency and convenience. The expression 'seasonal factory' has been defined in Section 2(1) of the Act as follows:

"2(12) 'factory' means xxxxxx "Seasonal factory means a factory which is exclusively engaged in one or more of the following manufacturing processes, namely, cotton ginning, cotton or jute pressing, decortication of groundnuts, the manufacture of coffee, indigo, lac, rubber, sugar (including gur) or tea or any manufacturing process which Page 13 of 19 C/FA/1389/2006 JUDGMENT is incidental to or connected with any of the aforesaid processes and includes a factory which is engaged for a period not exceeding seven months in a year

(a) in any process of blending, packing or repacking of tea or coffee; or

(b) in such other manufacturing process as the Central Government may, by notification in the Official Gazette, specify;

The expressions "manufacturing process" and "power" shall have the meaning respectively assigned to them in the Factories Act, 1948."

8. The essential conditions requisite for a factory to be called as a "Seasonal factory" are:

1. the factory must be engaged exclusively (2) in one or more of the manufacturing process viz., cotton ginning, cotton or jute pressing, decortication of groundnuts or (3) any manufacturing process which is incidental to or connected with any of the aforesaid processes.

The first two conditions: exclusive engagement and the manufacturing process of cotton ginning, cotton pressing, decortication of groundnuts do not present any difficulty. But the real problem is, as to what is incidental to or connected with the aforesaid manufacturing processes.

9. It is contention of the learned counsel for the Corporation that the Decortication of Cotton Seeds and Oil Extraction are not incidental to or connected with the cotton ginning or cotton pressing. He fervently pleads that the Oil Section and solvent extraction Unit work allthrough the year and one unit of the factory cannot be branded as seasonal and the rest not and that the factory as a whole is liable for contribution. According to him, it is the entire premises that constitutes a factory. He submits that 4 units of the factory viz. Cotton ginning and pressing, cotton seed decortication, oil extraction and solvent extraction are located in the same premises and that the main activity in the factory premises is cotton seed oil extraction and the last three sections are perennial and it is only the first section i.e. ginning and pressing that is seasonal. According to him, the main activity in the factory is not cotton ginning and pressing and therefore the factory does not fall within the fold of the seasonal Page 14 of 19 C/FA/1389/2006 JUDGMENT factory defined in Sec. 2(12) of the Act. The learned counsel placed reliance on a decision of the Supreme Court in Nagpur Electric Light and Power Co. Ltd. v. The Regional Director, E.S.I. Corporation, AIR 1967 SC 1364, wherein the Supreme Court observed:

"5. Any premises including the precincts thereof (excepting a mine and a railway running shed) constitute a factory if (1) 20 or more persons are working or were working thereon on any day of the preceding 12 months, and (2) in any part there of a manufacturing process is being carried on with the aid of power. If these two conditions are satisfied, the entire premises including the precincts thereof constitute a factory, though the manufacturing process is carried on in only a part of the premises."

10. In Employees' State Insurance Corporation v. S. M. Sriramulu Naidu, AIR 1960 Mad 248, the Madras High Court held:

"The essential requisites of a factory under the Act are (1) a premises, a geographical area within a certain boundary (2) in a part of which at least manufacturing process should be carried on with the aid of power and (3) twenty or more persons should be working in the premises. It is not necessary that all the twenty persons should be working in the same section or department. So long as the efforts of all the departments are coordinated to achieve the main object of the factory, that is, the manufacture, the decision whether a particular place is a factory or not, would depend largely on the question, whether those activities are carried on within the premises of the factory. The premises need not be a single building; a number of buildings within a single compound might constitute a factory."

11. In the present case all the buildings in which various departments are housed lie within the same compound, and all the units taken together, according to the learned counsel constitute a 'factory'. But the question in this case is not whether all the units are located in the same premises. The perplexing question is whether the decortication of seeds, oil extraction and solvent extraction are incidental to or connected with the cotton ginning and pressing. It is common ground that the factory is not exclusively engaged in cotton ginning or pressing. But it is an admitted fact that the Page 15 of 19 C/FA/1389/2006 JUDGMENT petitioner factory started only with the cotton ginning and pressing in March, 1973 and subsequently added the cotton seed decortication section and oil mill and solvent extraction sections. It is in the evidence of P.W.1 that the seed that comes out from the cotton ginning mill is decorticated and the meats from the decortication plant are fed to the oil mill for oil extraction. It is also admitted that the cotton ginning and pressing is a seasonal activity but the cotton seed oil extraction and solvent extraction are perennial. Thus the activities in the factory are interconnected and the solvent extraction and oil seeds sections though perennial are closely connected with or incidental to ginning and pressing. In Royal Talkies v. Employees' State Insurance Corporation, AIR 1978 SC 1478: (1978 Lab IC 1245) the Supreme Court had occasion to consider whether the employees of cyclestand and canteen run in a cinema theater by contractors are covered by the definition of employee under S. 2(9) of the Act. The Supreme Court observed:

" No one can seriously say that a canteen or cycle stand or cinema magazine booth is not even incidental to the purpose of the theatre. The cinema goers ordinarily find such work an advantage, a facility an amenity and sometimes a necessity. All that the statute requires is that the work should not be irrelevant to the purpose of the establishment. It is sufficient if it is incidental to it. A thing is incidental to another if it merely appertains to something else as primary. Surely, such work should not be extraneous or contrary to the purpose of the establishment but need not be integral to it either. Much depends on time and place, habits and appetites, ordinary expectations and social circumstances. In our view, clearly the two operations in the present case, namely, keeping a cycle stand and running a canteen are incidental or adjuncts to the primary purpose of the theatre."

12. Here, as there, the primary manufacturing process is cotton ginning and pressing. The other manufacturing processes viz. decortication and oil extraction and solvent extraction are only adjuncts to the primary manufacturing process of cotton ginning and pressing. We have therefore, no hesitation in holding that the petitionerfactory is a seasonal factory."

(22) Similar view is also expressed by Division Bench of High Court of Karnataka in the case of Page 16 of 19 C/FA/1389/2006 JUDGMENT ESIC, Bangalore and Brooke Bond India Ltd., (supra) wherein Tea and Coffee manufacturing units were considered to be seasonal factory.

(23) This Court in the case of Amul Potteries (supra) has observed thus:

"11. It is, thus, clear that the law recognizes two categories of institutions, (1) factory and (2) seasonal factory. The definition of 'factory' came to be amended and introduced, as such, as narrated above with effect from 20th October, 1989, whereas 'seasonal factory' was defined, for the first time, in 1989. By virtue of provision contained in section 1(4), it is clear that provisions of the law would not apply to seasonal factories. The question, therefore, would be whether the applicantfactories are factories or seasonal factories, as contemplated under the Act. In this regard, it would be appropriate to note that the applicantfactories are regarded and declared as seasonal factories by order dated 28.11.1991 by Labour Commissioner, State of Gujarat. It is nobody's case that nature of work in the applicants' factories has changed only with effect from 28.11.1991, which would convert them into seasonal factories. Differently put, it is nobody's case that prior to 28.11.1991, the factories were functioning in a manner which would not be covered in the definition of seasonal factories, meaning thereby that they were not working for more than seven months in a year.

12.1 Apart from this, it would be appropriate to note that the E.S.I. Court has also given a specific finding to the effect that the applicantfactories are seasonal factories and are functioning for less than seven months in a year. This specific finding in paragraph 12 of the judgment of the E.S.I. Court is accepted by the E.S.I. Corporation. The Corporation has not challenged this aspect in the appeals preferred by it, though the contention regarding non grant of interest and penalty is raised. In light of provision contained in Section 82(2) of the Act, an appeal shall lie only if a substantial question of law arises. When a finding of fact is not challenged, it attains Page 17 of 19 C/FA/1389/2006 JUDGMENT finality and, therefore, the applicant factories have to be and are accepted as seasonal factories.

12.2 Thus, there is no material to show that there is a change of period of work during the period between 1989 and 28.11.1991 and the period thereafter. The nature of work is the same and by order dated 28.11.1991, it is accepted that the factories are seasonal factories. Added to this is the fact that the Trial Court has also given a verdict to the effect that the applicantfactories are seasonal factories and, in light of section 1(4) of the Act, the provisions of the Act cannot be made applicable to seasonable factories.

12. Learned Advocate, Mr. Shah, has raised a contention that Government has granted exemption in exercise of powers under Section 87 of the Act only with effect from 3.6.1992, whereas the applicant factories fall within the definition of 'factory' with effect from 20th October, 1989 and, therefore, for that period, they are liable to pay contribution.

13.1 It is not possible to accept this contention for the reason that Section 87 contemplates investing power in the Government to grant exemption from payment of contribution by class of factories or establishments or class of factories or establishments in any specified area from the operation of the Act for a period not exceeding one year and may, from time to time, by notification renew such exemption for a period not exceeding one year at a time. This is provision relating to 'factory' or establishment and by no stretch of imagination can it be said that this term 'factory' would be applicable to a case of 'seasonal factory' when the law has contemplated, drawn and recognized distinction between factories and seasonal factories. The provision contained in Section 1(4) clearly makes a distinction between the two when it says that it applies to all factories other than seasonal factories and, therefore, no notification by the Government would be necessary in respect of seasonal factories for exemption from payment of contribution. Section 87 cannot take in its sweep Seasonal Factories as Seasonal factory has been defined differently by the Act. The Government cannot enjoy the powers under Section 87 in respect of Seasonal Factories. Ordinarily, the term 'factory' would Page 18 of 19 C/FA/1389/2006 JUDGMENT include seasonal factory, but when the law, from the beginning contemplates factories and seasonal factories separately and provides different definitions for each category, then section 87 cannot be read to include in its sweep seasonal factory when it speaks of granting exemption to factory of class of factory. No notification under Section 87 for exemption would be necessary in respect of Seasonal Factories in light of Section 1(4) of the Act. The contention is, therefore, devoid of merits.

13. It is, therefore, held that seasonal factories would not be covered under and governed by the provisions of the Employees' State Insurance Act, 1948."

(24) In view of the aforesaid and considering the evidence on record, establishments of the respondents is not a "factory" under Section 2(12) of the Act but are "seasonal factory" as defined under Section 2(19A) of the Act. In view of the aforesaid observations and findings, the findings given by the ESI Court are justified and proper.

(25) Accordingly, these appeals fail and are dismissed. Parties to bear their own costs. Record and proceedings be sent back to the ESI Court forthwith. Registry to place a copy of this order in connected matters.

Sd/ [R.M.CHHAYA, J ] *** Bhavesh [pps] Page 19 of 19

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