Bombay High Court
Hotel Pal Palace, Nagpur Thr. Its ... vs Employees State Insurance ... on 23 January, 2018
Author: Manish Pitale
Bench: Manish Pitale
1 fa680.05
IN THE HIGH COURT OF JUDICATURE AT BOMBAY,
NAGPUR BENCH, NAGPUR.
FIRST APPEAL (FA) NO. 680 OF 2005
Hotel Pal Palace,
A Partnership Concern Carrying
on the activity of Residential Hotel
at 25, Central Avenue, Nagpur
440 018 through its Partner
Prithipal Singh s/o Surendrasingh Vij. ... APPELLANT
VERSUS
Employees State Insurance
Corporation, ESIC Bhavan,
Ganesh Peth, Nagpur through its
Asstt. Regional Director Incharge. ... RESPONDENT
....
Shri A.P. Wachasunder, Advocate for the appellant.
Smt. B.P. Maldhure, Advocate for the respondent.
....
CORAM : MANISH PITALE, J.
DATE OF RESERVING JUDGMENT : 15TH JANUARY, 2018.
DATE OF PRONOUNCING JUDGMENT : 23RD JANUARY, 2018.
JUDGMENT :
By this appeal, the appellant has challenged the judgment and order dated 14th October, 2005 passed by the Employees State Insurance ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 2 fa680.05 Court, Nagpur in Application (ESI) No. 5 of 1989, whereby an application filed by the applicant under Section 75 of the Employees State Insurance Act, 1948 (hereinafter referred to as the ESI Act) has been dismissed and the liability fixed upon the appellant under the provisions of the ESI Act has been confirmed.
2. The appellant is a partnership firm. It undertook the construction of hotel at Nagpur in the year 1981. The construction of the ground floor and first floor of the building was completed some time in the year 1984 and the second floor was completed in the year 1986. the hotel commenced business on 25.04.1984, while the construction of the remaining portion of the building continued.
3. On 24.07.1984, an inspector of the respondent/Employees State Insurance Corporation visited the hotel premises and conducted inspection. On the basis of inspection, a Preliminary Inspection Report, marked as Exh.35, was prepared, wherein it was recorded that 15 employees were working in the hotel in May, 1984 and that 25 employees were working in the months of June and July, 1984. It was also recorded that power was being used for manufacturing process in the said premises and that there was lodging and boarding available.
4. On the basis of the said Preliminary Inspection Report, ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 3 fa680.05 proceedings under the ESI Act were initiated against the appellant. This culminated in order dated 29.08.1988 under Section 45(A) of the ESI Act, whereby the appellant was directed to pay specified amounts towards contribution under the ESI Act along with interest. Aggrieved by the said order and the fact that provisions of the ESI Act stood applied on the appellant/Establishment, on 27.03.1989, the appellant filed an application under Section 75 of the ESI Act before the Employees State Insurance Court, Nagpur, praying for quashing of the recovery proceedings initiated by the respondent/Corporation. It was contended on behalf of the appellant that at no point in time, during the relevant period, did the appellant employ 20 or more employees in the establishment. It was claimed that the number of employees during the relevant period in the appellant/Establishment were between 11 and 14. On this basis, it was contended that the establishment of the appellant did not satisfy the definition of "factory" under Section 2(12) of the ESI Act. The definition relevant for the present case is as it was present on the statute book before the amendment of the Act in the year 1989.
5. The respondent/Corporation opposed the contentions of the appellant before the Employees State Insurance Court, Nagpur, pointing out that the Inspection Report and other material on record clearly demonstrated that there were 25 employees working with the appellant/ Establishment and that, therefore, the order passed by the Assistant ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 4 fa680.05 Regional Director of the respondent/Corporation under Section 45(A) of the ESI Act dated 29.08.1988 was justified. The Employees State Insurance Court, Nagpur considered the rival submissions and passed the impugned judgment and order dated 14.10.2005, rejecting the contentions of the appellant. It was held that the evidence and material on record demonstrated that the appellant/Establishment was covered under the definition of "factory" under Section 2(12) of the ESI Act and that, therefore, there was no substance in the application. On this basis, application of the appellant was dismissed.
6. Aggrieved by the said judgment and order of the Employees State Insurance Court, Nagpur, the appellant had filed the instant appeal under Section 82 of the ESI Act. By order, dated 18.01.2007, this Court admitted the appeal on the following substantial questions of law.
"1. Whether the construction of further floors of the building could be treated as expansion of the originally completed floors for the purposes of coverage under ESI act where the original plans contemplated completion of entire building but the building was completed in stages ?
2. Whether the establishment of hotel would be liable to coverage under the Act on employing 10 employees pending completion of such building by taking into account the workmen employed by the construction contractor for the purpose of completion of such ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 5 fa680.05 unfinished work ?"
7. Shri A.P. Wachasunder, learned Counsel appearing on behalf of the appellant/Establishment submitted that the Employees State Insurance Court, Nagpur, has committed an error in passing the impugned order because while ascertaining the number of workers found at the site, the Inspector of the respondent/Corporation had wrongly included the construction workers who were working at the site for completing the construction of building of the hotel. It was further submitted that the preliminary investigation report dated 24.07.1984 (Exh.35) prepared by the Inspector simply mentioned that there were 25 employees found at the site of the appellant in the months of June and July, 1984. No details regarding the names of employees and the type of work being done by them, was recorded during the inspection. The Inspector did not make a list of the employees with such details and their signatures. Learned Counsel for the appellant also relied upon muster rolls of employees produced before the Court to contend that during the relevant period, the number of employees were between 11 and 14. Since there was not enough material on record to show that there were indeed 20 or more employees on the site at the time of inspection, it was contended that the appellant/ Establishment could not have been included under the definition of "factory" under Section 2(12) of the ESI Act, as it then stood. Reliance has been placed on the judgment and order of this Court in First Appeal No. ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 6 fa680.05 751 of 2004 in support of the contention that in the absence of names of identifiable persons being stated in the inspection report, the appellant/ Establishment could not have been covered under the provisions of the ESI Act.
8. Learned Counsel for the appellant also sought to contend that there was no manufacturing process with the aid of power being undertaken on the site and that, therefore, the establishment of the appellant could not have been covered under the provisions of the ESI Act. But, since the appeal has not been admitted on this question, the said submission raised on behalf of the appellant is irrelevant. A number of judgments have been cited on the aforesaid issue of manufacturing process and use of power, but since the appeal has not been admitted on the said question, I am not referring to the said judgments.
9. On the other hand, Smt. Maldhure, learned Counsel for the respondent/Corporation submits that a perusal of the Preliminary Inspection Report dated 24.07.1984 and other material on record demonstrated that there were more than 20 employees working with the appellant/Establishment at the relevant time. It was further contended that even if the construction workers had been taken into account by the Inspector of the respondent/Corporation while determining the number of employees of the appellant/Establishment, it was permissible, because the ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 7 fa680.05 construction work was nothing but an expansion of the hotel establishment and that in such a situation even the construction workers could be taken into account. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Regional Director, Employees' State Insurance Corporation, Madras .v. South India Flour Mills (P) Ltd. (reported in 1986(3) SCC, 238).
10. In order to consider the rival submissions, it is necessary to refer to the definition of the expression "factory" used in Section 2(12) of the ESI Act as it stood before the amendment of the Act in the year 1989. This is because the instant case pertains to the period from 1984 to 1988. The provision at the relevant time read as follows :
"12. "factory" means any premises including precincts thereof whereon twenty or more persons are employed or were employed for wages 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 Mines Act, 1952 or a railway running shed : "removal factory" means a factory which is exclusively engaged in one or more of the following manufacturing processes, namely, cotton spinning, cotton or jute pressing, decortication of groundnuts, the manufacture of coffee, indigo, lac, rubber, sugar (including gur) or tea or any manufacturing process which ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 8 fa680.05 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 expression "manufacturing process" and "power" shall have the same meanings respectively assigned to them in the Factories Act, 1948."
11. A perusal of the above quoted provision shows that if an establishment was to be included in the definition of "factory" under the ESI Act, at least 20 employees ought to have been found working at the relevant time. The Preliminary Inspection Report in the instant case at Exh.35 dated 24.07.1984 records that there were 25 employees found working in the appellant/Establishment in the months of June and July, 1984. There is no list of 25 employees found to have been working in the establishment. There are no details regarding the names, type of work, wages paid or signatures of such 25 employees found working in the appellant/Establishment at the time of inspection. The Inspector who appeared as a witness for the respondent/Corporation before the Employees State Insurance Court, Nagpur, also did not depose anything in respect of the aforesaid details of 25 employees found to have been ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 9 fa680.05 working in the appellant/Establishment as per the Preliminary Inspection Report. It is only stated by the said witness that 25 employees were engaged from June, 1984. It is also stated by the said witness in cross- examination that he did not mention the name of the contractor doing the work of construction of the hotel or the number of workers engaged by the contractor at the site of the hotel.
12. A partner of the appellant/Establishment appeared as a witness for the appellant and stated that minimum staff was employed from May, 1984 onwards for running of the hotel and that at any given point of time, during the relevant period, there were only 11 to 14 employees working in the appellant/Establishment. The said witness relied upon the muster roll of the relevant period which gives the names and other details of the number of employees working in the appellant/Establishment. The names of employees were given and on the basis of document Nos.11, 12, 13 and 14, being copies of muster rolls, it was stated that at any point of time, during the relevant period, a maximum of only 14 employees were working in the appellant/Establishment.
13. The learned Counsel appearing on behalf of the respondent/ Corporation has strenuously argued that the Preliminary Inspection Report dated 24.07.1984 specifically stated that 25 employees were found working in the appellant/Establishment, which was enough to cover the ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 10 fa680.05 appellant under the definition of "factory" under Section 2(12) of the ESI Act thereby making it amenable to the provisions thereof. The learned Counsel for the respondent/Corporation heavily relied on the judgment of the Hon'ble Supreme Court in the case of Regional Director, Employees' State Insurance Corporation, Madras .v. South India Flour Mills (P) Ltd. (cited supra), particularly paragraphs 12 to 15 thereof, to contend that even if the construction workers working at the site for carrying out construction work of the hotel, were included in the number of employees stated in the Preliminary Inspection Report, it was permissible and that the appellant cannot escape liability under the ESI Act by contending that the construction workers of the contractor could not be included as its employees. Applying the ratio of the aforesaid judgment of the Hon'ble Supreme Court, it would be clear that the appellant/Establishment cannot escape liability under the ESI Act by merely pleading that employees found on the site by the Inspector of the respondent/Corporation included construction workers and that, therefore, if the number of construction workers was subtracted, less than 20 employees were present when the inspection was conducted. The evidence placed on record by either side does not show as to what was the number of construction workers and what was the number of employees working in the appellant/Establishment for providing services in the hotel.
14. Thus, the most crucial aspect in the instant case becomes the ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 11 fa680.05 material on record showing details of names and other particulars of the employees working on the site. While, the respondent/Corporation has relied upon the Preliminary Inspection Report dated 24.07.1984 wherein it has been recorded that 25 employees were working with the appellant/ Establishment in May and June, 1984, the appellant has relied upon the muster rolls for the relevant period showing the number of employees between 11 and 14. These muster rolls have been proved by the witness appearing on behalf of the appellant/Establishment, as details of the names and other particulars have been brought on record.
15. In this context, the judgment relied upon by the appellant assumes significance. In the said judgment and order dated 13.04.2016 passed in First Appeal No. 751 of 2004 (The Joint Regional Director .v. M/s Saggu Industries), this Court has held as follows :
"2. With the assistance of the learned counsel appearing for the parties, I have gone through the record and proceedings. The reliance has been placed by the appellant solely upon t he Inspection Report dated 19.06.1990 and the order dated 08.05.1991 passed on that basis under Section 45-A of the said Act. Neither in the Inspection Report nor in the said order I find the names of identifiable persons who were working in the establishment of the respondent on 19.06.1990. The Inspector, who visited the establishment of the respondent ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 12 fa680.05 should have noted down the names of 10 or more persons found to be working in the premises of the respondent on the dater of inspection. The employees so working could have been identified from the employer or the agency through which the employees were engaged in the premises of the respondent. The case of the respondent is that the certain Security Guard from another agency i.e. Bombay Intelligence Security (India) Limited were employed on the establishment of the respondent and the said security agency has registered those employees with the appellant - Corporation for the purposes of payment of E.S.I. contribution. Certainly, it is not possible to verify in the absence of the names of employees being recorded in the Inspection Report or in the order impugned.
3. In view of this, no substantial questions of law arises for consideration by this court in this appeal. The appeal is dismissed."
16. The law laid down by this Court in the aforesaid judgment clearly shows that the respondent/Corporation has to place on record the details of the names and other particulars of the employees found working with the establishment at the time of inspection and a mere mention of the number of employees found at the site would not suffice. This is necessary because there should be identifiable persons for whom the contribution under the ESI Act is to be collected and disbursed. The respondent/ Corporation cannot successfully apply the provisions of the ESI Act on an ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 13 fa680.05 establishment by merely stating in the Inspection Report and other documents that at the relevant time, more than 20 employees were found working in the establishment. If only the mention of the number of employees results in covering an establishment under the provisions of ESI Act, it would not be possible to disburse the benefits to the employees of the establishment because there would not be any material to identify the persons to whom such benefit is to accrue.
17. Therefore, even if the contention raised on behalf of the respondent/Corporation is to be accepted that construction workers working on the establishment of the appellant at the time of inspection could be included as the employees of the appellant, the provisions of ESI Act could not have been applied in the facts of the present case, in the absence of details of names and other required particulars of the employees found working at the time of inspection. The questions of law framed at the time of admission were concerned with the aspect of whether the construction of further floors of the hotel building could be treated as expansion and whether the workmen employed by the construction contractor for such work of expansion could be taken into account for coverage under the provisions of ESI Act. It is evident that even if the said questions are answered in the affirmative, the appellant/ Establishment could still not be covered under the definition of "factory" as per Section 2(12) of the ESI Act as it stood at the relevant time, because ::: Uploaded on - 25/01/2018 ::: Downloaded on - 26/01/2018 02:00:37 ::: 14 fa680.05 as per law laid down by this Court, in the absence of details of names and other particulars of the employees allegedly found to be working at the time of inspection in the appellant/Establishment, the provisions of ESI Act cannot be applied.
18. In the instant case, as stated above, apart from mere mention of the number "25" for the months of June and July, 1984 in clause-8 of the Preliminary Inspection Report (Exh.35) dated 24.07.1984 pertaining to month-wise employment position for the period covered by inspection, no further detail has been given. There is no other material placed on record on behalf of the respondent/Corporation to show that any such data pertaining to the aforesaid details of the alleged 25 employees of appellant/Establishment were placed on record. On the other hand, the appellant had indeed placed on record detailed muster rolls for the relevant period that showed only 11 to 14 employees working in the appellant/Establishment at the relevant period of time.
19. Therefore, it is evident that the Employees State Insurance Court, Nagpur, committed an error while passing the impugned order dated 14.10.2005 by rejecting the contentions of the appellant/ Establishment and holding that it was covered under the provisions of the ESI Act.
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15 fa680.05
20. In the light of the above, the appeal is allowed, the impugned order dated 14.10.2005 passed by the Employees State Insurance Court, Nagpur as also the order dated 29.08.1988 passed by the Assistant Regional Director of respondent/Corporation under Section 45(A) of the ESI Act are quashed and set aside. There shall be no order as to costs.
JUDGE *rrg.
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