Madras High Court
Regional Director, E.S.I. Corporation ... vs Aruna Stores, Proprietrix J. Shantha ... on 28 December, 2004
Equivalent citations: (2005)IILLJ629MAD, (2005)1MLJ354
Author: Markandey Katju
Bench: Markandey Katju
JUDGMENT MarKandey Katju, C.J.
1. These two appeals have been preferred under Section 82 of the Employees' State Insurance Act, 1948.
2. Heard the learned counsel for the parties.
3. We have perused the impugned order of the Employees' State Insurance Court, dated March 28, 1996 and we are of the opinion that the same cannot be sustained.
4. The substantial question of law in these two appeals is whether Aruna Stores and Aruna Textiles are two independent entities or really one entity.
5. Before deciding this question, we must understand that we are dealing with cases relating to Labour Laws, which are to be liberally construed. The principles of industrial laws are very different from the principles of other branches of law, e.g., Civil Law, Taxation Law, etc. Hence, we cannot import principles relating to other branches of law when deciding a case relating to Labour Laws.
6. If both Aruna Textiles and Aruna Stores are treated to be really one unit, then the number of employees will exceed 20 and the Unit will be covered by the Employees' State Insurance Act, otherwise not.
7. The Insurance Inspector made an inspection and submitted an Inspection Note, dated November 26, 1990, in which it is stated, "To, The Joint Regional Director (Inspection), ESIC, Madurai, Sirs, Sub: Clubbing of Aruna Stores and Aruna Textiles - Nagercoil for coverage under E.S.I. Act - Reg.
(1) The two establishments Aruna Stores and Aruna Textiles are inter depending on each other, (2) The building and electricity connection are common for the two establishments.
(3) The cash counter and the packing section are common for both the units.
(4) Common supervision for both the establishments are found during inspection;
(5) Common security and common paths are found for both the units.
(6) Mr. Gopalakrishnan, Proprietor of Aruna Textiles, is particularly controlling both the Units.
(7) Aruna Textiles does the wholesale section only, He does not compete the business of Aruna Stores, For customers Aruna Textiles is only a section for some specific purpose, (8) The entrance of Aruna Textiles is not independent, After going inside the Aruna Textiles, one has to go for the upstairs after crossing cash counter and packing section of Aruna Stores.
(9) Aruna Stores does the service and cash collection and checking sold garments, before delivery to the customers of Aruna Textiles.
In view of the above common function, the two establishments of Mr. Gopalakrishnan and Mrs. Gopalakrishnan can be clubbed for coverage under E.S.I. Act, Aruna Textiles and Aruna Stores can be clubbed as they employ 20 or more employees on November 1, 1989. The provisional coverage under E.S.I. Act may be given from November 1, 1989 , under Section 1(5) of the E.S.I. Act.
Sd/-
E. Meenakshi Sundaram, Insurance Inspector."
8. A perusal of the Inspection Note shows that while Aruna Textile is the wholesale section, Aruna Stores is the retail section, but both are really an integrated single unit. The building and electricity connection are common for both the establishments. The cash counter and packing section are common for both and there is common supervision for both. There is common security and common paths. The proprietor of Aruna Textiles is Mr. Gopalakrishnan, while his mother Mrs. Shantha is ostensibly the proprietrix of Aruna Stores. The entrance to Aruna Textiles is not independent. After going inside Aruna Textiles, one has to go upstairs after crossing the cash counter and packing section of Aruna Stores.
9. In Industrial Law, there is a well-known concept of functional integrality. If ostensibly they are two units, but there is functional integrality in the two, then, for the purpose of Industrial Law, they should be treated really as one unit. A perusal of the Inspection Note, dated November 6, 1990, shows that there is functional integrality between Aruna Stores and Aruna Textiles. Hence, for the purpose of Industrial Law, they have to be treated really as one unit. It may be that for the purpose of Sales Tax or for some other purpose, they may be treated as separate units, but, as already mentioned above, the principles of Industrial Law are different from the principles of other branches of law.
10. The concept of functional integrality has been referred to in several decisions of the Supreme Court, where it was considering whether two units were really one establishment, e. g., (1) Indian Cable Company Limited v. Its Workmen, 1962-I-LLJ-409 (SC), (2) Associated Cement Companies Limited v. Their Workmen AIR 1960 SC 56 : 1960-I-LLJ-1, (3) South India Mill Owners Association Limited v. Coimbatore District Textile Workers Union 1962-I-LLJ-223 (SC), (4) Western India Match Company Limited v. Their Workmen AIR 1964 SC 472 : 1963-II-LLJ-459 (SC), (5) National Iron and Steel Company Limited v. State of West Bengal AIR 1967 SC 1206 : 1967-II-LLJ-23, (6) Pratap Press v. Their Workmen, AIR 1960 SC 1213 : 1960-I-LLJ-497, (7) Wenger Company v. Their Workmen, AIR 1964 SC 864 : 1963-II- LLJ-403, (8) Workmen of Straw Board Manufacturing Company Limited v. Straw Board Manufacturing Co. Ltd. AIR 1974 SC 1132 : 1974 (4) SCC 681 : 1974-I- LLJ-499, (9) Fine Knitting Company Limited v. Industrial Court, 1962-I- LLJ-275 (SC).
11. Thus in Associated Cement Companies Limited v. Their Workman (supra), the Supreme Court observed 1960-I-LLJ-1 at p. 8:
... It is perhaps, impossible to lay down any one test as an absolute and invariable test for all cases. The real purpose of these tests is to find out the true relation between the parts, branches, units, etc. If in their true relation they constitute one integrated whole, we say that the establishment is one; if on the contrary, they do not constitute one integrated whole, each unit is then a separate unit. How the relation between the units will be judged must depend on the facts proved, having regard to the scheme and object of the statute which gives the right of unemployment compensation and also prescribes a disqualification therefor. Thus, in one case the unity of ownership, management and control may be the important test; in another case functional integrality or general unity may be the important test; and in still another case, the important test may be the unity of employment. Indeed, in a large number of cases several tests may fall for consideration at the same time. The difficulty of applying these tests arises because of the complexities of modern industrial organisation: many enterprises may have functional integrality between factories which are separately owned; some may be integrated in part with units or factories having the same ownership and in part with factories or plants which are independently owned. In the midst of all complexities, it may be difficult to discover the real thread of unity...."
In Pratap Press v. Their Workmen (supra), the Supreme Court has observed 1960-I-LLJ-497 at p. 498:
"The question whether the two activities in which the single owner is engaged are one industrial unit or two distinct industrial units is not always easy of solution. No hard-and-fast rule can be laid down for the decision of the question and each case has to be decided on its own peculiar facts. In some cases, the two activities each of which by itself comes within the definition of 'industry' are so closely linked together that no reasonable man would consider them as independent industries. There may be other cases where the connection between the two activities is not by itself sufficient to justify an answer one way or the other, but the employer's own conduct in mixing up or not mixing up the capital, staff and management may often provide a certain answer."
12. Applying the law laid down in the above decisions of the Supreme Court, we are of the clear opinion that in the present case, there is functional integrality between Aruna Textiles and Aruna Stores, as is evident from the Inspection Note, dated November 26, 1990, and they really form the establishment. It seems that they were shown as two different units, probably to reduce the tax liability. Mr. Gopalakrishnan, Proprietor of Aruna Textiles, practically controls both the units, and there is common supervision. Both units are run in the same premises, and there are many things common to both.
13. For the reasons given above, the appeals are allowed and it is held that Aruna Stores and Aruna Textiles are one unit for the purpose of Employees' State Insurance Act, Consequential orders and action will hence follow.