Karnataka High Court
Tata Tea Limited vs The Joint Director on 1 March, 2024
Author: H.P. Sandesh
Bench: H.P. Sandesh
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 1ST DAY OF MARCH, 2024
BEFORE
THE HON'BLE MR. JUSTICE H.P. SANDESH
M.F.A. NO.4739/2011 (ESI)
BETWEEN:
1 . TATA TEA LIMITED
NO.62, 3RD CROSS,
II PHASE, INDUSTRIAL SUBURB,
YESWANTHAPUR
BANGALORE-560022,
REPRESENTED BY ITS
SENIOR MANAGER-PERSONNEL
MR. KRISHNAPPA (MAJOR)
... APPELLANT
(BY SRI K.KASTURI, SENIOR COUNSEL FOR
SRI J.PRADEEP KUMAR, ADVOCATE)
AND:
1. THE JOINT DIRECTOR
EMPLOYEES STATE INSURANCE CORPORATION
NO.10, BINNY FIELDS, BINNYPET
BANGALORE-560023.
2. WHITE CLIFF TEA PVT. LTD.,
HAING ITS REGISTERED OFFICE
AT A-2, BALLYGUNGE PARK TOWER
678, BALLYGUNGE CIRCUIT ROAD
KOLKATTA-700019.
... RESPONDENTS
(BY SMT.GEETHA DEVI M.P., ADVOCATE FOR R1; R2 - SERVED)
2
THIS M.F.A. IS FILED U/S 82(2) OF THE EMPLOYEES
STATE INSURANCE ACT, AGAINST THE ORDER DATED 31.3.2011
PASSED IN ESI APPLICATION NO.7/2009 ON THE FILE OF
EMPLOYEES STATE INSURANCE COURT, BANGALORE,
DISMISSING THE APPLICATION FILED U/S 75 OF EMPLOYEES
STATE INSURANCE ACT, CHALLENGING THE ORDER DATED
24.4.2009 U/S 45-A OF THE ESI ACT DEMANDING
CONTRIBUTION OF RS.2,40,320/- FOR THE PERIOD 2004 TO
JULY 2007.
THIS M.F.A. HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 14.02.2024 THIS DAY, THE COURT
PRONOUNCED THE FOLLOWING:
JUDGMENT
Heard the learned counsel for the appellant and learned counsel for the respondent No.1.
2. The factual matrix of the case of the respondent No.1-Employees State Insurance Corporation ('ESI' for short) is that on 11.06.2007, 22.06.2007 and 20.08.2007, the Insurance Inspector visited the appellant-establishment at Bangalore and noticed non-payment of contribution. Hence, issued a letter directing the appellant to produce the records immediately before the Insurance Inspector after fixing his prior appointment. On 19.11.2007, the appellant replied to the letter sent by the 3 respondent No.1 and in view of non-satisfaction of reply, on 17.04.2008, the respondent No.1 issued a C-18 notice and in pursuance of the same, the appellant submitted a letter before the Deputy Director in person on 22.04.2008. The respondent No.1 passed an order dated 24.04.2009 under Section 45-A of the Employees State Insurance Act, 1948 ('ESI Act' for short) directing the appellant herein to pay the omitted contribution in a sum of Rs.2,40,320/- for the period from 2004 to 2007. The same is challenged before the ESI Court and the ESI Court having considered the application filed by the appellant under Section 75 of the ESI Act, considered the grounds which have been urged and dismissed the E.S.I. Application No.7/2009. Being aggrieved by the said order of rejection, the present appeal is filed.
3. Learned counsel for the appellant would contend that the order passed by the respondent No.1 is arbitrary and without jurisdiction. The respondent No.2-White Cliff Tea Pvt. Ltd. is a separate Private Limited Company registered under the Companies Act, 1956 and having its registered office. The 4 respondent No.2 has a separate ESI Code No.53-13809-82, under which it makes contribution to its employees. The appellant has entered into manufacturing agreements from time to time with respondent No.2 and those agreements were also produced before the Insurance Inspector at the time of inspection and clearly explained to him that appellant and respondent No.2 are different companies having no connection whatsoever and are two different legal entities. It is contended that respondent No.2, as per the manufacturing agreement, packs the tea for the appellant at its manufacturing facility at Hyderabad. The agreement between the appellant and respondent No.2 is on a principal basis as per Clause No.11 of the said manufacturing agreement. The appellant is not having any supervision of work and there is no relationship of principal employer and a contractor. That apart, respondent No.2 is not a contractor as per the Contract Labour under the Contract Labour (Regulations & Abolition) Act. It is contended that appellant pays respondent No.2 only packing charges as per the agreement based on the quantity packed and fixed charges as administration expenses. The packing charges are also annexed 5 to the manufacturing agreement. It is further contended that no labour invoice is raised by respondent No.2 on the appellant. As per Clause No.1.5 of the manufacturing agreement, invoice means invoice raised for manufacturing activity only. It is submitted that respondent No.2 has a separate factory licence for its facility at Hyderabad. It is submitted that despite explaining the facts very clearly time and again, the ESI Corporation, only to harass the appellant has passed the order under Section 45-A of the ESI Act and the same is without jurisdiction.
4. Learned counsel also would vehemently contend in his argument that double contribution cannot be made, since both the appellant and respondent No.2 are having their own registered separate code and they are making payment. When there was no supervision, the question that the appellant is liable to pay the contribution does not arise and the interpretation of Section 2(9) of ESI Act is not correct. The counsel would vehemently contend that the Court has to frame substantial questions of law whether the manufacturing 6 agreement between two entities on piece rate and on physical employer to principal employer basis, be categorized as a system of Contract Labour under the Contract Labour (Regulations & Abolition) Act and the very conclusion reached by the ESI Court was not right in law, in coming to the conclusion that there exist the relationship of principal employer and immediate employer and the ESI Court committed an error in appreciating the judgment of the Apex Court. The counsel further in his argument would vehemently contend that the ESI Court committed an error in rejecting the application filed under Section 75 of the ESI Act.
5. The counsel, in support of his argument, relied upon the judgment of this Court in TATA TEA LTD., BANGALORE VS. E.S.I. CORPORATION, BANGALORE reported in 2000-I- LLJ. The counsel referring this judgment would contend that there is no right of supervision within the meaning of Section 2(9) of ESI ACT, 1948. A right to reject the items brought (by) job contractors for wanting any quality of work as per job specification by principal employer could not be said to be an act 7 of supervision under Section 2(9)(ii), nor for the said reason job contractor could be held to be immediate employer under Section 2(13) of the Act. Neither clause (i) nor clause (ii) of Section 2(9) of the Act was attracted to the facts of this case. The counsel referring this judgment would vehemently contend that when similar issue was raised, this Court has held that demand made by the ESI Corporation is liable to be set aside.
6. Per contra, learned counsel for the respondent No.1 would vehemently contend that the respondent No.1 rightly passed the order under Section 45-A which is marked as Ex-A6 and taken note of the fact that as principal employer in relation to the said factory, failed to pay contributions for the period from 2004 to 2007 and show cause notice was issued and they objected for payment of contribution. The Insurance Inspector, who verified the records found non-payment of contribution and there is no dispute with regard to the payment of contribution for the period of three years i.e., 2004 to 2007 and different rate of contributions are made. Though in 2004-2005, contribution was made at 64.6%, for 2005-2006 contribution was made at 42.17% and for the year 2006-2007, contribution was made only 8 at 49.53% and order was passed to pay the difference amount, as the same was not at the percentage of 60% of the amount. Learned counsel also brought to notice of this Court that the agreement which is marked as Ex.A7 is very clear with regard to entrusting the work of packing and Clause No.4.1 in the manufacturing agreement at Ex.A8 is very clear with regard to the fact that appellant shall supply to the manufacturer the different varieties of tea and the packaging material, for manufacture of the product/s. The manufacturer undertakes to manufacture the product/s in accordance with the specifications provided by Tata Tea from time to time, by utilizing the raw material and packaging material supplied by Tata Tea, at the manufacturing facility, on the terms and conditions specified under this agreement and the said manufacturing agreement also specify the nature of work.
7. The counsel also brought to notice of this Court Clause Nos.4.2, 4.3 and 4.6 of the manufacturing agreement at Ex.A8. Even under Clause No.4.6, the appellant reserves the right to replace the defective material and/or packaging material 9 in the event it is satisfied that such defects have not developed on account of poor storage or mishandling of the raw material and/or packaging material while it was in the possession of the manufacturer and under Clause No.4.9, the appellant shall be entitled to permanently depute the required number of its personnel at the manufacturing facility to oversee the manufacturing of the product/s. The learned counsel also brought to notice of this Court Clause No.4.5 of the said agreement. The counsel also relied upon the document of Ex.A9 for having made the payment. The counsel referring these documents i.e., Exs.A7, A8 and A9 would contend that entire establishment is under the control of the appellant and there was supervision by the appellant. The counsel also would submit that Section 40 of the ESI Act states that the principal employer to pay contribution in the first instance and work entrusted to the respondent No.2 shall fall within Section 41 of the ESI Act. The counsel also would vehemently contend that for the year 2004-2005 they paid the contribution at the rate of 64.6%, but later not paid the contribution and hence, order has been passed invoking Section 45-A of the ESI Act and no dispute with regard 10 to payment of contribution at 60% for the year 2004-2007. Hence, the question of interfering with the order passed by the respondent No.1 does not arise.
8. In reply to the argument of the learned counsel appearing for the respondent No.1, learned counsel for the appellant would contend that the issue involved between the parties is that the respondent No.2 is having its branch at Hyderabad and the appellant is having its unit at Bengaluru and Insurance Officer has not verified the records in a proper manner. The counsel would vehemently contend that they are not the employees of the appellant and they are the employees of respondent No.2. Hence, Section 2(9) of the ESI Act is very clear that there cannot be any liability on the appellant.
9. Having considered the grounds urged in the appeal as well as the contentions of the learned counsel for the appellant and learned counsel for the respondent No.1, the substantial questions of law that arise for consideration before this Court are:
11
(1) Whether a manufacturing agreement between two entities on piece rate and on principal employer to principal employer basis, be categorized as a system of Contract Labour under the Contract Labour (Regulations & Abolition) Act?
(2) Whether the ESI Court was right in law in passing an order invoking Section 45-A of the ESI Act with reference to the interpretation of Section 2(9) of the ESI Act?
Substantial questions of law Nos.(1) and (2)
10. Having heard the respective counsels and also on perusal of the material available on record, this Court has to examine whether the claim made by the respondent No.1-ESI Corporation against the appellant is proper and whether the applicant had no control or supervision over the work entrusted to the respondent No.2 relating to payment made during 2005- 2006 and 2006-2007. The ESI Court has also taken note of the fact whether the appellant is liable to pay the contribution or not.
11. Having considered the material on record, it is not in dispute that in terms of Ex.A6, the claim is made by the 12 Corporation. It is also important to note that the Court has to take note of the documents, particularly Exs.A7 and A8. It is not in dispute that an agreement was entered into between the appellant and respondent No.2 in terms of Ex.A7. It is also not in dispute that the work is entrusted to respondent No.2 for packing the tea products. In terms of agreement at Ex.A7, even the appellant had agreed to entrust necessary machinery and equipment together with other miscellaneous items. The major repairs and replacements of the machinery will be jointly co- ordinated and will be to the account of the appellant. Routine maintenance and repairs will be to the account of respondent No.2. The appellant decision in this regard shall be final and binding. It is also important to note that the details or work entrusted is also incorporated in the agreement. It is also important to note that under Clause No.2.5 of the agreement, it shall be the responsibility of respondent No.2 to properly supervise and control the work at the Centre and the appellant shall have no responsibility in such matters. However, the appellant have the right to depute its representative(s) to inspect the premises during working hours on any day, without 13 prior intimation. Such representative(s) will have full and free access to all premises, production and packing and to all records and accounts pertaining thereto, with the right to take copies and make audits for verification etc.
12. It is also important to note that under Clause No.2.6 of the agreement at Ex.A7, the respondent No.2 shall be liable for the payments to be effected to those employed directly by them and shall also be responsible for any liability in respect of the Employees' with regard to Employees' State Insurance Corporation; Employees' Provident Fund; Workmen's Compensation Act; including the Industrial Disputes Act. The main work of the respondent No.2 is packing and blending gains during the production process which will be to the account of the appellant. It is also important to note that one more manufacturing agreement is entered into between the appellant and the respondent No.2 and Clause No.4 of the said agreement is very clear with regard to manufacture of products and the manufacturer undertakes to manufacture the product/s in accordance with the specifications provided by the appellant 14 from time to time, by utilizing the raw material and packaging material supplied by the appellant. Clause No.4.6 of the said agreement is very clear that the manufacturer shall also inspect the raw material and/or packaging material prior to use and if the same do not meet the required quality and specification, the manufacturer shall be solely responsible for all the raw material. Clause No.4.9 of the agreement is clear that the appellant shall be entitled to permanently depute the required number of its personnel at the manufacturing facility to oversee the manufacturing of the product/s. The manufacturer shall co- operate with such personnel in all respects and provide them adequate office space at the manufacturing facility and Clause No.4.10 provides that the personnel deputed by the appellant may identify any product/s or material in process of manufacture, which are defective/inappropriate and intimate the manufacturer in this regard.
13. Having considered the agreements at Exs.A7 and A8, it is clear that there was agreements between the appellant and respondent No.2 with regard to work entrusted to the 15 respondent No.2. The respondent No.1 has also taken note of non-payment of 60% of the contribution and though contribution was made at 64.6% in the first year i.e., for 2004-2005, for the year 2005-2006 contribution was made at 42.17% and for the year 2006-2007 contribution was made only at 49.53%. It is also important to note that ESI Court has also taken note of agreements between the appellant and respondent No.2 and as per Clause No.2.6 of the agreement at Ex.A7, it is clear that respondent No.2 shall, if any claim is made on the appellant in respect of the labour engaged by them in any Labour Enactment, the appellant shall fully indemnify all such claims/future claims. The same was taken note by the ESI Court and the ESI Court also taken note of Clause No.5 that the appellant will have the right to depute its representative(s) to inspect the premises during working hours on any day, without prior intimation. Such representative(s) will have full and free access to all premises, production and packing and to all records and accounts pertaining thereto, with the right to take copies and make audits for verification, no doubt wages of the employees of the respondent No.2 are paid by the respondent No.2 only. 16
14. It is also important to note that the applicant is examined before the ESI Court and he admitted in the cross- examination that appellant was marketing the products blended and packed by the respondent No.2. Further, Clause No.1.1 of the agreement at Ex.A7 is clear that the appellant shall entrust necessary machinery and equipments together with other miscellaneous items. The major repairs and replacements of the machinery will be jointly co-ordinated and will be to the account of the appellant. Routine maintenance and repairs will be to the account of the respondent No.2. It is also important to note that though applicant examined a witness as A.W.1, even not chosen to examine respondent No.2, though it is contended that they are also having their separate statutory code and payments are made. However, here is a case where payment is made by separate entities in respect of their separate entries is concerned. The dispute between the parties is with regard to payment was made for the period 2004-2005 at 64.6%, but in respect of the years 2005-2006 and 2006-2007, deficit 17 contribution is made and issue is made with regard to deficit contribution made for the particular period.
15. Though learned counsel for the appellant in his argument would vehemently contend that there is a double contribution, the same cannot be made, since the appellant and the respondent No.1 are having their separate registered ESI code and the issue is with regard to deficit contribution is concerned for the particular period. It is also important to note that Section 2(9) of the ESI Act is pressed into service while arguing the matter which reads as hereunder "2(9) "employee" means any person employed for wages in or in connection with the work of a factor or establishment to which this Act applies i.e.,
(i) who is directly employed by the principal employer, or any work of, or incidental or preliminary to or connected with the 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 factory or establishment or which is preliminary to the work 18 carried on in or incidental to the purpose of the factory or establishment; or
(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service".
16. Having taken note of Section 2(9) of the ESI Act and also the contentions urged by the learned counsel for the parties and the provision with regard to Section 40 of the ESI Act i.e., Principal employer to pay contribution in the first instance and Section 41-Recovery or contribution from immediate employer is concerned, this Court has to examine the material available on record.
17. Having perused the agreement at Ex.A6, it is clear that demand is made under Section 45-A of the ESI Act with regard to deficit contribution for the period 2005-2006, wherein contribution is made only at 42.17% and for the year 2006- 2007, the contribution is made only at 49.53%, but not made the contribution at 60% on total wages paid. Hence, the respondent No.1 has made the claim of Rs.2,40,320/-. No doubt, the learned counsel for the appellant relied upon the judgment of 19 this Court referred (supra), wherein this Court has held with regard to Section 2(9) of the ESI Act and also Section 2(13) of the ESI Act, in Para No.9 of the judgment, this Court has come to the conclusion that no such supervision is alleged nor any right to reject the packing. Even otherwise, a right to reject the items brought from outside agency/job contractors for wanting any quality of work as per job specification by the principal employer cannot be said to be an act of supervision by him under Section 2(9)(ii) nor for the very said reason the outside agencies/job contractors can be held to be immediate employer under Section 2(13) of the Act.
18. Having perused this judgment, though this Court discussed in detail with regard to Section 2(9) of the ESI Act, but failed to take note of Sections 40 and 41 of the ESI Act and the same has to be kept in mind, keeping in view the document of agreements at Ex.A7 and A8 and those two documents are the agreements entered into between the parties and right was retained by the appellant for inspection and for deputing their representatives(s) to monitor the quality and also packing. I 20 have already discussed in detail about the documents of Exs.A7 and A8. It is important to note that the claim is made in respect of deficit contribution and I have already pointed out that for the year 2004-2005, contribution was made at 64.6% and for the remaining years i.e., 2005-2006 and 2006-2007, the contributions are made to the extent of 42.17% and 49.53% respectively as mentioned above and with regard to the deficit contribution is concerned, claim is made by the respondent No.1.
19. It is important to note that the ESI Court has also taken note of this fact into consideration in Para No.10 of the order and in Para No.15, discussed in detail with regard to the documents and also non-production of detail bills and vouchers and even though the learned counsel for the appellant would contend that there cannot be double payment, to show that the respondent No.2 has also made payment, not chosen to examine respondent No.2 and even not made any efforts to place the same before the ESI Court for having made the payment. Even though it is the claim of respondent No.1 that there is double payment and accepted the contention that both the appellant as 21 well as the respondent No.2 are incorporated under the Companies Act, ought to have placed the material before the Court for having made the contribution and no such material is placed and respondent No.2 has not examined any witness to prove that they have made the payment and in the absence of any material for having made the contribution, I do not find any error committed by the ESI Court in rejecting the claim of appellant. When such being the case, in the absence of any material for having made the payment, the very contention that the ESI Court committed an error in categorizing the same as a system of Contract Labour and ESI Court was not right in law in coming to the conclusion that appellant and respondent No.2 are principal employer and immediate employer is erroneous cannot be accepted. The Court has to take note of proviso of Section 2(9) of the ESI and has to conjointly read Sections 40 and 41 of the ESI Act and when work was entrusted to respondent No.2 for packing and blending and though supervisory power is given to respondent No.2, the appellant had retained the power of supervision and control as to quality, manufacturing, packing and blending is concerned and agreements at Exs.A7 and Ex.A8 22 is very clear to that effect. Hence, I do not find any error committed by the ESI Court in rejecting the application filed under Section 75 of the ESI Act. Therefore, I answer the substantial questions of law accordingly.
20. In view of the discussion made above, I pass the following:
ORDER The appeal is dismissed.
Sd/-
JUDGE ST