Madras High Court
M/S.Simpson & Co. Ltd vs –
Author: M.Dhandapani
Bench: M.Dhandapani
____________
C.M.A. N0.768/2020
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on Pronounced on
28.11.2024 19.12.2024
CORAM
THE HONOURABLE MR. JUSTICE M.DHANDAPANI
C.M.A. NO.768 OF 2020
AND
C.M.P. NO. 4742 OF 2020
M/S.Simpson & Co. Ltd.
(Shardlow India Division)
Huzur Gardens, Sembium Plant
Chennai 600 011. .. Appellant
- Vs –
The Deputy Director
Insurance No.IV
Employees State Insurance Corporation
143, Sterling Road, Chennai 600 034. .. Respondent
Civil Miscellaneous Appeal filed u/s 82 (2) of the Employees State Insurance
Act, 1948, against the order of the employees Insurance Court (Principal Labour
Court), Chennai, dated 11.10.2019, made in E.I.O.P No.78 of 2006.
For Appellant : Ms.A.Rexy Josephine Mary, for
M/s. C.Mohan for
M/s.King & Partridge
1
https://www.mhc.tn.gov.in/judis
____________
C.M.A. N0.768/2020
For Respondents : Mr. S.Subbiah, SC, for
Mr. G.Bharadwaj
JUDGMENT
Aggrieved by the order in and by which the petition filed by the appellant herein was dismissed directing the appellant to pay the ESI contribution towards the amount paid to the contractors, the present appeal has been filed by the appellant.
2. Shorn of unnecessary details, the brief facts of the case are as under :-
The appellant is engaged in manufacturing activity of crank shafts, Piston crown axle shafts, axle beam and other precision products and the appellant is a member of the Amalgamations Group. It is the further averment of the appellant that it is covered by the provisions of the Employees State Insurance Act and that it is paying contribution for all its eligible employees.
3. It is the further averment of the appellant that during the inspection conducted during March, 2005, certain irregularities were pointed out in the report submitted by the Inspector, dated 4.3.2005 with regard to non-collection 2 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 of ESI charges with regard to the employees, who were engaged through various contractors to discharge the works during the period 2001-2002, 2002-2003 and 2003-2004. Though the appellant placed the requisite materials to substantiate that those persons would not fall within the scope of Employees State Insurance Act (for short ‘ESI Act’) for the purpose of remitting compensation, the same was not accepted by the respondent resulting in the initiation of enquiry u/s 45-A of the ESI Act by issuance of show cause notice dated 18.4.2005, which was received by the appellant on 26.4.2005.
4. The appellant submitted its explanation by means of a detailed reply on 26.7.2005 and errata dated 31.8.2005 contending that the contribution sought for was for workers, who were employed by outside contractors and they would not fall within the ambit and scope of ESI Act. It was further submitted by the appellant that manufacturing centres were outside the premises of the company, which were established for carrying out certain operations on the materials provided by the company, which include forging, die cutting, heat treatment, etc. It was the further stand of the appellant that the work awarded to these contractors, who are independent entities and they carry out the services not 3 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 only for the appellant, but also to other similarly placed persons and that they are not under the supervision and control of the appellant and that the appellant had no employer-employee relationship with the said persons and, therefore, was not required to pay contribution. The aforesaid stand was reiterated by the appellant even during the personal hearing and the appellant sought dropping of the proceedings by the authority. It is the further averment of the appellant that the specific definitions of employee, immediate employer and principal employer employed in Sections 2 (9), 2 (13) and 2 (17) of the ESI Act were also brought to the notice of the authority. Inspite of the materials placed and the arguments advanced, by the impugned order dated 24.1.2006, the outside independent contractors were treated as immediate employees and a sum of Rs.3,11,670/- was fixed as contribution for the period from April, 2001 to March, 2004 by calculating the total labour costs at Rs.47,94,913/-. Aggrieved by the said order the present appeal has been filed by the appellant.
5. Learned counsel appearing for the appellant submits that the persons, who were assigned to do certain works were persons employed by independent contractors, who were given contractual works and there exists no employer- 4 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 employee relationship between the appellant and the said persons, to deem them to be workmen. It is the further submission of the learned counsel that wages and salaries to the said workmen were not paid by the appellant, but were paid only to the contractors, who, in turn had paid the wages to their workmen and there was no supervision or control over the said persons by the appellant, as the control and supervision was exercised only by the independent contractors.
6. It is the further submission of the learned counsel that the work entrusted to the independent contractors was not done at the premises of the appellant, but was done elsewhere with the aid of the workers employed by the contractors and, therefore, the said workmen could not be brought within the ambit of employee as found u/s 2 (9) of the ESI Act.
7. It is the further submission of the learned counsel that Ex.R-1 dated 24.3.2005 clearly reveals the name and address of the immediate employer, who alone, as per Section 2 (13) of the ESI Act is liable to pay the insurance component. When the persons are employed by the independent contractors 5 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 and they carry on their work outside the premises, it is only the contractors, who are the immediate employers and the appellant cannot be held to be liable to pay the insurance.
8. It is the further submission of the learned counsel that even the show cause notice clearly mention that the job work was done outside the premises of the appellant, by which there is a clear acceptance by the authority that the job work was not done within the premises of the appellant. That being the case, the appellant cannot be mulcted with the responsibility towards the insurance in respect of workers, who were employed by independent contractors and were doing works outside the premises of the appellant.
9. It is the further submission of the learned counsel that Ex.P-7 the ESI notification dated 25.10.2007 provides for coverage of workers engaged by outside agencies, which clearly state that employees of job contractors are not coverable under the provisions of the ESI Act. It is the further submission of the learned counsel that the respondent had exempted the appellant from the purview of insurance payment from the year 2007, which clearly shows that the 6 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 demand raised by the respondent for the earlier period from April, 2001 to March, 2004, is completely erroneous.
10. It is the further submission of the learned counsel that the workmen of the independent contractors not only do the job work for the appellant, but also render work for various other contractual jobs under the contractor and, therefore, by no stretch, could they be termed to be employee under the appellant for the appellant to pay the ESI contribution towards the said employees. Therefore, neither the establishments doing job work outside the premises nor the employees of those establishments are covered under the definition u/s 2 (9) of the Act.
11. It is the further submission of the learned counsel that when the independent contractors utilise the very same workmen for doing multifarious jobs of various establishments, merely because the work of the appellant are done by the workmen employed by the contractors, they could not be brought within the ambit of employee under the appellant as the appellant neither has any supervision nor control over the said workmen, but it is only the contractors, 7 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 who have supervisory control over the said workmen and who are liable to pay the ESI component.
12. The court below, without properly appreciating the definition of employee, immediate employer and principal employer, had passed the impugned order, without considering the scope of work done by the workmen and the person below whom the said work is being done and, therefore, the same requires interference at the hands of this Court.
13. In support of the aforesaid submissions, learned counsel for the appellant placed reliance on the following decisions :-
1) C.E.S.C. Ltd. & Ors. – Vs – Subhash Chandra Bose & Ors. (1992 (1) SCC 441);
2) South India Surgical Company – Vs – Regional Director, Employees State Insurance Corporation, Madras (1997 (2) LLN 909);
3) Tata Tea Ltd., Bangalore – Employees State Insurance Corporation, Bangalore (2000 (1) LLN 616);
4) ESI Co-operation Hill Fort Road, Hyderabad – Vs – Prakash Paper Mart, Hyderabad (2003 (3) LLJ 1117);8
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5) Anu Marble Mining Pvt. Ltd. – Vs – Regional Directors, Employees State Insurance Corporation, Mumbai (2005 (1) LLN 1106);
6) World Wide Traders & Ors. – VS – Regional Director, Employees State Insurance Corporation, Bangalore (2005 (1) LLN 691);
7) Employees State Insurance Corporation – Vs – J.M.D. Fashions (MANU/KA/8628/2006);
8) The Managing Director, Hassan Co-operative Milk Producer’s Society Union Ltd., - Vs – The Assistant Regional Director, Employees State Insurance Corporation (2010 (11) SCC 537); and
9) The Assistant Director, Insurance No.VI, Employees State Insurance Corporation, Chennai & Ors. – Vs – M/s.Firstsource Solutions Ltd. (CMA No.475 & 2925/2021 – Dated 31.03.2022)
14. Per contra, learned senior counsel appearing for the respondent submits that the mere fact that the works of the appellant are carried on outside the premises of the appellant cannot be the basis to hold that the persons, who are carrying out such works are not workmen under the appellant. It is the further submission of the learned senior counsel that the appellant has full supervision and control over the acts of the workmen, which would be evident 9 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 from the nature of work discharged and such being the case, the appellant cannot wriggle out of its duty to make the payment on behalf of the said workmen.
15. It is the further submission of the learned senior counsel that it is only the nature of work and the supervision and control that is held by the appellant, which determines the entity, which is bound to make the payment and merely because the works are carried outside the premises of the appellant’s factory would not absolve the appellant from making the statutory payment. In this regard, learned senior counsel placed reliance on the decision of the Apex Court in M/s.P.M.Patel & Sons & Ors. – Vs – Union of India (1986 (1) SCC 32).
16. It is the further submission of the learned senior counsel that Section 2 (9) of the ESI Act covers every possibility of treating all persons within the umbrella of employee and merely because the persons are employed through contractors or home workers engaged to carry out the tasks would not render them to be outside the purview of the employment with the appellant so as to absolve the appellant from payment of statutory dues. In this regard, reliance is 10 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 placed on the decision of the Kerala High Court in the case of The Regional Director, ESI Corportation – Vs – Thankamma Baby & Ors. (2016 SCC OnLine Ker 12244).
17. In fine, it is the submission of the learned senior counsel that the definition of employee, immediate employer and principal employer, as found in Sections 2 (9), 2(13 and 2 (17) clearly reveals that the appellant, as the principal employer is bound to pay the statutory dues to the respondent towards the employment of the workmen and rightly interpreting the terms and also the materials available on record, the impugned order has come to be passed, which does not require any interference at the hands of this Court.
18. This Court gave its careful consideration to the submissions advanced by the learned counsel appearing for the parties and perused the materials available on record as also the decisions relied on, on behalf of the parties.
19. The facts in the present case is not in dispute. The appellant had been getting certain works done through the workmen, who are alleged to have been 11 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 employed through contractors and, therefore, according to the appellant, the contractors are the immediate employers, who are bound to pay the statutory dues and the appellant cannot be mulcted with any responsibility.
20. To appreciate the aforesaid contentions, it is relevant to understand the definition of the terms ‘employee’, ‘immediate employer’ and ‘principal employer’, as found in Sections 2 (9), 2 (13) and 2 (17) of the ESI Act, which, for better understanding is quoted hereunder :-
EMPLOYEE (9) "employee" means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and-
(i) who is directly employed by the principal employer on 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 12 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 establishment or which is preliminary to the work 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;
[and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment 15[or any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961, or under the standing orders of the establishment; but does not include ]]-
(a) any member of 16[the Indian] naval, military or air forces; or [(b) any person so employed whose wages (excluding remuneration for overtime work) exceed 18[such wages as may be prescribed136 by the Central Government]]:
PROVIDED that an employee whose wages (excluding remuneration for overtime work) exceed 18[such wages as may be prescribed by the Central Government] at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period;] 13 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 IMMEDIATE EMPLOYER (13) "immediate employer", in relation to employees employed by or through him, means a person who has undertaken the execution, on the premises of a factory, or an establishment to which this Act applies or under the supervision of the principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in, or incidental to the purpose of, any such factory or establishment, and includes a person by whom the services of an employee who has entered into a contract of service with him are temporarily lent or let on hire to the principal employer [and includes a contractor];
PRINCIPAL EMPLOYER (17) "principal employer" means-
(i) in a factory, the owner or occupier of the factory, and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under [the Factories Act, 1948]; the person so named;
(ii) in any establishment under the control of any department of any government in India, the authority appointed by such government in this behalf or where no authority is so appointed, the head of the department;14
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(iii) in any other establishment, any person responsible for the supervision and control of the establishment;
(Emphasis Supplied)
21. The term ‘employee’ is of the widest amplitude, which covers multifarious persons, either employed directly by the principal employer or through immediate employer by the principal employer to be brought within the ambit of employee. In a nutshell, even persons, who are employed by the immediate employers under the garb of contractors, if the nature of work and the supervision and control of the work vests with the principal employer and that the work which is done by the said workmen are part of the normal works of the factory, then the said workmen, even if employed under the immediate employer would still be considered as employee, who are employed by the principal employer.
22. Similarly, the definition of ‘immediate employer’ takes within its fold a person who has undertaken the execution of work either within the premises of a factory, or an establishment to which this Act applies either under the supervision of the principal employer or his agent, of the whole or any part of any 15 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 work which is ordinarily part of the work of the factory or establishment of the principal employer.
23. There is no quarrel that the appellant is the principal employer, who had entrusted certain works relating to its factory operations to the contractor, who had employed the workmen to get the work done. Further, it is also not disputed that the works are carried outside the factory premises. However, as could be seen from the definition of ‘employee’, it takes within its fold all persons, who are 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 carried on in or incidental to the purpose of the factory or establishment.
24. Therefore, a workman, who is employed for the purpose of carrying out the work of the principal employer, even through an intermediate agent, but who carries on work, which is ordinarily part of the work of the factory or establishment, which is preliminary to the work carried on or is incidental for the 16 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 purpose of the factory or establishment, all such persons, would be employee within the definition and the principal employer would be of necessity make payment in terms with the ESI Act.
25. In this regard, useful reference can be had to the decision of the Bombay High Court in Abu Marble case (supra), in which the decision of the Supreme Court in Subhash Chandra Bose case (supra) finds reference, wherein it has been held as under :-
“7. Considering that, we may now consider the test of supervision which has to be considered to find out as to whether the work done by any employer is under the supervision of the appellant herein. The Apex Court, in paragraph 13 in C.E.S.C. L.H. (supra) has observed as under:
"13. In whatever manner the word 'employee' under Section 2(9) be construed, liberally or restrictedly, the construction cannot go to the extent of ruling out the function and role of the immediate employer or obliterating the distance between the principal employer and immediate employer. In some situations he is the cut-off. He is the one who stumbles in the way of direct nexus being established, unless statutorily fictioned, between the employee and the 17 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 principal employer. He is the one who in a given situation is the principal employer to the employee directly employed under him. If the work by the employee is conducted under the immediate gaze or overseeing of the principal employer, or his agent, subject to other conditions as envisaged being fulfilled, he would be an employee for the purpose of Section 2(9). Thus besides the question afore-posed with regard to supervision of the principal employer (the electrical contractors) over his employee was exercised, on the terms of the contract, towards fulfilling a self-obligation or in discharge of duty as an agent of the principal employer."
Proceeding further, the Apex Court then held:
"When the employee is put to work under the eye and gaze of the principal employer or his agent, where he can be watched secretly, accidentally, or occasionally, while the work is in progress, so as to scrutinize the quality thereof and to detect faults therein, as also put to timely remedial measures by directions given, finally leading to the satisfactory completion and acceptance of the work, that would in our view be supervision for the purposes of Section 2(9) of the Act. It is the consistency of vigil, the proverbial 'a stitch in time saves nine'. The standards of vigil would of course depend on the facts of each case. Now this 18 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 function, the principal employer, no doubt can delegate to his agent who in eye of law is his second self, i.e., a substitute of the principal employer. The mediate employer, instantly, the electrical contractors can be statutory compulsion never be the agent of the principal employer. If such a relationship is permitted to be established it would not only obliterate the distinction between the two, but would violate the provisions of the Act as well as the contractual principle that a contractor and a contractor cannot be the same person. The ESIC claims established of such agency on the terms of the contract, a relationship express or implied. But, as is evident, the creation or deduction of such relationship throws one towards the statutory scheme of keeping distinct the concept of the principal and immediate employer, because of diverse and distinct roles."
These, therefore, are the tests or considerations which must be borne in mind as to what constitutes 'supervision'.
(Emphasis Supplied)
26. In the aforesaid decision, the Apex Court has clearly postulated that where the work of an employee is under the constant eye and gaze of the principal employer of his agent, where he is kept on watch, secretly, accidentally 19 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 or occasionally, for the purpose of scrutinising the work and also for detecting the faults and remedial measures are given by directions leading to satisfactory completion, then it has to be construed that it partakes the character of supervision for the purpose of fulfilling Section 2 (9) of the ESI Act.
27. The place of work does not alter the status of employment of the workman and even a home worker would fall within the ambit of employee has been spelt out in the decision of the Apex Court in Patel case (supra), wherein the Apex Court held as under :-
“9. Now to be an employee it is necessary that the relationship of master and servant should exist with the employer. The principal question is whether such a relationship exists between the manufacturer and a home worker. Several cases were placed before us by the parties in this connection, and reference may be made to them. In Chintaman Rao v. State of Madhya Pradesh MANU/SC/0143/1958 : 1958CriLJ803 this Court held that independent contractors, known as Sattedars, with whom a manufacturer contracted for the supply of beedis could not be described as workers within the definition of Sub-section (1) of Section 2 of the Factories Act, nor could their coolies, because the Sattedars undertook to supply the beedis by 20 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 manufacturing them in their own factories or by entrusting the work to third parties. The Sattedars were not subject to a right of control by the manufacturer in respect of the manner in which the work was to be done. The Court applied the principle that the test for determining the relationship of master and servant lay in the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant was to do but also the manner in which he should do it. In passing, the Court referred to home workers employed by the Sattedars for making beedis in their respective homes, and the Court observed that they could not be regarded as persons employed by the manufacturer directly or through any agency. Thereafter, in Birdhichand Sharma v. First Civil Judge, Nagpur MANU/SC/0213/1960 : (1961)IILLJ86SC this Court considered a case where the manufacturer had employed workmen in his beedi factory and who were at liberty to work at their homes, and the Court held that the conditions in which they worked made them "workers" within the meaning of Clause (1) of Section 2 of the Factories Act. The significant feature of the judgment lies in the observation of the Court that in the case of the beedi industry the right of rejection of the beedis if they did not come up to the proper standard was evidence of the supervision and control exercised by the manufacturer. Noting that the nature and extent of 21 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 supervision and control varied in different industries, the Court said:
Taking the nature of the work in the present case it can hardly be said that there must be supervision all the time when bins are being prepared and unless there is such supervision there can be no direction as to the manner of work. In the present case the operation being a simple one, the control of the manner in which the work is done is exercised at the end of the cay, when bins are ready, by the method of rejecting those which do not come up to the proper standard. In such a case it is the right to supervise and not so much the mode in which it is exercised which is important.
Reference may be made next to Shankar Balaji Waje v. State of Maharashtra MANU/SC/0145/1961 : (1962) I LLJ 119SC . The majority view taken on the particular facts of that case was that the workers were not subject to the control and supervision of the manufacturer. The learned Judges constituting the majority appear to have overlooked the observations in Birdhichand Sharma (supra) that the right of rejection of the beedis prepared by the workers in itself constituted a sufficient element of supervision and control. Our attention was also invited by the petitioners to Orissa Cement Ltd. v. Union of India MANU/SC/0097/1962 : (1962)ILLJ400SC but this is a case where the question was 22 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 whether a notification was valid which made the employer liable to pay into the provident fund, constituted under the Provident Funds Act, 1952, the share of workers who were in fact the employees of independent contractors. The Court drew a careful distinction between labour employed by the manufacturer and that employed by an independent contractor. Most of these cases were considered thereafter by this Court in D. C. Dewan Mohideen Sahib and Sons v.
Industrial Tribunal, Madras MANU/SC/0321/1964 :
[1964]7SCR646 and while reviewing the law the Court rejected the plea of the manufacturers against the application of the Industrial Disputes Act on the ground that the workers ostensibly employed by the "so-called contractors" were in fact the workmen of the appellants who had employed them through their agents or servants. It may be pointed out, however, that the Court reiterated the view expressed in Birdhichand Sharma's case MANU/SC/0213/1960 :
(1961)IILLJ86SC (supra) that the rolling of beedis was work of such a simple nature that supervision was not required all the time and it was sufficient if supervision was exercised at the end of the day through the system of rejecting defective beedis. The law took a major shift in Silver Jubilee Tailoring House v. Chief Inspector of Shops and Establishments MANU/SC/0290/1973 : (1973)IILLJ495SC as to the criteria which determined the relationship of master and servant.
Mathew, J., who spoke for the Court, reviewed the earlier 23 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 decisions of this Court as well as some of the decisions rendered in England, and pointed out that the test of control as traditionally formulated was no longer treated as an exclusive test. He observed : -
It is exceedingly doubtful today whether the search for a formula in the nature of a single test to tell a contract of service from a contract for service will serve any useful purpose. The most that profitably can be done is to examine all the factors that have been referred to in the cases on the topic. Clearly, not all of these factors would be relevant in all these cases or have the same weight in all cases. It is equally clear that no magic formula can be propounded which factors should in any case be treated as determining ones. The plain fact is that in a large number of cases, the court can only perform a balancing operation weighing up the factors which point in one direction and balancing them against those pointing in the opposite direction.
During the last two decades the emphasis in the field has shifted and no longer rests so strongly upon the question of control. Control is obviously an important factor and in many cases it may still be the decisive factor. But it is wrong to say that in every case it is decisive. It is now no more than a factor, although an important one.24
https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 He was dealing with a case where the workers who were tailors went to tailoring shops and were given work as and when work was available, and when cloth was given for stitching to a worker he was told how he should stitch it, and if the instructions were not carried out the work was rejected and he was asked to restitch it. Some of the workers were allowed to take the clothes home for stitching. The Court held that there was a relationship of master and servant because of the right in the employer to reject the work done, and it reiterated that "the degree of control and supervision would be different in different types of work". In the present cases, the right of rejection can similarly be said to represent the control and supervision exercised by the manufacturer over the beedis prepared by the home workers. Quite obviously, while in the Silver Jubilee Tailoring House case (supra) it was possible for the employer to direct re-stitching of the garment, no such direction can be reasonably envisaged in the case of sub-standard beedis. A Constitution Bench of this Court had occasion to consider the law in Mangalore Ganesh Beedi Works v. Union of India MANU/SC/0297/1974 :
(1974)ILLJ367SC which questioned the validity of the Beedi and Cigar Workers (Conditions of Employment) Act, 1966. The Court adopted the test of rejection of defective beedis for determining whether the beedi workers were the employees of the manufacturer or the independent contractors. The Court observed : -25
https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 ...the manufacturers or trade mark holders have liability in respect of workers who are directly employed by them or who are employed by them through contractors. Workers at the industrial premises do not present any problem. The manufacturer or trade mark holder will observe all the provisions of the Act by reason of employing such labour in the industrial premises. When the manufacturer engages labour through the contractor the labour is engaged on behalf of the manufacturer, and the latter has therefore liability to such contract labour. It is only when the contractor engages labour for or on his own behalf and supplies the finished product to the manufacturer that he will be the principal employer in relation to such labour and the manufacturer will not be responsible for implementing the provisions of the Act with regard to such labour employed by the contractor. If the right of rejection rests with the manufacturer or trade mark holder, in such a case the contractor who will prepare beedis through the contract labour will find it difficult to establish that he is the independent contractor.
10. In the context of the conditions and the circumstances set out earlier in which the home workers of a single manufacturer go about their work, including the receiving of raw material, rolling the beedis at home and delivering them 26 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 to the manufacturer subject to the right of rejection there is sufficient evidence of the requisite degree of control and supervision for establishing the relationship of master and servant between the manufacturer and the home worker. It must be remembered that the work of rolling beedis is not of a sophisticated nature, requiring control and supervision at the time when the work is done. It is a simple operation which, as practice has shown, has been performed satisfactorily by thousands of illiterate workers. It is a task which can be performed by young and old, men and women, with equal facility and it does not require a high order of skill. In the circumstances, the right of rejection can constitute in itself an effective degree of supervision and control. We may point oat that there is evidence to show that the rejection takes place in the presence of the home worker. That factor, however, plays a merely supportive role in determining the existence of the relationship of the master and servant. The petitioners point out that there is no element of personal service in beedi rolling and that it is open to a home worker to get the work done by one or the other member of his family at home. The element of personal service, it seems to us, is of little significance when the test of control and supervision lies in the right of rejection.
11. In our opinion, the home workers are "employees"
within the definition contained in Clause (f) of Section 2 of the Employees' Provident Funds Act.” (Emphasis Supplied) 27 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020
28. The above decision of the Apex Court makes it abundantly clear that irrespective of the place of work, the nature of work would be the basis to decide the supervision and control exercised by the principal employer over the employee and once supervision and control is exercised, then necessarily, the workman, even if employed through a contractor or agent, would partake the character of employee and the employer would be bound to pay the statutory dues, due towards the said employee.
29. It is the specific case of the appellant that certain works relating to forging, die cutting, heat treatment, etc., are carried out, outside the premises of the appellant by the workmen employed by the contractors, who are the immediate employer and it has further been admitted that the said workmen carry out certain operations as per the petitioner’s requirement and send the same back to the appellant. The quality of the work is determined by the appellant, who pays the contractors on chargeable basis for the work done by the workmen. In effect, the quality of the work is supervised and controlled by the appellant, who is the principal employer. Therefore, the works done by the 28 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 workmen employed by the intermediate employer, viz., the contractor, cannot be the basis to determine that it is only the contractor, who is bound to pay the statutory dues, as the contractor merely acts an intermediary between the principal employer and the employee. When it is the admitted case of the appellant that work is done by the workmen to the appellant’s requirement and based on fulfilment of the same, the bills are cleared, there could be no doubt that the definition of ‘employee’ as defined u/s 2 (9) is fulfilled and that the appellant, as the principal employer, is bound to pay the statutory dues to the respondent as per the provisions of the ESI Act.
30. The decision of this Court finds favour from the decision in Thankamma case (supra), where the Kerala High Court has held that the burden is heavily on the shoulders of the respondent establishment to prove that the workmen employed fall outside the purview of ‘employee’ as defined u/s 2 (9) of the ESI Act. The relevant portion of the said decision is as under :-
“18. The fact that, without the assistance of outside agencies, the respondent establishments will not be able to make umbrellas in their own factory for meeting the market demand is not in dispute. The evidence of PW1 would also 29 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 indicate that the respondent establishments get major part of assembling of umbrellas done through contractors/home workers. The evidence of DW1, the concerned Insurance Inspector would also indicate that, similar activity is being undertaken in the premises of the respondent establishments. When, the definition of ‘employee’ in Section 2 (9) of the ESI Act has been cast deliberately in the widest terms in order to cover every possibility so as not to exclude even distant categories of men employed either in the primary work or cognate activities, the burden is heavily on the shoulders of the respondent establishments to prove with cogent and convincing materials that, the workers employed by the contractors or home workers engaged to carry out the assembling works of umbrellas fall outside the purview of ‘employees’ as defined under Section 2 (9) of the ESI Act, and that, the payments made to them cannot be treated as ‘wages’ as defined under Section 2 (22) of the said Act. Since the reasoning of the court below in the impugned orders is not supported by any such materials, we find no reasons to sustain the said judgments.”
31. From the aforesaid decision, which is in line with the case before this Court, it is unequivocally clear that it is on the part of the appellant to prove that the workers employed to do the works assigned to the contractors fall outside 30 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 the purview of the term ‘employee’. However, the stand of the appellant clearly evidenced from the order of the authority show that the operation of the tasks entrusted are completed as per the appellant’s requirements, meaning thereby, that the supervision and control with regard to the outcome of the work rests with the appellant and, therefore, the workmen employed by the appellant, even though through an intermediary would definitely fall within the ambit of ‘employee’ as defined u/s 2 (9) of the ESI Act.
32. Though many other decisions are pressed into service in vehemence by the learned counsel for the appellant to support the case of the appellant, yet it is to be pointed out that those decisions do not materially affect the decision arrived at as the decisions therein are on the facts and circumstances of the respective cases pleaded before the Court and, therefore, would in no way advance the case of the appellant.
33. Further, it is to be pointed out that though it is the claim of the appellant that the labour cost is paid to the contractors, who are to pay the statutory dues to the respondent, however, it is to be pointed out that Section 40 31 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020 and 41 of the ESI Act clearly mandate that the principal employer shall pay, in respect of every employee, whether directly employed or through an immediate employer, both the employer’s contribution and the employee’s contribution. Therefore, the mandate is on the principal employer to pay the statutory dues and if at all it is claimable from the hands of the immediate employer, viz., the contractor, it is open to the appellant to proceed against the intermediate employer to retrieve back the said amount and that cannot be the reason for the appellant not to make the payment towards the statutory dues to the respondent.
34. The court below has gone in extenso into all the materials placed before it and also adverted to the provisions of the ESI Act to give a definitive finding that the appellant, as the principal employer, is bound to pay the statutory dues on behalf of the workers employed by the intermediate employer, which is reasonable, logical and sustainable and, therefore, the does not require any interference at the hands of this Court.
32 https://www.mhc.tn.gov.in/judis ____________ C.M.A. N0.768/2020
35. Accordingly, finding no merits, this appeal is dismissed confirming the order passed by the Insurance Court (Principal Labour Court), Chennai, dated 11.10.2019, made in E.I.O.P No.78 of 2006. The appellant is directed to deposit the claim amount to the tune of Rs.3,11,670/- towards contribution for the period from April, 2001 to March, 2004, within a period of four weeks from the date of receipt of a copy of this order. However, it is made clear that the respondent would not be entitled to claim any interest on the delayed payment of the statutory dues, as the appellant was all along agitating the said levy, which was seized of by the appropriate forum. Consequently, connected miscellaneous petition is closed. There shall be no order as to costs in this appeal.
19.12.2024
Index : Yes / No
GLN
To
The Deputy Director
Insurance No.IV
Employees State Insurance Corporation
143, Sterling Road, Chennai 600 034.
33
https://www.mhc.tn.gov.in/judis
____________
C.M.A. N0.768/2020
M.DHANDAPANI, J.
GLN
PRE-DELIVERY JUDGMENT IN
C.M.A. NO.768 OF 2020
Pronounced on
34
https://www.mhc.tn.gov.in/judis
____________
C.M.A. N0.768/2020
19.12.2024
35
https://www.mhc.tn.gov.in/judis