Employees State Insurance Act – Sections 2 (9), 2 (22) & 82(2) – Insurance Court – Assembling work of umbrellas outside the factory premises – will come within the purview of ’employee’ – ‘wages’ – Held, 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.
Work outside Factory
IN THE HIGH COURT OF KERALAAT ERNAKULAM
P.R.RAMACHANDRA MENON & ANIL K.NARENDRAN, JJ.
Insurance Appeal Nos.63 & 64 of 2009
DATED THIS THE 3rd DAY OF JUNE, 2016
AGAINST THE JUDGMENT IN IC 35/2006 of EMPLOYEES INSURANCE COURT, ALAPPUZHA DATED 29-06-2009
THE REGIONAL DIRECTOR, E.S.I.CORPORATION, PANCHADEEP BHAVAN, THRISSUR – 20.
BY ADV. SRI.THOMAS MATHEW NELLIMOOTTIL
THANKAMMA BABY, PROPRIETRIX, M/S.POPY UMBRELLA MART, C.C.N.B. ROAD, IRON BRIDGE P.O., ALAPPUZHA – 11.
BY ADV. SRI.JOSEPH KODIANTHARA ADV. SRI.MATHEWS K.UTHUPPACHAN
ANIL K.NARENDRAN, J.
Insurance Appeal No.63 of 2009 arises out of the judgment of the Employees Insurance Court, Alappuzha dated 29.6.2009 in I.C.No.35 of 2006 and Insurance Appeal No.64 of 2009 arises out of another judgment of the said court dated 29.6.2009 in I.C.No.25 of 2004. In both the appeals filed on behalf the Employees State Insurance Corporation (hereinafter referred to as ‘the appellant Corporation’) under
Section 82(2) of the Employees State Insurance Act
(hereinafter referred to as ‘the ESI Act’) common questions of law are raised, which read thus;
“A. Whether the Insurance Court was justified in declaring that the persons doing assembling work of umbrellas outside the factory premises will not come within the purview of ’employee’ as defined in Section 2(9) of the ESI Act?
B. Whether the Insurance Court was justified in declaring that the wages paid to the persons doing assembling work of umbrellas outside the factory premises do not constitute ‘wages’ as defined under Section 2(22) of the ESI Act?
C. Whether the principal employer is liable to pay contribution in respect of the employees employed through the immediate employer for the purpose of assembling work of umbrellas outside the factory premises?”
2. Since the factual matrix and substantial questions of law in both the appeals are identical, we deem it appropriate to deal with both the cases in this common judgment.
2.1. We heard arguments of the learned Standing Counsel for the appellant and also the learned counsel for the respondent in both the appeals.
3. The factual matrix in Insurance Appeal No.63 of 2009 is as follows;
3.1. The respondent in this appeal, namely, the Proprietrix of M/s.Popy Umbrella Mart, Alappuzha is the applicant in I.C.No.35 of 2006 on the file of the Employees Insurance Court, Alappuzha, an application filed under Section 75 read with Section 77 of the ESI Act, seeking for a declaration that assembling charges paid to outside parties do not constitute wages as per Section 2(22) of the Act and hence the assessment and demand of 8,22,318/- towards ESI contribution on assembling charges assessed as per Ext.A3 order dated 20.10.2005 issued under Section 45A of the Act is unsustainable.
3.2. M/s.Popy Umbrella Mart is an establishment covered under the ESI Act, engaged in the business of assembling umbrellas and its sale. The assembling work of umbrellas is being done through outside agencies and home workers. They do the work at their own places, with the help of their family members and neighbours. The establishment has no manner of control or supervision over them. Further, no assembling work of umbrellas is done within the premises of the establishment. The outside agencies/home workers used to collect the materials from the establishment and after assembling the umbrellas, they return it to the establishment and collect the assembling charges and disburse it to their people. Therefore, the persons who are doing assembling work of umbrellas outside the factory premise will not come within the purview of ’employee’ as defined in Section 2(9) of the ESI Act and that, the wages paid to persons doing assembling work of umbrellas outside the factory premises do not constitute ‘wages’ as defined under Section 2(22) of the ESI Act. Despite this, the appellant Corporation assessed and demanded contribution as per Ext.A3 order dated 20.10.2005. Being aggrieved, the respondent/applicant has approached the court below seeking appropriate reliefs.
3.3. Before the court below, the appellant Corporation contended that, the Insurance Inspector, who conducted an inspection in the establishment on 16.12.2004 and verified the records for the period from 4/2000 to 11/2004, reported that the establishment has paid an amount of 1,70,73,186/- as assembling charges for which no contribution was paid to the appellant Corporation. On the basis of the said report, the contribution due on the above expenditure amounting to 11,09,758/- was proposed as per Ext.A1 notice dated 29.1.2005, issued in Form No.C-18, along with contribution on other heads of omitted wages amounting to 15,397/-. The respondent/applicant was afforded with an opportunity of personal hearing, on 23.2.2005. However, she neither responded to Ext.A1 notice nor availed the opportunity of personal hearing. Instead, she remitted15,397/- on 12.1.2005, towards contribution due on other heads of wages. As there was no payment of contribution in respect of assembling charges, contribution was computed treating 75% of 1,70,73,186/- reported as omitted wages by the Insurance Inspector as wages and assessed 8,32,312/- as contribution on assembling charges for the period from 2000-01 to 2003-04, by passing Ext.A3 order dated 20.10.2005. In the said order, out of the reported amount of 1,70,73,186/-, 25% was treated as the profit of the contractor. Therefore, the appellant Corporation contended that, the assessment and demand made in Ext.A3 is legal and proper.
3.4. Regarding the contention that, as the assembling work of umbrellas is being done outside the premises of the establishment, the persons employed by the contractors will not come within the purview of ’employee’ as defined in Section 2(9) of the ESI Act, it was contended by the appellant Corporation that, even if the work is not done in the premises of the establishment, the respondent/applicant exercises the liberty to reject the products which are not upto their specifications. The right to reject the end products indicates that there is supervision and control by the respondent and as such the assessment and demand is perfectly legal and proper.
3.5. Before the court below, the Power of Attorney holder of the Proprietrix of the establishment was examined as PW1 and Exts.A1 to A11 were marked on her side. On the side of the appellant Corporation, the concerned Insurance Inspector was examined as DW1 and Exts.D1 and D2 were marked.
3.6. After considering the pleadings and materials on record, the court below arrived at a conclusion that, the assembling charges paid to outside agencies are payments made to those agencies who carry out assembling work in their premises. There is no supervision and control of the respondent/applicant or her agents when the assembling works are carried on at the premises of the outside agencies. The court below, by accepting the contention of the respondent/applicant that the mere right to reject the end product is not sufficient to conclude that there is supervision, held that the persons employed by the outside agencies to carry out the assembling works of umbrellas cannot be treated as ’employees’ as per Section 2(9) of the ESI Act and consequently, the payments made to them cannot be treated as ‘wages’ as per Section 2(22) of the said Act. In order to arrive at such a conclusion, the court below relied on the judgment of the Apex Court in