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Employing around 55 employees, there are only five employees who are getting less than Rs 15000 per month, My question is we coverable under Esi Act ?
From India, Coimbatore
If the total employees is 10 or more, the establishment will be covered irrespective of how many employees will be covered. In your case your establishment will be covered under ESI and you have to pay contributions in respect of those whose salary is not more than Rs 15000.
Madhu.T.K

From India, Kannur
Dear sir, Please find attachment Judgment , Kindly give your input which one is correct ?
From India, Coimbatore
Dear sir,

Please find attachment Judgment , Kindly give your input

which one is correct ?

JUDGMENT

Case Note:

Employees' State Insurance (Amendment) Act, 1975 Section 2(12) r/w 75--Factory--Meaning of--Defined-Respondent (ESIC) asked appellant company to submit form No. 01-- Company pleaded it is not a "shop" and not covered under notification and number of employees is less than 20--Respondent unmoved--Petition Under Section 75 of the Act--Trial court held petitioner/appellant is a "shop"--Appealed against and pleaded company and cannot be treated as "factory"-- Impugned order set aside.

Words and Phrases - Defined-"Shop", "Factory", "Employee(s)", "Persons employed" and "wages"--Meaning of-- Explained.

1. The question for consideration in this appeal 9 is whether the appellant M/s. M. M. Suri & Associates Pvt. Ltd. is a "factory" within the meaning n of Section 2(12) of the Employees' State Insurance (Amendment) Act, 1975 (hereinafter called the Act).

2. The facts fall into a short compass. Having been asked by the Employees' State Insurance Corporation by its letter of July 26, 1990 to submit Form No.O.1, the appellant-Company took the stand that it was not a "shop" and as such not covered by the above - referred Notification and that, in any case, the number of its employees being less than 20, the provisions of the Act could not be extended to it. However, since the Corporation remained unmoved, the appellant-Company filed a petition under Section 75 of the Act.

3. The learned Senior Civil Judge, before whom the petition came up for disposal, held that as the Company was dealing in retail sale Of services, it was "shop" and that as admittedly 24 persons were employed, Section 2(12) was attracted notwithstanding the fact that out of the said employees 13 were drawing more wages than the prescribed limit and thus were not "employees" within the meaning of Section 2(9) of the Act.

4. The order of the learned Senior Civil Judge has left the company dissatisfied. Hence this appeal.

5. The case of the appellant-Company is that as out of the 24 persons working with it, 13 were getting more wages than the prescribed limit, therefore, they were not "employees" within the meaning of Section 2(9) of the Act and that as such the appellant could not be treated to be a "Factory" within the meaning of Section 2(12) of the Act.

6. In order to appreciate the point in issue it is necessary to set out the relevant provisions of the Act.

7. Section 2(12) defines "factory" in the following terms :

"2(12) "factory" means any premises including the precincts thereof -

(a) Whereon ten 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, or

(b) 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 without 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 (35 of 1952) or a railway running shed;"

The term "Employee" is defined in Section 2(9) of the Act as under :

"2(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 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 persons 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 or any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), or under the standing orders of the establishment; but does not include -

(a) any member of the Indian naval, military or air force; or

(b) any person so employed whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government a month :

Provided that an employee whose wages excluding remuneration for overtime work exceed such wages as may be prescribed by the Central Government a month 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".

7. As would be seen from the definition of "factory" under Section 2(12) of the Act what is required is that twenty or more persons are employed or were employed for wages on any day of the preceding twelve months. It was strenuously argued by the learned Counsel for the appellant that as according to Section 2(9) of the Act a person whose wages exceed the prescribed limit does not become an "employee" and as, admittedly, thirteen of the twenty-four persons working with the appellant were drawing more wages than the prescribed limit, they could not be included amongst the persons employed for wages so as to make up the number of such persons to 20. Of course, the argument so advanced is based on the premise that the 20 or more persons mentioned in Section 2(12) have necessarily to be "employees" as defined in Section 2(9) of the Act.

8. However, the learned Counsel for the respondent-Corporation found the contention of the appellant totally unacceptable. His argument was that all the 20 or more persons or any of them who are employed for wages need not necessarily be employees within the meaning of Section 2(9) of the Act. And, in support he drew my attention to M. P. & W Proof Ltd. v. E. S. I. Corporation, 1974 Lab. I.C. 85 and to a judgment of the Punjab High Court in Chanan Singh & Sons v. Employees S. I. Corporation, (1964-I-LLJ-314).

9. In Chanan Singh's case (supra), the Punjab High Court while dealing with the definition of "factory", observed : at p 318

"If it was intended that the twenty were only to include employees, the wording could quite easily have been "whereon twenty or more employees are working" or "whereon twenty or more persons are employed", and it must be assumed that the choice of words has been deliberate".

And that : at p 319

"The obvious intention appears to be that at any rate the twenty persons necessary to constitute a factory under Section 2(12) may include persons who are employees in the ordinary sense, but are excluded from the scope of the Act and the benefits thereunder by reason of the fact that their monthly pay is more than Rs. 400/-".

10. The Division Bench of the Mysore High Court in the case of M. P. & W. Proof Ltd. v. E. S. I. Corporation (supra), after reproducing Section 2(12) of the Act, observed :

"A plain reading of this Section makes it manifest that it is necessary to satisfy two ingredients before an establishment is characterised as a 'factory'. Those ingredients are : (1) that 20 or more persons work in an establishment for wages; (2) a manufacturing process is being carried on in any part of it with the aid of power or is ordinarily so carried on but does not include a mine subject to the operation of the Indian Mines Act. We do not see any reason to incorporate 'employees' properly so called in the Act within the definition mentioned above. All the 20 or more persons or any of them who are employed for wages may or may not be employees within the meaning of the definition found in Section 2(12) of the Act. If any of them happen to be employees within the meaning of Section 2(12) of the Act they would be entitled to certain benefits provided by the other provisions of the Act. Those workers who are employed for wages by the establishment and do not fall within the definition of an 'employee' as provided in Section 2(9) of the Act do not get any such benefits provided by the Act for an employee. Therefore in order to compute the 20 persons mentioned in Section 2(12) of the Act it is not necessary that all those 20 persons should be employees' properly so called by the Act."

It may be noticed that the Mysore High Court in turn had relied upon a judgment of the Bombay High Court in M/s. Bank Silver Co., Bombay v. Employees State Insurance Corporation, Bombay, (1964-II-LLJ-591) wherein it was held at p 594 :

"If twenty or more persons work in an establishment and if a manufacturing process is being carried out in any part thereof, the place would be a factory. The further question which would then arise is whether the benefits conferred by the Act can be availed of by all the persons who work in the factory. In order to determine that question it would be necessary to consider each one of the provisions relating to the various benefits. If the benefits can be availed of only by the employees properly so called, the proprietors of the establishment or the partners of the firm which owns the establishment would not be entitled to the benefits, because they are not 'employees'. That is, however no reason why the benefits conferred by the Act cannot be given to employees who work in the establishment in which twenty or more persons are, in fact, working. In other words, the mere circumstance that the Act applies to an establishment would not necessarily mean that all the benefits conferred by the Act could be given to each and every person working in that establishment. The Act would apply to an establishment because twenty or more persons work therein and yet the benefits conferred by the Act could be given to only such persons who are employees within the meaning of the Act

11. Should I follow the view expressed by the Punjab, Bombay and Andhra Pradesh High Courts ? Though this is what the learned Counsel for the respondent expects of me, I, on my part, am not willing.

12. Let us have another look at the judgments referred to above, and a little more clearly. All the said three judgments are on the basis of definition of the term "factory" in Section 2(12) as it then was. And, this is how it ran :

'factory' means any premises including the precincts thereof wherein twenty or more persons are working or were working 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 Indian Mines Act, 1923 (IV of 1923) or a railway running shed."

13. To the discerning eye the distinction between the definition of "Factory" as it stood before the amendment of Section 2(12) and as it stands now (since its amendment in 1975), would be obvious. Before the amendment, the definition of the term "Factory" included "persons working" and not" persons employed". The significance of this change cannot be lost sight of. Rather, if I may say so, it makes all the difference. Even the Punjab High Court in Chanan Singh's case (supra) accepted it. Let us have yet another look at what the said Court said. I have already quoted the relevant passage yet another look is needed and it necessitates its repetition. Here it is again :

"If it was intended that the twenty were only to include employees, the wording could., quite easily have been "whereon twenty or more employees are working" or "whereon twenty or more persons are employed" and it must be assumed that the choice of words has been deliberate."

Does not the passage bring forth the distinction between the words "persons working" and the "persons employed"? Does it not show that in the Punjab case entirely a different view would have been taken had the words in Section 2(12) been the "persons employed"? If so, does the present section, as it stands after the amendment of 1975, not use the words "twenty or more persons are employed or were employed for wages"?

14. All the three judgments referred to above, relate to the old definition of "Factory" which the words "persons working". What we have to consider now is the expression "persons employed" and for that, to my mind, we have to necessarily fall back upon the definition of the term "employee" for the reasons that Section 2(12) so and so also Section 2(9) talk of "persons employed for wages". And, in support, I seek to draw force from a Division Bench judgment of the Madras High Court in Regional Director, E. S. I. Corporation, Madras v. Freedom Press, 1978 Lab. I.C. 1266, wherein similar view was taken, and so also from the judgment of the Supreme Court in Regional Director, E. S. I. C., Trichur v. Ramanuja Match Industries, (1935-I-LLJ-69).

15. In the case before the Supreme Court besides 18 regular employees, three partners who worked regularly for wages were also put to gather making the total come to 21. Question arose as to whether the said three partners working regularly for wages could be included to make the establishment come within the definition of "factory". It may be recalled that in the to case before the Bombay High Court referred to above, the view taken was that even partners who were working in the factory would have to be counted for determining the number of persons required in Section 2(12) as it existed at that time. The Supreme Court, however, took the view that the partners though working regularly for wages could not be treated as "persons employed" and, in support referred to and relied upon the definition of the term "employee" as it appears in Section 2(9) of the Act and the definition of the term 'wages' which, as per Section 2(22) means "all remuneration paid or payable, in cash to an employee, if the terms of the contract of employment express or implied, were fulfillled ....

16. Not only what has been noticed above, I feel that what is observed by the Supreme Court in paragraphs 10 & 11 of the report, clinches the issue. The following are the observations contained therein :

"Counsel for the appellant emphasised on the feature that the statute is a beneficial one and is the Court should not interpret a provision occurring therein in such a way that the benefit would be withheld from employees. We do not doubt that beneficial legislations should have liberal construction with a view; to implementing the legislative intent but where such beneficial legislation has a scheme of its own there is own warrant for the Court to travel beyond the scheme and extend the scope of the statute on the pretext of extending the statutory benefit to those who are not covered by the scheme. The Act covers all factories or establishments with 20 or more employees and the benefit is intended to be given to institutions with more than that number. It is not the contention of Counsel that because the legislation is beneficial it should also apply to factories or establishments with less than 20 employees. If that be not so, in finding out whether a partner would be an employee a liberal construction is not warranted. A person who would not answer the definition cannot be taken into account for the purpose of fixing the statutory minimum. We are, therefore, not inclined to accept the contention of Counsel that on the basis of the statute being beneficial, a partner should also count as an employee.

Once we hold that the three partners were not employees, on the admitted fact the total number of employees would be less than 20, the Act would not be applicable to the establishment in question".

As would be clear from the observations of the Supreme Court when we have to determine under Section 2(12) the question as to whether an establishment or a factory has more than 20 persons employed, we have to fall back on the definition of "employee" as contained in Section 2(9) of the Act to answer it and that : "A person who would not answer the definition cannot be taken into account for the purpose of fixing the statutory minimum".

17. 1 think, I shall be failing in my duty in not mentioning that the learned Counsel for the respondent had also placed reliance on a judgment of the Andhra Pradesh High Court in A. P. State Electricity Board v. E. S. I Corporation, 1977 Lab. I.C. 1107. It relates to the definition of 'Factory' as amended in 1975. It undoubtedly took the view that there was no warrant for holding that twenty persons referred to in Section 2(12) should be employees within the meaning of Section 2(9) of the Act. However, I remain unpersuaded. The Court relied upon the judgments under the old definition without, if I may say so with respect, noticing the sea-change brought about by the amendment in Section 2(12) and as highlighted by me above. Besides, as I read the judgment of the Supreme Court noticed above, it takes a different view.

18. For the reasons recorded above the total number of employees of the petitioner would be less than 20. Consequently the Act would not be applicable to the establishment in question. The impugned order thus stands set aside. However, no order is made as to costs.

From India, Coimbatore
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