M/S. Sumangali Vs.
Regional Director, E.S.I. Corporation  INSC 1166 (17 July 2008)
JURISDICTION CIVIL APPEAL NO. 1914 OF 2002 M/s. Sumangali ...Appellant Versus
Regional Director, E.S.I. Corporation ...
Respondent With CIVIL
APPEAL NO. 1915 OF 2002 And CIVIL APPEAL NO. OF 2008 (Arising out of SLP (C)
No.17173 of 2008)
Dr. ARIJIT PASAYAT,
granted in SLP (C) No.17173 of 2008.
in these appeals is to the judgment of a Division Bench of the Kerala High Court
dealing with three Misc. First Appeal Nos. MFA No. 884/95, MFA No. 886 of 1995
and 964 of 1995. By the impugned judgment all the three Misc. First Appeals
were dismissed. The applicants in I.A. Nos.21, 44 and 69 before the Employees'
Insurance Court, Alleppey (in short the `E.I. Court') were the appellant before
the High Court. Before the E.I. Court the order of the Regional Director of the
Employees State Insurance Corporation (in short the `Corporation') Trichur
clubbing the applicant with other establishments for the purpose of coverage
under the Employees State Insurance Scheme (in short the `ESI Scheme') framed
under the Employees State Insurance Act, 1948 (in short the `Act') were
challenged. All the applications were dismissed by the E.I. Court by common
order dated 30.3.1995. Aggrieved by the said order applicants filed the Misc.
First Appeal before the High Court.
Corporation clubbed Jos Textiles and Jos Cut Piece Centre, two proprietary
concerns of two brothers both functioning in the same building at Broadway,
Ernakulam, for the purpose of ESI coverage and issued notice as there were 20
or more employees at a time when the inspection was conducted. Notice was
issued clubbing the above establishments. The order was challenged, as noted above,
before the E.I. Court.
Corporation also clubbed M/s. Rose Fabrics, Jos Brothers Silk and Sarees and
M/s. Jos Associates and issued notice claiming coverage. All these three
establishments were functioning in Jos Annex Building, Ernakulam. M/s. Jos
Associates was functioning on the 5th floor of the same building whereas the
other two establishments were functioning in the same premises. The inspection
conducted in November 1990 revealed that there were 12 employees working in
M/s. Rose Fabrics, 13 employees in Jos Brothers Silk and Sarees and 9 employees
in M/s. Jos Associates. The above order clubbing the three establishments were
challenged by M/s. Rose Fabrics in I.C.44/91 before the E.I. Court, Alleppey.
applicant in I.C.69/91 was M/s. Sumangali. It was clubbed with four other
establishments viz. M/s. Jos Silk and Sarees, M/s. Gents Fabrics, M/s. Jacobs
and M/s. Jos Brothers Trades and Investments. The clubbing of the above
establishments was on the basis of an inspection conducted on 14.11.90. The
inspection revealed that there were more than 30 employees in the month of
April, 1990. The notice of clubbing of the establishments was challenged by
M/s. Sumangali in I.C.69/91. All the above three applications were heard and
dismissed by the common judgment passed by the E.I. Court, Alleppey.
Textiles and Jos Cut Piece Centre, two proprietory concerns were owned by two
brothers, namely K.A.Sebastian and K.A.Joshy. Jos Textiles was engaged in the
business of textile goods and was carrying on the business in a rented
building. Jos Cut Piece Centre was functioning in a portion of the first floor
of the same building and Jos Textiles was functioning in the remaining portion
of the same floor as well as in the second floor of the same building. There
was temporary wooden partition separating the above two establishments. The
Inspector of the ESI Corporation conducted inspection on 6.1.1988 and 11.1.1988
and reported that the total employment strength in both the units together was
20 (12+8) in April 1984 and from June 1985 onwards. Again the Inspector
inspected on 9.8.1990. The building was taken on rent by Sri K.J. Abraham, the
father of Sri K.A. Sebastian and Sri K.A. Joshy. The father permitted his son
Sri K.A. Sebastian and his daughter Dorothy Edeth Louiz initially to run the
business and Sri K.A. Joshy obtained a transfer of the business from his sitar.
The father Sri K.J. Abraham was paying the rent to the landlord and Sri
Sebastian was paying the entire rent to his father though he was collecting a
portion of the rent from his brother who was running the cut piece centre. The
establishments were having separate registration under the Shops and Commercial
Establishments Act, Kerala Sales-tax Act and the Income-tax Act. On inspection
it was found that there were 20 (12+8) employees and both these units had a
common entrance, a common staircase and no separate office was seen working for
Jos Cut Piece Centre. The electric connection was common for both the units and
electricity charges were paid by Jos Textiles and Jos Textiles alone had
There was no
sufficient space for opening cloth bails or bundles and stitching the same in
Jos Cut Piece Centre whereas all such works were done in M/s. Jos Textiles. The
General Ledger showed financial dealings- between the two units. On a
consideration of all the above circumstances viz. the unity of management,
geographical unity, functional integrality, financial unity and the general
unity in purpose between the two units, the ESI Corporation decided to club
both the units for coverage under the ESI Scheme.
Ros Fabrics was a partnership firm of two partners - Joseph Francis and his
mother Rosakutty Francis. The wife of the above Joseph Francis was the sole
proprietor of M/s. Jos Brothers Silks and Sarees. M/s. Jos Associates was a
proprietory concern of the above Joseph Francis. Thus two establishments were
owned separately by the husband and wife and the other owned by the mother as
well as the son as a partnership firm. The Inspector of the ESI Corporation
conducted inspections on 6.11.90 and 13.11.90 and prepared the reports. M/s.
Jos Brothers Silks and Sarees and M/s. Ros Fabrics were functioning in the same
premises in the ground floor and M/s. Jos Associates was functioning in the 5th
floor of the same building. The Inspector of the ESI Corporation found the
employees of M/s. Jos Associates working in M/s. Jos Fabrics and there was only
one office for all the three units. According to the ESI Corporation the
activities of these three units were interlinked and one was directly promoting
the business of the others and all the three units were supplementary and
complementary to each other.
by the above judgment, the applicants in I.C.21/91, I.C.44/91 and I.C.69/91
filed MFA 964/95, MFA 886/95 and MFA 884/95 respectively. As the question
involved in all the three appeals was common, all the three appeals were heard
jointly and were disposed of this common judgment.
main stand before the High Court was that M/s Sumangali is a partnership firm
registered under various statutes. There were three partners who were related
to each other. Merely because the partners or proprietors were related to each
other that cannot be a ground for clubbing the employees for the purpose of coverage.
On the other hand the Corporation referred to several factors to establish
functional integrality and general unity of purpose. High Court found that
Corporation's view was correct and accordingly as noted above dismissed the
support of the appeal learned counsel for the appellants submitted that the
ownership of the composition of various concerns is as follows:
Name of the shop
Owners/Partners No. of Floor emplo No. yees 1.M/s. Sumangali 1. M/s. K.J.
Abraham 12 Ground (Partnership) 2. M/s.Dothy Honry Floor (Saree and cut w/o
K.A. Henry pieces) 3. M/s. Betsy Sabu w/o K.A. Sebastian 2. M/s. Gents 1. Sri
K.A. Henry 10 Ground Fabrics s/o K.J. Abraham Floor (Partnership) 2 Mrs.
Marykutty (Shirtings and Abraham Suitings) w/o K.J. Abraham
3. Mrs. Jessintha
Edward, w/o K.A. Edward
3. M/s. Jose Silk
& 1. Sri K.A. Edward 5 - Sarees Proprietary 2. s/o K.J. Abraham (Wedding
4. M/s. Jacobs Sri
K.A. Jacob, 2 3rd Floor (Proprietory) s/o K.J. Abraham
5. M/s. Jose 1. Sri
K.J. Abraham 2 4th Floor brothers Trades 2. Sri K.A. Edward & Investments
s/o Sri K.J. (Partnership) Abraham (Purchase of all) 3. Sri K.A. Henry s/o Sri
Abraham 4. Shri K.A.
Sebastian, s/o Sri
5. Sri K.A. Jacob,
s/o Sri K.J.
5. Shri K.A. Josey,
s/o Sri K.J.
6. M/s. Rose 1.
Joseph Francis 12 Fabrics 2. Rosakutty Francis (Partnership) (mother of Joseph
Francis) 7. M/s. Jose 13 Brothers Silk & w/o Joseph Francis Sarees
8. M/s. Jose 9
Associates Joseph Francis (Proprietorship) TOTAL 34
to him there was no functional integrality.
counsel for the Corporation on the other hand submitted that because of the
findings recorded by the ESI Court and the High Court the impugned judgment do
not suffer from any infirmity to warrant interference. According to him the
names of the Unit and numbers of the employees and numbers of the applicants
before the ESI Court are to the following effect:
No. of Application
Name of the Unit No. of Employees I.C. 21 of 1991 1. Jos Textiles 11 2 Jos
Cutpiece 10 Centre 21
I.C. 44 of 1991 1.
Rose Fabrics 12
2. Jose Brothers Silk
& Sarees 13
3. Jose Associates 09
34 I.C. 69 of 1991 1. Sumangali 12
2. Jose Silk & 05
3. Gents fabrics 10
4. Jacobs 02
5. Jose Brothers
Traders & Investments 31
the counter affidavit before this Court the Corporation gave the following
reasons which were indicated in details before the EI Court and High Court for
(a) there was one
common entrance between the two units;
(b) there was one
(c) they had no
(d) they had one
(e) the rent was paid
by the father of the two proprietors who were brothers 11 and sons of the
father who paid the rent;
(f) there was a
common electric connection/phone connection;
(g) there was single
general Ledger for financial dealings of both the units.
High Court noted that the ESI Corporation was justified in clubbing Jose Cut
Piece Centre with Jos Textiles, Jose Brothers Silks and Sarees and M/s. Jos
Associates with M/s. Rose Fabrics and M/s. Jos Silks and Sarees, M/s. Gents
Fabrics, M/s. Jacobs and M/s. Jos Brothers Trades and Investments with M/s.
Sumangali and treating Jos Textiles, M/s. Rose Fabrics and M/s. Sumangali as
"single establishments" for the purpose of coverage under the ESI
Scheme as there was functional integrality, unity in management, financial
unity, geographical proximity, unity in supervision and control and general
unity of purpose. Even if each unit was an establishment having separate
registration under the Sales Tax Act, Shops and Establishments Act and the
Income-Tax Act, all the units were interdependent and were supplementary and
complementary to each other for the sake of their textile business.
far as the factual aspects are concerned the High Court noted as follows:
of the records it was further found that there were 34 employees working in the
three units as on 2.4.1990. M/s. Ros Fabrics and M/s. Jos brothers Silks and
sarees were functioning in the ground floor of M/s. Jos Annexe. Building and
they were having a common signboard and a common entrance. The activities of
all the three units were administered by Sri. K. Joseph Francis.
The billing counter,
cash counter and delivery counter were common for all the three units. M/s. Jos
Brothers Silks and Sarees was an exclusive showroom for sarees whereas M/s. Ros
Fabrics was dealing with items other than sarees. M/s. Jos Associates was
dealing with the sale of furnishing clothes. According to the ESI Corporation
all the three units were different sections of a composite textile shop and the
customers were at liberty to purchase whatever they wanted from the three units
and they need to make payment at the common cash counter.
It was further found
that there was only one electric connection and the electricity charges were
paid by M/s. Ros Fabrics. The standby generator was also common to all the
According to the ESI
Corporation there was unity in ownership, geographical unity, unity in
administration, functional unity, financial unity and inter-chargeability of
employees in 13 all the three units and hence the ESI Corporation decided to
club all the three units for the purpose of ESI coverage under the ESI Scheme."
Associated Cement Cos. V. Their Workmen (AIR 1960 SC 56) it was inter alia
observed as follows: "The Act not having prescribed any specific tests for
determining what is one establishment. In considering the question whether a
cement factory and the adjacent lime stone quarry supplying lime stone to it,
are one establishment, one must fall back on such considerations as in the
ordinary industrial or business sense determine the unity of an industrial
establishment, having regard no doubt to the scheme and object of the
Industrial Disputes Act and other relevant provisions of the Mines Act, 1952,
or the Factories Act, 1948. It is perhaps impossible to lay down any one test
as an absolute and invariable test for all cases. The real purpose of these
tests is to find out the true relation between the parts, branches, units etc.
if in their true relation they constitute one integrated whole the
establishment is one, if one the contrary they do not constitute one integrated
whole, each unit is then a separate unit. How the relation between the units
will be judged must depend on the facts proved, having regard to the scheme and
object of the statute which gives the right of unemployment compensation and
also prescribes a disqualification therefore. Thus, in one case the unity of
ownership, management and 14 control may be the important or general unity may
be the important test; and in still another case the important test may be the
unity of employment."
Rajasthan Prem Krishan Goods Transport Co. v. Regional Provident Fund
Commissioner, New Delhi & Ors. (1996 (9) SCC 454) it was observed as
recorded by the Regional Provident Fund Commissioner is that there is unity of
purpose on each count inasmuch as the place of business is common, the management
is common, the letterheads bear the same telephone numbers and 10 partners of
the appellant are common out of the 13 partners of the third respondent. The
trucks plied by the two entities are owned by the partners and are being hired
through both the units. The respective employees engaged by the two entities
when added together, bring the integrated entities within the grip of the Act;
so is the finding. Now, this finding is essentially one of fact or on
legitimate inferences drawn from facts. Nothing could be suggested on behalf of
the appellant as to why could the Regional Provident Fund Commissioner not
pierce the veil and read between the lines within the outwardliness of the two
apparents. No legal bar could be pointed out by the learned counsel as to why
the views of the Regional Provident Fund Commissioner, as affirmed by the
Central Government, be overturned."
the instant case factual findings as recorded by the ESI Court and the High
Court go to show that there was unity in management, supervision and control,
geographical proximity, financial unity, general unity of purpose and
functional integrality between the different units and for the sake of ESI
coverage, the different units could be treated as "one
the given case role of the Corporation is to read between the lines to find out
the true intent. The concurrent conclusions are essentially factual and are
legitimate inferences. That being so, there is no merit in these appeals, which
deserve dismissal which we direct. No costs.
ARIJIT PASAYAT) .........................................J.