Hotel New Nalanda Vs. Regional Director, E.S.I. Corpn.  INSC 1218 (15
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 7050 OF
2002 M/s Hotel New Nalanda ....Appellant Versus Regional Director, E.S.I.
In an inspection held on May 7, 1991, the officers of the
Employees' State Insurance Corporation found that there were 15 persons working
as employees in the appellant-establishment, called M/s. Hotel New Nalanda.
They also found a refrigerator and an electric grinder in use there in the
`manufacturing process'. On the basis of the inspection the officers of the
Corporation took the view that the appellant-establishment was a factory within
the meaning of section 2(12) of the Employees' State Insurance Act, 1948 and it came within the purview of the Act. They,
accordingly, asked the Managing Director of the establishment to comply with
the provisions of the Act provisionally with effect from May 7, 1991, the date
of the inspection.
The appellant did not accept the findings recorded in course of
the inspection and filed an application under section 75 read with section 77
of the 2 Act (E.I.C. 55/91) before the Employees' Insurance Court, Kozhikode,
seeking a declaration that the establishment in question was not covered by the
Act and that the applicant/appellant was not bound to observe the provisions of
to the applicant/appellant, the establishment called M/s. Hotel New Nalanda was
a tourist home where rooms were let out to people on monthly or daily rent
basis. The establishment never employed more than 8 persons. No manufacturing
process was carried on there, much less with the aid of power.
The establishment did not constitute a factory as defined under
section 2(12) and it was not covered by the E.S.I. Act. The applicant/appellant
also pleaded that at the time of inspection there were only 8 persons working
as employees in the establishment; the other 7 persons whose names were
mentioned in the inspection report were actually brokers/agents/errand boys who
brought prospective clients to the tourist home from the railway station and
bus stand etc. for small commission and used to hang around there for carrying
out errands for the residents staying there on payment of tips by them.
The Regional Director, ESI Corporation, the opposite party in the
application filed an objection relying upon the findings recorded in the
inspection report. On behalf of the opposite party reliance was also placed on
a written statement submitted by the applicant to the Insurance Inspector at
the time of inspection stating the names with designation of the 15 persons
working as employees in the establishment.
Before the Insurance Court, the applicant/appellant examined four
witnesses; PW1 was the applicant-appellant himself and PWs 2 & 4 were
persons who were shown in the inspection report as employees in the establishment
but 3 who came before the court to depose that they were not employees in the
tourist home but were only brokers and errand boys. The applicant-appellant
also produced a number of documents that were marked as exhibits P-1 to P-18.
On behalf of the Regional Director ESI Corporation, the Insurance Inspector who
had made the inspection of the establishment was examined as DW1 and three
documents were produced that were marked as exhibits D1 to D3; exhibit D1 was
the written statement submitted by the applicant-appellant and exhibit D2 the
On hearing the parties and on a consideration of the materials on
record, the Insurance Court found and held that as a matter of fact 14 persons
were employed in the establishment; the fifteenth person named in the
inspection report was the Managing Partner and he could not be counted among
the employees in the establishment. The Insurance Court further held there was
no satisfactory evidence that there was a refrigerator and a grinder being used
in any manufacturing process being carried on in the establishment. On the
basis of the second finding the Insurance Court came to hold that the
establishment in question was not a factory within the meaning of section 2(12)
of the ESI Act and it was not covered by the Act. It, accordingly, allowed the
application filed by the appellant by its judgment and order dated April 2,
Against the aforesaid judgment the Regional Director ESI
Corporation preferred an appeal (MFA No. 879 of 1998 B) before the High Court.
In appeal, the High Court reversed the Insurance Court's finding in regard to
use of power in manufacturing process in the establishment. The High Court
observed that exhibit D-2, the inspection report, showed the presence of a 4
grinder and a refrigerator in the establishment and found it sufficient to hold
that there was use of power in the manufacturing process. The High Court,
accordingly, allowed the appeal of the Regional Director by a brief judgment
and order dated November 8, 2001.
The appellant then filed a Review Petition (RP No. 647 of 2001 in
MFA No. 879 of 1998) on the plea that the High Court order was completely
silent on the question of maintainability of the appeal, though on behalf of
the Review Petitioner (appellant) it was specifically contended that the appeal
was not maintainable. It was submitted that an appeal against the order of the
Insurance Court was maintainable under section 82(2) of the Act only on a
substantial question of law. It was further stated that the matter before the
Insurance Court was concluded by a finding of fact and did not involve any
question of law, much less any substantial question of law. The appeal filed by
the Regional Director was, therefore, not maintainable and was liable to be dismissed
on that score alone. The High Court, however, overlooked the plea and allowed
the appeal without considering the appellant's objections to its
The High Court rejected the Review Petition by order dated April
12, 2002 observing that even if there was no substantial question of law
involved, the Court was competent to entertain the appeal if the judgment of
the Court below was perverse. It went on to hold that on the basis of the
materials on record the finding of the Insurance Court that in the
establishment in question there was no use of power in the manufacturing
process, was quite perverse and hence, it was justified in entertaining the
appeal and interfering with the finding.
The short question that arises for our consideration is whether,
having regard to the materials on record, the finding recorded by the Insurance
Court can be said to be perverse and fit to be interfered with in appeal under
section 82(2) of the Act.
On the issue whether power was used in any manufacturing process
in the establishment the Insurance Court considered the evidences led by the
two sides in considerable detail and rejected the case of the Corporation
giving a number of reasons. It pointed out that in the inspection report it was
simply stated that a Kelvinator fridge (sic refrigerator) and a one litre
grinder were used in the manufacturing process. But the report was completely
silent in regard to the activities that were termed as `manufacturing process'
and the purpose for which the two electrical appliances were used. The report
left it completely for the court to presume that the cooking of food was the
`manufacturing process' and the two appliances were used in that connection.
The Insurance Court next observed that both PW1, the Managing Director and PW3,
the person who was named in the inspection report as operating the grinder, in
their deposition before the court denied the use and even presence of the two
appliances in the establishment. But neither of them was even cross-examined on
that issue. The court further observed that the Insurance Inspector had
obtained a written statement from the appellant containing a list of all the
fifteen persons who were working in the establishment as employees. In the same
way he could obtain a statement about the use of the two appliances in the
establishment for cooking food. But there was no such statement and the grinder
and the refrigerator found a vague and cryptic 6 mention only in the inspection
report. In its order the Insurance Court stated as follows:
aspect to be considered is whether the applicant has used power in the
manufacturing process being carried on there. It is the specific plea of the
respondent that the applicant has used a grinder and a fridge in their
establishment in order to carry out the manufacturing process. It is refuted by
the applicant. The applicant as PW-1 testified before me that no grinder and
fridge are used in their establishment. This aspect of his evidence is not
controverted in his cross examination by the counsel for the respondent. It is
not elicited as to what are all the manufacturing process being carried on in
the applicant establishment and how they are got done. It is pertinent to note
that there is no mention about the use of power in the manufacturing process in
Ext.D-1 letter elicited from the applicant by the Insurance Inspector. It is
common case that Govindan was an employee of the applicant establishment. He
was examined as PW-3 before me. He testified before me that there was no grinder
or fridge used in the applicant establishment. There is no cross examination at
all on the above aspect and therefore his testimony in this regard stands
Insurance Inspector has noted in his Ext.D-2 report that a grinder and a fridge
are being used in the applicant establishment. It is pertinent to note that the
Ext.D-2 report is silent with regard to what are the manufacturing processes
being carried on in the applicant establishment and the purposes for which
above equipments are used. A sweeping statement that there is a grinder of 10
litre capacity and a Kelvinator fridge is made in the D-2 report."
Court reversed the findings observing as follows:
survey report shows that grinder and fridge there. In Ext.D- 2 it is stated
that there was a grinder of 1- liter capacity and a Kelvinator fridge. Merely
because the details of which is not stated is not a ground to discard the
evidence of DW-1 and Ext.DW-2 report.
time of examination, DW-1 stated that the grinder was being operated by one
Damodaran Nair, a worker of the respondent's establishment. In the application
itself it is submitted by the applicant that he is running a Tourist home and
the rooms are let out on monthly as well as a daily basis. The name of the
establishment is styled as "Hotel New Nalanda". DW-1 found grinder
and fridge in the kitchen. Those who occupy a hotel do depend upon the food
which are prepared in the hotel. It is not possible to conceive of a hotel
without a kitchen. Lodging and boarding are both essential components of the
service rendered by a Hotel. Hence, it cannot be 7 denied no manufacturing
process is being conducted in the establishment of the respondent."
We are unable to appreciate the way the High Court considered the
evidence and deemed fit to interfere with the finding of fact recorded by the
Insurance Court. The High Court seems to have taken the inspection report
exhibit D2 and the testimony of the Insurance Inspector DW1 as non-rebuttable,
conclusive pieces of evidence. Further, for filling-up what remained unsaid in
the inspection report and the testimony of DW1, it took recourse to presuming
that the establishment must have kitchen where food would be cooked using the
two appliances running with the aid of power. The High Court did not even
advert to the reasons given by the Insurance Court for not accepting the
Corporation's case on that issue. The Insurance Court had rightly pointed out
that the inspection report did not state the process or the work that was
called `the manufacturing process'. It did not even say that the refrigerator
and the grinder were used in connection with cooking food in the establishment.
For holding an establishment to be a `factory' within the meaning
of section 2(12) of the Act it must first be established that some work or
process is carried on in any part of the establishment that amounts to
`manufacturing process' as defined under section 2(k) of the Factories Act, 1948. In case the number of persons employed in the
establishment is less than twenty but more than ten then it must further be
established that the manufacturing process in the establishment is being
carried on with the aid of power. Further, the use of power in the
manufacturing process should be direct and proximate. The expression
`manufacturing process being carried on with the aid of power' in section 2(12)
of the Act does not mean a very indirect application of power such as use of 8
electric bulbs for providing light in the work-area. Unless the links are
established, that is to say, it is shown that some process or work is carried
on in the establishment which qualifies as `manufacturing process' within the
meaning of section 2(k) of the Factories Act
and the manufacturing process is carried on with the aid of power, the mere
presence of a refrigerator and a grinder there, even though connected to the
main power line may not necessary lead to the inference that the establishment
is a factory as defined under section 2(12) of the Act.
On hearing counsel for the parties and on a careful consideration
of materials on record we are satisfied that the Insurance Court had come to a
reasonable finding of fact. Against this finding neither any appeal was
maintainable under section 82(2) of the Act nor was the High Court justified in
interfering with it. We, accordingly, find the judgment of the High Court
unsustainable. It is set aside. In the result the appeal is allowed but with no
order as to costs.
..................................J. [TARUN CHATTERJEE]
..................................J. [AFTAB ALAM]
July 15, 2009.
NO. 1-A ( For COURT No.4 SECTION XV Judgment ) SUPREME COURT OF INDIA RECORD OF
PROCEEDINGS Civil Appeal No. 7050 of 2002 M/s Hotel New Nalanda .. Appellant(s)
Versus Regional Director, E.S.I. Corpn. .. Respondent(s) DATE : 15/07/2009 This
matter was called on for pronouncement of judgment today.
Appellant(s) Mr. Subramonium Prasad, Adv.
Respondent(s) Mr. V.J. Francis, Adv.
Hon'ble Mr. Justice Aftab Alam pronounced the judgment of the Bench comprising
Hon'ble Mr. Justice Tarun Chatterjee and his Lordship.
appeal is allowed with no order as to costs, in terms of the signed judgment
which is placed on the file.