B. M. Lakshmanamurthy Vs. The
Employees' State Insurance Corporation, Bangalore [1974] INSC 15 (21 January
1974)
GOSWAMI, P.K.
GOSWAMI, P.K.
REDDY, P. JAGANMOHAN DWIVEDI, S.N.
CITATION: 1974 AIR 759 1974 SCC (4) 218
ACT:
Employees' State Insurance Act--S. 2(9)(ii)
& 2(13)--'Employee' & 'immediate employers' meaning & scope of.
HEADNOTE:
The appellants firm was carrying on the
business of manufacturing and exporting polished granite memorial stones. The
firm was a factory both under the Factories Act as well as under the Employees'
State Insurance Act.
Adjacent to this factory was another factory
situated on the appellant's land leased out to two contractors who employed 50
workers in their factory for the purposes of cutting and dressing the granite stones.
The granite stones unloaded outside the factory by the lorries were brought on
the portion of the leased land and after cutting them they were sent back to
the appellant's factory where they were designed and polished. The Employees'
State Insurance Corporation claimed from the appellant a certain sum as the
firms contribution on account of the workers employed by the two contractors
described as 'immediate employers' under the Act. The Employees' State
Insurance Court held that the contractors were not 'immediate employers' within
the meaning of s. 2(13) of the Employees' State Insurance Act and that they
were independent contractors. On appeal the High Court held that the appellant
was a principal employer and the contractors were the immediate employers under
the Act. The High Court also held that the workers tinder the contractors were
employees within the meaning of s. 2(9)(ii) of the Act.
Dismissing the appeal, to this Court,
HELD : (1) The underlying aim of the Act is
to insure the employees against ,various risks to their life, health and well
being and the charge is upon the principal employer even though he may get his
usual work done through an intermediary who is described in the Act as
'immediate employer'. Any dispute between the principal employer and the
immediate employer has to be settled between themselves de hors, the employees
and the Act charges the principal employer with the liability to pay the
contribution not only of its own but also that of the employees subject to his
right to deduct the employees' contribution from their wages under s. 40(2) Of
the Act. [147A] (2) On the findings of fact the work undertaken by the
contractor's in the adjoining vicinity is preliminary or incidental to the work
in the principal employer-factory turning out the finished product for export.
The work in the two places has intimate correlation and is a niece of an
integrated whole and the said work by the contractors through their labour is
ordinarily part of the work of the principal factory undertaken by the
contractors. Their factory is situated in the premises of the appellant's
factory which, according to the definition clause, includes the precincts
thereof. In the instant case on an examination of the site plan and the
evidence it is evident that there is a definite environmental as well as
functional unity between the two portions, namely, the main factory and the
contractors' factory with the precincts even though separated by a wall in
which there was a door which sometimes was closed. The work undertaken by the
contractors and carried on in their portion of the area is surely componential
to make it a part of the complex whole.
The principal requirement of the definition
namely, that the work or the ,construction is undertaken on the premises of the
factory is satisfied in the present ,case. It therefore follows that the two
contractors are 'immediate employers within the meaning of s. 2(13) and the
workers employed for cutting and dressing the granite stones by the immediate
employers are employees within s. 2(9)(ii) of the Act.
[148B] Employees' State Insurance
Corporation. Bombay v. Raman (Chittur Harihar Iyer),[1957] 1 L.L.J.267,Nagpur
Electric Light and Power Co. Ltd. v. Regional Director Employees State
Insurance a Corporation, Etc. [1967] 3 S.C.R. 92, Employees'.
143 State Insurance Corporation, v. Peter
Sewing Machine Co.
etc. A.I.R. 1970 Delhi 182, and M/s Hindustan
Construction Co. Ltd. v. Employees' State Insurance Corporation, (1966) I.L.R.
18 Assam & Nagaland 87, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1626 of 1967.
Appeal by Special Leave from the Judgment and
Decree dated the 14th October, 1966 of the High Court of Mysore at Bangalore in
Misc. First Appeal No. 124 of 1966.
M. Natesan and Saroja Gopalkrishnan, for the
appellant Gobind Das and S. P. Nayar, for the respondent.
The Judgment of the Court was delivered by
GOSAMI, J.-The appellant and his brother, Srinivasamurthy are partners of a
firm carrying on the business of manufacturing and exporting of polished
granite memorial stones in the name and style of Messrs Narayanaswami &
Sons.
The firm is admittedly a factory both under
the Factories Act as well as under the Employees' State Insurance Act (briefly
the Act). The appellant claims to directly employ about 35 persons in his
factory and has been paying contrbution under the Act on their account. It is
stated that adjacent to his own factory there is another factory situated on
the appellant's land leased out by him to two persons, Chidambarchari and
Shankar subbachari (hereinafter referred to as the contractors). The
contractors employ about 50 workers in their factory for purposes of cutting
and dressing the granite stones. The lorry drivers bring granite from the
surrounding areas and unload them outside the factory' The contractors get
these to their portion of the leased land for cutting them. After cutting these
are sent back to the appellant's factory where these are designed and polished
and thereafter exported.
The Employees State Insurance Corporation
(briefly the Corporation) applied to the Employees' State Insurance Court at
Bangalore (briefly the Court) for recovery of an amount of Rs. 8893/being the
employees' contribution payable by the appellant for the period commencing from
27-7-1958 to 31-1-1964 on account of the workers employed by the two
contractors described as 'immediate employers' tinder the Act. The court
decided against the Corporation holding .that the contractors were not
'immediate employers' within the meaning of section 2 (13) of the Act and they
were independent con tractors and hence the appellant was not the principal
employer in respect of the employees working under the contractors. The
Corporation appealed to the High Court of Mysore against the aforesaid order under
section 82(2) of the Act. The High Court held that the appellant was the
principal employer an the contractors were the immediate employers under the
Act. The High Court further held that the workers under the contractors were
employees within the meaning of section 2 (9) (ii) of the Act. The High Court
thus accepted the appeal of the Corporation. Hence this appeal by special
leave.
Before the court evidence was given by both
sides and the following findings of the court are adverted to by the High Court
144 .lm15 "All that can be said to have been proved by the applicant
corporation in this case is that RWs 2 and 3 (the contractors) work at a place
belonging to the respondent and execute part of the work which is necessary to
manufacture the final finished product for sale. All that can be said to have
been proved in this case is that the contractors are doing some work which
would be the foundation for the work that is finally done by the
respondent".
After examining the evidence the High. Court
also found as follows "There is evidence to show that these employees
(under ,the contractors) are employed in connection with the work of the
respondent-facory".
The respondent in the High Court's judgment
refers to the appellant herein. As stated earlier, the High Court answered both
the questions in favour of the Corporation.
The same points are raised for consideration
in this appeal and Mr. Natesan on behalf of the appellant submits that the
contractors owned a separate factory and are independent contractors and cannot
be held to be 'immediate employers' within the meaning of section 2(13) of the
Act and hence the appellant is not liable as principal employer to pay the
contribution on account of the persons working under the contractors.
Before we deal with the questions of law
raised in this appeal, it will be appropriate to refer to the material
provisions of the Act.
The Act, as it appears from the preamble, is
passed "to provide for certain benefits to employees in case of sickness,
maternity and employment injury and to make provision for certain other matters
in relation thereto".
Section 2 contains the definitions. By
section 2 (4) "contribution" means the sum of money payable to the
Corporation by the principal employer in respect of an employee and includes
any amount payable by or on behalf of the employee in accordance with the
provisions of this Act." By section 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;
* * * * 145 By section 2(12)"factory
"means any premises including the precincts thereof 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 with 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 or a railway
running shed".
* * * * * By section 2(13) "immediate
employer", in relation to employees employed by or through aim, 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 tent or let on hire to the principal employer".
By section 2(14) "insured person"
means a person who is or was an employee in respect of whom contributions are
or were payable under this Act and who is, by reason thereof, entitled to any
of the benefits provided by this Act".
By section 2(17) "principal
employer" means(1) 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".
* * * * * * Chapter IV deals with
contributions.
The opening section 38 provides that-"subject
to. the provisions of this Act, all employees in factories, or establishments
to which this Act applies shall be insured in the manner provided by this
Act." * * * * * * By Section 39(1) "the contribution payable under
this Act in respect of an employee shall comprise contribution payable by the
employer (hereinafter referred to as the employer's contribution) and
contribution payable by the employee (hereinafter referred to as the employee's
contribution) and shall be paid to the Corporation".
By section 40 (1) "the principal
employer shall pay in respect of every employee, whether directly employed by
him or by or through an immediate employer, both the employer's contribution
and the employee's contribution".
146 By section 42(2) "Contribution (both
the employer's contribution and the employee's contribution), shall be payable
by the principal employer for each week in respect of the whole or part of
which wages are payable to the employee and not otherwise".
Section 43 and section 97 empower the
Corporation to make regulations. Under section 44 every principal and immediate
employer has to submit returns, to the Corporation and maintain registers and
records.
Section 68 provides for Corporation's rights
where a principal employer fails or neglects to pay any contribution. By
section 72 an employer is barred from reducing wages by reason only of his
liability to pay contribution.
Chapter VA provides for certain transitory
provisions. The opening section 73A provides for employer's special
contribution.
Chapter VI deals with adjudication of
disputes and claims.
Under section 74 (1) Employee's Insurance
Court is constituted. Inter-alia under section 75 (1) "If any question or
dispute arises as to(a) whether any person is an employee within the meaning of
this Act or whether he is liable to pay the employees' contribution, or * * * *
* * (d) the person who is or was the principal employer in respect of any
employee;
* * * * * * such question or dispute......
shall be decided by the Employees' Insurance Court in accordance with the
provisions of this Act." Under section 75(1) (g), inter-alia, any dispute
between a principal employer and an immediate employer shall also be decided by
the court. Under section 75 (2) (b) any claim by principal employer to recover
contributions from any immediate employer shall also be decided by the
Employees' Insurance Court. By section 75 (3) jurisdiction of a civil court is
barred regarding, amongst others, any question or dispute as specified in the
section.
Section 82 provides for appeals and under
sub-section (2) thereof an appeal shall lie to the High Court from an order of
the Employees' Insurance Court if it involves a substantial question of law.
Chapter VII provides for different penalties.
Under Chapter VIII (Miscellaneous), section
94 provides, interalia, that contributions due to the Corporation shall have
priority over all other debts.
The Act is thus a beneficial piece of social
security legislation in the interest of labour in factories at the first
instance and with power to extend to other establishments. Provisions of the
Act will have to be construed with that end in view to promote the schemes and
avoid 147 the mischief. From some of the material provisions set out above, the
underlying aim of the Act is to insure the employees against various risks to
their life, health and well being and the charge is upon the principal employer
even though he may get his usual work done through an intermediary, who is
described in the Act as 'immediate employer. Any dispute between the principal
employer and the immediate employer is to be settled between themselves, de
hors, the employees and the Act charges the principal employer with the
liability to pay the contribution not only of its own but also that of the
employees subject to his right to deduct the employees' contribution. from
their wages under section 40 (2) of the Act. There is a quicker mode of
recovery as arrears of land revenue under section 45B and 73D. Chapter VA
provides for transitory provisions and by section 73A every principal employer
shall have to pay a special contribution in lieu of the employer's contribution
payable under Chapter IV. Adjudication of all kinds of specified disputes are
also intended to be expeditiously disposed of by the court constituted under
section 74. Such disputes include a dispute between a principal employer and an
immediate employer as noticed earlier. Civil courts' jurisdiction is barred in
respect of matters specified in the Act. There is only one special type of
appeal to the High Court and that also in a restricted form. The Act insists on
compliance with its provisions on pain of penalties and the contributions due
to the corporation have priority over other debts.
Keeping in view the scheme and the principal
object of the Act, we will now examine the questions of law raised in this
appeal. The definition of the 'immediate employer' under section 2 (13),
omitting what is not necessary for our purpose, is as follows:" 'immediate
employer', in relation to employees employed by or through him, means a person
who his undertaken the execution, on the premises of a factory to which this
Act applies 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................." That the appellant,, who is the principal
employer has a factory where granite memorial stones are manufactured for
export is beyond question. The finished articles are the dressed and polished
granite stones. The raw material is the stone from the quarry-brought there from,
cut to sizes, dressed, polished and then exported. The other factory of the
contractors on the leased land of the principal employer, adjoining the
latter's factory. is registered under the Factories Act in the year 1963.
Although admittedly a factory, there is no evidence on the record that the
contractors pay any contribution under the Act or have been even charged
separately as principal employers so far as their so called direct employees
are concerned. The principal employer, the appellant, is making a claim which,
if correct, will make the contractors also, principal employers liable under
the Act. But it is easy for the appellant to make such 148 a claim to avoid his
personal liability which, in all fairness to labour, should have been settled
by impleading the contractors as parties in order to make the entire position
clear. It is not necessary for us to examine whether this is a mere device of
the principal employer to avoid his liability under the Act.
We agree with the High Court that on the
findings of fact the work undertaken by the contractors in the adjoining
vicinity, even though their factory may have been subsequently registered under
the factories Act, is preliminary or incidental to the work in the principal
employer-factory turning out the finished product for export. The work in the
two places has an intimate correlation and is a piece of an integrated whole
and the said work by the contractors through their labour is ordinarily part of
the work of the principal-factory undertaken by the contractors. Their factory
is situated in the premises of the appellant's factory which according to the
definition clause includes the precincts thereof. It, therefore, follows that
the two contractors are 'immediate employers' within the meaning of section 2
(13) and the workers employed for cutting and dressing the granite stones by
the immediate employers are employees within section 2 (9) (ii) of the Act, being
employed through the immediate employers on the premises of the factory
including the precincts thereof. The fact that in 1963 the contractors' factory
was separately registered under the Factories Act or that, after meeting the
prior requirements of the principal employer, work of some other parties was
also permissible, does not, in our opinion, militate against the predominant
purposes of the work of the contractors being part and parcel of the main work
of the principal employer-factory for which the contractors mainly work.
A good deal of argument is advanced with
regard to the expression on the premises of a factory" in the definition
clause of "immediate employer" under section 2 (13). The word
"premises" according to the dictionary means house or building with
its ground or other apurtenances. The premises include under section 2 (13) the
precints thereof The word "precincts" means the environs. This Court
in Ardeshir H. Bhiwandiwala v. The State of Bombay(1) dealt with the term "Premises"
in the definition of factory under section 2(m) of the Factories Act and after
noticing its meaning in various Law Lexicons and dictionaries observed:"The
word "premises" has now come to refer to either land or buildings or
to both, depending on the context........ It is therefore clear that the word
"premises" is a generic term meaning open land or land with buildings
or buildings alone." The contention in that 'case that the word
"premises" must be restricted to mean buildings and not taken to
cover I open lands as well was repelled.
In the instant case, on an examination of the
site plan (Ext. P-1) and the evidence, it is evident there is a definite
environmental as well as functional unity between the two portions, namely, the
main (1) [1961] 3 S.C.R. 592.
149 factory (Portion A) and the contractors'
factory with the precincts (Portion B) even though separated by a wall in which
there was a door which sometimes was closed. The work undertaken by the
contractors and carried on in their portion of the area is surely componental
to make it a part of the complex whole. The principal requirement of the
definition, namely, that the work or the construction is undertaken on the
premises of the factory and about which both sides join issue, is satisfied in
the present case on the evidence on records and we hold accordingly. We are
also satisfied that the workers under the contractors are employees employed by
the principal employer through the 'immediate employers' on the premises of the
factory in work which is ordinarily the normal work of the factory or is, at
any rate, preliminary to the work or which is certainly incidental to the
purpose of the main factory of the appellant.
Mr. Natesan laid great stress upon the
requirement of a unity of control of the principal employer over the
manufacturing process of the work undertaken by the contractors, but it will be
obvious from the facts found and the evidence noted below that the work is done
on the premises of the factory. We need not examine this aspect in detail in
view of the un contradicted evidence of PW-1 as follows:"The work done in
the Factory consisted of manufacture of granite stones for export. I found raw
stones lying all over the surrounding area. I found that raw stones were moved
to the premises marked B in Ex. P. 1. I found that about 50 persons working at
the spot. I learnt from the partners those 50 persons had been employed by two
or three contractors. Cutting and dressing of the stones were done by those
fifty men. There were (1) sand blasting machine belonging to the partners and
(2) Electric blower. Power was used in these machines. After the stones are cut
and dressed, they are removed to p remises A for designing and polishing. Final
touches are then given to them in the premises B. They are again brought back
to premises A for packing and despatching. The premises A and B belong to the
partners. Only a wall separated the two premises. There was a connecting door
which appeared to have been closed".
Again RW-2 also deposed that "it is
since last three years that, I undertook the work of the second party"
i.e. the appellant. R W-1 (partner of the appellant) stated as follows in
cross-examination:
"Ex. P. 4 is the copy of the letter
dated 193-63 written by P.W. 1 to me for copy of the agreement and plan. Ex. P.
5 is my interim reply,............... By Factory premises in Ex. P. 5, 1 meant
both the portions A and B in Ex. p. 1".
Mr. Natesan has referred to a decision of the
Bombay High Court in Employees' State Insurance Corporation, Bombay v.
Raman (Chittur Harihar Iyer)(1) but the High
Court dealt in that case with the definition of "employee" prior to
the amendment of the Act in 1966 and is of no (1) (1957) I L.L.J. 267.
150 aid to counsel. This case was also
distinguished by this Court in Nagpur Electric Light & Power Co. Ltd. v.
Regional Director Employees State Corporation, Etc.(1) Counsel also relied upon
a decision of the Delhi High Court in Employees' State Insurance Corporation v.
Peter Sewing Machine Co.
etc.(2), dealing with the definition of
'factory' under section 2 (12) of the Act. The High Court, inter alia, was
posing a question in that case as to whether the whole or any part of the work
of the contractors there consisted of any work which was ordinarily a part of
the work of the factory or establishment of the principal employer and answered
it in the negative on the finding of facts in that case "that the
contractors, manufacture their goods independently and not as a part of the
goods manufactured by the Peter Sewing Machine Company". On the facts of
this case that question does not arise and we express no opinion thereon. The
decision is therefore, of no aid to the appellant in this case.
The learned counsel further draws our
attention to M/s Hindustan Construction Co. Ltd. v. Employees' State Insurance
Corporation(3) in which case the High Court remanded the matter to find out
"whether the work done at the site can be regarded as a manufacturing
process............ We, however, do not fail to notice that the judgment did
not take note of the complete definition of " employee" under section
2 (9), the first part of which is joined by a conjunctive 'and' with two
clauses. Further the High Court is not correct in thinking that the definition
of the word "factory" under the Factories Act "is same" as
that of "factory" under the Employees' State Insurance Act which is
of wider amplitude with an expanding horizon of objectives in the latter Act.
It is not necessary, however, to consider. in this case if these factors may
have affected the decision in the above case. At any rate, the appellant does
not derive any aid from this decision.
The next decision in Nagpur Electric Light
& Power Co., Ltd.
(supra), relied upon by the appellant for the
construction of the definition of "employee" under section 2 (9) (i)
of the Act is not of assistance to him since we are dealing with a case under
section 2(9) (ii).
We, of course, notice that the High Court in
this case held as follows at page 20 of the judgment :"From the foregoing,
it is clear that the contractors have been executing the work which is
ordinarily part of the work of the factory and that within the premises of the
respondent-factory".
The definition clauses of "immediate
employer" [section 2 (13)] and "employee" [section 2 (9) (11)],
contain the expression "on the premises of a factory" and not within
it.
Even so, as detailed above after examining
the evidence ourselves, we are clearly of opinion (1) [1967] (3) S.C.R. 92. (2)
AIR 1970 Delhi 182.
(3) [1966] I.L.R., 18 Assam & Nagaland
87.
151 that the work of the contractors was
undertaken by them on the premises of the factory which may not be the same
thing as in or within the factory. We are further of the view that the entire
site of the factory is a composite one containing portions A as well as B and
there is no doubt that the contractors are the 'immediate employers' within the
meaning of section 2 (13) of the Act and the workers employed by them are
"employees" under the Act.
In the result, the appeal fails and is
dismissed with costs.
P.B.R. Appeal dismissed.
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