Christian Medical College Vs. E.S.I.C [2000] INSC 582 (23
November 2000)
S.N.Variava,
S.R.Babu
L.I.T.J
S. N.
VARIAVA, J.
This
Appeal is against an Order dated 25th July, 1997 passed in a Letters Patent Appeal filed by the Appellant.
Briefly
stated the facts are as follows: The Appellant is a Hospital which is part of a
Medical College. The Appellant has a department, which is called the
Equipment Maintenance Department. This department maintains the equipment in
the hospital such as X-ray, ECG and Radiation equipment, kidney dialysis, heart
and lung machine, operating table equipment etc. In effect this department,
inter alia, repairs the equipment which is being used in the hospital.
Admittedly, in this department there are 45 persons working. In 1978 the
Respondent issued a notice to the Appellant stating that the Equipment
Maintenance Department fell within the purview of Section 2(12) of the
Employees State Insurance Act, 1948 (hereinafter referred to as the ESI Act)
and that the Appellant should comply with the provisions of the Act with
retrospective effect. The Appellant represented that the ESI Act would not
apply to the Equipment Maintenance Department, inter alia, on the ground that
this department was part and parcel of the Appellant College. The Respondent did not accept this
explanation and threatened the Appellant with legal action. The Appellant filed
a Petition under Section 75 of the ESI Act before the District Court, Vellore. By a Judgment dated 4th May, 1985
the District Judge held that the Equipment Maintenance Department was not
separate and distinct from the Appellant Hospital and that it was just a limb of the
hospital. It was held that the Equipment Maintenance Department was not amenable
to the provisions of the ESI Act and that the Respondent was not entitled to
apply the provisions of the ESI Act or to demand any contribution. The
Respondent filed an Appeal before the High Court. That Appeal came to be
dismissed on 27th June,
1994. The learned
single Judge held that the Equipment Maintenance Department was just a limb of
the Medical College and it could not be separated from the main Institution. It
was held that the primary and paramount character of the Appellant Institution
was to teach medicines to the students. It was held that this department was
merely maintained for proper functioning of the main institution and it,
therefore, could not be considered to be a factory, even assuming manufacturing
process was carried on there. The Respondent then filed a Letters Patent Appeal
which was allowed by the impugned Judgment dated 27th July, 1997. The learned Judges of the High Court relied upon the
decision of this Court in the case of Andhara University v. R.P.F. Commissioner of A.P.
reported
in (1985) 4 SCC 509. In this case the question was whether the Departments of
Publication and Press run by the Andhra University and the Osmania University were liable for coverage under the Employees' Provident
Funds and Miscellaneous Provisions Act. Relying upon Section 2-A of that Act it
had been submitted that for the purposes of determining the applicability of
the Act the entire University must be treated as an establishment. It had been
submitted that if the University cannot be said to be a factory, then a
Department of that University could not also be covered by the Act. This Court
held as follows: "7. We are unable to see how this provision is of any
assistance to the appellants. Section 2-A was inserted in the Act merely for
the purposes of clarifying the position that the Act applies to composite
factories. It is not the intendment of the section to lay down even by remotest
implication that an establishment, which is a factory engaged in an industry
specified in Schedule I will not be liable for coverage under the Act merely
because it is part of a larger organisation carrying on some other activities
also which may not fall within the scope of the Act. In construing the
provisions of the Act, we have to bear in mind that it is a beneficent piece of
social welfare legislation aimed at promoting and securing the well-being of
the employees and the Court will not adopt a narrow interpretation which will
have the effect of defeating the very object and purpose of the Act. Once it is
found that there is an establishment which is a 'factory' engaged in an
'industry' specified in Schedule I and employing 20 or more persons, the
provisions of the Act will get attracted to the case and it makes no difference
to this legal position that the establishment is run by a larger organisation
which may be carrying on other additional activities falling outside the Act.
8. Our
attention was drawn to a decision of a learned Single Judge of the Calcutta
High Court in Visva Bharati v.
Regional
Provident Fund Commissioner, W.B. [(1983) 1 LLJ 332 (Cal)], wherein it was held
that the provisions of the Act were inapplicable in respect of a "Silpa Sadan",
Agricultural Farm and a Hospital run by the Visva Bharati University. The
learned Judge was of the view that "if the University as an establishment
does not come under the provisions and or the purview of the Act, the different
branches or departments of the University which the University is empowered and
or entitled to maintain under the provision of the Visva Bharati Act cannot be
brought within the mischief of the Act." We have no hesitation to hold
that the aforesaid view expressed by the learned Judge is not correct or sound
and that the said decision does not lay down correct law.
9. As
already indicated, the true tests to be applied is whether there is an
establishment which is a 'factory' engaged in any of the scheduled industries
and whether 20 or more persons are employed in the said establishment. If the
answer is in the affirmative, the provisions of the Act are clearly attracted.
10. In
the cases before us there cannot be any doubt that the establishments namely,
the Departments of Publications and press are 'factories' as defined in clause
(g) of Section 2 of the Act. Under the said definition factory means any
premises in any part of which any manufacturing process is being carried on.
The printing of textbooks, journals, registers, forms and various items of
stationery clearly constitutes 'manufacture' within the meaning of the said
expression as defined in clause (i-c) of Section 2 of the Act. That printing is
one of the industries specified in the Schedule is not in dispute. It is also
not disputed that much more than 20 persons are employed in the concerned
establishments of the two Universities. Thus all the requirements of clause (a)
of Section 1(3) of the Act are fully satisfied in these cases and hence the
conclusion recorded by the High Court that the establishments in question are
liable for coverage under the Act is perfectly correct and justified." In
the case of Osmania University v. Regional Director, E.S.I.C reported in (1985) 4 SCC 514,
this Court, has on above mentioned principles, held that the ESI Act also
applied to Department of Publication and Press of the Osmania University. Based on the above decisions, the Appellate Court held
that the provisions of ESI Act would apply to the Equipment Maintenance
Department of the Appellant. Mr. Divan assailed this decision on the ground
that the Court had not applied the test as required in cases where a complex of
activities, some of which qualify for exemption and others not, are carried on.
He submitted that the test of pre- dominant nature of the services and the
integrated nature of the Establishment would have to be looked at. In support
of this he relied upon the case of Bangalore Water Supply and Sewerage Board v.
Rajappa reported in (1978) 2 SCC 213, wherein it has been held as follows:
"143. The dominant nature test:
(a)
Where a complex of activities, some of which qualify for exemption, others not,
involves employees on the total undertaking, some of whom are not 'workmen' as
in the University of Delhi case (supra) or some departments are not productive
of goods and services if isolated, even then, the predominant nature of the
services and the integrated nature of the departments as explained in the
Corporation of Nagpur (supra), will be the true test. The whole undertaking
will be 'industry' although those who are not 'workmen' by definition may not
benefit by the status." He also relied upon the case of Associated
Industries (P) Ltd. v. Regional Provident Fund Commissioner, Kerala Trivendrum
reported in 1964(2) SCR 905. In this case the Appellant ran a tile factory and
an engineering works. The two industries were independent of each other, but
they were carried on by the same company from the same premises. The
engineering industry employed only 24 workers, whereas the tile industry
employed more than 50. The license under the Factories Act was for the entire
premises. The question before the Court was whether the provisions of Section
1(3)(a) of the Employees' Provident Funds Act, 1952 applied to the Appellant. A
Constitution Bench of this Court held that the character of the dominant or
primary industry will determine the question if a company carries on both
dominant and subsidiary industries. It was also held that if a factory runs
more industries than one all of which are independent of each other, Section
1(3)(a) will apply to the factory even if one or more, but not all, of the industries
run by it fall under Schedule 1. It was held that neither the tile industry was
dominant nor the engineering industry was subsidiary, but that both were
independent of each other. It was held that the factory of the Appellant would
be deemed to be a composite factory and the provisions of Section 1(3)(a) would
be attracted as one of its industries fell within that definition. Mr. Divan
also relied upon the case of The Regional Provident Fund, Bombay v. Shree
Krishna Metal Manufacturing Co., Bhandara reported in 1962 Supp. (3) SCR 815.
In this case it was held as follows:
"The
other construction would be that the expression "engaged in any
industry" means "primarily or mainly engaged in any industry".
On this construction, if a factory is engaged in several industrial activities
one of which relates to the industry specified in Schedule I, it would be
necessary to enquire whether the said specified activity is subsidiary or
minor; if it is subsidiary, incidental or minor, the factory cannot be said to
be engaged in that industry. Cases may occur where a factory is primarily or
mainly engaged in other industrial activities and it is only for feeding one or
more of such activities that the factory may undertake an activity in respect
of the specified industry. But such an undertaking is merely for the purpose of
feeding its major activity; it is subsidiary, incidental and minor. In that
case, the factory cannot be said to be engaged in the industry specified in
Schedule I." Mr. Divan next relied upon the case of General Manager,
Telecom v. A. Srinivasa Rao reported in (1997) 8 SCC 767. In this case the
question was whether the Telecom Department of the Union of India was an
industry within the meaning of the Industrial Disputes Act, 1947. This Court
applied the dominant nature test as given in the Bengalore Water Supply case
(supra) and held that on the basis of this test the Telecom Department was an
industry. Mr. Divan submitted that the above mentioned decisions clearly lay
down that the question has to be decided on the basis of the pre-dominant
nature of the activity of the main institution.
He
submitted that it is not disputed that the Equipment Maintenance Department has
been established merely for the purpose of ensuring the proper functioning of
the equipment in the hospital such as X-ray, ECG and Radiation equipment,
kidney dialysis, heart and lung machine, operating table equipment etc. He
submitted that this department rectifies mal-functioning equipment in order to
avert any danger to the lives of the patients. He submitted that this
department is maintained as the Indian Medical Council Act requires that such a
department be maintained. He submitted that this department is not independent
of the Appellant Hospital. He submitted that the department is merely a part and
parcel of the hospital. He submitted that it is merely a limb of the hospital
and cannot be separated from the main institution. He submitted that the
primary and paramount character of the Appellant institution is teaching
medicines to the students. He submitted that as the main institution cannot be
considered to be a factory this Department, which is merely intended for the
proper functioning of the equipment in the main institution, cannot be
considered as a factory, even assuming some manufacturing process is carried on
therein. Mr. Divan submitted that, therefore, the views taken by the District
Judge in his Judgment dated 4th May, 1985
and the learned single Judge of the High Court in the Judgment dated 26th June, 1994 are correct. Mr. Divan pointed out
that same view had been taken in respect of the Appellant Institute in the case
of Dr. P.S.S. Sundar Rao v. Inspector of Factories, Vellore reported in 1984
(II) LLJ 237. In this case it had been held that the Laundry Department of the Appellant College was not a factory as it could not separated from the main
institution and that, therefore, the provisions of the Factories Act, 1948 did
not apply to it. Mr. Divan also pointed out an unreported Judgement of the
Madras High Court dated 13th
October, 1984 in
Criminal Misc. Petition No. 6519 of 1984, wherein the High Court had quashed
criminal prosecution by the Factories Inspector for offences under Section 6
and Rule 7(1) and (2) of the Factories Act. The criminal proceedings were
quashed on the ground that the Equipment Maintenance Department of the Appellant College was not a factory and the provisions of the Factories Act
did not apply. In his usual fairness, Mr. Divan, however, pointed out that this
Court has in a decision in the case of C.M.C. Hospital Employees' Union v.
C.M.C.
Vellore Association reported in (1987) 4 SCC 691, held that the provisions of
Sections 9-A, 10, 11-A, 12 and 33 of the Industrial Disputes Act, 1947 apply to
the Appellant College. Mr. Divan submitted that the decisions in the Andhra University and Osmania University cases (supra) are contrary to the decision of larger
benches of this Court relied upon by him. He submitted that a contrary decision
was taken as it was clear that the Departments of Publication and Press of the
two Universities were independent of those Universities and catering to the
needs of outsiders/third parties also. He submitted that in this case the
Equipment Maintenance Department is not separate but just a limb of the Appellate Hospital and it does not cater to any outside party. He submitted
that if decisions in Andhra and Osmania University cases are to be applied to a
department which is just a limb, then they do not lay down the correct law as
larger benches of this Court have held otherwise. He submitted that in that
case there would be a conflict between these two cases and the cases cited by
him.
He
submitted that if this court was not accepting his submission then in view of
the conflict of decisions the question should be referred to a larger bench for
determination. We are unable to accept any of the submissions made by Mr.
Divan. It is to be seen that all the cases relied upon by him are cases where
the question was whether the entire undertaking or both the undertakings would be
covered by the provisions of the various Act referred to therein. The question
was whether the entire undertaking was to be covered because a department or
some other industry run by that Company was covered. In such cases the test of
dominant nature is applied. In this case the question is not whether the Appellant Hospital gets covered by reason of the fact that the ESI Act applies
to the Equipment Maintenance Department. Here the question is only whether the
Equipment Maintenance Department is covered. For that one has only to see
whether this department is a "factory" within the meaning of the term
as defined in the ESI Act.
Section
2(12) of the ESI Act defines a "factory": "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 or a
railway running shed." Section 2(14AA) of the ESI Act provides that the
term "manufacturing process" shall have the meaning assigned to it in
the Factories Act. Section 2(k) of the Factories Act defines the term "manufacturing
process" as follows: "2(k) "manufacturing process" means
any process for - (i) making, altering, repairing, ornamenting, finishing,
packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise
treating or adapting any article or substance with a view to use, sale,
transport, delivery or disposal, or (ii) pumping oil, water, sewage or any
other substance; or (iii) generating, transforming or transmitting power, or
(iv) composing types for printing, printing by letter-press, lithography,
photogravure or other similar process or book-binding; or (v) constructing,
reconstructing, repairing, refitting, finishing or breaking up ships or
vessels, or (vi) preserving or storing any article in cold-storage." Thus,
under this definition, amongst other things, if any repairing takes place with
a view to use the equipment then it amounts to manufacturing process. It is the
Appellant's own case that the Equipment Maintenance Department maintains and
repairs their equipment for the efficient use of the equipment in the hospital.
Therefore, this department is clearly covered by the term "factory"
under the ESI Act. Once, it squarely falls within this term the provisions of
the Act become applicable to this department. No question arises of applying
the test of dominant nature. The test of dominant nature would have become
applicable only if on the basis of this department falling within the
definition of the term "factory" the Respondent had sought to make
the Appellant Hospital also amenable to the provisions of the ESI Act. As that is
not the case here no question arises of applying the dominant nature test. In
this case the ratio laid down in Andhra University and Osmania University cases (supra) squarely applies. We
see no conflict between the principles laid down in those cases and the
principles laid down in the cases cited by Mr. Divan. They apply to different
situations and are thus not conflicting. We also see no substance in submission
that decision in Andhra University and Osmania University cases was based on
fact that the Departments of Publication and Press were independent and/or that
they catered to third parties also. A plain reading of these judgments shows
that they are based on the principle that if the Departments are covered by the
provisions of the Acts then they cannot be excluded. Thus it would have to be
held that the provisions of the ESI Act are applicable to the Equipment
Maintenance Department of the Appellant. We, therefore, see no infirmity in the
impugned Judgment.
Accordingly,
the Appeal stands dismissed. There will be no order as to costs.
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