Anand Bhavan Restaurant Vs. Dy. Director , ESI Corpn. and ANR.  INSC 1526
(2 September 2009)
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5640 OF
2004 Bombay Anand Bhavan Restaurant .............. Appellant Versus The Deputy
Director, ESI Corporation and Anr. ..............Respondents WITH CIVIL APPEAL
NO. 5639 OF 2004 M/s. Cow & Cane and Anr. .............. Appellants Versus
The Regional Director, ESI Corporation ..............Respondent
These appeals are directed against the judgment and order passed
by the High Court of Karnataka at Bangalore, in Misc. First Appeal No.4152 of
2001 and Misc. First Appeal No.1954 of 2002 dated 17.07.2003.
Briefly stated the facts are as follows:- The appellant in Misc.
First Appeal is a proprietorship concern and is engaged in the activity of
making and selling coffee, tea and other beverages, and also sweets and
savories. It is registered under Shops and Commercial Establishments Act.
Sometime in the year 1997 and 1998, the appellant had purchased a bottle cooler
and also a coffee roaster. According to the appellant, even after such
purchase, it had not employed more than 10 or more employees.
The appellant also states, that power is being used for operating
coffee roaster and bottle cooler. It is its further case, that, since it has
not employed 10 or more employees, the provisions of the Employees' State
Insurance Act, 1948 (hereinafter referred to as `ESI Act') are not attracted to
the appellants' establishment.
The insurance inspector of the ESI corporation had visited the
business premises of the appellant on 11.12.1998 and 07.01.1999, and inspected
the records from April 1994 and had recorded that the appellant had employed
more than 10 employees as on 01.04.1994, as per the records 2 and was using
power for the coffee roasting machine and the bottle cooler and as such the
appellant's restaurant stood covered under the ESI Act with effect from
01.04.1994, and therefore, the appellant should have started complying with the
mandatory provisions of ESI Act.
5) The Deputy Director of ESI corporation, by incorporating the
report of the insurance inspector by his letter dated 18.02.1999, had directed
the appellant to pay contributions from April, 1994, and submit Form-01 at the
earliest. In response to the aforesaid letter, the appellant by its reply letter
dated 08.03.1999, had brought to the notice of the Deputy Director of the
Corporation, that, after purchase of bottle cooler and coffee roaster, had not
employed more than 10 employees and, therefore, they are not covered under the
provisions of the ESI Act and, therefore, they are not obliged to pay any
contribution under the ESI Act.
The Deputy Director of the Corporation by his subsequent letter
dated 09.04.1999, had informed the appellant, that, on verification of the
records produced before the insurance inspector, it was observed that the
appellant is using LPG gas for preparation of coffee, tea and other beverages
and, therefore, covered under the ESI Act and therefore, appellant has to
comply with the statutory provisions of ESI Act, failing which contributions
would be recovered by resorting to coercive 3 measures as provided under the
ESI Act. The proposal so made was objected to by the appellant, inter-alia,
contending that the use of LPG gas cannot be equated with the use of power and
as per the provisions of the ESI Act, it is only when electric power is used in
manufacturing process with 10 or more employees, then alone ESI Act could be
made applicable and, therefore, requested the authorities to drop the
proceedings, as proposed in their letter dated 09.04.1999.
Since the explanation offered by the appellant was not
satisfactory, the authorities under the ESI Act, issued a demand notice,
inter-alia directing the appellant to pay contribution for the entire period,
i.e. from April, 1994 till the date of inspection. Since the appellant did not
comply with the demand so made, the Deputy Director of ESI Corporation, passed
an order under Section 45-A of the ESI Act, ordering the payment of
contribution under the ESI Act for the aforesaid period.
The appellant, being aggrieved by the aforesaid order, had filed
an appeal before the ESI Court and Additional Industrial Tribunal, Bangalore,
as provided under Section 75 of the ESI Act. The ESI Court dismissed the
application/appeal, on the ground that use of LPG gas also amounts to use of
electrical energy for the purpose of manufacturing activity and that the
manufacturing activity is being carried on with the aid of power and 4 since 10
or more employees were employed, the appellant is covered under the provisions
of the ESI Act.
9) The appellant had carried the matter further by filing Misc.
Appeal before the High Court and the same was dismissed following the earlier
ruling in 2001 (2) Labour Laws Journal 973.
The appellant being aggrieved by the judgment and order passed by
the High Court in Misc. First Appeal No.4152 of 2001, is before us in this
The facts in Misc. First Appeal No.1954 of 2002 are more or less
similar to the facts in the other appeal which we have already noticed. The
only additional fact is that, the appellants in this appeal manufacture sweets
and savories by using cooking gas and the number of employees employed by them
was not more than 17 (seventeen) at any point of time.
also unsuccessful before all the forums.
The learned senior counsel for the appellants submitted, that,
liquefied petroleum gas (`LPG for short') by itself is not energy and the
transmission of gas to the gas burners is not the transmission of any energy.
Elaborating on this issue, the learned senior counsel contended that, it is
only when the gas is ignited through the burner, the gas is 5 converted into
heat energy and, as such, there is no transmission of any form of energy.
Alternatively, it is contended that, even assuming that LPG gas is a form of
energy, it is not mechanically transmitted, because the term `mechanically'
pertains to or involves machines and a gas cylinder is merely a container and
the tube is not a machine and, therefore, the transmission of gas through the
tube is not a "mechanical transmission" either. It is further
submitted that the meaning of the expression `power' as defined under Section
2(g) of the Factory Act, means electrical energy or any other form of energy,
which is mechanically transmitted. The learned senior counsel by referring to
dictionary meaning of the expression `mechanical' would submit, that,
`mechanical' pertains to or involves machines operated or produced by a machine
made and the meaning of the expression `machine' is an apparatus made or
organized, interacting parts, which takes in a more suitable form for a desired
function or a thing or system resembling such an apparatus in acting with
regularity as a result of interaction of its component parts and, therefore, it
is obvious that the gas cylinder and the tube connected thereto is not a
machine and it is merely container of gas and the tube is not a machine. The
learned senior counsel in aid of his submission invites our attention to the
observations made by Privy 6 Cossipore and Chitpore Municipality, [AIR 1922 PC
27], wherein the Court explained the meaning of `Machinery' to mean some
mechanical contrivances which by themselves or in combination with one or more
other mechanical contrivances, by the combined movement and interdependent
operation of their respective parts generate power, or evoke, modify, apply or
direct natural forces with the object in each case of effecting so definite and
specific a result. It is also brought to our notice that the interpretation of the
word `Machinery' by the Privy Mohammed Ali, [AIR 1964 SC 1693]. Lastly, it is
submitted that, the interpretation of beneficial legislation should not be
stretched too far to rope in an industry which would not fall within the ambit
of the Act.
is made to the observations of this Court in the case of The The Management and
Ors., [(1973) 1 SCC 813] and G. Giriyappa and and substance of the submission
of the learned senior counsel is that LPG gas cannot be considered as power as
defined in Section 2(g) of the Factories Act, 1948.
The learned counsel appearing for respondents submitted that the
use of LPG gas for the purpose of cooking has to be treated as use of Power and
therefore, the appellants are required to comply with the provisions of the ESI
The issues that require to be decided in these appeals are:- (I)
Whether the establishment of the appellants' is covered under the provisions of
State Insurance Act, 1948.
Whether the use of LPG gas is use of power as defined under the Act.
State Insurance Act is a beneficial legislation. The
main purpose of the enactment as the Preamble suggests, is to provide for
certain benefits to employees of a factory in case of sickness, maternity and
employment injury and to make provision for certain other matters in relation
State Insurance Act is a social security legislation
and the cannons of interpreting a social legislation is different from the
cannons of interpretation of taxation law. The courts must not countenance any
subterfuge which would defeat the provisions of social legislation and the
courts must even, if necessary, strain the language of the Act in order to
achieve the purpose which the legislature had in placing this legislation 8 on
the statute book. The Act, therefore, must receive a liberal construction so as
to promote its objects. This Court, in the case of ESI Ltd., (1980) Lab IC 1078
has observed that the ESI Act is a social security legislation and was enacted
to ameliorate the various risks and contingencies which the employees face
while working in an establishment or factory. It is thus intended to promote
the general welfare of the workers and, as such, is to be liberally
The ESI Act is made applicable to all factories, including
factories belonging to the Government other than seasonal factories. Proviso
appended to Section 1(4) of the Act carves out an exception. Sub- Section (4)
of Section (1) of the Act shall not apply to a factory or establishment
belonging to or under control of the Government whose employees are otherwise
in receipt of benefits substantially similar or superior benefits provided in
Section 2 of the Act defines the meaning of certain expressions
for the purpose of the Act. Section 2(12) of the Act defines the meaning of the
expression `Factory', to mean any premises including precincts thereof, wherein
ten or more persons are employed or were employed for wages on any day of the
preceding twelve months and in any point of which a 9 manufacturing process is
carried on with the aid of power or is ordinarily carried on or twenty or more
persons employed for wages or were employed for wages on any day of the
preceding twelve months in the premises including their precincts where
manufacturing process is carried on without the aid of power.
Section 2(15c) of the Act is inserted in the Statute Book by Act
No.29 of 1989, with effect from 20.10.1989. The sub-section defines the meaning
of the expression `Power' to mean as the meaning assigned to it in the Factories Act, 1948.
Section 2(g) of the Factories Act, 1948,
defines the meaning of the expression `power' to mean electrical energy or any
other form of energy which is mechanically transmitted and is not generated by
human or animal agency.
Essentially for qualifying the establishment of the appellants as
factory, the following conditions needs to be satisfied:-
Manufacturing process was being carried out in the establishment.
There was power being used to aid the manufacturing process being carried out.
or more workers were working in the establishment any day in the preceding
twelve months, if power was being used to aid the manufacturing process, or
(iv) 20 or more workers were working in the establishment any day in the
preceding twelve months, if power was not being used to aid the manufacturing
Therefore, first it needs to be proved as to whether there is
manufacturing process carried on in the establishment of the appellants.
Manufacturing process is defined under Section 2(k) of the Factories Act as:- "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 its 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;
preserving or storing any article in cold storage."
Both the appellants prepare sweets, savories and other beverages
in their establishments. It is a settled position of law that cooking and
preparing food items qualifies as manufacturing process. In the case of ESI v. Spencer
and Co. [(1978) L.I.C 1759], the Madras High Court held, while dealing with the
case of a hotel run by Sponsor and Company, that preparation of coffee, peeling
of potatoes, making bread-toast, etc., in a hotel, involve 'manufacturing
process'. Similarly the Bombay High Court in Poona Industrial Hotel Limited v.
I. C. Sarin, [(1980) L.I.C. 106] held that the kitchen attached to Hotel Blue
Diamond run by the Petitioners therein, should be considered as a 'factory' for
the purpose of ESI Act.
is beyond doubt that there is manufacturing process involved in the
establishment of the appellants.
We need not go into the details of the number of workers in the
establishment of the appellants in the 12 months preceding the relevant period
as the same has been proved beyond doubt. So, the essential question which
comes up for consideration is whether there has been use of power in the aid of
the manufacturing process. It is the contention of the respondent corporation
that use of LPG gas amounts to use of power.
The definition of `Power' is in two parts. Firstly, it is
electrical energy, and includes any other form of energy which is mechanically
second part of the definition provides for exclusion from the definition of
power, i.e., it does not include power generated by human or animal energy. The
definition is wide enough to include all forms of energy which is mechanically
transmitted. We will revert back to this definition little later after
understanding what is LPG Gas and the mechanism employed while transmitting the
energy from LPG containers.
The New Encyclopaedia Britannica, 15th Edition contains an article
on liquefied petroleum gas which is also called LP Gas, or LPG. The article is
petroleum gas, also called LP Gas or LPG, any of several liquid mixture of the
volatile hydrocarbons propene, propane, butene, and butane. It was used as
early as 1860 for a portable fuel source, and its production and consumption
for both domestic and industrial use have expanded ever since. A typical
commercial mixture may also contain ethane and ethylene as well as a volatile
mercaptan, an odorant added as a safety precaution."
LPG or LPG gas is the abbreviation of liquefied petroleum gas.
This group of products includes saturated hydrocarbons, propane and butane,
which can be stored and transported separately or as a mixture. This is 13
called liquefied petroleum gas, because these gases liquefy under moderate
pressure. LPG is used as a fuel for domestic (cooking), industrial,
horticulture, agricultural, heating and drying processes. LPG can be used as an
automotive fuel or as a propellant for aerosols, in addition to other
specialists applications. LPG can also be used to provide lighting through the
use of pressure lanterns.
The gas cylinder is filled with a liquefied fuel gas, such as
liquefied butane or the like, having a relatively low activity. A portion of
the liquefied fuel gas is enclosed in the body of the gas cylinder which is
vaporized, causing the internal pressure of the gas cylinder to be higher than
the outside pressure. Therefore, there is conversion from one form of energy to
another. A valve mechanism having a stem is mounted on the body of gas
cylinder. The gas cylinder is joined to the gas cooking stove so that the stem
is pushed inwards and the valve mechanism is opened. Thus, the fuel gas is
discharged owing to the internal pressure.
cooking stove incorporates a body, which is provided with a valve mechanism for
supplying fuel gas to the burner and an operating member for opening/closing
the valve mechanism. The valve mechanism in gas cooking equipment is to reduce
high pressure gas supply to a lower 14 working pressure. This is done to ensure
steady supply of the gas at constant pressure. (Assistance is taken from the
The submission of the learned counsel for the appellant, is that
in view of the definition of power in the Factories Act, any
other form of energy requires to be `Mechanically transmitted', which
essentially involves use of machinery. It is also suggested that `mechanical'
pertains to the use of machines and, as such, the transmission of LPG from the
cylinder through a tube connected thereto does not qualify as a machine.
Mechanical transmission is as opposed to manual transmission where
human agency is involved in the process of transmission. Transmission is
defined in the Collins Discovery Encyclopedia, 2005 (1st ed.) as "the
extent to which a body or medium transmits light, sound or some other form of
the energy". The word `Machinery' is defined under Section 2(j) of the Factories Act. `Machinery' includes Prime movers, transmission machinery
and all other appliances whereby power is generated, transformed, transmitted
or applied. The expression `prime mover' means any engine, motor or other
appliances which generates or otherwise provides power and the definition of
transmission machinery 15 under Section 2(i) of the Factories Act means any shaft, wheel drum, pulley, system of pulleys,
coupling clutch, driving belt or other appliance or device by which the motion
of a prime mover is transmitted to or received by any machinery or appliance.
LPG is stored in a cylinder fitted with a tube. Upon careful
perusal of the definitions, which we have noticed earlier, it is clear that an
LPG cylinder would qualify as an appliance which provides power. This power is
transmitted by a tube which upon careful reading of the definition qualifies as
transmission machinery as it is an appliance or device by which the motion of a
primary mover is transmitted. In fact an analogy between the transmission of
electricity and transmission of LPG can be drawn. The movement or transfer of
electrical energy takes place over an interconnected group of lines and
associated equipment between points of supply and points at which it is
transformed for delivery to consumers or is delivered to other electric
systems. Transmission is considered to end when the energy is transformed for
distribution to the consumer. In many countries transmission of LPG also takes
place in a similar manner from a large fixed tank. In case of LPG stored in a
cylinder the mechanism of transmission is essentially the same as the gas
travels from 16 the cylinder where it is stored to the gas cooking stove. While
transmission of electricity involves a switch, transmission of LPG involves a
valve mechanism or a regulator to ensure smooth flow. Hence, LPG is a source of
energy which is mechanically transmitted by way of the tube attached to the
In our view, the use of LPG satisfies the definition of power as
it is mechanically transmitted and is not something generated by human or
Since the establishment of the appellants involves a manufacturing
process with the aid of LPG gas, which can now be termed as power, the
establishment of the appellants can be termed as factories, and therefore, the
ESI Act will apply to these establishments. In view of the above discussion, we
see no grounds to interfere with the impugned judgment of the High Court. Accordingly,
the appeals are dismissed. No order as to costs.
.......................................J. [ MARKANDEY KATJU ]