Employees State Insurance Corporation vs Ind Fashions Exports (Private) Limited

The Judgment and Decree dated 17.12.2018 passed in EIOP.No.119 of 2004 is under challenge in the present Civil Miscellaneous Appeal.

The learned counsel for the appellant mainly contended that there was an admission by the witness regarding the contribution paid with reference to the outside works and therefore, the order passed by the ESI Court is liable to be set aside. It is contended that once the witnesses concedes in respect of the contractors, who have no ESI Court and for those contractors, the appellant paid the contribution, then they are bound to pay the contribution as determined by the authorities under Section 45-A Order. The Substantial Question of Law reads as under:

"a) Whether the Hon'ble EI Court, Chennai, is justified in setting aside the Section 45A Order dated 29.03.2004 (Ex.R11) based on mere pleading, and there being no substantive and relevant documents supporting the said plea?

b) Whether the Hon'ble EI Court, is justified in holding that there is 10 years delay from the date of C-18(adhoc) show cause notice dated 17.02.1994, and closure of factory in 2007 can be a ground for setting aside the Section 45A Order was passed in 29.03.2004?

(c) Whether the Hon'ble EI Court is justified in not considering the admission of liability on the part of the respondent during Cross examination of PW1 with respect to non-coded contractors?"

Relying on the facts and circumstances, the learned counsel for the appellant reiterated that the ESI Court has committed an error in forming an opinion that there is a delay of 10 years from the date of C-18(adhoc) Show Cause Notice dated 17.02.1994 and closure of factory in 2007 for the purpose of setting aside the Section 45A Order was passed on 29.03.2004. Admitted liability on the part of the respondent PW1 was not considered by the ESI Court. Thus, the appeal is to be allowed.

The learned counsel for the respondent contended that the Full Bench of the High Court of Madras in the case of Employees State Insurance Corporation and Bethali Engineering Company, reported in 2007 (3) LLN 934, considered the issue regarding the works done outside the factory by the independent contractors and those employees working with the outside contractors are not coverable employees as defined under the ESI Act and in this regard, Paragraph 7 of the judgment is relevant and extracted hereunder:

"7. It is thus clear from the dicta of the Supreme Court that where the job work is entrusted to a third party contractor and such third party contractor has engaged independent workers, the fact that the principal employer has power to reject the end product manufactured by the contractor, does not constitute an element of supervision within the meaning of S. 2(9) of the Act. The judgment of the Division Bench in Poonam Easwardas, Proprietrix, Kaleel Corporation v. Employees' State Insurance Corporation (vide supra) relied upon by the appellant-Corporation is concerned with the direct employees of the establishment and has no application to the facts of the instant case which is about the contract employees."

The said principles are reiterated and confirmed by the Hon'ble Supreme Court of India in the case of Managing Director, Hassan Cooperative Milk Producer's Society Union Limited Vs. Assistant Regional Director, Employees' State Insurance Corporation, reported in (2010) 11 SCC 537, in which, the Apex Court ruled as follows:

"30. Although the ESI Court in respect of the appellants in separate orders has recorded a finding that such workers work under the supervision of the principal employer and the said finding has not been interfered with by the High Court but we find it difficult to accept the said finding. The ordinary meaning of the word "supervision" is "authority to direct" or "supervise" i.e. to oversee. The expression "supervision of the principal employer" under Section 2(9) means something more than mere exercise of some remote or indirect control over the activities or the work of the workers.

As held in CESC Ltd. [(1992) 1 SCC 441 : 1992 SCC (L&S) 313] that supervision for the purposes of Section 2(9) is "consistency of vigil" by the principal employer so that if need be, remedial measures may be taken or suitable directions given for satisfactory completion of work. A direct disciplinary control by the principal employer over the workers engaged by the contractors may also be covered by the expression "supervision of the principal employer".

The circumstances, as in the case of HCMPSU Ltd., that the authorised representatives of the principal employer are entitled to travel in the vehicle of the contractor free of charge or in the case of BURDCMPS Union, that the principal employer has the right to ask for removal of such workers who misbehave with their staff are not the circumstances which may even remotely suggest the control or interference exercised by the appellants over the workers engaged by the contractor for transportation of milk. From the agreements entered into by the appellants with the contractors, it does not transpire that the appellants have arrogated to themselves any supervisory control over the workers employed by the contractors. The said workers were under the direct control of the contractor.

Exercise of supervision and issue of some direction by the principal employer over the activities of the contractor and his employees is inevitable in contracts of this nature and that by itself is not sufficient to make the principal employer liable. That the contractor is not an agent of the principal employer under Section 2(9)(ii) admits of no ambiguity. This aspect has been succinctly explained in CESC Ltd. [(1992) 1 SCC 441 : 1992 SCC (L&S) 313] with which we respectfully agree."

Based on the judgments cited supra, the ESI Corporation issued a circular in proceedings dated 25.10.2007, regarding coverage of the workers engaged by the outside agencies / Job Contracors in connection with the work of the principal employer outside the premises. The reference is made regarding the Full Bench of the Madras High Court dated 24.07.2007 cited above and referred the judgment of the High Court of Madhya Pradesh and High Court of Karnataka. As per the Circular, "the job work done outside the factory premise through units engaging less than 10/20 employees but working exclusively for the Principal Employer" and it is further held that "job work done outside the factory / establishment premises through factory / establishment engaging less than 10/20 employees which are not independently coverable, and where no supervision is exercised and who are undertaking the work for more than one employer".

The employees of such job contractors are not coverable under the provisions of the Act.

Relying on the judgments and the circular by the ESI Corporation, the learned counsel for the respondent reiterated that the company was closed in the year 2007 and in respect of the order passed under Section 45-A of the Act, the job was done outside the factory and therefore, those employees working under the outside contractors are not coverable employees. The said issue was adjudicated by the ESI Court also. Accordingly, the appeal is to be dismissed.

The Full Bench of the Madras High Court judgment is not disputed, the ESI Court itself issued a circular to that effect, relying on the judgments passed by three High Courts. The ESI Court has categorically considered the said proposition of law and made a finding in Paragraphs 13 and 14, which reads as under:

"13. Further R.W.2 has admitted that in respect of the same company E.I.O.P.No.370/2001 was allowed by this Court where similar claim for outside parties were set aside by this Court. R.W.2 also admitted that no notices were issued to contractors to take part in the enquiry. He has also admitted that contribution were determined after a period of 10 years from the date of issuance of C-18 notice.

The respondent cannot claim contribution in respect of third party contractors, who execute the work in their own premises for which the petitioner relying a judgment reported in 1992-1-LLJ 441 Calcutta State Electricity Corporation Vs. Subash Chandra Bose. The above ruling is squarely applicable to the case on hand. It is not the case of the respondent that the work was done inside the premises. It is also argued by the learned counsel for the petitioner that even if right of rejection for finished product is available, the same will not make the petitioner as the principal employer of the persons engaged by outside agencies, who carryout their work in the place of such outside persons. In support of the said contention, the petitioner relied a judgment reported in 2007 (4) CTC 525, Bharath Electricals Vs. ESI Corporation Limited. It was held in the absence of contractors being impleaded in the enquiry, the order u/s.45A of the ESI Act deserves to be set aside for non-impleading the independent contractors."

Apart from the above issue decided in favour of the respondent by the ESI Court, further finding is given in Paragraph 16 regarding the long delay occurred at the instance of the appellant/Corporation and the said findings are extracted hereunder:

"16. Admittedly, the company was closed in the year 2007 itself and no reason has stated by the respondent for such a long delay at this stage of proceedings initiated against the petitioner. In such circumstances, it is clear that the action of the respondent is not in accordance with the principles of natural justice and the order u/s.45A of the ESI Act passed after the lapse of 10 years from the date of issuance of C18 Show cause notice. Hence, the petitioner is not liable to pay any payment of outside agencies is to be accepted and the plea of the petitioner is to be entertained as prayed for. These points are answered accordingly."

In view of the fact that the principles regarding the engagement of outside contractors and coverage of the employees working with the outside contractors are well settled and the appellant / Corporation also issued a circular, there is no reason whatsoever to consider the question of law raised in this appeal and the questions raised as well as the grounds set out in the appeal were already considered and settled. This being the factum, this Court do not find any perversity as such in respect of the findings arrived by the ESI Court.

Thus, the Judgment and Decree dated 17.12.2018 passed in EIOP.No.119 of 2004 stands confirmed and the Civil Miscellaneous Appeal in C.M.A.No.222 of 2021 is dismissed. No costs. Consequently, connected miscellaneous petition is closed.