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Judgment
M.N. Chandurkar, C.J.—This petition filed by the Madras Boat Club is directed against a notice dated 20-10-1983, by which the Regional
Director. Employees State Insurance Corporation., Tamil Nadu Regional Office, has directed the petitioner club that the establishment of the Boat
Club falls within the purview of S. 1(5) of the Employees State Insurance Act 1948 (Central Act 34 of 1948) (hereinafter referred to as the Act),
with effect from 16-1-1977. The Regional Director also by this notice intimated that the petitioner is allotted Code No. 51-36115-101. The main
ground on which the notice is sought to be quashed is that the report of the Insurance Inspector on the basis of which the said notice has been
issued is made without any notice to the petitioner herein and that the petitioner was not given any opportunity to be heard with reference to the
report of the Insurance Inspector dated 7-10-1983. The grievance is that the Regional Director was not entitled unilaterally to declare that the
petitioner would fall within the class of establishments set out in G.O. Ms. No. 1088, Labour and Employment Department dated 22-12-1976. A
grievance is also made that the petitioner club has not furnished any information which is said to be the basis of the report of the Insurance
Inspector as indicated in the report. In the counter affidavit, the stand taken is that the petitioner establishment was visited by the Insurance
Inspector and he took the necessary information from the Manager of the petitioner establishment, one Sri. R. Natarajan, son of Rama Iyer.
Reference is made to the registers on the basis of which the list of employees has been drawn up for determining whether the provisions of the Act
are applicable to the Boat Club or not.
Mr. V. Sridevan, learned counsel appearing for the petitioner, contended that the petitioner is a member''s club which is run without any profit
motive and service is intended only for members by way of supplying refreshments, and in addition, the club is established only for the promotion
of sports, that is, boating and consequently, it does not fall within the provisions of the Act. It is also contended that any report which is made by
the Insurance Inspector could not have been acted upon by the Regional Director without giving any notice to the petitioner as to why the said
report should not"" be acted upon. The learned counsel appearing on behalf of the Regional Director has, at the threshold, contended that the
petitioner has come to this Court only on the issue of a notice without even replying to the notice, and the proper remedy for the petitioner was to
approach the Employees Insurance Court under S. 75 of the Act. It was vehemently argued before us that the petitioner is squarely covered by
G.O. Ms. No. 1088 dated 22-12-1976.
Though in the petition the validity of G.O. Ms. No. 1088 dated 22-12-1976 is challenged, for the purpose of this case, it is not necessary for us
to go into the validity of that challenge. In G.O. Ms. No. 1088 dated 22-12-1976, three classes of establishments were notified to which the
provisions of the Act were to be made applicable with effect from 15-1-1977. We are concerned only with the first class of establishments which
is notified as follows:-
Any premises including the precincts thereof wherein ten or more persons but in any case less than twenty 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 excluding a mine subject to the operation of the Mines Act 52 (Central Act XXXV of 1952)or a railway
running shed or an establishment which is exclusively managed in any of the manufacturing processes specified in Cl. (12) of Sec. 2 of the
Employees State Insurance Act 1948 (Central Act XXV of 1948).
Learned counsel appearing on behalf of the Corporation has contended that notwithstanding the fact that the petitioner was a members'' club
and did not have any profit motive and was established for the purpose of promotion of sports, those circumstances were irrelevant for the
purpose of applicability of the Act. According to the learned counsel, the moment it is shown that the premises of the Club fell within the category
specified above the provisions of the Act would be automatically attracted.
As there was no specific material either in the notice or in the counter affidavit as to how the Regional Director came to the conclusion that the
petitioner club fell within the first class of establishments, that is ''premises wherein ten or more persons but less than twenty persons are employed
and in any part of the premises manufacturing process is being carried on with the aid of power'' we requested the learned counsel to produce the
file which dealt with the matter in question. What has been produced before us is the report of the Insurance Inspector dated 7-10-1983. In
column 5 of that report, it is stated that domestic power is being used for grinder and fridge in the kitchen and the bar. In the list of records which
are inspected, it is stated that the attendance register for January 1977 till date and salary registers have been examined. Annexed to this report is a
list of 26 employees who were working as on 15-1-1977 and 16-1-1977 and a list of 27 employees who were found to be working on the date
of inspection, that is 7-10-1983. The proceedings do not disclose anything which shows that the Regional Director had applied his mind to the
question as to whether the 26 or 27 employees were to be taken into account for the purposes of deciding the applicability of the Act or whether
only a specific category of employees were relevant for the purpose of deciding whether the Act was applicable to the petitioner club or not. It,
however, appears to us that when the notice was issued the total number of employees as on 15-1-1977 and 16-1-1977 seem to have been
considered, and employees as on 7-10-1983 also seem to have been considered as relevant for deciding on the applicability of the Act, though
there is no express indication to that effect in the file.
The learned counsel for the petitioner has contested the position that all the employees could be considered as relevant for the purpose of the
Act and only such of the employees who were in some way or other connected with the kitchen where manufacturing process with the aid of
power was carried on were relevant. To this argument, the reply on behalf of the Corporation was that in the list the employees from serial
numbers 6 to 15 and also 26 were relevant. The designation of these employees is shown in the report as follows:- 6. J.B. Domini, Steward (on
sick leave) 7. Kama Rao, Barman 8. C. Panneer, Waiter 9. N. Annamalai, Waiter 10. V. Sekhar, Waiter 11. S. Sankar. Waiter 12. Bernard,
Waiter 13. N. Anandan, Cook 14. Lakshmanan, Cook 15. P.R. Krishnan, Assistant 16. A.P. Muthu, Gardener. In so far as this Court is
concerned, there is a decision of a Division Bench reported in Employees State Insurance Corpn Madras v. Spencer & Co 1978 1 L.W. 548 =
53 F.J.R. 126. which the Division Bench has taken the view that for the purpose of S. 2 (12) of the Employees State Insurance Act, which defines
a factory, in the case of a hotel, preparation of food must be traced as a manufacturing process. In that decision, however, the Division Bench
made it clear that only the persons employed in the manufacturing process can be taken into account, unless the work done by the others is
incidental to or connected with the manufacturing process. It is, therefore, necessary to decide the correctness of the contentions raised on behalf
of the petitioner and the Corporation in the light of what is laid down in the case of Spencer and Co., Even the learned counsel appearing on behalf
of the Corporation has not disputed this position and according to him, the persons at serial numbers 6 to 15 and 26 as enumerated above, were
either employed in the manufacturing process, namely, cooking of food with the aid of power or they were doing work which is incidental to or
connected with the manufacturing process. The learned counsel appearing on behalf of the Club has today produced before us a list of category of
workers as in 1977 as well as in 1983 and also as on today in which in the relevant categories it is stated that there arc independent bearers for the
bar and those who are engaged in the catering establishment and in each of these categories, there are two bearers. According to him, the barman
is not connected with the kitchen at all and the barman and the two bearers in the Bar would have to be left out of consideration and only such of
those bearers as are working in the catering section could be taken into consideration. Thus, the number of persons who would be relevant for the
purpose of the manufacturing process were, according to the learned counsel for the petitioner, as follows:--
Bearers--catering--2
Catering--Steward--1
Catering cooks--2
Matty--1
Thus, according to the learned counsel in so far as that part of the establishment in which a manufacturing process is carried on is concerned, there
will be only six employees. Now this itself will show that it was not proper for the Regional Director to straightway proceed to accept the report of
the Insurance Inspector, and the least that he was required to do was to decide which of these 26 employees had any connection whatsoever with
the manufacturing process. In the list of 26 persons said to have been employed as on 15/16-1-1977, there were different kinds of employees,
such as Manager, Peons, Laskars, Carpenters, Gardeners, etc. It is difficult for us to appreciate how the barman can be stated as doing any
function which is incidental to the manufacturing process. The person at serial number 15, one P.R. Krishnan is stated to be an assistant. To whom
he gives assistance and what is his function is not to be seen anywhere in the record of the Corporation. If we accept the case of the Corporation
that there are independent bearers for the bar and for the catering establishment, it cannot be verified from the report as to how many of the five
bearers were attached to the catering establishment. It is also difficult to hold that a sweeper who is employed for cleaning the entire club can be
treated as one who is in some way or other connected with the manufacturing process. Therefore, even as per the list made out by the Insurance
Inspector, it appears to us that the number of employees connected with the manufacturing process falls well below ten. On this short ground, in
our view, the notice must be said to have been issued without any application of mind and is therefore liable to be quashed.
It is now necessary to notice the argument that the question as to whether a particular employee should be taken into account for the purpose of
deciding the applicability of the provisions of the Act to any establishment is a question of fact, and that the petitioner should really have
approached the Employees State Insurance Court under S. 75 of the Act. Acceptance of this argument would be putting a premium on the
arbitrary exercise of power by the Corporation. It would be too much to expect that the Corporation should be allowed to act and decide on
certain questions vitally affecting the liability of the petitioner without even giving notice of the facts on which the Corporation proposes to decide
upon the applicability of the Act, and then having thus allowed arbitrarily to decide upon the applicability of the Act, the petitioner or the
establishment should be forced to approach the Employees State Insurance Court. The least that the Regional Director was obliged to do in a case
like the present one was to call upon the Club to show cause as to why on certain facts found by the Insurance Inspector, the Act should not be
treated as having become applicable to that establishment. Unless such prima facie determination is made by the Regional Director, there was no
question of the decision of the Regional Director being challenged before the Employees State Insurance Court. In our view, the petitioner is
entitled to the relief as prayed for. Accordingly the writ petition is allowed and the notice dated 20-10-1983 is quashed. The petitioner is entitled to
its costs. Counsel''s fee Rs. 500.