Employees State Insurance Corporation vs Khungar Sweets And Restaurant

Arun Monga, J

By way of the present appeal, the appellant – Corporation has challenged the judgment and decree dated 05.12.2016 passed by the learned Senior Civil Judge, Sri Ganganagar in Civil Case No.1/2008, vide which, the learned trial court allowed the civil suit filed by respondent No.1 and directed the appellants to refund the amount that had been recovered by the appellant – Corporation from the respondent.

Brief facts of the case are that appellant No.2, Insurance Inspector, Employees State Insurance Corporation, Sri Ganganagar, inspected the respondent establishment on 04.07.2006. After inspection of the respondent establishment, as per provisions of law, a visit note was prepared, and it was then informed by Appellant No. 2, vide letter No. 15/21269/112 dated 28.08.2006, that the provisions of the ESI Act would apply to the respondent establishment.

2.1. The respondent opposed the coverage and claimed to have written a letter to the appellants stating that his establishment does not fall within the definition of a factory, as there were fewer than 10 employees working in it. He also claimed to have demanded a copy of the visit note and requested the grounds on which the establishment was covered under the definition of a factory. This letter was replied to without providing the copy of the visit note, through a letter dated 23.08.2007, stating that during the visit of the establishment on 04.07.2006, there were 15 employees working in it. The establishment was also asked to deposit the calculated dues along with damages and to submit the copy of the challan in the appellant's office.

2.2. This letter was replied to by the respondent, stating that there were only 6 employees in the establishment and that the appellant had wrongly included the employees of Shiva Foods and S.K. Traders, which were operating from the same premises but owned by different persons. The respondent further stated that the counting of the number of employees (as per the visit note) and the recovery order dated 12.11.2007 should be declared null and void as they were illegal and against the principles of natural justice. He also claimed that his sons, i.e., the owners of Shiva Foods and S.K. Traders, are living separately and conducting their own independent businesses with no connection to him in respect of business operations.

2.3. Finally, the respondent, after depositing 50% of the dues, requested that the calculation of employees by including the employees of his sons’ firms was incorrect, and that Order No. 3389 dated 12.11.2007 (for demanding dues for the period 04.07.2006 to 31.07.2006 amounting to ₹2,437/-) and Order No. 3386 dated 12.11.2007 (for demanding dues for the period 08/2006 to 03/2007 amounting to ₹40,129/-) be declared void and dismissed, and that the amount recovered be returned to the establishment.

2.4. A reply was filed by the appellants opposing the stand of the respondent. On behalf of the appellants, one witness, NAW/1-Hanuman Prasad, was examined, and documents marked as Exhibit-A-1 and Exhibit-A-2 were exhibited. On behalf of the respondent, AW/1 Mangat Ram was examined, and documents from Exhibit-1 to Exhibit-13 were exhibited.

2.5. After hearing the arguments, the learned Court framed three issues: Issue No.1 relates to whether the establishment falls within the definition of a factory; Issue No.2 relates to the legality of the recovery order dated 12.11.2007; and Issue No.3 relates to the relief. All the issues were decided in favour of the respondent, and it was ordered that the amount recovered by the appellants be returned. Hence this appeal.

In the aforesaid backdrop, I have heard learned counsel for the appellant – Corporation and have perused the material available on record.

First and foremost, for ready reference and proper appreciation, the translated version of the impugned order passed by the learned trial court is reproduced as under:

“Based on the aforementioned pleadings of the parties, the following issues are framed by the court:

Whether the plaintiff's establishment does not come under the definition of a factory under the ESI Act, and whether the plaintiff is not liable for ESI contribution? - On the Plaintiff

Whether the recovery order passed by the respondents on 12.11.07 is illegal and liable to be dismissed? - On the Plaintiff

Relief?

The evidence of PW1 Mangatram was recorded on behalf

of the plaintiff, and the evidence of NW1 Hanuman Prasad was recorded on behalf of the respondents. In documentary evidence, Exhibits 1 to 13 were exhibited on behalf of the plaintiff, while Exhibits A-1 and A- 2 were exhibited on behalf of the respondents. The arguments of the learned advocates for both parties were heard, and the case file was perused. The court's findings on the issues are as follows:

Issue No.1 & 2 :-

Both the aforementioned issues are interconnected, and to avoid repetition of evidence, they are being decided together.

The burden of proving both these issues rested upon the plaintiff. In support of his application, the plaintiff presented Mangatram as PW1, who, in his chief examination, supported the facts stated in his application. Conversely, NW1 Hanuman Prasad, in his affidavit of chief examination, reiterated the facts mentioned in the reply to the application.

The plaintiff's counsel argued that the plaintiff's establishment does not fall under the definition of a factory as per Section 2(12) of the ESI Act. Only 6 employees are employed at the plaintiff's establishment. The respondents wrongly aggregated the employees of other shops in the same building, namely S.K. Traders (dealing in papads, baris, etc.) and Shiva Foods (dealing in packaged milk), even though the owners of these three firms are different and the nature of their businesses is also different, to arrive at a total of 15 employees, which is completely erroneous. The plaintiff has proven Issues No. 1 and 2 in his favor through oral and documentary evidence. Therefore, these issues should be decided in favor of the plaintiff and against the respondents. In support of his arguments, the plaintiff's counsel presented the respected citation 2005 (3) DNJ (Raj.) 1651 ESI Court vs. Hotel Pankaj.

Conversely, the respondents' counsel argued that during the inspection, 15 employees were working at the plaintiff's establishment. The copy of the visit note bears the signatures of the plaintiff firm's owner, Mangatram, and his two sons, Sanjay Kumar and Kulbhushan, as acknowledgement, and it was also found that power was being used at the establishment during the inspection. Businesses are being conducted under the names of Khugar Sweets, S.K. Traders, and Shiva Foods by the members of the same family. The nature of all three businesses is also the same, to which the provisions of the Employee's State Insurance Act apply. The owners of all three firms are father and sons who work together. The respondent has proven the aforementioned facts through his evidence.

Upon considering the arguments presented by both parties, there is no dispute regarding the fact that the firms S.K. Traders, Shiva Foods, and Khungar Sweets are operating within the same premises. There is also no dispute that all three firms are owned by the father and sons. However, if we examine the cross-examination of PW1 Mangatram in this regard, the plaintiff stated, "It is correct that during the inspection on 04.07.06, the ESI officer prepared a visit note and obtained my signatures on it. My sweet shop measures 15x25. I have one deep freezer machine and two sweet counters, and one counter has a refrigerator machine. These machines run on electricity." Thus, it is clear from the cross-examination of PW1 Mangatram that his establishment has a deep freezer machine, two sweet counters, and a refrigerator machine in one counter, which clearly indicates the use of power. However, the plaintiff clearly admitted in his cross-examination that "6 employees work at my firm." Mangatram clearly stated in his cross-examination that as far as S.K. Traders and Shiva Foods are concerned, S.K. Traders belongs to Sanjay and Shiva Foods belongs to Kulbhushan.

The respondent's counsel argued that all three firms, Khungar Sweets, S.K. Traders, and Shiva Foods, operate within the same premises, and the ownership of these firms is held by the father and sons. No document has been presented by the plaintiff to show that S.K. Traders and Shiva Foods are separate entities. However, if we examine the documentary evidence Exhibit A-2A in this regard, it is clear that Mangatram operates under the name of Khungar Sweets & Restaurant, Sanjay Kumar operates under the name of S.K. Foods, and Kulbhushan operates under the name of Shiva Foods. Exhibit A-2A certifies that at Khungar Sweets & Restaurant, 6 individuals, at Sanjay's establishment, 5 individuals, and at Kulbhushan's establishment, 4 individuals were working, totaling 15 individuals working at the time of inspection. Thus, it is clear from the said document that three firms were operating at the inspection site at the time of inspection. Therefore, under such circumstances, it was not necessary for the plaintiff to present any document before the court to prove that Sanjay Kumar's firm S.K. Traders and Kulbhushan's Shiva Foods were not operating at the time of inspection.

The Hon'ble Rajasthan High Court, in its precedent 2005 (3) DNJ (Raj.) 1651 ESI Court vs. Hotel Pankaj, has established the principle that although Pankaj Hotel and Pankaj Restaurant were operating within the same premises and were owned by the same family, they were distinct establishments. The number of employees in both units was less than 10, and both units could not be considered interconnected or common establishments. Thus, the aforementioned respected precedent applies to this case. The plaintiff has proven through his oral and documentary evidence that at the time the inspection report of his establishment was prepared, it cannot be considered that all three firms in that premises were a single unit. None of the three firms employed more than 10 individuals. Even in the inspection report itself, the respondents have considered all three firms as separate entities. In such a situation, it was not necessary for the plaintiff to produce any income tax, sales tax, or other documents regarding S.K. Traders and Shiva Foods to prove that they are separate firms.

Since the officials of the Employee's State Insurance Corporation conducted the inspection and Exhibit A-2A clearly shows that separate firms were operating, it cannot be assumed that they were a single unit.

According to the above discussion, the plaintiff/applicant has proven Issues No. 1 and 2 through his oral and documentary evidence. Therefore, both the issues are decided in favor of the plaintiff and against the respondents.”

Having perused the impugned order and considering the material available on record, I find no infirmity in the findings recorded by the learned trial court. The issues were properly framed, and the matter was adjudicated upon after due appreciation of both oral and documentary evidence produced by the parties. The trial court rightly concluded that the respondent’s establishment did not fall within the definition of "factory" under the Employees’ State Insurance Act, 1948, and that the employees of separately owned businesses—namely, Shiva Foods and S.K. Traders—operating from the same premises could not be clubbed together for the purpose of applying the provisions of the Act. There is no material on record indicating any financial, functional, or managerial nexus between the respondent’s establishment and the aforesaid concerns.

Moreover, the failure to provide the respondent with a copy of the visit note and the absence of a reasoned justification in the recovery orders demonstrate a breach of the principles of natural justice. The learned trial court has rightly found the actions of the Corporation to be arbitrary and unsustainable.

Reverting to the issue of limitation, it is clear that the appeal suffers from an unexplained delay of 271 days.

The instant appeal was filed on 03.11.2017, whereas the impugned order was passed on 05.12.2016. It is, therefore, evident that the appeal has been filed with a delay of 271 days, in respect of which, the Registry of this Court has also raised an objection. Although an application under Section 5 of the Limitation Act has been submitted seeking condonation of the delay, no cogent or sufficient explanation has been offered therein. Upon a query put by this Court, learned counsel for the appellant failed to provide any satisfactory justification for the delay caused on the part of the appellant.

The explanation furnished in the application under Section 5 of the Limitation Act is vague, lacking in particulars, and insufficient to justify the condonation of such a substantial delay. It is a settled principle of law that delay cannot be condoned as a matter of routine. The appellant is required to show sufficient cause explaining the entire period of delay, which has not been done in the present case. A mere formal application under Section 5 of the Limitation Act, unsupported by credible justification, does not entitle the appellant to condonation.

The doctrine of laches also comes into play in this matter. The appellant remained inactive and took no steps to challenge the judgment for a considerable period, demonstrating a clear lack of diligence. No exceptional or unavoidable circumstance has been shown which would warrant this Court's indulgence in condoning the delay. On this ground alone, the appeal is liable to be dismissed.

Considering the totality of facts and circumstances, I find no reason to interfere with the well-reasoned and justified judgment dated 05.12.2016 passed by the learned Senior Civil Judge, Sri Ganganagar.

Accordingly, the appeal is dismissed, both on the ground of delay and laches, as well as on merits.