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Judgment
E. Padmanabhan, J.—The five petitioners herein have joined together and prayed for the issue of a writ of certiorarified mandamus to call
for the records relating to the proceedings No. 57/S/11/1/Tuti/IPN, dated 11.7.1997 cancellation of the code numbers allotted to the petitioners
on the file of the Deputy Director (INSPN) of the ESI Corporation, Madurai, the third respondent herein, quash the same and direct the third
respondent to retain the same code numbers for the petitioners.
Notice of motion was ordered on 20th August, 1997. With the consent of counsel on either side the writ petition is taken up for final disposal.
The respondents 1 and 2 filed a separate counter affidavit and they in effect support the petitioner, while third respondent has filed a counter
contesting the writ petition.
The order impugned is a proceedings of cancellation of code number allotted for remittance of ESI Contributions. All the five petitioners claim
that they are labour contractors in Tuticorin Thermal Power Station and various other Government undertakings as well as private sectors. The
Electricity Board engaged contract labourers for execution of various works. It is claimed that the petitioners paid contribution towards ESI and
Employees Provident Fund etc., for contract workers engaged by them. The Electricity Board has secured exemption in respect of contribution
payable under the Employees'' State Insurance Act/Employees'' Provident Fund and Miscellaneous Provisions Act.
The petitioners state that the principal employer is the Electricity Board which is liable to pay contribution at the first instance. The third
respondent has cancelled the code numbers allotted to the petitioners which action is illegal. It is contended that Section 40 of the Employees State
Insurance Act, 1948 provides for payment of contribution by the principal employer in respect of several employees who are employed directly by
him or through an immediate employer. Merely because the principal employer has to pay contribution at the first instance, there is no justification
to cancel the code numbers. The action of the respondent in cancelling the code numbers are illegal, arbitrary and liable to be quashed. With
respect to the other averments set out in the affidavit which relate o respondents 1 and 2, it is not necessary to refer to the same for the purposes
of the present writ petition.
Respondents 1 and 2 filed a counter affidavit supporting the petitioner''s claim and contend that cancellation of code numbers is illegal and the
order impugned has to be quashed.
On behalf of the respondents 3 a separate counter affidavit has been filed. According to the third respondent, the petitioners are contractors in
Tuticorin Thermal Power Station and there is nothing to show that they also undertaking contract works in other Government Undertakings or
private sectors. More than 50% of the electricity in Tamil Nadu is produced in Tuticorin Thermal Power Station and that the petitioners supplied
labour for executing various kinds of work which clearly establishes that they are only immediate employers and the Tuticorin Thermal Power
Station is the principal employer.
The dispute if any pending between the petitioners and the Tuticorin Thermal Power Station with respect to claim of conferment of permanency
or other claims, the petitioner cannot put forward any claim in the present writ petition. The petitioners cannot claim any right nor they could claim
that they should be treated as principal employer and contribution should be collected from them in respect of the contract labourers, who are
casuals, employed by them as contractors. As per the Scheme of the Act it is always the duty of the principal employer to pay contribution as well
as that of the immediate employer. It is for the ESI Corporation to decide the matter regarding collection of contribution. If there is any dispute
between the petitioners and the Tuticorin Thermal Power Station, it is open to them to resolve among themselves and the ESI Corporation has no
say in such matters. The present writ petition is a motivated one and it is an attempt to create certain documents for initiating an action against the
respondents 1 and 2 or making certain novel claims.
Factually the code numbers were allotted tot the petitioners based upon the particulars voluntarily furnished in Form.1 by the petitioners. Later
ESI Corporation found that administratively there was difficulty in dealing with the petitioners in determining the contribution payable and
verification of the facts. The petitioners being mainly engaged in supplying casual labourers to the principal employer viz., Tuticorin Thermal Power
Station, in fact do not require any individual registration under Regulation 10.B read with Section 2(A) of the ESI Act. In terms of Sec. 40, 41(1A)
of the ESI Act, it is the principal employer who has to pay the contribution and any action against the immediate employer would amount to
interference with their statutory rights. The code numbers allotted wrongly were cancelled rightly and there is no illegality. By the cancellation, the
petitioners in no way suffer and it is neither illegal, nor without jurisdiction. The cancellation is well founded.
The petitioners are not entitled to any relief with respect to the cancellation of ESI Code. By cancellation of the code numbers none of the
rights of the petitioners ;have been interfered, nor there is any obligation for the petitioners to pay the contribution, as the contribution if any is being
collected through the principal employer. No interference is called for with the order impugned.
A reply affidavit has been filed by the petitioner. According to the reply affidavit, the contract labour system was abolished by the Electricity
Board with effect from 1.5.1999 and code numbers are required only for the future. By allotting separate code numbers to the petitioners no
prejudice will be caused to the third respondent. It is also admitted that as of now the petitioners are not doing any work in the Tuticorin Thermal
Power Station and the code numbers are required in case if on a future date the petitioners are entrusted with the contract work.
The only point that arise for consideration is:
Whether the cancellation of the code numbers by the impugned proceedings of third respondent is illegal and liable to be quashed?
The order impugned reads thus:-
I have to inform that under Sec. 40 of the ESI Act, 1948, the Principal Employer is liable to pay contribution at the first instance in respect of
every employer whether directly employed by him or through an immediate employer (i.e contractor).
M/s. Tuticorin Thermal Power Station, being the Principal employer in your case, are liable to pay contribution in respect of employees employed
through you under the Code NO. allotted to them (57-32024-62). In view of this, the Code No. already allotted to you (1) 57-33165-101, (2)
57-33166-101, (3) 57-32277-90, (4) 57-322279-90 and (5) 57-32280-90 under the ESI Act based on Form-01 submitted to this office, stands
canceled. However you are requested to maintain Register of Employees (Form-7) as envisaged under Sec. 41-1(A) of the ESI Act, 1948.
There is no illegality nor there is an error apparent on the face of record to quash the above proceedings. It is admitted that the petitioners are
not principal employers, but they were supplying labour to the Electricity Board for various work. The petitioners therefore are not principal
employers as defined in the Act. If at all, the petitioners could be immediate employers and on that score they cannot contend that code numbers
which were wrongly allotted be retained or cancellation of such code numbers by third respondent is illegal. Section 2(9) defines the expression
employee"". Sub clause 9(ii) of section 2 includes also persons who are employed by or through an intermediate employer.
Section 2(13) defines the expression ""immediate employer"" which reads thus:-
Immediate employer"" in relating to employees employed by or through him, means a person who has undertaken the execution, on the premises of
a factory, or an establishment to which this Act applies or under the supervision of the principal employer or his agent, of the whole or any part of
any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in,
or incidental to the purpose of, any such factory or establishment, and includes a person by whom the services of an employee who has entered
into a contract of service with him are temporarily lent or let on hire to the principal employer.
Section 2(17) defines the expression ""Principal employer"". As they do not satisfy the requirement of the definition Section 2(17), the petitioners
are only immediate employers. Section 2A provides for registration of factories and establishments and not an immediate employer.
It is rightly pointed out that Section 2A prescribes that factory or establishment to which the ESI Act applies, shall be registered under the Act.
It is the factory or establishment which requires to be registered, not the immediate employer. Section 39 provides for payment of contributions.
Section 40 provides that the principal employer shall pay in respect of every employee who are directly employed by him or through an immediate
employer''s both employer contribution and the employees'' contribution. Therefore, it is the primary obligation on the part of the principal
employer to pay contributions and hence the principal employer alone need be registered u/s 2A and code number is required to be allotted. It
may be that in terms of Section 40 the obligation is on the part of the principal employer to pay both the contributions at the first instance but
subject to reimbursement from the immediate employer or employees concerned in regard to his or their portion or portions of the contribution.
It is for the principal employer to pay the contribution. It is also the obligation on the part of the principal employer to pay contribution even in
respect of an employee employed through an immediate employer both the employer contribution and the employee''s contribution. u/s 41, it is the
principal employer who has to pay the contribution in respect of an employee employed by or through an immediate employer and thereafter to
recover the amount so paid from the immediate employer either by deduction from any amount payable to him by the principal employer under any
contract or as a debt payable by the immediate employer.
It is rightly pointed out that Sub section (1) of Section 41A requires immediate employer to maintain a register of employees employed by or
through him as provided in regulations and submit the same to the principal employer before settlement of any amount payable under sub section
(1). Sub section (2) of Section 41 enables the immediate employer to recover the employees contribution from the employees employed by or
through him by deduction from wages and not otherwise, but subject to the condition specified in proviso to sub section (2) of Section 40.
In the light of the above provisions it is the principal employer, who alone is required to be registered and who is to be allotted a code number
and not an immediate employer.
Admittedly, the petitioners are immediate employers. In terms of Section 2A they need not register themselves, it is the factory or establishment
to which the Act apply which is required to be registered and not the writ petitioners who are immediate employers. Being immediate employers it
is neither a factory nor an establishment for the purpose of the Act. Therefore no code number need be allotted and the cancellation of code
numbers wrongly allotted is not liable to be interfered.
The Principal employer as defined in Section 2(17) read with Section 40, 41(1)(1A), 41(2) and 44 of the Act, the third respondent has to
collect the contribution. It may be that the immediate employers have an obligation to maintain the list of names and it has the obligation to collect
the contribution, but such payments should be through principal employer alone. The liability to contribute is on the Principal employer. In the
circumstance, there is no illegality in the impugned proceedings. That apart, the petitioners are no longer supplying the contract labourers to the
respondents 1 and 2 and at any rate they cannot insist that they should be allotted separate code numbers. The claim of the petitioners in this
respect is for ulterior purpose and there is no obligation cast on the respondents to allot code numbers to the immediate employers. Being
immediate employers, the petitioners cannot compel the respondents to allot code numbers, nor they could challenge the action of third respondent
cancelling the code numbers. The claim of the petitioners is a total misconception and the claim has been advanced with ulterior motive as seen
from the averments.
In the circumstances, the writ petition is dismissed with costs of Rs.4000/= to be paid by the petitioners equally to the third respondent.