REGIONAL DIRECTOR vs HI LIFE MANUFACTURING CO.

C/FA/2823/2005 JUDGMENT DATED: 01/07/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 2823 of 2005
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REGIONAL DIRECTOR
Versus
HI LIFE MANUFACTURING CO.
==========================================================
Appearance:
MR HEMANT S SHAH(756) for the Appellant(s) No. 1
NOTICE SERVED BY DS for the Defendant(s) No. 1
==========================================================
CORAM: HONOURABLE MR. JUSTICE J. C. DOSHI

Date : 01/07/2026

JUDGMENT
1. Feeling aggrieved and dissatisfied with the
impugned judgment and award dated 08.10.2004 passed by
the Employees' State Insurance Court (for short, the "ESI
Court"), Ahmedabad, in ESI Application No. 47 of 1992, the
Regional Director of the ESI Corporation, Ahmedabad, has
preferred the present appeal under Section 82 of the
Employees' State Insurance Act, 1948 (for short, the "ESI
Act").
1.1 By the impugned judgment, the ESI Court allowed
the application filed under Section 75 of ESI Act by High Life
Manufacturing Company and declared the order dated
06.03.1990, issued in Form C-11, whereby High Life
Manufacturing Company was brought under the coverage of
the ESI Act with effect from 06.09.1990, to be illegal and
unjustified. Consequently, all subsequent proceedings were
also held to be illegal and unjustified. Further, Form No. C-19
dated 24th/27th July 1992, issued by the ESI Corporation
directing the High Life Manufacturing Company to pay a
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contribution of Rs.7,485/-, interest of Rs.1,153/-, and sur-
charge of Rs. 432/- for the period from 01.04.1988 to
28.02.1989, was also declared illegal. The ESI Court further
held that High Life Manufacturing Company was not liable to
pay the said amount and awarded costs of Rs.500/-.
2. Briefly stated, the facts of the case are that the ESI
Corporation, by issuing Form C-11 dated 06.09.1990, clubbed
High Life Manufacturing Company and J. Prahlad Company
for the purpose of extending the applicability of the ESI Act.
The decision was based on the inspection carried out by
Inspector of the ESI Corporation, during which both High Life
Manufacturing Company and adjoining unit, J. Prahlad Com-
pany, were inspected. Upon completion of the inspection, the
Inspector submitted a report stating that both establishments
were functioning under common management and supervision
and were, in substance, being run by one and the same
person. Since the combined strength of employees in both
establishments exceeded ten, it was concluded that the
provisions of the ESI Act were applicable.
2.1 Pursuant to the said inspection report, Form C-11
was issued clubbing both establishments and bringing them
under the coverage of the ESI Act with effect from
06.09.1990. Thereafter, a notice was issued for recovery of
contribution. Aggrieved thereby, the original applicant, High
Life Manufacturing Company, filed an application under
Section 75 of the ESI Act seeking to set aside Forms C-11 and
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C-19. It was contended that both establishments were sepa-
rate and distinct entities. High Life Manufacturing Company
was stated to be a partnership firm of Jasubhai Panchal, act-
ing as the Karta of HUF, whereas J. Prahlad Company was a
proprietorship concern having no connection with the former.
It was further contended that the manufacturing activities,
financial affairs, management, accounts, tax liabilities,
production, and geographical location of two establishments
were entirely separate and distinct and, therefore, they could
not have been clubbed together. It was also urged before the
ESI Court that the Inspector of the ESI Corporation had acted
without proper application of mind while issuing the
impugned order.
2.2 The learned ESI Court permitted both parties to
lead oral and documentary evidence and, upon appreciation of
the evidence on record, allowed the application and passed
the impugned judgment and award in the aforesaid terms.
2.3 Being aggrieved, the ESI Corporation has
preferred the present appeal raising the following substantial
questions of law:–
“A. Whether the order passed by EI Court is justified?
B. Whether the common office, common building and
common supervision by a common person amount to
clubbing both the units or not?
C. Whether in view of the evidence on record order of
clubbing passed by the appellant is justified legal or not?
D. Whether the finding given by the EI Court is justified and
proper?
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3. On 15.10.2005, the appeal was admitted by raising
the following substantial question of law.
“Whether Hi Life Manufacturing Company and M/s. J. Prahalad
Company, when both are carrying industrial activities in same
building and supervised by common office, whether said to be a
common unit to attract the provisions of E.S.I. Act?
4. Heard learned advocate Mr. Hemant Shah for the
appellant – ESI Corporation. Though served, none appeared
for High Life Manufacturing Company.
5. Learned advocate Mr. Hemant Shah assailed the
impugned judgment and award on the ground that the learned
ESI Court failed to appreciate that High Life Manufacturing
Company and M/s. J. Prahlad & Company are situated in the
same premises and are supervised from a common office,
which, according to him, establishes that both units are under
common management and constitute a single establishment.
He submitted that one unit is engaged in the manufacture of
chemical process pumps, while the other undertakes repair
and servicing of such pumps. Therefore, although both
concerns are separately registered, they constitute one
establishment for the purpose of the ESI Act.
5.1 Learned advocate Mr. Shah further submitted that
separate registration of the two concerns and separate filing
of income tax returns cannot, by themselves, establish that
they are independent establishments if there exists unity of
ownership, management, control, and functional integrity.
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According to him, the learned ESI Court ought to have held
that the two units constitute one establishment and should not
have been swayed by technical considerations when their
integrated functioning attracts the provisions of the ESI Act.
5.2 On the aforesaid grounds, learned advocate for the
appellant submitted that the learned ESI Court failed to ap-
preciate the scope, object, and purpose of the ESI Act while
quashing Forms C-11 and C-19. Therefore, he prayed that the
impugned judgment and award be set aside and the present
appeal be allowed.
6. As noted hereinabove, none appeared on behalf of
the respondent.
7. The learned ESI Court framed six issues for
determination. However, Issue Nos. 2 and 3 are pivotal for
deciding the controversy involved in the present appeal. The
said issues read as under:
(2) Whether the applicant proves that his organization and
M/s. J. Prahladbhai Mfg. Co. are two separate units?
(3) Whether the applicant proves that, the Respondent’s
decision to consider the two units as one is illegal?
8. Both the aforesaid issues were answered in
affirmative.
9. Before analyzing the impugned judgment and
award, it deserves to be noted that it is nobody's case that
High Life Manufacturing Company, by itself, employed more
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than ten employees on the date of inspection. The ESI Corpo-
ration sought to extend the applicability of the ESI Act solely
on the premise that there existed functional integrity between
High Life Manufacturing Company and J. Prahlad & Company.
According to the Corporation, the manufacturing activity of
High Life Manufacturing Company was dependent upon the
services rendered by J. Prahlad & Company. It is further
contended that Mr. Jaswant Panchal controlled both concerns;
one as the Karta of a Hindu Undivided Family and the other as
proprietor and, therefore, there existed unity of ownership,
management, control, and functional integrity. The findings
recorded by the learned ESI Court on Issue Nos. 2 and 3
assume significance for examining whether ESI Corporation
had adduced sufficient evidence to establish that both
concerns constituted one establishment. The learned ESI
Court has observed as under:
“As the Issue No.2 and 3 are connected, instead of determining
them separately, they have been decided together.
The applicant-company is an H.U.F. Whereas the firm J.
Prahlad is a proprietorship concern. This fact has been corrobo-
rated by the application given by the applicant at Exhibit 1, the
affidavit at Exhibit 20 and the deposition at Exhibit 23.
Whereas, the Respondent-Corporation has not proved that the
two firms are not an H.U.F. and a Proprietorship concern, but
one firm. The applicant has produced a photocopy of the Regis-
tration Certificate issued by the Jilla Udyog Kendra of the appli-
cant-company along with the application at Exhibit 1. A photo-
copy of the receipt for renewal of the Registration Certificate is-
sued by the Shops & EstablishmentDepartment is also pro-
duced, wherein the applicant-company’s registration number is
shown at No. 378.
In the same manner, the Sales Tax Officer (3), Ahmedabad Dis-
trict, Division-2 has issued a registration certificate under Sec-
tion 29 and 30 of the Gujarat Sales Tax Act, 1969. A photocopy
of the certificate has been produced. Accordingly, a photocopy
of electricity bill of A.E.C (Ahmedabad Electricity Company)
pertaining to the year 1979 has been produced. Thus, on the
basis of the registration, it is apparent that the applicant com-
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pany is different than the firm namely J. Prahlad. The applicant
company produces Chemical Pumps, whereas the firm J.Prahlad
is into repairing and servicing of pumps. The Respondent-Cor-
poration has not produced any documentary evidence to show
that the firm J. Prahlad had provided repairing and other ser-
vices for the pumps sold by the applicant-company. Neither has
any customer of the applicant-company been examined. More-
over, it has not been proved, in any manner, that the firm J.
Prahlad has been providing the repairing and other services
from the premises of the applicant-company.
The witness for the applicant company has deposed vide the
affidavit at Exhibit 20 that, the firm Prahlad Manufacturing
Company is situated at 5/35A, whereas the applicant firm
operates from 5/36. Thus, the two companies cannot be decided
as one on the basis of the fact that they are situated in the same
building or are operating from the same G.I.D.C. Estate. Their
manufacturing process has to be common. Their books of
account have to be common. The Respondent should prove that
the two firms have been filing their income tax returns and
their administration is overseen by a common supervisor, which
is not established in the case on hand.
The Inspector has deposed at Exhibit 30. During his Cross Ex-
amination, he has stated that he has not examined the whole
building where the organization is located. Further, he stated
that he does not remember as to where the office is located in
the premises and where the factory workshop is located. Fur-
ther, he stated that he does not remember whether he had ex-
amined the documents other than the applicant-company. In his
report at Exhibit 31, there is no remark showing that he had
asked for the documents but the same were not available. He
does not know whether he issued any order or letter as to pro-
ducing the documents, as asked for, later. Moreover, he has not
made any report to the head office stating that the applicant-
company had not provided any documents in support of Exhibit
31.
Further the Inspector has deposed that, I have not examined
any documents as to ownership of the firm during the Survey
(Inspection). Thus, it appears that the Inspector had drawn his
report on the basis of assumptions and without asking for or ex-
amining the ownership documents. Further, during his cross
examination, the Inspector has deposed that the applicant-com-
pany had given full cooperation during the Survey. Had the ap-
plicant-company cooperated in full, there should not be any
question about production of the documents. Further, he has
accepted that the Inspector’s Report produced at Exhibit 31 has
not been given to the applicant-company. Further, during his
cross examination at Exhibit 30, the Inspector has deposed
that, it is true that not any documentary evidence or supporting
proofs of the Report at Exhibit 31 has been produced in the
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case on hand. Thus, when the Inspector has not produced any
documents in support of his report, either along with the report
or before the Court, under no circumstances, the decision as to
clubbing the two firms, i.e. the applicant company and M/s. J.
Prahlad, and treating them as one can be permitted. Not any
evidence or supporting proofs, as to on what grounds the In-
spector has drawn his report, have been produced before the
Court. Moreover, on the additional sheet drawn and produced
herein at Exhibit 31, a signature and seal of the firm has not
been obtained. The Respondent Corporation has not heard the
applicant-company before covering it under C/11 and deciding
on the clubbing. The Respondent Corporation should have de-
cided after hearing the applicant company. Therefore, there is
no reason left not to believe that the Respondent Corporation
has issued the Order as to covering the applicant under C/11
without hearing the applicant.
Moreover, it was also necessary the Respondent Corporation
should have heard the firm J. Prahlad before the coverage. The
Respondent Corporation has not given any opportunity of hear-
ing to the firm – J. Prahlad, who is also an affected party and
the Respondent-Corporation’s decision of its clubbing with the
applicant company without hearing it ought to be held unrea-
sonable and illegal up to that extent. The Respondent Corpora-
tion has not proved that there is a common ownership, common
premises, common power (usage/ connection) and common em-
ployees for the two companies. It has not been established that
the employees of the applicant-company also works for the firm
J. Prahlad. Moreover, the applicant-company is functional at
present, whereas the firm J. Prahlad is shut. Such is the fact ap-
parent on the basis of the evidence emerged on record of the
case. Hadthe two companies been dependent on each other,
even the applicant company should have been shut today. That
very fact shows that there was no relation between the appli-
cant company and the firm J. Prahlad and the two firms are sep-
arate entities and the same is clearly evident from the evidence
recorded in the case on hand.
10. The Division Bench of this Court in Dhoraji Engg.
Works, Rajkot v. Regional Provident Fund Commissioner,
Ahmedabad , reported in 1980 (2) GLR 461 , held that three
tests are relevant for determining whether two ostensibly
separate industrial units constitute one establishment: (i)
unity of ownership, management and control; (ii) functional
integrity; and (iii) unity of employment. Though, the ESI
Corporation asserted that both concerns constituted one
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establishment, it failed to produce any material except the
report of the Insurance Inspector. The documentary evidence
produced by the Corporation does not establish the ownership
of both concerns or demonstrate unity of management,
control, or functional integrity. The evidence on record, on the
contrary, indicates that High Life Manufacturing Company is
managed by a Hindu Undivided Family and is engaged in the
manufacture of chemical process pumps, whereas J. Prahlad
& Company is a proprietorship concern carrying on repair and
servicing work.
11. The original applicant examined Mr. Dilip Bhatt
(P.W.1) at Exhibit 20. In his examination-in-chief, he deposed
that he was working as the Manager of High Life Manufactur-
ing Company, which is engaged in the manufacture of chemi-
cal process pumps and is managed by a Hindu Undivided
Family. He categorically stated that High Life Manufacturing
Company has no connection whatsoever with J. Prahlad &
Company. The registration certificate of the company was also
produced on record. Significantly, in the cross-examination,
no material contradiction was elicited nor was his testimony
effectively challenged by the learned advocate appearing for
the ESI Corporation.
12. The original applicant also examined Mr. Jaswant
Vallabhdas Panchal at Exhibit 21. He deposed that he is the
Karta of the Hindu Undivided Family managing and control-
ling High Life Manufacturing Company. He admitted that both
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concerns are situated at Plot No. 5/36, Phase-I, GIDC, Vatva,
and that J. Prahlad & Company is located adjacent to High
Life Manufacturing Company. However, he categorically
denied that two concerns constitute one establishment. He
stated that J. Prahlad & Company is his independent
proprietorship concern. He further deposed that High Life
Manufacturing Company has its own trademark, whereas J.
Prahlad & Company carries on an altogether different line of
business. According to him, neither concern is dependent
upon the other, and despite the closure of J. Prahlad & Com-
pany for more than three to four years, the functioning of
High Life Manufacturing Company remained unaffected. He
further stated that both concerns maintain separate accounts
and file separate income tax returns. He also denied that the
buildings occupied by the two concerns are under common
ownership. In the cross-examination, he reaffirmed that High
Life Manufacturing Company is managed by a Hindu Undi-
vided Family, which supports the case of the original appli-
cant. He specifically denied the suggestion that J. Prahlad
& Company was engaged in rectifying defects in chemical
process pumps manufactured by High Life Manufacturing
Company. He further denied that J. Prahlad & Company was
carrying out any work on behalf of High Life Manufacturing
Company. It also emerged that the building occupied by
High Life Manufacturing Company belongs to the Hindu
Undivided Family.
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13. On behalf of the ESI Corporation, Mr. Mahendra
Patel, Insurance Inspector, was examined at Exhibit 30. In his
cross-examination, he admitted that he had visited High Life
Manufacturing Company without issuing any prior notice or
intimation. He further admitted that no documentary evidence
was collected or annexed with his inspection report. He also
admitted that no material was produced to show that the pre-
scribed forms had been served upon the establishment. He
further admitted that although he had asked for title
documents, he neither obtained nor verified any such docu-
ments before preparing the survey report. He specifically
admitted that he had not examined any documentary evidence
relating to the ownership of either establishment before
concluding that both constituted one unit. He also admitted
that the officers of the company had fully cooperated during
the inspection. It was further admitted that he had not
inspected the entire premises where both concerns were
situated.
14. From the aforesaid evidence, it is evident that the
survey report was prepared by the Insurance Inspector
merely on assumptions and conjectures without collecting any
cogent documentary evidence. The conclusion that both con-
cerns constituted one establishment appears to have been
drawn solely because the two establishments were situated
adjacent to each other and because Mr. Jaswant Panchal was
associated with both concerns in different capacities, namely,
as the Karta of the Hindu Undivided Family in one concern
and as the proprietor in the other. Such material, by itself, is
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wholly insufficient to satisfy the tests laid down by the
Division Bench of this Court in Dhoraji Engg. Works (supra) .
This Court is, therefore, of the considered opinion that the
learned ESI Court meticulously appreciated the evidence on
record and rightly concluded that the ESI Corporation had
miserably failed to establish that High Life Manufacturing
Company and J. Prahlad & Company constituted one
establishment.
15. Learned advocate Mr. Hemant Shah, appearing for
appellant - ESI Corporation, failed to point out any perversity
or legal infirmity in the findings recorded by the learned ESI
Court. Consequently, the substantial questions of law framed
at the time of admission do not survive for consideration and
are answered against the appellant.
16. Before parting, this Court cannot overlook the
manner in which the Insurance Inspector proceeded in the
matter. The entire action appears to have been founded upon
mere assumptions, surmises, and conjectures without any
cogent evidence. As a consequence, the original applicant was
unnecessarily dragged into avoidable and vexatious litigation.
Even after the learned ESI Court rightly put an end to such
litigation, the ESI Corporation chose to file the present appeal
without any substantial basis. Such an approach unnecessarily
consumes valuable judicial time and seriously impedes the
administration of justice. The present appeal is a classic
example of abuse of the judicial process by a statutory
authority.
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17. The Hon'ble Supreme Court in Dnyandeo Sabaji
Nai & Anr. v. Prandnya Prakash Khadekar & Ors. , reported in
(2017) 5 SCC 496 , has strongly deprecated such frivolous
litigation and has emphasized the need to impose realistic and
exemplary costs. In paragraphs 12 to 14 of the said judgment,
the Hon’ble Supreme Court has observed as under:
“12. This case indicates a blatant abuse of the process of the
Court. The petitioners not only took the benefit of an order of
the High Court granting them one year’s time to vacate the
premises but obtained a further extension of a period of four
months to vacate. The petitioners then filed a Review Petition
before the High Court and moved another application, this
time seeking an extension of five years to vacate the premises.
The time of the High Court and, unfortunately, of this Court as
well had to be devoted to a thoroughly frivolous proceeding.
Learned counsel for the petitioners in fact sought to urge that
as a result of the judgment of the City Civil Court, the petition-
ers have been deprived of establishing that their status as li-
censees fructified into a tenancy with effect from 1 February
1973. Quite apart from the fact that such a plea would not be
open to the petitioners in the background of what has been ob-
served earlier, we find even on merits that the submission re-
quires only be stated to be rejected. We have extracted in the
earlier part of this judgment the specific finding of the Trial
Court based on the admissions of the predecessor-in-interest
of the petitioners that the premises were granted to them on
the basis of a conducting agreement. Besides this, in the ear-
lier proceeding that was instituted in the Small Causes Court,
it was found that the premises have been granted under a con-
ducting agreement and there was no relationship of licensor
and licensee. That being the position, the petitioners would not
acquire status as tenants with effect from 1 February 1973,
there being no licence in their favour.
13. This Court must view with disfavour any attempt by a
litigant to abuse the process. The sanctity of the judicial
process will be seriously eroded if such attempts are not dealt
with firmly. A litigant who takes liberties with the truth or with
the procedures of the Court should be left in no doubt about
the consequences to follow. Others should not venture along
the same path in the hope or on a misplaced expectation of
judicial leniency. Exemplary costs are inevitable, and even
necessary, in order to ensure that in litigation, as in the law
which is practised in our country, there is no premium on the
truth.
14. Courts across the legal system - this Court not being an
exception – are choked with litigation. Frivolous and
groundless filings constitute a serious menace to the
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administration of justice. They consume time and clog the
infrastructure. Productive resources which should be deployed
in the handling of genuine causes are dissipated in attending
to cases filed only to benefit from delay, by prolonging dead
issues and pursuing worthless causes. No litigant can have a
vested interest in delay. Unfortunately, as the present case
exemplifies, the process of dispensing justice is misused by the
unscrupulous to the detriment of the legitimate. The present
case is an illustration of how a simple issue has occupied the
time of the courts and of how successive applications have
been filed to prolong the inevitable. The person in whose
favour the balance of justice lies has in the process been left in
the lurch by repeated attempts to revive a stale issue. This
tendency can be curbed only if courts across the system adopt
an institutional approach which penalizes such behavior.
Liberal access to justice does not mean access to chaos and
indiscipline. A strong message must be conveyed that courts of
justice will not be allowed to be disrupted by litigative
strategies designed to profit from the delays of the law. Unless
remedial action is taken by all courts here and now our society
will breed a legal culture based on evasion instead of
abidance. It is the duty of every court to firmly deal with such
situations. The imposition of exemplary costs is a necessary
instrument which has to be deployed to weed out, as well as to
prevent the filing of frivolous cases. It is only then that the
courts can set apart time to resolve genuine causes and
answer the concerns of those who are in need of justice.
Imposition of real time costs is also necessary to ensure that
access to courts is available to citizens with genuine
grievances. Otherwise, the doors would be shut to legitimate
causes simply by the weight of undeserving cases which flood
the system. Such a situation cannot be allowed to come to
pass. Hence it is not merely a matter of discretion but a duty
and obligation cast upon all courts to ensure that the legal
system is not exploited by those who use the forms of the law
to defeat or delay justice. We commend all courts to deal with
frivolous filings in the same manner.
18. In view of the above, this Court deems it
appropriate to dismiss the appeal with costs quantified at
Rs.10,000/-. Accordingly, the appeal stands dismissed with
costs of Rs.10,000/-, which shall be deposited by the ESI
Corporation with the Gujarat State Legal Services Authority
within a period of 15 days from the date of receipt of this
judgment, failing which, the Registry shall issue a recovery
certificate in favour of the concerned Collector, who shall
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recover the said amount as arrears of land revenue and remit
the same to the Gujarat State Legal Services Authority.
Interim relief, if any, stands vacated. Record and proceedings,
if any, be sent back to the concerned Court.
19. Connected Civil Application, if any, does not
survive and stands disposed of accordingly.
(J. C. DOSHI,J)
MANOJ
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