Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3816 OF 2010
(Arising out of SLP(C) No. 746 of 2006)
The Managing Director, Hassan Co-operative
Milk Producer’s Society Union Limited …Appellant
Versus
The Assistant Regional Director
Employees State Insurance Corporation …Respondent
WITH
CIVIL APPEAL NO. 3817 OF 2010
(Arising out of SLP(C) No. 3455 of 2008)
JUDGEMENT
R.M. Lodha, J.
Leave granted.
2. These two appeals, by special leave, are concerned
with the liability of the appellants to pay ESI contribution in
respect of the workers employed by the contractors in
performance of the contract awarded to them for transportation
of milk.
3. The two appeals arise out of different proceedings.
Brief narration of facts in relation to each of the appellants may
be set out first.
Hassan Cooperative Milk Producer’s Society Union Limited
(for short, ‘HCMPSU Ltd.’).
4. HCMPSU Ltd. is a federal society. Its main business is
purchasing milk and pasteurization of the same. The milk
procured by member societies is transported in lorries/vans to
the appellant’s dairy. For that purpose, contract is awarded on
the basis of rate per kilometer to the lowest bidder. The
contractor collects the milk from the various societies in cans on
specified routes and transports to the appellant’s dairy. The
empty cans are retransported and returned to the respective
member societies. On September 23, 1994, a show cause
notice was issued by the Assistant Regional Director,
Employees’ State Insurance Corporation, Bangalore to the
HCMPSU Ltd. calling upon them to furnish explanation and
show cause as to why action should not be taken against them
for non-payment of contribution under the Employees’ State
Insurance Act, 1948 (for short, ‘1948 Act’) in respect of the
2
employees of the appellant. It is not in dispute that this notice
related to the employees engaged by the contractors for the
transportation of milk. The appellant responded to the show
cause notice by filing their reply on October 10, 1994, inter-alia,
stating therein (a) that the main business of the appellant is to
process milk, receive and sell the same to the public in the
concerned districts through their agents. The appellant does not
appoint the officers and subordinates to collect the milk from
the societies located in different places and (b) that appellant
calls for tenders and awards the contract for transportation of
milk for specified period at a particular rate per kilometer. The
contractors engage workers for that work but such workers are
neither directly nor indirectly employees of the appellant and;
the appellants have no control over such employees nor they
supervise their work. The wages or salary of such workers have
also not been paid by the appellant. Another notice was also
issued by the concerned authority to which reply was submitted
by the appellant stating therein that the workers so engaged by
the contractors do not work in the premises of the appellant’s
establishment and for this reason also 1948 Act is not
3
applicable. It appears that inspection of the appellant’s
establishment was conducted by the concerned authority under
the 1948 Act and thereafter an order under Section 45A of 1948
Act came to be passed on March 21/24, 1995 calling upon the
appellant to pay contributions totaling Rs. 65,834/- for the
period April 1, 1989 to March 31, 1990 in respect of the workers
employed for transportation and procurement of milk together
with interest payable at the rate of 12 per cent per annum upto
August 31, 1994 and 15 per cent from September 1, 1994 till
the date of actual payment, within a period of 15 days from the
date of receipt of the order. The appellant challenged the
aforesaid order under Section 75 read with Sections 76 and 77
of 1948 Act before the Employees’ State Insurance Court at
Mysore (ESI Court). The ESI Court did not find any merit in the
application and dismissed the same vide order dated
January 29, 2004 holding that the work of employees engaged
by the contractors is incidental to the main work carried out by
the appellant and that supervision over the work of such
employees by the appellant is also established. The appellant
challenged the aforesaid order before High Court of Karnataka
4
by filing statutory appeal under Section 82(2) of 1948 Act which
has been dismissed by the impugned order.
The Bangalore Urban and Rural District Co-operative Milk
Producers Societies Union Limited (for short, ‘BURDCMPS
Union’)
5. BURDCMPS Union is a cooperative society. By virtue of
a tripartite agreement, Bangalore Dairy became its unit w.e.f.
September 1, 1988. Bangalore Dairy was earlier a constituent
of Karnataka Dairy Development Corporation and subsequently
became a constituent of Karnataka Milk Federation. For the
purpose of transportation, distribution and procurement of milk
and milk products, Bangalore Dairy used to entrust the work to
independent contractors after inviting tenders. The said
contractors were being paid charges on kilometer basis. The
appellant adopted the same system. An inspection was
conducted by ESI Inspector in respect of transportation of milk
and milk products through transport contractors for the period
from October 1985 to December 1991 and from January 1992
to March 1993. On October 13, 1993, a notice indicating
tentative determination of dues was issued to the appellant to
5
show cause as to why contribution under 1948 Act should not
be recovered from them. In response to the show cause notice,
the appellant appeared through its representative and
contested the liability. It appears that the authority asked the
appellant to bifurcate the wage element involved in the amount
paid to the contractors and produce the same for verification
which was not done. The Assistant Regional Director,
Bangalore by his order dated September 6, 1994 finally
determined an amount of Rs. 4,81,313/- for the period from
October 1985 to March 1993 and held that the said amount was
liable to be paid by the appellant within 15 days from the date of
receipt of the order. In the said order, interest at the rate of 12
per cent per annum was also ordered to be paid. The appellant
challenged the aforesaid order before ESI Court, Bangalore
under Section 75 of 1948 Act. ESI Court dismissed the
application vide order dated October 30, 1999. The appellant
then filed an appeal under Section 82 of 1948 Act before the
Karnataka High Court which too was dismissed on August 24,
2007.
6
6. 1948 Act was enacted to provide for certain benefits
to employees in case of sickness, maternity and employment
injury and for certain incidental matters. That the Act is
beneficial legislation admits of no doubt. It is appropriate at this
stage to refer to definition of terms, ‘contribution’, ‘employee’,
‘immediate employer’, ‘principal employer’ and ‘wages’
occurring in 1948 Act.
7. ‘Contribution’ is defined in Section 2 (4) which
means the sum of money payable to the Employees State
Insurance Corporation by the principal employer in respect of
an employee and includes any amount payable by or on behalf
of the employee in accordance with the provisions of 1948 Act.
8. ‘Employee’ is defined in Section 2(9) as follows :
“S. 2(9).- "employee" means any person employed for
wages in or in connection with the work of a factory or
establishment to which this Act applies and--
(i) who is directly employed by the principal
employer, on any work of, or incidental or
preliminary to or connected with the work of, the
factory or establishment', whether such work is
done by the employee in the factory or
establishment or elsewhere; or
(ii) who is employed by or through an immediate
employer, on the premises of the factory or
establishment or under the supervision of the
principal employer or his agent on work which is
7
ordinarily part of the work of the factory or
establishment or which is preliminary to the work
carried on in or incidental to the purpose of the
factory or establishment; or
(iii) whose services are temporarily lent or let on hire
to the principal employer by the person with
whom the person whose services are so lent or
let on hire has entered into a contract of service;
and includes any person employed for wages on any
work connected with the administration of the factory or
establishment or any part, department or branch thereof
or with the purchase of raw materials for, or the
distribution or sale of the products of, the factory or
establishment or any person engaged as apprentice,
not being an apprentice engaged under the Apprentices
Act, 1961 (52 of 1961), or under the standing orders of
the establishment; but does not include --
(a) any member of [the Indian] naval, military or air
forces; or
(b)any person so employed whose wages
(excluding remuneration for overtime work)
exceed such wages as may be prescribed by the
Central Government] a month:”
Provided that an employee whose wages
(excluding remuneration for overtime work)
exceed such wages as may be prescribed by the
Central Government at any time after (and not
before) the beginning of the contribution period,
shall continue to be an employee until the end of
that period;”
9. Section 2(13) defines ‘immediate employer’ while
Section 2(17) defines ‘principal employer’. The definitions of
‘immediate employer’ and ‘principal employer’ in the 1948 Act
are as follows :
8
“S. 2(13).- "immediate employer", in relation 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
and includes a contractor”
“S. 2 (17) "principal employer" means--
(i) in a factory, the owner or occupier of the factory and
includes the managing agent of such owner or
occupier, the legal representative of a deceased
owner or occupier, and where a person has been
named as the manager of the factory under the
Factories Act, 1948 (63 of 1948), the person so
named;
(ii)in any establishment under the control of any
department of any Government in India, the authority
appointed by such Government in this behalf or
where no authority is so appointed, the head of the
Department;
(iii) in any other establishment, any person responsible
for the supervision and control of the establishment;”
10. Section 2 (22) defines ‘wages’ thus :
“S. 2 (22).- "wages" means all remuneration paid
or payable in cash to an employee, if the terms of
9
the contract of employment, express or implied,
were fulfilled and includes any payment to an
employee in respect of any period of authorized
leave, lock-out, strike which is not illegal or lay-off
and other additional remuneration, if any, paid at
intervals not exceeding two months, but does not
include –-
(a) any contribution paid by the employer to
any pension fund or provident fund, or under this
Act;
(b) any traveling allowance or the value of any
traveling concession;
(c) any sum paid to the person employed to
defray special expenses entailed on him by
the nature of his employment; or
(d) any gratuity payable on discharge;”
11. Sections 46 to 73 in Chapter-V provide for claims
and benefits such as sickness benefit, maternity benefit,
disablement benefit, medical benefit, etc.
12. The answer to the controversy presented before us
has to be found primarily from Section 2(9) which defines
‘employee’ and the terms of agreements. Section 2(9) has
been extensively analysed by this Court in Royal Talkies,
Hyderabad and Others v. Employees State Insurance
1
Corporation thus :
“ 14. Now here is a break-up of Section 2(9). The clause
contains two substantive parts. Unless the person
employed qualifies under both he is not an ‘employee’.
1
(1978) 4 SCC 204
10
Firstly, he must be employed “in or in connection with”
the work of an establishment. The expression “ in
connection with the work of an establishment” ropes in a
wide variety of workmen who may not be employed in
the establishment but may be engaged only in
connection with the work of the establishment. Some
nexus must exist between the establishment and the
work of the employee but it may be a loose connection.
‘In connection with the work of an establishment’ only
postulates some connection between what the
employee does and the work of the establishment. He
may not do anything directly for the establishment; he
may not do anything statutorily obligatory in the
establishment; he may not even do anything which is
primary or necessary for the survival or smooth running
of the establishment or integral to the adventure. It is
enough if the employee does some work which is
ancillary, incidental or has relevance to or link with the
object of the establishment. Surely, an amenity or
facility for the customers who frequent the
establishment has connection with the work of the
establishment. The question is not whether without that
amenity or facility the establishment cannot be carried
on but whether such amenity or facility, even peripheral
may be, has not a link with the establishment.
Illustrations may not be exhaustive but may be
informative. Taking the present case, an establishment
like a cinema theatre is not bound to run a canteen or
keep a cycle stand (in Andhra Pradesh) but no one will
deny that a canteen service, a toilet service, a car park
or cycle stand, a booth for sale of catchy film literature
on actors, song hits and the like, surely have connection
with the cinema theatre and even further the venture.
On the other hand, a bookstall where scientific works or
tools are sold or a stall where religious propaganda is
done, may not have anything to do with the cinema
establishment and may, therefore, be excluded on the
score that the employees do not do any work in
connection with the establishment, that is, the theatre.
In the case of a five-star hotel, for instance, a barber
shop or an arcade, massage parlour, foreign exchange
counter or tourist assistance counter may be run by
some one other than the owner of the establishment but
11
the employees so engaged do work in connection with
the establishment or the hotel even though there is no
obligation for a hotel to maintain such an ancillary
attraction. By contrast, not a lawyer’s chamber or
architect’s consultancy. Nor, indeed, is it a legal
ingredient that such adjunct should be exclusively for
the establishment if it is mainly its ancillary.
15. The primary test in the substantive clause being
thus wide, the employees of the canteen and the cycle
stand may be correctly described as employed in
connection with the work of the establishment. A
narrower construction may be possible but a larger
ambit is clearly imported by a purpose-oriented
interpretation. The whole goal of the statute is to make
the principal employer primarily liable for the insurance
of kindred kinds of employees on the premises, whether
they are there in the work or are merely in connection
with the work of the establishment.
16. Merely being employed in connection with the work
of an establishment, in itself, does not entitle a person
to be an ‘employee’. He must not only be employed in
connection with the work of the establishment but also
be shown to be employed in one or other of the three
categories mentioned in Section 2(9).
17. Section 2(9)( i ) covers only employees who are
directly employed by the principal employer. Even here,
there are expressions which take in a wider group of
employees than traditionally so regarded, but it is
imperative that any employee who is not directly
employed by the principal employer cannot be eligible
under Section 2(9)( i ). In the present case, the
employees concerned are admittedly not directly
employed by the cinema proprietors.
18. Therefore, we move down to Section 2(9)( ii ). Here
again, the language used is extensive and diffusive
imaginatively embracing all possible alternatives of
employment by or through an independent employer. In
such cases, the ‘principal employer’ has no direct
employment relationship since the ‘immediate employer’
12
of the employee concerned is some one else. Even so,
such an employee, if he works ( a ) on the premises of
the establishment, or ( b ) under the supervision of the
principal employer or his agent “on work which is
ordinarily part of the work of the establishment or which
is preliminary to the work carried on in or incidental to
the purpose of the establishment”, qualifies under
Section 2(9)( ii ). The plurality of persons engaged in
various activities who are brought into the definitional
net is wide and considerable; and all that is necessary is
that the employee be on the premises or be under the
supervision of the principal employer or his agent.
Assuming that the last part of Section 2(9)( ii ) qualifies
both these categories, all that is needed to satisfy that
requirement is that the work done by the employee must
be ( a ) such as is ordinarily (not necessarily nor
statutorily) part of the work of the establishment, or ( b )
which is merely preliminary to the work carried on in the
establishment, or ( c ) is just incidental to the purpose of
the establishment. No one can seriously say that a
canteen or cycle stand or cinema magazine booth is not
even incidental to the purpose of the theatre. The
cinema goers ordinarily find such work an advantage, a
facility, an amenity and some times a necessity. All that
the statute requires is that the work should not be
irrelevant to the purpose of the establishment. It is
sufficient if it is incidental to it. A thing is incidental to
another if it merely appertains to something else as
primary. Surely, such work should not be extraneous or
contrary to the purpose of the establishment but need
not be integral to it either. Much depends on time and
place, habits and appetites, ordinary expectations and
social circumstances. In our view, clearly the two
operations in the present case, namely, keeping a cycle
stand and running a canteen are incidental or adjuncts
to the primary purpose of the theatre.”
13. The masterly analysis and clear exposition of the
term ‘employee’ as defined in Section 2(9) done by V.R.
1
Krishna Iyer, J. in Royal Talkies has been consistently
13
followed in subsequent decisions. Some of these decisions are
: (1) Regional Director, Employees’ State Insurance Corpn.,
2
Madras v. South India Flour Mills (P) Ltd. ; (2) Kirloskar
3
Brother Ltd. v. Employees’ State Insurance Corporation ; (3)
RaJakamal Transport and Another v. Employees’ State
4
Insurance Corporation, Hyderabad ; (4) Transport Corporation
of India v. Employees’ State Insurance Corporation and
5
Another and (5) M/s. Saraswat Films v. Regional Director,
6
E.S.I. Corporation,. Trichur .
14. In the light of the definition of the ‘employee’ under
1
Section 2(9) as interpreted by this Court in Royal Talkies and
subsequent decisions, we may examine the question as to
whether the workers employed by the contractors in
performance of the contract awarded to them by the appellants
for transportation of milk are covered by Section 2(9). The
reference to relevant clauses of the agreement at this stage will
be appropriate.
2
(1986) 3 SCC 238
3
(1996) 2 SCC 682
4
(1996) 9 SCC 644
5
(2000) 1 SCC 332
6
JT 2002 (Suppl 1) SC 454
14
15. The relevant clauses of the agreements between
HCMPS Union and contractors are :
“1) That in consideration of the H C M P S U Ltd.,
paying to the contractor at the rate of Rs. 2.50
(Rupees two and fifty paise only) per Kilometer of
journey, the contractor hereby agrees to transport
the Milk from the places on routes specified in
schedule-1 annexed to this agreement, which all
shall form part of this agreement.
2) It is further agreed that the rate of specified above
shall include the cost of loading the milk at the
points specified as above into the vehicles,
transporting the same on the routes specified to
the specified Dairy/Chilling Centres and unloading
the same at the specified Dairies/Chilling centre.
The contractor also bring back the empty cans,
bottles, etc. to the place from where he had taken
them out.
7) The contractor shall ply the vehicles owned by
him and shall provide/produce the vehicles with
the registration certificate tax paid receipts,
comprehensive insurance certificate and all the
specified for the purpose of satisfying the
ownership of the vehicles and road worthiness of
the vehicles and farther undertakes to replace the
such vehicles which in the option of the
authorities of the HCMP SUL are not fit for the
purpose of transporting the milk as agreed to.
9) The contractor shall make his own arrangements
for the engaging the workers required for loading
and unloading and transport operations and
further agrees to abide by the provisions of the
contract labour (Regulation and Abolition) Act, in
the matter of payment of their wages etc. and
further indemnify the HCMP SUL against any
claim by such workers.
15
14) The contractor shall strictly confirm to the various
instructions to be given from time to time by the
authorities of the HCMPSU Ltd., with regard to
the safe transportation of the can milk/sachet Milk
and other materials as agreed to under this
contract.
17) The contractors further agreed that the addition to
his workmen he shall allow the staff authorized
representatives of HCMPSU Ltd, including the
officials of the Milk Producing Co-operatives
societies to travel free of charges in the
contractors vehicle.
26) (i) If any employee/representative of the
contractor is found pilfering and/or adulterating
and/or destroying the milk and other items
entrusted to the contractor during the
transportation or during/loading/unloading
operations to the premises of the milk producers
Union/societies the contractor shall responsible
for the loss and the contractor shall make good all
such losses incurred by DCs from the day of
default upto 15 days H C M P S U Ltd., may at its
discretion forfeit the security, deposit and
terminate the contract.
(ii) If any employee of representative of the
Contractor misbehaves and or indulges in
disorderly conduct with the staff of the milk
producers union/societies, or with the members of
the General public the H C M P S U Ltd., may
require the contractor to remove such undesirable
persons from the transport work. The contractor
shall not reemployed such undesirable persons
who have been removed from the transport work
either by the contractor himself or by any other
contractor engaged by H C M P S U Ltd., ”
16
16. As regards the agreements between BURDCMPS
Union and contractors, the relevant clauses are :
“ 1) In consideration of payment of transport charges
by the Dairy the Contractor at the rate of Rs.6-40
(Rupees six and paise forty only) per K.M. of
journey, the contractor shall carry in his motor
vehicles and deliver at the appointed sale points
the Dairy products entrusted to him for such
purpose, once in the morning and one in the
evening or as required by the Dairy daily. The
Contractor, who files tenders for more than two
routes should have one standing vehicle for
replacement in the event of any breakdown of his
vehicle during the transport of Dairy products.
After delivery of the Dairy products at all the sale
point, the Contractor shall deliver all the teens,
crates containers and returned dairy products to
the Dairy immediately upon arrival at the Dairy.
5) No person other than the persons employed by
the Dairy or the contractor for the purpose of
Transport, shall be carried in any vehicle of the
contractor while it is engaged in the performance
of this contract.
6) The contractor shall promptly remove any
employee of his who behaves improperly with the
Dairy staff or the selling agents or their men at the
sale points, on a complaint by the Dairy.
7) If any pilferage or shortage or adulteration is
found to have occurred in the course of transport,
the full value of the Dairy property pilfered, short
found or adulterated shall be recoverable by the
Dairy from the contractor. If any pilferage or
shortage or adulteration is found to have occurred
in the course of transport for second time, the
contractor will also incur the liability for
cancellation of the contract in addition to his
17
liability to pay full value of the Dairy property
pilfered, short-found or adulterated.”
17. We shall assume, to test the validity of the
contention, in favour of the E.S.I. Corporation that workers
engaged by the contractor (immediate employer) for
transportation of milk have been employed in connection with
the work of the principal employer and these employees, thus,
qualify under first substantive part of Section 2(9). But as stated
1
in Royal Talkies that merely being employed in connection with
the work of an establishment, in itself, does not entitle a person
to be an ‘employee’; he must not only be employed in
connection with the work of the establishment but also be
shown to be employed in one or other of the three categories
mentioned in Section 2(9). Are these workers covered by any of
these categories?
18. It is not the case of any of the parties nor there is
any evidence to show that the persons who did loading and
unloading were directly employed by the appellants. Section
2(9)(i) is, therefore clearly not attracted as it covers the workers
who are directly employed by the principal employer. As a
18
matter of fact, the thrust of the arguments centred round clause
(ii) of Section 2(9). This clause, requires either (a) that the
person to be an employee should be employed on the premises
of the factory or establishment, or (b) that the work is done by
the person employed under the supervision of the principal
employer or his agent on work which is ordinarily part of the
factory or establishment or which is preliminary to the work
carried on in or incidental to the purpose of the factory or
establishment. The expression “on the premises of the factory
or establishment” comprehends presence of the persons on the
premises of the factory or establishment for execution of the
principal activity of the industrial establishment and not casual
or occasional presence. We shall again assume in favour of
the E.S.I. Corporation that for the purposes of loading and
unloading the milk cans, the truck driver and loaders enter the
premises of the appellants but mere entry for such purpose
cannot be treated as an employment of those persons on the
premises of the factory or establishment. We are afraid, the
said expression does not comprehend every person who enters
the factory for whatever purpose. This is not and can never be
19
said to be the purpose of the expression. It has to be held that
the persons employed by the contractor for loading and
unloading of milk cans are not the persons employed on the
premises of the appellants’ establishment.
19. Now, the next question is, can these workers, in the
facts and circumstances of the case, be said to be working
under the supervision of the appellants. It is appropriate to
refer to a decision of this Court in C.E.S.C. Limited and Others
7
v. Subhash Chandra Bose and Others . In that case, the
question that fell for consideration was, whether on the facts
found, the right of the principal employer to reject or accept
work on completion, on scrutinizing compliance with job
requirements, as accomplished by a contractor, the immediate
employer, through his employees, is in itself an effective and
meaningful “supervision” as envisaged under Section 2(9) of
the 1948 Act. The majority view explained :
“14. ……In the textual sense ‘supervision’ of the
principal employer or his agent is on ‘work’ at the places
envisaged and the word ‘work’ can neither be construed
so broadly to be the final act of acceptance or rejection
of work, nor so narrowly so as to be supervision at all
times and at each and every step of the work. A
harmonious construction alone would help carry out the
7
(1992) 1SCC 441
20
purpose of the Act, which would mean moderating the
two extremes. When the employee is put to work under
the eye and gaze of the principal employer, or his agent,
where he can be watched secretly, accidentally, or
occasionally, while the work is in progress, so as to
scrutinise the quality thereof and to detect faults therein,
as also put to timely remedial measures by directions
given, finally leading to the satisfactory completion and
acceptance of the work, that would in our view be
supervision for the purposes of Section 2(9) of the Act.
It is the consistency of vigil, the proverbial ‘a stich in
time saves nine’. The standards of vigil would of course
depend on the facts of each case. Now this function, the
principal employer, no doubt can delegate to his agent
who in the eye of law is his second self, i.e., a substitute
of the principal employer. The immediate employer,
instantly, the electrical contractors, can by statutory
compulsion never be the agent of the principal
employer. If such a relationship is permitted to be
established it would not only obliterate the distinction
between the two, but would violate the provisions of the
Act as well as the contractual principle that a contractor
and a contractee cannot be the same person……….”.
20. The decision also referred to the definition of
“agent” drawn in Halsbury’s Laws of England (Hailsham Edition)
Vol. I at page 145, para 350 which is as follows :
“An agent is to be distinguished on the one hand from a
servant, and on the other from an independent
contractor. A servant acts under the direct control and
supervision of his master, and is bound to conform to all
reasonable orders given to him in the course of his
work; an independent contractor, on the other hand, is
entirely independent of any control or interference and
merely undertakes to produce a specified result,
employing his own means to produce that result. An
agent, though bound to exercise his authority in
accordance with all lawful instructions which may be
given to him from time to time by his principal, is not
21
subject in its exercise to the direct control and
supervision of the principal.”
21. After taking into consideration Section 182 of the Indian
Contract Act, 1872 that defines ‘agent’, the majority view
recorded its conclusion thus :
“20. Thus on both counts, the principal question as well
as the subsidiary question must be answered against
the ESIC holding that the employees of the electrical
contractors, on the facts and circumstances, established
before the Division Bench of the High Court, do not
come in the grip of the Act and thus all demands made
towards ESI contribution made against the CESC and
the electrical contractors were invalid. We affirm the
view of the High Court in that regard.”
22. Although, E.S.I. 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
7
activities or the work of the workers. As held in C.E.S.C. Ltd.
that supervision for the purposes of Section 2(9) is ‘consistency
22
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 authorized 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 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
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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
7
C.E.S.C. Ltd. with which we respectfully agree. No evidence
has been collected by the E.S.I. Corporation during the
inspection of the appellants’ establishments or from the
contractors that the appellants have any say over the terms and
conditions of employment of these employees or that the
appellants have any thing to do with logistic operations of the
contractors. As a matter of fact, there is nothing on record to
show that principal employer had any knowledge about the
number of persons engaged by the contractors or the names or
the other details of such persons. There is also no evidence
that the appellants were aware of the amount payable to each
of these workers. In the circumstances, even if it be held that
the transportation of milk is incidental to the purpose of factory
or establishment, for want of any supervision of the appellants
on the work of such employees, in our opinion, these
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employees are not covered by the definition of ‘employee’
under Section 2(9) of the Act.
23. As a result of the foregoing discussion, both
appeals are allowed and the impugned orders are set aside. No
order as to costs.
…..…….……………..J
(R. V. Raveendran)
…..…….……………..J
(R. M. Lodha)
New Delhi
April 26, 2010.
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