Full Judgment Text
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PETITIONER:
B. M. LAKSHMANAMURTHY
Vs.
RESPONDENT:
THE EMPLOYEES’ STATE INSURANCE CORPORATION, BANGALORE
DATE OF JUDGMENT21/01/1974
BENCH:
GOSWAMI, P.K.
BENCH:
GOSWAMI, P.K.
REDDY, P. JAGANMOHAN
DWIVEDI, S.N.
CITATION:
1974 AIR 759 1974 SCC (4) 218
ACT:
Employees’ State Insurance Act--S. 2(9)(ii) &
2(13)--’Employee’ & ’immediate employers’ meaning & scope
of.
HEADNOTE:
The appellants firm was carrying on the business of
manufacturing and exporting polished granite memorial
stones. The firm was a factory both under the Factories Act
as well as under the Employees’ State Insurance Act.
Adjacent to this factory was another factory situated on the
appellant’s land leased out to two contractors who employed
50 workers in their factory for the purposes of cutting and
dressing the granite stones. The granite stones unloaded
outside the factory by the lorries were brought on the
portion of the leased land and after cutting them they were
sent back to the appellant’s factory where they were
designed and polished. The Employees’ State Insurance
Corporation claimed from the appellant a certain sum as the
firms contribution on account of the workers employed by the
two contractors described as ’immediate employers’ under the
Act. The Employees’ State Insurance Court held that the
contractors were not ’immediate employers’ within the
meaning of s. 2(13) of the Employees’ State Insurance Act
and that they were independent contractors. On appeal the
High Court held that the appellant was a principal employer
and the contractors were the immediate employers under the
Act. The High Court also held that the workers tinder the
contractors were employees within the meaning of s. 2(9)(ii)
of the Act.
Dismissing the appeal, to this Court,
HELD : (1) The underlying aim of the Act is to insure the
employees against ,various risks to their life, health and
well being and the charge is upon the principal employer
even though he may get his usual work done through an
intermediary who is described in the Act as ’immediate
employer’. Any dispute between the principal employer and
the immediate employer has to be settled between themselves
de hors, the employees and the Act charges the principal
employer with the liability to pay the contribution not only
of its own but also that of the employees subject to his
right to deduct the employees’ contribution from their wages
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under s. 40(2) Of the Act. [147A]
(2) On the findings of fact the work undertaken by the
contractor’s in the adjoining vicinity is preliminary or
incidental to the work in the principal employer-factory
turning out the finished product for export. The work in
the two places has intimate correlation and is a niece of an
integrated whole and the said work by the contractors
through their labour is ordinarily part of the work of the
principal factory undertaken by the contractors. Their
factory is situated in the premises of the appellant’s
factory which, according to the definition clause, includes
the precincts thereof. In the instant case on an
examination of the site plan and the evidence it is evident
that there is a definite environmental as well as functional
unity between the two portions, namely, the main factory and
the contractors’ factory with the precincts even though
separated by a wall in which there was a door which
sometimes was closed. The work undertaken by the
contractors and carried on in their portion of the area is
surely componental to make it a part of the complex whole.
The principal requirement of the definition namely, that the
work or the ,construction is undertaken on the premises of
the factory is satisfied in the present ,case. It therefore
follows that the two contractors are ’immediate employers
within the meaning of s. 2(13) and the workers employed for
cutting and dressing the granite stones by the immediate
employers are employees within s. 2(9)(ii) of the Act.
[148B]
Employees’ State Insurance Corporation. Bombay v. Raman
(Chittur Harihar Iyer),[1957] 1 L.L.J.267,Nagpur Electric
Light and Power Co.Ltd. v. Regional Director Employees State
Insurancea Corporation, Etc. [1967] 3 S.C.R. 92, Employees’.
143
State Insurance Corporation, v. Peter Sewing Machine Co.
etc. A.I.R. 1970 Delhi 182, and M/s Hindustan Construction
Co. Ltd. v. Employees’ State Insurance Corporation, (1966)
I.L.R. 18 Assam & Nagaland 87, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1626 of 1967.
Appeal by Special Leave from the Judgment and Decree dated
the 14th October, 1966 of the High Court of Mysore at
Bangalore in Misc. First Appeal No. 124 of 1966.
M. Natesan and Saroja Gopalkrishnan, for the appellant
Gobind Das and S. P. Nayar, for the respondent.
The Judgment of the Court was delivered by
GOSAMI, J.-The appellant and his brother, Srinivasamurthy
are partners of a firm carrying on the business of
manufacturing and exporting of polished granite memorial
stones in the name and style of Messrs Narayanaswami & Sons.
The firm is admittedly a factory both under the Factories
Act as well as under the Employees’ State Insurance Act
(briefly the Act). The appellant claims to directly employ
about 35 persons in his factory and has been paying contri-
bution under the Act on their account. It is stated that
adjacent to his own factory there is another factory
situated on the appellant’s land leased out by him to two
persons, Chidambarchari and Shankarsubbachari (hereinafter
referred to as the contractors). The contractors employ
about 50 workers in their factory for purposes of cutting
and dressing the granite stones. The lorry drivers bring
granite from the surrounding areas and unload them outside
the factory’ The contractors get these to their portion of
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the leased land for cutting them. After cutting these are
sent back to the appellant’s factory where these are
designed and polished and thereafter exported.
The Employees State Insurance Corporation (briefly the
Corporation) applied to the Employees’ State Insurance Court
at Bangalore (briefly the Court) for recovery of an amount
of Rs. 8893/- being the employees’ contribution payable by
the appellant for the period commencing from 27-7-1958 to
31-1-1964 on account of the workers employed by the two
contractors described as ’immediate employers’ tinder the
Act. The court decided against the Corporation
holding .that the contractors were not ’immediate employers’
within the meaning of section 2 (13) of the Act and they
were independent con tractors and hence the appellant was
not the principal employer in respect of the employees
working under the contractors. The Corporation appealed to
the High Court of Mysore against the aforesaid order under
section 82(2) of the Act. The High Court held that the
appellant was the principal employer an the contractors were
the immediate employers under the Act. The High Court
further held that the workers under the contractors were
employees within the meaning of section 2 (9) (ii) of the
Act. The High Court thus accepted the appeal of the
Corporation. Hence this appeal by special leave.
Before the court evidence was given by both sides and the
following findings of the court are adverted to by the High
Court
144
.lm15
"All that can be said to have been proved by the applicant
corporation in this case is that RWs 2 and 3 (the con-
tractors) work at a place belonging to the respondent and
execute part of the work which is necessary to manufacture
the final finished product for sale. All that can be said
to have been proved in this case is that the contractors are
doing some work which would be the foundation for the work
that is finally done by the respondent".
After examining the evidence the High. Court also found as
follows
"There is evidence to show that these
employees (under ,the contractors) are
employed in connection with the work of the
respondent-facory".
The respondent in the High Court’s judgment refers to the
appellant herein. As stated earlier, the High Court
answered both the questions in favour of the Corporation.
The same points are raised for consideration in this appeal
and Mr. Natesan on behalf of the appellant submits that the
contractors owned a separate factory and are independent
contractors and cannot be held to be ’immediate employers’
within the meaning of section 2(13) of the Act and hence the
appellant is not liable as principal employer to pay the
contribution on account of the persons working under the
contractors.
Before we deal with the questions of law raised in this
appeal, it will be appropriate to refer to the material
provisions of the Act.
The Act, as it appears from the preamble, is passed "to
provide for certain benefits to employees in case of
sickness, maternity and employment injury and to make
provision for certain other matters in relation thereto".
Section 2 contains the definitions. By section 2 (4)
"contribution" means the sum of money payable to the Cor-
poration by the principal employer in respect of an employee
and includes any amount payable by or on behalf of the
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employee in accordance with the provisions of this Act." By
section 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 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;
145
By section 2(12)"factory "means any premises including the
precincts thereof whereon twenty or more 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 does not include
a mine subject to the operation of the Mines Act, 1952 or a
railway running shed".
*
By section 2(13) "immediate employer", in relation to
employees employed by or through aim, 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 tent or let on hire to the
principal employer".
By section 2(14) "insured person" means a person who is or
was an employee in respect of whom contributions are or were
payable under this Act and who is, by reason thereof,
entitled to any of the benefits provided by this Act".
By section 2(17) "principal employer" means-
(1) 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, the person so named".
Chapter IV deals with contributions.
The opening section 38 provides that--
"subject to. the provisions of this Act, all employees in
factories, or establishments to which this Act applies shall
be insured in the manner provided by this Act."
By Section 39(1) "the contribution payable under this Act in
respect of an employee shall comprise contribution payable
by the employer (hereinafter referred to as the employer’s
contribution) and contribution payable by the employee
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(hereinafter referred to as the employee’s contribution) and
shall be paid to the Corporation".
By section 40 (1) "the principal employer shall pay in
respect of every employee, whether directly employed by him
or by or through an immediate employer, both the employer’s
contribution and the employee’s contribution".
146
By section 42(2) "Contribution (both the employer’s
contribution and the employee’s contribution), shall be
payable by the principal employer for each week in respect
of the whole or part of which wages are payable to the
employee and not otherwise".
Section 43 and section 97 empower the Corporation to make
regulations. Under section 44 every principal and immediate
employer has to submit returns, to the Corporation and
maintain registers and records.
Section 68 provides for Corporation’s rights where a
principal employer fails or neglects to pay any
contribution. By section 72 an employer is barred from
reducing wages by reason only of his liability to pay
contribution.
Chapter VA provides for certain transitory provisions. The
opening section 73A provides for employer’s special
contribution.
Chapter VI deals with adjudication of disputes and claims.
Under section 74 (1) Employee’s Insurance Court is
constituted. Inter-alia under section 75 (1) "If any
question or dispute arises as to-
(a) whether any person is an employee within
the meaning of this Act or whether he is
liable to pay the employees’ contribution, or
*
*
(d) the person who is or was the principal
employer in respect of any employee;
*
*
such question or dispute...... shall be decided by the
Employees’ Insurance Court in accordance with the provisions
of this Act."
Under section 75(1) (g), inter-alia, any dispute between a
principal employer and an immediate employer shall also be
decided by the court. Under section 75 (2) (b) any claim by
principal employer to recover contributions from any
immediate employer shall also be decided by the Employees’
Insurance Court. By section 75 (3) jurisdiction of a civil
court is barred regarding, amongst others, any question or
dispute as specified in the section.
Section 82 provides for appeals and under sub-section (2)
thereof an appeal shall lie to the High Court from an order
of the Employees’ Insurance Court if it involves a
substantial question of law.
Chapter VII provides for different penalties.
Under Chapter VIII (Miscellaneous), section 94 provides,
interalia, that contributions due to the Corporation shall
have priority over all other debts.
The Act is thus a beneficial piece of social security
legislation in the interest of labour in factories at the
first instance and with power to extend to other
establishments. Provisions of the Act will have to be
construed with that end in view to promote the schemes and
avoid
147
the mischief. From some of the material provisions set out
above, the underlying aim of the Act is to insure the
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employees against various risks to their life, health and
well being and the charge is upon the principal employer
even though he may get his usual work done through an
intermediary, who is described in the Act as ’immediate
employer. Any dispute between the principal employer and
the immediate employer is to be settled between themselves,
de hors, the employees and the Act charges the principal
employer with the liability to pay the contribution not only
of its own but also that of the employees subject to his
right to deduct the employees’ contribution. from their
wages under section 40 (2) of the Act. There is a quicker
mode of recovery as arrears of land revenue under section
45B and 73D. Chapter VA provides for transitory provisions
and by section 73A every principal employer shall have to
pay a special contribution in lieu of the employer’s
contribution payable under Chapter IV. Adjudication of all
kinds of specified disputes are also intended to be ex-
peditiously disposed of by the court constituted under
section 74. Such disputes include a dispute between a
principal employer and an immediate employer as noticed
earlier. Civil courts’ jurisdiction is barred in respect of
matters specified in the Act. There is only one special
type of appeal to the High Court and that also in a
restricted form. The Act insists on compliance with its
provisions on pain of penalties and the contributions due to
the corporation have priority over other debts.
Keeping in view the scheme and the principal object of the
Act, we will now examine the questions of law raised in this
appeal. The definition of the ’immediate employer’ under
section 2 (13), omitting what is not necessary for our
purpose, is as follows:-
" ’immediate employer’, in relation to
employees employed by or through him, means a
person who his undertaken the execution, on
the premises of a factory to which this Act
applies 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................."
That the appellant,, who is the principal employer has a
factory where granite memorial stones are manufactured for
export is beyond question. The finished articles are the
dressed and polished granite stones. The raw material is
the stone from the quarry-brought therefrom, cut to sizes,
dressed, polished and then exported.The other factory of the
contractors on the leased land of the principal employer,
adjoining the latter’s factory. is registered under the Fac-
tories Act in the year 1963. Although admittedly a factory,
there is no evidence on the record that the contractors pay
any contribution under the Act or have been even charged
separately as principal employers so far as their so called
direct employees are concerned. The principal employer, the
appellant, is making a claim which, if correct, will make
the contractors also, principal employers liable under the
Act. But it is easy for the appellant to make such
148
a claim to avoid his personal liability which, in all
fairness to labour, should have been settled by impleading
the contractors as parties in order to make the entire
position clear. It is not necessary for us to examine
whether this is a mere device of the principal employer to
avoid his liability under the Act.
We agree with the High Court that on the findings of fact
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the work undertaken by the contractors in the adjoining
vicinity, even though their factory may have been
subsequently registered under the factories Act, is
preliminary or incidental to the work in the principal
employer-factory turning out the finished product for
export. The work in the two places has an intimate
correlation and is a piece of an integrated whole and the
said work by the contractors through their labour is
ordinarily part of the work of the principal-factory
undertaken by the contractors. Their factory is situated in
the premises of the appellant’s factory which according to
the definition clause includes the precincts thereof. It,
therefore, follows that the two contractors are ’immediate
employers’ within the meaning of section 2 (13) and the
workers employed for cutting and dressing the granite stones
by the immediate employers are employees within section 2
(9) (ii) of the Act, being employed through the immediate
employers on the premises of the factory including the
precincts thereof. The fact that in 1963 the contractors’
factory was separately registered under the Factories Act or
that, after meeting the prior requirements of the principal
employer, work of some other parties was also permissible,
does not, in our opinion, militate against the predominant
purposes of the work of the contractors being part and
parcel of the main work of the principal employer-factory
for which the contractors mainly work.
A good deal of argument is advanced with regard to the
expression on the premises of a factory" in the definition
clause of "immediate employer" under section 2 (13). The
word "premises" according to the dictionary means house or
building with its ground or other apurtenances. The
premises include under section 2 (13) the precints thereof
The word "precincts" means the environs. This Court in
Ardeshir H. Bhiwandiwala v. The State of Bombay(1) dealt
with the term "Premises" in the definition of factory under
section 2(m) of the Factories Act and after noticing its
meaning in various Law Lexicons and dictionaries observed:-
"The word "premises" has now come to refer to
either land or buildings or to both, depending
on the context........ It is therefore clear
that the word "premises" is a generic term
meaning open land or land with buildings or
buildings alone."
The contention in that ’case that the word "premises" must
be restricted to mean buildings and not taken to cover I
open lands as well was repelled.
In the instant case, on an examination of the site plan
(Ext. P-1) and the evidence, it is evident there is a
definite environmental as well as functional unity between
the two portions, namely, the main
(1) [1961] 3 S.C.R. 592.
149
factory (Portion A) and the contractors’ factory with the
precincts (Portion B) even though separated by a wall in
which there was a door which sometimes was closed. The work
undertaken by the contractors and carried on in their
portion of the area is surely componental to make it a part
of the complex whole. The principal requirement of the
definition, namely, that the work or the construction is
undertaken on the premises of the factory and about which
both sides join issue, is satisfied in the present case on
the evidence on records and we hold accordingly. We are
also satisfied that the workers under the contractors are
employees employed by the principal employer through the
’immediate employers’ on the premises of the factory in work
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which is ordinarily the normal work of the factory or is, at
any rate, preliminary to the work or which is certainly
incidental to the purpose of the main factory of the
appellant.
Mr. Natesan laid great stress upon the requirement of a
unity of control of the principal employer over the
manufacturing process of the work undertaken by the
contractors, but it will be obvious from the facts found and
the evidence noted below that the work is done on the
premises of the factory. We need not examine this aspect in
detail in view of the uncontradicted evidence of PW-1 as
follows:-
"The work done in the Factory consisted of
manufacture of granite stones for export. I
found raw stones lying all over the
surrounding area. I found that raw stones
were moved to the premises marked B in Ex. P.
1. I found that about 50 persons working at
the spot. I learnt from the partners those 50
persons had been employed by two or three con-
tractors. Cutting and dressing of the stones
were done by those fifty men. There were (1)
sand blasting machine belonging to the
partners and (2) Electric blower. Power was
used in these machines. After the stones are
cut and dressed, they are removed to p
remises A
for designing and polishing. Final touches
are then given to them in the premises B. They
are again brought back to premises A for
packing and despatching. The premises A and B
belong to the partners. Only a wall separated
the two premises. There was a connecting door
which appeared to have been closed".
Again RW-2 also deposed that "it is since last three years
that, I undertook the work of the second party" i.e. the
appellant. R W-1 (partner of the appellant) stated as
follows in cross-examination:
"Ex. P. 4 is the copy of the letter dated 19-
3-63 written by P.W. 1 to me for copy of the
agreement and plan. Ex. P. 5 is my interim
reply,............... By Factory premises in
Ex. P. 5, 1 meant both the portions A and B in
Ex. p. 1".
Mr. Natesan has referred to a decision of the Bombay High
Court in Employees’ State Insurance Corporation, Bombay v.
Raman (Chittur Harihar Iyer)(1) but the High Court dealt in
that case with the definition of "employee" prior to the
amendment of the Act in 1966 and is of no
(1) (1957) I L.L.J. 267.
150
aid to counsel. This case was also distinguished by this
Court in Nagpur Electric Light & Power Co. Ltd. v. Regional
Director Employees State Corporation, Etc.(1) Counsel also
relied upon a decision of the Delhi High Court in Employees’
State Insurance Corporation v. Peter Sewing Machine Co.
etc.(2), dealing with the definition of ’factory’ under
section 2 (12) of the Act. The High Court, inter alia, was
posing a question in that case as to whether the whole or
any part of the work of the contractors there consisted of
any work which was ordinarily a part of the work of the
factory or establishment of the principal employer and
answered it in the negative on the finding of facts in that
case "that the contractors, manufacture their goods
independently and not as a part of the goods manufactured by
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the Peter Sewing Machine Company". On the facts of this
case that question does not arise and we express no opinion
thereon. The decision is therefore, of no aid to the
appellant in this case.
The learned counsel further draws our attention to M/s
Hindustan Construction Co. Ltd. v. Employees’ State
Insurance Corporation(3) in which case the High Court
remanded the matter to find out "whether the work done at
the site can be regarded as a manufacturing
process............ We, however, do not fail to notice that
the judgment did not take note of the complete definition of
" employee" under section 2 (9), the first part of which is
joined by a conjunctive ’and’ with two clauses. Further the
High Court is not correct in thinking that the definition of
the word "factory" under the Factories Act "is same" as that
of "factory" under the Employees’ State Insurance Act which
is of wider amplitude with an expanding horizon of
objectives in the latter Act. It is not necessary, however,
to consider. in this case if these factors may have affected
the decision in the above case. At any rate, the appellant
does not derive any aid from this decision.
The next decision in Nagpur Electric Light & Power Co., Ltd.
(supra), relied upon by the appellant for the construction
of the definition of "employee" under section 2 (9) (i) of
the Act is not of assistance to him since we are dealing
with a case under section 2(9) (ii).
We, of course, notice that the High Court in this case held
as follows at page 20 of the judgment :-
"From the foregoing, it is clear that the
contractors have been executing the work which
is ordinarily part of the work of the factory
and that within the premises of the
respondent-factory".
The definition clauses of "immediate employer" [section 2
(13)] and "employee" [section 2 (9) (11)], contain the
expression "on the premises of a factory" and not within it.
Even so, as detailed above after examining the evidence
ourselves, we are clearly of opinion
(1) [1967] (3) S.C.R. 92. (2) AIR 1970 Delhi 182.
(3) [1966] I.L.R., 18 Assam & Nagaland 87.
151
that the work of the contractors was undertaken by them on
the premises of the factory which may not be the same thing
as in or within the factory. We are further of the view
that the entire site of the factory is a composite one
containing portions A as well as B and there is no doubt
that the contractors are the ’immediate employers’ within
the meaning of section 2 (13) of the Act and the workers
employed by them are "employees" under the Act.
In the result, the appeal fails and is dismissed with costs.
P.B.R. Appeal dismissed.
152