THE VIDARBHA PREMIER CO-OPERATIVE HOUSING SOCIETY LIMITED., NAGPUR THR. CHAIRMAN vs. THE JOINT REGIONAL DIRECTOR, SUB REGIONAL OFFICE, EMPLOYEES STATE INSURANCE CORPORATION, NAGPUR

fa.35.06.jud     1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR
FIRST APPEAL NO.35 OF 2006
The Vidarbha Premier Co-operative
Housing Society Limited,
Gandhi Sagar, Nagpur through Chairman. …. Appellant
-- Versus –
The Joint Regional Director,
Sub-Regional Office,
Employees State Insurance Corporation,
Panchdeep Bhavan, Ganeshpeth, Nagpur. …. Respondent
Shri A.M. Ghare, Advocate for the Appellant.
Mrs. B.P. Maldhure, Advocate for the Respondent.
CORAM : KUM. INDIRA JAIN, J.
DATE : SEPTEMBER 21, 2017.
ORAL JUDGMENT :-
This appeal takes an exception to the order dated
19/08/2005 passed by the Employees' State Insurance Court
Nagpur (for short, 'ESI Court') in E.S.I. Case No.5/1992. By the
said order, ESI Court dismissed the application filed by applicant-
Vidarbha Premier Co-operative Housing Society under section 77
(1) read with Section 75 (g) of the Employees' State Insurance
Act, 1948 (for short, 'the ESI Act') read with Rule 13 of the
Bombay Employees' Insurance Rules, 1959.
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02] For the sake of convenience, appellant and
respondent are referred in their original status as applicant and
non-applicant as they were referred before the ESI Court.
03] This Court vide order dated 14/11/2006 and
18/09/2017 framed the following substantial questions of law :
i. Whether the appellant Society can be said to be a
shop covered under the Clause 3(iii) of the Schedule
to the notification dated 19/11/1976 and in terms of
the provisions of Section 1(5) of the Employees' State
Insurance Act, 1948 ?
ii. Whether principles of natural justice can be invoked in
a case of applicability of notification issued under
Section 1(5) of the Employees' State Insurance Act,
1948 ?
04] The factual backdrop of the case relevant for the
purpose of disposing this appeal may be stated thus :
(i) Applicant is a housing society. The main activities of
the society are to extend loans to its members for
acquiring, constructing houses, extension or repairs of
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residential houses on no profit no loss basis.
Applicant society is also constructing flats through
contractors for allotment to its members. According to
applicant, it is a registered cooperative housing
society carrying on its activities since 20/03/1936.
(ii) Non-applicant – Employees' State Insurance
Corporation (for short, 'the Corporation') issued a
notice dated 10/01/1992 to the applicant society
informing that the society falls within the purview of
Section 1 (5) of ESI Act with effect from 27.11.1976.
By the said notice, society was asked to take
immediate steps for payment of contribution from
24/11/1976, the date of coverage.
(iii) Applicant made representation to the Corporation on
02/05/1992 and submitted that activities carried on
by the society exclude the applicant from the
categories of establishments covered by notification
dated 19/11/1976. It was submitted that the society
is not covered by said notification as it does not fall in
the category of shop.
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(iv) Vide communication dated 09/06/1992, non-applicant
informed the applicant that society is rendering the
services for price and the activities carried on by the
society make it clear that establishment of the society
is covered as a shop within the meaning of
notification dated 19.11.1976 and thereby reiterated
its decision regarding the coverage of establishment
of applicant under the ESI Act.
(v) Before this communication could be sent by the
Corporation, applicant on 14/05/1992 filed an
application under section 77 (1) read with Section 75
(g) of the ESI Act, 1948 and Rule 13 of the Bombay
Employees' Insurance Rules, 1959. By the said
application, Society sought declaration to the effect
that it is not a shop and prayed for quashing
communication dated 10/01/1992 issued by the
Corporation.
(vi) Non-applicant vide written statement [Exh.9], resisted
the application. According to Corporation, Society
was rendering various services for a definite price by
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charging commission at the rate of 2% in addition to
the value of project. It was submitted that conduct of
business and the various activities carried on by the
applicant society would clearly indicate that society
falls within the meaning of shop, as per the
notification dated 19/11/1976. It was contended that
ESI Act is a welfare legislation and notification issued
thereunder needs to be liberally construed so as to
achieve the purpose and object of the legislation
rather than to allow the same to be frustrated and
stultified. Non applicant placed reliance on the
judgment of the Hon’ble Supreme Court in M/s.
International Ore and Fertilizers (India) Pvt. Ltd.
vs. E.S.I. Corporation – [AIR 1988 SC 79] in
support of defence and submitted that the scope of
definition of the term 'shop' has been extensively
discussed by the Hon’ble Supreme Court which
negatives the contention of applicant that it is not
covered under the ESI Act. The corporation also
placed reliance on notification dated 19/11/1976 and
the relevant provisions of the ESI Act to indicate that
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the applicant-society is covered as a shop by virtue of
notification dated 19/11/1976. In sum and substance,
it was submitted that application is misconceived and
deserves to be dismissed with costs.
(vii) On the rival pleadings of the parties, ESI Court
formulated the following points for determination and
recorded its findings thereon as under :

(viii)
To substantiate its case, applicant-society examined
Vyankatesh Ramchandra Khisty, General Manager as
a solitary witness and non-applicant examined
Vinodkumar Jaiswal, ESI Inspector as a sole witness to
support its defence. The parties also placed reliance
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on the documentary evidence. On appreciation of
evidence, ESI Court came to the conclusion that
establishment of applicant-society is covered within
the meaning and definition of term shop and
communication dated 10/01/1992 issued by
Corporation was legal and in accordance with the
notification issued under section 1 (5) of the ESI Act.
In consequence thereof, application preferred by the
society came to be dismissed. Being aggrieved by
the dismissal of application, society has preferred
present appeal.
05] Shri A.M. Ghare, learned counsel appearing on behalf
of appellant submits that ordinarily appellate court would not
interfere on a question of fact in an appeal against the decision
of ESI Court but appellate court would not mechanically accept
the finding recorded by the ESI Court, if such findings are not
supported by evidence. The submission is that finding of fact
not based on evidence needs to be corrected in an appeal. In
this connection, learned counsel pressed into service judgment
of this court in Employees' State Insurance Corporation vs.
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Hindustan Sheet Metal Works - [1967 Mh.L.J. 211].
Another submission on behalf of appellant is that communication
dated 06/09/1991 [Exh.36] addressed to the Joint Regional
Director clearly shows that coverage decision was to be taken by
SRO and no coverage decision was taken by the inspector, who
inspected the establishment of applicant society. It is submitted
that the same officer prepared preliminary inspection report of
the inspection carried on 14/08/1991 and opined that
unit/society of the applicant does not come under the purview of
ESI Act considering the nature of work of the society. It is
submitted that decision at the level of SRO, if any, taken at any
point of time was never placed on record. Copies of
communications/reports dated 28/08/1991 and 06/09/1991
referred in the impugned communication dated 10/01/1992 were
never made available to the applicant-society. A grievance is
made that Inspector having come to the conclusion that society
is not covered under the ESI Act within few days wrote to Joint
Regional Director leaving the coverage decision to be taken by
SRO. It is submitted that in the absence of decision by SRO and
for want of reasons to change the report within couple of days
would be enough to indicate that impugned communication is
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unsustainable. The learned counsel submits that copy of
preliminary inspection report dated 14/08/1991 was never
supplied to applicant-society and had that report been made
available society would not have issued further communication
and would not have made representation as preliminary
inspection report dated 14/08/1991 was favourable to applicant-
society. It is submitted that by not supplying important
documents opportunity was denied to applicant society and
corporation thereby violated principles of natural justice.
06] The next contention raised on behalf of appellant is
that in the absence of definition of 'shop' in the ESI Act and the
notification issued under Section 1(5) of the said Act, meaning of
'shop' under Section 2(27) of the Bombay Shops and
Establishments Act needs to be considered which does not
include commercial establishment. The submission is that
applicant-society is a commercial establishment and excluded
from the purview of definition of 'shop' under Section 2(27) of
the Bombay Shops and Establishments Act and thereby excluded
from the coverage of the ESI Act as well as notification issued
thereunder under Section 1(5) of the said Act.
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07] In support of submissions, learned Counsel placed
reliance on -
i. Bharat heavy Electricals Ltd. vs. Employees' State
Insurance Corporation – [(2008) 3 SCC 247].
ii. Employees' State Insurance Corporation vs. Hindustan
Sheet Metal Works - [1967 Mh.L.J. 211].
iii. Judgment and order dated 16/09/2016 passed by
learned Single Judge of this Court in Writ Petition
No.3239/2015.
iv. Aniket College of Social Work, Aniket Shikshan
Sanstha, Dighori vs. Assistant Provident Fund
Commissioner, Sub-Regional Office, Nagpur and
another – [2017(5) Mh.L.J. 437].
v. Regional Director, Employees' State Insurance
Corporation vs. Kerala Electrical and Allied
Engineering Co. Ltd. & Ors. - [2003 III CLR 546]
08] Per contra, learned Counsel appearing for respondent-
Corporation submits that Government of Maharashtra by
notification dated 19/11/1976 extended provisions of the ESI Act
to the classes of establishments mentioned in the Schedule and
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as per Clause 3 of the Schedule, if an establishment where 20 or
more persons are employed for wages on any date of the
preceding 12 months, said establishment would be covered. It is
submitted that the witness examined on behalf of the society
admitted that for the activities being carried out and the services
being rendered, society is charging 2% commission in addition to
the value of the project. Learned Counsel submits that while
construing a welfare, legislation ESI notification issued
thereunder should be liberally construed so that the purpose of
legislature can be achieved in true sense. It is submitted that
society is carrying on economic activities in a systematic way
and, therefore, duly covered within the purview of 'shop' as per
the notification issued under Section 1(5) of the ESI Act.
09] On the second contention raised on behalf of
appellant regarding violation of principles of natural justice, the
submission is that society never raised such pleadings before ESI
Court. No submissions to that effect were ever made before ESI
Court. Learned Counsel submits that in the absence of pleadings,
evidence and the submissions, appellant cannot be allowed to
raise such a grievance for the first time in appeal. Another
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submission on behalf of the Corporation is that notification dated
19/11/1976 issued under Section 1(5) of the ESI Act clearly
covers the establishment of appellant-society as a shop and it
being the responsibility of the establishment to comply with the
provisions of Section 2A read with regulation 10-B under the Act,
question of violation of principles of natural justice would not
arise. In support of submissions, learned Counsel relies upon the
judgment, dated 31/07/2017 by the learned Single Judge of this
Court in First Appeal No.562/2008 and of the Division Bench of
Kerala High Court in E.S.I. Corporation vs. Radhas Printers –
[(1996) IILLJ 1105 Ker.].
10] Regarding applicability of notification to the society
under the notification as a shop and legality of communication
under challenge, learned Counsel for respondent pressed into
service -
i. M/s. Hindu Jea Band, Jaipur vs. Regional Direcrtor,
Employees' State Insurance Corporation, Jaipur – [AIR
1987 SC 1166].
ii.
M/s. International Ore and Fertilizers (India) Pvt. Ltd.
vs. State Insurance Corporation – [AIR 1988 SC 79].
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iii. M/s. Cochin Shiping Co. vs. E.S.I. Corporation – [(1992)
4 SCC 245].
iv. Employees State Insurance Corporation vs. R.K.
Swamy & Ors. Etc. - [1993 II CLR 1068].
v. Sohan Lal Gupta [dead] Thr. L.Rs. & Ors. vs. Smt. Asha
Devi Gupta & Ors. - [(2003) 7 SCC 492].
vi. Poona Industrial Hotel Ltd. vs. I.C. Sarin – [1979
LawSuit (Bom) 269].
vii. Regional Director, E.S.I. vs. T.V. Poulose – [(1997) ILLJ
613 Ker].
viii. Madras Government Servants Co-op. Society Ltd. vs.
Employees' State Insurance Corporation – [1998 I CLR
1061 – Madras].
ix. Southern Agencies, Rajahmundry vs. Andhra Pradesh
Employees State Insurance Corporation – [1998 II CLR
79].
x. Bal Chandra Agarwal and another vs. Union of India
and others – [2002-III-LLJ 127].
xi. Employees' State Insurance Corporation, Bangalore
vs. Manipal Sowbhagya Nidhi Ltd., Manipal, Kakshina
Kannada – [2007 II CLR 468].
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11] Referring to the judgment of the Division Bench of
Madras High Court in Madras Government Servants Co-op.
Society Ltd. (supra), it is submitted by the learned Counsel for
respondent that in an identical situation and in similar set of
facts, it has been held that society rendering service and
charging interest is the price for rendering the service and
covered by notification issued under Section 1(5) of the ESI Act.
12] Upon hearing the learned Counsel for parties, in
extenso, this Court finds it appropriate to take up the substantial
question of law framed vide order dated 18/09/2017 first
whereby grievance has been made by appellant regarding non-
supply of documents and violation of principles of natural justice.
It is no where in dispute that the contention regarding violation
of principles of natural justice was not raised in the pleadings
and the evidence before the ESI Court. According to the society,
in the written notes of arguments, society submitted that copies
of reports [Exh.35 and Exh.36] were not supplied and thereby an
opportunity came to be denied. It is pertinent to note that
submissions advanced on behalf of the parties have been
considered by the ESI Court in its judgment. Even at the time of
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making oral submissions, it appears that appellant-society did
not bring to the notice of ESI Court that copies of reports were
not supplied. Therefore, merely raising a ground in the written
notes of arguments and not pursuing the same would clearly
indicate that establishment did not press the grievance.
13] Looked at from another angle, this ground does not
sustain. The learned Single Judge of this Court vide judgment
and order, dated 31/07/2017 in First Appeal No.562/2008 while
considering substantial question, whether Section 2A read with
Regulation 10-B of the Employees State Insurance Act, 1948 is
mandatory, observed in paragraph 19 thus :
“19. If one considers the laudable object of the
Act and the entire scheme provided under the Act for
the welfare of the employees in the moments of their
difficulty, like sickness, medical problems etc., then it
needs to be held that so far as Section 2A of the Act is
concerned, which also contains the word “shall”. It is
required to be held as mandatory. It enjoins the duty
upon the factories or establishments to which this Act
applies to be registered within such time and in such
manner as may be required under the regulations. In
view thereof, if this provision is not considered to be
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mandatory, then every employer may get rid of the
liability which is fastened on him under the Act to
advance the laudable object of the Act.”
14] Even from the scheme of the ESI Act, it can be seen
that initial responsibility to get registration is on the employer.
In case of failure to comply with the provisions of Section 2A
within stipulated time prescribed under Regulation 10-B,
appropriate Regional Office of the Corporation under Regulation
10-B(c) may direct the employer to comply with the
requirements of paragraph (a) of this regulation. In this
connection, learned Counsel for appellant submitted that by
introducing paragraphs (c) and (cc), legislature has diluted the
provisions under Section 2A and Regulation 10-B(a). The
submission is that the said provision cannot be held mandatory
considering the paragraphs (c) and (cc) of the Regulation 10-B.
Though the submission appears to be attractive, it has no force
of law. The language of Section 2A of the ESI Act clearly shows
that factories or establishments to which the Act applies are duty
bound to get the registration and the time limit for the same is
prescribed under Regulation 10-B(a). It is only in case of failure
that the Corporation has to intervene and take appropriate steps
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fa.35.06.jud     17
to see that the provisions of the ESI Act are applied in this
respect.
15] In view of clear and unambiguous language of Section
2A and Regulation therein as referred above, this Court does not
find any substance in the submission of the learned Counsel for
the appellant that the provisions of registration are not
mandatory.
16] Once the provisions of the ESI Act and Regulations
framed thereunder cast a duty on the establishment to get the
establishment registered, question of violation of principles of
natural justice would not arise.
17] The next crucial question then needs to be addressed
is, whether establishment of appellant society is covered by
notification issued under Section 1(5) of the ESI Act. Before
adverting to this issue, it would be appropriate here to see the
scope and object of the Employees' State Insurance Act, 1948.
Needless to state that this Act is a piece of legislation intended
for social security. The Act is an outcome of a policy to provide
remedy for the wide spread evils arising from the consequence
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of national poverty. The Act was originally made applicable to
factories. By virtue of provisions under Section 1(5), the
appropriate Government may, in consultation with the
Corporation and where the appropriate Government is a State
Government, with the approval of the Central Government, after
giving one month's notice of its intention of so doing by
notification in the Official Gazette extend the provisions of this
Act or any of them, to any other establishment or class of
establishments, industrial, commercial, agricultural or
otherwise. It is in pursuance to Section 1(5), notification dated
19/11/1976 was issued in this case.
18] Paragraph 3 of the said notification extends the
provisions of the Act to classes of establishments mentioned in
Column 1 of the Schedule given therein situated within the limits
of Corporation of City of Nagpur with effect from 27/11/1976.
The relevant part of the Schedule is reproduced here for ready
reference.

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19] Appellant-employer examined Vyankatesh
Ramchandra Khisty, its General Manager as a witness. He stated
that 36 employees were engaged by the society in November,
1976 and 64 employees were engaged in 1991. In any case
more than 20 employees were working with the society at the
relevant time. So far as the services rendered by the employees
are concerned, it is admitted that the society rendered services
in the nature of (i) acquiring land for construction of houses; (ii)
advancing loans to purchase houses (3) conducting repairs of
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houses and apartments (4) to build and allot the houses to its
members. There is an unequivocal admission on the part of the
witness of the society that for rendering the services, society
charges commission in addition at the rate of 2%.
20] With the above undisputed facts, question stills
remains to be considered is whether establishment of appellant-
society would fall within the definition of shop by virtue of
notification dated 19/11/1976 issued under Section 1(5) of the
ESI Act. “Shop” is not defined under the ESI Act or the
notification issued thereunder. According to the appellant, in the
absence of definition of shop in the Act and the notification,
'shop' defined under Section 2(27) of the Maharashtra Shops and
Establishments Act will have to be looked into. The submission is
that definition of shop under the Maharashtra Shops and
Establishments Act excludes the commercial establishments and
makes it clear that establishment of appellant-society is not
covered under the definition of shop.
21] Whether definition of shop under Section 2(27) of the
Maharashtra Shops and Establishments Act can be taken as
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guiding factor in construing the provisions of the ESI Act and the
notification issued therein is a moot question to be addressed to.
In M/s. Hindu Jea Band's case (supra), the Hon'ble Apex Court
held that a shop is a place where services are sold on retail
basis. It was, therefore, held that making available on payment
of the stipulated price, the service of musicians employed by
the petitioner on wages made the petitioner's establishment a
shop.
22] In the case of M/s. International Ore & Fertilizers
(supra), the petitioner carried on the commercial activity
facilitating the emergence of contracts of sale of goods between
its foreign principals and the State Trading Corporation/Minerals
and Metals Trading Corporation. It was arranging for unloading
of such goods and their survey. Upon delivery, it collected the
price payable and remitted it to its foreign principals. These were
trading activities and although the goods imported from abroad
were not actually brought to petitioner's premises and delivered
to purchaser, the premises were held to be a shop because the
trading activities related to sale of goods.
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23] Both these judgments were followed by the Hon'ble
Apex Court in M/s. Cochin Shipping Co. (referred above), which
catered to the needs of exporters and importers and others who
wanted to carry the goods to the appellant's premises, where
systematic economic or commercial activity was carried out.
24] Later on above referred three decisions were referred
by the Hon'ble Supreme Court in Employees State Insurance
Corporation vs. R.K. Swamy & Ors. (supra) in which it was held
that the premises of an advertising agency would fall within the
notification and is a shop. This view has been consistently
followed in the catena of decisions.
25] The Division Bench of Madras High Court had an
occasion to consider similar question in case of Madras
Government Servants Co-op. Society Ltd. (referred above). In
this case, Corporation issued a notification on 15/07/1976 and
brought into its coverages establishment of appellant-society as
a shop. A notice was issued to the employer for implementing
the notification. A reply was sent and since same did not satisfy,
Corporation had issued a notice on 09/06/1983 that in case the
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Act is not implemented and contributions thereunder are not
paid, coercive steps will be initiated. Being aggrieved, society
filed original petition before the City Civil Court, madras for
declaration that the provisions of the ESI Act are not applicable
to the society and the notification issued thereunder is not
binding on the society.
26] Taking into consideration the pleadings of the parties
and the evidence, ESI Court came to the conclusion that
petitioner-society is neither a shop nor an establishment and,
therefore, notification has no application. Against the order of ESI
Court, matter went before the learned Single Judge of the High
Court in an appeal. Appeal was allowed and original petition was
dismissed. Against the said judgment of the learned Single
Judge, L.P.A. was filed and in this way the matter went before the
Division Bench. Considering the aims and object of the ESI Act,
statutory construction of welfare legislations, judgments of the
Hon'ble Supreme Court as to how the ESI Act has to be
interpreted and on the definition of shop, in paragraphs 19 to 21
of the judgment, the Division Bench of Madras High Court
observed thus :
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“19. On the above principles of law, we have to
consider whether the petitioner/Society is a 'shop' and
whether the notice issued by the respondent is in any
way invalid. In view of the decision in Senior Electric
Inspector's case (supra) the court has to interpret a
Statute taking into consideration the new factual
situation and also taking into consideration the social,
economic, political and scientific advancement in
society. Probably that may be the reason why in this
Statute, there is no definition for the word 'shop' or
'establishment', since the Legislature did not want to
restrict the scope of its applicability to changed
situations. The definition of 'shop' which is meant as a
house or building where s goods are made or
prepared for sale and sold has now undergone a great
change. In the present legal sense, it is not necessary
that there should be building or land for conducting a
shop, nor is it is necessary that in the premises there
should be buying or selling. Once an ordinary
occupation is carried on, if there is a systematic
economic or commercial activity, that will be
sufficient to bring that place within its sphere.
20. Even services which are sold for a price will
amount to a 'shop'. The learned Judge has taken into
consideration the above facts and has correctly
interpreted the scope of the Notification. Giving loan
to the members of the Society is a 'service' and the
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word 'price' has also been given a wider connotation.
The learned Judge has held :
"... The word 'price' should not be taken as a
price paid for a product or a particular
article ......"
21. The charging of interest and sharing the profits
among the various members will be sufficient to bring
the impugned notification within the ambit of the Act,
the interest charged by the petitioner/Society is the
price for rendering services. We are in agreement with
the finding of the learned Judge that the petitioner
cannot impeach the Notification. It is in evidence of
P.W. 1 and can also be seen from the averments in the
petition that the petitioner is doing money-lending
business and interest is also charged from the
debtors. By self imposed restrictions, the facility is
extended only to its members and not to the public at
large. But it cannot be disputed that what the
petitioner is doing is systematic commercial or
economic activity, and it is one of its 'ordinary
occupations'.”
27] In the case on hand, Mr. Vyankatesh Khisty, General
Manager of the Society stated in cross-examination that business
of society is to provide loans to its members and collect interest
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from them. He admits that they also charge processing fees
from the customers. From the evidence of this witness, it can be
seen that the society acquires the lands for construction work.
Lands are owned and purchased by the society. For construction
work, designs are prepared by Architect, tenders are called from
Builders. They include commission while deciding the cost of the
flat. It is also admitted by the witness that members of the
society are holding the shares of the society and they are paid
dividends on shares. While giving dividends to members,
aggregate profit of the society is considered.
28] Considering the evidence, intention of the legislature
enacting the ESI Act, its scheme and objects, well settled
propositions of law regarding applicability of the provisions of the
ESI Act and the notification issued thereunder ESI Court came to
the conclusion that notification dated 19/11/1976 does cover
establishment of society under the notification. Since it is not in
dispute that the society is giving loans to its members,
constructing the houses, allotting the same to the members of
the society and charging 2% commission for the services
rendered to its members, this Court is of the view that the
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fa.35.06.jud     27
services are sold for a price and the word 'price' has to be given
a wider connotation which would bring the establishment of
appellant-society within a coverage of notification. It is apparent
from the undisputed facts and the evidence that appellant-
society is doing a systematic commercial activity and since the
employees are more than 20 in number, it would squarely bring
the establishment of society within the purview of notification
issued under Section 1(5) of the said Act. In the above premise,
substantial questions of law are answered accordingly.
First Appeal No.35/2006 is dismissed. There shall be
no order as to costs.
(Kum. Indira Jain, J)
At this stage, learned Counsel for appellant prays for
continuation of ad interim stay granted vide order dated
13/06/2006, for a period of four weeks.
Learned Counsel for the respondent objects the same.
Considering the nature of controversy and to avoid
denial of an opportunity, ad interim stay as prayed to continue
for a further period of four weeks.
*sdw
(Kum. Indira Jain, J)
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