Ela Designer Pvt. Ltd. and Anr. Vs Employees State Insurance Corporation and Ors.

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IN THE HIGH COURT AT CALCUTTA CONSTITUTIONAL WRIT JURISDICTION ORIGINAL SIDE

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BEFORE: HON’BLE JUSTICE RAJA BASU CHOWDHURY

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WPO/2292/2022

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Ela Designer Pvt. Ltd. & Anr. Versus

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Employees’ State Insurance Corporation & Ors.

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For the petitioners	:	Mr. Soumya Majumdar Mr. Biswajit Kumar
For the Respondents	:	Mr. S. C. Prasad
Heard on	:	3^rdOctober, 2023.
Judgment on	:	3^rdJanuary, 2024.

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RAJA BASU CHOWDHURY, J:

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The petitioner no.1 is engaged in the business of trading of embroidery on sarees. The petitioner no.2 is one of the directors of the petitioner no.1. According to the petitioners, the job of embroidery is carried out by independent traders/artisans in their respective premise or through engagement of unidentified persons, on whom your petitioners do not have any control. Once the finished products are brought to the premise of the petitioners, the management decides as to whether the products can be accepted on payment of consideration or the same would be rejected.

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On acceptance of the products in the manner indicated above, the petitioners pay the cost for the job charges inclusive of all materials used. On the contrary, if ultimately, the products are rejected, the artisans and traders pay the cost price of the clothing to the petitioners and take away the garments. The petitioners claim that the aforesaid arrangement is on principal to principal basis.

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In usual course, the petitioners have taken on leave and licence a portion of the first floor of premises no. 25/1 Shakespeare Sarani, Kolkata-700017, admeasuring 1700 sq.ft., super built up area. It is also the petitioners’ case that since, the said premises is owned by four co-sharers, separate leave and licence agreements had to be executed by and between the petitioner no.1 and the owners of the respective shares of the said premises. The first floor of the said premises is exclusively used for show-room of the petitioner no.1.

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In usual course, the artisans/weavers and traders claim payment from the petitioners by raising invoices. The payment is made through online transfer system, or through cheque, or at times in cash. In ordinary course, the work of embroidery requires to be polished and the finished products also require to be polished/dry-cleaned before those are put up on the display in the show-room or sent to the buyers of the petitioners. The payment made to the dry cleaner is recognised

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as polishing charges and the payment made to the artisans/karigars/traders is recognised as making charges.

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For the period 2014 to 2015, the ESI authorities while determining contributions payable by the petitioners had passed an order dated 19^th June, 2019 under Section 45A of the Employees’ State Insurance Act, 1948 (hereinafter referred to as the “said Act”), thereby, saddling the petitioner no.1 with diverse liabilities under various heads, however, on the said occasion, the making charges and the polishing charges had been specifically excluded, as the same cannot attract the liability of contributions under the said Act.

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The petitioners contend that for the subsequent period from 2016 to 2017, a notice in Form C-18 dated 3^rd April, 2019 was issued alleging non-payment of contributions under certain heads, which also included making charges and polishing charges. Pursuant to the aforesaid, a hearing was conducted by the Authorised Officer and ultimately by an order dated 24^th May, 2019 passed under Section 45A of the said Act, the respondent no.3 had determined an amount of Rs.25,44,935/- for the period from 4^th April, 2016 to March, 2017 in respect of five out of thirteen heads of accounting as mentioned in the notice in Form C-18. Although, the petitioners had preferred a statutory appeal, yet the petitioners before the Appellate Authority had agreed to deposit contributions in respect of three out of five heads which included salary, general charges, repair and maintenance. The issue therefore boiled down to the payment of contributions against making charges and polishing charges. The same was decided by the

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respondent no.2 by an order dated 21^st December, 2021, whereby, the objections taken by the petitioners were rejected.

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Being aggrieved, the instant writ petition has been filed.

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Mr. Majumder, learned advocate representing the petitioners, submits that both the respondent nos.2 and 3 by misconstruing the provisions of the said Act and by irregularly construing the leave and licence agreements had, inter alia, concluded that the aforesaid agreements raise presumption as regards multiple premises of the petitioners and proceeding on such premise had observed that it cannot be negated that the job work carried out by the labours were not at the employer’s tenant premises. It is submitted that the aforesaid reasoning provided in the order impugned is perverse.

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By drawing attention of this Court to Section 2(9) of the said Act, it is submitted that the said definition takes into consideration the broader aspect, one in relation to direct employment by the principal employer on any work of, or incidental or preliminary to or connected with the work of, the factory or the establishment and secondly, works done by the employer in the factory or establishment or elsewhere. It is submitted that in case of direct employment under the principal employer, the test is the nature of work performed by the employee concerned, where the site of the work is not important. However, in case of indirect employment, the element of supervision is the most important criteria to be taken note of. In support of his contention, he has placed reliance on the following judgments:

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(i) C.E.S.C. Limited & Ors. v. Subhash Chandra Bose & Ors. , reported in (1992) 1 SCC 441 .

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(ii) Managing Director, Hassan Coop. Milk Producer’s Society Union Ltd. v. Assistant Regional Director, ESI Corpn. , reported in (2010) 11 SCC 537 .

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Having regard to the aforesaid, it is submitted that the impugned order should be set aside.

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Per Contra , Mr. Prasad, learned advocate representing the respondents, has placed in detail the documents on record, inter alia, including the order dated 21^st December, 2021. He submits the issue that falls for consideration is whether the petitioner had the ultimate control and supervision of the works over the karigars since, the karigars were executing the work at the premises, which is under the exclusive control and supervision of the petitioners.

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Although, the matter pertains to disputed questions of facts and ordinarily should not be decided by this Court in exercise of its extraordinary writ jurisdiction as the ESI Court is available yet, having regard to the submissions made by the petitioners and the factual position, he submitted that there is no irregularity in the order passed by the respondents. By placing reliance on the case of M/s. P.M. Patel

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& Sons & Ors. v. Union of India & Ors., reported in (1986) 1 SCC 32 , it is submitted that the Hon’ble Supreme Court while construing the provisions of the said Act in relation to Beedis prepared by workers elsewhere, which involved, acceptance and rejection, had concluded

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that the same constituted an effective degree of supervision and control. Following the aforesaid, he submits the benefit of the said Act was extended to the Beedi workers employed through contractors. The word “employee” under Section 2(9) of the said Act is to be construed liberally. He also relies on the judgement delivered by the Hon’ble Supreme Court in the case of C.E.S.C. Limited & Ors. v. Subhash Chandra Bose & Ors., reported in (1992) 1 SCC 441, the case of Royal Takies, Hyderabad & Ors., v. Employees State Insurance Corporation. reported in (1978) 4 SCC 204 and the case of Mangalore Ganesh Beedi Works and Ors. v. Union of India and

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Ors., reported in (1974) 4 SCC 43.

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Heard the learned advocates appearing for the respective parties and considered the materials on record.

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On the basis of the admitted facts as indicated hereinabove and to appreciate the rival contentions of the parties, it is relevant to consider the provisions of Section 2(9) of the said Act, the same is extracted hereinbelow:

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“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—

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(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

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(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; or

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(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;

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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 an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), [and includes such person engaged as apprentice whose training period is extended to any length of time; but does not include—

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(a) any member of [the Indian] naval, military or air forces; or

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(b) any person so employed whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government:

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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

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(and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period;

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It would appear from the above definition of the term “employee” that the same can be broadly classified in four distinct sets of category persons who are either, directly employed by the principal employer or by the immediate employer (contractor).

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Firstly, the same includes persons who are directly employed by the principal employer on any work of, or incidental to or preliminary to or connected with the work of, the factory or the establishment, whether such work is done by the employee in the factory or establishments or elsewhere.

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Secondly, the definition of the term employee also means and includes persons who are employed by or through the 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 factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment.

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Thirdly, persons 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 services.

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Fourthly, persons who are 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. And also includes an apprentice, not being an apprentice engaged under the Apprentices Act, 1961. There are, however, certain exceptions which are not relevant for the present purpose.

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I find that Mr. Majumder, learned advocate representing the

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petitioners by laying stress on the expression ‘premises’ and ‘supervision’ used in the aforesaid Section has tried to make out a case that since, artisans/karigars are not working in the premises of the factory or the establishment, and are not under the supervision or control of the petitioners, the said Section is not attracted. According to him, the expression ‘supervision’ is interlinked with the ownership or control of the premises and cannot be divorced therefrom. However, the entire argument proceeds on the premise of involvement of an immediate employer being a contractor. In this context, it would be relevant to consider the judgment delivered by the Hon’ble Supreme Court in the case of Mangalore Ganesh Beedi Works & Ors. (supra) wherein the Hon’ble Supreme Court while distinguishing between the principal employer and independent contractor in paragraph 86 was, inter alia, pleased to observe as follows:

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“86. Take the definition of the word “contractor”. Insofar as it says that it means “a person who, in relation to a manufacturing process, undertakes to produce a given result by executing the work” it is not objectionable and refers to a contractor ordinarily understood. But when the words “through contract labour” are added it leads to complications. “Contract labour” is defined as “any person engaged or employed in any premises by or through a contractor”. Therefore, all labour employed by a contractor is contract labour. If any manufacturer employs any person through a contractor, the labour would be contract labour. Then again “contractor” also means “a person who engages labour for any manufacturing process in a private dwelling house”. In such a case even a principal employer who engages labour for any manufacturing process would be a contractor. The further definition of the word “contractor” includes a subcontractor, agent, munshi, thekedar or sattedar. These are obviously included to cover a class of persons dealt with by this Court in certain decision including Chintaman Rao case. An “employer” is defined to be, in relation to contract labour, the principal employer. I have already pointed out that contract labour would include labour employer even by the manufacturer himself direct. “Principal employer” is defined as “a person for whom or on whose behalf any contract labour is engaged or employed in an establishment”. Therefore, when contract labour is employed for a person he is a principal employer. When contract labour is engaged or employed on behalf of a person he is also a principal employer. What distinction could be made between the two is a little difficult to understand. However, in the second part of definition of “employer” in relation to labour other than the

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contract labour in clause 2(g)(b) — though in view of what I have said earlier it is difficult to see what that other labour could be — there can be no objection to the person who has the ultimate control over the affairs of any establishment being considered the employer, as also any person to whom the affairs of the establishment are entrusted, whether such other person is called the managing agent, manager, superintendent, or by any other name. But to call a person who has, by reason of his advancing money, supplying goods or otherwise, a substantial interest in the central of the affairs of any establishment, also an employer is very difficult to justify. It is apparently intended to cover cases where a person runs business benami i.e. in another's name. There can be no objection to such a provision. But merely because a person lends or advances money or supplies goods he cannot be called an employer. He may have a substantial interest in the control of the affairs of the manufacturing establishment in the sense that the security for the money advanced depends upon the manufacturing establishment being run properly or even in the sense that a person supplying goods might also be interested in the control of the affairs because he may be supplying goods on credit. I think the words “or who has, by reason of his advancing money, supplying goods or otherwise, a substantial interest in the control of the affairs of any establishment” should be struck down. ”

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However, it must be noted that the aforesaid judgment was delivered by the Hon’ble Supreme Court while dealing with the Beedi and Cigar Workers (Conditions and Employment) Act, 1966. In the case of C.E.S.C. Limited & Ors. (supra) which considers the case of

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Royal Talkies, Hyderabad & Ors. v. Employees State Insurance

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Corporation , reported in (1978) 4 SCC 204 and the case of M/s. P.M. Patel & Sons & Ors. (supra) , the Hon’ble Supreme Court while considering the impact of the word ‘supervision’ as appearing in Section 2(9) of the said Act, in paragraph 13 had been pleased to observe as follows:

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“ 13. In whatever manner the word ‘employee’ under Section 2(9) be construed, liberally or restrictedly, the construction cannot go to the extent of ruling out the function and role of the immediate employer or obliterating the distance between the principal employer and the immediate employer. In some situations he is the cut-off. He is the one who stumbles in the way of direct nexus being established, unless statutorily fictioned, between the employee and the principal employer. He is the one who in a given situation is the principal employer to the employee directly employed under him. If the work by the employee is conducted under the immediate gaze or overseeing of the principal employer, or his agent, subject to other conditions as envisaged being fulfilled, he would be an employee for the purpose of Section 2(9). Thus besides the question afore-posed with regard to supervision of the principal employer the subsidiary question is whether in the instant case the contractual supervision exercised by the immediate employer (the electrical contractors) over his employee was exercised, on the terms of the contract, towards fulfilling a self-obligation or in discharge of duty as an agent of the principal employer. ”

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The above matter, however, dealt with the engagement of electrical contractors by CESC Ltd., who in turn employed labourers to

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carry out diverse job of excavation, conversion of overhead electric lines and laying of underground cables under public roads, as well as for repair and maintenance of the aforesaid works. In this context, I must note, for the sake of clarity and at the cost of repetition that the entire argument of Mr. Majumdar revolves around the second category of persons classified in the definition of the term employee as noted above which necessitates involvement of an immediate employer (like a contractor), unlike the first category, which does not require the involvement of the immediate employer at all. I may, however, note that in paragraph 3 and 4 of the writ petition, the petitioners have stated on oath that the petitioner no.1 provides the raw materials which are collected by independent artisans from the petitioners’ premises and after the work is completed, the finished products are bought to the petitioners’ premises, whereupon it is decided either to accept or to reject the same. In case of acceptance, the petitioners pay the cost for the job charges. On the contrary, if the same is rejected, the artisans/karigars pay the cost price of clothing to the petitioners and take away the garments. The relationship between the weavers and artisans with that of the petitioners has been identified as an arrangement on principal to principal basis. Another category of persons have also been identified as traders so as to bring in an element of involvement of an immediate employer. No particulars have been disclosed as regards the contracts executed either by individual artisans/karigars employed by the petitioners or by the traders. It is

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also not clear as to how many items have been rejected and the amount received from such traders towards the cost price of the raw materials. The contracts entered into between the artisans, traders and the respective karigars have also not been disclosed. It is, therefore, apparent and clear that at least the relationship between the petitioners and the artisans/karigars/ weavers is direct and contractual, though, the exact nature of contact has been conveniently held back. There, however, may be some element of doubt as regards the relationship between the traders and the petitioners.

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Having regard to the aforesaid and taking into consideration the definition of the term ‘employee’ including the word ‘supervision’ occurring therein, although, the term ‘supervision’ as occurring in the said Section in relation to the principal employer or his agent, is relatable to the term ‘work’ at the places envisaged and the expression ‘work’ can neither be construed as broadly to be the final act of acceptance or rejection of work, nor so narrowly so as to supervise at all times, all steps of the work, however, when no documents are forthcoming to establish the exact nature of contract between the artisans/karigars and the petitioners and taking note of, the admitted position as regards direct employment of such artisans/karigars by the petitioners and, the first category of the term ‘employee’ in the definition as noted hereinabove, these artisans/karigars cannot stand excluded from the term employee as appearing in Section 2(9) of the said Act.

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Having regard to the aforesaid, since, it is clear that the artisans/karigars are employed directly by the petitioners, for work of the establishment, it is immaterial whether they work within the factory or the establishment. The material consideration being the work of or incidental or preliminary to or connected with the work of the factory or establishment. Since, it is not in dispute that the work done by the artisans/karigars are work of or incidental or preliminary to or connected with the work of the factory or establishment, they fall under the first category of the term employee, and there is no necessity for any supervision, for the artisans/karigars to come under the purview of the definition of the term employee. What is important is the direct employment of the artisans/karigars by the principal employer, in this case being the petitioners, and the nature of work carried on by them.

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In the instant case, it, however, appears that the respondent nos. 2 and 3 have both applied the wrong test. Simply because the petitioners have been incurred expenses on account of rent and maintenance, the same does not raise the presumption as regards multiple premises of the petitioners. Further, the determination has proceeded on the basis that the job carried out by the labours, were on the extended premises of the petitioners. From the documents disclosed, it would, however, appear that the multiple agreements are in relation to showroom of the petitioners.

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Although, the reasoning provided and the basis for the order passed by the respondent nos.2 and 3, for determining contributions payable by the petitioners may not be correct, however, this Hon’ble Court in exercise of its extraordinary jurisdiction, when called upon to examine the correctness of the order impugned, is competent enough to determine the applicability of the provisions of the said Act, in relation to the artisans and karigars directly employed by the petitioners for carrying out work connected with the work of the establishment.

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In view thereof, the order impugned cannot be sustained. The same is accordingly set aside. The respondent no.3 is directed to pass a fresh reasoned order upon determining the contributions payable by the petitioners by treating the artisans/karigars to be the direct employees of the petitioners. The petitioners are directed to submit details and particulars of the artisans/karigars, employed by the petitioners including the contracts executed, if any, between the traders and the petitioners for the respondent no. 3 to take a decision in the matter. If the petitioners fail to make appropriate disclosure, it shall be open to the respondent no. 3 to pass such orders as it may deem fit. The aforesaid process must be completed within ten weeks from the date of communication of this order, upon giving an opportunity of hearing to the petitioners or its representatives.

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With the aforesaid observations and directions, the writ petition stands disposed of.

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There shall be no order as to costs.

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Urgent Photostat certified copy of this order, if applied for, be made available to the parties on priority basis upon compliance of all

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formalities.

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(RAJA BASU CHOWDHURY, J)

Ela Designer Pvt. Ltd. and Anr. v. Employees State Insurance Corporation and Ors.

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Ela Designer Pvt. Ltd. and Anr. v. Employees State Insurance Corporation and Ors.

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