Allowed

State of Pb. v. Regional Dir Esic Chd etc.

Punjab & Haryana HC19 Nov 2025RSA/1266/1995

Case brief

AI extract

What is this about?

The High Court allowed a second appeal by the State of Punjab against an order directing payment of ESI contributions for a government laundry plant. Relying on Triplex Dry Cleaners, the Court held that washing and ironing did not constitute a 'manufacturing process' under the ESI Act prior to the 1989 amendment. Consequently, the plant was not a 'factory' under the law applicable to the period 19

What did the court decide?

Judgments of courts below set aside. Suit decreed. Notice declaring illegal, null and void. Respondents restrained from recovering ESI contributions.

State of Pb. Vs Regional Dir Esic… — Labour and Industrial Disputes | Punjab & Haryana HC (2025)

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RSA No.1266 of 1995(O&M) 1

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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

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(202) RSA No.1266 of 1995(O&M) Reserved on : 14.11.2025 Pronounced on: 19.11.2025 Uploaded on: 19.11.2025

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State Of Punjab Through Executive Engineer, P.W.D , Public health (Goverment works), Division Patiala

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… Appellant

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Versus

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Regional Director, Employees State Insurance Corporation, Chandigarh And Others

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… Respondents

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CORAM: HON’BLE MR. JUSTICE VIRINDER AGGARWAL

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Present: Mr. I.S.Kingra, Senior DAG,Punjab for the appellant/State.

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Mr. Adarsh Malik, Advocate for the respondents. *****

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VIRINDER AGGARWAL, J.

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The instant Regular Second Appeal under Section 100 of the Code of Civil Procedure, 1908 (CPC), has been filed by the State of Punjab (hereinafter referred to as "the Appellant") against the judgment and decree dated 02.12.1994 passed by the Additional District Judge, Patiala, whereby the appeal filed by the Appellant against the judgment and decree dated 25.07.1991 passed by the Senior Sub Judge, Patiala was dismissed. The suit was filed by the Appellant seeking a declaration that Notice No. 921 dated 29.06.1987(EX-P1)

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SAURAV PATHANIA 2025.11.19 16:46 I attest to the accuracy and integrity of this document

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RSA No.1266 of 1995(O&M) 2

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issued by the Assistant Collector, Class-II, Patiala, demanding recovery of Rs. 31,855.46/- towards Employees' State Insurance (ESI) contributions is illegal, null and void, and for a consequential permanent injunction restraining the Respondents from effecting such recovery.

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BACKGROUND FACTS

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The Appellant-State installed a laundry plant in Rajindra Hospital, Patiala, exclusively to provide laundry services to the Government Hospital at Patiala. The plant is operated by regular work-charged Government employees who are entitled to all benefits under the Punjab Civil Services Rules, Government instructions, and the Workmen's Compensation Act, 1923. These benefits include medical leave, earned leave, medical reimbursement under Punjab Medical Attendance Rules, 1940, pension, gratuity, family pension in case of death, and other superior entitlements, which surpass those available under the Employees' State Insurance Act, 1948 ( hereinafter referred to as ESI Act). An inspection by the ESI Inspector revealed the operation of the plant with washing machines powered by electricity, involving 10 regular workcharged employees and 15 helpers. Notices(Ex.D2 to Ex.D14) were issued from 1982 onwards demanding ESI contributions, culminating in the impugned notice of 29.06.1987(Ex.P1) for recovery of arrears. The Appellant contested the coverage, arguing that the plant does not qualify as a "factory" under Section 2(12) of the ESI Act, as it employs fewer than 20 persons, involves no "manufacturing process," and is not run for commercial purposes but solely for internal Government use. Further, no exemption notification under Section 87 of the ESI Act was required, as the plant falls outside the Act's ambit.

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SAURAV PATHANIA 2025.11.19 16:46 I attest to the accuracy and integrity of this document

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RSA No.1266 of 1995(O&M) 3

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The learned trial court (Senior Sub Judge, Patiala) dismissed the suit, holding the plant covered under the ESI Act as a factory satisfying the threshold of 20 or more workers engaged in a manufacturing process with power. Issues regarding jurisdiction and maintainability were decided in favour of the Respondents. On appeal, the Additional District Judge affirmed these findings, observing that washing and ironing constitute a manufacturing process under ESI Act, and no exemption under Section 87 was notified. Aggrieved, the Appellant filed the present second appeal.

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CONTENTIONS

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Learned counsel for the Appellant vehemently argued that the plant does not meet the definitional threshold of a "factory" under Section 2(12) of the ESI Act, as it employs only 15 persons since installation, and washing/ironing does not constitute a "manufacturing process" under Section 2(m) of the Factories Act, 1948 (incorporated by reference). Further, Learned counsel for the Appellant, relied on the judgement of Employees' State Insurance Corporation v. Triplex Dry Cleaners, 1998(1) SCC 196 and argued that prior to the insertion of Section 2(14-AA) in the ESI Act via the 1989 amendment (effective 20.10.1989), processes like washing and ironing in laundries did not qualify as a "manufacturing process" under Section 2(12). The impugned notice dated 29.06.1987 issued prior to this and thus making the demand retrospectively invalid. He contended that the laundry plant's governmental, non-commercial character and employee count below 20 further exclude it. It was urged that the balance of convenience and irreparable loss favor staying enforcement, and the appeal merits allowance.

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RSA No.1266 of 1995(O&M) 4

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Learned counsel for the Respondents defended the lower courts' findings, contending that the said laundry plant satisfies the 20-worker threshold (including helpers), uses power for manufacturing processes like cleaning and ironing, and no exemption was notified under Section 87 by state Government. Learned counsel Contends Said learned counsel contended that the laundry plant was covered even under the pre-amendment definition of the ESI Act, as it involved powered operations such as washing and ironing, which qualified as a manufacturing process, and met the required worker threshold of 10 or more persons as detailed in the ESI Inspector's report (Ex. P1). Furthermore, the learned counsel urged that the judgement of Triplex Dry Cleaners(Supra) is inapplicable to the present case. Additionally, the learned counsel affirmed that the civil court lacks jurisdiction to entertain the suit due to the bar under Section 77 of the ESI Act.

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OBSERVATIONS AND FINDINGS

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I have heard learned counsel for the parties at length and perused the record, including the judgments of the learned courts below, exhibits, and cited precedents.

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7 . The following substantial question of law arise, with the core pivoting on the temporal applicability of statutory definitions:

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“Whether the courts below erred in applying the post-1989 definition of "manufacturing process" under the ESI Act to the impugned notice dated 29.06.1987, ignoring the prospective effect of the amendment inserting Section 2(14-AA) effective 20.10.1989?”

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To resolve this, the controlling authority is the judgment of the Hon’ble

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SAURAV PATHANIASupreme Court in Employees’ State Insurance Corporation v. M/s Triplex Dry 2025.11.19 16:46 I attest to the accuracy and integrity of this document

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RSA No.1266 of 1995(O&M) 5

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Cleaners , 1998 (1) SCC 196 . The Court held unequivocally that dry-cleaning, washing, or ironing of clothes does not constitute a “manufacturing activity” within the meaning of the ESI Act as it stood before the statutory amendment introduced on 20.10.1989 . It was emphasised that such activity does not bring into existence any new product, and therefore, establishments engaged in washing/cleaning could not be treated as factories under Section 2(12) for that earlier period. The relevant portion of the authority is reproduced below:

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“6. We, however, hasten to point out that we are here concerned with the show cause notice dated January 21,1978. At that point or time, Section 2(14aa) had not been inserted in the Act which defines manufacturing process as having the same meaning which is assigned to it under the Factories Act, 1948. The provision was inserted with effect from October 20,1989. We, therefore, express no opinion with regard to the applicability of the Act to an establishment engaged in the business of dry cleaning after October 20, 1989 in asmuch as Section 2(14aa) attracts the applicability of Section 2(k) of the Factories Act, 1948 which defines manufacturing process which may conceivably include the process of repairing, washing or cleaning of any articles with a view to its use. However, sofar as this appeal is concerned, in as much as it relates to a period prior to October 20,1989 when there was no such definition of manufacturing process applicable to the Act, it must fail and is accordingly, dismissed. There will be no order as to costs.”

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RSA No.1266 of 1995(O&M) 6

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Therefore, the Hon’ble Supreme Court expressly clarified that its decision was confined to a period prior to 20.10.1989 , because the definition of “manufacturing process” as having same meaning as that under Factory Act,1948 did not apply to the ESI Act until the insertion of Section 2(14-AA) , effective from that date. The Court noted that only after 20.10.1989 did the ESI Act begin to borrow the broader definition from Section 2(k) of the Factories Act, 1948, which may conceivably include washing or cleaning .

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This clarification is determinative. The impugned demand in the present case arises out of inspections and notices issued between 1982 and 1987 , culminating in the notice dated 29.06.1987 (Ex.P1). The entire period under consideration falls squarely within the pre-20.10.1989 era, when the ESI Act did not contain the expanded definition of manufacturing process. Therefore, the legal position applicable to the Appellant is exactly the legal regime applied in Triplex Dry Cleaners(supra) , where the Hon’ble Supreme Court held that washing and dry-cleaning activities could not be treated as manufacturing processes and hence the establishment could not be treated as a “factory.” Accordingly, any reliance by the respondents on the post-1989 expanded definition is misplaced. The amendment cannot be applied retrospectively, nor can a concept introduced in 1989 be invoked to justify coverage for assessment years preceding it. As the Hon’ble Supreme Court itself held, the ESI Act, as it existed before the amendment, did not permit laundries or dry-cleaning units to be treated as factories, and such establishments lay outside the Act’s ambit.

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For these reasons, and applying the ratio of Triplex dry clearner (Supra) , this Court holds that the laundry of Rajindra Hospital, Patiala, did not constitute a factory under Section 2(12) of the ESI Act during 1982-1987, and the demand

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SAURAV PATHANIA 2025.11.19 16:46 I attest to the accuracy and integrity of this document

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RSA No.1266 of 1995(O&M) 7

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of ESI contributions for that period is legally unsustainable. Therefore the judgments/decrees of the courts below are patently erroneous, based on misappreciation of law and facts, warranting interference under Section 100 CPC.

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Accordingly, the present appeal is allowed. The judgment and decree dated 02.12.1994 passed by the Additional District Judge, Patiala, and the judgment and decree dated 25.07.1991 passed by the Senior Sub Judge, Patiala are set aside. The suit of the Appellant is decreed, declaring Notice No. 921 dated 29.06.1987 illegal, null, void, and ineffective. The Respondents are permanently restrained from recovering Rs.31,855.46/- or any ESI contributions pertaining to the laundry plant.

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19.11.2025 (VIRINDER AGGARWAL) Saurav Pathania JUDGE

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(i) Whether speaking/reasoned : Yes/No (ii) Whether reportable : Yes/No

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SAURAV PATHANIA 2025.11.19 16:46 I attest to the accuracy and integrity of this document

State of Pb. v. Regional Dir Esic Chd etc.

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State of Pb. v. Regional Dir Esic Chd etc.

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