1. Heard.

2. The present appeal is preferred by Maharashtra State Handlooms Corporation Limited, challenging the judgment and order dated 18.01.2010 passed by the Industrial Court, Akola, in ESIC Application No.3/1988, whereby it is held that the unit run by the appellant Corporation at the Akola Sale Depot is covered under the provisions of the Employees’ State Insurance Act, 1948 (hereinafter referred to as “the ESI Act of 1948”), and by determining the amount of contribution payable for the relevant period in respect of the employees working at the Akola Sale Depot was directed to deposit the amount as per order of respondent dated 15.04.1988.

3. Before adverting to the merits of the matter, the certain facts, which are necessary to be recorded in the matter, are as under:

The appellant is a statutory authority, and its affairs are managed by its Board of Directors. The head office of the Corporation is situated at Nagpur, and it controls and supervises the entire functioning of its subordinate units spread throughout the State of Maharashtra. The nature of the units through which the appellant carries out its activities can be appropriately categorized as follows:

                   i) Production Centres;

                   ii) Sale Depots;

                   iii) Weaving Sheds, Dye Houses, Design Centres, Processing Units, and Printing Units.

4. According to the appellant, in the production centres, the clothes are weaved by the handloom weavers in their respective houses/cottages on their looms. The centre does not have any production or manufacturing activities carried out in the premises. Only clerical cadre work, as per the instruction and posting by the head office, the work is done in the production centre.

5. In Sale Depots, it is pointed out that these depots were established so as to make it convenient and facilitate the weavers to sell the weaved clothes collected from the handloom weavers. In sale depots, again no production or manufacturing activities are carried out. Sale depots only work as extension points of the head office for the purpose of sale of weaved clothes collected from handloom weavers. Hence, it was never required to the appellant to register the sale depots under the Maharashtra Shops and Establishments Act, 2017.

6. The weaving shed, Dye house design Centre, Processing and Printing Unit, wherein the processing and manufacturing activities were carried out. In the weaving shed, handloom weavers used to assemble in turn, they assigned with hops to weave clothes. In Dye house, the process of dyeing of yarns were being carried out. Then in the design centre, designing of clothes is carried out. These premises were duly registered under the Factories Act as well as under the Employees’ State Insurance Act depending upon the number of employees working there.

7. In support of this submission, the appellant has also placed on record the list of units under the control of head office, Nagpur on 31.03.1988. In the list shown, there are total 55 units working on 31.03.1988, but except for one at Nagpur, all are closed.

8. The appellant has further relied upon the Maharashtra State Handloom Corporation Limited Recruitment Rules, 1977. From the said Rules, it is pointed out that specific provision is made for the employees for maternity leave under Rule 48 and medical attendance under Rules 52 and 53. As such, by these Rules, the Corporation has taken care to provide all medical facilities of their employees and said Rules considered sickness, maternity and employment injury of the Corporation.

9. In the background of above said factual position, the respondent issued a notice dated 15.07.1986 stating that at Sale Depot, Akola, of the Corporation, there are seven employees and one supervising officer i.e. total eight, since the opening of the branch from 27.12.1978 and thereby directed the Corporation to pay the contribution arrears in respect of employees at Sale Depot, Akola from 27.12.1979 and also assigned the Code No.23–1628– 101 (Akola).

10. The appellant Corporation disputed the applicability of the act to the Sale Depot, Akola of the Corporation on the ground that the provisions of ESI Act cannot be made applicable to the said unit. It was the contention of the appellant that said Depot does not cover under the various provisions of the ESI Act, 1948 and the Factories Act 1948. However, the same was not considered and order dated 15.04.1988, came to be passed against the present appellant.

11. The said order was the reason to challenge before the Employees Insurance Court/Industrial Court, Akola vide application No.3/1988. In the said appeal, the submission of the appellant was that as per the provisions of the Act of 1948, the Akola Sale Depot does not cover under the provisions of the Act and, therefore, the action initiated by the respondent is prima facie illegal and, thereby, entire order and proceedings initiated by respondent authority is liable to be quashed and set aside.

12. The said application was strongly objected by the respondent authority by filing their written statement before the Industrial Court, Akola.

13. In light of the controversy arose between the parties, the appellant before the Industrial Court, entered into the witness box and established their case. It was their specific submission that the respondent authority has wrongly applied the provisions of ESI Act in the matter and more particularly to the Akola Sale Unit because in any case said unit does not cover under the provisions of the ESI Act and not under the Factory Act of 1948. No evidence was led on behalf of respondent before the Industrial Court.

14. In the background of above said factual position, the Industrial Court by impugned judgment and order dated 18.01.2010 dismissed the application filed by the appellant and confirmed the order passed by the ESI authority.

15. The said order of Industrial Court was immediately challenged before this Court. This Court has heard this matter and by order dated 22.11.2010, admitted the appeal on the following substantial question of law:

                   “Whether the Sales Depot of the appellant-Corporation could be held to be covered under the provisions of Employees State Insurance Act, 1948?”

And in the meantime, granted stay subject to deposit of amount with the Registry of this Court.

16. I have heard both the Counsel for appellant and respondent. I have perused the record and the relevant provisions of law, which are pointed out by the parties in the matter.

17. The appellant has pointed out that the object of the ESI Act, 1948, which is clear from its statement of object and reasons that same was brought into force by the legislature to provide certain benefits to employees in case of sickness, maternity and employment injury and to make provisions for certain other matters in relation thereto. Section 1(4) of the ESI Act, 1948, further states that the act would be applicable to all factories other than seasonal factories. The proviso specifically states that nothing contained in Sub Clause 4 shall apply to factory or establishment belonging to or under the control of the Government whose employees are otherwise in receipt of the benefits, substantially similar or superior to the benefits provided under this Act. It will be relevant to reproduce Section 1 (4) and (5) to understand the extent and application of the Act in the matter. The same is reproduced as under:

                   “1. (4) It shall apply, in the first instance, to all factories (including factories belonging to the Government) other than seasonal factories:

                   [Provided that nothing contained in this sub-section shall apply to a factory or establishment belonging to or under the control of the Government whose employees are otherwise in receipt of benefits substantially similar or superior to the benefits provided under this Act.]

                   (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 months’] 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:

                   [Provided that where the provisions of this Act have been brought into force in any part of a State, the said provisions shall stand extended to any such establishment or class of establishments within that part if the provisions have already been extended to similar establishment or class of establishments in another part of that State.]”

18. The appellant then relied upon the definition of factory provided under Section 2 Sub Clause 12 of the Employees’ State Insurance Act, 1948. The same is defined as under:

                   “Section 2(12):- Factory- any premises including the precincts thereof wherein ten or more persons are employed or were employed on any day of the preceding twelve months, and in any part of which manufacturing process is being carried on or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952) or a railway running shed.”

19. According to the appellant, the word ‘manufacturing process’ is used in the definition of factory. Therefore, he has referred the definition of manufacturing process under Section 2 (14-AA), which says that the meaning assigned to it in the Employees’ State Insurance Act, 1948. For the perusal of same, the definition of manufacturing process recorded under Section 2 (14- AA) is reproduced as under:

                   “Section 2 (14-AA):- “manufacturing process” shall have the meaning assigned to it in the Factories Act, 1948.”

20. In view of the definition of “manufacturing process,” the relevant provision to be looked into under the Factories Act, 1948. Under Section 2(k), the term “manufacturing process” is defined. The same reads as under:

                   “2(k) “manufacturing process” means any process for-

                   (i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal, or

                   [(ii) pumping oil, water, sewage or any other substance, or]

                   (iii) generating, transforming or transmitting power; or

                   (iv) composing types for printing, printing by letter press, lithography, photogravure or other similar process or book binding;] [or]

                   (v) constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels; [or]

                   [(vi) preserving or storing any article in cold storage;]”

21. In light of this provision, the appellant has pointed out the recruitment rules of the appellant Corporation and the facilities provided to them while carrying out the work of Corporation and its production Centre, Sale Depots and Weaving shed, Dye house, design Centre, processing and printing units.

22. According to the appellant, the Recruitment Rules, 1977, particularly Rule 48 provides ‘maternity leave’ and Rules 52 and 53 provides ‘medical attendance’ to its employees. Hence, considering the provisions of the ESI Act, 1948, which are reproduced above, it is crystal clear that in light of specific Rules framed by the Corporation and more particularly under Section 1(4) of the ESI Act, 1948, the provisions of Employees’ State Insurance Act are not applicable to the sale units run by the appellant Corporation.

23. Appellant then pointed out that no work of manufacture is done in Sale Depot. As such, sale depot run by Corporation do not come under the definition of Industry. It is pointed out no oral or documentary evidence brought on record by respondent to establish the fact, depot is covered under the definition of depot. Appellant, pointed out that the Corporation runs business in different establishment and respondent treated sale depot as different class and never made applicable the provisions of ESI Act considering it’s nature of work since inception of running of sale depot.

24. The appellant then pointed out the relevant documents which are relevant to decide the controversy arose in the matter. Firstly, it is pointed out the communication of appellant Corporation to the Government of India dated 04.12.1980. According to this communication, the appellant has requested the Government of India that amongst various units run by them for upliftment of weavers, especially the Dye houses and common weaving shade, which has been established to process the raw material and for which the respondent authority has already made applicable the ESI scheme by allotting code numbers, exemption be granted to the said establishment as they belonging to the public sector. In the said communication, the names of the units were specifically mentioned under their code numbers, which are as under:

                   i) Model Dyehouse, Sadar Nagpur, Code No.23/1627/19 SF

                   ii) Model Dyehouse, Umred Road, Nagpur, Code No.23/1628/19 SF

                   iii) Common Weaving Shed, Nagpur, Code No.23/1632/101.

25. According to the appellant, this letter was answered by the Deputy Regional Director of the ESI Corporation on 26.10.1981 and it was informed that only the Head Office, is covered under the provisions of ESI Act, 1948 and same has been exempted with effect from 27.11.1976 from the provisions of ESI Act, 1948. However, remaining units as mentioned in the communication dated 04.12.1980 will remain covered under the provisions of ESI Act, 1948 and appellant has to make compliance of the same in respect of those units.

26. In light of these two documents, it is the submission of the appellant that the provisions of ESI Act, were applicable to those units mentioned in the communication dated 04.12.1980 and, therefore, exemption was specifically sought to those units as they are the part and parcel of the public sector. It is also the submission of the appellant that the respondent has specifically answered to their communication and made clear that only the Head Office is exempted and not other units.

27. The appellant then pointed out that first time the respondent authority issued the communication dated 15.07.1986, in the name of M/s Model Dyehouse, Umred Road, Nagpur, stating thereby that the Insurance Inspector has visited this branch office at Akola and found that seven employees and one Supervisor were working in the said unit. It is also stated that the branch at Akola is working since 27.12.1979 and, therefore, M/s Model Dyehouse should cover such employees under the Act and pay contribution arrears from 27.12.1979 to their office.

28. The appellant has pointed out M/s Model Dyehouse, Umred Road, Nagpur, is one of the units run by the appellant Corporation under the head of weaving shed, Dyehouse, design Centre, processing and printing unit and admittedly, the provisions of ESI Act are applicable to the same. The Akola Depot is run under the caption of Sale Depot and work in both the branches was totally different. Therefore, there was no reason for the respondent to issue the communication to M/s Model Dyehouse, Umred Road, Nagpur. At the most, said communication could have been made to the appellant Corporation. Hence, the basic document by which controversy initiated itself illegal.

29. According to the appellant, this material fact was brought to the notice of the Industrial Court and thereby prayed that considering this factual as well as legal position, the order passed by the respondent authority is itself illegal in the matter. However, the learned Industrial Court relied upon the letter of respondent to M/s Model Dyehouse dated 15.07.1986, and thereby reached to the conclusion that the Akola Depot and its employee should be brought under Model Dye Unit/office and by recording that the exemption was sought by the appellant to the respondent authority for the Model Dye Unit, which was rejected and thereby upheld the order passed by the respondent authority. Therefore, it is the submission of the appellant that the impugned order passed by the Industrial Court is liable to be quashed and set aside.

30. The respondent in support of the judgment of the Industrial Court has relied the letter dated 15.07.1986, addressed by respondent to the appellant and stated that in the cross- examination of the witness of the appellant, he has admitted that the Akola Unit used the goods, which were supplied to their Unit from Nagpur and Kalmeshwar Centre Go-down and, therefore, it is the submission of the respondents that Akola Unit is interconnected with M/s Model Dyehouse, Umred Road, Nagpur. It is further stated that as the Model Dyehouse was already covered under the provisions of ESI Act and same being interconnected with Akola Unit, the letter dated 15.07.1986 was issued in the matter. In other words, it is the submission of the respondent that the employees of Akola Unit being interconnected with M/s Model Dyehouse at Nagpur, they come under the definition of employees and, therefore, the provisions of ESI Act are applicable in the matter.

31. In support of the submission, the respondent has relied upon the judgment of the Hon'ble Supreme Court of India in case of Hyderabad Asbestos Cement Products Ltd. Hyderabad vs. Employees Industries Court reported in 1977 LawSuit (SC) 340, wherein the Hon'ble Supreme Court held that if the offices or units are of the same company are located in various cities, then as per the amended definition of ‘Employees’, includes the person on any work connected with the administration of the factory or any part, department or branch thereof or with the purchase of raw materials or for distribution or sales of product of the factory. Accordingly, relied on paragraph No.13 of the judgment which reads as under:

                   “13. It was submitted that the test as to whether an employee is an employee "in a factory" is the test of not physical presence or absence outside the precincts of the factory but the test is whether he is under the control of the factory and is on the factory wage roll, or other similar tests. We are unable to accept the contention for on a reading of the relevant sections it is clear that the word "employee" would include not only persons employed in the factory but also person connected with the work of the factory. The employee may be working within the factory or outside the factory or may be employed for administrative purposes or for purchase of raw materials or for sale of the finished goods all such employees are included within the definition of "employee". A recent decision of the Bench of the Madras High Court in W.Ps. 144-149 and 331 of 1971 dated 14th October, 1976 (Mad) has also taken a similar view. We agree with the view taken by the judgments of the Andhra High Court and of the Calcutta High Court and dismiss these appeals with costs.”

32. In the present matter, after hearing both the parties, it is clear that the entire controversy was arose in the matter because of the communication of respondent to M/s Model Dyehouse dated 15.07.1986. However, from the submission recorded above, it is crystal clear that M/s Model Dyehouse was one of the units run by the appellant Corporation under the head of weaving shed, Dyehouse, design Centre, processing and printing unit. Appellant himself admitted the fact that said unit was doing the processing and manufacturing activities and comes under the category of factory and the provisions of ESI Act applicable to said unit. But at the same time demonstrated that Akola Unit, which runs under the head of Sale Depot never have any manufacturing process nor respondent established on record this fact hence sale depot being a separate establishment does come under the definition of processing and manufacturing. Only because the some products of the Dyehouse were supplied to the Akola for the purpose of sale cannot be the reason to hold that the provisions of ESI Act are applicable to the unit of Akola.

33. In my opinion, the findings recorded by the Industrial Court in this regard, seem to be prima facie contrary to the factual as well as legal position in the matter. The learned Industrial Court failed to consider the fact that the Model Dyehouse works as well as Akola Unit works under the appellant Corporation. As such, the employer of both the units was same. Both units are separate establishment and thereby provisions of the ESI Act were made applicable depending upon the nature of work carried out in establishment. So also, it is admitted fact, though appellant was running various units at various station, the provisions of the ESI Act was not made applicable to them. Therefore, the contention of the respondent that Dyehouse was supplying certain products to Akola unit cannot be ipso facto made Akola unit as a part and parcel of the M/s Model Dyehouse. It was for the respondent to establish on record how they reached to said conclusion, and must have established on record, in absence of any manufacturing process as required under the provisions of law, how sale depot was covered by them. But, to that effect, there is no evidence recorded nor considered in the impugned judgment of the Industrial Court.

34. It is established on record by the appellant that appellant Corporation was running different units under different heads. The authorities of the ESI Department are aware of the various units run by the appellant Corporation. But, they have only made applicable the provisions of ESI Act, 1948 to the units run under the weaving shed, Dyehouse, design center, processing and printing units. It is also established on record that there are near about 55 units under the Sale Depot, but at the relevant time, provisions of ESI Act were not made applicable to any of the units. It is not established on record by the respondent that all the units to which products were supplied by the Dye unit are come under the purview of the ESI Act. Hence, in absence of any evidence available on record, merely on the basis of communications dated 15.07.1986 and 04.12.1980 impugned order issued by respondent is prima facie perverse in nature.

35. One another aspect which was specifically brought to my notice that the specific recruitment rules framed by the appellant Corporation for the welfare of corporation employees. I am of the considered opinion that the recruitment rules framed by the appellant Corporation prima facie shows that they have taken due care of their employees and as per the said rules, the employees are substantially benefited. Therefore, this aspect ought to have been considered by the learned industrial court while deciding the matter. But there is no reasoning recorded in that regard. In my view, considering the Section 1 (4) of the Insurance Act, 1948, provisions of Employees’ State Insurance Act 1948 cannot be made applicable to the appellant corporation.

36. One more aspects which, according to me is required to be recorded in the matter is that the Industrial Court failed to consider that basic aspect which was required to be considered under the provisions of Insurance act, is that there should be 10 or more persons employees in the unit so that said unit comes under the definition of factory. Here in the present case, admittedly in the communication dated 15.07.1986, it is recorded that there were seven employees and one supervisor was found by the Insurance Inspector of respondent authority. If this fact is accepted, it is prima facie clear that the Akola Sale Depot by any means does not come under the purview of factory and on this count also the provisions of Insurance act 1948 are not applicable in the matter.

37. It is further specifically recorded that in the present case, admittedly appellant Corporation is the employer and under whose jurisdiction, the various units were run throughout the State of Maharashtra. So also, it is clear from the letter of respondent dated 26.10.1981, which was issued in response to the communication of appellant Corporation dated 04.12.1980, that only the unit of weaving shed, Dyehouse will continue to be governed by provisions of ESI Act. Thus, it is clear understanding that though there were other units run by appellant Corporation, will not come under the purview of ESI Act. Therefore, merely because one unit has supplied some products to other units cannot be said that the employees of other units come under the definition of employee.

38. Respondent’s case cannot be considered on the ground that merely because Dyehouse has supplied product to Akola sale depot and thereby as per the judgment of Hon’ble Supreme Court, all the employees of both unit came under definition of employee of same employer. In the present case, it is admitted fact on record that respondent authority by its communication dated 26.10.1981 has exempted Head Office from the provisions of the ESI Act with effect from 27.11.1976. If submission of respondent is accepted then in present case, the employer himself being exempted from the provisions of the ESI Act, then, certainly all the employees working under the various units would stand exempted in the matter. But, this is not the criteria adopted by the respondent authority while applying the provisions of the ESI Act in the matter. Hence, in light of above, the initial letter dated 15.07.1986, is itself incorrect and illegal in the matter.

39. Consequently, the impugned judgment passed by the Industrial Court, is not sustainable in the eyes of law and accordingly, same deserves to be quashed and set aside. For the aforesaid reasons, I proceed to pass the following order.

ORDER

i) The appeal is allowed.

ii) The impugned order passed by respondent the ESI authority under Section 45-A of the Employees’ State Insurance Act, 1948 dated 15.04.1988 (Annexures 11–12) and the judgment passed by the Industrial Court in ESIC Application No.3/1988 dated 18.01.2010 is hereby quashed set aside.

iii) It is held that the provisions of the Employees’ State Insurance Act, 1948 is not applicable to the Sale Depot at Akola and accordingly, the said unit does not cover under the provisions of the Employees’ State Insurance Act, 1948.

40. The First appeal is disposed of in above terms. No order as to the costs.