IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.PADMANABHAN NAIR MONDAY, THE 18TH FEBRUARY 2008 / 29TH MAGHA 1929 MFA.No. 169 of 2004(A) ---------------------- EIC.50/2000 of EMPLOYEES' INSURANCE COURT, KOZHIKODE .................... APPELLANT: APPLICANT: --------------------- M/S. INDUCTION ELECTRICS REPRESENTED BY ITS MANAGING PARTNER, KRISHNAN NAMBOOTHIRI, S.E.KMANDOTH,PAYYANNUR-670307 KANNUR DISTRICT. BY ADV. DR.K.P.KYLASANATHA PILLAY SRI.ARUN.B.VARGHESE SRI.T.P.DEYANANTHAN SMT.SREEDEVI KYLASANATH RESPONDENT: RESPONDENT: ------------------------ THE ASSISTANT DIRECTOR, E.S.I. CORPORATION, TRICHUR. BY ADV. SRI.P.SANKARANKUTTY NAIR THIS MISC. FIRST APPEAL HAVING BEEN FINALLY HEARD ON 18/02/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K. PADMANABHAN NAIR ,J. ------------------------------------------------- M.F.A.No.169 of 2004 ------------------------------------------------- Dated, this the 18th day of February, 2008 JUDGMENT Applicant in I.C.No.50/2000 on the file of the Employees' Insurance Court, Kozhikode is the appellant. Appellant firm is engaged in the manufacture of jet, monoblock pumps and manual voltage stabilizers. The respondent ESI Corporation demanded contribution from the appellant on the ground that it had engaged 11 employees for wages in the factory on 1.10.1996. On 31.12.1999 the respondent issued a notice calling upon the appellant to pay contribution on the ground that establishment of the appellant satisfied the condition for coverage under the Employees State Insurance Act (for short 'the Act') on 1.10.1996. Appellant had filed a detailed objection contending that it started functioning from 20.12.1996 only and it had engaged only nine employees. The respondent over rules that objection and insisted for payment of Rs.92,407/-. Action was also initiated under Section 45A of the Act. Hence the appellant filed I.C.No.50/2000 before the Employees Insurance Court to declare that the establishment of the appellant was not covered by ESI scheme and not liable to pay contribution and also for incidental reliefs. The respondent Corporation filed a written statement contending that Local Manager of the respondent Corporation conducted inspection in the establishment of the appellant on 1.10.1996 and found that the unit was engaged in the manufature of pumpsets and voltage stabilizers with the MFA No.169/2004 2 aid of electric power. The consumer number was 7991. The Local Manager made a head count of employees and found that 11 employees were engaged by the appellant. Of the eleven employees, seven were permanent employees and four were temporary employees. He prepared Ext.D1 report which was attested by the Office Manager of the appellant. It was contended that the establishment of the appellant was qualified to be a factory under Section 2(12) of the Act and the same was treated as covered w.e.f.1.10.1996 and contribution claimed. It was also contended that proceedings under Section 45A of the Act was initiated for realisation of an amount of Rs.92,407/- with interest. It is admitted that the factory was inaugurated on 20.12.1996 and as such contribution was claimed from that date only. The appellant has not produced wage records to determine the actual contribution due for the period in question. Therefore, contribution was claimed on head count basis. The respondent Corporation had prayed for dismissal of the petition. 2. In the counter statement filed by the respondent it was admitted that the factory was inaugurated on 20.12.1996 and as such contribution was demanded only from that date. Court below after considering the evidence found that the appellant failed to establish that actually the factory started functioning only w.e.f. 20.12.1996. It was further held that the establishment was liable to be covered under the ESI Act w.e.f. 1.10.1996. It also held that the appellant is bound to comply with the provisions of the said Act with effect from that date. Court MFA No.169/2004 3 below set aside Ext.P19 order making adhoc assessment of contribution and directed the respondent Corporation to initiate fresh proceedings with notice to the appellant and extend adequate and effective opportunity to the appellant to produce relevant employment particulars and wage records and account books. Challenging that decision the applicant itself has filed this appeal. 3. The one and only point arising for consideration in this appeal is whether the contention of the appellant that the establishment started commercial production only on 20.12.1996 or whether the establishment came into existence on 1.10.1996 as contended by the respondent Corporation is correct or not. The case of the appellant is that the establishment was inaugurated on 20.12.1996 and on that day there were only seven persons employed. It was also contended that prior to 20.12.1996 the factory unit was erected, machineries installed and appellant had started trial production to see whether the machineries were properly functioning and for that purpose there were seven employees and in addition to seven permanent employees four apprentices were also employed. In short the appellant had taken two contentions that the establishment came into existence only on 20.12.1996 and that the appellant never employed more than seven persons in the unit. 4. It is argued that the four apprentices cannot be treated as employees. In view of the definition of employees in the Act to claim exemption for apprentices they must be apprentices either appointed under the provisions of the MFA No.169/2004 4 Standing Orders or under the provisions of the Apprentices Act. Admittedly the appellant had no case that the apprentices were either appointed under the Apprentices Act or under the Standing Orders. So the apprentices will also come within the definition of Employees. 5. The crucial question arising for consideration is whether the unit came into existence on 1.10.1996 or on 20.12.1996. To substantiate that contention the appellant relied on Exts.P1 to P3 advertisements and also Ext.P4 notice. It is true that Exts.P1 to P4 show that factory was formerly inaugurated on 20.12.1996. But, as pointed out by the court below a reading of Exts.P1 to P4 shows that sale of finished products was also inaugurated on that day. Court below had observed that the first sale of pumpset was held on 20.12.1996. So it is evidently clear that the production started not on 20.12.1996 but some day prior to that date. The Local Manager of the respondent Corporation inspected the premises on 1.10.1996 and prepared Ext.D1 report. Ext.D1 report shows that the establishment commenced during September, 1996. It was recorded that during September there were only seven employees but during October, 1996 there were seven permanent employees and four temporary employees. In answer to column 5 it was recorded that even on that day the establishment was consuming electricity as consumer No.7991 of Payyannur Division. As observed by the court below the appellant did not produce any record to show as to when exactly it commenced commercial production. The statutory intimation to the Factory Inspectorate MFA No.169/2004 5 regarding the commencement of production, the records relating to production and stock register, commencement of sale, return submitted to the Sales Tax Department, consumption of electricity were not produced. The materials on record clearly establish that the factory was functioning on 1.10.1996. The Local Manager of respondent Corporation while preparing Ext.D1 report gave the names of seven permanent employees and four temporary employees (trainees). All the 11 persons affixed their signature in Ext.D1. It was counter signed by Shri Krishnan Namboothiri who was in-charge of the establishment. The materials on record also clearly established that the establishment was run with the aid of electric power. So the finding of the Employees Insurance Court that the appellant establishment was coverable w.e.f. 1.10.1996 is correct. 6. It is to be noted that in Exts.D3 and D5 the respondent Corporation claimed regular contribution only from 20.12.1996. In the objection filed it was also admitted that contribution was claimed only from 20.12.1996. So, though the establishment will come within the definition of factory w.e.f. 1.10.1996 the respondent Corporation can claim contribution only from 20.12.1996. Therefore, the direction of the court below that the appellant is bound to comply with the provisions of the ESI Act w.e.f.1.10.1996 is to be clarified. It is clarified that the appellant is not bound to pay contribution from 1.10.1996 but from 20.12.1996. With that modification this appeal is only to be dismissed. In the result, M.F.A. is dismissed subject to the above said modification. MFA No.169/2004 6 I.A.Nos.3442/2004 and 653/2005 in M.F.A.No.169/2004 will stand dismissed. K. PADMANABHAN NAIR, JUDGE. cks MFA No.169/2004 7