IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE HARUN-UL-RASHID MONDAY, THE 14TH MARCH 2011 / 23RD PHALGUNA 1932 Ins.APP.No. 2 of 2009() ----------------------- IC.No.3/2004 of ESI COURT,IDUKKI .................... APPELLANT/APPLICANT: ------------------------------ C.J.JOSEPH, PROPRIETOR, CEEKAY RUBBER INDUSTRIES, INDUSTRIAL ESTATE, I.E.NAGAR P.O. BY ADV. SRI.PAULSON C.VARGHESE RESPONDENTS/ OPPOSITE PARTIES: --------------------- 1. EMPLOYEES STATE INSURANCE CORPORATION, PUNCH DEEP BHAVAN, NORTH SWARAJ ROUND, THRISSUR-20 REPRESENTED BY ITS REGIONAL DIRECTOR. 2. DEPUTY DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION, PUNCH DEEP BHAVAN, NORTH SWARAJ ROUND, THRISSUR-20. 3. EMPLOYEES STATE INSURANCE CORPORATION, IDUKKI, PERIMEDU, IDUKKI. ADV. SRI.T.P.M.IBRAHIM KHAN, SC FOR ESI CORPORATION.. THIS INSURANCE APPEAL HAVING BEEN FINALLY HEARD ON 14/03/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ORDER ON I.A.NO.82/2009 IN INS.APPEAL NO.2/2009 ----------------------- DISMISSED 14/3/2011 Sd/- Harun-UL-Rashid, Judge HARUN-UL-RASHID,J. ------------------------------- INSURANCE APPEAL NO. 2 OF 2009 ------------------------------- DATED THIS THE 14TH DAY OF MARCH, 2011 JUDGMENT The following substantial questions of law are formulated in the appeal. “i) Whether the Insurance Court is justified in upholding a finding of the corporation that two different establishments are liable to be clubbed for the reason that the proprietors of both establishments are husband and wife? ii) Whether th Employees Insurance Curt is justified in holding that the two different establishments are liable to be covered under Employees State Insurance Scheme just for reason that said establishments are functioning in the adjacent compound/premises? iii) Whether Employees Insurance Court is justified in holding that the scheme is applicable to two different establishments on the basis of a mis-reading of evidence? iv) When the Employees Insurance Court is justified in accepting the inspection report of the Employees State Insurance Inspector in toto, when contra evidence have been adduced from the side of the applicant? -2- Insurance Appeal No.2/2009 v) Whether the Employees Insurance Court is bound to accept the inspection report and the oral evidence of the Inspector in toto, without any supporting evidence? vi) Whether the Insurance Court is legally justified in rejecting the documentary and oral evidence adduced by the appellant?” 2. The appellant establishment is a proprietary concern, which is a Small Scale Industrial Unit involved in manufacturing of cushion rubber and tread rubber. Appellant is the applicant in Insurance Case No.3/2004 on the file of the Employees Insurance Court, Idukki. This appeal is directed against the order dated 25/8/2008 passed by the Insurance Court, Idukki. 3. The Insurance Inspector had recommended coverage of the applicant-establishment under the provisions of the Employees State Insurance Act (for short 'the ESI Act') with effect from 28/4/1998. The dispute in this case is as to whether M/s. Simplex Rubber Industries is a part or section of applicant industry by name 'Ceakay Rubber Industries'. The Insurance Court held that -3- Insurance Appeal No.2/2009 the action of the respondents-Insurance Officials in considering the employees of the two units together for the purpose of coverage under the provisions of the ESI Act is legal and valid. In the appeal the appellant seeks to set aside the impugned order passed by the Employees Insurance Court. 4. The applicant is the Proprietor of Ceakay Rubber Industries, which is a Small Scale Industrial Unit. The nature of business activities is manufacture of tread rubber and cushion rubber. The unit started functioning from 1967 onwards. The applicant submits that the strength of the employees in the said unit is below 10 from the establishment of the unit. The applicant is aggrieved by the communication dated 31/10/2002 from the 2nd respondent-Deputy Director, ESI Corporation clubbing the applicant's factory with another factory by name 'Simplex Rubber Industries'. It is not disputed that Simplex Rubber Industries is also a Small Scale Industrial Unit, a proprietary concern functioning in the same industrial estate. The applicant filed statements before the -4- Insurance Appeal No.2/2009 2nd respondent stating that the applicant's factory and Simplex Rubber Industries are separate industrial units working in separate premises under different employers engaging separate set of employees and therefore the applicant requested the 2nd respondent to drop the proceedings initiated to club both units together for the purpose of coverage under the ESI Act. Ext.A5 is the office copy of the statement dated 26/12/2002 issued by the applicant to the 2nd respondent. In Ext.P5 it is stated that the applicant is the Proprietor of Ceakay Rubbr Industries and Smt.Achamma Joseph is the Proprietrix of Simplex Rubber Industries. It is also stated that they are husband and wife. The applicant informed the 2nd respondent that all the departments like Industries, Factories, Panchayats, Central Excise, Sales Tax, Income Tax, Rubber Board, Labour, Provident Fund etc. issued licences and considered these two units as separate. The applicant also produced various licences and documents issued to the two units separately, which includes factory licence, panchayat licence, factory building number, SSI -5- Insurance Appeal No.2/2009 Registration number, Central Excise number, Income Tax number, CST registration number, KGST registration number, Rubber Board licence number, Provident Fund account number, Bank account and electricity connection number etc. Two sets of documents pertaining to two separate units are produced before the 2nd respondent in support of his claim that two units are distinct and separate. The applicant also produced materials including photographs (Ext.A15) which would go to show that the two units are functioning in separate buildings situated in two plots separated by a tarred road. The applicant also pointed out to the 2nd respondent that during 1998-99 ESI Inspectors had visited two units on various occasions, signed the muster-roll and the wage register, that the ESI Inspectors are satisfied about the separate functioning of these two units and therefore, no action was taken at any point of time for coverage under the ESI Act on the allegation that these two units are functioning as one unit. The applicant also produced sufficient evidence which would go to show that the -6- Insurance Appeal No.2/2009 muster-roll, wage register, cash book etc. are maintained by these units independently and have no relation or action with each other. The certificate issued by the Vazhappally Grama Panchayat also shows that these two units are running in separate buildings. The Panchayat also certified that these two units have separate licence of Vazhappally Grama Panchayat. Ext.A14 is the certificate issued by the Grama Panchayat. 5. It is a fact that these two units are functioning not under the same roof. These two units have separate statutory licences as stated above. There is nothing to show that there is functional integrality and unity of ownership, so far as these two units are concerned. As these two units are run by the husband and wife separately, there may be some connection between the activities in different institutions, that itself may not be sufficient to justify an inference one way or the other. The materials do not support the stand of the respondents that the employees of the Simplex Rubber Industries are under the control and management -7- Insurance Appeal No.2/2009 of the Proprietor of Ceakay Rubber Industries. The evidence shows that these two units are working separately without any functional integrality. Unity of ownership, management and control and unity of employment are the important tests in this regard. Functional integrality and general unity are also important. Some connection between the activities in two different institutions by itself is not sufficient to justify clubbing of the two units. 6. The applicant-unit is manufacturing cushion rubber and tread rubber. The Simplex Rubber Industries is manufacturing tread rubber alone. The applicant-unit is supplying cushion rubber to various units including Simplex Rubber Industries. Simplex Rubber Industries is one of the customers of the applicant-unit. Simply because they are purchasing cushion rubber from them is not a criteria for concluding that both these units are one and the same. 7. The respondents contended that a team of Inspectors of the opposite party surveyed the applicant-factory on 28/4/1998 -8- Insurance Appeal No.2/2009 and reported that Simplex Rubber Industries, under the partnership of Smt. Achamma Joseph, wife of the Proprietor of the applicant- unit, is a part of applicant-unit. The respondents submits that these two units had engaged 8 employees each and was functioning in the same building with a single office room under the ownership of the husband and wife. It is also stated that there was financial dependability and functional integrality in the management of the two units. Thus, the Inspector recommended coverage under the ESI Act by clubbing the two units with effect from 19/3/1984. In the preceding paragraphs I have stated the facts and the principles of law involved in the case. 8. The documents show that these two units are separate proprietary concerns, that they have separate registration under the sales tax, income tax, Panchayat Raj Act etc. The Rubber Board had issued separate licences for these two units. These two units had filed tax returns separately and they have two separate income tax and sales tax registrations. They are paying contribution to the -9- Insurance Appeal No.2/2009 Employees Provident Fund separately and they are maintaining separate accounts and separate registers. In these circumstances, there is no justification for the respondents to club the units together for the purpose of coverage under the provisions of the ESI Act. 9. The learned counsel for the appellant also cited the decisions reported in Madona Textiles v. E.S.I. Corporation (2002 (2) KLT 741) and Vrindavan Hoels (P) Ltd. v. ESI Corporation (2005 (3) KLT 577). In the two decisions the principles of law on the subject are laid down. Applying the tests on the facts of this case and for the reasons stated in detail, I am of the view that the finding of the Insurance Court upholding the action of the respondents in considering the employees of the two units together for the purpose of coverage is unsustainable in law and facts. The learned Judge failed to appreciate the documents produced by the applicant which will support his stand conclusively that the two units referred to by the Inspector are -10- Insurance Appeal No.2/2009 functioning as two units. The findings recorded by the Insurance Court solely based on the report of the Inspector cannot stand in the light of the materials on record, which would go to show that the two units have no functional integrality. In the facts and circumstances of the case, the appeal is allowed. The impugned order is set aside. Insurance Case No.3/2004 is allowed. There will be no order as to costs. HARUN-UL-RASHID, Judge. kcv.