IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE HARUN-UL-RASHID TUESDAY, THE 22ND FEBRUARY 2011 / 3RD PHALGUNA 1932 Ins.APP.No. 42 of 2010() ------------------------ ( IC.20/2007 of EMPLOYEES INSURANCE COURT, ALAPPUZHA) .................... APPELLANT/APPLICANT --------------------------------------- UNITY TRADERS, MARGIN FREE MARKET, INDIAN SQUARE, A.M.ROAD, PERUMBAVOOR-683 542, REPRESENTED BY ITS MANAGING PARTNER, MR.SHAMSUDEEN. BY ADVS. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH RESPONDENT/RESPONDENT ----------------------------------------- THE REGIONAL DIRECTOR, ESI CORPORAION, REGIONAL OFFICE, PANCHDEEP BHAVAN, N.S.ROUND, THRISSUR-20. BY ADV. SMT.T.D.RAJALAKSHMY, SC, ESI CORPN. THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 22/02/2011, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: Ins.APP.No. 42 of 2010() ------------------------------------ ORDER ON IA 1657/2010 IN INAP NO. 42/2010 DISMISSED 22.2.2011 Sd/- HARUN-UL-RASHID , JUDGE / TRUE COOPY/ P.A. TO JUDGE VK HARUN-UL-RASHID, J. ------------------------ Insurance Appeal No.42 Of 2010 ---------------------- Dated this the 22nd day of February, 2011. J U D G M E N T The appellant is the applicant in I.C.No.20 of 2007 on the file of the Employees Insurance Court, Alappuzha. The appeal is directed against the judgment dated 26.3.2010 dismissing I.C.20/2007. The court declared that the applicant establishment is liable to be covered under the ESI Act and the applicant is bound to comply with the provisions of the said Act. 2. It is not disputed that the appellant establishment is a super market. The super market is registered under the provisions of the Kerala Shop and Commercial Establishments Act, 1960. It is not disputed that the number of employees in the super market is below 20. The exact number is 17. The main activity in the super market is the sale of provision goods and stationary items. One refrigerator is used in the shop to preserve milk, for cooling soft drink etc. It is also not disputed that the sold commodities were packed and delivered to the customers. According to the appellant the shop is an ::2:: In.Ap.No.42 Of 2010 establishment registered under the Kerala Shop and Commercial Establishments Act, 1960, that no manufacturing process is carried on there, muchless with the aid of power. Therefore, it is contended that the establishment does not constitute a factory as defined under the provisions of the ESI Act. 3. The respondent, the Regional Director, ESI Corporation, inter alia contended that the appellant establishment is a super market engaged in the business of packing and sale of provisions, stationary and presentation items and that this would amount to manufacturing process within the meaning of Section 12(1) of the ESI Act. The respondent also contended that the appellant is using weighing machines for packing purpose and is also using refrigerator. Thus power is used. Therefore, the appellant establishment is a factory within the meaning of the definition clause in the ESI Act. 4. The court recorded the oral evidence of PW1 and DW1. Exts.P1 to P7 and D1 to D10 were also marked. 5. The court below examined the issue as to whether the action of the respondent imposing coverage under the ESI Act on ::3:: In.Ap.No.42 Of 2010 the appellant establishment treating it as a factory under Section 12(2) of the provisions of the Act and enforcement of the said Act is legal and proper or not. After extracting the definition clause of 'factory' and 'manufacturing process' the court held that treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal is a manufacturing process as per Section 2(k)(i) of the Factories Act. The court observed that the machineries were operated with electricity, there was a freezer for preserving milk and ice cream which is held to be a manufacturing process as per Section 2(k)(vi) of the Factories Act. The court further held that the manufacturing process of sealing and packing of provisions carried on with the aid of power and that for preservation of milk and ice cream freezer was used which is also a manufacturing process. For the above said reason the court concluded that there is use of power with regard tot he manufacturing process carried on by the applicant establishment. 6. The number of employees in the super market is 17. It is not disputed that the activity in the super market is the sale ::4:: In.Ap.No.42 Of 2010 of provisions and stationary items. The refrigerator is used for preserving milk and cooling soft drinks. The weighing machine is used for the purpose of weighing the goods for sale. The sealing machine is also for packing the weighed goods. These activities are carried on in every shops selling provisions and stationary. The purpose for which these items are used are not for any manufacturing purpose. The purpose for which it is used is an ancillary purpose for sale of items in the shop. Preservation of milk and soft drinks are necessary for the purpose of carrying out the business. It is true that power is used for the purpose of operating the refrigerator, packing machine, weighing machine etc. Power is also used for using fan, computers etc. In my view, at any stretch it cannot be said that the use of these items will constitute a manufacturing process using power so that 10 or more employees in an establishment are covered under the ESI Act. The court below did not appreciate the fact that the only purpose of running a super market is for sale of items stocked. In order to facilitate the sale, it is necessary to have the use of refrigerator, packing machine, weighing machine etc. Simply ::5:: In.Ap.No.42 Of 2010 because of the use of one refrigerator or a packing machine, it cannot be said that there is manufacturing process carried on in the premises and that the establishment is a factory within the meaning of the definition clause of the ESI Act. The Apex Court in the decision reported in Hotel New Nalanda v. Regional Director, ESI Corporation (2009-IV-LLJ-21 SC) held as follows: “The use of power in the manufacturing process should be direct and proximate. The expression 'manufacturing process being carried on with the aid of power' in Section 2(12) of the Act does not mean a very indirect application of power such as use of electric bulbs for providing light in the work area. Unless the links are established, that is to say, it is shown that some process or work is carried on in the establishment which qualified as 'manufacturing process' within the meaning of Section 2(k) of the Factories Act and the manufacturing process is carried on with the aid of power, the mere presence of a refrigerator and a grinder there, even though connected to the main power line may not necessary lead to the inference that the establishment is a factory as defined under Section 2(12) of the Act.” ::6:: In.Ap.No.42 Of 2010 The Bombay High Court had also occasion to consider the meaning, scope and interpretation of Section 2(12) of the ESI Act. In Regional Director, ESI v. Serofie Bernard Vaz (2009 LLR 361) the Court held as follows: “Coverage of a hotel employing more than 10 but less than 20 workers by using freezer and cooler to preserve the raw material and for cooling beverages has been rightly set aside by the Insurance Court since it does not come within the purview of manufacturing process as defined by Section 2(k) of the Factories Act.” In the light of the discussion on facts and principles of law, I hold that the dismissal of the application by the court below is not legal and proper. In the result, the judgment under appeal is set aside. I.C.No.20/2007 is allowed. It is declared that the applicant establishment is not liable to be covered under the ESI Act and the applicant is not liable to any ESI contribution as per law. HARUN-UL-RASHID, Judge. bkn/-