IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE M.N.KRISHNAN MONDAY, THE 26TH MAY 2008 / 5TH JYAISHTA 1930 Ins.APP.No. 4 of 2004 ------------------------------ EIC.36/2000 of E.I.COURT, KOZHIKODE ...................................... APPELLANT/RESPONDENT: -------------------------------------- THE REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION, THRISSUR. BY ADV. SMT.T.D.RAJALAKSHMI RESPONDENTS: APPLICANT: ---------------------------------------- CHOICE BOARDS & WOODS INDUSTRIES, KATAMPALLY POST, KANNUR-670 011, REP. BY ITS MANAGING PARTNER, MR.C.P.SUNAID. BY THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 23/05/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: M.N. KRISHNAN, J. = = = = = = = = = = = = = = INS. APPL. NO. 4 OF 2004 = = = = = = = = = = = = = = = Dated this the 26th day of May, 2008. J U D G M E N T This appeal is preferred against the order of the Industrial Tribunal, Kozhikode in EIC 36/00 whereby the said tribunal held that the demand of Rs.17,555/- towards contribution on omitted wages is unsustainable. It is challenging that the present appeal is filed. Substantial questions of law 1 and 2 are raised in this appeal and they are as follows: (1) Whether on the facts and circumstances of the case and Sec.2(9) clause (ii) of the ESI Act the Court below was right in declaring that the demand of Rs.17,555- towards contribution on omitted wages is unsustainable? (2) Is not the E.I. Court bound by Sec.41 of the ESI Act which categorically state that the Principal employer is entitled to recover from the immediate employer any contribution paid on behalf of them. INS. APPL. 4 OF 2004 -:2:- Points 1 and 2: 2. The point that arises for determination in the appeal is regarding the correctness of the order passed by the Industrial Tribunal. An application was filed before the Tribunal to hold that the claim by the Employees State Insurance Corporation towards contribution for the work done by a outside agency namely M/s Famous Timber Industries is not valid. A perusal of the award would reveal that the respondent/company herein is mainly engaged in black board frame manufacturing. It is also submitted that they have given some work to the other Company and therefore the said Company will be the immediate employer who is liable to pay and as per the provisions of S.40 of the Employees' State Insurance Act the principal employer is bound to pay the contribution first and later recover it under Sec.41 from the immediate employer. 3. The learned counsel appearing for the appellant had drawn my attention to the definition of employee under Section 2(9) of the Employees' Insurance Act. “Employee” means any person employed for wages in or in connection with work of a factory or INS. APPL. 4 OF 2004 -:3:- establishment to which this Act applies and - (i) who is directly employed by the principal employer, or any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere.” 4. In such cases under Section 40 of the Act, the principal employer shall pay in respect of every employee, and under Section 41 the principal employer's right is preserved to collect it from the immediate employer. 5. A reference to the facts in this case admittedly would reveal that the respondent is a factory mainly dealing with the manufacture of black boards. What it has done is to direct M/s Famous Timber Industries to do certain works through their employees. Now it is contended before the Tribunal since Famous Industries is an independent firm having independent existence the wages paid by them to the said employees cannot be take on as the wages paid by the respondent and therefore there cannot be any claim for contribution. INS. APPL. 4 OF 2004 -:4:- 6. At the first blush the argument raised by the respondents may appear to be persuasive. But the fact remains that it is by entrustment of the responsibility to do a part of the work which they are expected to do with the known firm namely M/s Famous Timber Industries, they had done the work. When such work is not done in a satisfactory manner there is always power left with the respondent company herein to reject it. The definition of employee takes in the very work done elsewhere as well and such positions are clearly covered by Sections 40 and 41 by use of the word direct employer and immediate employer. This position has been considered by this Court in a decision reported in Regional Director, E.S.I. Corporation v. Ramlal Textiles (1990 (1) KLT 548) which has held as follows: “Work is admittedly done by workers engaged by the master weavers in premises outside the establishment of the respondent. Finished fabrics are returned to the respondent who makes payments. Amounts required to be paid as wages are separately shown in the accounts. It is evident that the master-weavers will retain their commission INS. APPL. 4 OF 2004 -:5:- or remuneration due to them for their investment in time. Right of rejection of substandard cloth spells out effective degree of supervision and control. Identical work as is done by outside workers is done in the premises of the factory of the respondent who employ employees for that purpose. The out-workers who are paid wages through contractor are employees as defined in S.2 (9)(ii) of the Act since they do the work which is ordinarily part of the work of the factory of the respondent and which is incidental to the purpose of the factory and which is subject to the supervision of the principal employer. This conclusion cannot be faulted merely because respondent has tried to camouflage the real relationship by creating smoke-screen of sale of yarn and purchase of woven cloth.” 7. Therefore the entire case law on the subject has been discussed and the Court came to the conclusion that it is done by the outside agency and when the power is there with the principal employer to reject the work then necessarily it will come under the ambit of the definition of the employee under Section 2(9) of the ESI Act to which INS. APPL. 4 OF 2004 -:6:- Sec.40 and 41 will apply. When it is so in the present case it has to be held that the Court below has erred in giving an interpretation that M/s Famous Timber Industries is an independent establishment, it has nothing to do with the principal employer. The amount has been paid to the Famous Timber Industries for the work which was ordered to be done by the respondent/company and therefore Famous Timber Industries can only be considered as an immediate employer as defined under Section 41 and the liability as fixed in S.40 and 41 of the Act. Therefore the order under challenge suffers from infirmity and so it is set aside and the Employees' State Insurance Corporation is permitted to proceed in accordance with law for the realisation of the amount. M.N. KRISHNAN, JUDGE. ul/-