IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE A.K.BASHEER & THE HONOURABLE MR. JUSTICE P.Q.BARKATH ALI FRIDAY, THE 19TH MARCH 2010 / 28TH PHALGUNA 1931 Ins.APP.No. 2 of 2010 (A) ---------------------------------------- EIC.2/2005 of E.I.COURT, KOZHIKODE .................... APPELLANT/RESPONDENT ------------------------------------------- THE DEPUTY DIRECTOR, E.S.I.CORPORATION, THRISSUR. BY ADV. SMT.T.D.RAJALAKSHMY, SC, ESI CORPN. RESPONDENT : APPLICANT ------------------------------------------- GRASIM INDUSTRIES LTD., (PULP DIVISION), MAVOOR, REPRESENTED BY ITS AUTHORISED SIGNATORY ADV. SRI.E.K.NANDAKUMAR FOR R1 SRI.A.K.JAYASANKAR NAMBIAR FOR R1 SRI.K.JOHN MATHAI FOR R1 SRI.P.BENNY THOMAS FOR R1 SRI.P.GOPINATH FOR R1 THIS INSURANCE APPEALS HAVING COME UP FOR ADMISSION ON 19/03/2010, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: A.K.BASHEER & P.Q.BARKATH ALI, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Ins. Appeal No.2 OF 2010 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 19th day of March 2010 JUDGMENT Basheer, J. The Deputy Director of Employees State Insurance Corporation, Thrissur has filed this appeal against the order of the Employees Insurance Court, Kozhikode raising the following substantial question of law: “Whether the specific provision of Section 1(6) of the ESI Act which specifically makes it clear that even if the employment strength falls below the specific limit or the manufacturing process therein ceases to be carried on with aid of power the factory or establishment to which this Act applies shall continue to be governed by this Act, and also because of the judicial pronouncement of the Apex Court in AIR 1993 SC 2655, the E.I.Court was right in declaring that the applicant is not liable to pay contribution or interest on the payments made during the period from 1-7-2001 to 30-09-2001 as the unit was ceased to be a factory?” 2. The court below passed the impugned order on an application submitted by the respondent herein, under Section 75 read with Section 77 of the Employee's State Insurance Act, 1948 (for short 'the Act') seeking a declaration that the respondent company was not liable to pay contribution or interest on the payments made during the period from July 1, 2001 to September 30, 2001 as the unit had ceased to be a factory from July 1, 2001. A further declaration was sought that adjustment of Rs.19,250/- against the Ins. Appeal No.2 OF 2010 :: 2 :: disputed claim was illegal. Therefore a direction was sought to the appellant/corporation to refund the said amount. 3. The court below, after considering the rival contentions of the parties, took the view that the respondent was not liable to pay contribution or interest as demanded. Accordingly, both the prayers in the application were allowed. Hence this appeal. 4. The case of the respondent may be briefly noticed. 5. The respondent/company had stopped its manufacturing activities with effect from July 1, 2001. The service benefits of the workers and staff were settled and disbursed in terms of the agreement entered into between the management and the Employees' Unions dated July 7, 2001. However, according to the respondent, even thereafter, it was constrained to carry out certain residuary functions in the factory premises with the aid of skeletal staff. This process took nearly three months upto September 30, 2001. 6. The officers of the Corporation, however, took the view that the respondent was liable to pay contribution as provided under the Act from July 1, 2001 till September 30, 2001. Accordingly, a demand notice was issued directing the respondent to pay a sum of R.3,05,264/- towards contribution and a further sum of Rs.91,705/- towards interest. The said order was challenged by the respondent before the Employees Insurance Court, Kozhikode which culminated in the impugned order. Ins. Appeal No.2 OF 2010 :: 3 :: 7. The primary contention raised by the learned counsel for the appellant is that going by the provisions contained in Sub Section 6 of the Section 1, it cannot be said that the factory of the respondent had ceased to be covered under the Act. Sub Section 6 of Section 1 reads thus: S.1(6) “A factory or an establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time falls below the limit specified by or under this Act or the manufacturing process therein ceases to be carried on with the aid of power” 8. The contention of the appellant is that even assuming the manufacturing process had come to a halt, the so called “residuary work” in the factory would still attract the provisions of the Act and the establishment would continue to be covered under the Act till the employees were finally disengaged. In this context, learned counsel invites our attention to Sub Section 9 of Section 2 which defines “employee”. According to the learned counsel, going by the above definition any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies, and who is directly employed by the principal employer on 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, shall fall within the ambit of the definition of the employee. Ins. Appeal No.2 OF 2010 :: 4 :: Learned counsel lays heavy emphasis on the words “incidental to the purpose” of the factory or establishment and contends that even if the manufacturing process had been stopped by the management, still, whatever work that was being carried on by the employees even after cessation of the manufacturing process shall have to be treated as part of the manufacturing or business activity of the establishment, and therefore till all such activities are finally stopped, the establishment will continue to be covered under the Act. 9. We are afraid the above contention is wholly untenable. As rightly pointed out by the learned counsel for the respondent, the definition contained in Section 2(12) read with sub section 1(6) will unambiguously show that the stand taken by the appellant is without any merit or substance. 10. Section 2(12) reads thus: “Factory” means any premises including the precincts thereof-- (a) whereon ten or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on, or (b) whereon twenty or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 (Act No.35 of 1952) or a railway running shed.” Ins. Appeal No.2 OF 2010 :: 5 :: 11. It is beyond controversy that the respondent had stopped manufacturing process in the establishment in question with effect from July 1, 2001. The appellant has not disputed this assertion made by the respondent. It is true, the respondent conceded that some skeletal staff had to be engaged to complete the process of closure of the establishment like settlement of dues of the workers and staff, completion of legal formalities, etc., etc. The court below had adverted to the above aspects in their proper perspective. 12. We have carefully perused the impugned order. In our view, the conclusion arrived at by the court below is totally valid and sustainable. We do not find any reason to interfere with the order passed by the court below. 13. Learned counsel has invited our attention to a decision of their Lordships of the Supreme Court in Employee's State Insurance Corporation V. M/S Hotel Kalpaka International (AIR 1993 SC 1530)]. The said decision has no application at all in the facts and circumstances of this case. What had come up for consideration in that case was whether in the facts and circumstances of the case the respondent/establishment had actually ceased to function with effect from the date as alleged by the establishment. The respondent in that case had refused to respond to any notice issued by the department. It had come out on record that the closure of the establishment was on March 31,1988. But the liability with reference Ins. Appeal No.2 OF 2010 :: 6 :: to contribution arose earlier. The demand was for the period from July 11, 1985 to March 31, 1988. The apex court held that so long as the establishment was covered under the provisions of the Act, it was not open to the said establishment to circumvent its liability by taking up a specious plea that it had closed down even before actual recovery proceedings had commenced. There is no merit in any of the contentions raised by the appellant. Appeal fails and it is accordingly dismissed. A.K.BASHEER, JUDGE P.Q.BARKATH ALI, JUDGE jes