THE HON’BLE SRI JUSTICE G.KRISHNA MOHAN REDDY C.M.A.No.1736 of 1997 JUDGMENT: 1. This Civil Miscellaneous Appeal is filed under Section 82 of Employees State Insurance Act being aggrieved by the order passed in E.I. Case No.31 of 1995 dated 11.7.1997 on the file of the Employees Insurance Court and Chairman, Industrial Tribunal-I, Hyderabad. 2. The appellant is the petitioner and the respondents are the respondents in that case. For the sake of convenience, the parties hereinafter referred to as they arrayed before the Tribunal below. 3. The petitioner filed the E.I. case under Section 75(1)(g) of Employees State Insurance Act, 1948 for declaration “Club is not liable to pay contribution to the E.S.I. Corporation towards its employees” as demanded by the latter on the ground that it would fall within the ambit of the provisions of the Act for doing so. 4. Briefly the petitioner’s claim is that it is a Club registered under the Societies Registration Act with the objects of providing recreation, sports, reading room etc. and also to give dinners to its members and it is not carrying on any commercial activity. Further, the respondent-Corporation, is demanding it to make contributions for its employees and also on amounts spent for repairs and maintenance of their building even though, the activities of the club are without any commercial moto, therefore it is not liable to pay any contributions to the ESI Corporation as demanded. 5. The respondents 1 to 3 mainly resist the plea of the petitioner on the ground that the petitioner maintains a Bar and Canteen apart from carrying other activities employing more than 20 persons and is manufacturing food items using two deep freezers in the Bar section and one deep freezer and two grinders for manufacturing of eatable items with the aid of power in the restaurant section and therefore comes within the purview of the Act and hence its demand is proper. It is also the claim of the third respondent that the petitioner is a commercial establishment with 3000 members and its members are charged for eatables supplied to them and it is an industry while emphasizing that it is liable to pay the contributions in question. 6. Based on the pleadings, the Court below framed the following issues: 1. Whether the petitioner is not liable to be covered under the provisions of ESI Act for the reasons stated in the petition? 2. Whether the petitioner is not liable to pay the contributions as demanded by the Respondent-Corporation under the ESI Act? 3. To what relief? 7. For the petitioner, its Administrative Officer was examined as P.W.1 and Exs.P1 to P13 were marked. For the respondents 1 and 2, R.Ws.1 to 3 were examined and Exs.R1 to R14 were marked and for respondent No.3, R.W.4 was examined and Ex.R15 was marked. After examining the material available and considering various aspects, the Tribunal below held as follows: “Issue No.1: That the petitioner-Club is liable to be covered under the ESI Act so far as the employees attached to the canteen or restaurant and the Bar are concerned. The other employees including the labour engaged in construction of a building and its repairs and maintenance are not covered. Issue No.2: In view of my finding on Issue No.1, the petitioner is liable to pay a part of the contribution demanded by the Respondent-Corporation. Issue No.3: In the result, the petition is allowed in part and it is ordered as follows: i) The petitioner is liable to pay contribution for the employees employed in kitchen and the waiters attached to it. ii) The petitioner is liable to pay the contributions for the employees that worked in the Bar and the employees that served the drinks in the Club prior to imposition of prohibition by the Government. The Club is also to pay contribution on the said employees if the Bar is restored after the Government lifted the ban so far as IMFL is concerned. iii) The Club need not pay the contribution for other employees working in the administrative section or in the library or in Outdoor and Indoor games. The Club also need not pay the contribution on the labour engaged for construction work. iv) The Club should produce all the records before the Inspector in whose Division the Club is located within one month and the Inspector shall decide the contribution payable by the Club for the employees working in the kitchen and bar and the employees attached to them. The petitioner-Club should pay the said amount within one month after receiving the notice from the Inspector fixing the contribution. If the Club does not produce records, the Inspector can make best judgment assessment”. 8. Learned counsel for the petitioner mainly attacks the impugned order on the ground that in order to pay necessary contributions, it should have been run for commercial purpose or there should be manufacturing process, which is not the case here as preparation of food is not manufacturing process and the employees of the restaurant do not fall within the peripheral of the employees of the establishment to apply the relevant provisions and in fact, in Nizam Club, Fatehmaidan Club and Secunderabad Club cases, the Tribunal under similar circumstances held that they would not come within the purview of the Act and the Tribunal below basing upon erroneous conclusions, delivered the impugned order and hence it is liable to be set aside. To substantiate his plea, he has placed reliance upon decisions reported in EMPLOYEES STATE INSURANCE CORPORATION v. HYDERABAD RACE CLUB AND ANOTHER[1], M/s COCHIN SHIPPING COMPANY, PAUL ABRAO AND SONS AND P.K.MOHAMMAD PVT. LTD., COCHIN v. EMPLOYEES STATE INSURANCE CORPORATION[2], VRINDAVAN HOTELS (P) LTD. v. E.S.I. CORPORATION[3] and REGIONAL DIRECTOR, EMPLOYEES’ STATE INSURANCE CORPORATION, MADRAS v. GODREJ SOAPS (PVT.) LTD., MADRAS[4]. 9. Therefore, it is to be mainly examine as to whether the petitioner comes within the purview of the relevant provisions of the Act in the light of the contentions raised and the Tribunal below properly considered the question and arrived at correct conclusions and whether the impugned order is tenable or not. 10. Significantly, it is to be considered the meaning of ‘factory’, as defined in Section 2(12) of the Employees State Insurance Act and the corresponding G.Os. issued by the State Government. “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 its ordinarily so carried on. but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952) or a railway running shed). 11. Further, the State Government issued Notification in G.O.Ms.No.788, Health dated 25.9.1974 under Section 1(5) of the ESI Act extending the provisions of the Act to; (1) Premises where 10 or more persons but less than 20 persons were employed for wages on any day of the preceding 12 months and in any part of which a manufacturing process is being carried on with the aid of power; (2) Any premises where twenty or more persons are 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 and also; (3) The following establishments where twenty or more persons are employed for wages on any day of the preceding twelve months namely (i) Hotels (ii) Restaurants (iii) Shops (iv) Road Motor Transport Establishments (v) Cinemas including preview theatres and (vi) Newspaper establishments. (4) The Government also issued notification in G.O.Ms.No.297 Health dated 25.3.1975 covering the above and also mentioning the areas in which the establishments are situated. 12. Therefore, by virtue of the meaning of word ‘factory’, coupled with the said notification issued by the State Government, what is most important here is that there should be a manufacturing process coupled with other aspects incorporated therein in order to bring the petitioner within the ambit of the Act. Virtually, no emphasis is given to the effect that there should be a shop or industry with commercial purpose for the purpose of bringing it within the four walls of the Act. 13. I n CRICKET CLUB OF INDIA AND OTHERS v. EMPLOYEES STATE INSURANCE CORPORATION[5] considered the meaning of manufacturing process under identical circumstances and it was held as under: “So far as the applicability of the Employees State Insurance Act, 1948 is concerned, the profit-making motive is not relevant. Supply of food and beverages by the Club amounts to sale to its members and their guests. This activity is covered by the definition of ‘manufacturing process’ as found in Section 2(k) of the Factories Act, 1948. It is not disputed that Club has employed ten or more persons in its premises. In the premises a ‘manufacturing process’ is being carried on viz. the preparation of food and beverages for its use and sale to the members and their guests. Hence it satisfies the definition of the term ‘factory’ under Section 2(12) and is, therefore, by virtue of Section 1(4), covered by the ESI Act”. 14. Further, in BANGALORE CLUB v. REGIONAL DIRECTOR, ESI CORPORATION, BANGALORE[6] same question came up for consideration and with reference to relevant circumstances, it was held as under: “Even though the Catering Section of the Club may not be called a ‘factory’ within the meaning of that term as it is ordinarily understood, the definition of ‘manufacturing process’ in the Factories Act is wide enough to cover the preparation of foodstuffs and the fact that the Restaurant Section of the Club is run only for the benefit of its members with the other Sections of the Club come within the purview of the Act”. 15. From these decisions, it is categorical that it is enough if there is manufacturing process subject to complying with the other formalities to bring an establishment within the ambit of Section 2(k) of Factories Act, 1948. There is no dispute that the other formalities required by the provision are fulfilled here. Therefore, irrespective of whether the petitioner is a shop or industry with some commercial activity still the entire unit or the Restaurant and Bar Sections of it fall within the ambit of the Act for the purpose of paying necessary contributions for its employees. 16. It is pertinent to note here that admittedly, the Bar and Restaurant of the petitioner are the integral parts of it and they are not different from each other. Therefore, it is debatable as to whether they are to be taken as one unit for the purpose of applying the provisions of the Act here. If the Restaurant has got separate employees and thus, it has been treated as separate entity in the entire establishment, it may be that it is to be taken as separate unit for the purpose of the Act. However, as it is held by the Tribunal that the Bar and the Restaurant are to be treated separately for the purpose of the application of the Act and in fact as there is no appeal or revision preferred against that finding, the question of examining that aspect now does not arise at all. 17. In EMPLOYEES STATE INSURANCE CORPORATION v. HYDERABAD RACE CLUB (1 supra), the Supreme Court had occasion to consider as to whether Hyderabad Race Club would fall within the scope of the Act by virtue of notification of 1975, mainly with regards to number of workmen engaged therein for the purpose of bringing the Club within the purview of the Act and basing on the question of number of workmen employed in the respondent-Race Club held that the provisions of the Act would apply to the respondent, which finding has no relevancy here because apparently there is no dispute here about the number of workmen employed in the petitioner establishment which satisfies with the definition of ‘factory’ in that context. 18. In M/s COCHIN SHIPPING COMPANY v. EMPLOYEES STATE INSURANCE CORPORATION (2 supra), there was a question with reference to extending the provisions of the Act to Shops, Hotels and Restaurants and other specified establishments in specified areas, whereas it was claimed on behalf of the appellant therein that the activity carried on by it (the appellant) was merely processing documents at Customs Clearing House without rendering any service to any customer at its office or establishment and hence it would not fall within the meaning of shop, but the Supreme Court dismissed the claim holding that it was a shop for which the Act would apply specifying reasons for coming to such a conclusion which has no bearing here as the question involved here is different. 19. Further, in REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION, MADRAS v. GODREJ SOAPS (PVT.) LTD., MADRAS (4 supra), a demand was made by the E.S.I. employees to pay necessary contributions under the Act in respect of workers of a canteen was situated within the premises of the company, which actually supplied water, electricity and security facilities to the canteen free of cost and it was observed that the canteen workers would not come within the peripheral of the employees of the company as both the establishments were independent of each other and hence the management of the company was not liable to make necessary contributions towards the employees of the canteen, which observation is not applicable here, therefore. 20. Further, even though it is claimed on behalf of the petitioner that the Tribunal exempted Nizam Club, Fatehmaidan Club and Secunderabad Club for payment of necessary contribution under the Act under similar circumstances, no corresponding judgments rendered by the High Court and the Supreme Court have been filed before the Court in order to apply findings given by the Tribunal. 21. What is important here is that admittedly, the petitioner has been carrying on the Bar and Restaurant and it is not the claim of the petitioner that they do not conform to the number of employees as required in order to exclude them from the purview of the Act and the notifications subsequently issued. 22. Ultimately, I find no reason to interfere with the impugned order. The appeal is devoid of merits and is liable to be dismissed. Accordingly, this Civil Miscellaneous Appeal is dismissed. No order as to costs. ______________________________ JUSTICE G.KRISHNA MOHAN REDDY Date: 6.7.2011 DA [1] 2004(5) Supreme 674 [2] (1992) 4 SCC 245 [3] 2005 LLR 991 [4] 2006 LLR 1191 [5] 1993(1) LLJ 642 High Court of Bombay [6] 1994(2) LLJ 780 (Karnataka)