* IN THE HIGH COURT OF DELHI + FAO No.88/2002 Indian Oil Corporation Ltd. ........ Appellant through: Mr. Rajat Arora, Advocate VERSUS Employees State Insurance Corporation........Respondent through: Mr. K.P.Mavi, Advocate FAO No.375/2003 Indian Oil Corporation Ltd. ........ Appellant through: Mr. Rajat Arora, Advocate VERSUS Employees State Insurance Corporation........Respondent through: Mr. K.P.Mavi, Advocate RESERVED ON: 05.05.2008 DATE OF DECISION: % 26.05.2008 CORAM: Hon'ble Mr.Justice Pradeep Nandrajog 1. Whether reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether judgment should be reported in Digest? Yes : PRADEEP NANDRAJOG, J. 1. The above captioned appeals lay a challenge to an order dated 24.12.2001 and order dated 30.01.2003 dismissing two FAO No. 88/2002 and 375/2003 Page1 of 21 petitions filed by the appellant under Section 75 of the Employees State Insurance Act, 1948. In the petition filed before the learned Judge ESI Court which is the subject matter of FAO No.88/2002 a challenge was made to an order dated 5/11.12.95 passed by the competent authority under the ESI Act 1948 followed by a letter dated 27/28.5.1996 stating that the demand raised vide order dated 5/11.12.1995 has to be satisfied. In the petition filed before the learned Judge ESI Court which is the subject matter of FAO No.375/2003 challenge was to an order dated 13.5.1996. 2. Since the facts of both cases are near identical, at the hearing held on 5.5.2008, learned counsel for the parties stated that reference may be made to the facts of FAO No.88/2002. It may be stated that the dispute between the parties pertained to 2 LPG bottling plants of the appellant at Tikri Kalan Delhi and Shakurbasti Delhi. The dispute pertains to the employment of certain casual workers engaged through independent contractors to execute works relating to cutting grass, planting trees, wood work repair (carpentry) and repair of the boundary wall of the two complexes. 3. Undisputed position is that the appellant provides better medical facilities to its employees than what is available under the ESI Act 1948 and hence has obtained an exemption under Section 90 of the ESI Act 1948 from paying any contribution under the said Act. 4. Thus, for the employees of the appellant on its pay rolls and in respect of whom benefit of medical facilities is made FAO No. 88/2002 and 375/2003 Page2 of 21 available by the appellant no contribution is payable under the ESI Act 1948. But, if the appellant does not extend the benefit of its medical facility to an employee or a category of employees, the appellant would be liable to pay contribution under the ESI Act 1948, but only for such employees who are covered under the said Act. 5. The dispute between the parties surfaced when an inspecting team from the office of the Employee State Insurance Commissioner inspected the two bottling plants of the appellant and noted that certain workmen were engaged in cutting grass, pruning and planting trees, executing carpentry work for repairing wooden fixtures and carrying out masonry work i.e. repairing existing structures. The names of these employees were not entered in the rolls of the appellant i.e. neither in the wage register nor in the attendance register. When an explanation was demanded from the appellant as to why names of these persons were not entered in the statutory registers maintained by the appellant, response was that these workmen were deployed at the site by independent contractors to whom the appellant had awarded different works. It was the case of the appellant that the works in question were not connected with the principal work being undertaken at the units i.e. bottling LPG gas in cylinders and that the works were neither incidental to or preliminary to or connected even remotely with the main work at the two units. It was stated that the persons were deputed by independent contractors to whom various works were FAO No. 88/2002 and 375/2003 Page3 of 21 awarded and that the appellant did not exercise any supervisory control over the workmen. That none of the workmen was answerable to the appellant. That payments were made to the independent contractors as per work order issued to them and as per the contract after appellant was satisfied that the necessary works were executed. 6. Even to a lay man it would be apparent that the issue had to be decided with reference to the work contract awarded by the appellant to the contractors and the focus of the inquiry had to be in relation to Section 2(9), Section 2(13) and Section 2(17) of the ESI Act 1948 which define “employee”, “immediate employee” and “principal employer” respectively. The nature of the works being executed had to be considered and the nature of supervisory control, if any, exercised by the appellant had to be considered. For unexplainable reasons the authorities under the Act kept on seeking production of the statutory record containing the names of the workmen found working at the site and the appellant continued to respond that the question of such a record being available did not arise for the reason the workmen were the employees of independent contractors. The appellant did not draw attention of the authorities under the Act that the issue had to be determined, as noted above, with respect to the work orders issued to the independent contractors and in light of the definition of employee, immediate employee and principal employee. Even the authority under the Act did not focus on the core area of dispute. Each party FAO No. 88/2002 and 375/2003 Page4 of 21 kept knocking at the wrong door. Obviously, entry was attempted through the wrong door. The result of such knocking was, the obvious, a wholly misdirected order passed not only by the authority under the ESI Act 1948 but even the learned Judge ESI Court who, as would be noted hereinafter went about determining the issue without considering the work order issued by the appellant to the independent contractors and without even considering Section 2(9), Section2(13) and Section 2(17) of the ESI Act 1948. 7. I need not note in detail the contents of the two orders passed by the authorities under the ESI Act 1948. It would be sufficient to note that the authorities held against the appellant on two counts. Firstly, that certain workmen were found engaged in activities at the units of the appellant and secondly, no record pertaining to the employment and wages payable to the employees were produced before the authorities. In other words a best judgment assessment was framed under Section 45A of the ESI Act 1948. 8. Relevant part of the two orders passed by the ESI Court which are subject matter of challenge in the two appeals may be noted at this stage before proceeding with a reference to the statutory provisions applicable and the case law on the subject. 9. In the order dated 24.12.2001 learned Judge ESI Court has held as under:- “12. The first submission of the ld. Counsel for the petitioner is that persons in respect of which the contribution has been claimed are not the employees of FAO No. 88/2002 and 375/2003 Page5 of 21 the petitioner. However, in letter Ex.PW1/2 written by the petitioner to the respondent, the petitioner has not challenged the persons in respect of whom the contribution is being demanded are not their employees. They only claimed that they have been depositing the contribution from time to time and further seeks some time to make the records of payment available. There was absolutely no contention that the employees are not their employees. 13. Not only this the basic test to determine whether a person is an employee or not under the Act is: whether he is under the control of the employee? Whether he is under the supervision of the employer? Here PW2 Sh. S.K.Puri has conceded in the cross- examination that the job done by the contractor was checked by the staff of the petitioner. He further conceded that the work done by the transport contractor was under their supervision and control. He further conceded that after grass cutting they would check whether the same had been done as per their specifications. He further conceded that they used to pay the contribution. All this make out that persons were working under the control and supervision of the petitioner and as such they were the employees of the petitioner. The submission of the ld. Counsel for the petitioner is, therefore, without force. xxx xxx xxx 17. In view of the above discussion, both issues are decided in favour of the respondents and against the petitioners.” 10. In the order dated 30.01.2003 the learned ESI Court has held as under:- “21. The first contention of the ld. Counsel for the petitioner is that the employees are not performing any integral or incidental work of the petitioner-Corporations and as such, are not liable to be covered under the Act. However, the workers employed in connection with the work of gardening, grass-cutting etc. cannot be said to be not employed in connection with the work incidental to the work of the petitioner-Corporation as it is they who make the premises and its surroundings fit for carrying out the operation of the petitioner-Corporation. FAO No. 88/2002 and 375/2003 Page6 of 21 The Act provides for social security of the workers and cannot be interpreted in a manner as to exclude a set of workers who are employed by the employer but are deliberately given a nomenclature so as to suggest that they are not the employees under the Act. In a case reported as Royal Talkies Vs. ESIC 1978 II LLN 268, it was held that keeping the Cycle stand and running a Canteen within the cinema premises are incidental or adjunct to the primary purpose of the Theatre and, as such, the workers employed therein were held to be the employees within the meaning of Section 2(9) of the Act. In order to bring an employee within the sweep of the Act, it is enough that the work done by him be ancillary, incidental or may have some relevance or link with the object of the establishment. Here, the employees engaged in gardening, grass-cutting etc. are making the surroundings fit and appropriate for the operation of the petitioner-Corporation and, as such, they are employed in connection with the work of the petitioner-Corporation. 22. The next contention is that the employees of the independent contractors cannot be counted to be the employees of the petitioner-corporation in view of the authority of Calcutta Electricity Supply Corporation(supra). However, the facts of that case are quite different as in that case the contractors were electrical contractors who were holding certificate of competence in their own field and were required to obtain license before engaging in any contract. No such case is made out in the instant case as the work admittedly undertaken by them is of ordinary nature and not technical or specialised as was the case in the aforesaid case. 23. Not only this, on perusal of the material on the record, I find that the petitioner-Corporation was not totally averse to make payment regarding employees of the contractors employed by them. This is reflected in the documents. Ex. RW-1/6 & Ex.RW-1/7, wherein the petitioner sought time to furnish its details of the contractors and their compliance with the Act. Similarly, in the letter Ex. PW-1/4 dated 23-11-1995, the petitioner-Corporation expressed its inability to produce the necessary documents to explain the case. As such, it is clear that they deliberately withheld the documents and the necessary records from the respondent- Corporation as well as from this court and, as such, are liable to suffer for the same. Accordingly, the FAO No. 88/2002 and 375/2003 Page7 of 21 submissions made by the ld. Counsel for the petitioner that the employees of the contractors are not the employees within the meaning of the Act as they were not performing any incidental or integral work of the petitioner-corporation or that they were employed by the independent contractors for whom the petitioner- Corporation is not responsible, cannot be accepted in view of the wide and sweeping meaning of the 'employee' as defined in Section 2(9) of the Act. xxx xxx xxx 29. In view of the above discussion, the authorities cited by the ld. Counsel for the petitioner regarding the definition of 'employee' and barred by limitation are of no help to the petitioner. The issue is accordingly decided in favour of the respondent and against the petitioner. ” 11. A perusal of the ESI Act 1948 would reveal that vide Section 39 thereof an employer is required to pay contributions in respect of such employee to the Employees State Insurance Corporation as are covered by the Act. Section 44 of the said Act requires an employer to maintain registers as required by law and furnish returns to the authority under the Act. Where, in respect of a factory or establishment no returns, particulars, registers or records are submitted, furnished or maintained, the Corporation may on the basis of the information available to it and after giving a reasonable opportunity to the employer of being heard, by an order, determine the amount of contributions payable in respect of the employees of that factory or establishment. Section 45A embodies the principles of best judgment assessment. 12. A forum of challenge is available under Section 75 of the ESI Act 1948 to an employer to question orders passed by the FAO No. 88/2002 and 375/2003 Page8 of 21 authority under the Act relatable to determination of liability of an employer to pay contribution pertaining to an employee. The forum is a Court having all the powers of a Civil Court. 13. The definition of the terms “Employee”, “Principal employer” and “Immediate employer” under the ESI Act need to be noted. The term “employee” is defined under Section 2(9) as under: “Section 2(9) "employee" means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and- (i) 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 or elsewhere; or (ii) who is employed by or through an immediate employer, on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or (iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service; and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment or any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961(52 of 1961), or under the standing orders of the establishment; but does not include - (a) any member of the Indian naval, military or air FAO No. 88/2002 and 375/2003 Page9 of 21 forces; or (b) any person so employed whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government a month: Provided that an employee whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period;” 14. The term “immediate employer” is defined under Section 2(13) as under: “Section 2(13) "immediate employer", in relation to employees employed by or through him, means a person who has undertaken the execution, on the premises of a factory or an establishment to which this Act applies or under the supervision of the principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in, or incidental to the purpose of, any such factory or establishment, and includes a person by whom the services of an employee who has entered into a contract of service with him are temporarily lent or let on hire to the principal employer and includes a contractor;” 15. The term “Principal employer” is defined under Section 2(17) as under: “"principal employer" means- (i) in a factory, the owner or occupier of the factory, and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under the Factories Act, 1948 (63 of 1948); the person so named; (ii) in any establishment under the control of any department of any Government in India, the authority FAO No. 88/2002 and 375/2003 Page10 of 21 appointed by such Government in this behalf or where no authority is so appointed, the head of the Department; (iii) in any other establishment, any person responsible for the supervision and control of the establishment;” 16. The definitions elaborately describe and determine the circumstances which bring a workman under the purview of the term “employee” for the purposes of the Act. The wide span of the definition of “employee” can be understood from the fact that an employee is someone associated with not just the principal activity of the factory or establishment but also any work “incidental to” or “preliminary to” or “connected with” or “Ordinarily part of” for “the work of the factory or establishment” or “purpose of factory or establishment”. 17. Thus, in effect, the definition does not make any distinction between technical and non-technical employees and extends to skilled, semi-skilled, clerical and employees performing manual functions. Also, there is no distinction between those employed on time rate or piece rate basis. It hardly matters whether the employment is permanent, temporarily or casual. But the employment must relate to Section 2(9) of the Act. 18. However, the definition cannot be understood to include within its scope just every person engaged by an employer. If that was the intention of the legislature, an inclusive definition would not have been provided for the term “employee” and a general definition, interpreted liberally would have served the purpose as FAO No. 88/2002 and 375/2003 Page11 of 21 good. In the decision reported as Regional Director, Employees' State Insurance Corporation, Trichur v. Ramanuja Match Industries (1985 I.L.L.N. 249) it was held that even though the ESI Act 1948 is a beneficial legislation which needs to be interpreted liberally, the court is not to travel beyond the scheme of the statute and extend the scope of it to those not covered by the scheme of the statute on the pretext of extending statutory benefits. It was held that the Act does not have a universal coverage. 19. A bare perusal of Section 2(9) of the ESI Act 1948 makes it evident that to come within the compass of the definition of the term “employee” there has to be an employment. Now, the distinction between an employment and engagement has to be kept in mind. Further, the employment has to be in connection with the work of the establishment or incidental to or preliminary to but connected with the work of the establishment. 20. Employment of necessity involves a contract of service pursuant to which a person, called employee, enters into service of an employer in connection with some integral part of the operations carried on by the employer. The employment may be for a short period and may be paid for daily. It would be an employment bringing the employee within the sweep of Section 2(9) of the Act. On the other hand, a person engaged casually in connection with processes which are not integral parts of or incidental to or preliminary to or connected with the operations of the FAO No. 88/2002 and 375/2003 Page12 of 21 establishment, though such engagement may be for long period, such deployment would not make the workman an employee as defined under Section 2(9). 21. In the decision reported as Gnanambikai Mills Ltd. Vs. ESIC (1970) 2 LLJ 233 it was held that the relevant question in deciding whether a casual employee would fall within the definition Section 2(9) of the Act was: whether the work done by him is done in connection with the work of the factory and whether or not it is casual or precarious. This was a decision of a Single Judge which was affirmed by the Division Bench in the decision reported as ESIC Vs. Gnanambikai Mills Ltd. (1974) Lab.IC 798. A caveat may be lodged. As held in the decision reported as ESI Corporation Vs. Ayurvedic ICP 1979 Ker.LT 897 the essential distinction between “engagement of a person to do particular items of work” and “employment of a person in service” has not to be lost sight of. 22. A Division Bench of the Kerala High Court, in the decision reported as Regional Director, ESIC Vs. P.R.Narahari Rao, while dealing with the subject at hand, in para 7 of the report, observed as under:- “7. .......... The oft repeated distinction is that between an “employment” and “engagement” if a person is engaged casually for a purpose unconnected with the operations of the establishment, or some work which does not form the integral part of such operations, he may not be an employee since there would be no employer -employee relationship between them only in consequence of the casual engagement for FAO No. 88/2002 and 375/2003 Page13 of 21 purposes unconnected with the main operations of the establishment. On the other hand, if a person is employed, though casually and for a very short period of time, but in connection with the processes which are integral and connected with or incidental or preparatory to the operations of the establishment, then he may be an employee entitled to coverage under the Act.” 23. Another facet has to be considered. As held in the majority view of the Hon'ble Supreme Court in the decision reported as Calcutta Electricity Supply Corporation & Ors. Vs. Subhash Chandra Bose & Ors. 1992 ILLN 353 where the workman is deployed through a contractor the interplay of employee, immediate employee and principal employer has to be considered. This brings out the concept of supervision or supervisory control of the principal employer on the employee. 24. Before noting the relevant observations of the majority view of the Hon'ble Supreme Court in Subhash Chandra Bose's case (supra) it may be noted that “employment” denotes a larger concept than what is denoted by the term “engagement”. Employment connotes a master and servant relationship and a concept of non-casual service. Engagement connotes a casual employment, casually made for a casual work. In the decision reported as ESIC Vs. Ayurvedic Industrial Cooperative Pharmacy 1980 (40) FLR 409(Kerala), vide para 8, it was noted that there may be engagements which may not amount to service. Many instances can be envisaged where a person does work for another without entering into his service, and on the basis merely of a contract to FAO No. 88/2002 and 375/2003 Page14 of 21 carry out such work. No doubt, service is also a contractual relationship, but where there is no case of a person entering into the service of another, employer-employee relationship does not come into being. For instance, a porter undoubtedly works for