IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH & THE HONOURABLE MR. JUSTICE M.L.JOSEPH FRANCIS MONDAY, THE 25TH MAY 2009 / 4TH JYAISHTA 1931 Ins.APP.No. 55 of 2003(A) ------------------------- EIC.6/1999 of E.I.COURT, KOZHIKODE .................... APPELLANT/RESPONDENT ---------------------------------------- THE REGIONAL DIRECTOR, E.S.I.CORPORATION THRISSUR. BY ADV. SRI.P.SANKARANKUTTY NAIR RESPONDENT(S): APPLICANT ------------------------ M.JOY VARGHEESE, MANAGING PARTNER, M/S.KEYEFPEE (KERALA POOTWEAR PRODUCTS), 12/578-A KAMATHI LANE, KOZHIKODE. ADV. SRI.A.M.SHAFFIQUE, SENIOR ADVOCATE SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR THIS INSURANC APPEAL HAVING BEEN FINALLY HEARD ON 25/05/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K. M. JOSEPH & M.L. JOSEPH FRANCIS, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - INS.A.No. 55 of 2003 - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 25th day of May, 2009 JUDGMENT Joseph, J. This is an appeal filed under Section 82(2) of the Employees State Insurance Act (hereinafter referred to as 'the Act'). The respondent filed the application before the E.S.I. Court under Section 75 r/w. Section 77 of the Act seeking a declaration that the assessment of Rs.4,59,300/- towards E.S.I. contribution in respect of production charges in the Books of Account of the respondent for the period from 1.4.1991 to 31.3.1995 is unsustainable. 2. The establishment of the respondent is engaged in manufacture and sale of Micro Cellular Sheets, Hawai Chappals and Straps. The establishment is covered under the E.S.I. Act. According to the respondent, as his factory lacks facility to INS.A.No. 55 of 2003 2 manufacture the required quantum of straps and chappals for marketing, he used to place orders on contract basis to outside manufacturing units. It was their case that to maintain the quality of chappals, it supplied Micro Cellular sheets and straps to the manufacturing units and the contractors were instructed about the details of the items to be manufactured. After the manufacturing process is over, the respondent's staff used to go over to the units and check the products and take delivery of the same. If the manufactured items were not keeping with the requirements, it would be rejected. The case of the appellants is that the payments made shown as production charges are amounts paid as wages to the employees of the contractors and they are to be treated as the employees of the respondent and they were bound to deduct the amounts under the Act, failing which action shall be taken. 3. There was an inspection by the Inspector. He found that large amounts were shown in the accounts as production charges. Therefore, Form C-18 notice proposing determination of contribution INS.A.No. 55 of 2003 3 due on adhoc basis amounting to Rs.4,59,300/- was issued on 16.3.1998. According to the appellant, there was no response and therefore the respondent was constrained to conclude the assessment ex parte and passed an order assessing Rs.4,59,300/- towards E.S.I. contribution on production charges for the period from 1.4.91 to 31.3.1995. 4. On the side of the respondent PWs. 1 to 5 were examined and Exts. P1 to P33 were marked. The appellant gave evidence as DW1 and produced Exts.D1 to D5A. The Insurance Court, on a consideration of the entire matter, allowed the application and declared that the assessment of demand of E.S.I. contribution on production charges is unsustainable. Feeling aggrieved by the said order this appeal has been filed by the E.S.I. Corporation. 5. We heard the learned counsel for the appellant and the learned counsel for the respondent. 6. The following questions are raised as substantial questions of law. INS.A.No. 55 of 2003 4 i) The scope and ambit of passing orders under Section 45A of the E.S.I. Act is properly analysed by the E.S.I. Court in strict conformity with the section while setting aside the order under challenge. ii) Whether the E.S.I. Court is justified in interfering the orders under Section 45A of the Act by declaring the order as illegal even without giving another opportunity to pass fresh orders by the quasi judicial authority under the Act. iii) Speculative anlysis of evidence can form the basis of a judgment. iv) When an assessment is made on the basis of the documentary admission made in the acocunt books whether the conclusion of the E.I. Court that the assessment is made in speculative exercise of power is justifiable in law. v) Whether the employees employed by the contractors are employees as defined under Section 2(9) of the E.S.I. Act. INS.A.No. 55 of 2003 5 vi) Whether the contractors are immediate employees coming under Section 2(13) of the E.S.I. Act.” 7. According to the learned counsel for the appellant. this is a case where pursuant to the notice issued to the respondent, there was no response on his part. Noting huge amount as production charges in the accounts, taking note of the fact that contractors were also engaged in the business and other materials it was concluded by determination order that the employees of the contractors were being effectively supervised by the respondent and consequently they would constitute employees within the meaning of the Act. The respondent failed to respond to the notice. Thereafter, according to the learned counsel for the appellant, when the liability is determined, it may not be open to the respondent to require the Court to go into the matter afresh as it were the original adjudicating authority. He further points out that, since the point of issue that arises for consideration and decision was whether there was supervision by the principal employer within the meaning of the definition 'employee', as there was clear INS.A.No. 55 of 2003 6 documentary evidence in the form of entries in the account, that the respondent was incurring supervisory charges, the true purport of the said expression could not be got over by tendering oral evidence. He would submit that it is a case where the finding is perverse. The appellant has raised a substantial question of law, which warrants consideration by this Court and in the facts of the case the answering of the same in favour of the appellant is necessary, he contends. 8. The learned counsel for the respondent on the contrary submits that this is a case where notice was issued on the basis of the inspection conducted. The case is set up on the basis of the amounts styled as production charges as also supervisory charges in the accounts. The counsel also points out that in view of the availability of jurisdiction under Section 75 of the Act, where the entire materials have been produced and evidence adduced, the mere fact that the respondent has not produced materials before the authority could not detract from the availability of jurisdiction with the court to decide the issue. INS.A.No. 55 of 2003 7 9. The Tribunal has found apparently on the strength of the depositions of PWs. 1 and 2, who are the employees of the respondent as also on the strength of the depositions of PWs. 3 to 5, who are some of the contractors, to whom the work was given, that the expression supervisory charges are nothing, but the amount expended by the respondent for the purpose of taking delivery of the product from the contractors. 10. The Insurance Court has extracted the definition of the word 'employee'. We would also refer to the same. It reads as follows: “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 INS.A.No. 55 of 2003 8 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) xx xxx ” 11. Undoubtedly the case of the respondent would not fall within the ambit of the first portion. The entire focus is whether the respondent's case would fall within the scope of the latter clause. There can be dispute that either the employment must be done within the premises of the principal employer or it is carried on in another premises, where there must be supervision of the work by the principal employer. The court has placed reliance on the decision of the Calcutta High Court to take the view that merely for the reason that the principal employer retains right to accept or reject the goods after the manufacturing is over, it would not amount to a case of principal employer supervising the employee within the meaning of the definition. In fact the learned counsel for the appellant also does not INS.A.No. 55 of 2003 9 essentially dispute the correctness of this proposition. What he would submit is the conduct of the respondent in not responding to the notice and attempting to explain away the expressions found in the documentary evidence by oral evidence. 12. In a proceedings under Section 75 of the Act, the powers of the E.S.I. Court are that of a Civil Court. The law contemplates adducing of oral evidence, production of documents and material objects. In fact necessarily it is just as a power which could have been exercised by a Civil Court . Section 75 of the Act speaks of matters to be decided by the E.S.I. Court. It reads as follows: “S.75. Matters to be decided by Employees' Insurance Court.- (1) If any question or dispute arises as to - a) whether any person is an employee within the meaning of this Act or whether he is liable to pay the employee's contribution, or b) the rate of wages or average daily wages of an employee for the purposes of this Act, or INS.A.No. 55 of 2003 10 c) the rate of contribution payable by a principal employer in respect of any employee, or d) the person who is or was the principal employer in respect of any employee, or e) the right of any person to any benefit and as to the amount and duration thereof, or (1)ee) any direction issued by the Corporation under Section 55A on a review of any payment of dependents' benefit, or (2) xx g) any other matter which is in dispute between a principal employer and the Corporation, or between a principal employer and an immediate employer or between a person and the Corporation or between an employee and a principal immediate employer, in respect of any contribution or benefit or other dues payable or recoverable under this Act, or any other matter required to be or which may be decided by the Employees' Insurance Court under this Act. INS.A.No. 55 of 2003 11 such question or dispute subject to the provisions of sub- section (2A) shall be decided by the Employees' Insurance Court in accordance with the provisions of this Act .” 13. If that be so, in a case where matters are such that they are to be decided by the Court under Section 75 read with the powers available to it under Section 78, it can safely be said that the proceedings before the E.S.I. Court is in the nature of an original proceedings. It cannot be said to be an appeal as such. The disputes are to be finally decided by the designated authority, viz. the Insurance Court and none other. We further notice that in this case, as already noticed, both sides have adduced evidence. It is true as the learned counsel pointed out, that it has been brought to the notice of the Insurance Court that the respondent did not respond to the notice. But can it be said that the E.S.I. Court was without jurisdiction to decide the issue? The Insurance Court did have the jurisdiction to decide the issue. Once it is found that the E.S.I. Court did have the jurisdiction to decide the issue, at worst it could be said that the conduct of the INS.A.No. 55 of 2003 12 respondent was a matter, which was to be weighed by the Insurance Court. 14. On a perusal of the entire evidence, the Insurance Court has come to the conclusion that the respondent is not liable to pay the amount, as the employees of the contractors are not to be treated as his employees. The case of supervision set up by the appellant was found not acceptable. The very same principle has been accepted by the Full Bench of the Madras High Court in E.S.I. Corporation rep. by its Regional Director v. Bethal Engineering Company, rep. by Ms. S.V. Umayal (2008 (1) LLJ 278). Essentially it may amount to a question of fact as to whether there is supervision. Applying the doctrine to the facts of this case, it may not give rise to a substantial question of law. 15. It is true that the expression used in the account book is supervision charges. It appears to be a little incongruous to say that it is to be treated as expenses. In this case, it should be noted that PWs. 3 to 5 are persons who are contractors to whom work was given. They have given evidence as to the system in practice. They specifically INS.A.No. 55 of 2003 13 spoke about absence of supervision. PWs. 1 and 2 have gone into the box and spoke about the amount representing supervision charges being expenses. We cannot say that it is a finding which is perverse. It is a view taken by the Court accepting the version of the respondent and its witnesses. In this view of the matter, we do not think that the appellant has made out a case for interference. 16. The appeal fails and it is dismissed. (K. M. JOSEPH) Judge (M.L. JOSEPH FRANCIS) Judge tm