IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE V.RAMKUMAR WEDNESDAY, THE 15TH JULY 2009 / 24TH ASHADHA 1931 Ins.APP.No. 29 of 2005() ------------------------ IC.10/2000 of E.I.COURT, KOLLAM .................... APPELLANT/OPPOSITE PARTY. --------------------- THE REGIONAL DIRECTOR, ESI CORPORATION, THRISSUR. BY ADV. SRI.T.V.AJAYAKUMAR RESPONDENT(S): --------------- SRI.G.SIVAPRASAD, PROPRIETOR, M.S.BRICKS, CHALAKKARA, NEDUMPANA, KOLLAM. ADV. SRI.K.SUBASH CHANDRA BOSE FOR R1 THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 01/06/2009, THE COURT ON 15/07/2009 DELIVERED THE FOLLOWING: V. RAMKUMAR, J. * * * * * * * * * * * * * * * * * * Ins. Appeal No. 29 of 2005 * * * * * * * * * * * * * * * * * * Dated: 15th day of July 2009 JUDGMENT Sl.No . Inner Titles Paragraphs 1 The background facts (A to I) 2 2 Substantial questions of law raised 3 3 The Advocates who appeared 4 4 The Employer's arguments 5 5 JUDICIAL EVALUATION 6 to 13 A. Appellate re-appraisal of evidence 7 and 8 B. Statutory scheme for coverage under the E.S.I.Act 9 and 10 C. The case-law on various aspects 11 I. Object of the Act II. Inspection report III. Burden of proof IV. Employee V. Relationship between two or more premises of the same employer VI. Factory VII. Shop VIII. Wages IX. Contribution X. E.I. Court D. Substantial question of law considered 12 E. Conclusion 13 Ins. Appeal No. 29 of 2005 -:2:- In this appeal filed under Sec. 82 (2) of the Employees' State Insurance Act, 1948 (hereinafter referred to as “the Act” for short), the Regional Director, E.S.I. Corporation, Thrissur, challenges the order dated 28-10-2004 passed by the Employees' State Insurance Court, Kollam (hereinafter referred to as the E.I. Court), holding that the establishment by name M.S. Bricks at Nedumpana , Kollam belonging to the respondent herein is not covered under the provisions of the Act. The impugned order was passed by the E.I. Court on an application filed as I.C. 10 of 2000 by the respondent/employer under Sections 75 to 77 of the Act. THE BACKGROUND FACTS 2. The facts leading to the impugned order can be summarised as follows:- A) The respondent herein namely G. Sivaprasad is the Proprietor of M/s. M.S. Bricks, Chalakkara, Pallimon, Nedumpana, Kollam. The said proprietary concern is engaged in the manufacture of bricks. Electric power is used Ins. Appeal No. 29 of 2005 -:3:- for the manufacturing process by installing a 20 HP motor. The consumer number assigned by the Kerala State Electricity Board to the establishment is 7074. It is an E.S.I. Unit which was started in the year 1993. B) Two insurance Inspectors attached to the office of the Regional Director, Employees State Insurance Corporation (hereinafter referred to as “the E.S.I. Corporation”) visited the premises of the manufactory of the respondent on 30-3-1998. The witness examined as RW1 was one among the two inspectors who visited the manufacturing unit. A head count conducted by the Inspectors showed that there were 13 employees working in the manufactory of the respondent. The Insurance Inspectors thereupon prepared Ext.B1 preliminary inspection report in From No. C10. In Ext.B1 report, the Inspectors prepared a list of the 13 employees found working in the factory, indicating their address and the wages paid to them. The signatures of those employees were also taken against their names. Those employees are:- i) Mangalanandan - Foreman receiving Rs. 75/- as wages. ii) Kochupappu Chathan Pullan - Rs. 60/- Ins. Appeal No. 29 of 2005 -:4:- iii) Santha Kunhiraman - Rs. 56/- Chitra Chothr Vishnu Betharai Both from West Bengal. Details could not be obtained due to language problems vi) Sirajudheen Koyakunju - Rs. 60/- vii) Sahadevan Kunhiraman - Rs. 56/- viii) Sreekala Krishnankutty - Rs. 55/- ix) Manju Gopalakrishnan - Rs. 55/- x) Thulasi Madhavan - Rs. 65/- xi) Aji Sathyan - Rs. 60/- xii) Prasad Chellappan - Rs. 65/- xiii) Sadasivan Sankaran - Rs. 60/- C) The respondent herein was treated as covered under the Act provisionally with effect from 30-3-1998 as there were Ins. Appeal No. 29 of 2005 -:5:- thirteen persons found working on 30-3-1998. The coverage aspect was intimated to the respondent as per Ext.B2 notice dated 30-4-1998 in Form C-11 sent by registered post with acknowledgment due and received by the respondent on 16-5-1998 as evidenced by Ext.B2 postal acknowledgment. D) Thereafter the Insurance Inspector again visited the manufactory of the respondent on 7-4-1999 and on 6-5- 1999 with prior intimation. But the registers and other employment records were not made available to the Inspector. E) The Inspector of the E.S.I. corporation sent Exts. B2 and B3 letters dated 7-4-1999 and 6-5-1999 calling upon the respondent employer to start complying with the provisions of the Act. There was no response to those letters nor any gesture of compliance. F) Finally the Deputy Director of the Corporation issued Ext.B5 letter dated 18-1-2000 to the respondent employer asking him to show cause why he should not be prosecuted under Section 85 of the Act for non-production of records for verification and for non-payment of contribution and non- submission of returns . Ins. Appeal No. 29 of 2005 -:6:- G) On 19-2-2000 the respondent employer filed I.C. 10/2000 before the E.I Court , Kollam under Sec. 75 to 77 of the Act seeking the following reliefs:- a) to declare that the applicant's concern namely M/s. M.S.Bricks is not an establishment covered under the E.S.I.Act. b) to quash the prosecution proceedings initiated against the applicant as per Ext.B5 show cause notice. H) On the side of the employer two witnesses were examined as AWs 1 and 2 of whom AW1 is the respondent herein who is the proprietor of M.S. Bricks and AW2 is Mangalanandan, an employee and Exts.A1 to A12 were got marked. On the side of the E.S.I. Corporation, one of the two inspectors who conducted the inspection on 30-4-1998 was examined as RW1 and Exts.B1 to B10 were got marked. I) The E.I. Court as per the impugned order dated 28-10- 2004 upheld the claim of the respondent employer and held that since the E.S.I. Corporation has not discharged the initial burden of coverage under the Act, the establishment of the applicant is not covered under the provisions of the Act and that the applicant before the E.I. Court is not liable to comply with the provisions of the the Act in respect of his employees as claimed by the E.S.I. Corporation. The E.I. Court also quashed Exts. B2, B5, B9 and B10 notices . It is Ins. Appeal No. 29 of 2005 -:7:- the said order which is assailed in this appeal by the E.S.I. Corporation. SUBSTANTIAL QUESTIONS OF LAW RAISED 3. The three substantial questions of law formulated in Ground – K of the Memorandum of Appeal, as insisted by Sec. 82 (2) of the Act, are the following:- i) Whether the appreciation of evidence by the learned E.I. Court was not perverse and aforesaid findings are not sustainable in law ? ii) Whether the findings of the E.I. Court, that the initial burden to establish the coverage of an establishment under the E.S.I. Act is upon the Corporation is against the basic principles of onus of proof set out in Sec. 102 of the Evidence Act and the ruling reported in 1998 (1) KLT 786 ? iii) Whether the reasons stated by the learned E.I. court for not relying on Ext.B6 report and B1 list employees are not legally unsustainable and against the judgment of this Hon'ble High Court in M.F.A. 296/98 ? Ins. Appeal No. 29 of 2005 -:8:- THE ADVOCATES WHO APPEARED 4. I heard Advocate Sri. T.V. Ajayakumar, the learned counsel for the appellant/Corporation and Adv. Sri. K.Subash Chandra Bose the learned counsel appearing for the respondent/Employer . THE EMPLOYER'S ARGUMENTS 5. The learned counsel appearing for the respondent/employer made the following submissions before me in support of the impugned order:- The respondent/employer was examined as A.W1 before the Court below. He has definitely stated that the brick manufacturing unit was started in the year 1993 and there were only 5 workers till August 1999 and it was only from September 1999 onwards that he started employing two more workers to make up a total of 7 employees. His testimony has been corroborated by Exts.A1 and A2 muster Ins. Appeal No. 29 of 2005 -:9:- roles and Exts.A3 to A5 wage registers. Eventhough he was absent on 30-3-1998, he has deposed that firewood used to be unloaded in his factory and the E.S.I. inspectors might have written down the names and details of the workers in the lorry which brought firewood on that day. AW2 Mangalandan has categorically stated that his signature in Ext.B1 list was obtained under duress and that he was asked to sign at the top and bottom of a plan paper and that on 30- 3-1998 the 7 workers in that factory were himself, Kochu Pappu, Santha, Sadasivan, Sahadevan, Sreekala and Manju. The Inspectors did not take any statement from the alleged workers. The Inspectors did not also record any statement from the local people. A perusal of Ext.B1 list will show that the word “worker” is written only against Kochupappu and Santha. It was taking into account the testimony of AWs 1 and 2 and the other circumstances that the court below accepted the case of the employer. The order passed by the court below does not call for any interference. Moreover, Ins. Appeal No. 29 of 2005 -:10:- there is no substantial question of law arising for consideration in this appeal. JUDICIAL EVALUATION 6. I am afraid that I cannot agree with the above submissions made on behalf of the employer. I have perused the deposition of AWs 1 and 2 and I have no hesitation to conclude that the view taken by the E.I. Court is egregiously wrong. The court below has misread and misconstrued the evidence to reach the conclusion which it did . The respondent Sivaprasad is admittedly the sole proprietor of the brick manufacturing unit in question. There is no dispute that the said unit was started in the year 1993. It is also admitted that the brick manufacturing unit contains a machinery with a 20 H.P. Motor installed therein for making clay pulp. The crucial question for adjudication was as to whether 10 or more employees were engaged by the employer on 30-3-1998 as contended by the Corporation so as to make the brick manufacturing unit a “factory” within Ins. Appeal No. 29 of 2005 -:11:- the meaning of Sec. 2 (12) of the Act. A. APPELLATE RE-APPRAISAL OF EVIDENCE 7. The Proprietor who is also the employer was examined as AW1. He would depose that as revealed by Exts.A1 and A2 muster roles, until August 1999 he had only five workers and it was only from September 1999 that two more workers were engaged to make up a total of 7 workers in his manufacturing unit. Exts.A3 to A5 wage registers were also pressed into service to depose that until august 1999 five employees alone were paid wages and it was only from September 1999 that wages were paid to 7 employees. He admitted that AW2 Mangalanandan was one of his employees right from the inception of the unit and that he was a dependable worker. Admittedly on 30-3-1998 when two of the Inspectors visited the brick manufacturing unit the employer was not present there. His son Pradeep, who according to AW1 used to manage the affairs during his Ins. Appeal No. 29 of 2005 -:12:- absence was also not present. AW1 would have it that the Inspectors might have taken down the names and details of the workers in the lorry in which firewood was brought to his premises for the consumption of his factory. When he and his son were admittedly not present he could not have been in the know of things as to what transpired in his factory. But AW2 Mangalanandan had a totally different case. He would depose that on 30-3-1998 including himself there were 7 employees and the other 6 employees were Kochupappu, Santha, Sadasivan, Sahadevan, Sreekala and Manju. But according to AW1, there were only five workers till September 1999 and they were Mangalanandan, Kochupappu, Santha, Sadasivan and Thulasi Madhavan. AW2 has no case that a worker by name Thulasi Madhavan was an employee in the factory. But we find in Ext.B1 the name of Thulasi Madhavan as one of the 13 workers who were in the unit on 30-3-1998. The testimony of AW2 itself demolishes the case of AW1 that there were only five Ins. Appeal No. 29 of 2005 -:13:- employees in his factory until September 1999. This means that Exts.A1 to A5 records are cooked up documents created after the visit of the E.S.I. Inspectors. It is true that AW2 has stated that he was not the Foreman as is described in Ext.B1 list. But the testimony of RW1 the Inspector goes to show that AW2 introduced himself as the Foreman . What is relevant is the fact that AW2 (Mangalanandan) was a worker in the unit and this was admitted by both AW1 and AW2. According to AW2 , his signatures were obtained under duress in a plain paper at the top and bottom. He has admitted that the E.S.I. Inspectors have absolutely no enmity towards him and that he has not complained before any official that he was compelled to sign in Ext.B1 list. The irresistible conclusion can only be that Chithra, Vishnu, Sirajudheen, Aji and Prasad whose names figure in Ext. B1 list were also employees in the brick manufacturing unit thus making up a total of 13 as on 30-3-1998 as evidenced by Ext.B1 preliminary enquiry report and the list incorporated Ins. Appeal No. 29 of 2005 -:14:- therein. If so, the unit run by the respondent employer was a “factory “ within the meaning of Sec. 2 (12) of the Act. 8. The view taken by the E. I. Court that the E.S.I. Corporation has not discharged the initial burden to establish that the establishment was covered under the Act was erroneous. The court below overlooked the fact that it was the respondent/employer who approached the Court with a prayer for a declaration that his establishment is not covered under the provisions of the Act and for consequential reliefs. It was he who had the exclusive knowledge regarding the total number of persons engaged by him and the names and other particulars pertaining to them . It was, therefore, his duty to reveal the names and other particulars of the employees engaged by him and exclusively known to him. By virtue of Sec. 101 of the Evidence Act the burden was on the employer to reveal the facts within his exclusive knowledge and prove that he had Ins. Appeal No. 29 of 2005 -:15:- engaged only lesser number of employees than the minimum number stipulated by Sec. 2 (12) of the Act. It is pertinent in this connection to observe that in the petition filed by him before the E.I. Court, the employer stated that at the relevant time he had only seven employees. But at the stage of evidence A.W.1 gave the names of only 5 persons as his employees. His own worker AW2 would say that there were 7 workers. Going by Ext.B1 list the employees actually seen engaged were 13 in number. Even AW2 was free to confess that Sreekala and Manju were among the 7 employees in that Unit. AW1, avoided mentioning the names of Sreekala and Manju but mentioned the name of Thulasi Madhavan whose name was not mentioned by AW2. In the face of such discrepant and mutually contradictory evidence adduced by the employer I have no hesitation to accept the testimony of RW1 coupled with Ext. B1 list showing the names of 13 employees. RW1 is none other than one of the two inspectors who visited the unit of the Ins. Appeal No. 29 of 2005 -:16:- respondent/employer on 30-3-1998. Neither RW1 nor any other E.S.I. Inspector has any enmity or oblique motive against Aws 1 and 2 so as to thrust upon them 13 workers so as to transform the unit into a factory. B. THE STATUTORY SCHEME FOR COVERAGE UNDER THE ACT 9. Since the various legal aspects with regard to factories and other establishments covered by the Act are not happily dealt with in some of the judgments of the E.I. Courts coming up for consideration before this court in the various insurance appeals, I consider it necessary to deal with some of the important provisions of the Act and the Rules and Regulations made thereunder as also the judicial interpretations governing the matter. 10. The Act is a beneficial piece of legislation providing for certain benefits to employees in case of sickness, maternity and employment injury. It also provides for medical benefit to employees and their families. It is a Ins. Appeal No. 29 of 2005 -:17:- self financing Social Security Scheme in which every contributory is a beneficiary. The following are the benefits provided under the Act:- a) Periodical payments to any insured person in case of sickness, certified by a duly appointed medical practitioner b) Periodical payments to an insured woman in the case of sickness arising out of pregnancy, miscarriage, confinement, premature birth of child, etc. c) Periodical payments to an insured person suffering from disablement as a result of employment injury d) Periodical payment to dependents of insured person who dies as a result of an employment injury e) Medical treatment of insured person f) Funeral expenses on the death of insured person at the prescribed rate of Rs. 1,500 (Rs. 2,500 w.e.f. 1-10-2001). (See Section 46 of the Act) Sec. 38 of the Act provides as follows:- “38. All employees to be insured :- Subject to the Ins. Appeal No. 29 of 2005 -:18:- provisions of this Act, all employees in factories, or establishments to which this Act applies shall be insured in the manner provided by this Act”. Thus, in the case of a factory or establishment to which the Act applies, all the employees therein are to be insured. Section 2 (9) of the Act defines the expression “employee” as follows:- 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 purchase 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 Ins. Appeal No. 29 of 2005 -:19:- 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 institution or sale of the products of, the factory or establishment] or any person engaged as apprentice, not being an apprentice engaged under the Apprentice 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 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 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;” The expression “insured person” has been defined under Sec. 2 (14) as follows:- “ 2(14) “Insured person” means a person who is or was an employee in respect of whom contributions are or were payable under this Act and who is, by reason thereof, Ins. Appeal No. 29 of 2005 -:20:- entitled to any of the benefits provided by this Act;”. The expression “contribution” is defined under Sec. 2 (4) as follows:- “2(4) “Contribution” means the sum of money payable to the Corporation by the principal employer in respect of an employee and includes any amount payable by or on behalf of the employee in accordance with the provisions of this Act”. Sec. 39 of the Act is the enabling provision for fixing the rate of contributions and the manner in which such contributions are to be paid. As has been seen, Sec. 38 enjoins that all employees in the factories or establishments to which the Act applies are to be compulsorily insured in the manner provided in the Act. By virtue of Sec. 1 (4) of the Act , the Act was made applicable in the first instance to all factories including factories belonging to the Government other than seasonal factories . The expression “factory” has been defined under Section 2 (12) of the Act as follows:- “2 (12) “factory” means any premises including the Ins. Appeal No. 29 of 2005 -:21:- 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 (35 of 1952) or a railway running shed;” The above definition shows that in the case of a premises where manufacturing process is carried on with the aid of power, the minimum number of persons to be employed for wages to make it a factory is 10 and where the manufacturing process is carried on without the aid of power, the minimum number of persons employed for wages is 20. The expression “manufacturing process” is defined under Sec. (14 AA) as follows:- “(14 AA) “manufacturing process” shall have the meaning assigned to it in the Factories Act, 1948 (63 of 1948;) Ins. Appeal No. 29 of 2005 -:22:- “Manufacturing process” as defined under Section 2 ( k ) of the Factories Act, 1948 is as follows:- ”Manufacturing process” means any process for - (i) making altering, repairing ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal, or ii) pumping oil, water, sewage or any other substance, or iii) generating , transforming or transmitting power; or iv) composing types for printing, printing by letter press, lithography, photogravure or other similar process or book binding or v) constructing, reconstructing, repairing, refitting , finishing or breaking up ships or vessels or vi) preserving or storing any article in cold storage” As for establishments other than factories as contemplated by Sec. 38 of the Act, Sec. 1(5) of the Act provides for notification by State Government with the approval of the Central Government extending the provisions of the Act wholly or partly to