Case: Hyderabad Asbestos Cement Products Ltd Vs. The Employees Insurance Court & Anr

Kailasam, J. 1. These appeals raise the same question of law and may be dealt with together and can be disposed of by a common judgment. 2. Civil Appeal No. 652 of 1976 is filed by the Hyderabad Asbestos Cement Products Ltd. by certificate granted by the High Court of Andhra Pradesh by an order dated 2nd April, 1976. The appellant-company is a factory situated at Sanatnagar where asbestos sheets are manufactured. The company has Zonal Sales Offices in various States and in the State of Andhra Pradesh they have such Zonal Offices at Vijayawada and Vishakhapatnam. We are concerned with the Vijayawada Zonal Office. There are employees in the S. Zonal Office who do the work of canvassing for the sale of products manufactured in the factory located at Sanatnagar. It is contended that the Zonal Offices are establishments and are not factories and as such do not fall within the scope of the Employees State Insurance Act, 1948. The High Court negatived the contention of the appellant. 3. Civil Appeal No. 900 of 1977 is by a certificate granted by the Andhra Pradesh High Court to the appellants, M/s. Foods, Fats & Fertilisers Ltd., Tadepalligudem, West Godavari District. The appellant is having a factory at Tadepalligudem in West Godavari district where rice bran oil, alvitone and cattle food, etc., are being manufactured. The appellant is also having an administrative and export office at No. 115-B. N.S.C. Bose Road, from where rice bran, textile yarn, etc., are exported to foreign countries. The administrative work is also carried on in the Madras office in relation to the business of the company. It was contended that the employees of the company at the Madras office are not employees under the Employees State Insurance Act, 1948. The High Court of Andhra Pradesh following its decision in W.P. No. 2907 of 1974 against which Civil Appeal No. 652 of 1976 is preferred; dismissed the petition and granted a certificate. 4. Civil Appeal No. 1314 of 1977 is an appeal by M/s. Union Carbide (India) Ltd. against the decision of a Bench of the Calcutta High Court in Matter No. 631 of 1973 by special leave granted by this Court. The appellant is a public limited company carrying on its business in the manufacture and sales of diverse consumer products such as finish batteries, flashlights, arc-carbons, chemicals and plastics and also in pesticide and processing and export of shrimp. For carrying on the business of the company, the company operates factories all over India. Eight of the manufacturing units have been placed under the Calcutta General, Office which is situate at 1-Middleton Street, Calcutta. According to the appellant, the Calcutta General Office of the company is concerned with managing the affairs of the company in general and with lying down the broad policies in respect of the business of the eight factories and falls within the meaning of West Bengal Shops & Establishments Act. The High Court rejected the plea of the appellant holding that the employees in question fall under the Employees State Insurance Act. 5. Apart from the three appellants several companies Voltas Ltd., Hindustan Lever Ltd., Rallis India Ltd., Merck Shai and Dohme of India Ltd., and Indian Chemical Industries were all permitted to appear as interveners. 6. The main contentions that were put forward in these appeals are that the Act maintains a distinction between a factory and an establishment and that the Zonal Offices are Branch Offices with which we are concerned in these appeals and in the return of establishments and cannot be brought within the purview of factories. It was next contended that in order to bring an employee with the scope of the Employees State Insurance Act, he should not only be an employee with in the meaning of S.2(9) of the Act but also that he should be an employee of a factory as defined in S.2(12) of the Act. It was submitted that the scheme of the Act and particularly the charging section, S.33 should indicate that the Act was intended to cover only employees in factories and not employees who are connected with the work of the factory.7. For appreciating the contentions of appellants it is necessary to set out the relevant provisions of the Employees State Insurance Act. The object of the enactment is to provide for certain benefits to employees in case of sickness, maternity and employment injury and to make provision for certain other matters in relation thereto. Section 1, sub-s (4) provides that the Act shall apply, in the first instance, to all factories (including factories belonging to the Government) other than seasonal factories. Section 1(5) provides that the appropriate Government may in consultation with the Corporation and where the appropriate Government is a State Government, with the approval of the Central Government, after giving six months notice of its intention of so doing by notification in the Official Gazette, extend the provisions of this Act or any of them, to any other establishment, including commercial, agricultural or otherwise While sub-s.4 to S.1 provides that the Act shall at the first instance apply to all factories other than seasonal factories, sub-s. (5) empowers the Government after giving six months notice by notification in the Official Gazette to extend the provisions of the Act to any establishment or class of establishments.Before the Act is made applicable to an establishment the procedure envisaged under sub-s. (5) will have to be followed. It is admitted that the Government have not issued any notification as provided in sub-s.(5) and, therefore, the Act is not made applicable to any establishment. The plea on behalf of the appellants is that in the circumstances the word "employee" should only be confined to employees who are employed in factories and not to employees who are employed in establishments. The submission is that employees in Zonal Officers for sale of manufactured goods and employees administrative offices are not employees of the factory.8. Section 2(9) defines "employees" 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) x x x x (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 lost or let on hire has entered into a contract of service; and includes any person employed for wages on any work connected with the administrative 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; but does not include ....... x x x" The definition as it originally stood under cl. (i) applied to a person employed for wages by a person 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. By an amendment by Act of 44 of 1966 the words "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 purchases of raw materials for, or the distribution or sale of the products of, the factory or establishment but does not include" for the words "but does not include" were added to (iii). 9. The scope of the word "employee" as defined before the amendment came to be considered by the Supreme Court in Nagpur Electric Light and Power Co. Ltd. v. Regional Director, Employees State Insurance Corporation, etc., [1967-II L.L.J. 40]. The company in that case carried on the work of transforming and the transmitting electrical energy. There was dispute between the company and the respondent, Employees State Insurance Corporation, as to whether tested employees of the company like engineers, draughtsmen, clerks, accountants, etc., were employees within the meaning of S.2(9) of the employees State Insurance Act. The Court held that all the employees of the disputed categories clerks or otherwise were employed in connection with the work of the factory, that is to say, with the work of transforming and transmitting electrical power, and a person doing non-manual work can be an employee if he is employed in connection with the work of the factory and the duties of the administrative staff are also directly within the work of the factory. The Court also held that few employees who worked outside the factory but whose duties were connected with the work of the factory, were employees within the meaning of S. 2(9)(i). Discussing the scope of the definition of the work "employees" the Court held that the assistant engineers, supervisors, electricians and overseers are engaged in the erection and maintenance of the electricity supply lines connected with transmission of power. The cable jointer, mistries, linemen, coolies and wiremen are employed for inspection of the supply lines, digging pits, erecting poles for laying distribution lines and service lines .... The attendants in-charge of the sub-stations look after the transformation and transmission of power. The motor driver and cleaners are employed for carrying materials and tower ladders in trucks for maintenance of the supply lines .... The telephone operators attend to the telephone calls for all the departments. The menial staff is required to do miscellaneous work including the clearing of the office compound. The motor car staff is employed to look after the cars employed in the administration section. All these employees, clerical or otherwise, are employed in connection with the work of the factory, that is to say, in connection with the work of transforming and transmitting electrical "power". The Court proceeded to observe that few employees who work outside the factory have their duties connected with the work of the factory. The law, therefore, is clear that any employee who is connected with the works of the factory would be an employee under S. 2(9) whether the work within the factory or outside its premises. 10. The question arose whether the employees whose work was to sell the products of the factory would be called employees of the factory and as to whether persons employed purely on the administrative side of the Mills and sale of finished goods could come within the purview of the definition, of "employee" under S.2(9) of the Act. In Employees State Insurance Corporation, Bombay v. Raman [Chittur Harihar Iyer], [1957-I L.L.J. 267], Gajendragadkar, J. (as he then was) held that to satisfy the requirements of S. 2(9)(i) it must be shown that the employee was employed in any work of, or incidental or preliminary to or connected with, the work of the factory. As in the case of the factory in the present case the work "began with the collection of raw materials and ended with the production of finished articles, it would be difficult to accede to the argument that the work of selling the products of the factory was connected with the work of the factory. The work of selling cannot be said to be incidental or preliminary to the work of the factory. Employees State Insurance Corporation with its Regional office at Coimbatore v. Ganpathia Pillai and others, [1961-I L.L.J. 593], a Bench of the Madras High Court considered the question whether persons employed in managing agents office not connected with manufacturing process or with work of factory can be deemed to be employees liable for contributions under the Employees State Insurance Act. Chief Justice Rajamannar held the following decision of the Bombay High Court reported in [1957-I L.L.J. 267] (supra), that only persons who are in some manner or other connected with the manufacturing process can be said to be employees within the meaning of the definition Adverting to the words "incidental or preliminary to" the learned Judge held that both the words have to be understood in connection with the work of the factory. Accepting the affidavit field on behalf of one the respondents that he was not attending to the accounts of the factory and that his work was confined to the accounts of the managing agents office, the learned Judge held it cannot be said in any sense that he was employed in any work incidental or preliminary to the work of the factory. 11. The amendment to S. 2(9) introducing the inclusive definition referred to above was enacted by Act 44 of 1966 which came into force on 28-1-1968. It may be noted that the decisions of the Bombay and the Madras High Courts referred to above (supra), were rendered before the amendment was introduces and it appears the amendment was introduced for the purpose of covering cases which were held to be outside the scope of S. 2(9) by the two decisions. The amended section includes any person employed for wages on any work connected with the administration of the factory or any part, department or branch thereof or with the purchase of raw materials or for the distribution or sale of products of the factory. It will be seen that the work connected with the administration of the factory, the purchase of raw materials and the distribution or sale of products are brought within the scope of the definition. After the amendment, therefore, the plea that employment in connection with the administration of the factory or with the purchase of raw materials or distribution or sale of products cannot be contended to be as not falling within the definition. 12. The contention of the learned counsel for the appellants is that the word "factory" is confined only to persons who are employed with the manufacturing process. The definition of the word factory is as follows :"factory" means any premises including the precincts thereof 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 with 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 or a resting shed;" The word factory is confined to the premises including the precincts thereof where the manufacturing process is carried on. The submission on behalf of the appellants is that an employee of the factory should not only be an employee falling within the definition of the word "employee" but also an employee of the factory, i.e., of a factory as defined in S. 2(12). In support of their plea reference was made to S.38 of the Act which requires that all employees of the factories should be insured. Section 38 lays down that all employees in factories, or establishments to which this Act applies shall be insured in the manner provided by this Act. It was submitted that to fall within the charging S. 38 employees should be employees in factories and not employees connected with the work of the factory Anil Dewan appearing for the Indian Chemical Industries submitted that the word "employees in factories" are significant and that only employees who are employed in the factory are required to be insured and not employees who are employed in connection with the work of the factory. The learned counsel proceeded to point out that the amendment is confined only to persons employed on any work connected with the administration and not employed in the factory and submitted that the applicability should be strictly confined to the employees in factories. The contention put forward it was pleaded is more reasonable as the Act through out maintains a distinction between factory and establishments and it is against the tenor of the Act to bring employees in establishments within the meaning of employees of the factories. The learned counsel also pointed out that in various firms the employees themselves are against their being included within the scope of the Act and the resultant position will be that as between two establishments which are functioning under the same conditions one establishment which is connected with the sale of finished product of the factories will come within the scope of the Employees State Insurance Act whereas the other establishment would be outside the purview of the Employees State Insurance Act. On a careful consideration of Ss. 2(9) S. 2(12), Ss. 38 and S. 31 we are unable to accept the restricted interpretation sought to be put upon the words "Employees in factories". Even before the amendment the word "employee" included persons connected with the work of the factory. The Supreme Court has laid down that a person employed in connection with the work of the factory would fall within the definition as it stood before the amendment and it may not be open to the learned counsel to contend that it is only employees that are employed in the factory that would fall within the definition. The definition before the amendment as well as after the amendment would include not only persons employed in the factory but also in connection with the work of the factory. The S.39 of the Act makes the position clear It provides that the contribution payable under the Act is in respect of an employee. It is not confined only to employees in factories. We see in justification for reading the words employees in factories in S. 38 as meaning persons employed in factories only. We are unable to accept the contention that the employees that are required to be insured under the Act are only those employed in factories defined under S.2(12) of the Act. 13. It was submitted that the test as to whether an employee is an employee "in a factory" is the test of not physical presence or absence outside the precincts of the factory but the test is whether he is under the control of the factory and is on the factory wage roll, or other similar tests. We are unable to accept the contention for on a reading of the relevant section it is clear that the word "employee" would include not only persons employed in the factory but also persons connected with the work of the factory. The employee may be working within the factory or outside the factory and may be employed for administrative purposes or for purchase of raw materials or for sale of the finished goods all such employees are included within the definition of "employee". A recent decision of the Bench of the Madras High Court in W.Ps. 144-149 and 331 of 1971 dated 14th October, 1976 has also taken a similar view. 14.

Decision reasoning: 0[ds]The law, therefore, is clear that any employee who is connected with the works of the factory would be an employee under S. 2(9) whether the work within the factory or outside its premises11. The amendment to S. 2(9) introducing the inclusive definition referred to above was enacted by Act 44 of 1966 which came into force on 28-1-1968. It may be noted that the decisions of the Bombay and the Madras High Courts referred to above (supra), were rendered before the amendment was introduces and it appears the amendment was introduced for the purpose of covering cases which were held to be outside the scope of S. 2(9) by the two decisions. The amended section includes any person employed for wages on any work connected with the administration of the factory or any part, department or branch thereof or with the purchase of raw materials or for the distribution or sale of products of the factory. It will be seen that the work connected with the administration of the factory, the purchase of raw materials and the distribution or sale of products are brought within the scope of the definition. After the amendment, therefore, the plea that employment in connection with the administration of the factory or with the purchase of raw materials or distribution or sale of products cannot be contended to be as not falling within the definitionThe word factory is confined to the premises including the precincts thereof where the manufacturing process is carried onWe are unable to accept the contention for on a reading of the relevant section it is clear that the word "employee" would include not only persons employed in the factory but also persons connected with the work of the factory. The employee may be working within the factory or outside the factory and may be employed for administrative purposes or for purchase of raw materials or for sale of the finished goods all such employees are included within the definition of "employee". A recent decision of the Bench of the Madras High Court in W.Ps. 144-149 and 331 of 1971 dated 14th October, 1976 has also taken a similar viewWe are unable to accept the contention for on a reading of the relevant section it is clear that the word "employee" would include not only persons employed in the factory but also persons connected with the work of the factory. The employee may be working within the factory or outside the factory and may be employed for administrative purposes or for purchase of raw materials or for sale of the finished goods all such employees are included within the definition of "employee". A recent decision of the Bench of the Madras High Court in W.Ps.9 and 331 of 1971 dated 14th October, 1976 has also taken a similar