Case: Employees State Insurance Corporation Vs. S.K. Aggarwal

representing the employees contribution for the period. (3)................ (4) Any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted. (5).................." The term "principal employer" has been defined in Section 2(17) of the Employees State Insurance Act, 1948 as follows:- "2(17): "principal employer" means:- (i) in a factory, the owner or occupier of the factory 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 Factories Act, 1948] (63 of 1948); the person so named: (ii).................... (iii) in any other establishment, any person responsible for the supervision and control of the establishment." Section 2(17) defines the "principal employer" in a factory as the owner or occupier of the factory. "Occupier" of a factory is defined in Section 2(15) as having the same meaning assigned to it in the Factories Act, 1948, Section 2(n) of the Factories Act, 1948 as it stood at the relevant time, defined an "Occupier" to mean the person who has ultimate control over the affairs of the factory. Section 100 of the Factories Act dealt with the determination of occupier in certain cases. Under sub-section (2) where the occupier was a company, any directors thereof could be prosecuted and punished for any offence for which the occupier was liable. 4. Section 2(17) of the Employees State Insurance Act, however, defines the principal employer as either owner or occupier - taking care of all eventualities. When the owner of the factory is the principal employer, there is no need to examine who is occupier. The owner will be the principal employer under Section 40. 5. The Employees State Insurance Act does not define the term "employer although under Sections 85B and 85C of that Act the term "employer" is used. 6. The provisions of Section 40 in the light of these definitions have been considered by various High Courts in order to decide whether a director of a limited company can be considered as the principal employer liable to pay contribution under Section 40. A Division Bench of the Bombay High Court in the case Suresh Tulsidas Kilachand and Ors. etc. v. Collector of Bombay and Ors. etc., 1984(17) Labour and Industrial Cases 1614 held that a director of a company by virtue of being a director is not principal employer contemplated by Section 2(17) of the Employees State Insurance Act. He is not personally liable to pay employers contribution under the Act. In the context of Section 2(17) read with Section 2(15) the Court held that whether a person is occupier or not has to be ascertained with reference to whether he is in ultimate control over the factory. When the definition of principal employer in Section 2(17) refers to the "owner" or "occupier" of a factory, the principal employer can be either the owner or the occupier depending upon the facts of each case. When there is an owner of the factory that owner must be considered as the principal employer liable for contribution. 7. Under Section 40 the words "owner" and "occupier" have been used disjunctively. The Court also referred to section 100 of the Factories Act and said that even under the Factories Act, 1948, the Legislature has clearly contemplated that in the case of a factory, a company can be the "occupier". Therefore, when the owner of a factory is a company it is the company which is the principal employer and not its director. The Bombay High Court overruled the judgment of the Single Judge of the Bombay High Court in so deciding. 8. The same view has been taken by the Madhya Pradesh High Court in the case of Employees State Insurance Corporation, Indore v. Kailashchandra and Ors., 1989(22) Labour and Industrial Cases 760. The Madhya Pradesh High Court also said that when there is a default in payment of contribution by the company, the managing director, or other directors cannot be made personally liable. The contribution can be recovered from the company as the principal employer.9. In the case of Employees State Insurance Corporation, Chandigarh v. Gurdial Singh and Ors., 1991(24) Labour and Industrial Cases 52, this Court held that the directors of a private limited company were not personally liable to pay contributions under the Employees State Insurance Act, 1948. The Court was considering a case where a private limited company was the owner of the factory and the occupier of the factory had been duly named under the Factories Act, 1948. The Court said that the directors did not come within the definition of Clause 1 of Section 2(17) of the Employees State Insurance Act. This Court also disapproved of the decision of a Single Judge of the Bombay High Court which has been subsequently overruled by the Division Bench of the Bombay High Court in the case of Suresh Tulsidas Kilachand and Ors. etc. v. Collector of Bombay and Ors. etc. (supra).10. Therefore, even if we read the definition of "principal employer" under the Employees State Insurance Act, 1948 in Explanation 2 to Section 405 of the Indian Penal Code, the directors of the company, in the present case, would not be covered by the definition of "principal employer" when the company itself owns the factory and is also the employer of its employees at the head office.11. In any event, in the absence of any express provision in the Indian Penal Code incorporating the definition of "principal employer" in Explanation 2 to Section 405, this definition cannot be held to apply to the term "employer" in Explanation 2. As the High Court has observed, the term "employer" in Explanation 2 must be understood as in ordinary parlance. In ordinary parlance it is the company which is the employer and not its directors either singly or collectively.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]9. In the case of Employees State Insurance Corporation, Chandigarh v. Gurdial Singh and Ors., 1991(24) Labour and Industrial Cases 52, this Court held that the directors of a private limited company were not personally liable to pay contributions under the Employees State Insurance Act, 1948. The Court was considering a case where a private limited company was the owner of the factory and the occupier of the factory had been duly named under the Factories Act, 1948. The Court said that the directors did not come within the definition of Clause 1 of Section 2(17) of the Employees State Insurance Act. This Court also disapproved of the decision of a Single Judge of the Bombay High Court which has been subsequently overruled by the Division Bench of the Bombay High Court in the case of Suresh Tulsidas Kilachand and Ors. etc. v. Collector of Bombay and Ors. etc. (supra).10. Therefore, even if we read the definition of "principal employer" under the Employees State Insurance Act, 1948 in Explanation 2 to Section 405 of the Indian Penal Code, the directors of the company, in the present case, would not be covered by the definition of "principal employer" when the company itself owns the factory and is also the employer of its employees at the head office.11. In any event, in the absence of any express provision in the Indian Penal Code incorporating the definition of "principal employer" in Explanation 2 to Section 405, this definition cannot be held to apply to the term "employer" in Explanation 2. As the High Court has observed, the term "employer" in Explanation 2 must be understood as in ordinary parlance. In ordinary parlance it is the company which is the employer and not its directors either singly or collectively.