Case: B. M. Lakshmanamurthy Vs. The Employees' State Insurance Corporation, Bangalore

1. The appellant and his brother, Srinivasamurthy are partners of a firm carrying on the business of manufacturing and exporting of polish granite memorial stones in the name and style of Messrs Narayanswami and Sons. The firm is admittedly a factory both under the Factories Act as well as under the Employees State Insurance Act (briefly the Act). The appellant claims to directly employ about 35 persons in his factory and has been paying contribution under the Act on their account. It is stated that adjacent to his own factory there in another factory situated on the appellants land leased out by him to two persons, Chidambarchari and Shankarasubbachari (hereinafter referred to as the contractors). The contractors employ about 50 workers in their factory for purposes of cutting and dressing the grantie stones. The lorry drivers bring granite from the surrounding areas and unload them outside the factory. The contractors get these to their portion of the leased land for cutting them. After cutting these are sent back to the appellants factory where these are designed and polished and thereafter exported.2. The Employeess State Corporation (briefly the Corporation) applied to the Employees State Insurance Court at Bangalore (briefly the Court) for recovery of an amount of Rs. 8893/- being the employees contribution payable by the appellant for the period commencing from 27-7-1958 to 31-1-1964 on account of the workers employed by the two contractors described as immediate employers under the Act. The Court decided against the Corporation holding that the contractors were not immediate employers within the meaning of Section 2 (13) of the Act and they were independent contractors and hence the appellant was not the principal employer in respect of the employees working under the contractors. The Corporation appealed to the High Court of Mysore against the aforesaid order under Section 82 (2) of the Act. The High Court held that the appellant order under Section 82 (2) of the Act. The High Court held that the appellant was the principal employer and the contractors were the immediate employers under the Act. The High Court further held that the workers under the contractors were employees within the meaning of Section 2 (9) (ii) of the Act. The High Court thus accepted the appeal of the Corporation. Hence this appeal by special leave.3. Before the Court evidence was given by both sides and the following findings of the Court are adverted to by the Highthat can be said to have been proved by the applicant corporation in this case is that RWs 2 and 3 (the contractors) work at a place belonging to the respondent and execute part of the work which is necessary to manufacture the final finished product for sale. All that can be said to have been proved in this case is that the contractors are doing some work which would be the foundation for the work that is finally done by theexamining the evidence the High Court also found as followsis evidence to show that these employees (under the contractors) are employed in connection with the work of the respondentrespondent in the High Courts judgment refers to the appellant herein. As stated earlier, the High Court answered both the question in favour of the Corporation.

Court's reasoning:
19. The Act is thus a beneficial piece of social security legislation in the interest of labour in factories at the first instance and with power to extend to other establishments. Provisions of the Act will have to be construed with that end in view to promote the scheme and avoid the mischief. From some of the material provisions set out above, the underlying aim of the Act is to insure the employees against various risks to their life, health and well being and the charge is upon the principal employer even though he may get his usual work done through an intermediary, who is described in the Act as "immediate employer". Any dispute between the principal employer and the immediate employer is to be settled between themselves, de hors, the employees and the Act charge the principal employer with the liability to pay the contribution not only of its own but also that of the employees subject to his right to deduct the employees contribution from their wages under Section 40 (2) of the Act. There is a quicker mode of recovery as arrears of land revenue under Sections 45B and 73D. Chapter VA provides for transitory provisions and by Sec 73A every principal employer shall have to pay a special contribution in lieu of the employers contribution payable under Chapter IV. Adjudication of all kinds of specified disputes are also intended to be expeditiously disposed of by the court constituted under Section 74. Such disputes include a dispute between a principal employer and an immediate employer as noticed earlier. Civil Courts jurisdiction is barred in respect of matters specified in the Act. There in only one special type of appeal to the High Court and that also in a restricted form. The Act insists on compliance with its provisions on pain of penalties and the contributions due to the Corporation have priority over other debts.That the appellant, who is he principal employer, has a factory where granite memorial stones are manufactured for export is beyond question. The finished articles are the dressed and polished granite stones. The raw material is the stone from the quarry - brought therefrom, cut to sizes, dressed, polished and then exported. The other factory of the contractors on the leased land of the principal employer, adjoining the latters factory, is registered under the Factories Act in the year 1963. Although admittedly a factory, there is no evidence on the record that the contractors pay any contribution under the Act or have been even charged separately as principal employers so far as their so-called direct employees are concerned. The principal employer, the appellant, is making a claim which, if correct, will make the contractors also principal employers liable under the Act. But it is easy for the appellant to make such a claim to avoid his personal liability which, in all fairness to labour, should have been settled by impleading the contractors as parties in order to make the entire position clear. It is not necessary for us to examine whether this is a mere device of the principal employer to avoid his liability under the Act.22. We agree with the High Court that on the findings of fact the work undertaken by the contractors in the adjoining vicinity, even though their factory may have been subsequently registered under the Factories Act, is preliminary or incidental to the work in the principal employer-factory turning out the finished product for export. The work in the two places has an intimate correlation and is a piece of an integrated whole and the said work by the contractors through their labour is ordinarily part of the work of the principal-factory undertaken by the contractors. Their factory is situated in the premises of the appellants factory which according to the definition clause includes the precincts thereof. It, therefore, follows that the two contractors are immediate employers within the meaning of Section 2 (13) and the workers employed for cutting and dressing the granite stones by the immediate employers are employees within Section 2 (9) (ii) of the Act, being employed through the immediate employers on the premises of the factory including the precincts thereof. The fact that in 1963 the contractors factory was separately registered under the Factories Act or that after meeting the prior requirements of the principal employers, work of some other parties was also permissible, does not, in our opinion, militate against the predominant purpose of the work of the contractors being part and parcel of the main work of the principal employer-factory for which the contractors mainly work.In the instant case, on an examination of the site plan (Ext. P-1) and the evidence, it is evident there is a definite environment as well as proximity and functional unity between the two portions, namely, the main factory (Portion A) and the contractors factory with the precincts (Portion B) even though separated by a wall in which there was a door which sometimes was closed. The work undertaken by the contractors and carried on in their portion of the area is surely componental to make it a part of the complex whole. The principal requirement of the definition, namely, that the work or the construction is undertaken on the premises of the factory and about which both sides join issue, is satisfied in the present case on the evidence on record and we hold accordingly. We are also satisfied that the workers under the contractors are employees employed by the principal-employer through the immediate employers on the premises of the factory in work which is ordinarily the normal work of the factory or is, at any rate, preliminary to the work or which is certainly incidental to the purpose of the main factory of the appellant.The definition clauses of "immediate employer" (Section 2 (13)) and "employee" (Section 2 (9) (ii), contain the expression "on the premises of a factory" and not within it. Even so, as detailed above after examining the evidence ourselves, we are clearly of opinion that the work of the contractors was undertaken by them on the premises of the factory which may not be the same thing as in or within the factory. We are further of the view that the entire site of the factory is a composite one containing portions A as well as B and there is no doubt that the contractors are the immediate employers within the meaning of Section 2 (13) of the Act and the workers employed by them are "employees" under the Act.