Case: Employees State Insurance Corporation Vs. Shri R.K. Swamy

4. A notification was issued under Section 1(5) of the said Act by the Government of Maharashtra. Section 1(5) entitles the appropriate Government, (in these appeals, admittedly, the Goverment of Maharashtra, Tamil Nadu and Kerala) to extend the provisions of the said Act, in consultation with the appellants (the Employees State Insurance Corporation) and with the approval of the Central Government, after giving 6 months notice of its intention as to do by a notification in the Official Gazette, to any establishment or classes of establishments, industrial, commercial, agricultural or otherwise. By the said notification the said Act was applied to, inter alia shops. The relevant portion of the notification read thus :"3. The following establishments wherein a twenty or more employees are employed or were employed for wages on any day of the preceding twelve months, namely :(i) hotels; (ii) restaurants; (iii) shops; (iv) cinemas, including preview theatres; and (v) newspaper establishments as defined in Section 2(d) of the Working Journalists (Conditions of Service) and Miscellaneous Provisions Act, 1955 (43 of 1965). 5. The appellants informed M/s Dattaram Advertising (P) Ltd., the respondent in the appeal, that it was covered by the notification and required it to comply with the provisions of the said Act and make contributions thereunder. The respondent resisted and, ultimately, filed an application before the Employees State Insurance Court contending that it was not a hotel, a restaurant, a shop, a cinema or a newspaper establishment and, therefore, the said Act had not been extended to it by the said notification. The appellants submitted that the respondent was a shop and, accordingly, covered by the said notification and, therefore, by the said Act. The Employees State Insurance Court upheld the submission and dismissed the respondents under the provisions of the said Act before the High Court at Bombay and the learned single Judge who heard it reversed the order of the Employees State Insurance Court, holding that the respondent was not a shop. The appellants filed a Letters Patent Appeal, upon which the impugned judgment and order was made. 6. The impugned judgment noted the evidence on behalf of the respondent as to the activities carried on in its advertising agency, thus :"The witness on behalf of the respondent has stated that sometimes the clients visit the office of the respondent, while sometimes the officers of the respondent visit its clients. The proposals for the promotion of the products in different media are given by the officers of the respondent in its office. Advices are given by the respondents officers as to the expenses that could be incurred if the products are advertised through the different media, such as newspapers. All India Radio, television, etc. Basically, says the witness, the respondent renders advice to its clients as to how their products are to be advertised. Though at one stage he made himself bold to say that the income of the respondent was only by way of commission which the respondent earns by giving advertisements to the media, he was naturally compelled to admit later that the clients also pay the respondent for the various services rendered by the respondents organisation. 8. Proceeding further, it may be noted that the respondents organisation has an art department, a media department and an accounts department. The different categories of the employees are office peons, assistants, accountants, artists, art directors, etc. The witness has described the manner in which a proposal for the advertisement takes shape and how it is ultimately executed. The description given by him, happily brought out in the crossexamination on behalf of the Corporation, gives a fairly accurate picture of the work done by the respondent. The idea for advertising is suggested, in the first place, by the respondent to its clients. After the idea is accepted in one form or another, the execution of the same is taken up. The photograph work is given to outside agencies. However, the drawing of the sketches and doing the painting work are done by the art department of the respondent. After the work is over, a bill is prepared in respect of a particular client and the payment is naturally made by the client in accordance with the bill." 7. The Division Bench held that it was clear that the respondent, in the course of its business of commercial activity, did not sell any unit of work or unit or commodity to any particular person, not even to its client. The bill that was prepared depended upon the extent of the work involved, the quality of the work and the volume of publicity undertaken. The payment was not so much for the quantity but for the quality. It was true that the advertising agency got paid for the services which it rendered but the services were more in the nature of supply of ideas rather than services of any particular tangible type. If in the work that was done by the advertising agency on behalf of its client, a predominant part was played by the mind and what was supplied was the product, such as an idea for an effective campaign, one could not conceive this activity as being one which involved the sale and purchase of services. The Division Bench distinguished the judgment of this Court in the case of Hindu Jea Band v. Regional Director, Employees State Insurance Corporation, Jaipur, AIR 1987 Supreme Court 1166, stating that the services of an advertising agency were not available, on retail basis in the sense that any person could go and obtain the same. Secondly, the services of the advertising agency were not sold at a stipulated price, the price necessarily varied according to the volume, nature and complexity of the work assigned to it by its client. The Division Bench emphasised that a shop, even in its expanded meaning, must be a place where goods and services in a tangible form were sold, such as an entertainment programme which appealed to the senses, or the reservation of accommodation in transport. Even if it were accepted that a shop meant a place where goods and services were sold, it could not legitimately be held that the premises in which an advertising agency conducted its business was a place where services were sold. The concept of sale necessary involved a unit of work or of service, a definite price for the same and its availability on retail basis to anyone who asked for it. The Division Bench, therefore, upheld the contentions of the respondent and dismissed the appeal.

Court's reasoning:
14. There is no doubt at all that the said Act is beneficient legislation. If, therefore, it is reasonably possible so to construce the word "shop" as to include the activity of an advertising agency within it, that construction must be preferred. 15. The decision in the case of Hindu Jea Band held a shop to be "a place where services are sold on retail basis. It was, therefore, held that making available on payment of a stipulated price the service of musicians employed by the petitioner on wages made the petitioners establishment a shop. In the case of International OreFertilizers (India) Pvt. Ltd., the petitioner carried on commercial activities facilitating the sale of goods by its foreign principals to the State Trading Corporation or the Minerals and Metals Corporation. It arranged for the unloading of such goods and, their survey. Upon delivery it collected the price payable and remitted it to its foreign principals. These were trading activities and although the goods imported were not actually and although the goods imported were not actually brought to the petitioners premises and delivered to the purchasers there, the premises were held to be a shop because the trading activities aforementioned related to the sale of goods. These judgments were followed in the case of Cochin Shipping Company, which catered to the needs of exporters and importers and others who wanted to carry goods. The appellants premises were, therefore, held to be a shop where systematic economic or commercial activity was carried on. 16. In the light of these judgments, and the expanded meaning now given to the word "shop", the evidence which we have reproduced above setting out the different activities of an advertising agency needs to be considered. Clients call on an advertising agency to initiate campaigns for promotion of their products. Advertising campaigns can be conducted in the different media and otherwise. The advertising agency gives advice in this behalf and as to possible expenses. The advertising agency prepares and presents alternative campaigns for the client to choose from. For such purpose it must prepare the necessary art work and the appropriate words to go with it. It employs specialists in these fields. The advertising agency is paid for the service it renders as aforesaid by the client. It also receives commission from the media though whom advertising is done. 17. Anyone who has products to sell may approach an advertising agency. The advertising agency will prepare an adverting campaign for him utilising the services of the experts it employs in this behalf. It sells the campaign to the client and receives the price thereof. Indubitably, the price will depend upon the nature of the campaign, but that does not, in our view, make any great difference. Essentially, the advertising agency sells its expert services to a client to enable the client to launch an effective campaign of his products. Without straining language, the premises of an advertising agency can, therefore, reasonably be said to be a `shop as now understood.The correspondence between the Government of Tamil Nadu and the appellants in the course of consultation under section 1(5) of the said Act does not assist, in our view, even the advertising agencies in the cases from Madras for, whatever the view of the appellants was before the notification was issued, it is for the courts to interpret the notification once it is issued. The doctrine of contemporaneous exposition does not apply here. The appellants have not, in implementing the notification, proceeded on the basis that advertising agencies are not shops.