B. M. LAKSHMANAMURTHY v.

THE EMPLOYEES' STATE INSURANCE CORPORATION,

BAN GALORE January 21, 1974

(P. JAGANMOHAN REDDY, S, N. DwiVEDI AND .p, K. GOSWAMI, JJ.) B

Employees' S!alt lii~UI'allce Act-S, 2(9Xii) & 2(13)-' EmploY"' & 'il•unUime .employers' mean1111 & sco~ of. ·

The appellaut's firm was carrying on the businesS of manufacturing and exporting polished granite memorial stones. The finn was a factOrY both. under the Factories Act as well as under the Employees• State Insurance Act.· Adjacent to tbis factory . was another factory situated on the appellant's .!aDd leased out C to two contractors who employed SO workers it\ their factory for the pllrJ)Q1es of cutting and .dressing .the granite stones,. The gi'anite stones unloaded outside .the factory by the lorries were brought on the portion or the leased land and after cuttins them they were sent back to the appellant's factory whu'e they were and polished. The Employees' State Insurance Corporation claimed from the appelJaot a certain sum as the firms contribution on account of the workers employed by the two contractors described as 'immediate employers' under the Act. The Employees' 'State I.osurance Court held that the contractors were not 'imte employers'

within the meaning of s. 2(13) of the Employees' State Insurance Act and that they

 D were independent contractors. On appeal the High Court held that the apcl.lant was a principal . employer and the contractors were the immediate employers under the Act. The High Court also held that the workers under the contractors were employees within the meaning of s. 2(9)(ii) of the Act.

Dismissing the appeal, to this Court, HELD : (1) 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 E -employer even though be may get his usual work done through an intermc:diary who is described in the Act as 'immediate employer'. Anydispute between the priDcipal .employer and the immediate employer has to be settled between themselves

J~ l1ors, the employees and the Act charges the principal employer with the liability to pay the contribution not only of its own but also that of trle employees subject to his right to deduct the employees' contribution from their wages under s. 40(2) of the Act. [147A]

(2) On the findings of fact the work undertaken by the contractor's in the adjoin- 'ing vicinity is preliminary or incidental to the work in the principal employer F factory turning out the finished product for export. The work in the_ two places bas

intimate correlation and is a piece of an inte(:tated whole and the saJd work y .tbe .contractors through their labOur is ordinarily part of the work of the pnnctpal 1"actory undertaken by the contractors. Their factory is situated in the premises of the appellant's factory which, according to the definition clause, includes tile p~- cincts thereof. In the instant case on an examination of the site plan and the eVIdence it is evidnt that there is a definite environmental as well as fu!lCtional unitY between the two portions, namely, tbe main factory and the contractors' factory with G the precincts even though separated by a wall in which there was a df:?Or whi<:h tiOnletimcs was closed. The work tmdertaken by the contractors and catr1ed on tn their portion of the area is surely componental to make it a part of the complelt whole. The principal requirement of the definition namely, that .the work or the .construction is undertaken on the premises of the factory is satisfied in the present .case. It therefore follows that the two contractors arc 'if'\llllediate emloyers' with.in the meaning of s. 2(13) and the workers employed for c_utmg and ~g the gran1te stones by the immediate employers are employees w1thm s. 2(9Xu) of the Act. [t48BJ H

Employees' Stme lrlsiWWlCC Corporation, &mbay v. Ra11um (Chiltur Harilltlr Jycr), ll957)1 L.L.).~67, Nagpur Electric Iigllt and Power Co. Ltd. v. Rqional Direc: .lOr D~I]Jlorees State [I!Silrai!Ce CrJrporatirm, Etc., [1967] 3 s.c.R. 92, Employees.

B. M. LAKSHMANAlUli.THY v. E.S.J.C. (GOSlami, /.) t 4 3

State lnsuNmce Corporation, v. Peter Sewi11g Macllilz~ Co. etc. A.I.R. 1970 Delhi 182, and M/s Hind11sta11 Construction Co. Ltd. v. l)np/o; es' State l11surance Corporatiorr, (1966) I.L.R. 18 Assam & Na; aland 87, rd'mcd to.

CIVIL APPELLATE JuRISDICTfON: Civil Appeal No. 1626 of 1967.

Appeal by Special Leave from the Judgment and Decree dated the J4th October, 1966 of the High O>urt of Mysore at Bangalore in Misc. First Appeal No. 124 of 1966.

M. Natesan and Saroja Gopalkrislma11, for the appellant Gobi11d Das and S. P. Nayar, for the respondent.

The Judgment of the Court was delivered by

GoSWA.W, J.-The appellant and his brother, Srinivas:unurthy are partners of a firm carrying on the business of manufacturing and exporting of polished granite memorial stones in the name and style of Messrs Narayauaswami & Sons. The firm is admittedly a factory both under the Factories Act as weU as under the Employees State 1 nsurance Act (briefly the Act). The appellant claims to directly employ about 35 persons in his factory and has been payil'lg contribution under the Act on their account. It is stated that adjacent to his own factory there is another factory situated on the appellant's land leased out by him to two person:;, Chidambarchari and Shankarsubbacbari (hereinafter referred to as the <.'Ontractors). The contractors employ about 50 workers in their factory for purposl!s of

cutting aud dressing the granite 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 tl1e appe1lant's factory where these are designed and polished and thereafter exported.

The Employees' State Insurance Corporation (briefly the COiporation) applied to the Employees' State Imurance Court at Bangalore (briefly the Court) for recovery of an amount of Rs. 8893/- bt-ing the employees' contribution payable by the appellant for the period com

mencing 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 (.'0 ntractors 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 aforl!said order under section 82(2) of the Act. The High Court held that the appellant was the principal employer and the ontractors were the immediate employers under the Act. The High Court further held that. the workers under the contractors were employees \\ ithin 1 he mcanmg of section 2 (9) (ii) of the Act. The High C'ourt thus accepted the appeal of the Corporation. Hence thi5 appeal by p.:-rial leave.

fore the court evidnce was given by both sides and the fo llo ll'ing find1ngs of the court arc adverted to by the High Court : ('

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"All that 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 the respondent" After examining the evidence the High Court also found as follows :-

"There is evidence to shew that these employees (under the contractors) aie employed in connection with the work of the respondent-fac!ory".

The respondent in the High Court's judgmeilt refers to the appellant herein. As stated earlier, the High Court answered both the questions in favour of the Corporation.

The same points are raised for cons'ideration in this appeal and Mr. Nates an on behalf of the appellant submits that the contractors owned a separate factory and are independent contractors and cannot be held to be 'immediate employers' within the meaning of section 2(13) of the Act and hence the appellant is not liable as principal employer to pay the contribution on account of the persons working under the contractors.

Before we deal with 1he \jUestions of Jaw raised in this appeal, it will be appropriate to refer to the material provisions of the Act.

The Act, as it appears from the preamble, is passed "to provide for certain benefits to employees in case of sicknes. maternity and employment injury and to make provision for certain other matters in relation thereto". Section2 contains the definitions. By section 2 (4) "contribution"· means the sum of money payable to the Corporation by the principal employer in respect of an employee and in eludes any am(}unt payable by or on behalf of the employee in accord ance with the pro'lisions of this Act." By secti(}n 2 (9) "employee" means any person employed for wages in or in connection with the

wor~ of a factory or establishment to which this Act applies and-

(i) who is. directly employed by the principal emp\(}yer 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 orestablishment 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 or the work of the factory

orstatihn, tent or which is preliminary to the work carried on m or met dental to the purpose of lhe factory or establishment; * • • •

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B, M. L~SHMANAMUUHY v. E.S.LC. (Goswami, /.) 145

By section 2(12) "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 oarried on with the aid of power or is ordinarily so carried on.

But does not in. elude a mine subject to the operation of the Mines Act, 1952 or a railway running shed". • • • • By section 2(13) ••immediate employer", in relation to employees. employed by or through aim, means a person who bas undertaken the execution, on the premises of a factory or an establishment to

which this Act, applies or under the supervision of the principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in, or incidental to the purpose of, any such factory or establishment, and includes a person by whom the services of an employee who has entered into a contract of service with him are temporarily lent or let on hire to the principal employer".

By section 2(14) "insured person" meant a person who is or wa& an employee in respect of whom contributions are or were payable under this Act and who is, by reason thereof, entitled to any of the benefits provided by this Act".

By section 2(17) "principal employer .. means-

(I} in a factory, the owner or occupier of the factory and in E eludes the manaiing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person bas been named as the manager of the factory undor the factories Ac.t. 1948, the penon so

named" .

• • Chapter IV deals with eontributions.

The opening section 38 provides that-

• •

• 'subject to the provisions of this Act, all employee' in factories, or establishments to which this Act applies shall be insured in the manner provided by this Act." • • • • :By Section 39(1) "the contribution payable under this Act in respect of an employee shall comprise contribution payable by the employer (hereinafter referred to as the employer's contribution) and contribution payable bY. the employee (hereinafter referred to as the employee'& contribution) and 6hall be paid to the Corporation''

By section 40 (l) "the principa} employer shall pay in respect of every employee, whether directly employed by him or by or through

an immediate employer, both the employer's contribution and the employee's contribution". ll--M852S, uPCI/74

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[ 1974] 3 S.C.R •.

By section 42(2) "Con.tribution (both .the -employer-'s-contribution A. and the employee's contribution) baH be payable by .the principal employer for each week in respect of the whole or part of whic.h wages are p:tyable to the employee and not otherwise".

_Section 43 and section 97 empower the Corporation . to make regulations. Under section 44 every principal and immediate em~ ployer has, to submit returns o the Corporation.and maintain legisn ters and records.

Section 68 provides for Corporation'srights where a.principal.em~ ployer fails or neglects to pay any contribution. By .section .;72 an employer is barred from reducin~ wages by reason only of his. liability tp pay contribution;

Chapter VA provides for. certain transitory provisions. The opening section 73A provides for emloyer's special contribution. ·

Chapter VI deals with a.djudication of disputes and claims~ UndJr section 74 (l) Employee's Insurance Court is. constituted.

Inter-alia under section 75 (!)'"If any question. or dispute arises as to- ·

(a) wether aQy person is 3:n rriployee within the maning_ of th1s Act or whether he IS hable to j)llY the employes.· contribution, or • • • *

(d) the person who is or was the principal employer in respect

of any employee; * • • "' such question or dispute ...... shall be deCided by the.Eployees• Insurance Court in tccordtnce with the provisions of this Act."

Under section 75(1) (g), inter-alia; any dispute between a principal employer and an immediat~ employer shall also be dedded by the court. Under section 75 (2) (b) any claim by principal employe~: to recover contributions from any immediate employer shall also b!! decided by the Employees' . Insurance Court. By section 75 (3) jurisdiction of a civil court i~ . barred regardfng, amongst others, any question or dispute as specified in the section.

Section 82 provides for appeals and under aub, section..(2) .. thereof an appeal shall lie to the H)gh Court from an erder of the Employees' Insurance Court if it involves a substantial question of law.·

Chapter VII provides for different penalties.

Under Chapter VIII (Miscellaneous). 11ection 9-4 provides, inter alia, that contributions due to the Corporation shall have priority over all other debts.

The Act is thus a beneficial piece of soci1tl curity 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 schemes and avoid

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~· M. LAKSHMANAMURTHY v. E.S.t.C. (Goswami, J.) 147

the mischief. F!om some o~ the material provisions set ot the underly!ng.aim of the Act IS to insure the employees against ab?ve, risks to their hfe, l1ealth and .welt being and the cllarge . vanohus · 1 I h 1 h JS upon t e pnnc1pa emp oyer eyen t oug.t e ay gt his usual work done through n mtermed.Jary, who JS dcscnbed m the Act as 'immediate mploer .

Any d1 pute between tl1e principal employer and the Immtd1ate epfyerAJ~ to ?e settled bc_tcel!- themselves, de !Jors, the m~ ?yees an 1e c . C1arges the pnnc1pa! employer with the l1abihty to pay. the connbt10n not only of its own but also that of the employe:s subject to h1s ngh! to deduct the employees' contribution from their wages under sect10n 40 (2) of the Act. There is a quicker mode of recovery as ar:ears of land revenue under section 45B and 73D. Chapte~ V_A provides for transitory provisions and by ect!on 73A every pnnc1pal employer shall have to pay a special contribution

i~ Iie!-1 of the employer's conributio_n payable under Chapter IV. Adjudication of all kinds of specified drsputes 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

mmediat~ employer as noticed .earlir. Civil courts' jurisdiction JS barred m respect of matters specified m the Act. There is onlv one sp:cia! 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.

Keeping in view the scheme and the principal object of the Act, we 'will now examine the questions of law raised in this appeal. The definition of the 'immediate employer' under section 2 (13), omitting what is not necessary for our purpose, is as follows:-

" 'immediate employer', in relation to employees employed by or through him, means a person who has under~ taken the execution, on the premises of a factory ..•..... to which this Act applies ...... of the whole or any part of . any work which is ordinarily part of the wok of the. fatory or establishment of the princ.; ipal employer or JS prel!mmary to the work carried on in, or incidental to the purpose of, any such factory •.•....•... . . .. ••..••. "

That the app:Uant, who is the principal employer, has factory where granite memorial stones are manufactured for expot Js beyod question. The ftnished articles are the dressed and polished gramte stones. The raw material is the stone from the quarry-brouht therefrom, cut to sizes, dressed, po!i:>hed and then exported: he other factory of the contractors on the leased land of the pnncJp:tl employer, adjoining the latter's f.'lctory, is reg.istcred under tl:e Facton~:s Act in the year J 963.

Although admtttcdly a factor), thec is no evidence on the record that the contractors pay nny conn~ bulion under the Act or have been even ch.argetl sepnrately as pnncipal employers so far as their so called dm:ct mploy':es are cn~ ceroed. The principal employer, the appellant, 1s. mlong a cla1m

which, if correct, will make the contractors also pnnc1pal employers liable under the Act. But it is easy for the appellant to make such

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a claim to avoid his personal liability which, in aU 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 u11 to examine whether this is a mere device of the principal employer to a void his liability under the Act.

We agree with the High Court that on the findings of fact the work undertaken by the contractors in the adjoining vicinity, even thouah their factory may have been subsequently registered under the factories Act, is preliminary or incidental to the work in thC' principal emplo yer-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 appellant's 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 sectioq 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 refistered under the Factories Act or that, after meeting the prior reqwrements of the principal employer, work of some other parties was also

permissible, does not, in our opinion, militate against the predominant purposes 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.

A &Ood deal of argument is advanced with regard to the expression "oa the premises of a factory" in the definition clause of "immediate

employer" under section 2 (13). The word "premises" according to the dictionary means house or building with its ground or other apurtenances. The premises include under section 2 (13) the pre cints thereof. The word "precincts" means the environs. This Court in A.rdeshir H. Bhiwandiwala v. The State ofBombay(l) dealt with the term "premises" in the definition of factory under section 2(m) of the Factories Act and after noticing its meanin& in various Law Lexicons and dictionaries observed:-

"The word "premises" bas•now come to refer to either land or buildings or to both, depending on the context ..•... " It is therefore clear that tl', e word "premises" is a generic term meaning open land or land with buildings or buildings alone."

The contention in that ease that the word ''premises" must be

rstricted to mean buildings and not taken to cover open lands as well was repelled.

In the instant case, on an examination of the site plan (Ext. P-1) and the evidence, it is evident there is a definite environmental as well as functional unity between the two portions, namely, the main

(1) tl9ilJ 3 S.C.R. ~92.

B. M. LAKSHMANAMURTHY v; E.S.I.C. (Goswami, J.) 149

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 onthe evidence on records and we hold accordingly. We are also satisfied that the workers under the contractors are employees employed by the principalemployer 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.

Mr. Natesan laid great stress upon the requirement of a unity of control of the principal employer over the manufacturing process of the work: undertaken by the contractors, but it will be obvious from the facts found ana the evidence noted below that the work is done on the premises of the factory. We need not examine this aspect in detail in view of the uncontradicted evidence of PW-1 as follows:-

"Thc work: done in the Factory consisted of manufacture of granite stone9 for export. I found raw stones lying all over the surrounding area. I found that raw stones were moved to the premises marked Bin Ex. P. 1. I found that about

50 penons working at the spot. I learnt from the partners those 50 persons had been employed by two or three contractors. Cutting and dressing of the stones were done by those fifty men. There were (1) sand blasting machine belonging to the partners and (2) Electric blower. Power was used in these machines. After the stones are cut and dressed, they are removed to premises A for designing and polishing. Final touches are then given to them in the premises B. They are again brought back to premises A for packing and despatching. The premises A and B belong to the partners. Only a wall separated the two premises. There was a connecting -door which appeared to have been closed".

Again RW-2 also deposed that "it is since last three years that, I undertook: the work of the second party" i.e. the appellant. R Wl

(partner of the appellant) stated as follows in cross-examination:

"Ex. P. 4 is the copy of the letter dated 19-3-63 written by P.W. 1 to me for copy of the agreement and plan. Ex. P. 5 is my interim reply ..............•. By Factory premises in Ex. P. 5, I meant both the portions A and B in Ex. p. I".

Mr. Natesan has referred to a decision of the Bombay High Court in Employees' State Insurance Corporation, Bombay v. Raman (Cizittur

Harihar Iyer)(') but the High Court dealt in that case with the definition of "employee" prior to the amendment of the Act in 1966 and is of no

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(1) [1957] I L .L.J. 267.

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aid to counsel. This case was also distinguished by this Court in Nagpur Electric Light & Power Co. Ltd. v. Regional Directcr Employees

State Corporation, Etc.(l) Counsel also relied upon a decision of the Delhi High Court in Employees' State Insurance Corporation

v. Peter Sewing Machine Co. etc.(2), dealing with the definition of 'factory' under section 2 (12) of the Act. The High Court, inter alia, was posing a question in that case as to whether the whole or any part of the work of the contractors there consisted of any work which was ordinarily a part of the work of the factory or establishment of the principal employer and answered it in the negative on the finding of facts in that case "that the contractors, manufacture their goods independently and not as a part ofthe goods manufactured by the Peter Sewing Machine Company". On the facts of this case that question does not arise and we express no opinion thereon.

The decision is therefore, of no aid to the appellant in this case.

The learned counsel further draws our attention to M/s Hindustan Construction Co. Ltd. v .. Employees' State Insurance Corporation(l) in which case the High Court remanded the matter to find out "whether

the work done at te site can be regarded. . as a manufacturing , process .......... " We, owever; do not fail to notice that the judgment did not take note of the corri.plete definition of "employee''under section 2 (9), the first P.art of which is joined by a conjunctive 'and' with two claus, es. Further the High Court is not correct in thinking that the. definition of the word "factory" under the Factories Act "is. same" as that of "factory'' under the Employees' State Insurance Act wtich is of wider amplitude with an expanding horizon of objectives in the latter Act. It is riot necessary, however, to consider in this case if these factors may have affected the decision in the above case.. At any rate, the appellant does not derive any aid from this decision. .

The next decision in Nagpur Electric Light & Power Co., Ltd. (supra), relied upon by .the appellant for the construction of the definition of "employee" nder section 2 (9) {i) of the Act is not of assis' tance to him since we are dealing with a case under section 2(9) (ii).

We, of course, notice that the High Court in this case held as follows at page 20 of the judgment :-

"From the foregoing, it is clear that the contractors have been executing the work .which is ordinarily part of the work of the factory and that within the premises of the respondent- G factory".

The definition clauses of "immediate employer" [section 2 (13)J and "employee" [section 2 (9) (11)], 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 ~!early of opinion

(1) [19~71 (3) S.C.R. "92.

(2) AIR 1970 Delhi 182,

(3) [1966J LL.R., 18 Assam & Nagaland 87.

B, M. LAUHMANAMURTHY V. E, S.LC. (Goswami, /,) 151

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 contrar.tors are the. 'immediate empll?yers' within th~ meaning of section 2 (13) of the Act and the workers employedby them are "employees" under the Act.

In the result, the appeal fails and is dismissed with costs.

P.B.R.

Appeal dismissed.