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BHARAT HOTEL REPRESENTED BY ITS MANAGING PARTNER V/S THE REGIONAL DIRECTOR, ESI CORPORATION & ANOTHER, decided on Wednesday, July 23, 2014.
[ In the High Court of Kerala, Ins. APP. No. 58 of 2012. ] 23/07/2014
Judge(s) : B. KEMAL PASHA
Advocate(s) : P. Ramakrishnan, U.K. Devidas, Prinsun Philip. R1, T.V. Ajayakumar.
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    (1) Whether 'stipend' being disbursed by a Trainer to the Trainee can be categorised as 'wages' within the meaning of Section 2(22) of the Employees' State Insurance Act ('ESI Act' for short)?(2) Whether amounts being disbursed as 'Performance Allowance' to the employees can be categorised as 'wages' within the meaning of Section 2(22) of the ESI Act?These are the questions of law coming up for consideration in this appeal.2. The appellant M/s Bharath Hotel D.H. Road Ernakulam have been conducting a Training Centre for imparting training for persons to become hotel employees in the field of catering house keeping working at the reception etc. They use to give stipend to such trainees. The Employees' State Insurance Corporation ('ESI Corporation' for short) has passed Ext.P5 order under Section 45A of the ESI Act by which the appellant was directed to pay contribution to the ESI Corporation on the total amount disbursed by way of stipend to such trainees. Further through Ext.P5 order they were also directed to pay contribution on the amount being paid as 'performance allowance' also. Initially the appellant challenged Ext.P5 order before the court below through I.C.No.32/2002. The court below allowed the I.C. by holding that Ext.P5 is unsustainable. Aggrieved by the same the ESI Corporation has preferred an appeal as Ins. Appeal 37 of 2007 before this Court. This Court found that the ESI Act being a beneficial legislation to the employees representative of the employees should also have been heard in the matter after impleading them. For such a proper hearing and disposal the matter was remitted to the court below after setting aside the order passed by the court below. The matter was re-numbered as I.C. No.8/2011 before the court below. The court below through the impugned judgment dismissed the I.C. The applicant before the court below has come up in appeal.3. Heard the learned Senior Counsel Sri.U.K.Ramakrishnan for the appellant and the learned Standing Counsel for the ESI Corporation Sri.T.VAjayakumar.4. Admittedly Ext.P5 order is one passed under Section 45A of the ESI Act. The learned Senior Counsel has invited the attention of this Court to Section 2(9) of the ESI Act which deals with 'employees'. The said provision as it then stood till 20.10.1989 did not contain the inclusive portion 'or any person engaged as apprentice not being an apprentice engaged under the Apprentices Act 1961 (52 of 1961). The aforesaid terms were included as an amendment with effect from 20.10.1989 in the said provision. Presently  Section 2(9) of the ESI Act reads:-S.2(9). 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) 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 of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or(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 lent or let on hire has entered into a contract of service;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 purchase of raw materials for or the distribution or sale of the products of the factory or establishment of any person engaged as apprentice not being an apprentice engaged under the Apprentices Act 1961 (52 of 1961) 5. The learned Senior Counsel has argued that even though such terms have been incorporated in Section 2(9) of the ESI Act through an amendment no consequential amendments have been carried out in other related provisions of the ESI Act. It has to be noted that unlike the terms employees employed for wages' what has been included through the amendment in Section 2(9) is the terms 'any person engaged as apprentice'. Section 2(13) defines Immediate employer1. In that provision also the terms used are 'employees employed. Similarly in Section 2(13A) 'insurable employment' is defined as 'an employment in a factory or establishment . There also the word used is 'employment' and not 'as engagement'. In Section 39(4) also the terms used are an employee is employed . Similarly in Sections 40 41(1) 41(1A) and41(2) also the terms used are 'employee employed'.6. The learned Senior Counsel has argued that when amendment was carried out in Section 2(9) of the ESI Act similar amendment should have been carried out with regard to the definition of 'wages' as contained in Section 2 (22) of the ESI Act also. Even though the amendment incorporating the inclusive portion with regard to 'any person engaged as apprentice' has been incorporated in Section 2 (9) of the Act it seems that no consequential amendments were made in Section 2(22) of the ESI Act. In Section 2(22) of the ESI Act 'wages' has been defined:'wages' means all remuneration paid or payable in cash to an employee if the terms  of the contract of employment express or implied were fulfilled and includes any payment to an employee in respect of any period of authorised leave lock-out strike which is not illegal or lay-off and other additional remuneration if any paid at intervals not exceeding two months but does not include-(a) any contribution paid by the employer to any pension fund or provident fund or under this Act;(b) any travelling allowance or the value of any travelling concession;(c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or(d) any gratuity payable on discharge.7. The said definition clause has four parts. The first part is 'remuneration paid or payable in cash to an employee if the terms of the contract of employment express or implied were fulfilled. The second part is the inclusion of 'any payment to an employee in respect of any period of authorised leave lock-out strike which is not illegal or lay-off. The third part is with regard to the inclusion of other additional remuneration if any paid at intervals not exceeding two months'. The fourth part is with regard to the exclusion of items (a) to (d) whereby certain specified payments have been excluded from the category of additional remuneration. It seems that as far as Section 2 (22) is concerned the 'remuneration paid or payable' is applicable only as far as part 1 and 2 are concerned; but with regard to part 3 what is applicable is 'other additional remuneration if any paid. Therefore it is evident that the legislature has intended with regard to the applicability of additional remuneration to be included within the definition of 'wages' only when such an additional remuneration is paid. Whereas as far as the remuneration to an employee coming within the first part is concerned it need not always be paid. The said provision is applicable even in a case wherein such remuneration is payable.8. The learned Senior Counsel has invited the attention of this Court to the decision in The Management of Tungabhadra Sugar Works (P) Ltd. v. The Presiding Officer Labour Court and another[1983 LAB. I.C. 1185] (Karnataka High Court) which clearly deals with the definition of workman as contained in Section 2(s) of the Industrial Disputes Act 1947 which according to me cannot be extended to the definition of 'employee' within the meaning of Section 2(9) of the ESI Act. The learned Senior Counsel has invited the attention of this Court to the decision in President K.P. Co-operative Society v. Regional Director E.S.I. Corporation Trichur and another[1975 KLT 670 (DB)]. True that it is a decision that was rendered prior to the aforesaid amendment in Section 2 (9) of the ESI Act. It is further true that it was in the backdrop of the absence of such terms in Section 2(9) of the ESI Act a Division Bench of this Court had considered the issue with regard to an apprentice in that case. At the same time paragraph 4 of the decision noted supra shows that the discussions made therein were quite independent of the discussions with regard to Section 2(9) of the ESI Act. In paragraph 4 of President K.P. Co-operative Society (supra) it was held that the term 'employment' denotes a larger concept than what is denoted by the term 'engagement'. One cannot say that the said observation was made by the Division Bench of this Court on the unamended provisions of Section 2(9) of the ESI Act. The said finding is totally independent of such discussion.9. It was further held in paragraph 4 of President K.P. Co-operative Society (supra) that an apprentice is allowed to work in order that he may learn the trade. In fact he is a student and the premises are his training ground. Even if he is paid any allowance it would not be 'wages' as the term is defined in Section 2(22) of the Act for such wages should be remuneration paid or payable in terms of the conditions of employment. It seems that even the said finding entered by the Division Bench of this Court is also quite independent of the discussions made with regard to the definition of 'employee' as then contained in Section 2(9) of the ESI Act. It was further held therein that the idea with regard to payment is that it is the remuneration which the person executing the work can claim as of right for the work he does.10. The learned Senior Counsel for the appellant has argued that by merely incorporating an amendment by including the terms any person engaged as apprentice under Section 2(9) of the ESI Act the legislature cannot compel one to read the definition of wages in Section 2(22) as one including amount paid to an apprentice as stipend also.11. Even according to the learned Standing Counsel the payment deployed as stipend to an apprentice or a trainee as the case may be will fall within the first part of Section 2(22) of the ESI Act. The first Part of Section 2(22) specifically deals with remuneration paid or payable in cash to an employee if the terms of the contract of employment express or implied were fulfilled. Therefore the ingredients of the first part of Section 2(22) clearly says that there should be a contract of employment' either express or implied. In cases wherein there is a contract of employment either express or implied is there if any remuneration is paid or payable such employer is bound to pay contribution on that amount. The question is whether a contract of employment is there as far as a trainee is concerned. As far as the trainees are concerned there can be a contract of apprenticeship. Can a contract of apprenticeship or training be construed as a contract of employment? It seems that the legislature has incorporated the terms any person engaged as apprentice in Section 2(9) of the ESI Act. It seems that if as a matter of fact the legislature had the intention to treat a contract of apprenticeship or a contract of training in equal status of a contract of employment definitely such words would have been incorporated even in Section 2(9) of the ESI Act. Even if such terms are not incorporated in Section 2(9) the legislature ought to have carried out necessary amendments for interpreting such terms in Section 2(22) of the ESI Act.12. In the case of trainees if as a part of their curriculum some practical works are also entrusted to those trainees at any stretch of imagination it cannot be said that those trainees are employed by the trainer. In the absence of any specific contract for such an employment of a trainee for doing specified works in the establishment it cannot be said that such practical training being imparted to a trainee as part of the curriculum should be treated as employment within the meaning of Section 2(9) or Section 2(22) of the ESI Act.13. As this Court has noted earlier regarding the discussions with regard to the term 'employee' as contained in Section 2(9) of the ESI Act the terms employment and engagement were dealt with by the Division Bench of this Court in President K.P. Co-operative Society (supra) wherein it was categorically held that employment denotes a larger concept than what is denoted by the term engagement. When the legislature has chosen to incorporate the word 'engage' in Section 2(9) so as to bring apprentices also within the category of 'employees' as contained in Section 2(9) of the ESI Act similar wordings should have been incorporated in Section 2(22) also in order to rope in the amount of stipend being disbursed to such trainees who are engaged as wages within the meaning of Section 2(22) of the ESI Act.14. Training cannot be imparted merely through academic exercises. In cases of training relating to catering etc. if it is imparted only through academic means it is as good as attempting to teach a person how to swim by standing on the land. Therefore by imparting some practical works as part of the curriculum the status of such apprentices or trainees will never assume the proportion of a normal employee. That is why the legislature has worded in the inclusive definition that any person engaged as apprentice. The legislature has in its wisdom decided that an apprentice cannot be employed whereas an apprentice can only be engaged. Therefore the same cannot extent automatically to the terms contract of employment as contained in Section 2(22) of the ESI Act unless it is amended in such a way so as to include a contract for engaging a trainee or apprentice. It cannot be said that through the amendment carried out in Section 2(9) of the ESI Act one has to automatically read the terms contract of employment as a contract of engaging a trainee or apprentice also. If such terms are automatically imported by the court in Section 2(9) of the ESI Act I am afraid that it amounts to judicial legislation which is quite uncalled for.15. The learned Standing Counsel for the ESI Corporation has invited the attention of this Court to the principles of statutory interpretations by Justice G.P. Singh and argued that when two provisions in the statute are to be construed even if it prima facie gives different meanings it should be construed harmoniously. True it is the golden rule of interpretation that construction and interpretation should be in such way in order to suppress the mischief and to advance the remedy. But here in this particular case Section 2(22) of the ESI Act stands as it originally stood even prior to the amendment in Section 2(9) of the ESI Act. When the legislature has chosen to amend the inclusive definition in Section 2(9) of the ESI Act the legislature ought to have carried out necessary amendments at least in Section 2(22) of the ESI Act.16. The learned Standing Counsel for the ESI Corporation has argued that if Section 2(22) is considered as one not which includes the stipend being deployed to a trainee or apprentice the amendment carried out in Section 2(9) of the ESI Act becomes otiose. The same is not the concern of this Court; whereas it should be the concern of the legislature. There is no reason to discard the argument forwarded by the learned Senior Counsel that Section 2(22) which clearly deals with a contract of employment does not take in a contract of engaging a trainee or apprentice.17. The learned Standing Counsel for the ESI Corporation has brought the attention of this Court to P. Ramanatha Aiyar's Advanced Law Lexicon with regard to the contract of employment. In page 1029 of Vol-I it is stated that the expression of contract of employment implies an employer an employee and a contract therefor. The learned Standing Counsel for the ESI Corporation further relies on the decision in Chintaman Rao and another v. State of M.P.[AIR 1958 SC 388] wherein it was held:The concept of employment involves three ingredients: (1) employer (2) employee and (3) the contract of employment. The employer is one who employs i.e. one who engages the services of other persons. The employee is one who works for another for hire. The employment is the contract of service between the employer and the employee whereunder the employee agrees to serve the employer subject to his control and supervision.The learned Standing Counsel for the ESI Corporation is harping upon the terms employer is one who employs i.e. one who engages services of other persons. There in fact the Apex Court has used the term engages independently in its literal sense of the term. The same was not decided in connection with the terms any other person engaged as apprentice which was incorporated through the amendment of 1989 in Section 2(9) of the ESI Act. It further seems that the Apex Court has not distinguished or differentiated the terms employment and engagement.18. Attention of this Court has been invited to the decision in Bombay Anand Bhavan Restaurant v. Deputy Director Employees' State Insurance Corporation & another[(2009) 9 SCC 61] wherein it was held in paragraph 20:The Employees' State Insurance Act is a beneficial legislation. The main purpose of the enactment as the Preamble suggests is to provide for certain benefits to employees of a factory in case of sickness maternity and employment injury and to make provision for certain other matters in relation thereto. The Employees' State Insurance Act is a social security legislation and the canons of interpreting a social legislation are different from the canons of interpretation of taxation law. The courts must not countenance any subterfuge which would defeat the provisions of social legislation and the courts must even if necessary strain the language of the Act in order to achieve the purpose which the legislation had in placing this legislation on the statute book. The Act therefore must receive a liberal construction so as to promote its objects.19. Finally the learned Standing Counsel for the ESI Corporation has attempted to fortify his argument by relying on the decision of the Queen's Bench Division reported in [(1968) Lab.I.C. 1302] wherein it was held:A contract of service exists if these three conditions are fulfilled: (i) The servant agrees that in consideration of a wage or other remuneration he will provide his own work and skill in the performance of some service for his master; (ii) He agrees expressly or impliedly that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master (iii) The other provisions of the contract are consistent with its being a contract of service. An obligation to do work subject to other party's control is however a necessary though not always a sufficient condition of a contract of service.20. The learned Standing Counsel for the ESI Corporation relies on the decision in Transport Corporation of India v. Employees' State Insurance Corporation[(2000) 1 SCC 332] wherein it was held:Before parting with the discussion on this point it is necessary to keep in view the salient fact that the Act is a beneficial piece of legislation intended to provide benefits to employees in case of sickness maternity employment injury and for certain other matters in relation thereto. It is enacted with a view to ensuring social welfare and for providing safe insurance cover to employees who were likely to suffer from various physical illnesses during the course of their employment. Such a beneficial piece of legislation has to be construed in its correct perspective so as to fructify the legislative intention underlying its enactment. When two views are possible on its applicability to a given set of employees that view which furthers the legislative intention should be preferred to the one which would frustrate it.The observations in paragraph 28 of the decision noted supra clearly reveal that the said observations were made when the words used in a Section are capable of two constructions. It is trite that the ESI Act is a social welfare legislation eying on the beneficial enjoyment of employees. When two constructions are possible the one in favour of such beneficiaries should be preferred. At the same time the terms contract of employment contained in Section 2 (22) of the ESI Act is not capable of giving two interpretations. When it is stated as contract of employment it cannot be treated as a contract by which an apprentice is engaged. True that it is a legislative omission. Through an interpretation or construction the court is not expected to supply or import such a meaning to the terms contract of employment in Section 2(22) of the ESI Act.21. Even if the stipend is payable to a trainee or an apprentice and in the course of his training as part of the curriculum he is engaged in a practical training it cannot be said that the stipend was deployed as a remuneration for the work done by the said person who was engaged in the practical training. Therefore the stipend being deployed to a trainee or an apprentice cannot be treated as wages within the meaning of Section 2(22) of the ESI Act as it stands now. It is true that if an amendment is not carried out in Section 2(22) of the ESI Act the amendment already carried out in Section 2(9) of the ESI Act as noted above will become otiose. It is for the legislature to make suitable amendment in Section 2(22) of the ESI Act in order to make it in tune with Section 2(9) of the ESI Act.22. Regarding performance allowance the learned Senior Counsel has pointed out that as such performance allowance is not being paid as a condition of service and especially when it is being paid just as an inam or gift it cannot form additional remuneration within the meaning of Section 2(22) especially when the employee has no right to claim the same as of right. It has been argued that at any point of time the appellant can stop such payment or deny such payment to anybody. If it comes within the purview of the first part of the definition of 'wages' as contained in Section 2(22) of the ESI Act even without any payment the ESI Corporation could have claimed contribution on such payment as it was payable. It is true that even according to the learned Senior Counsel for the appellant such performance allowance is not payable. When the legislature has carefully worded the third part of Section 2(22) and limited the inclusive portion to additional remuneration paid there is no meaning in arguing that it is not payable as of right and the employee cannot claim it as of right. True that the ESI Corporation has no case that the performance allowance is payable through the contract of employment either express or implied. Even when such a payment is specifically noted in the contract of employment as additional remuneration it squarely falls within the category of the third part of the definition of 'wages' as contained in Section 2(22) of the ESI Act only when such payment is made.23. The learned Senior Counsel has invited the attention of this Court to the decision in E.S.I. Corporation vs. Traco Cable Co. Ltd.[2010 (4) KLT 892] wherein the management was constrained to pay incentive based on the production given by the workers. In that case it was held that additional remuneration paid under the third part of Section 2(22) need not be based on any contract of employment. Even without a contract if any such additional remuneration has been paid by styling it as an incentive it is additional remuneration within the meaning of the third part of Section 2(22) of the ESI Act on which contribution has to be paid. The said decision has been cited by the learned Senior counsel in order to fortify his proposition that in that case an incentive was paid as additional remuneration on the basis of a contract between the union as well as the management. Whether such a contract is there or not if any amount is actually paid as incentive for more work done on the basis of the performance of such an employee it will come within the category of additional remuneration paid within the meaning of the third part of Section 2(22) of the ESI Act.24. The learned Senior Counsel relies on the decision of the Madras High Court in Employees' State Insurance Corporation v. Enfield India Ltd.[1994 LAB. I.C. 2507] wherein it was held in paragraph 7 that 'as per the terms of the agreement between the management and the employees Union which provides for incentive and plant performance bonus the employees cannot claim these two as of right and even if the performance index has been lowered due to want of work or other causes over which the employees have no control resulting in reduction of these bonuses they cannot claim the same as of right contending that they were not responsible for the reduction in the performance. I do not think that that observation made by the Madras High Court has any application to the facts and circumstance of this case. The attention of this Court has been invited to the decision in Whirlpool of India Ltd. v. E.S.I.C.[2001 LLJ 1101] wherein it was held Under first part of Section 2(22) all the remuneration paid or payable in cash to an employee if the terms of the contract of employment express or implied were fulfilled would be 'wages'. Under this part neither the actual payment nor when the payment is made is of any relevance. The last part of Section 2(22) relates to payment of additional remuneration. The additional remuneration if any paid at intervals not exceeding two months and not falling in Clauses (a) to (d) would also be wages within the meaning of the term as defined. Under this part of the definition there has to be payment and not only payability and the payment has to be at intervals not exceeding two months.25. It seems that the learned Senior Counsel is harping upon the term 'only' used in the last sentence of the said paragraph to argue that there has to be payment of such remuneration and not only payability and the payment has to be done at intervals not exceeding two months. The learned Standing Counsel for the ESI Corporation has invited the attention of this Court to the decision in Harihar Polyfibres v. The Regional Director E.S.I. Corporation [AIR 1984 SC 1680]. It seems that the Apex court has relied on the decision in Harihar Polyfibres (supra) in paragraph 11 of Whirlpool of India Ltd. (supra). In Whirlpool of India Ltd. (supra) apart from a passing remark with regard to the payment that not only payability it has to be paid' no other discussions on that point is there whereas in Harihar Polyfibres (supra) the said aspect has been considered in detail with a threadbare discussion on all aspects. In paragraph 2 of Harihar Polyfibres (supra) it was held Therefore wages as defined includes remuneration paid or payable under the terms of the contract of employment express or implied but further extends to other additional remuneration. if any paid at intervals not exceeding two months though outside the terms of employment Thus remuneration paid under the term; of the contract of the employment (express or implied) or otherwise if paid at intervals not exceeding two months is wages. The interposition of the clause 'and includes any payment to an employee in respect of any period of authorised leave lock-out strike which is not illegal or layoff' between the first clause 'all remuneration paid or payable in cash to an employee if the terms of the contract of employment express or implied was fulfilled' and. the third clause 'other additional remuneration if any paid at intervals not exceeding two months' makes it abundantly clear that while 'remuneration' under the first clause has to be under a contract of employment express or implied 'remuneration' under the third clause need not be under the contract of employment but may be any 'additional remuneration' outside the contract of employment.26. In Harihar Polyfibres (supra) it was categorically held that the remuneration paid under the terms of the contract of employment or otherwise if paid at intervals not exceeding two months it will be an additional remuneration within the meaning of Section 2(22) of the ESI Act. Reliance was placed in the said decision on a Full Bench decision of the Andra Pradesh High Court in Employees' State Insurance Corporation Hyderabad v. Andhra Pradesh Paper Mills Ltd. Rajahmundry[AIR 1978 AP 18] wherein it was held It must be emphasized at this stage that under the third part of the definition of 'wages' it is actual factum of payment which counts because the word used is 'paid' as distinguished from 'paid or payable'. The moment you get any additional remuneration other than the remuneration payable under the contract of employment and if this additional remuneration is paid at intervals not exceeding two months it becomes wages by virtue of the third part of the definition of 'wages'. 27. As is evident from paragraph 5 of Harihar Polyfibres (supra) the Apex court has fully relied on the aforesaid dictum of the Full Bench of the Andra Pradesh High Court. Much discussion is not required to conclude that performance allowance is nothing but an additional remuneration. Even though it has been argued that it is an allowance being paid purely at the discretion of the management to the employees as an incentive it seems that the same is being paid as an incentive for better performance from such employees. To each and every employee such a payment is not being made. Such a payment is being made by assessing the performance and output of the employees. When such an intensive is being paid by expecting better performance on account of the better output by certain employees it is nothing but an additional remuneration paid within the meaning of the third part of Section 2(22) of the ESI Act. Therefore it comes within the category of 'wages' whether it is being paid through a contract of employment or otherwise. Therefore the appellant is bound to pay contribution on such performance allowance.In the result this appeal is allowed in part and that part of Ext.P5 order which deals with stipend being deployed to the trainees or apprentices is declared as unsustainable and unenforceable.