Common Judgment: (Dilip B. Bhosale, ACJ.)
1. The order of reference dated 30th of April, 2011, which has occasioned the constitution of this Larger Bench, was passed by the Full Bench in the instant Civil Miscellaneous Appeals, in view of a divergence of the opinions/views expressed in two judgments, the first being the judgment of another Full Bench in E.S.I Corporation, Hyderabad vs. Andhra Pradesh Paper Mills (AIR 1978 AP 18 (FB) and the second of Division Bench in Deccan Chronicle vs. E.S.I.C, Hyderabad (1980-II L.L.J. 474). The question referred by the learned Chief Justice is whether the parties are entitled to contract out of the beneficial provisions of Employees State Insurance Act, 1948 (for short the ESI Act).
2. The factual matrix, that occasioned the reference, is as under:-
2.1 The first Civil Miscellaneous Appeal (No.3092 of 1998) was filed by M/s.Microraj Electronics Private Limited against the Employees State Insurance Corporation (for short the Corporation) while the second Civil Miscellaneous Appeal (No.2242 of 1999) was filed by the Corporation, which is the 1st respondent in the first CMA, against M/s.R.C.C.(Sales) Private Limited. The appellant in the first CMA and the respondent in the second CMA (for short the Companies) are sister-concerns. The Companies are engaged in manufacturing of safety razor blades and other shaving systems. The Companies, at the relevant time, had 500 and 700 workers respectively. The Companies are, admittedly, covered establishments under the provisions of the ESI Act and they were paying contribution in respect of the covered employees regularly.
2.2 The Companies with a view to provide employment and educate the unemployed youth, decided to impart practical training to such other persons who approached them for training after entering into agreements with them. The period of training was fixed for a term of three (3) years and during the course of training, the trainees were paid stipend @ Rs.600/-, 700/- and Rs.800/- per month respectively. In the agreements entered into with them, it was specifically made clear that they shall not be entitled to employment as of right after completion of training and that there has been no relationship of employer and employee between them inter se.
2.3 The Inspector of the Corporation visited both the Companies on 19th, 20th and 21st July, 1995, so as to ensure compliance of the provisions of the Factories Act. In the course of inspection, it was revealed that the Companies had not been paying contribution, for the years 1991-96, in respect of the trainees. The amounts which the Companies were liable to contribute at the relevant time were Rs.17,40,910-70 ps. and Rs.3,85,875-53 ps. respectively. In view thereof, the Inspector prepared a detailed inspection report on the basis of which the Companies were served with the notices under the provisions of the ESI Act calling upon them to pay a sum of Rs.96,525/- and Rs.1,35,699/- respectively to the trainees. The Companies assailed the said notices before the Employees Insurance Court in E.I.Case Nos.37/1995 and 45/1997. Both the cases were disposed of by orders dated 08-12-1997 and 27-10-1998 respectively holding that in the case of former Company, it need not pay the contribution on the stipend being paid by it to the apprentices and in the case of latter company, the case was dismissed confirming the notice issued by the Inspector. These two orders were called in question before this Court in the instant CMAs.
3. The learned single Judge while dealing with the instant appeals noticed the difference of opinion between the Full Bench in A.P. Paper Mills (supra) and the Division Bench in Deccan Chronicle (supra) and directed the Registry to place these appeals before the learned Chief Justice for an authoritative pronouncement on the question reproduced in the first paragraph of this judgment. The Full Bench presided over by B.Prakash Rao J, as he then was, while dealing with the instant appeals noticed the opinion expressed by the Full Bench in A.P. Paper Mills (supra) and perhaps having found it difficult to agree with the opinion, observed that since the correctness of the view expressed in A.P. Paper Mills (supra) is sought to be examined, referred the question to a Larger Bench.
4. Before we proceed further, we place on record the joint request made by the learned counsel for the parties that the instant Civil Miscellaneous Appeals are pending since 1998-1999 and even the reference to the Larger Bench is also pending for the last four (4) years and in view thereof, they submitted that apart from the question referred to this Bench the another question raised by the Companies whether the trainees/apprentices, in the present case, can be treated as employees within the meaning of Section 2(9) of the ESI Act? may also be decided by this Bench. We find the request made by the learned counsel for the parties reasonable and we, therefore, now proceed to decide both the questions.
5. It would be advantageous to notice the backdrop against which the learned single Judge made reference to Full Bench. The learned Judge, after noticing the provisions of Section 2(9) and Section 2(22) of the ESI Act, observed that As can be seen from the definition employee, any person who is employed for wages in connection with the work of the establishment except the person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 is for all practical purposes is the employee. Admittedly, in this case, the Trade Trainees are not the apprentices engaged under the provisions of the Apprentices Act, 1961. Therefore, they cannot come within the exception specifically carved out from the operation of the provision.
5.1 Then the learned Judge proceeded to consider the judgments of the Supreme Court in Hussainbhai vs. Alath Factory Thezhilali Union (1978) 4 SCC 257) and observed thus:-
Coming to the definition of wages it mean remuneration paid in cash to an employee, if the terms of the contract, express or implied, the remuneration paid in cash to the worker by the employer under whatever name it is called, becomes a wage. But, here is a case where the parties specifically sought to contract out of the provisions of the Act, as can be seen from clause (g) of the general conditions of contract as excerpted hereinabove. It shows that the respondents are not workmen and only learners and that the stipend to be paid to them shall not form part of wages for the purpose of any statutory obligation like ESI contribution, PF, Etc and there is no relationship of master and servant, or employer and workman in between the company and the trainees. If the parties are entitled to contract out of the provisions of the Act, then this clause in the contract definitely binds the parties and, therefore, by virtue of the express condition there can be no employer and employee relationship in between the parties and the stipend being paid by the company to the trainees does not become a wage. (emphasis supplied)
Having so observed, he posed the question whether the parties are entitled to contract out of the beneficial provisions of the ESI Act? in the light of the difference of opinion expressed by the Full Bench in A.P. Paper Mills (supra) and the latter Division Bench in Deccan Chronicle (supra), as aforementioned, further observed as under:-
Having regard to the clear-cut cleavage of opinion between the Full Bench Judgment and the latter Division Bench Judgment and having regard to the contention that the clause (g) in Exs.P.1 and P.2 is hit under Section 23 of the Indian Contract Act which contention has not been considered by the Full Bench in A.P. Paper Mills case and having regard to the other fact that the latter Division Bench Judgment has in fact referred the F
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ll Bench Judgment in A.P. Paper Mills case. I am of the considered view that it is expedient if the matter is considered by a Bench so that an authoritative pronouncement can be made, instead of trying to resolve the controversy in these appeals by a single Judge.(emphasis supplied)5.2 The learned Judge while making reference also considered the provisions of Section 17 of the Workmens Compensation Act, 1923, and Section 30 of the Contract Labour (Regulation and Abolition) Act, 1970, and observed that absence of such similar provisions in the ESI Act may suggest that it is open to the parties to contract out. It was further observed that the Full Bench in A.P Paper Mills considered these provisions. The submissions of learned counsel for the Corporation were also noticed in the Reference Order that the Clause(g) of the agreement, between the parties, is opposed to public policy and, therefore, it is hit by Section 23 of the Indian Contract Act, 1872. The learned Judge also noticed that such contention was either not raised before the Full Bench and/or it was not considered by the Full Bench in the A.P. Paper Mills (supra). After observing that if the contentions of the learned counsel for the Corporation were to be upheld, Clause(g) becomes void ab initio as opposed to public policy, made Reference to the Full Bench.6. It would be relevant to see what exactly was considered by the Full Bench in A.P. Paper Mills (supra). The Full Bench in that case considered the question whether incentive bonus/house rent paid by the Company, i.e. employer, constitutes wages within the meaning of Section 2(22) of the ESI Act?. It was contended on behalf of the Corporation that the incentive bonus falls under the first part of the definition wages under Section 2(22) of the ESI Act. The settlement was arrived at between the employer and the workmen under Section 18 of the Industrial Disputes Act. Annexure-1 to the settlement mentioned the terms relating to the production bonus scheme. Under Clause(ii) of the annexure 1, the production bonus would be calculated on the basic wages earned while on duty by payment to workmen and should be paid every month as per the schedule annexed to the scheme. In view thereof, it was further contended that it is expressly understood that the bonus so paid shall not form part of the wages for computation of any other payment including the provident fund, ESI contribution, gratuity or any other benefit/payment made with reference to the wages of workmen concern. While dealing with this contention, the Full Bench in paragraph 18 observed thus:18. It is true, as Mr. Naidu for the Corporation emphasized, that the terms of the settlement between the management and the Union representing the workmen is an agreement between the parties and if this settlement, which does not leave it open to the employer to withdraw or alter the scheme at its discretion, is an agreement then it would fall within the first part of the definition of 'wages' viz., remuneration paid or payable in cash to an employee, if the terms of contract of employment, express or implied, were fulfilled. In the instant case, however the terms of agreement specifically provide that production bonus is not to form part of wages for computation of any other payments including the contribution to the E.S.I.C. Mr. Naidu very fairly states that there is no section under the Employees' State Insurance Act, which prohibits contracting to the contrary or which provides words like 'notwithstanding any contract to the contrary' so far as the remuneration paid or payable under the terms of contract of employment is concerned. It is well settled law that the contract of employment may be varied by mutual consent of the parties after the original contract of employment was entered into. If the terms are varied by mutual consent, it is the varied terms which form part of the contract of employment, and, therefore, it is the original contract of employment as varied by mutual consent subsequently, which will be contract of employment. In the instant case, since by the very agreement between the parties which provides for payment of production bonus under the terms of a settlement arrived at between the parties the production bonus is not to form part of wages for the purpose of the E.S.I. contribution and since the Act nowhere prohibits contracting out of the liability to pay contribution in respect of sums payable under the terms of contract of employment, it is not possible for us to accept the first contention of Mr. Naidu for the Corporation that incentive bonus, in the instant case, falls within the first part of definition of 'wages'. It is well settled law that a contract has to be read as a whole in order to find out its effect and as far as possible effect is given to all the terms of the contract so that what the party intended to is, in fact, done by the Court. Since no provision of law prohibits contracting out in the manner in which the parties have done in the instant case, the production bonus paid in the instant case under the deed of settlement cannot be said to be remuneration paid or payable if the terms of contract of employment were fulfilled. If the terms of employment are to be fulfilled viz. the terms of contract of employment inclusive of the terms of the settlement dated August 19, 1974 then by the very express terms of the agreement incentive bonus is excluded from the definition of 'wages' under S. 2 (22) first part. Hence, we reject this contention of Mr. Naidu.(emphasis supplied)Then, the Full Bench in paragraphs 34 and 35 also observed thus:-34. The result of the above discussion is that in order to fit into the definition of 'wages' so far as the incentive bonus or productivity bonus scheme is concerned , the terms of the scheme must be examined and it must be ascertained whether the bonus paid under the scheme is part of the terms of the contract of employment, as was the case in Hyderabad Asbestos Cement Products Ltd.'s case (1977 Lab IC 313 (An Pra) before Chinnappa Reddy and Punnayya, JJ., and before the Kerala High Court in Carborundum Universal's case, (1976-1 Lab LJ 17) and is not the case before us or , whether it is in additional remuneration within the meaning of the third part of S.2 (22) of the Act . If it does not fall either in the category of Part 1 or Part 111, then only it can be said not to be wages and hence only then contribution will not be payable on the amount of bonus paid by the employer to the employees in such a scheme. If as happened in Braithwaite &Co.s case, or in Vazir Sultan Tobacco Co.'s case, (1973 Lab 523 (An Pra) the bonus is paid at the discretion of the employer and can be withdrawn at any time without implementing it , than it would not be wages within S. 2 (22).(emphasis supplied)7. It would also be relevant to notice the background facts and the question that fell for consideration in Deccan Chronicle (supra) before the Division Bench. The question was whether the payment of quarterly allowance to employees, under a settlement, will come under the definition of wages so as to result in contributions being made by the employer. The question arose against the fact that the management and the employees had entered into an agreement providing for payment of quarterly allowance and that the quarterly allowance would not be treated as wages. While dealing with the question, the Division Bench, after considering all the relevant provisions, in particular Section 2(22), observed thus:-.. We are equally of the opinion that the parties by their agreement not to treat the quarterly special allowances as wages, cannot include the operation of the Employees State Insurance Act. Whether the payment made by the management to its workmen is a wage or not is a question which must be decided independently of the agreement between the employer and the employees. That question must primarily be decided by reference to the legislative definition contained in S. 2 (22). Where we have found, on an appraisal of the whole facts in the case, that the quarterly special allowance is being paid by the management to the employees in pursuance of an agreement entered into between them with employees and in consideration for the extra work done by the employees we will be justified in holding that this payment is wages, notwithstanding the fact that the parties to that agreement have decided to call it something other than wages. The interpretation and enforcement of law made by the Parliament is no more dependent upon the volition of the parties and the description which the parties choose to give to a transaction, then the pull of gravitation is dependent upon the will of an object. We, therefore, hold that the payment of quarterly special allowance is clearly wage and is liable to be counted for the purpose of making contribution under the Employees State Insurance Act.(emphasis supplied)7.1 The Division Bench also considered the judgment of the Full Bench in A.P. Paper Mills and in paragraph 7 observed thus:-the Full Bench held that both the incentive bonus as well as the house rent allowance agreed to be paid by the Management to the employees constitute wages for the purpose of the Employees State Insurance Act. We find the Full Bench reasoning not to be in support of the appellants contention. The Full Bench reasoned that whether any payment made amounts to wages must be decided by finding out whether the payments so made, are made in pursuance of the terms of the contract of employment. The single decisive test to find out the character of the payments made, as applied to our case, yields an answer which is wholly against the contention of the appellant. For this reason though we are unable to agree with the Employees Insurance Court below, which has found the payment of quarterly special allowance does not constitute wages within the first limb of that definition, we affirm its conclusion on the basis of our reasoning above mentioned.(emphasis supplied)8. In this backdrop, before we proceed further, it would be advantageous to have a close look at the provisions of Section 2(9) of the ESI Act, which defines employee. The arguments advanced by learned counsel for the parties were centered around this provision, which reads thus: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 let 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 (2)[or any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (Act No.52 of 1961),(3)[and includes such person engaged as apprentice whose training period is extended to any length of time] but does not include-]](a) any member of 4[the Indian] naval, military or air forces; or(5)[(b) any person so employed whose wages (excluding remuneration for overtime work) exceed 6[such wages as may be prescribed by the Central Government] a month:Provided that an employee whose wages (excluding remuneration for overtime work) exceed 7[such wages as may be prescribed by the Central Government] a month at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period.]Foot Note:(2) Substituted by Act No.29 of 1989, Section 3 (iv) (a), w.e.f. 20.10.1989(3) Substituted for or under the standing orders of the establishment by Act No.18 of 2010, w.e.f. 1-6-2010.(emphasis supplied)9. Next is Section 2(22) of the ESI Act, which defines wages, is also relevant. Section 2 (22) reads thus:2 (22) 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 1[any payment to an employee in respect of any period of authorized leave, lock out, strike which is not illegal or lay-off and] other additional remuneration, if any 2[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 traveling allowance or the value of any traveling 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 the discharge;10. From a plain reading of sub-section (9) of Section 2 of the ESI Act, which defines employee, for our purpose, would also mean any person employed for wages in or in connection with the work of a factory or establishment to which ESI Act applies and whose services are temporarily let 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 contract of service. This provision [Section 2(9)(iii)] was amended in 1968 and was made more exhaustive whereby 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 establishments, was included in the definition of employee. Again in 1989 this provision was amended and it was further expanded and any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (Act No.52 of 1961) or under the Standing Orders of the Establishment was also included in the definition of employee by Act No.18/2010 w.e.f 01-06-2010. The expression or under the Standing Orders of the Establishment were substituted by and includes such person engaged as apprentice whose training period is extended to any length of time. For our purpose, the subsequent amendment by Act No.18/2010 w.e.f.01.06.2010 is not material and need not be taken into consideration. In other words, for our purpose, person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (Act No.52 of 1961) or under the Standing Orders of the Establishment, is relevant.11. Section 2(22) defines wages. A glance at this definition would show that it is divided into three parts. The first part of definition defines wages to mean the wages paid or payable in pursuance of the terms of contract of the employment, express or implied. The second part includes payment made to an employee in respect of any period of authorized leave, lock out, strike which is not illegal or lay-off etc., and the third part of the definition of wages means other additional remuneration, if any, paid at intervals not exceeding two months. Thus, from the close look at these three parts of wages under this provision, it is clear that in the first part wages are defined as remuneration paid or payable in pursuance of terms of the contract while in the third part wages are defined merely as additional remuneration, if any, paid at intervals not exceeding two months. For addressing the question in the present case, one need to read the definitions of the words employee and wages together so as to find out whether the stipend paid to the trainees could be termed as wages apart from the fact whether the trainees could be treated as an employees. This question, as a matter of fact is not either framed in the reference order or it need not be addressed if the main question is answered in the negative.12. From a plain reading of the provisions of Section 2 (9), it is clear that the Legislature while including persons engaged as an apprentice in the definition of employee excluded two categories of apprentices viz., an apprentice engaged under the Apprentices Act, 1961, and the apprentice engaged under Standing Orders of Establishment. The question, therefore, needs to be considered is whether the apprentices/trainees are covered by the definition of employee under Section 2(9) of the Act?.13. It is not in dispute that the trainees, in the present case, were not appointed under the provisions of the Apprentices Act, 1961. It was contended before this court on behalf of the Companies that they were appointed under the certified Standing Orders of the Establishment and, therefore, cannot be treated as employees under Section 2(9) of the ESI Act. Our attention was invited to clause 4 of the Standing Orders, which classified workmen as follows:permanent, temporary, probationers, casual, trainees and apprentices. The trainees and apprentices are further defined under sub-clauses (e) and (f) of the Standing Orders. The definitions read thus:(e) TRAINEE:-A trainee means a workman to whom facilities for training with or without allowances are given without any obligation of employment on either side and shall not include apprentices covered by the APPRENTICES ACT 1961 as modified from time to time.(f) APPRENTICE:-An apprentice shall mean a person under training in pursuance of a contract of apprenticeship with or without an allowance and includes apprentices covered by the Apprentices Act 1961 as modified from time to time and whom the company is not obliged to employ after the conclusion of his apprenticeship.14. On the basis of the aforementioned classification of workers in the Standing Order, it was contended that during the period of training, as provided for in the contract, the trainees had no right to employment nor was there any obligation to accept any employment if offered by the employer. It was further contended that the trainees were engaged under the Standing Orders of the Establishment and, therefore, they cannot be treated as employees under Section 2(9) of the ESI Act. In support, a heavy reliance was placed on the judgment of the Supreme Court in Regional Provident Fund Commissioner, Mangalore vs. Central Arecanut & Coca Marketing and Processing Coop.Ltd., Mangalore (2006) 2 SCC 381).14.1 In this case, the Supreme Court dealt with almost similar question against the following facts: the respondent Company in that case had invited applications from the intending applicants for undergoing training at its Chocolate Factory, Puttur, on a stipend of Rs.600/- per month, which could be increased to Rs.800/- per month after six months. It was also provided that successful candidates would be considered for regular posting in the Factory. By its resolution, dated 21-01-1990, after interviewing 270 applicants, 45 persons were selected. By a combined order dated 03-02-1990 the Managing Director notified the 45 persons who were selected. It was clearly indicated therein that the training in the factory would not entitle any trainee to claim right of appointment after completion of the training period. It was also stipulated that if any trainee leaves the factory within one year, he was required to refund the amount received by him as stipend. Notice was issued to the respondent-Company by the appellant-Commissioner purportedly under Section 7-A of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 in respect of the said 45 trainees. By order dated 15-05-1991 the appellant-Commissioner held that the trainees were employees for the purpose of Act and the respondent was liable to pay the quantified amount. In this backdrop, a writ petition was filed by the respondent-Company. A learned single Judge held that the demand was unsustainable. The Division Bench also dismissed the writ appeal. In this backdrop, the Supreme Court framed the question whether an apprentice can be deemed to be an employee within the meaning of Section 2(f) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952? and having taken into consideration the Standing Orders of the establishment, answered the question in the negative.15. In the present case, the Company in C.M.A.No.2242 of 1999-M/s.R.C.C.(Sales) Private Limited admittedly did not have certified Standing Orders at the relevant time. Insofar as the Company in C.M.A.No.3092 of 1998-M/s.Microraj Electronics Private Limited is concerned, for the first time the Standing Orders framed under Section 3(1) of the Industrial Employment (Standing Orders) Act, 1946, for the workmen of the said Company were placed before this Court. In view thereof, a serious objection was raised on behalf of the Corporation that the Standing Orders were placed on record for the first time before this Court and that too in an appeal, which cannot be either looked or taken into consideration for what-so-ever purpose apart from the fact that the Corporation disputes existence of any such Standing Orders at the relevant time. The learned counsel appearing for the Companies did not dispute that at no point of time till the instant CMAs were filed, the Companies made any attempt to either place certified Standing Orders on record or made any reference to it in their pleadings before the Employees Insurance Court and Chairman, Industrial Tribunal-I, Hyderabad. The law is well settled that the document produced for the first time in an appeal, in the manner in which it has been produced in the present case by just annexing the Standing Orders to the appeal, cannot be looked into since it is not part of the record. No attempt was made at any point of time till we heard these appeals to bring Standing Orders on record by following the due procedure. That apart, it is not possible to hold, in the light of the strong objection raised by the Corporation, that the Standing Orders now relied on were in force at the relevant time. That being so, we cannot look into the Standing Order placed on record by the Company (M/s.R.C.C. (Sales) Private Limited), which is not part of the record. Section 78 of the ESI Act confers all the powers of Civil Court on the Employees Insurance Court for the purposes of summoning and enforcing the attendance of witnesses, compelling the discovery and production of documents and material objects, administering oath and recording evidence and such Court shall be deemed to be a Civil Court within the meaning of Section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973, (2 of 1974). In view thereof, it is clear that it was possible for the Company to produce the Standing Orders before the Employees Insurance Court in the course of recording of evidence or atleast they ought to have made an application for receiving additional evidence before this Court. No efforts whatsoever were made till we heard these appeals. In the circumstances, the Standing Orders placed on record cannot be looked into.16. If the Standing Orders placed on record in the appeals are not looked into, then the question whether the trainees/apprentices could be treated as an employee within the meaning of Sub-section(9) of Section 2 of the ESI Act will have to be answered in the affirmative. In other words, the definition of employees would include any person engaged as an apprentice not being an apprentice engaged under the Apprentices Act, 1961. In the circumstances, we have no hesitation in holding that the trainees in the present case will have to be treated as employees as defined under sub-section (9) of Section 2 of the ESI Act.17. That takes us to consider the question referred to the Larger Bench whether the parties are entitled to contract out of the beneficial provisions of the ESI Act?. We have already looked into the judgments of this Court in A.P. Paper Mills and Deccan Chronicle (supra) in depth. The learned counsel for the Companies, at the outset, invited our attention to the agreements between the Companies and trainees/apprentices to contend that the agreements clearly stipulate that they would not be entitled for employment as of right nor they would be treated as employees of the Company and would be paid stipend as a trainee. It was submitted that a person like the trainee has a right to waive and agree to waive the advantage of law or rule and such contracting out would not defeat any provision of law. On the other hand, the learned counsel appearing for the Corporation vehemently submitted that the act of contracting out of the nature, as in the present case, is against the public policy and such contract is deemed to be illegal and cannot be looked into for denying benefits of welfare legislation, such as the Act, in the present case.18. It is true that there was an agreement between the trainees/apprentices and the Companies under which it was made clear that the Companies would not provide employment and only educate or impart training to the trainees/apprentices. It was further made clear in the agreements that they shall not be entitled to employment as of right after completion of training and that there would not be a relationship of employer and employee between them inter se. Therefore, the question was raised whether the Companies and trainees could have entered into an agreement and waive the rights enacted for the benefit of such persons under the Act?. In other words whether contracting out or waiving of the beneficial provisions of the Act is sustainable in law?. We would like to look into the judgments relied upon by learned counsel for the parties in support of their case.19. The Supreme Court in Waman Shriniwas Kini v. Ratilal Bhagwandas and Company (AIR 1959 SC 689) considered the plea of waiver and statutory right enacted for the benefit of an individual. In this case the Supreme Court quoted the observation made by the Privy Council in Surajmull Nagoremull v. Triton Insurance Co. Ltd., (AIR 1925 PC 83). The relevant observations read thus:-No Court can enforce as valid that which competent enactments have declared shall not be valid, nor is obedience to such an enactment a thing from which a Court can be dispensed by the consent of the parties, or by a failure to plead or to argue the point at the outset: Nixon v. Albion Marine Insurance Co., (1867) 2 Ex 338. The enactment is prohibitory. It is not confined to affording a party a protection of which he may avail himself or not as he pleases. It is not framed solely for the protection of the revenue and to be enforced solely at the instance of the revenue officials, nor is the prohibition limited to cases for which a penalty is exigible.19.1 Then the Supreme Court proceeded to pronounce the following legal position as reflected in commentary by Mulla of the Contract Act at page 198 in respect of the law as a correct statement of law, which reads thus:-Agreements which seek to waive an illegality are void on grounds of public policy. Whenever an illegality appears, whether from the evidence given by one side or the other, the disclosure is fatal to the case. A stipulation of the strongest form to waive the objection would be tainted with the vice of the original contract and void for the same reasons. Wherever the contamination reaches, it destroys.(emphasis supplied)After considering the several English judgments, the Supreme Court then observed that waiver is the abandonment of a right which normally everybody is at liberty to waive. A waver is nothing unless it amounts to a release. It signifies nothing more than an intention not to insist upon the right. It may be deduced from acquiescence or may be implied, but an agreement to waive an illegality is void on grounds of public policy and would be unenforceable.19.2 In Lachoo Mal v. Radhye Shyam (AIR 1971 SC 2213) the Supreme Court considered the question whether the appellant, who was tenant, was entitled to the benefit of Section 3 of U.P.(Temporary) Control of Rent and Eviction Act, 1947?. In this case, the tenant had given up the benefit of the provisions contained in Section 3 by means of an agreement entered into between the parties. Against this backdrop, while considering the question in paragraph 6 of the judgment, the Supreme Court observed thus:-6. The general principle is that every one has a right to waive and to agree to waive the advantage of a law or rule made solely for the benefit and protection of the individual in his private capacity which may be dispensed with without infringing any public right or public policy. Thus the maxim which sanctions the nonobservance of the statutory provision is Quilibet juri pro se introducto renunciare potest introducto. (Maxwell on Interpretation of Statutes, Eleventh Ediction, pages 375 and 376.) If there is any express prohibition against contracting out of a statute in it then no question can arise of any one entering into a contract which is so prohibited but where, there is no such prohibition it will have to be seen whether an Act is intended to have a more extensive operation as a matter of public policy. In Halsburys Laws of England,. Volume 8, Third Edition it is stated in paragraph 248 at page 143: As a general rule, any person can enter into a binding contract to waive the benefits conferred upon him by an Act of Parliament or, as it is said, can contract himself out of the Act, unless it can be shown that such an agreement is in the circumstances of the particular case contrary to public policy. Statutory conditions may, however, be imposed in such terms that they cannot be waived by agreement, and, in certain circumstances, the legislature has expressly provided that any such agreement shall be void.(emphasis supplied)19.3 The three Judge Bench of the Supreme Court in Dhirendra Nath Gorai and others v. Sudhir Chandra Ghosh and others (AIR SC 1300) while considering the doctrine of waiver observed thus:-A waiver is an intentional relinquishment of a known right, but obviously an objection to jurisdiction cannot be waived, for consent cannot give a court jurisdiction where there is none. Even if there is inherent jurisdiction, certain provisions cannot be waived. Maxwell in his book On the Interpretation of Statutes, 11th Edn., at p.375, described the rule thus:Another maxim which sanctions the non-observance of a statutory provision is that cuilibet licet renuntiare juri pro se introducto. Everyone has a right to waive and to agree to waive the advantage of a law or rule made solely for the benefit and protection of the individual in his private capacity, which may be dispensed with without infringing any public right or public policy.The same rule is restated in Craies on Statute Law, 6th Edn., at p.269, thus:As a general rule, the conditions imposed by statutes which authorize legal proceedings are treated as being indispensable to giving the court jurisdiction. But if it appears that the statutory conditions were inserted by the legislature simply for the security or benefit of the parties to the action themselves, and that no public interests are involved, such conditions will not be considered as indispensable, and either party may waive them without affecting the jurisdiction of the court.(emphasis supplied)19.4 In Mannalal Khetan and others v. Kedar Nath Khetan and others (1977) 2 SCC 424) the Supreme Court in paragraph 20 observed thus:-20. It is well established that a contract which involves in its fulfillment the doing of an act prohibited by statute is void. The legal maxim A pactis privatorum publico juri non derogatur means that private agreements cannot alter the general law. Where a contract, express or implied, is expressly or by implication forbidden by statute, no court can lend its assistance to give it effect. (See Mellis v. Shirley L.B.) What is done in contravention of the provisions of an Act of the legislature cannot be made the subject of an action.(emphasis supplied)19.5 The observations made by the Supreme Court in Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. (2006) 11 SCC 2345) are also relevant for our purpose, which read thus:-Public policy71. Lord Mustill had once said that:The great advantage of arbitration is that it combines strength with flexibility Flexible because it allows the contestants to choose the procedure which fits the nature of the dispute and the business context in which it occurs.Arbitration was meant to be a speedy, expeditious and cost-effective method of dispute reconciliation. So, the primary object of ADR movement is avoidance of vexation, expense and delay and promotion of the ideal of access to justice.72. But, then the contract must be within the legal framework.73. In terms of the laws of India governing the field, the parties cannot contract out of the statute and take recourse to such a procedure which would for all intent and purport make the provisions of Sections 34 and 36 of the 1996 Act nugatory by entering into contractual arrangement or otherwise. The 1996 Act does not postulate that the parties can contract out of the provisions thereof. The arbitration agreement of the parties, therefore, must be made strictly in terms of the provisions of the 1996 Act.(emphasis supplied)19.6 In P.Dasa Muni Reddy v. P.Appa Rao (AIR 1974 SC 2089) the Supreme Court while considering the doctrine of waiver observed thus:-13. The doctrine which the courts of law will recognize is a rule of judicial policy that a person will not be allowed to take inconsistent position to gain advantage through the aid of Courts. Waiver sometimes partakes of the nature of an election. Waiver is consensual in nature. It implies a meeting of the minds. It is a nature of mutual intention. The doctrine does not depend on misrepresentation. Waiver actually requires two parties, one party waiving and another receiving the benefit of waiver. There can be waiver so intended by one party and so understood by the other. The essential element of waiver is that there must be a voluntary and intentional relinquishment of a right. The voluntary choice is the essence of waiver. There should exists an opportunity for choice between the relinquishment and an enforcement of the right in question. It cannot be held that there has been a waiver of valuable rights where the circumstances show that what was done was involuntary. There can be no waiver of a non-existent right. Similarly, one cannot waive that which is not ones as a right at the time of waiver. Some mistake or misapprehension as to some facts which constitute the underlying assumption without which parties would not have made the contract may be sufficient to justify the court in saying that there was no consent.14. Just as the courts normally do not permit contracting out of the Acts so there can be no contracting in. A status of control of premises under the Rent Control Acts cannot be acquired either by estoppel or by res judicata. The principle is that neither estoppel nor res judicata can give the court jurisdiction under the Acts which those Acts say it is not to have. The Rent Control Acts operate in rem. These Acts give a status to the house from which certain legal consequences follow;(emphasis supplied)19.7 In Rattan Chand Hira Chand v. Askar Nawaz Jung(dead) by LRs and others (1991) 3 SCC 67) the Supreme Court while holding that the contract having tendency to injure public interest or public welfare is opposed to public policy, in paragraph 19, observed thus:-19. The contract such as the present one which is found by the city civil Court as well as the High Court to have been entered into with the obvious purpose of influencing the authorities to procure a verdict in favour of the late Nawab was obviously a carrier contract. To enforce such a contract through its tendencies to injure public weal is manifest is not only to abdicate ones public duty but to assist in the promotion of a pernicious practice of procuring decisions by influencing authorities when they should abide by the law. To strike down such contracts is not to invent a new head of public policy but to give effect to its true implications. A democratic society is founded on the rule of law and any practice which seeks to subvert or circumvent the law strikes as its very root. When the court discountenances such practice, it only safeguards the foundation of the society. Even assuming, therefore, that the court finds a new head of public policy to strike down such practice, its activism is not only warranted but desired.(emphasis supplied)19.8 In Murlidhar Aggrwal and another v. State of Uttar Pradesh and others (1974) 2 SCC 472) the question that fell for consideration was whether the suit filed for recovery of possession of the premises, on the basis that the tenancy created had expired and, therefore, the appellants were entitled to recover possession of the same, was maintainable in law in view of the fact that it was instituted without obtaining permission of the District Magistrate under Section 3(1) of the U.P. (Temporary) Control of Rent and Eviction Act, 1947. In this case, there was an agreement and under Clause 20 thereof, the parties had agreed and declared that no party would ever claim the benefit of the provisions of the said Act. The Supreme Court considered the policy of the Act and after considering the judgment of the Supreme Court in Lachoo Mal (supra) observed thus:-23. In that case this Court was considering the question whether it was open to a landlord to waive the benefit of a provision enacted for the benefit of landlords under the Rent Control Act. This Court said that if a provision is enacted for the benefit of a person or class of persons, there was nothing which precludes him or them from contracting to waive the benefit, provided that no question of public policy was involved.23-A. Craies states that:If the object of a statute is not one of general policy, or if the thing which is being done will benefit only a particular person or class of persons, then the conditions prescribed by the statute are not considered as being indispensable. This rule is expressed by the maxim of law, quilibet potest renuntiare juri pro se introducto. As a general rule, the conditions imposed by statutes which authorise legal proceedings are treated as being indispensable to giving the court jurisdiction. But if it appears that the statutory conditions were inserted by the legislature simply for the security or benefit of the parties to the action themselves, and that no public interests are involved, such conditions will not be considered as indispensable, and either party may waive them without affecting the jurisdiction of the court.... (Craies on Statute Law, 7th ed,. pp. 269-270).24. Maxwell states the rule of law as follows:Another maxim which sanctions the non-observance of a statutory provision is that qulibet licit renuntiare juri pro se introducto. Everyone has a right to waive and to agree to waive the advantage of a law or rule made solely for the benefit and protection of the individual in his private capacity, which may be dispensed with without infringing any public right or public policy. Where in an Act there is no express prohibition against contracting out of it, it is necessary to consider whether the Act is one which is intended to deal with private rights only or whether it is an Act which is intended, as a matter of public policy, to have a more extensive operation.... (Maxwells "Interpretation of Statutes", 11th ed.,(1962), pp. 375-376)25. So, the question is, whether Section 3 was enacted only for the benefit of tenants or whether there is a public policy underlying it which precludes a tenant from waiving its benefit. There can be no doubt that the provision has been enacted for protecting one set of men from another set of men, the one from their situation and condition are liable to be oppressed and imposed upon. Necessitous men are not free men.26. In the Nineteenth Century the doctrines of lasses faire capitalism were accepted as part of the natural order of things and the doctrine was reinforced by the idea of the early utilitarians that to achieve social justice, it would suffice to produce formal equality before the law. These views were reflected in contemporary legal thought by the idea that freedom of contract was the supreme article of public policy, a notion which ignored utterly those cases where there was no genuine equality of bargaining power as for example between master and servant or between landlord and tenant. (Dennis Lloyd, Public Policy (1953), pp. 136-137)27. There can be no doubt about the policy of the law, namely, the protection of a weaker class in the community from harassment of frivolous suits. But the question is, is there a public policy behind it which precludes a tenant from waiving it?(emphasis supplied)Then after considering the scheme of the Act and the provisions contained in Section 3 the Supreme Court observed that it is based on public policy. It is intended to protect a weaker section of the community with a view to ultimately protecting the interest of the community in general by creating equality of bargaining power. Although the section is primarily intended for the protection of tenants only, that protection is based on public policy. The respondent, therefore, could not have waived the benefit of the provision.19.9 In Nagindas Ramdas v. Dalpatram Ichharam and others (1974) 1 SCC 242) the Supreme Court considered the question whether the decree in a suit filed under the Bombay Rent Control Act, 1947, directing the eviction of the appellant is a nullity and, as such, inexecutable?. While dealing with the said question, the Supreme Court observed thus:-17. It will thus be seen that the Delhi Rent Act and the Madras Rent Act expressly forbid the Rent Court or the Tribunal from passing a decree or order of eviction on a ground which is not any of the grounds mentioned in the relevant sections of those statutes. Nevertheless, such a prohibitory mandate to the Rent Court that it shall not travel beyond the statutory grounds mentioned in Sections 12 and 13, and to the parties that they shall not contract out of those statutory grounds, is inherent, in the public policy built into the statute (Bombay Rent Act).18. In Rasiklal Chunilal's case (supra), a Division Bench of the Gujarat High Court has taken the view that in spite of the fact that there is no express provisions in the Bombay Rent Act prohibiting contraction, out, such a prohibition would have to be read by implication consistently with the public policy underlying this welfare measure. If we may say so with respect, this is a correct approach to the problem.19. Construing the provisions of Sections 12, 13 and 28 of the Bombay Rent Act in the light of the public policy which permeates the entire scheme and structure of the Act, there is no escape from the conclusion that the Rent Court under this Act is not competent to pass a decree for Possession either in invitum or with the consent of the parties on a ground which is de hours the Act or ultra vires the Act. The existence of one of the statutory grounds mentioned in Sections 12 and 13 is a sine qua non to the exercise of jurisdiction by the Rent Court under these provisions. Even parties cannot by their consent confer such jurisdiction on the Rent Court to do something which, according to the legislative mandate, it could not do. (emphasis supplied)19.10 In H.R.Basavaraj (dead) by his LRs and another v. Canara Bank and others (2010) 12 SCC 458) in paragraph 15 the Supreme Court observed thus:-15. This Court is in respectful agreement with the decision of the Karnataka High Court in T.Raju Setty v. Bank of Baroda (AIR 1992 Kant 108) whereby the High Court held that in surety agreements, the surety can waive his rights available to him under the various provisions of Chapter 8 of the Act. It is in line with long-established precedents that anyone has a right to waive the advantages offered by law provided they have been made for the sole benefit of an individual in his private capacity and does not infringe upon the public rights or public policies. This can be inferred from a reading of Halsburys Laws of England, Vol.8, 3rd Edn., at p.143 which reads as follows:248. Contracting out.- As a general rule, any person can enter into a binding contract to waive the benefits conferred upon him by an Act of Parliament, or, as it is said, can contract himself out of the Act, unless it can be shown that such an agreement is in the circumstances of the particular case contrary to public policy.This principle was reiterated in Lachoo Mal v. Radhey Shyam.(emphasis supplied)19.11 We would also like to refer the Halsburys Laws of England, Volume 22 V Edition. Para 430 of pages 410-411 reads thus:-430. Public policy. Any agreement which tends to be injurious to the public or against the public good is invalidated on the grounds of public policy. The relevant test is English public policy, but the court will give effect to international agreements incorporated into English law; and, in considering whether to enforce a foreign judgment in this country, may decline to do so on the grounds that the contract was illegal in the country of performance. The question whether a particular agreement is contrary to public policy is a question of law, to be determined like any other by the proper application of prior decisions. It has been indicated that new heads of public policy will not be invented by the courts for the following reasons: (1) judges are more to be trusted as interpreters of the law than as expounders of public policy which should be a matter for Parliament; and (2) it is important that the doctrine should only be invoked in clear cases in which the harm to the public is substantially incontestable. However, the application of any particular ground of public policy may well vary from time to time and the courts will not shrink from properly applying the principle of an existing ground to any new case that may arise. Conversely, many transactions are now upheld that in former times would have been considered against the policy of the law. The rule remains, but its application varies with the principles which for the time being guide public opinion. In fact, the adaptability of the rules of public policy derives in large part from the generality, and even ambiguity, with which those rules are expressed.Public policy in this context must be distinguished from the policy of a particular government.(emphasis supplied)19.12 In Corpus Juris [50 C.J] it is observed that public policy is that principle of the law which holds that no one can lawfully do that which has a tendency to be injurious to the public or against the public good; that rule of law which declares that no one can lawfully do that which tends to injure the public, or is detrimental to the public good; the principles under which freedom of contract or private dealing is restrained by law for the good of the community. The very meaning of public policy is the interest of others than the parties and that interest is not to be at the mercy of the party alone.20. The ESI 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. This Act is also a social security legislation and as observed by the Supreme Court in Regional Director, Employees State Insurance Corporation v. Francis De Costa (1993 Supp (4) SCC 100) the cannons of interpreting a social legislation is different from the cannons of interpretation of any other legislation. 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 legislature had in placing this legislation on the statute book. The Act, therefore, must receive a liberal construction so as to promote its objects. The Supreme Court in ESI Corporation, Hyderabad v. Jayalakshmi Cotton Oil Products (P) Ltd., (1980 LabIC 1078) has observed that the ESI Act is a social security legislation and was enacted to ameliorate the various risks and contingencies, which the employee face while working in an establishment or factory. It is, thus, intended to promote general welfare of the workers and, as such, is to be liberally interpreted.21. It is true, meaning and Legislature's intent can be gathered from the 'Preamble', Statement of Objects and Reasons and also the scheme of the Act, in particular, whenever two interpretations of any particular provision in the Act are possible or the provision is unambiguous or is susceptible to only one interpretation. In order to find true meaning of any word or what the Legislature intended, one can also look into the principles enunciated in the Heydon's case [(1584) 76 ER 637 ]. In this case the principles were laid down as early as in 16th Century, which were referred with approval by the Supreme Court in Quarry Owners Association vs. State of Bihar [(2000) 8 SCC 655]. The principles laid down are: (1) What was the law before making of the Act; (2) What was the mischief or defect for which the law did not provide; (3) What is the remedy that the Act has provided; and (4) What is the reason of the remedy. These principles are followed by the Supreme Court and High Courts in catena of decisions [ see Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC 661 (674); Commr. of Income-tax, Patiala v. M/s. Shahzada Nand and Sons, AIR 1966 SC 1342 (1347); M/s. Sanghvi Jeevraj Ghewar Chand v. Secretary, Madras Chillies, Grains and Kirana Merchants Workers Union, AIR 1969 SC 530 (533) : (1969 Lab IC 530); Union of India v. Sankalchand Himatlal Sheth, AIR 1977 SC 2328 (2358) : (1977 Lab IC 1857) and K. P. Varghese v. Income-tax Officer, Ernakulam, AIR 1981 SC 1922 (1929) : (1981 Tax LR 1448)]21.1 It is well settled that the statement of objects and reasons, thus, need to be looked into though not by itself necessarily act as an aid to construction unless it is necessary. To assess the intent of the Legislature in the event of there being any confusion, statement of objects and reasons can be looked into and no exception can be taken, therefore, this is not an indispensable requirement but when faced with an imperative need to appreciate the proper intent of the legislature, it may be looked into but not otherwise (see Bangalore Water Supply and Sewerage Board v. A. Rajappa and Ors [1978 (2) SCC 213]). In the present case, having regard to the nature of controversy and submissions made by the learned counsel for the parties in support of their case, in our opinion, the statement of objects and reasons also needs to be looked into to assess the intent of the legislature.21.2 The statement of objects and reasons of the ESI Act reads thus:(1) The introduction of a scheme of Health Insurance for Industrial Workers has been under the consideration of the Government of India for a long time. The necessity for such a scheme has become more urgent in view of the conditions brought about by war. The scheme envisaged is one of compulsory State Insurance providing for certain benefits in the event of sickness, maternity and employment injury to workmen employed in or in connection with the work in factories other than seasonal factories.(2) A scheme of this nature has to be planned on an all India basis and administered uniformly throughout the country. With this object, the administration of the scheme is proposed to be entrusted to a Corporation constituted by central legislation.(3) The function of the Corporation will be performed by a Central Board constituted of representatives of Central and Provincial Governments, and of employers, workers and the medical profession. The Board will also include certain members elected by the Central Legislative Assembly. A Standing Committee of the Board will act as the Executive of the Board, and a Medical Benefit Council will also be set up to advise on matters relating to the administration of medical benefit.(4) The insurance fund will be mainly derived from contributions from employers and workmen. The contributions payable in respect of each workman will be based on his average wages and will be payable in the first instance by the employer. The employer will be entitled to recover the workmans share from the wages of the workmen concerned. Workmen whose earnings do not exceed 10 annas a day will be totally exempt from payment of any share of the contribution, the entire contribution on account of such workmen being met by employer. Provision has been made for the preparation of proper budges and the audit of accounts.(5) The insured workman will be entitled to the following benefits:-(a) Sickness Cash Benefit:- A workman, if certified sick and incapable of working, will receive for a period of not exceeding 8 weeks in any continuous 12 monthly period a cash allowance equal approximately to half average daily wages during previous six months. He will also be entitled to receive medical care and treatment at such hospitals, dispensaries or other institutions to which the factory in which he is employed may be allotted.(b) Maternity Benefit:- Women workers will be entitled to receive a maternity benefit at 12 annas a day for 12 weeks. They will also be entitled to medical aid at the aforesaid medical institutions.(c) Disablement and Dependants Benefit:- A workman disabled by employment injury will receive for the period of disablement of life depending on whether the disablement is temporary or full and permanent, as the case may be, a monthly pension equivalent to half his average wages during the previous twelve months, subject to a maximum and minimum. Where disablement is partial, the pension will be proportionately reduced. In case of death resulting from employment injury the pension will be payable to the widow or widows minor sons and minor and unmarried daughters or in case there are no widow and legitimate children, to other dependants of the deceased workman. The workman will also be entitled to medical care and treatment.(6) Medical care and treatment to insured workman will be provided by Provincial Government at such hospitals, dispensaries and other institutions as may be prescribed for the purpose. The cost of the medical benefit will be shared between the Provincial Government and the Corporation in such proportions as may be agreed upon between them. In case the average incidence of sickness cash benefit in any Province is in excess of the all India average, Provincial Government will also bear such share of the cost of the excess incidence as may be agreed upon between it and the Corporation.(7) Workmens State Insurance Courts will be set up to decide disputes and adjudicate on claims. The cost of the tribunal will be paid by the insurance fund.(8) Central Government will make rules on matters relating to the administration of the Corporation, such as nomination and election of members of the Board Standing Committee, Medical Benefit Council, powers and duties of the principal officers, raising of loans, investment of funds, accounts to be maintained by the Corporation, their audit and publication, Provincial Government will make rules on matters relating to the Workmens Insurance Courts to be set up under the Act, establishment of hospitals, dispensaries, medical institutions, etc. and the scale of medical benefit to be provided to insured persons. The Board will make regulations on matters relating to the working of the scheme, e.g. collection of contributions, payment of benefits, returns and other particulars to be submitted by employers in respect of workmen employed by them, the conditions to be observed by insured persons, in receipt of benefits, etc.(9) The Bill makes detailed provisions in regard to the above matters.22. Keeping in view the statement of objects and reasons, we would now like to have a glance at the scheme of the ESI Act. The preamble of this Act states that it was introduced to provide for certain benefits to employees in case of maternity and employment injury and to make provisions for certain other matters in relation thereto. The Act is divided into VIII chapters. Chapter I mainly consists of definitions, Chapter II provides for constitution of Corporations, Standing Committee and Medical Benefit Council, Chapter III provides for Finance and Audit in respect of the Employees State Insurance Fund, Chapter IV provides for contributions by the employer and employee. Chapter V provides for benefits under the Act, Chapter V-A provides for transitory provisions, Chapter VI provides for adjudication of dispute and claims, Chapter VII provides for penalties and Chapter VIII consists of miscellaneous provisions. We need not refer to all the provisions in all chapters. Chapters II, IV and V may be relevant for our purpose.22.1 Chapter II of the Act consists of Sections 3 to 25. Sections 3 and 4 provide for constitution of Corporations and the administration of scheme of Employees State Insurance in accordance with the provisions of the ESI Act. The Corporation consists of the representatives of the Central and the State Government, and of employers, employees and medical profession and so also the members of Parliament. Section 8 provides for constitution of Standing Committee of the Corporation. Section 10 provides for constitution of Medical Benefit Council. Section 18 provides for powers of the Standing Committee. Section 19 provides for the Corporations power to promote measures for health, etc., of insured persons. Section 22 provides for duties of Medical Benefit Council.22.2 Chapter IV consists of Sections 38 to 45-I. Section 38 states that subject to the provisions of the Act, all employees in factories or establishments to which this Act applies, shall be insured in the manner provided by this Act. Section 39 provides for contribution payable under this Act in respect of an employee which comprises of contribution payable by the employer and by the employee. Section 40 provides that the principal employer should pay contribution in the first instance. Then the remaining provisions provide for recovery of contribution from the immediate employer, method of payment of contribution, furnishing of returns and maintaining registers by the employer etc. Section 45 speaks about an appointment of Inspectors, their functions and duties. Section 45-B provides for recovery of contribution payable under this Act as arrears of land revenue.22.3 Chapter V consists of Sections 46 to 59-B. Section 46 provides for different benefits under the Act. Section 49 provides for sickness benefit. Section 50 provides for maternity benefit and Section 51 provides for disablement benefit, Sections 51-A to 51-E provide for a presumption as to accident arising in course of employment, accidents happening while acting in breach of regulations, accidents happening while traveling in employers transport, accidents happening while meeting emergency and accidents happening while commuting to the place of work and vice versa. Section 52 provides for dependants benefit. Section 52-A states about occupational disease. Section 56 provides for medical benefit. Section 59 provides for establishment and maintenance of hospitals, etc., by the Corporation.22.4 Section 85 in Chapter VII provides for punishment for failure to pay contributions, etc. The punishment provided under this provision is also in the event of failure to pay contribution or `reduction of wages or pay privileges or benefits admissible to an employee in contravention of Section 72 or in contravention of Section 73 or any regulation, may extend to three years but shall not be less than one year, in case of failure to pay the employees contribution which has been deducted and to pay fine.23. We would also like to have a glance at the Regulations made in exercise of the powers conferred by Section 97 of the ESI Act, namely, the Employees State Insurance (General) Regulations, 1950 (for short the Regulations). The Regulations provide for the procedure for collection of contributions for extending the benefits and/or deciding the claims, certification and claims for sickness and temporary disablement, disablement benefits, dependants benefits, maternity benefits, medical benefits to families and funeral expenses. The Regulations take care of all situations and also to regulate the scheme.24. It is true, in the ESI Act, there does not exist an express prohibition against contracting out of the beneficial provisions of the ESI Act. But, at the same time, there is no provision which intend to permit such contracting out of the beneficial provisions of this Act, and therefore, in our opinion, it is imperative to see whether this Act is intended to have a more extensive operations as a matter of public policy. It is equally true that every one has a right to waive and agree to waive advantage of law or rule/regulation made solely for the benefit and protection of the individual in his private capacity. But such right cannot be dispensed with if it is likely to infringe any public right or public policy. A democratic society is founded on the rule of law and any practice which seeks to subvert or circumvent the law strikes at its very root. When the Court discountenances such practice, it only safeguards the foundation of the society [see Rattan Chand Hira Chand (supra)]. Having regard to the scheme of the ESI Act, we do not have a slightest doubt that it was enacted for the benefit of industrial workers and the object of this Act is one of public policy. Therefore, the question is whether parties can, by their consent, contract out of the beneficial provisions of such Act?. The answer to this question is obviously in the negative since contracting out of the beneficial provisions of this Act would infringe upon the public rights or public policies. Any agreement, which tends to be injurious to the public or against the public good, is liable to be invalidated on the ground of public policy. In other words, no one can lawfully do that which has a tendency to be injurious to the public or against the public good. The very meaning of the public policy is in the interest of others than the parties and that the interest cannot be at the mercy of any party alone.25. In this backdrop, if we look at the definition of the word employee, we find that it is exhaustive and it was amended from time to time by Act No.44 of 1966, w.e.f.18-01-1968, then by Act No.29 of 1989 w.e.f 20-10-1989 and then by Act No.18 of 2010 w.e.f. 01-06-2010. We are concerned with only these three amendments in the present case. If we look at the amendments made in 1968, 1989 and 2010, we find that the Legislature made the original definition of employee more and more exhaustive so as to bring within its ambit the persons who were kept out earlier. The intention of the Legislature in view of the amendments is very clear whereby the benefits under the ESI Act are extended to more number of categories of persons. The amendment Act 44 of 1966 covers any person employed for wages of 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. Then by Act No.29 of 1989 even a person engaged as an apprentice was also included excluding an apprentice engaged under the Apprentices Act, 1961. Before the amendment by Act 18 of 2010 any person engaged as an apprentice not being an apprentice under the Standing Orders of the Establishment was also included. That inclusion, however, was once again amended by Act No.18 of 2010 w.e.f. 01-06-2010 and the expression or under the standing orders of the establishment was substituted by and includes such person engaged as apprentice whose training period is extended to any length of time. Thus, the definition of employee is quite exhaustive, covering the trainees/apprentices within its ambit provided they are not engaged under the Apprentices Act, 1961, or under the Standing Orders of the Establishment. In the present case, the trainees/apprentices were not engaged under the Apprentices Act and in view of our finding recorded earlier, it cannot be stated that they were engaged under the Standing Order.26. We have already observed that an agreement or a contract, which seeks to waive an advantage of law, is void on the ground of public policy. The definition of employees, in the present case, was enacted for the benefit of all workers covered by the definition. There can be no doubt that the provisions of Section 2 (9) of the ESI Act were enacted for protecting employees from employers and there is a public policy underlying it, which, in our opinion, precludes an employee from waiving his benefits. In any case, any agreement, which tends to be injurious to an employee or against his interest or public good, is liable to be invalidated on the ground of public policy. The legal maxim A pactis privatorum public juri non derogatur means that private agreements cannot alter the general law where a contract, express or implied, as observed in Mannalal Khetan (supra), is expressly or by implication forbidden by statute, no court can lend its assistance to give effect to such agreement. The parties cannot contract out of the statute and take recourse to such a procedure which would for all intent and purport make the provisions of Section 2(9) and 2(22) of the ESI Act nugatory by entering into contractual arrangement or otherwise. Section 2(9) of the ESI Act was undoubtedly enacted only for the benefit of employees or for protecting the employees/workmen. Thus, the question referred must be answered in the negative.27. The question referred can also be tested from the holistic consideration of the statement and objects and reasons of the Act, and a few other provisions under the Act, which have direct bearing on the statutory obligation on the employer and employee.27.1 The scheme envisaged under the Act is one of compulsory State Insurance providing certain benefits to employees as a category in the event of sickness, maternity, disablement and dependants benefit, or employment injury, in connection with the work in factories. The objects of the scheme are accomplished through ESI Corporation. Being compulsive in nature to extend the benefit of insurance to maximum extent to the employees as defined under the Act, Section 1 (4) of the Act is made applicable to all the factories except seasonal factories. Section 1 sub-section (6) makes the Act applicable notwithstanding the number of employees falling below the limit specified by or under the Act and manufacturing process carried on without the aid of power. As per Section 2 sub-section (4) of the Act, contribution means sum payable to the corporation by the employer in respect of an employee and includes payable by or on behalf of the employee in accordance with the provisions of the Act. Therefore, statutory payment to Corporation is defined as contribution. Under Section 38 of the Act, a statutory obligation is cast on the employer to insure all its employees. Section 39 mandates payment of contribution to Corporation. A plain reading of Section 39 would show that the contribution comprises a contribution payable for the benefit of an employee by the employer and the employee to the Corporation. Therefore, the moment the Act is made applicable to a factory or establishment, the employees are insured under Section 38 of the Act, and the statutory contribution is payable by the employer and the employee is to the Corporation. The combined effect of statutory scheme up to Section 39 creates an obligation of contribution to Corporation by the employer and employee. In other words, with the legal effect and statutory fiction, contribution of ESI to the Corporation is mandated by the Act. Therefore, the employer and the employee cannot in law, contract out the statutory obligation of contribution to the Corporation and agree not to pay contribution to Corporation. The relationship of employer and employee in a factory/establishment under the Act, gives raise to the obligation of contribution to Corporation. The mutual or bilateral acts of employer and employee cant affect the right of Corporation to receive contribution.27.2 The scheme of the Act as already waded through is intended to secure compulsory participation and/or contribution of sums due under the Act, and strikes at all attempts by contract to either limit or extinguish these rights directly or indirectly. The contracting out of statutory obligation by employer and employee when the obligation by operation of law is towards the Corporation, is void and illegal. It may be that the Act does not explicitly forbid such course, but if interpretation to contract out of act is accepted, the interpretation will defeat and destroy the compulsive character introduced by the legislation.28. Hence, the question referred is answered in the negative declaring that the statutory obligations/rights under ESI Act cannot be contracted out by the employer and the employee/union and such contracts are void and unenforceable.
"2015 (4) KLT 3 (SN) (C.No.3)" == "2015 (5) ALT 431" == "(Constitution Bench)"