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Empress Mills, A unit of Maharashtra State Textile Corporation Limited, Through its General Manager v/s Employees State Insurance Corporation, through its Recovery Officer & Another

    First Appeal No. 368 of 2007

    Decided On, 15 June 2022

    At, In the High Court of Bombay at Nagpur


    For the Appellant: A.A. Naik, Rohan Deo, Advocates. For the Respondents: R1, B.P. Maldhure, Advocate.

Judgment Text

Heard learned Counsel for the appellant and learned Counsel for the respondent No.1.

2. The present appeal is filed challenging the judgment and order dated 19/09/2006 passed by learned Judge, Employee State Insurance Court, Nagpur in Application (ESI) No. 20/2003. By this judgment, the application of the appellant was dismissed upholding confirmation of attachment effected by respondent No.1 – ESI vide order dated 04/06/2003 and declaring the appellant as Principal Employer, for the purpose of computation of ESI dues during the tenure of lease granted by the appellant to respondent No.2 to run the Craft Paper Manufacturing Unit for the period 16/12/1994 to 15/12/2001.

3. The MSTC (Maharashtra State Textile Corporation) is a wholly owned Government of Maharashtra Enterprises. By an ordinance, the entire undertaking known as Empress Mills (Textile Unit), its Craft Paper Manufacturing Unit (Paper Division), stood vested in 1986 to MSTC. Simultaneously, with such a vesting the same was transferred to and vested with the MSTC. The Government of Maharashtra decided to close down the entire corporation and the process of closing down was under implementation with the approval of Board of Industrial and Financial Reconstruction, New Delhi (for short ‘BIFR). Under the provisions of Industries Company (Special Provisions) Act, 1985, the Corporation was declared as a sick industrial company. During the pendancy of the proceedings a proposal for running the said Craft Paper Manufacturing Unit was submitted before the BIFR by promoters of the respondent No.2 – Co-operative Society and the BIFR granted it’s approval in principle for formation of such workers co-operative society for the running of the said paper unit of the appellant on co-operative basis. In view thereof, the appellant agreed to sign and execute a lease agreement with the respondent No.2 to run the paper division.

4. The agreement was executed on 16/12/1994 and was registered on 15/04/1995. The period of lease agreed to be of seven years with provision for extension. There is no dispute about execution of lease agreement. As per terms, the Corporation agreed to grant lease at the nominal rate of Rs.1 per annum. The property movable and immovable handed over to the respondent No.2 as per the details in annexure – A of the said lease agreement.

5. This Court’s attention was drawn to the terms of lease agreement wherein by Clause – 4, the lessee is bound to pay all rants, taxes, licenses and other fee, charges, dues assessment and outgoings from the date of commencement of the lease and in consequence thereof and that it shall also bind its employees as may be necessary for the conduct of its business. The respondent No.2 had agreed to comply with the requirements of various provisions including Factories Act, Employees State Insurance Act Provident Fund and Miscellaneous Provisions Act. It is also pointed out in Clause 5(c) that the respondent No. 2 was given liberty to decide the terms and conditions of employment of its employees and that no right was left in the appellant to interfere in the decision of the respondent No.2 – Society after the commencement of the lease. The appellant was not liable and responsible for any financial implications deemed to have been suffered by the respondent No.2 on account of any orders passed by the Court of competent jurisdiction. It is submitted by learned Counsel for appellant that the appellant thus had no supervision and control over the employees of the respondent No.2 – Society in any manner whatsoever. The respondent No.2 – Society was vested with necessary power and jurisdiction to make appointment, supervise, control and determine the service conditions of its employees as may be engaged by it during currency of the lease. Thus the appellant was not a “contractor” nor a “principal employer” in relation to the respondent No.2 in view of Section 2(1)(c) and 2(1) (g) of the said Act. So also the employees engaged at the said establishment of the respondent No.2 were also not contract labourers within the meaning of said Act. The respondent No.2- Society is a factory within the meaning of Section- 2(12) of the ESI Act who was itself a member employer as define under Section 2(1) of the ESI Act. Thus, the workmen engaged at the respondent No.2 establishment, were, therefore employees of the respondent No.2 – society as defined under Section 2(9) of the ESI Act. The respondent No.2 – Society was an establishment under the provisions of ESI Act being a factory. In view of the above, the appellant was never the principal employer in relation to the industrial establishment of the respondent No.2 at any point of time muchless during the period of lease and after determination thereon. The respondent No.2 being a principal employer in view of Section 39 and 40 of ESI Act is duty bound to make payment of the contribution and other duties as may be payable in relation to the said employees to ESI Corporation. It is also pointed out that after commencement of the lease, the respondent No.2 got the original license granted in the name of the appellant as per provisions of the Factories Act, transferred in its own name and made the payment of license fee etc. The respondent No.2 also purchased certain properties in addition to the property of the said paper division section.

6. By efflux of time lease agreement dated 16/12/1994 came to an end and the property was handed over to the appellant. The respondent No.2 admitted its liability to repay the provident fund dues which were then outstanding. Many other dues such as water consumption and other dues were also not paid so notices were issued by the appellant to respondent No.2. So also authorities under the provisions of employees provident fund issued notice of recovery against respondent No.2 upon being satisfied the said authorities dropped its proposal for attachment and auction of the property of the appellant in satisfaction of the recovery dues which is payable by respondent No.2 – Society. It is further submitted that the appellant discharged all its liabilities and dues up to the date of the lease in respect of its industrial undertaking. The application of Section 93-A of the ESI Act were not at all attracted in the matter of recovery as there were no dues payable by appellant. Respondent No.1 and the authority had jurisdiction to recover the same from respondent No.2 – Society as respondent No.2 was running and managing and administrating the paper division as its owner during the lease period

7. The learned Counsel for the appellant relied on citation in the case of K.C. Thomas and sons and others Vs. Regional Director, Employees’ State Insurance Corporation reported in 1997 (3) L.L.N. 640, and in the case of ANK Sales, Nagpur Vs. Employees’ State Insurance Corporation, Nagpur and others reported in 2006(4) Mh.L.J. 796.

8. As against this learned Counsel Smt. Maldhure for ESIC vehemently submitted that the ESIC recognized appellant as a principal employer and in view of the Section 93-A, the transferer and transferee jointly and severally liable to pay the amount dues in respect of any contribution.

9. Learned Counsel for the appellant extended its no objection for the proceeding ahead with programme of auction as scheduled. Now, appellant cannot turn back and say that auction proceedings are illegal. On expiry of lease the property was retransferred to the appellant in view of Section 93-A, any transfer by sale, gift, lease or license or in any other manner covers the retransferred establishment on expiry of lease.

10. I have heard both the parties at length. Two questions arise for determination before this Court as follows:

(1) Whether a lessor of an establishment can be treated as principal employer and made liable for payment of ESI dues for the employees of the lessee during the tenure of the lease when the lessee fails to make payment thereof.

(2) Whether the ESI Corporation is justified in law in treating the appellant as principal employer and making the appellant liable for payments by applying provisions of Section 93-A jointly and severally for payment of ESI dues of the employees of the respondent No.2 which was running the paper division as per lease agreement from 16/12/1994 to 15/12/2001.

11. On perusal of the agreement of lease it can be seen that it was granted on nominal rate of Rs.1 per annum in favour of respondent No.2 land along with constructed unit, machinery, articles, factories therein were handed over to respondent No.2. From the date of lease, it is also clear that the appellant’s establishment declared as sick industrial company by the BIFR. On the proposal by respondent No.2 for running the said paper unit of Empress Mill and on confirmation by BIFR the lease agreement was executed. Period of lease was seven years by Clause - 4 (a). Respondent No.2 agreed to pay all rates, taxes, licenses or other fees, charges, dues, assessments and outgoings payable or become payable in respect of property and also in respect of period from date of commencement of lease. It also appears from the provision of Clause 4 (1), the lessee was to comply with the requirements of Factories Act including the steps that are required to be taken by lessee for transferring the factory license in its name. The lessee shall strictly observe and conform to all the Acts of the Legislature, bye-laws, rules and regulation published and directions given or provisions made by Government or local authorities. Clause - 5(a) makes it clear the lessor as an authority to re-enter if the lessee shall do any act or things whereby the said premises or the said leased property or the interest of the lessor therein shall be restrained, attached, seized or taken in execution and lease shall be absolutely determined and such reentry or determination shall not discharge the lessee from liability for any arrears, taxes or other dues outstanding at the time of such re-entry.

12. In view of Clause – 5 (d) on completion of lease period or on the termination of the lease, the lessor shall get back the position of the leased premises and the leased property. The lessor however shall not be responsible to provide any employment to the members of lessee Society or the employees of the lessee irrespective of the facts whether such members of lessee Society were in the employment of the lessor any time before and had availed terminal benefits. Lessor is also not responsible for any liabilities of the lessee. Clause - (e) gives liberty to lessee to decide the terms and conditions of employment of their employees and lessor was restrained from any interference in the decision of lessee. From the whole lease agreement, it can be safely inferred that for the liability of the lessee during the lease period the lessor is not liable to pay, the learned ESI Court totally erred in applying Section 93-A and holding appellant and respondent No.2 jointly and severally liable to pay ESI contribution of the lease period. Similar question also arose before Kerala High Court in K.C. Thomos (supra). The Court held as under :

“8. We will first examine the contention raised by the learned counsel for the Corporation on the basis of Ss. 39, 40 and 41. Section 39 only provides for two different types of contribution, I.e., employees' and employer's contribution and it also provides that nonpayment of contribution by the principal employer would make him liable to pay interest. Section 40 of course provides that the principal employer shall pay contribution not only when employees are directly employed by him but also by or through an 'immediate employer. Section 41 is a provision for enabling the principal employer to realise the contribution which he had paid on behalf of the immediate employer. But then the question would arise whether a lessee of a factory would come within the term 'immediate employer' which term is defined under S. 2(13) as follows:

"‘Immediate employer’, in relation to employees employed by or through him, means a person who has undertaken the execution, on the premises of a factory or an establishment to which this Act applied or under the supervision of the principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in, or incidental to the purpose of, any such factory or establishment, and includes a person by whom, the services of an employee who has entered into a contract of service with him are temporarily lent or let on hire to the principal employer (and includes a contractor)". The above provision would clearly show that the term "principal employer" has got a different connotation than lessor of a factory. The "immediate employer" has no independent proprietor right in the factory, he is only executing certain work for and on behalf of the "principal employer". The contractor would come within the term "immediate employer". The character of an immediate employer is further evident from the definition of the term "employee" under S . 2(9) . Clause (ii) provides that a person 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. This would also show that whenever persons who are employed through immediate employer the principal employer continues to be the occupier of the factory. But in the case of lease of the position is entirely different. The right to run the factory is transferred to the lessee, therefore, gets a proprietory right in the property viz., factory. The licence to run the factory has to be taken in his name and he will be occupier of the factory. Therefore, the position is when the owner himself is running the factory he will be the principal employer. But if a lessee is running the factory the lessee will be the occupier and, therefore, the principal employer. We are of the view that there cannot be two principals employers in respect of a factory at the same time, namely, the owner and the occupier, even though wording of the definition of principal employer would show that the principal employer can be either the owner or occupier of the factory. In the light of the above, we reject the contention taken by the learned counsel for the first respondent that in the present case the appellant has to be taken as the principal employer even when the factory was leased out and it was being run by a lessee.

9. Now coming to the argument based on the provisions contained under S . 93-A we note that the above Section was added in the Statute by way of an amendment under Employees' State Insurance (Amendment) Act, 1965. Section 93-A reads as follows:

"93-A Liability in case of transfer of establishment:- Where an employer, in relation to a factory or establishment, transfers, that factory or establishment in whole or in part, by sale, gift, lease or licence or in any other manner whatsoever, the employer and the persons to whom the factory or establishment is so transferred shall jointly and severally be liable to pay the amount due in respect of any contribution or any other amount payable under this Act in respect of the periods upto the date of such transfer."

A mere reading of the above Section would clearly show that it was incorporated in the state to rope in the transfer of a factory to bear the liability of the transferor as the employer under the Act. In the statement of objects and reasons to the amendment referring to S. 93-A it is stated as follows:

"It is proposed to provide that the buyer or transferee of an establishment in respect of which dues payable under the Act are pending shall also be liable to pay those dues."

The language of the section would not in any way justify the interpretation given by the Employees' Insurance Court so as to make the transferor liable for the dues from transferee. So also the theory of retransfer on the expiry of the period of the lease and thereby making the owner/transferor a transferee for the purpose of S. 93-A also cannot be accepted. When the lease is for a definite period and when the period expires the lease automatically gets terminated. There is no question of re-transfer to the owner. In view of the above, we cannot agree with the finding of the Employees' Insurance Court that the appellant will continue to be liable for the dues under the Act even when the factory was leased out to a third party and the lessee was operating the factory as its occupier” This Court is fully in agreement with the view taken by Kerala High Court.

13. As observed earlier the lease agreement is for specific period and during the lease period respondent No.2 was running administering the business without any interference of respondent No.1.

14. Thus in view of the above d

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iscussion this Court is fully satisfied that the learned ESI Court totally erred in passing impugned order of attachment and making appellant and respondent No.2 jointly and severally liable to pay ESI contribution during the period of lease after the termination of the lease by efflux of time. On determination of lease, it cannot be said that it is a transfer within the meaning of Section 93-A. By efflux of time, the definite lease period expires and the lease automatically gets terminated. As such both the questions answered in the negative. There is no question of re-transfer to the owner. As such the order passed by employees State Insurance Court is liable to be quashed and set aside. Accordingly, I proceed to pass the following order: ORDER 1. The First Appeal is allowed. 2. The judgment and order dated 19/09/2006 in Application (ESI Case No. 20/2003) decided by the Employees’ State Insurance Court is hereby quashed and set aside. Subsequently the order passed by respondent No.1 dated 06/12/03/2003 determining the liability of payment of contribution during the lease period from the appellant and order of attachment of immovable property dated 11/03/2003 by which attachment of three immovable properties of the appellant was directed and order dated 04/10/06/2003 by which the respondent No.1 ordered confirmation of attachment, are hereby quashed and set aside. 3. It is declared that appellant being lessor is not liable or responsible to make payment of any dues to the respondent No.1, qua the contribution and other dues under the ESI Act during the period of lease from 1994 to 2001 qua the employees of respondent No.2 lessee. 4. The amount deposited by the appellant, if any, toward dues with the ESI Court be refunded to the appellant along with accrued interest. The appeal is disposed of accordingly. No order as to costs.